“Bono & Friends are serious hypocrites and not called on it enough by the left,” said one.  “They’re capitalist pigs disguised as a peaceful democratic band,” said one.  The most pithy was “Bono = Wesley Snipes,” a reference to the actor’s long record of issues with the IRS which has led to his being a temporary guest at the McKean Federal Correction Institution.

While Twitter is a fine medium for venting opinion, it’s impossible to deconstruct the complex issues of U2’s tax status 140 characters at a time.  Getting to the crux of the matter requires a subjective deconstruction of U2’s tax situation.

I’m hardly an accountant or a tax lawyer, but as a taxpayer, here’s how I understand the matter in as subjective a way as I know how.

Tax Avoidance vs. Tax Evasion

Paying taxes is a way of life.  We all do it, recognizing that taxes go to running government and all that flows from it.  But because we all work hard for our salaries, few of us want to pay more taxes that we have to.  Tax law allows us to claim deductions:  retirement contributions and pensions, charitable donations, education costs, political contributions, medical expenses and so on.

We can call these legally encouraged deductions tax avoidance.  We’re simply trying to avoid paying taxes that we don’t have to.  We’re being tax efficient.  Nothing wrong with that, right?  (Hardcore socialists and communists can stop reading now.  The rest of what I have to say will just make you mad.)

Tax evasion is a different matter.  That’s when you try to dodge paying your taxes by fraudulent means:  false claims, laundering money, not reporting income, using dodgy off-shore bank accounts, not collecting and remitting sales tax—that kind of thing.  Tax evasion is a serious crime and if you’re caught, you will pay, just as Mr. Snipes is doing now.

Businesses as Corporations

A corporation is a way of organizing a business.  Only a government can grant corporate status to a company, giving it legal rights that separate it from its owners.  For example, if a lawsuit is brought against a corporation, the owners have separate legal standing—limited liability—which protects them from, say, having their houses and assets seized.  And lest you think that all corporations have names like Exxon and Apple, ask any small business owner if they’re incorporated.  Chances are they’ll say “yes.”  Hell, I run my own tiny corporation.

There can be certain tax advantages for being a corporation.  For example, your revenues might be taxed a far lower rate than what you might be dinged for as an individual.  The thinking is that while corporations must pay tax, governments can’t OVER-tax them.  That might cause them (a) not to expand the business by hiring more employees, investing in equipment and other things that impede a growing contribution to the well-being of the economy; or (b) move to a jurisdiction where corporate taxes are lower, even if that means just moving to a neighbouring suburb.

Bands as Corporations

As un-rock’n’roll as this may sound, many, many entertainers are incorporated companies.  Or, more correctly, they’re owners/partners or even employees of some kind of corporate entity.  Nirvana, for example, remains a corporation under the name Nirvana LLC.

Why incorporate as a band?  The same reason any business unit would incorporate:  to receive legal tax deduction privileges and write-offs.  Being in a band is hard enough without having to pay more taxes than you legally have to.

When a band is organized as a corporation, its members are shareholders and employees and therefore draw a salary.  They get regular paycheques like you and me, complete with the requisite tax deductions.  (As shareholders, they’re also eligible for things like dividends, but they get taxed on those, too, as well as capital gains and a plethora of other revenues.)

And let’s not forget that bands require support staff and a business infrastructure:  offices, administrators, accountants, managers, lawyers, rehearsal space, roadies, property taxes, utilities.  Bands employee these people and often offer benefits and insurance as well as paying payroll taxes.  These employees then pay tax on their salaries.  The whole enterprise contributes to the economy, just as any business.

The U2 Corporation

U2 has been run as a corporation for decades.  Behind the four guys in the band is the massive organization that’s required to keep the entity known as U2 running.  This includes not only touring and selling records, but managing the complex day-to-day business dealings of being a company that operates in dozens and dozens of territories around the world.

U2 Inc. employs dozens of full-timers.  When U2, the band, goes on tour, U2 Inc. hires hundreds and hundreds more.  When a show comes to town, millions of dollars are injected into the local economy.

Revenues in a good year are in the hundreds and hundreds of millions of dollars.  You don’t think Bono (or guys like Mick Jagger or Dave Grohl) sit at home struggling with QuickBooks, do you?

The U2 Tax Situation

It used to be that Ireland allowed artists to earn income tax-free.  Keen to encourage the development of a new creative class in the country (and all the benefits that come with such a thing), the Irish government introduced that law to attract heavily-taxed artists from the UK and elsewhere.  It worked marvelously, too–so well that other governments began considering similar tax incentives to artists.

However, in June 2006, the law was amended.  Royalties of up to $300,000 remained tax-free, but beyond that, the artist had to pay.

As a corporation, U2 was based in Ireland for decades.  U2 was suddenly on the hook for tens and tens of millions of dollars. So when the 2006 change into effect, U2 Inc. moved its official residence to the Netherlands where tax laws are a little more generous.  This allowed U2 Inc. to pay half as much in taxes as they were paying in Ireland.

