Digital Download Certifications

Interview With Andre Gray, Founder/CEO Of Digital Electronic Music Organization
by Todd Beals, Â Recording Industry Association of America has officially launched its RIAA Digital Award Program this month with a recent reception in Miami as an expansion of its Gold and Platinum program. This is obviously the natural evolution of a growing new sales channel that is becoming widely adopted. According to Clive Davis, CEO of BMG North America, "even though U.S. music sales are up +9 percent so far this year, retailers are struggling to hold their ground in a market where digital sales are growing." According to recent reports by SoundScan , "there were 54 million legal downloads in the first half of 2004, compared to 19 million for the last half of 2003."

With that kind of an explosive market growth rate, individual song sales are well on their way to cross the 100 million threshold by the year's end. A potential contributing factor to such rapid growth, if you've been reading recent

 news reports, is that many universities and legitimate music services are increasingly teaming up to offer high-quality, legal online music options to students across the country. But hold on....Wait a minute...Stop the presses.

To rightfully recognize and award artists who are becoming successful selling online music is a noble cause, but I think the RIAA is going about it the wrong way. Aren't organizations like Nielsen's SoundScan and SoundExchange in place to help buffer the potential conflict of interest that can occur when you judge yourself? Of course even with external accountability, it's still quite possible to be swayed under the muscle of the RIAA, but it seems a little strange to me for the RIAA to be the one counting the votes, (um sales) I mean, since they (and their members) are to directly benefit from the press. Perhaps its just another ploy to attract more attention to the specific artists they want to push and will have no relevance in the long run, as many feel the cartel of the major labels will become extinct soon.

If the truth be told, the RIAA's Digital Download Certification Program is actually copying an original invention and business model process created in 1998 and therefore are not the first organization to come up with the idea. As an expansion of its successful Gold and Platinum awards, the RIAA Digital Awards will recognize artists with "legitimate and certified" legal download sales beginning at 100,000 units. (This amount is understandably less than today's 500,000 requirement to be certified as Gold because many CD singles contain more than one song as opposed to a single song download.)

Surprisingly though, I have read that the RIAA itself will calculate the sales of music downloaded from the various legal download sites (i.e. Apple's iTunes Music Store, AOL Music, Napster and Sony Connect) instead of conducting an independent sales audit of each title by an unbiased and respected accounting firm (like the process for a regular Gold Record certification.) Also, an RIAA spokesman said at present the program will not include album downloads, which are, as yet, too negligible to measure. While I wholeheartedly agree that the U.S. music industry and the rest of the world for that matter, needs an organization to certify awards for successful Internet sales, I question whether the RIAA is the one to do it, especially if they are going to exclude the independent artists/labels, which make up over a quarter of the entire market.

There are now legitimate organizations like the Distributed Computing Industry Association (DCIA), with numerous member companies such as Secure Media Licensing (WEEDSHARE) and Altnet out there in the market, legally selling and promoting single song downloads that rightfully deserve to be counted.

According to the RIAA's website, "certified sales of 100,000 singles would earn a Gold award, while 200,000 downloaded singles would garner a Platinum award. Multi-platinum awards would start at 400,000 and increase in increments of 200,000 thereafter." The traditional RIAA certification program is open to member and non-member companies, so I was very surprised to read that for the new digital awards "only downloads from a legitimate online music service with licensed content from the record companies will be recognized."

I have to ask, who died and made them king? Hasn't the music industry's lagging sales coupled with a resistance to supply the demand for consumer's desire for a complete online catalogue indicated that we're in the midst of a revolution? Who are they to decide what is "legitimate?" Hasn't anyone told them they're not the gatekeepers of musical success anymore?

