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Meanwhile, back at the plantation

March 22, 2008

Bebo founders Michael and Xochi Birch are the latest Web 2.0 entrepreneurs to cash in on user-generated content. A little over a week ago, the Birches sold Bebo, the third largest social network, to AOL for $850 million, about $600 million of which will reportedly go into the pockets of their jeans. As for the millions of members who have happily served as sharecroppers on the Birches' plantation, they'll get the satisfaction of knowing that all the labor they donated to their "community" did indeed create something of tangible value. No doubt they're thrilled that the little Bebo plantation, which they've tended so lovingly, is now part of the giant AOL plantation, itself part of the Time-Warner conglomerate.

For the many musicians who played a central role in cementing Bebo's popularity - by freely sharing their music through the site in the usually vain hope of helping their own careers - the Birches' huge payoff is probably stirring some bittersweet emotions. In an op-ed in today's New York Times, folk-punk agitator Billy Bragg recalls meeting with Michael Birch a couple of years ago, soon after Bragg had criticized MySpace for seizing rights over the songs uploaded to its pages. Birch was looking for Bragg's advice, and, one assumes, imprimatur, as he worked to turn the upstart Bebo into "an artist-centered environment where musicians could post original songs without fear of losing control over their work."

Birch, to his credit, did not claim ownership rights to the music and other creative work uploaded to his site. But neither did he offer any royalties or other financial benefits to the musicians whose work, as Bragg writes, played such an important role in "draw[ing] members — and advertising — to his business." Under Bebo's terms of service, musicians grant to Bebo a license to their work that is "fully-paid and royalty-free (meaning that Bebo is not required to pay you for the use on the Bebo Service of the Materials that you post), sub licensable (so that Bebo is able to use its affiliates and subcontractors such as Internet and WAP content delivery networks to provide the Bebo Service), and worldwide (because the Internet and the Bebo Service are global in reach)."

Bragg recalls that, in his discussions with Birch, royalties were "the elephant in the room" that went largely unmentioned. The owners of the Web 2.0 plantations like to pretend that they are simply the impresarios of "communities" and that the power over the sites resides with the "members." It's a wonderfully disingenuous idea. Bragg writes:

Social-networking sites like Bebo argue that they have no money to distribute - their value is their membership. Well, last week Michael Birch realized the value of his membership. I’m sure he’ll be rewarding those technicians and accountants who helped him achieve this success. Perhaps he should also consider the contribution of his artists. The musicians who posted their work on Bebo.com are no different from investors in a start-up enterprise. Their investment is the content provided for free while the site has no liquid assets. Now that the business has reaped huge benefits, surely they deserve a dividend.

When challenged in this way, the plantation owners counter that they are doing musicians a favor by providing them with a place to promote their work. But this, too, as Bragg notes, is disingenuous: "Radio stations also promote our work, but they pay us a royalty that recognizes our contribution to their business. Why should that not apply to the Internet, too?"

The fact is, it should. And arguments to the contrary are ultimately specious and self-serving. Exploitation is exploitation, no matter how lovingly it's wrapped in neo-hippie technobabble about virtual communities, social production, and the gift economy.

Digital sharecroppers of the world, unite!

Comments

Both musicians and start-up entrepreneurs have very poor odds of making it big but with potential big payback if it happens. If a musician posts a song on a site that turns out to be an instant hit, propelling the artist to fame and wealth should the artist pay dividends to the original site where the song was posted?

Bebo founders lucked out and made it big but success was in no way guaranteed. Their members had other choices of "plantation" to post their music to. As long as the contract between the community site and the members is clear, I don't think it *has* to include royalties. Caveat Emptor.

Posted by: Jesper [TypeKey Profile Page] at March 22, 2008 03:36 PM

Could the argument be made that Bebo and other rich-media, large-community environments provide an extremely valuable self-promotion service, one that far exceeds the value of broad-cast media to the artist - so whilst broad-cast media should compensate an artist for content, there's a stronger symbiosis between artist and social network that, if exploited right by the artist, would make royalty demands sheer greed?

