Wednesday, June 8, 2011

Cui bono? Who gets the $150 million check that Steve Jobs wrote on Monday?

There are estimates that the record industry's take of the first year's Apple Scan & Match income will be $75-150 million.  Yet the advance that Apple paid is in the neighborhood of $100-150 million reportedly.

That sum was presumably paid on Monday at the latest.  (If you're Steve Jobs, you don't bring something to the annual developer's conference unless it is locked down.)  This is for something that won't even launch until Fall.  That is a very healthy advance.  That's at least a year, and maybe two years of advanced income.  Plus the four months of money use until Fall, plus assuming a 90-day accounting period, that's as much as 2 years and seven months of an advance on the last-dollar earned.    It also means a guarantee of one to two years of projected income, the risk of user uptake on this new product (which has two competitors whose names you may have heard of), being solely on Apple.

Conversely, this is why Google is out of the running: they wouldn't pay the advance: "The size of the advance payments have been a major hold-up for Google." (NY Post)

We have been saying here on this blog for over two months now: it is becoming all about the quarterly earnings report.  Long-term values, interests, commitments or principles, be damned.

So I guess if the money came on Monday at the latest, the artists should start seeing the "Scan & Match Income Share" line on their royalty statements in about 90 days, right?

I have requested, through private email to the IFPI's Frances Moore, who is doing the official crowing about this deal for the record labels, that the major labels explain how this money will be accounted to the artists. No word yet.  Unfortunately, no other entertainment lawyer is likely to ask, or request an actual audit, because it is unexplored terrain and his/her artist's share of the expected gain over audit and litigation would be reckoned to be less than the cost of the audit/litigation. So this is very tempting income for the record labels.  Income that they can pretty much account any old way they want.  Is it settlement income?  Miscellaneous services income for assisting with the scan and match capability?  Your guess is as good as mine.  It is not a royalty, we know that: otherwise the indie labels would be in on it.  Instead, as Hypebot eloquently puts it, the indie labels are getting "Zero.  Zip. Nothing" from Apple.

I wish I could say that Scan & Match was "The Record Industry on Drugs".  But alas, they know exactly what they are doing.  

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