As a result of the RIAA's careful wording, the new digital awards will apply ONLY to digital music from the online music sites supplied and supported by the Big Four record labels. That sounds like the good ol' boy syndrome to me. That exclusionary policy decision begs the question, what about the independent artists and labels and what determines a "legitimate" service? The global music industry totals $40 billion annually, and the U.S. recording industry accounts for fully one-third of that world market. The last time I checked, the independent segment of the music industry comprised about 30% of all recorded music sales. So, with today's technology, why the exclusion of independent acts who are grossing roughly $4 billion in the future disbursement of these new digital awards? Are the major labels afraid to publicly acknowledge who else beyond their control is also selling well over the Internet?

From a business standpoint, it's understandable to want to only promote successful sales stories from within the organization, but for credibility purposes, the awards program should be open to all musicians. The Internet has quickly turned the industry into a global one and in order to avoid a quick death, the labels better learn how to adapt to change a little bit faster. Consumers want freedom of choice in the music they buy and listen to. They want one universal file format. But most of all they want good music. It seems that the RIAA and its member labels (which are run by out-of-touch aging executives) are really not interested in recognizing successful artists gaining traction via legal downloads like they claim. Maybe I'm naive, but I thought this new digital award category is supposed to recognize artists for their successful online sales. So I must ask, why aren't they including real-life legal sales from independent websites, stores and the P2P networks?

In an exclusive interview with the Digital Electronic Music Organization's (DEMO) Founder and CEO Andre Gray, I asked these questions and more as we discussed his views of the state of the struggling industry. For those of you not familiar with DEMO, one of its missions is to promulgate a globally accepted standard for Secured Electronic Music Sales (SEMS is a term he coined way back in 1999) and to actively promote music for independent artists. Unlike the RIAA's new awards program, DEMO provides online music sales certifications on a global scale and is not exclusionary.

Gray, a true visionary, is the recipient of numerous industry awards for inventing online music sales certifications over 6 years ago, and DEMO was, in fact, the very first company to recognize artists and vendors who achieve a certain sales plateau "caused" by the Internet. (In this context, the word "caused" shall be construed to mean: downloaded, mail order fulfillment, click through advertisement, a la carte, non-a la carte, subscriptions, affiliate programs, digital kiosks, ringtones, mobile phones, PDAs, educational institutions, legitimate P2P music sales, and any other future enabling technologies, etc.)

For a company that is not giving anything away or using gimmicks to attract visitors, DEMO's website is currently experiencing an impressive 50,000 unique visitors per month, averaging 2,000 people per day and is ranked #1 in its category by ranking.com. Receiving approximately 3,000 emails a day, Gray believes his high traffic volume is the result of successful Search Engine Optimization (SEO), and the fact that musicians in general are looking for free and helpful information, which his site provides. "Our primary business model is to hand out certifications on a global scale for music sold that was caused by the Internet. There is nothing illegal or political by what we're doing and in fact, we were the very first to do what we do."

DEMO recently granted the first Titanium + Certification Award to the Apple iTunes Music Store on July 29, 2004, which was enthusiastically received in California. The Award was presented to Apple to commemorate the monumental achievement of 100,000,000 digital downloads and for ushering in the legitimate online secured electronic music sales (SEMS) era. Gray stated that "Apple is a leader in its field and has been a forerunner in a new era of music sales... and the company has helped to legalize digital music on the Internet." Hip-hop artist Chuck D from Public Enemy was also recently selected by DEMO to be a recipient of the Pioneer Award and presented it to him on July 30, 2004, in New York City. Gray comments, "Chuck D has long embodied the spirit of the independent musician and even with his tremendous success throughout the years, he has never considered compromising his musical integrity. He is also one of the very first artists to harness the power of the Internet and to use it as a viable promotional sales tool."

Gray admits that conducting independent audits to determine who is eligible for awards is quite difficult because many companies are not willing to share their data. "They'll give you a round figure, but not necessarily break it down into specific items like genre or how many sales per hour, per day, or per week." The general figures most companies are willing to give are per month or per artist once sales hit a certain level. Fortunately for the public, there are forward-thinking companies out there willing to be open about statistics that will only benefit everyone in the long run.