Now, I don't know the specifics of how much value music brings to Bebo, and how much value Bebo brings artists [as extra revenue; sales of recorded music, merchandise, and live attendance]. Nick, do you know of any research done on this benefit equilibrium and how it compares to traditional media? That, surely, is the right thing to test, if we're asking whether artists should get royalties

Posted by: Philippe Bradley [TypeKey Profile Page] at March 22, 2008 03:45 PM

"Bragg recalls that, in his discussions with Birch, royalties were "the elephant in the room" that went largely unmentioned."

What an ass. If he was so concerned about the issue, why did he keep is trap shut? He had his chance to make a difference and he blew it. Why should anyone give a fig about what he thinks years later?

Good point from Phillippe too.

Posted by: darryl collins [TypeKey Profile Page] at March 22, 2008 05:13 PM

I don't think the radio analogy really holds up. Although radio stations do pay royalties, there's also a long tradition of record companies paying to influence the editorial selections of those same radio stations. The radio royalties are pretty nominal; the real money has always come from selling records and live performances.

Posted by: jdreeves [TypeKey Profile Page] at March 22, 2008 07:31 PM

Radio stations also provide incredibly power promotional platforms that can reach millions of potential buyers for the music acts.

Sorry Phillipe and jdReeves, your logic doesn't add up.

Nick : My question is, what's next? Would the artists have any legal recourse to demand royalties? Would the FCC have to regulate sites like Bebo the way they regulate radio or TV stations?

Inquiring minds want to know :)


Posted by: Liza Sabater [TypeKey Profile Page] at March 22, 2008 07:37 PM

Hi Liza - wow, your statement of fact sure put me in my place. What irrefutable logic.

I guess I have to clarify that my point was hypothetical. In my youth, I'm still (to my chagrin) an outsider to the media world. Hence why I ASKED if anyone knew how, if at all, the value equilibrium has shifted in new media, if at all.

Obviously, payola and other such practices have in the past highlighted the importance of traditional media to music sales. Sadly, with payola banned, that's not a viable indicator. The ad dollars - from music labels and otherwise - that flow into radio again still speak to its power as a broadcasting medium. No denial.

But what exactly are the trends here? This is a transition period in media and interpretations of the media world we live in are bound to be shaky at best. Yours is a 'resting on laurels' look at traditional media - based on retrospective. But you should look at current trends and add that to your valuation of radio's importance going forwards. Here are some reasons why there's cause to suggest that the value equilibrium between media channels and music labels (or DIY artists) might have changed, or be changing.

1. The (unquestionably) increased power of Bebo et al, vs. radio.
1.a Much greater reach (telecoms reach around the world, FM broadcasts do not)
1.b Social aspect - unprecedented viral diffusion of marketing messages, awareness of new bands, ability to find like-minded groups and build strong (but not geographically localised) grassroots support
1.c Interactive, 'rich' environment - allowing "360-degree" band-audience interaction, a huge wealth of revenue opportunities.

2. The ongoing media transitions
2a. Long Tail effect (bands catering for increasingly small niches, not all competing for major domains)
2b. User-Generated Content - "cottage industrialisation" - music labels increasingly bypassed, i.e. they are losing power to setup payola-like relationships with large media channels
2c. fragmentation of distribution channels. People are spreading around a number of different social networks, increasingly numerous numbers of podcasts, online radio streams, TV channels... these compete against each other for audience. The power of traditional media was audience monopoly, consolidation - getting your track played on BBC Radio 1 got you a huge (now falling) number of ears. You could argue that Bebo has stolen that - in a fragmenting ecosystem, it has globalised and thus still managed to build a HUGE audience - whilst your downtown radio is eroded, stuck in your locality whilst the kids log on to the World when they get home.

