Piracy and its Impact on Philippine Music Industry

Based on Danny Yson's report:

• The Philippine music industry was a P2 billion thriving industry, selling local and international artist songs, before the vicious tentacles of music piracy choked it to near collapse starting year 2000.
  
• It is estimated that the pirate audio disc piracy was a P1 billion a year illegal business while the legitimate industry has dropped by 25% in the year 2000.
  
• In 2001 alone, sales plummeted by 42.5% because of piracy.
• The loss of revenue in the local music industry continues to date.
  
• As an indication of poor sales, Philippine Association of the Record Industry (PARI) certified gold and platinum awards given in 2001 were only 18 compared to 35 in 2000.
  

The PARI has also reduced the required sales units for a gold record to 7,500 units from 20,000 units for international repertoire and 12,500 units from 20,000 units for OPM. There are is an average of 15 to 20 albums hitting a gold record while up to 3 albums may reach platinum in a year these days.

In the early years of music up to 2003, majority of records sold is from international artist pegged at 70% while OPM sales is only 30% at that time. However, the campaign for Original Pilipino Music (OPM) and the popularity of bands resulted to a market shift. Majority of sales today is OPM pegged at 70% while international labels is at 30%. (for further validation)

The local music industry has not grown much since the year 2003 where sales have not even reached P1 billion since that time - as the music piracy business is eating most of its market. Therefore, today in the year 2008, the local recording music industry is a struggling sector earning revenues up to P840 million a year from CDs, mobile phone tones, and Internet music download purchases. (for further validation)

The pirated music sector, victimizing local and international music, is growing at 40% to 50% per year and earns around P2 to 3 billion a year on local pirated music in terms of duplication, non-payment of performance rights, print rights, and digital performance rights. (for further validation)

Music piracy has shown that people love music but may not necessarily find it worth paying to the usual prices it is marketed today. Unlike movies and games where a person needs to have a player and set a time to watch, music can be heard almost anywhere and mostly for free (radio, coffee shops, bars, establishments, online radio, among others).

In addition, pirated music is so affordable that even artists that are not that popular are being purchased by Filipinos out of curiosity at the time of purchase. If no pirated CDs are available, it is still possible that pirated music buyers will not buy legitimate copies in the first place. Therefore it can be assumed that a big percentage of pirated music customers are not really the paying customers.

Music can indeed be heard everywhere but somebody (record label, radio, tv, bar or malls) paid for its cost. It is hard and perhaps even unfair to go on a price war with pirates as they do not incur expenses other than manufacturing cost. They did not spend money on production and marketing. As a result, record labels are reducing the number of releases. Just a few years back, big record labels will have 12 albums scheduled for release in one year. Today, most labels only have 5-6 albums planned releases for the year. While 1 to 3 big players will likely launch up to 12 albums a year.

We heard of international popular artists leaving their record labels to go on their own, partner with retailers, concert organizers, and even online music sites. This is caused by the dwindling sales of CDs and as a result, everybody's looking for other revenue streams. CDs are now being bundled with concert tickets, merchandise, among others. Independent artists have the freedom to do whatever they want with their songs and albums such as selling whatever price the consumer is willing to pay. In the end, music can be made cheap but it's not free.

Of course, if the artist has not established a following or name in the industry, the above options may not possibly work out without working with a record label. Especially if they want to profit from their music.

Minimize or eliminate piracy
In the eyes of intellectual property rights advocates, possessing a pirated cd/dvd or whatever copyrighted works should be criminalized. If nobody buys pirated work, then the pirates will stop or reduce their production. However, that's wishful thinking as eradicating piracy is a tall order but tougher Intellectual Property Rights Law implementation can perhaps minimize it.

Music Recording and Publishing in the Philippines

The Philippines has gone a long way in recording original music with Filipino talents. So much has changed for the past 94 years and with the emergence of new communication means such as the Internet and mobile phones, this industry continues to boom with talent.

The life-cycle of music recording and publishing is also changing and one must adapt to the changes happening today. Usually, for a single or album to be produced, a lot of things happen that includes the following players:

1. Composer
A composer owns the copyright of a song. They earn from:

• Mechanical production
  Permission is granted by a music publisher to mechanically reproduce music onto some type of media (e.g. CD) for public distribution. They earn a royalty of 3% to 7.5% based on the number of recordings sold.
  
