Monday, December 31, 2012

Surface to Air 2012 Retrospective

Today Surface to Air celebrates its one-year anniversary. The site was originally founded to share lessons learned guiding discerning listeners in the transition from the physical music past to the weightless digital future. But over the course of 2012, our focus broadened to join the discussion on the many social and business issues surrounding the evolution of music.
I have often been asked what is the editorial stance of Surface to Air. With a year's worth of writing behind me, I can safely answer that this site stands for three things: 1) good science; 2) solid technique; and 3) reasoned opinion. That said, here is our 2012 index.

Good Science:

Solid Technique:

Reasoned Opinion:
But sometimes, articles are simply human interest stories:
Thanks for reading. Looking forward to continuing the conversation in 2013 and beyond.

             Vinyl-to-Digital Restoration #49            

Artist: Andy Williams
Title: The Andy Williams Christmas Album
Genre: Vocal/Christmas
Year: 1963

Among my many $1 estate sale finds in 2012 was this Christmas classic. Opened, but still in its shrink wrap, its pristine condition implied it could not have been played more than once or twice. This title may be the cleanest used record I ever bought and a welcome addition to the weightless digital holiday collection.

© 2012 Thomas G. Dennehy. All rights reserved.

Thursday, December 20, 2012

A Nickel Ain't Worth a Dime Anymore

The urge to believe there is a magic formula for success, and that it can be deduced from studying past hits, is powerful. Strategic Communications Group CEO  Mark Hausman believes he has distilled The 3 Hallmarks of Exceptional Content. Columnist Marcel Williams is convinced he knows The Essential Features of a Hit Record. Their two cents on the subject may be worth a nickel, but as Yogi Berra observed, "a nickel ain't worth a dime anymore."

These checklists, while almost intuitively obvious and rightly containing features correlated with past successes, fail immediately as predictors of the future by being neither necessary nor sufficient. Their authors cannot prove that all the characteristics are necessary for success; i.e. eliminating any one of them will guarantee failure. (Mr Williams even admits as much.) Nor can they prove that their list is sufficient for success; i.e. a work possessing all these characteristics may still be a failure for lacking other elements.

The lists highlight statistical regularities—good for documenting the past, lousy for predicting the future. In The Financial Regulators' Dilemma economist Edwin G. Dolan illustrates how statistical regularities do not always reflect causal relationships using the so-called Nickels Paradox:

Suppose the Federal Reserve observes a strong past correlation between the number of nickels issued by the U.S. mint and the rate of inflation. Does that mean restricting the issue of nickels would be a sufficient instrument to control inflation? Of course not—not if pennies, dimes, bank balances, and money in all other forms were issued in the same quantities as before. All that would happen is that the previously observed correlation of nickels with inflation would disappear.

How does the Nickels Paradox apply here? Suppose all music producers take Mr. Williams advice to heart, and 100% of future tracks can be characterized by: catchiness, timeliness, a strong vocal, and accomplished performance. There would still be only 100 releases on The Billboard Hot 100 in a given week, and the vagaries of public taste would still decide who gets there. Or, taking Mr. Hausman at his word, all suppose all future web content has: a unique perspective, great "get" and/or brilliantly constructed prose. All that would happen is these would cease being differentiating features in attracting readership.

Don't stop critiquing your past work, learning from others, applying rigor and discipline, or nurturing creativity in your quest for greatness. Just don't mistake performance metrics for predictive ones. And use that advice for what it's worth.

             Vinyl-to-Digital Restoration #48            

Artist: Keith Jarrett Trio
Title: Standards, Vol. 1
Genre: Jazz
Year: 1983

Nothing in Keith Jarrett's discography or collaborations prior to 1983 could have predicted he would record a collection of standards with bassist Gary Peacock and drummer Jack DeJohnette. And nothing could have predicted that this trio would become one of the most enduring working groups in jazz, recording and touring for more than 25 years. Such is fate, or the instinct of veteran producer Manfred Eicher, who put the three together in the studio.

© 2012 Thomas G. Dennehy. All rights reserved.

Wednesday, December 5, 2012

A Consumer-Driven Marketplace Has Been a Hallmark of Innovation

Pandora CEO Joseph Kennedy, NAB spokesman Bruce Reese, and venture capitalist David Packman recently testified before a House Judiciary Subcommittee hearing on music licensing, speaking in favor of bill H.R. 6480. To summarize their reasoning: current music licensing standards prevent select investors from making big money in internet radio.

