When Competitors Team Up: Sirius and XM

Since the introduction of satellite radio into the music industry equation, there have been two superpowers competing with almost identical services: Sirus and XM satellite radio. On November 12th, after seven years as fierce competitors, they finally merged and consolidated many of their channels. This is a result of a merge in July where the two companies joined to become Sirius XM Radio, after the FCC deemed that the merge would not result in a monopoly on the market. The decision on this issue is due to the fact that while these companies were the only major satellite radio companies, the competition is against free radio, and all other forms of musical entertainment. Both of these companies have lost money since being formed in 2001, and this move to unify can help them to compete on a larger level for the attention of listeners, mostly made up of car commuters.

The commercial-free radio service now costs less for the basic package, but more channels can be added on. The lower prices will attract new users, yet the options will maximize profits. Both of the services still exist exclusive of each other, but now they share many channels in order to cut down on broadcasting costs. In the process of my research of this event, I made two comments on posts regarding the issue. The first is in Digital Noise by Matt Rosoff, where we discuss the reasons for, and responses to the merge. The second comment was on Wired's post by Eliot Van Buskirk where we discuss more the business side of the merge. For the sake of convenience, I have included my comments below.

Digital Noise: Sirius-XM channel merge begins next week

Satellite radio has truly become a product that does not inspire half-hearted users. Those who use and enjoy satellite radio do it with a passion, and seem to listen to it almost exclusively. While this creates a great and loyal consumer base, these types of customers are wary of change, especially when it comes to fraternizing, even merging with the “enemy.” Sirius users chose Sirius for a reason, and XM users chose XM for a reason. I think this is why I sense a lot of discontentment among the posters here. Regardless of the reactions of some of the users, the reasoning behind the merge was sound. It does not make sense for there to be two different 50’s stations for example. Those channels that are unique can now be purchased a la carte, if the user so chooses. They now have a lower subscription price as well, so there are a few extra dollars freed-up for possible extra features. Often those who are vocal are the only ones who care.

The merge between XM and Sirius, however was not all encompassing, they remain, in some points of view two very different services. The inability of both to make a profit necessitates more than a casual relationship between the two. They need to truly merge services and products and customer bases to create a solidified company, or else they will not survive against all of the other options that media consumers have today. It is possible that this is where Sirius XM is heading, but the move needs to be sooner rather than later to ensure that music lovers have the variety of options that they have enjoyed for so long.

Wired: Sirius, XM Complete Merger

While it is beneficial to the consumer, both past and present, that the new Sirius XM service has lowered its basic subscription prices, it does seem that the new a la carte options, and the premium options that are available are a way for Sirius XM to gauge a little bit of extra cash out of their customers. However, this may not be such a bad thing for users to subscribe to, if they want to see satellite radio continue to broadcast. Aaron Poehler was right in saying that this merge was necessary to keep satellite radio afloat, in spite of having almost 19 million customers. According to an LA Times article about the merge (http://www.latimes.com/entertainment/la-et-satradio13-2008nov13,0,3375813.story), the company does hope to break even next quarter, but reported a 4.8 billion dollar loss in the 3rd quarter of 2008. The new type of radios and the unique services may be exactly what it takes to help this company finally break even after both companies have consistently lost money from their very inception in 2001.

In reference to the discussion of whether or not they have a monopoly on the market, it is important to realize that while these companies have been each other’s main competitors for years, they both secondarily have competed against every other form of car or home entertainment. They have been keeping each other down, while iPod car adapters, web streaming radio, and Bluetooth headsets have emerged as other options for valuable car-time. Them coming together in this way and joining forces, merging content, and creating greater value can only be considered a monopoly if consumers had no other options, which they clearly do. They’ve created an entertainment service where it is no longer important which satellite radio company is better, what’s important is that consumers have options.