  
• Performance rights
  Music is played live or broadcast on TV, radio, bars, restaurants, etc. The fee collected by Filipino Society of Composers, Authors and Publishers Inc. (Filscap) is distributed to members (composers and publishers) annually. Music users submit playlists or cue sheets which in turn become the basis for paying the composers. Everybody gets the same rate, in effect "more play-more pay". The fee due to Filscap is based on a percentage (1% -3%) of gross revenue of the music user (radio, tv, et al.). It's a negotiated rate so it varies.
  
  
• Synchronization rights
  Use (reproduction) of a song used as background music for a movie, TV show, or commercial. This is negotiated and dependent on the usage of the song. Usage can be one time or perpetuity. Fees start at P10K and can go as high as 500K. Users will also have to obtain a master usage license from the record label if they want to use the original sound recording. The fee is usually lower than sync fees.
  
  
• Print rights
  Royalties earned from sales of printed sheet music. Royalty is paid to the recording artist, songwriter, and publisher based on the number of music sheets sold. The rate is the same as mechanical production.
  
  
• Digital Performing Rights
  They get the same rate as indicated in their mechanical production royalties. For mobile content, the label, artist, and publisher share in whatever is left after deducting expenses (carrier costs and content providers costs). For truetones, ringback and full track, this is usually 30% of the end user price. Rates are computed according to their mechanical production rates.
  
  However, for monotones and polyphonic tones that only plays the basic melody of a song, the full revenue share goes to the composer.
  

2. Arranger
If someone else (arranger) writes the music for a song, then that copyright is shared with that person. A revenue sharing is arrange between the two, usually 50%-50%, for this purpose.

Although in the Philippines, this is no longer the case as arrangers doesn't get any royalty from the sale of the song/album. The arranger is usually paid 8,000 to 15,000 per song depending on their stature.

3. Music Publisher
A composer may opt to assign his copyright to a publisher for a period of time. They will market the song to record labels, television, movie producers, other interested parties. If tapped, publishing deals vary. It can be a limited publishing agreement where you can license all rights to the publisher except digital rights (though publishers rarely agree to this). Revenue sharing can be 50 - 50, 60 -40 or even 70 - 30.

4. Singer, Band, Performer
Singers usually sign-up a contract with a record label and earn from:

• Mechanical production
  Payment based on record sales or the amount which the record label collects from its outlet. Royalty base price is usually the wholesale price less vat.
  
  A few years back, artist's royalty rates range from 3% to 19% with an advance of 5k per song or up to 1.5M per album for superstars. However, due to plummeting sales - artists' now agree to reduce their royalty rates. The maximum royalty rate labels give now is 10% and that is for superstar status artists.
  
  The label usually pays the artist an advance for the production and the artist will have to recoup it from royalties due him/her. It is also interesting to note that some artists now agree to record deals without an advance royalty.
  
  Some expenses are also factored in the royalties computation such as:
  
  
• Free copies given to media, radio stations, and promo copies are not included in the computation. (limited to 10% of sales)
  
  
• Unsold copies are not paid for as music distribution outlets can return them.
  
  
• Labels usually hold back 10%-20% of royalty payment to artists as provision for returns/breakage. Music CDs, sold as physical goods, are assumed to be prone to it.
  
  
• Expenses are also deducted, full or part depending on negotiation, such as:
• Packaging - industry rate is 10% but hardly practiced in the Philippines.
  
• Manager fees
  
• Band fees - for album promo tour, the label and artist usually split the cost.
• Recording cost - have the option to pay for the recording if the artist wants to get the master ownership back after an agreed period of time.
  

• Digital Performing Rights

• If their royalty rate in their contract is 5%, then they get 5% of all monies received. For mobile content, the label, artist, and publisher share in whatever is left after deducting expenses (carrier costs and content providers costs). For truetones, ringback and full track, this is usually 30% of the end user price. Rates are computed according to their mechanical production rates.
  

4. Managers
They sign-up performers to manage their careers by getting deals to generate income as such as recording, gig performances, advertising endorsement, among others. Some labels now also act as managers. The usual fee is 25% - 35% of all income.