So honestly, you think the supply/demand equation hasn't changed, and that artists get as little from Bebo as Billy Bragg argues, that they should get royalties as well? You don't think there's a possibility that old media rules don't apply in this new age? I just wanted to highlight the possibility.

Posted by: Philippe Bradley [TypeKey Profile Page] at March 22, 2008 08:21 PM

I should add that I suggested Bebo perhaps gives artists enough value to negate royalty demands. You 'countered' this with a statement that radio was also very powerful (i.e., framing it within my argument since that's what claimed to have refuted, valuable to artists), yet pays royalties (I infer).

How therefore do you explain in supply and demand terms why radio paid artists royalties? The answer is that radio is inherently LIMITED in it's ability to drive revenue for the music world (excluding royalties). Artists give radio more value than royalty-less radio would give artists, hence a fee (the royalty) balances out the equilibrium.

My point was to suggest that Bebo may actually have to potential to drive significant value to artists, without the royalties.

So no, my 'logic' stands, as a hypothesis. Yours has not.

Posted by: Philippe Bradley [TypeKey Profile Page] at March 22, 2008 08:31 PM

Phillippe, you originally wrote:

"Could the argument be made that Bebo and other rich-media, large-community environments provide an extremely valuable self-promotion service, one that far exceeds the value of broad-cast media to the artist - so whilst broad-cast media should compensate an artist for content, there's a stronger symbiosis between artist and social network that, if exploited right by the artist, would make royalty demands sheer greed?"

One has to ask, then, how many artists at Bebo have made 600 million from their association with the community? Scratch that--60 million. Six million. $600,000. $60,000? Or is that it's OK for the Birch husband and wife team to realize a cash award for their contribution, but others must be satisfied with something more nebulous. Close community, I suppose. People who listen to their music, because goodness knows, no artist really needs more from their creativity than people who appreciate their work.

I guess its only the crassly commercial who demand actual money.

Which then leads us back to Michael and Xochi Birch, doesn't it?

I wonder, now, how these same artists feel now that they know they are laboring unpaid for AOL? Looses a lot of the coolness factor, doesn't it?

"How therefore do you explain in supply and demand terms why radio paid artists royalties? The answer is that radio is inherently LIMITED in it's ability to drive revenue for the music world (excluding royalties). Artists give radio more value than royalty-less radio would give artists, hence a fee (the royalty) balances out the equilibrium."

How sad, those four boys from Liverpool--they never did take off, did they? If only there were social networks back then...they could have made it big.

You know I work all day to get you money to buy you things
And it's worth it just to hear you say you're gonna give me everything
So why on earth should I moan, 'cause when I get you alone
You know I feel okay
When I'm home everything seems to be right
When I'm home feeling you holding me tight, tight, yeah
It's been a hard day's night, and I've been working like a dog
It's been a hard day's night, I should be sleeping like a log
But when I get home to you I find the things that you do
Will make me feel alright.

Posted by: Shelley [TypeKey Profile Page] at March 23, 2008 01:02 AM

Oh, my apologies, Liza and Phillipe, for jumping in. But we are all one big happy social community. And I want to hold your hand, I want to hold your hand.

Posted by: Shelley [TypeKey Profile Page] at March 23, 2008 01:05 AM

great post, nick. i don't know if you saw but the troll mob is predictably taking cheap shots at you. matthew ingram - and who is this clown anyway? - is acting the fool. so is arrington at tech crunch. in typical fashion, they're sucking up to the web 2.0 crowd because, well, that's where their bread is buttered. no worries. if i want serious analysis, theirs is the last place i turn for insight. keep up the strong work.

Posted by: caddidy66 [TypeKey Profile Page] at March 23, 2008 01:40 AM

Look, there is an incredibly easy way for this all to change: share equity and income with the community.

This can easily be automated, possibly through some algorithmic "share" calculation based on the value to the community of content posted. Post 10 songs that each were downloaded more than 100,000 times? You should make significantly more month-to-month than the guy who posts 10 songs with 10 downloads. The business gets sold? Well, at that point the community would share in the spoils with the same share weightings.