The New Deal: Every Piece of the Pie

It was only a little more than a year ago when Madonna and Live Nation announced an unprecedented new partnership. This new type of record deal, usually referred to as a "360 deal," allows for record labels to make money off of every aspect of an artist's career, not solely the record sales. The 360 deal, named for the number of degrees it encompasses, has been accepted by many musical behemoths, including Jay-Z (right), Nickelback, Shakira, and U2. When these deals first began to materialize, they were seen as outliers to the industry, however they have completely changed the way that major labels are doing business in a very short time. At last week's Web 2.0 summit in San Francisco, Edgar Bronfman, the CEO of Warner Music Group announced that from this point on, all record deals signed with WMG would be 360 deals. A response to the continual falling of record sales, this move will allow Warner to grab a piece of the money brought in not only by record sales, but by concert ticket sales, merchandise, websites, and endorsements as well. While taking money from more places may help to move major labels back towards the black in the short term, it stifles creativity, discourages small artists, and will hurt the labels in the long run.

The basic structure of a record deal has remained the same for as long as there have been major record labels. When an artist is signed, they are required to create a certain amount of albums for the label. The label advances the artist an agreed-upon amount of money to be used for the production of each album. Any advanced money not used in the production process can be kept by the artist, upon delivery of the album. Once the album is released, the royalty money that would be given to the artist is kept track of and kept by the label until every penny of the advance is repaid. This system is called recoupment. Only once the label is recouped will the artist see any money for their album. If the album doesn't sell enough to cover the cost of production, they will never make any money from record sales, but they are also not responsible for paying back the money that the record label gave them. The effect of this system is that many artists of all sizes today make most of their money from touring, merchandise, and however else they can monetize their fame, because the record labels do not have any claim in those areas. With the growing prominence of the 360 record deal, labels can take a piece of, and control, every income stream an artist has. This may not affect huge figureheads of the system like Madonna, or Jay-Z much, but it's a different story for small and medium sized artists who may never completely recoup, and require touring money to live.

In the case of Warner Music Group, and whichever labels go to exclusively 360 deals, the situation is viewed as a problem with return on investment. As Edgar Bronfman explained at the Web 2.0 summit: "it doesn’t make sense for labels to pour money into artist development when CD sales, their primary source of revenue, continue to decline. Without other ways to make money from an artist, they wouldn’t continue to promote artists." Music is becoming more and more easily and freely accessible, and labels don't want to get to a point where their product becomes free, and they have no other income streams. 360 deals, however, can't be a complete and long-term answer for major labels, as the money made from merchandising and ticket sales do not come close to the income from record sales. Labels must change their business structure and spending habits. It is understandable for the labels to want to prevent the loss of their income streams during the paradigm shift caused by new technology, but it creates an environment where musicians don't have much say in their career choices. Although they still currently have many options other than WMG, 360 deals seem to be the way that the industry is headed. The problem for the major labels in the long term is that these poor deals for artists will push musicians towards smaller independent labels who don't have the same requirements, ultimately digging the major labels into a deeper hole.

Interactive Tunes: A New Sort of "i"Tunes

Guitar Hero swept the nation a few years ago with the revolutionary idea that video games and recorded music could merge into one entity. After Guitar Hero, came Rock Band, which expanded and deepened the concept of engaging gamers with music. They then came out with an AC/DC expansion pack (left), showing how insightful artists can use these new technology trends to make new income from old songs and recordings. As the record sales figures continue their decline, artists are searching for, and seizing new opportunities to promote and sell their music. The newest trend to increase the interactivity of music, comes downloaded right into the fan's pocket. There are a couple of remarkable new applications available for Apple's iPhone and iPod Touch. The first is a sort of downloadable digital fan page that will provide updated information, artwork, pictures, even song lyrics for certain artists, and their albums. The first band to try out this channel of promotion is Snow Patrol, with their new album "A Hundred Million Suns." Liz Goodwin, Snow Patrol's manager described it as "an interactive element; a digital booklet that will take you into the videos and content." Such a page will certainly increase a fan's feeling of personal involvement with the band. Nine Inch Nails is using downloadable iPhone and iPod Touch technology to increase personal involvement as well. They are releasing their songs in a sort of Guitar Hero type game to be purchased for Apple's handheld devices called Tap Tap Revenge (seen at the right). Both of these applications are current examples of what may become a personal interactive music industry.