5. Record label
Upon signing an agreement, they create, market, and distribute the recordings. They hold the sound recording copyright. They cover the major expenses such as promotion, marketing, studio rental, contracting of technicians and musicians, packaging and duplication.

The label shoulders the recording costs and shall own the master in perpetuity.

• However, should the artist opt to pay for the recording, then the master ownership should revert back to the artist after an agreed period of time. The label usually pays the artist an advance for the production and the artist will have to recoup it from royalties due him/her.

Apart from record sales, they also earn from:

• Performance rights
  Music is played live or broadcast on TV, radio, bars, restaurants, etc. Labels does not receive anything from Filscap as they only service the composers and publishers.
  
  Music and Video Performance Inc. (MVP), that will soon be referred to as Music & Copyright Administrators of the Philippines (MCAP), is a private organization that has for its purpose the collective administration of the “communication to the public rights” of record producers. The society was formed late last year and is the counterpart of Filscap. It shall also handle the collection of mechanical production, synchronization, and print rights. (for further validation)
  
  It is the collecting agent of Philippine Music Public Performance Society, Inc. (PMPPSI), representing music producers, and is looking at charging users the same rate. As of this writing, PMPPSI, will still have to meet with MVP to formulate the implemeting guidelines. PMPPSI will also handle the remittance of the artists' share collected by MVP/MCAP. (for further validation)
  
  
• Master use license
  The use of a song used as background music for a movie, TV show, or commercial.
  

4. Session Musicians
For recording, they charge on a per track basis with a minimum of 2 tracks if you opt to hire them. Rates differ as they depend on the stature of the musician. Top musicians charge 2.5K - 3k per track.

• Most musicians are members of Asosasyon ng Musikong Pilipino Foundation, Inc. (AMP) This is an organization formed with the intentions of professionalizing the Filipino musician and providing benefits that will help the individual cope with the daily rigors of being a musician.

To facilitate in the collection of royalty fees, mechanical rights, performing rights, and other organizations come into play. It is important for players in the industry to register themselves and their work to be protected.

• Mechanical rights organization (the right to record a song)
• Filipino Society of Composers, Authors and Publishers Inc. (FILSCAP)
  A non-stock, non-profit association of composers, lyric-writers, and music publishers established in 1965 to administer the public performance, mechanical reproduction and synchronization rights granted by law to creators and owners of original musical works. It represents the rights of both local and foreign composers, lyric-writers and music publishers. FILSCAP’s role is that of a unified body of music copyright owners to which application for a permission/license may be made by a person or organization intending to perform, authorize the performance of, mechanically reproduce and/or synchronize copyrighted music in any manner or by any method, for profit or otherwise. (for further validation)
  
  
• Music and Video Performance Inc. (MVP) / Music and Copyright Administrators of the Philippines (MCAP)
  MVP or MCAP is a private organization that has for its purpose the collective administration of the “communication to the public rights” of record producers. It shall also handle the collection of performance rights. (for further validation)
  
  
• Performing rights organization
  
• Performing Rights Society of the Philippines, Inc. (PRSP).
  PRSP acts as the collecting society of performers, such as actors, singers, musicians, dancers and other persons who act, sing, play in, interpret or otherwise perform literally and artistic work. It seeks to protect their common interests and welfare, promote cooperation and collective action in the pursuit of their similar goals and objectives. PRSP guarantees them their benefits, including the collection, distribution and application of royalties on their behalf.

I'm still updating this page to make it more accurate. Your insight will be very much appreciated.

Buying Filipino music download online

The increasing penetration of mobile phones that has music download capability and Internet users becoming more sophisticated globally, creates an opportunity for the selling and buying of music download online.

Internet-based music download sales reaches up P24 million a year and at its infancy stage. Most of these revenues are derived from international music sites such as iTunes. (for further validation)

Admittedly, not all record labels and websites are ready for this as piracy, cost, and other legal constraints come into play. Checking out music websites online led me to the following discoveries:

• Amazon now sells 1500 Filipino music titles online. Most of the images I noticed has a watermark of TatakPilipino.
• There are almost 110 Filipino artist listed in MP3.com but I haven't found any of them selling music downloads.

