Lost Art of Negotiation: Part II – How Binge-Watching Netflix Is Bad For The Music Business

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Lost Art Copyright

By Katie McCort of Rock Edition

As discussed in Part I, Silicon Valley has notoriously packed the hardest punch to music industry revenues from YouTube licensing agreements to digital downloads to internet radio. Keeping with the trend, America’s latest past-time of “binge-watching” the newest top-rated television shows online is quickly solidifying why every new innovation of the internet continuously spells bad news for the music business.

In a 2013 survey conducted by Harris Interactive, 78% of American adults confirmed that they watched TV on “their own schedule.” In other words, the majority of Americans are choosing to by-pass scheduled television programming for the convenience of on-demand TV on their computers. For the tech industry, this practice has launched a competitive market for streaming on-demand media providers that have given viewers quality content such as Orange is the New Black and House of Cards. However, for the music biz, watching television on the internet has taken its toll on songwriters’ income.

According to IFPI, revenues for synchronization licenses (see Part I for more information on these guys) decreased by almost 4% in 2013. Les Scott, who specializes in placing music in television and film for over 350 artists, remarks that revenue from sync will keep “going down and down and it will only continue to do so.”

Why is this the case and what does America’s habitual love for internet TV have to do with it? Scott explains that performance rights organizations (PROS), such as ASCAP, BMI, and SESAC, negotiate a flat fee (known as a “blanket license”) with television networks for the right to use a copyrighted work that is controlled by that particular PRO. Since the negotiations were established, the value of a blanket license has historically increased as more and more people started watching television. More viewers meant more advertising sales for the networks and, in turn, meant that the networks were willing to fork over more cash to the PROS to play their tracks in their TV shows. It wasn’t until recently that the revenues from sync began to decrease.

Scott argues that the problem arose when “viewers elected to go away from their television set and go watch things online.” As shown by a fall in TV subscriptions by more than a quarter million dollars in 2013, many Americans are finding it easier to pull up their favorite shows on their own schedules than accommodate television’s non-adjustable air times. The decreased amount of viewers on traditional cable, fiber, and satellite services has created a domino effect wherein companies negotiate lower prices for advertisement sales, allotting less in advertising revenue to television networks, and, thereby, driving down the bargaining price of blanket license fees. “[Networks] have less money when [PROS] come to the table,” explains Scott. “As a result, [PROS] are getting less money. Therefore [copyright holders] are getting less money because [PROS] are getting less money.”

It is possible that PROS will have the opportunity to regain negotiating power if advertising sales online are able to make up the difference from the current losses in advertising sales on traditional network television. A few months ago, CNET reported that online ad sales generated an all-time high of $42 billion in 2013 while television ad sales capped at $40.1 billion. While internet ad sales for television network providers is simply a percentage of total online ad revenue, the rising rate of internet ads could potentially create gains for networks in the future.

On the other hand, Scott’s prediction for network ad space sales and the resulting value of sync is bleak. He believes that the music industry will not be compensated fairly by the networks even if they are able to accumulate more advertising revenue. “There’s nothing online that we’re getting a fair share on,” he attests, referencing the historical inability of the music industry to generate revenue from any of the technological changes made across the industry in the 21st century.