I came across these harbingers of interactive music as I was browsing a couple of the blogs listed in my linkroll, the first at Music Radar by Ben Rogerson, and the second at Wired by Eliot Van Buskirk. I commented on each, the comments are linked, but for the sake of convenience, I've included my comments below:


Snow Patrol to Release iPhone App With New Album:

I think it's incredibly forward thinking of Apple and of Snow Patrol to begin to distribute these "digital booklets." While I agree, "this is hardly the groundbreaking idea that the record industry really needs," a trend of mobile and virtual interactivity needs to start somewhere, and this may be just the place. As technology continues to advance, such a template can be built upon, and eventually could become a viable income stream for artists. Pink is already streaming samples of her upcoming tracks through a similar application (http://blog.wired.com/music/2008/10/iphone-apps-wil.html). Though I am no industry guru, it does seem extremely plausible that as the services offered are able to become more valuable, fans will be willing to pay for them. For example a "channel" devoted exclusively to news, music videos, advance songs etc. of a certain artist would not be too hard to develop and sell to fans. Or your suggestion of being able to download and remix such songs on an iPod would certainly prove lucrative. What other ways do you think that this basic idea could bloom into big business and sales for artists? I think that no matter where the next few years of technology takes us, artists will have to stay at the forefront of the developments and be creative in order to find new income streams to replace the income lost due to the trend of ever-declining record sales.


Nine Inch Nails To Distribute Music Through iPhone App:

It's true, Church, Trent Reznor has been at the forefront of reinventing the music industry for the past couple of years. When he released his last album without a record label to such great success, he made history, and helped create a new business model. This new game featuring Nine Inch Nails songs is a great example of how artists are using the new trends in technology and gaming to find interesting ways to make money. It seems like the next step after the Metallica and AC/DC expansion packs for Rock Band, and now they are even coming out with an independent Rock Band-type game featuring only Beatles songs! (check out http://www.musicnewsnet.com/2008/10/the-beatles-tunes-to-rock-band-game.html). In his book "All You Need To Know About the Music Business," Donald Passman explains that the licenses to songs in video games are purchased for a flat fee, and usually not more than $6,000. This is in the 2006 edition, and while that is fairly recent, it may not be recent enough to account for what happens when the music is not IN the video game, but the music IS the video game. Bringing the gamer into the direct hands-on virtual reproduction of music certainly brings more value to the music itself. I wonder how the payment structure works when it comes to Beatles Rock Band, or Nine Inch Nails Tap Tap Revenge? I would imagine it is a sort of royalty system, since there is no way of knowing how successful such ventures will be, and thus no way of putting a pre-determined "flat fee" value on the music.

Do It Yourself: Modern Music Distribution

On October 10, 2007, legendary rock-and-roll band Radiohead released their latest album, In Rainbows, with an innovative new business model. They sold the album on their website via mp3 download, and fans could pay whatever price they chose, whether it be $0 or $50. This event was widely covered by the media, and proved to be quite profitable for the band. However, some argue that the success was brought by the media. Sarah Lewitinn, co-founder of Stolen Transmissions Records told the New York Times that "for one thing, only established acts with an extremely dedicated fan base could prosper that way. For another, the novelty would wear off quickly." Whether or not Radiohead started the trend, or was merely the most public example, many models of digital music distribution circumventing music labels are beginning to gain popularity. The most successful of these are CD Baby and TuneCore (at right), the latter of which was financed $7 million by Opus Capital on October 27, 2008. These companies distribute music through Amazon MP3, iTunes, Napster, Rhapsody, and more, with no need to be signed to any record label. Artists also retain ownership of the master recordings, and 100% of the royalties. While businesses like these do not help the major labels recover from their already faltering album sales, I think that they are ultimately good for the music industry, because it puts power in the hands of artists, and allows for young artists to grow.