There are sites where some of the local artists were able to get their songs listed. Some of them includes:

• iTunes - the band Overtone, Kitchie Nadal, Universal Records, and Star Records have Filipino songs sold through it and can be purchased at US$0.99 each.
• From what I found out by asking around, at least 0.70 goes to the artist/record label. In the U.S., bands normally get 4.5 cents on every 99 cents digital download while the music publisher gets 9.1 cents.
• Local record labels would surely love to have their catalogue on iTunes. However, iTunes doesn't deal with record labels where iTunes is not available. The only way to do it is to have a deal with an agent based in a country where iTunes is available such as The Orchard. In that case, the revenue for the label will be lower as the agent will receive a commission for every download.
  
  
• Digijooze - is a local site where it sells music download of various Filipino artists and the cost per song ranges from 10 to 12 pesos. A prepaid card is usually purchased and the credits in it are used for purchasing. Record labels are usually offered up to 50% to 80% cut of the retail price. (3rd party source, no info on site, e-mail bounces) The site is able to offer at a lower rate as part of its value-added service is to improve record labels' website as well.
  
• As the site is selling songs using MP3 format without digital rights management (DRM), this has discouraged some of the record labels.
  
• I was trying to purchase from this site and realized that I can't buy the Digijooze card online as there is no registration page for that. When I clicked on the credit card feature, I didn't proceed as it immediately asked for personal information without even asking me to order the merchandise first and be informed of its cost. This makes me wonder on the policy of the credit card payment gateway it signed up with as that is usually not allowed.
• This site will also be working with one of the big shopping portal site in the country soon.
  
  
• Fliptunes - this site has almost 7100 songs that can be purchased online at 30 to 40 pesos each. It offers music downloads in WMA format with DRM. The site accommodates signed and independent artists and bands. Including video, its listing reaches up to 9000.
  Revenue share given to record labels is at 80%. (3rd party source, no info on site, refused to disclose)
  
  
• PinoyTunes.net - this has 4281 songs that can be purchase at US$0.75 per download. Revenue share given to record labels is at 80% (3rd party source, no info on site, no reply on inquiry so far)
  
  
• Another site where Filipino artist also tries to get into is Payplay and CDBaby.
  (Drip's song Far Side of the World can be found on that site)
• Mostly indie bands and performers.
• Record labels are not so keen in having their songs downloaded without DRM.
  
• Other popular sites where we will see more artists likely to join in the future are:
• Musicane
• Indie911
• Fuzz
• SNOCAP
• TuneCore
  

The download volumes of all local music sites are not encouraging at this time. There's no royalty report submitted as of this writing. In addition, there's hardly any marketing effort visible at this time on TV, radio, print, and online to drive sales. However, local record labels are optimistic still.

The revenue sharing arrangement between the record label, composer, and artist is based on mechanical production and digital performance rights.

As I was told, some CDs have different pricing tiers. Pricing usually depends if the CD is just released or if it's an old title. Obviously, the new ones would be more pricey than an old title unless the newly released CD has some sort of promo.

For music purchased online, one can argue that it is expensive compared to a CD with its per song price. Although being able to purchase only the songs you like may make it cheaper.

Potential of online music in the Philippines

Music is currently one of the growing products being traded online. This is now seen as a popular means of reducing the cost of production and distribution.

In the Philippines, it is known that music piracy is quite rampant. A question that usually gets asked is whether the selling of digital music online can possibly prosper? Looking at the growing number of e-commerce sites that sells and ships Filipino music, it is fair to say that there is market overseas.

Locally, despite the popularity of the Internet and television as an entertainment medium, radio lives on and this is where most of us get our dose of music everyday. With the popularity of music gadget players, this further encourages it.

In the Filipino Internet User Report Part 2 (released in 2003), this is the data that I got:

• 28% of Internet users spend online time listening to music.
  
• While offline, they listen to the music around 7 to 10 hours a week.
  
• Radio listening takes 7.8 to 8.2 hours per week.

In the Young Filipino Internet Users Habits Report (released in 2007), I also note that 84% listens to the radio regularly with 90.7 Love Radio leading.

Of course, the challenge there is how many listeners of music will be willing to buy online. What do you think?