It is possible in this model to grant additional "shares" for the founders/engineers/others that put in sweat equity to get the infrastructure going. In the end, the average community share may be not amount to much, but can you imagine the popularity of a site that paid you if you did something cool? And could provide a career path if you did so consistently?

Unfortunately, that's just not how the Valley works. More money for the VCs and founders, and the heck most of the people who actually make a Web 2.0 site valuable.

Not sure I totally agree, Nick, but I am most of the way there.

Posted by: James Urquhart [TypeKey Profile Page] at March 23, 2008 03:12 AM

IMO, I think all of these social sites are overvalued and all of these media companies that purchased these sites are overpaying. All of this looks like the mid to late 90s. Remember GeoCities and Tripod and the many other sites with 20 million - 40 million members. They all have their time in the sun and then they fade.

With that said, I think Phillippe overvalues the worth of these sites to artists. I know some really big artists on Myspace and Youtube and other sites. At the end of the day, their popularity online doesn't really pay anything because most people don't want to pay for their music. I have a friend that was recently featured on Youtube. He got over a million views on his music video and added over 5000 subscribers to his page. He sold 100 copies of his single. He books live shows but people request that he do free Stickam/Yahoo Live shows.

The bottom line is the one thing that these online social sites do is create an online fan base for you that largely doesn't want to pay to support you as an artist. The only other thing it might be able to provide you is exposure enough to you get signed by a major label. The major label knows how to build a big enough paying fan base by using traditional media outlets like radio and broadcast tv to actually allow an artist to make some money and they are only sucessful 5% of the time. That's a better track record than any social site. The reason why is because people like to be told what to like particular the young. They all want to follow the trend. That why MTV, BET , VH1 and Top 40 radios stations have income statements not worthless statements like 40 million members.

Posted by: Debonair [TypeKey Profile Page] at March 23, 2008 05:03 AM

Exploitation is a side effect of most political and commercial systems. Selling CDs with 10 songs of which only 2 were any good was exploitation that generated massive profits in the past. I don't see anyone offering me a refund for past purchases. If the musicians gained no value from the Bebo, why did they keep contributing?

The best approach is to find a way to benefit from new systems rather than moan after the event when someone cashes out and that someone isn't you. If Billy Bragg spoke to Bebo 2 years ago, what stopped him from starting up a rival site back then? One that figured out the 'elephant in the room'. What's stopping him from trying to do that now? It's easy to stand back and criticise someone else for being successful.

Posted by: Joining Dots [TypeKey Profile Page] at March 23, 2008 06:54 AM

Well, the solution seems quite obvious! Bring up a new social network where musicians get a share of advertising revenue. Get big musicians on it with exclusive content. Lot of people will come. Eventually all the artist will flow to the new site and every other social network will start to pay musicians to keep them on their site! Problem solved! Everyone's happy again. The only solution is in economy!

Posted by: upanisad [TypeKey Profile Page] at March 23, 2008 07:00 AM

Billy Bragg is right.

The web has bought some amazing things to our culture but it has also bought an incredibly destructive thing- that of people perceiving creative work to have no monetary value and thus expecting it to be free.

Posted by: Simon [TypeKey Profile Page] at March 23, 2008 07:32 AM

Hi Shelley. You've approached the problem all wrong, on a number of points you make. For example, you suggest that 600 million dollars should have been generated for the artists, for this to have been a 'fair swap'. Not only does that assume that all of Bebo's value came from just the artists, and that it has nothing else to attract, retain and monetize users - but it completely ignores all basic laws of economics and supply and demand, because it doesn't even factor in rival social networks.

Let's not forget that that 600million selling price is thought by many to be over-valued. I'm one of them, but time will tell of course if we're right. But the starting figure in your analysis should probably be smaller, IMHO.