CD Baby's business model works as a percentage cut of income received from the purchase of an artist's work. They keep 9%, and pay the artist 91% of the money made on digital downloads, they also will sell artist's physical CD on their site, of which they keep $4. This is a great way for small bands to have a national distribution for nothing more than the one-time $35 start-up fee. Part of the mission statement for CD Baby reads: "We only sell music that comes directly from the musicians. No distributors... In a regular record deal or distribution deal, musicians only make $1-$2 per album, if they ever get paid by their label. When selling through CD Baby, musicians make $6-$12 per album, and get paid weekly." TuneCore delivers a similar service with a slightly different method of setting up accounts. With TuneCore's setup, the artist pays a $19.98 annual fee per album for maintenance and storage, $0.99 per song, and $0.99 per online store, per album. Once these fees are paid, the artist receives 100% of the income received from purchases of their music, regardless of how popular they are. Cnet writer Matt Rosoff calculated in his blog, Digital Noise, that TuneCore will always be the better deal in the first year, because of the start up fees, but after that, an artist must sell around 370 downloads a year to do better with TuneCore than they would with CD Baby. For large acts, 370 downloads would be no problem at all, and a few established bands have already taken advantage of this, Nine Inch Nails probably being the most notable.

Around the same time as Radiohead ditched their label and tried alternative distribution channels, Nine Inch Nails front-man, Trent Reznor, announced that they too would be self-distributing their album Ghosts I-IV. Their sales system would include a 9-track free sampler, and a 36-track album for $5 available only on AmazonMP3 through TuneCore. In his blog Music Business and Trend-Mongering, Berklee Music professor Mike King does the math and shows that Trent Reznor only had to pay $56.61 to list his 36-track album on AmazonMP3. A TuneCore spokesman who commented on the blog verified this fact: "He did! He paid the same as everyone else, no special deals. I suspect Mr. Reznor can afford it. :)." After being listed, that album went on to make $1.6 million dollars in the first week. This is an extreme example, but makes the point that services like TuneCore and CD Baby have the ability to make an artist's income from record sales directly linked to their success, which is not always the case in the major label system.

Radiohead's system requires that the band be already established, and just making music available is not enough to make it popular or successful, no matter what the distribution channel. Major labels can promote musicians in unrivaled ways, and that is why artists still sign with them, and in doing so, forfeit most of the money made in their name. That's why do-it-yourself distribution is good for the artist. Although it is harder to gain attention as a new band, if any notoriety is reached, there is much more to be gained. More importantly, the success will be based on musical merit rather than marketing dollars. In his blog, Future of Music, Dave Kusek writes: "There is a lot of discussion these days about free music and the decline of the power and influence of the major record labels. However, I would argue that music has always been free in one form or another, throughout history and that the relationship between the artists and their fans - the artists and their patrons is what really matters." In my eyes, distribution companies like CD Baby and ToneCore do more than ever to directly, and globally, connect musicians and fans, and in doing so help pioneer the future of the music industry.

Fact and Opinion: Facets of the Music Industry

Recently, I have been scouring the Internet for interesting and reputable sites I may reference or study in order to write effectively about the modernization of the music industry. In this process, I came across commentary coming from magazine sources, college professors, people in the industry, artists, music organizations, and more. Whatever the source, however, they were presented in one of three ways, either as a blog, as news articles, or as a combination of both. For the sake of this post, I will define a blog as attempting to present some sort of opinion along with the facts, while a news article attempts to stay objective on the matter at hand. Considering the criteria offered from both the Webby Awards, and the IMSA about what constitutes a good post, I critiqued 20 different sources of music industry- related information online. The aspects taken into account were: content, structure, visual design, functionality, interactivity, and the overall experience. All of the sites have been added to my linkroll, but I will also critique each of them on Amateur Arbitration. Each has aspects of good and bad, and, for the most part, each of them attempts to serve a slightly unique purpose.