One such company is CD Baby. Their global sales totals are updated daily on their website and I hope to see that trend continue with their new legal CD Baby Digital Distribution Program and with other similar companies following suit. Gray adds, "I would love to see the day when every musician and every online store and every online label is willing to share the analytics with those who are in the business of doing research for digital media. Whoever comes up with a business model that can connect and track these things globally as an industry standard, like Bloomberg does in the financial markets, will stand to make billions of dollars because just like the stock market, they'll be offering access to streaming real time data."

Unlike the RIAA awards program which monitors itself, DEMO conducts an independent audit of each submission and its accompanying records to quantifiably verify the secured electronic music sales (SEMS) accuracy of any and all claims. Gray's response to my question regarding the RIAA's recent announcement about their awards program was, "to be honest, in Western popular culture, every success story breeds a thousand imitators, so I can look forward to seeing someone copying my idea in the next few days, months or year or two. And as far as all these law suits we keep reading about, I mean really, what portion of these out-of-court settlements that the RIAA is collecting [average of $3,000 per lawsuit, with roughly 4,000 lawsuits, is around $12 million dollars] are the artists actually receiving?"

According to Gray, "since the Internet has turned the world into a digital global village that has no geographical constraints, the sales certification criteria for each continent will be the same, regardless of the sales breakdown attributed to certain countries, regions, or hemispheres." Many experts agree that the music industry has been permanently altered, beginning with the emergence last year of Apple's iTunes Music Store, and that the music sales playing field has been leveled to include participants of any size who are now able to step up to the plate via the Internet. As a result of the Apple store's simple design and unobtrusive DRM called Fairplay, Gray also believes that "music is now the hottest selling item on the internet, which wasn't the case just a few years ago. Part of the problem is that the music industry wants to keep spoon feeding the music public 'corporate pop,' and their mentality is 'let's make the most money off of each artist as long as we can and then let's just drop them and go for the next big thing.' In other words, they're just throwing things at the wall and seeing what sticks without any real development."

The music industry's primary concern is not so much about legal P2P or filesharing, but the real problem is that the distribution system is no longer centralized... "It has been de-centralized and perhaps permanently splintered. Therefore, whoever controls the distribution exclusively will control the industry, and in distribution, whoever gets their hands on the money first - keeps most of it." Gray doesn't particularly like the direction the music industry is heading in because, "the industry as a whole wants to control the Internet. It wants to control digital rights management, it wants to tell technologists what to do, it wants to control pricing and it wants to control digital radio and digital streaming."

For example, the music industry should never have the audacity to dictate and try to lobby Congress to set a fee that would be cost prohibitive and keep independent radio broadcasters off the internet. Of course musicians should be paid for any music played on the Internet, but Gray thinks performance rights organizations (PROs) like ASCAP, BMI, and Sesac should be at the forefront of deciding what is a reasonable fee to charge.

In his view, since the traditional PROs have such extensive experience, newly formed organizations like SoundExchange should not be making those kinds of restrictive decisions. We both agreed that the music industry will never be able to revert back to the way it once was, especially since most musicians are somewhat technically savvy. If they already aren't doing so, many of them will learn how to record, mix, encode and upload their music to the Internet for direct sales to millions of consumers. "Once that starts happening with more and more artists, we don't really need record labels anymore."

Gray is also very concerned with how the numbers of this industry really work, since traditional recording contracts have been so disproportionate for so long (i.e. label friendly at the artist's expense.) "The truth of the matter is, many labels are still charging artists a $.15 packaging fee for digital files that get downloaded that have no packaging." As another reality check, the band Extreme (remember them?) sold a few million CDs in the early 1990s, generating roughly $15 million in revenues for their label. But the band never received a penny from royalties because they still owed the label for expenses, etc. So when the Internet came along, it was the most liberating thing for musicians to be able to escape this type of unfair business practice and escape the clutches of onerous recording contracts.