Speaking against the bill were economist Jeffrey A. Eisenach, music producer Jimmy Jam, and SoundExchange President Michael Huppe. To summarize their reasoning: current music licensing standards enable the free market to get artists fairly compensated for use of their work.

The core issue of the debate over the bill, subtitled The Internet Radio Fairness Act (IRFA) of 2012, is whether "fairness" would be established by having services like Pandora pay less in music licenses in order to fix their unsustainable business model, or whether other services should pay more.

The statutory licensing model, under which a service pays a set percentage of its revenue in licensing fees for music content was established by the Digital Peformance Rights Act of 1995. The so-called Willing Buyer Willing Seller (WBWS) model, under which a commercial service pays a set per-play license fee, was introduced by the Digital Milennium Copyright Act of 1998. Services in existence as of 31-December-1997 were exempted from the new standard. Terms of the DMCA have been modified three times since passage to narrow the definition of services to which WBWS applies

So, currently, who pays what?
  • AM/FM Radio. $0. The USA is the only developed country that does not impose music performance license fees on over-the-air radio.
  • SiriusXM and Muzak. So-called pre-existing streaming services under the DMCA. Grandfathered to statutory license fee, currently set at 8% of revenue.
  • Microcasters. A microcaster is defined as a service with annual revenue < $5000 and that streams < 18,067 aggregate tuning hours (ATH) per year. (That is equivalent to two sumultaneous 24/7 listeners.) Microcasters pay a flat annual fee of $500 + $100 optional fee to be exempted from recordkeeping requirements.
  • Non-commercial Pureplay Webcasters (defined by their tax status per IRS Section 501). Annual payment of $500 or per-play royalty of $0.0012/play paid on monthly ATH in excess of  159,140, whichever is greater. (159,140 monthly ATH equate to roughly 200 simultaneous 24/7 listeners.) Stations that are CPB-supported or members of various Public Radio consortia do not have to file records. Under the terms of their settlement  agreement, NPR’s Public Radio Interactive is making those payments. These stations will be contacted by Public Radio Interactive with regard to their obligations.
  • Small Pureplay Webcasters (annual revenue < $1.25M). 12% on the first $250K in revenue and 14% on revenue > $250K. In exchange, the webcaster receives an ATH limit of 10 million monthly — essentially unlimited streaming — plus additional benefits. Payment obligation is subject to a minimum of 7% of operating expenses
  • Large Pureplay Webcasters (annual revenue > $1.25M). 25% of revenue or per-play royalty of $0.0012/play, whichever is greater. Unfortunately for Pandora, which falls into this group, a "play" is defined as a song delivered to an individual device running a its client app, including songs a listener skips after listening for a time and songs that are pre-fetched for playback, but never actually initiated. These inflate their play count. Reports estimate Pandora's total payments at $0.02/ATH, which works out to the average listener touching 16 songs per ATH.
Proponents of the IRFA argue that Pandora pays too much in licenses — more than 50% of revenue — relative to its peer services, amounting to a commercial disadvantage, and needs relief. Opponents argue that WBWS is the fair model for artist compensation, and should be extended to services like AM/FM radio and SiriusXM, ending their "subsidized mandate to exist." No one wants small and non-commercial webcasters unduly burdened by new license fees.

The debate will continue not only in  the U.S. House but in the U.S. Senate. "A consumer-driven marketplace has been a hallmark of innovation on the Internet and the same market forces should decide the value both of competing music delivery services and the music content they deliver."

Stay "tuned."

             Vinyl-to-Digital Restoration #47             

Artist: Chuck Mangione
Title: Children of Sanchez
Genre: Soundtrack
Year: 1978

Chuck Mangione composed this music for a film soundtrack in 1978, but it quickly took on a life of its own when it was released as a two-LP set. While the movie Children of Sanchez didn't make much of a commercial impact upon release in 1979, the music won Mr. Mangione both a Golden Globe® and a Grammy®, garnering fan loyalty the film never enjoyed. The repetitive themes necessary for a cohesive film soundtrack make end-to-end listening of the LP somewhat tedious. (Where is the skip button?) But the tracks in weightless digital form equate themselves quite well individually.

© 2012 Thomas G. Dennehy. All rights reserved.