In the way of the blogs, Ad-Supported Music Central offers an interesting look at the direction that the industry is heading to. The content in this blog is usually timely, and well reported, however it is not posted frequently enough to make it a staple of music blogs. It is visually appealing, almost to the point of being gaudy. Coolfer (at right) is another blog that deals with very current issues, and does so in a quite concise and informed way. They also do a great job creating an interactivity with their many links. Visually simple, Coolfer is a professional and respectable blog. Not so professional, and possibly more interesting because of it, are blogs Hypebot and Idolator. Both of these blogs comment on very current issues in an irreverent, yet informative way. While Idolator is more visually pleasing, Hypebot is far more functional, serving to link to other related stories and comments. Wired Music comments on some very unique issues. Though it is not particularly interactive or structured in a unique way, Wired does a great job of finding interesting content. The blogs with the best content, however, are all part of the same ring. Future of Music, Music Business and Trend-Mongering, and Music Publishing and Songwriting, are all blogs written by faculty at Berklee College of Music. It appears to be part of their job description, as nearly every faculty member has their own blog. These three in particular are especially pertinent to this blog. The frequent posts prove to be cutting edge in content, and are as well informed, and written as could be expected from college professors in the field. While not visually stimulating, these blogs do a great job of providing links to each other, as well as defining their purpose.

Music industry news sites run the gamut of the criteria as well. Sites like The Daily Chord, Music Industry News Network, and Digital Music News deliver great stories from all aspects of the music industry, as well as networking, or personal ads. Digital Music News even has a login, and a job posting board. However all three of these sites are lacking in structure and visual design. They feel like they are simply a page filled with links and nothing more. This does not make the reader want to explore. On the opposite end of the spectrum are sites like RIAA and Billboard.biz. Their designs are very streamlined, professional, and interesting. They give dependable stories, however they are very geared towards the mainstream, and tend to be a beat behind on the latest issues. Music Radar is a very well rounded news site regarding the latest in music equipment. It is aesthetically pleasing, as well as easy to navigate although a bit crowded. Although Music Radar is a very well-done site, it's niche is too small to compete with sites like Pitchfork (at left), Pollstar, and Last.fm. Pollstar is geared towards the live music aspect of the industry, and Last.fm is geared heavily towards the interactive music community, while Pitchfork chronicles the recording aspect of the industry. Based on their quality content, functionality, visual design and great structure, these sites offer a great overall experience, which is why they are each the leader in their niche.

A few sites offer both opinion and fact, for instance Drowned in Sound mixes industry news with music commentary in a visually appealing way. What Drowned in Sound lacks is an aspect of interaction with the reader. Stereogum also combines the blog aspect with the news aspect, and is structured remarkably well, with different sections of the site easily accessible. The site promotes interaction by giving away and streaming mp3s, but the site lacks relevant or particularly engaging news content. The last site that attempts to do both is Music News Net. It provides news, and reviews, though the news seems more to be a sort of celebrity gossip. It's simple and easy to navigate, though Music News Net, like all the sites that try to combine the fact and opinion don't seem to have a clearly defined function or purpose.

It's important to analyze as many sites as possible, as they are a testament to the music industry. All of the 20 sites in the linkroll help to show me what aspects of the industry people find appealing, as well as gave me a window into the status of the industry and it's issues as a whole.

Digital Rights Management: Wal-Mart's Double-Edged Sword

The best workable model for legal digital downloads has been under debate since the fall of Napster and the rise of the iTunes music store. The solution, for many digital download companies, has been some sort of "digital rights management." DRM is a feature embedded within downloaded music files that control how that file may be used. It could control, for instance, how many times a song may be burned to CD, or if it may be burned at all. The exact DRM regulations vary from digital download provider, and the deals they have with the labels providing the recordings.

Wal-Mart Music sent out an email on Sept. 26th to all its digital download service members. It informed them that beginning October 9th, they would no longer be offering DRM support. The Wal-Mart Music Store (seen at the right) began selling DRM-free only downloads starting in February of 2008. This means that any song that was purchased before February 2008 would no have the DRM system to support it, and so would no longer work at all. Their advice was to back up those songs on a CD, to be ripped back off onto your hard-drive and in doing so, losing the DRM limitations.

It is impressive that Wal-Mart would offer nothing but DRM-free downloads at the same price as they offered before. That said, it seems unfair, irresponsible, unethical and even greedy that those songs which were legally purchased would simply cease to work, since many people will be forced to re-buy the same songs they will lose. The only option they offer is to burn CD's in their Wal-Mart default .wma format and rip them back in .mp3 format which means serious loss of quality in the reformatting. This, along with the sheer number of music files people have, makes Wal-Mart's proposed solution a fairly poor one.