Gray would like to see musicians move past the mentality that they "need" a recording contract to be successful. He professes that the real money to be made is in merchandising and touring with corporate sponsorships. However, as the labels slowly disappear, musicians will still need to find savvy representation through personal managers and publicists because the need for marketing will still be there. In my opinion, as the industry begrudgingly is forced to evolve, tracking FM radio will no longer be necessary because blanket licenses will compensate artists. Previously accepted, but highly inaccurate statistical sampling of playlists in geographical regions, which are used to determine "equitable" royalty payments, will also become irrelevant. Computers can and will soon historically track which song and which artist was streamed or downloaded all over the world. Gray adds, "it is unfortunate that many music industry organizations and trade group's statistical analysis and reports are known only to their inner sanctum."

When asked about what to expect in the next 12 months, Gray responded, "I think it will be a great time of turmoil concerning digital broadcasting rights, DRM, reverse technology and there will be a number of precedent setting lawsuits. P2P, once it becomes legitimate, will replace a la carte downloads." In regards to the currently unpopular notion that a la carte downloads will continue to outsell subscription services, Gray adds, "If you pay $10 for something, you want to hold it - you don't just want to rent it and therein lies the major difference."

Gray also predicts that in the next 18-24 months the industry will see a major shakeout, with numerous online music stores closing up shop because very little thought process has been put into these weak business models. For example, the 70% average commission the record labels receive per transaction is just too high. There's no reason that labels should be telling online music companies how much to charge for downloads. Obviously the labels are entitled to a fixed percentage of every digital sale, but they don't automatically get a vote in setting the selling price of the commodity. It's no secret that the music industry has quite a long history of being very heavy handed, intimidating and quite pushy to get their way. During our interview, Gray reflected on the 2-year trend for record companies "to license their music to technologists and then tell the technologists what to charge. The current business models out there for online music stores cannot and will not show a profit with these exorbitant kinds of commissions and licensing fees."

Someday soon, the music industry will have hundreds of thousands of independent musicians collectively outselling the major labels. Even several major label artists (i.e. Madonna, Prince, Heart) are starting to release and distribute their new music on the Internet, independent of record label control. "It might take some time, but when musicians become wise enough, they will finally realize that they have been liberated. Because of the Internet, they don't need a middleman anymore to collect their royalties, and with the simplicity of selling digital media, they can easily sell directly to their fans and make more profits." Perhaps the only middleman needed in the near future will be a reputable DRM vendor so that all transactions can be properly recorded and that the revenues can go directly to a secure account (i.e. PayPal) for the artist.

Gray believes that in the very near future, "certain trade organizations will seek to have laws passed in the U.S. that will make it cost prohibitive for independent musicians to sell their music online direct without moving to an intermediary, which will prevent them from making a lot of money. After those laws are passed, these same trade organizations will then put pressure on the European Union and other organizations around the world to implement similar laws enacted in America, so what we will have is blanket global laws... And for those countries and organizations who are not willing to play ball - they will run into problems like trade tariffs and these monopolistic organizations will put pressure on those countries or individuals not willing to cooperate."

In Gray's opinion, "the music industry seems to have a greater interest in commerce on the Internet, more so than Dell computers has an interest in selling computers on the Internet." For example, Dell has never really tried to pass laws to make it illegal or cost prohibitive for other companies to sell computers over the Internet. Amazon Books and Barnes and Noble have never tried to stop other booksellers from selling their books through the Internet. But, according to Gray, "in the music industry, the industry as a whole seems as if it wants to be the 'gatekeeper.' By trying to be biased gatekeepers, the major label constituents of the RIAA will be unfairly deciding who should be given certification awards for music sold through the web."

It is my sincere hope that someone influential from the RIAA and/or its member labels reads this article, as it's not too late to make a change to their exclusionary policy for digital download award certifications. As an independent musician and songwriter myself, I think it's safe to say that most songwriters ultimately want their songs to be enjoyed and appreciated by the largest audience possible. The efficiency of viral Internet distribution makes this exciting possibility a reality in ways never before thought possible, and I think its only fair that everyone around the world in cyberspace should be treated equal ...

Provided by the MusicDish Network. Copyright © Tag It 2004 - Republished with Permission