Artists Deal New Blow to Record Labels Through Termination Rights

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The American recording industry has to stop getting knocked down at some point. There has got to be a moment when technology and distribution channels become settled enough that record labels, their executives and their weary investors can get back to making some money, if not as much as they used to back when.

Things used to be so good, didn’t they? During the 1990s, when labels could lock artists into long-standing contracts then list-price CDs at $20 or more, it must have seemed like the golden age had just begun. Then that pesky Internet had to become widely accessible, and recorded music just had to be the media that educated the public on what file sharing was. Then there was the sting of Apple (NASDAQ:AAPL), a corporate joke during the record industry’s salad days, monopolizing the legitimate digital distribution market through iTunes.

This isn’t to mention how easy the Web made recording, releasing and promoting music for independent artists. At least the labels held onto the precious catalog recordings of classic icons that they continue to sell to boomers with wandering eyes in Target (NYSE:TGT) checkout lines. Now they’re going to lose those catalog recordings, as well.

When Title 17 brought copyright law under federal control in the U.S. rather than state control in 1978, Section 301 stated that after 35 years, bands and individual artists could claim “termination rights” provided they apply for them two years in advance. This means that, provided the band files for those termination rights, the master recordings of landmark albums like U2’s Boy will be wrenched from the mitts Vivendi’s Universal Music Group and returned to Bono’s crew of civil-minded Irishmen. Time Warner‘s (NYSE:TWX) Warner Bros. Music will lose lucrative fare like Madonna’s Like a Virgin. Dark times do indeed appear to be getting darker for the big labels. What publicly traded heavyweights remain — labels like Sony (NYSE:SNE) and those previously mentioned — will see the value of their recording operations further diminished.

Who will benefit besides the artist, though? Even if termination rights are granted to the big names of 35 years ago, the Bruce Springsteens and Tom Pettys, and even if the Recording Industry Association of America doesn’t erect a wall of litigation to prevent those rights from being exercised, what does this mean for the broader business of music?

For one, the nascent cloud-based music business will become alternately more complicated and simplified. Big companies like Apple, Google (NASDAQ:GOOG), Amazon (NASDAQ:AMZN) and others will find their iCloud, Google Music and Amazon CloudPlayer businesses come under greater scrutiny by already leery label partners afraid of how cloud access will further limit the value of catalog recordings. Those services will be anxious to partner with artists like Tom Waits as they gain fresh control of classic recordings, and the process undoubtedly will be smoother with the two parties working directly with one another. The labels, meanwhile, surely will put pressure on those businesses to maintain control of whatever they can.

The same likely will be true for streaming music and Internet radio businesses like Spotify and Pandora (NYSE:P). The ability to work with bigger names free of labels will smooth over the process of defining usage rights, but it also will become more difficult for those outlets to get access to larger libraries of music if labels become disgruntled.

These are early days for the termination rights game, and it remains to be seen how labels, the RIAA and other lobbying bodies will cope with this new challenge to the old regime. One thing is guaranteed: It is only going to get more difficult to make money on recorded music.

As of this writing, Anthony John Agnello did not own a position in any of the stocks named here. Follow him on Twitter at @ajohnagnello and become a fan of InvestorPlace on Facebook.


Article printed from InvestorPlace Media, https://investorplace.com/2011/08/record-labels-termination-rights-sony-sne-twx/.

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