If the top music retailer in the country is moving towards a DRM-free format, certainly the whole industry will move that way. This will prove beneficial to consumers and fans, as long as older downloaded songs do not become obsolete. In my research of Wal-Mart's issue, I offered my thoughts in the commentary of two different heavily discussed blogs. The first was on www.readwriteweb.com, the post was titled Wal-Mart Gives Consumers Number 1 Reason Why DRM is Not the Answer. The second was on www.boingboing.net titled Wal*Mart shutting down DRM server, nuking your music collection. The first criticizes the notion of DRM, specifically citing Wal-Mart's move as an example of " the music industry... struggling to gain a foot-hold in the battle with online piracy." The latter argues that by making the older songs obsolete, Wal-Mart is basically punishing those who acted legally, because those with illegal downloads have no such issues with DRM. As well as posting my comments on these blogs, I have posted them below.



Wal-Mart Gives Consumers Number 1 Reason Why DRM is Not the Answer
Post:
I certainly appreciate your laments on the downfalls of DRM protected songs. They cause frustration and inconvience invariably. However, I do think that it is important as well to consider and remember why DRM was put into place to begin with. Not only from a business point of view, but from a historical point of view as well. Granted, it was not too long ago, but the music industry has been forced to change quite a bit over the past 10 years. At the time when iTunes was just unleashing the iTunes Store, Napster had just been shutdown, peer to peer was king of digital downloads, and the record labels were terrified of the idea of any sort of downloading of music. They tried to protect their intellectual property in any way possible, even creating CDs that couldn't be recognized by a computer at all, and part of this protection was the use of DRM in audio files. While it is certainly a hassle to deal with, it was necessary to have for the record labels to get the piece of mind they needed to allow iTunes and all subsequent legal download businesses to get started. Now, the distributors of digital downloads are slowly moving towards rescinding DRM restrictions, and I think you are entirely correct in saying that Wal-Mart has done a poor job of making that move. Whether through oversight or lack of caring, they have not considered the consumer at all. ITunes also is already offering some of their songs in a DRM-free format, and for previously downloaded songs, they offer a 30-cent upgrade. Even without the upgrade, the songs will not become obsolete. Wal-Mart should certainly offer a similiar protection program for those who will otherwise be left with inoperative audio files.



Wal*Mart shutting down DRM server, nuking your music collection.
Post:
Thank you for bringing up the relatively recent moral dilemma that DRM and digital downloads present. The way that Wal-Mart has dealt with moving away from DRM songs is just one more reason to shy away from legal digital downloads. You now can't even be sure that if you do purchase something legally, it will continue to play for years to come. While you don't have to have the hassle of DRM downloading through peer to peer networks, you do have to worry about being sued by the RIAA, and the potential heavy conscience from stealing intellectual property. According to slyck.com, you have a higher chance of being killed in day-to-day living than you do of being sued by the RIAA (http://www.slyck.com/news.php?story=769), but that doesn't mean it can't happen to you. Jammie Thomas is a single mother from Minnesota who was the first person to let an RIAA suit go to trial. She lost the case and had to pay $222,000. Copyright infringement is not cheap to mess with if you do get caught. This hasn't stopped the youth of today, and the disregard for musical intellectual property is changing the way that the industry works. A survey of British kids ages 14-24 revealed that "Around 90% of respondents now own an MP3 player. They contain an average of 1770 tracks - half of which have not been paid for." (http://www.futureofmusicbook.com/2008/06/18/survey-of-british-youth/) This is astounding. Along with new technology comes the slow adoption of it, and eventually the exploration and regulation of it's limitations. This is what happened with file sharing, and now with DRM. They are being pushed into the technological age.