Next, you seem sto have missed my point about transitions. The Birch couple didn't, the valuation of their site will have factored in it's potential for revenue (i.e. it's growing power) over the next decade. But you and Bragg are arguing retrospectively, that artists don't seem to have benefited to the tune of 600 million. What I suggested above was that if you look at where Bebo is headed, *perhaps* it will turn into a marketing machine that WILL give artists value, a lot more than radio ever did. For the sake of fairness, perhaps the Birches should redistribute part of the Bebo sale money to artists that have been there so far, though.

I think musicians should unionise online and force digital distribution channels to give them fair value. It really isn't difficult for them to pack up and leave for another site if they don't like what they're getting out of Bebo. The high rate of turnover between social nets at the toop of the food chain (the leader is replaced by a competitor every 2 years or so) shows that these social nets are very vulnerable. That will shift supply and demand economics back to a point where the artists can PERHAPS demand royalties (if indeed they're as valuable to a site as Bragg says they are).

But anyhow, in all this lamenting about artists - have they actually LOST any money from Bebo? They lost money from a physical product becoming digitised and easily copied; they lost money from iTunes unpackaging the album into singles; they lost money from globalisation poutting them up against a much bigger number of bands.

Posted by: Philippe Bradley [TypeKey Profile Page] at March 23, 2008 08:20 AM

It is the MUSIC INDUSTRY that is responsible for not providing licenses to Bebo and the other 1000s of sites so that they CAN share revenues with the creators. Instead of licensing social networks like Radio they sit on their butts doing nothing until some startup gets huge enough to bother with: see last.fm > CBS, Youtube > NewsCorp, Bebo > Aol. So who is 'disingenuous' here, Billy? See my comment on this, here: http://www.mediafuturist.com/2008/03/the-royalty-sca.html

Posted by: Gerd Leonhard [TypeKey Profile Page] at March 23, 2008 09:42 AM

"Digital sharecroppers of the world, unite!"

This touches on something I've been bothered about for a while - Web 2.0 evangelists are, in practice, VEHEMENTLY anti-union. There's some complexity as many style themselves liberals, so they don't want to appear anti-"little guy". But for anything having to do with white-collar workers uniting to get a better deal from these electronic planations - those big media companies are their target buy-out money, and the hypesters just drip with derision and venom (when they aren't pushing web start-ups).

I was able to discuss some of this in my column on the Writer's Strike a while back:

http://www.guardian.co.uk/technology/2008/jan/03/internet.digitalvideo

"The idea of collective bargaining, of labour forming an organisation to offset the power of the modern corporation, receives such disdain that it shows something revealing under a pseudo-populist mask, and which political interests are really being served.

Posted by: Seth Finkelstein [TypeKey Profile Page] at March 23, 2008 09:52 AM

If the musicians knew going in there was to be no payment, and decided to upload under those terms, why are they complaining now?

They aren't sharecroppers; they didn't create the music for the purpose of making Bebo work. At most it took them a couple of minutes to do the upload.

They wanted something for nothing, why should they have a claim on the people that provided it to them.

While I do enjoy Billy Bragg's music (and have even paid for it!!), he is a bit of a "victim" isn't he?

Posted by: Mike Snow [TypeKey Profile Page] at March 24, 2008 02:22 PM

Could someone help me understand: Are social networks which stream music not required to pay royalties under internet broadcasting copyright rules (which are collected by Soundscan)?

Posted by: MES [TypeKey Profile Page] at March 24, 2008 02:46 PM

Why do radio stations pay royalties and not Bebo? Because radio stations mostly air famous songs or new songs from famous people.

99.99% of the artists on Bebo are completely unknown and have no chance in hell to ever make it on the radio. Their bargaining leverage is thus nonexistent.

If tomorrow U2 or Timbaland ever decide to use Bebo as a promotional tool, you can be sure they'll be able to get royalties out of them.

Posted by: Laurent [TypeKey Profile Page] at March 25, 2008 11:22 PM

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