SongVest: The Music Memorabilia That Pays

Online auctions have proven themselves to be one of the most effective and lucrative ways to make money on the internet. People have sold nearly everything on eBay in the past, so it is a wonder that song royalties have never made the list until now. A new company called SongVest has taken the online auction business model and merged it with the business of the distribution of royalties. Customers bid to own a share of certain songs that are offered, including songs performed by Bon Jovi, Aerosmith, Garth Brooks and more. The winning bid for each song receives a personalized plaque, an RIAA-certified gold or platinum album award, other commemorative items, as well as the royalties awarded on the song prorated to the percentage of the song they own. They get paid whenever the songwriter does. Songwriter Mark Hudson, who has several songs that will be auctioned on SongVest, said: "No one is buying records. This to me is just another angle." In my view, SongVest is an innovative and revitalizing attempt to glean new income streams in an industry that has seen declining profits of late. Although the system doesn't seem completely ideal for the writers to me, this is a good way for them to capitalize in the changing music industry.

Whenever a song is licensed, anywhere from a TV ad to the radio, or a copy of a song is purchased, a portion of the money is paid in royalties to the songwriter. This is not to be confused with the royalties paid to the artist (granted they are sometimes the same person). There are two different types of copyrights at work, one is regarding the recording itself, and other is regarding the song itself, as composed of a written tune and lyrics. For instance Lee Hazlewood wrote a song called, "These Boots Are Made for Walkin,'" which became popular as performed by Nancy Sinatra in 1966, and again in 2005 when it was recorded by Jessica Simpson. If either song is licensed (e.g. used in a TV ad) or purchased (e.g. buying the album), Lee Hazlewood would receive his share of the royalties based on the song copyright through the song publisher (as seen on the right), while the artist would receive her portion of royalties based on the recording copyright through her record label. It is Lee Hazlewood's portion of royalties that SongVest would be auctioning off to the highest paying Simpson or Sinatra fan. The song copyright still belongs in full to the songwriter and publisher, so buying a share of the royalties does not mean buying a vote in how the song may be used.

The auctions work in a way very similar to eBay. A seller can determine a minimum bid, the duration of the auction, and what percentage of their song royalties will be auctioned. Although the first official auction will take place from October 4th through October 18th, SongVest has found success in its smaller test auctions. The first one had a $25,000 buyer for 25% royalty shares of two songs by the 80's Christian-Metal band Stryper. The picture on the left shows GB Leighton fan Toni Reynolds standing with Leighton and her newly acquired 50% share of his platinum song. When a customer wins an auction, SongVest takes responsibility for collecting and distributing the royalties to the winning bidder, after garnering 25-40% off the top of the sale price. With such huge names already in their repertoire, SongVest is expecting as much as $250,000 dollars to be spent on some of the songs in their first auction.

Song royalties are purchased in bundles all of the time, but "They're bought and sold on a pure investment basis," says David Prohaska, co-founder. "What about people who really love the music?" SongVest markets their auctions as the ultimate purchase in memorabilia, not as an investment to make money. It connects the songwriters to the fans, and that is where the value comes from. This is crucial to the preservation of good songwriters in the music industry. While a performing artist can take a top hit and tour the country with it, making hundreds of thousands of dollars per concert, the songwriter doesn't have that ability or income source to fall back on. With the recent and worsening decline of album sales, SongVest, and any other creative services that will emerge if SongVest is successful, help the songwriter capitalize on, and be compensated for their work.

It must, however, be noted that the deal is not completely ideal for the songwriter. A cut of 25-40% can easily be seen as gouging the songwriter, who may be in need of cash (a Hollywood agent only takes a 10% cut). As an Idolator.com writer assessed: "strapped singers and broke bands will happily treat their art like eBay merchandise, provided it takes care of those child-support payments and student loans." In essence, he asserts that SongVest helps songwriting artists sell-out to "the man." This may be true, but the songwriters do not give up control of the intellectual property, only forfeit some of the royalties for a price over ten times what they would receive in a standard music publishing sale, where they would no longer control the song. For a business deal similar to consignment, 40% is a large piece of the pie, but on the other hand making 60% of $250,000 simply because a rich patron really liked the theme to The Monkees would be too good to pass up for many songwriters.