As The Edge said when they made the move, “Of course we’re trying to be tax-efficient.  Who doesn’t want to be tax-efficient?”

But hang on.  Let’s not forget that because the members of U2 remain Irish citizens, they continue to pay tax in their home country.  And because some of them own properties in other countries—France and the United States, for example—they’re also liable for paying taxes in those jurisdictions as well.

U2 has a stake in more than a dozen different companies, from real estate to Bono’s Elevation Partners venture capital fund in Silicon Valley.  All these companies employee many dozens of people and they pay taxes on their revenues.

Yes, they have accountants and lawyers who try to reduce the amount of taxes they pay to the bare minimum—but again, that’s totally legal.  I’d suspect that any of us would want to do the same thing.  Pay taxes, yes.  But why pay more taxes that you have to?

So let’s be very clear:  U2 and U2 Inc. are hardcore capitalists.  Yes, they’re a rock’n’roll band, but they’re also in it to make money.  If they didn’t protect their interests in this way, then the money they generate would go to a record label, a music publisher or someone else.  They’re just protecting what’s theirs and exploiting it for all its worth.

The PR Problem (or, As Some Call It, the “Hypocrisy Problem”)

To the world, U2 preaches charity, human rights and help for the less fortunate.  And let’s be honest:  they’ve done a lot of good.  Amnesty International and Greenpeace have benefited from U2’s support and generosity.  They, more than just about any other entity, have been supporters of Aung San Suu Kyi with their Burma Campaign.  There’s the RED and ONE initiatives.  And don’t forget about DATA (Debt, AIDS, Trade and Africa.)

Meanwhile, for the last decade, Bono has pestered the highest levels of government (even the Pope) over issues of foreign aid and debt forgiveness for the Third World.  His humanitarian efforts have attracted the attention of the Nobel Peace Prize people.  He also has an honorary knighthood from the Queen (He can’t be a full knight because he’s not a British subject.)

Organizing such programs takes people, time and money—much of which is drawn from U2 Inc.’s coffers.  Yes, a portion of these expenses are inevitably used as charitable write-offs, but the good that results should be worth it, right?  Or so you’d assume.

But here’s the contradiction:  While U2 preaches generosity and charity and chides governments for not doing enough to support their anti-poverty drives, U2 Inc. seeks to reduce the amount of taxes they pay to those governments.  When the U2 Inc. moved out of Ireland, the country effectively lost 1% of its income tax revenues, making it more difficult for them to reach Bono’s requests for more foreign aid.

The result is the current public relations nightmare:  “Yeah, U2 talks the talk, but do they really walk the walk?”

There have been other PR setbacks, too:  the Edge’s long-running battle with environmentalists in Malibu, California, over a real estate development; the endorsement deals with Apple and then Blackberry; and the Louis Vuitton ads featuring Bono and his wife, Ali.  Not very rock’n’roll, this.

The Music Problem

To some, the less-than-successful No Line on the Horizon album has proven that U2 has lost it musically.  Combine that with what some see as the over-the-top vulgarity of the 360 Tour has turned the band into a dinosaur rock band full of millionaires, not unlike the Rolling Stones or Bon Jovi.

Over the last half-decade, I’ve noticed a growingly disdain (and sometimes outright hostility) for all things U2, especially amongst the under-30 crowd.  They just don’t matter as much of the young end of the music fan spectrum as they once did.  Combine this with the PR issue resulting from tax decisions and you have a really nasty situation that’s hard to explain let alone defend.

So Now What?

U2 finds itself in a delicate situation when it comes to their public image.  Sure, they still have millions of fans worldwide and revenues from the 360 Tour will exceed $700 million by the time it wraps up next month.  But they’re also in danger of becoming more and more irrelevant to the younger end of the music scene.  Meanwhile, older fans are beginning to question their heroes’ true motives.

Yes, they’re undoubtedly the biggest band in the world right now, a title earned through decades of hard work.  But it’s time for U2 to go away and dream it up all over again.  On the PR front, they’ve got their work cut out for them.

Further reading:

U2 Protest at Glastonbury

Background on U2′s Tax Motives

According to data collected by a new app called Music With Me—which promotes musical discovery through social sharing—people who share music buy a lot, too.  A lot more.  About five times more than they share.

The psychology behind this is interesting.  The reasoning is that if you share music, you create a common bond with people who took you up on your offer.  The more music is shared, the more bonds are created.  And in the end, the people in these bonds end up buying more music digitally.

If you want to read more about the subject—and it’s fascinatingly counter-intuitive to what we’ve been told about file-sharing—go here..

The answer?  Eddie Vedder.  In fact, there’s something in Pakistani rock culture called “Vedderisation,” which refers to the influence Eddie’s style had beginning in the middle 90s.

There are now dozens and dozens of rock bands in cities like Lahore and Islamabad who say they owe everything to Eddie.  He got them into Pearl Jam, Pearl Jam got them into grunge and grunge was the window to the rock of the West.  It’s a fascinating story of cross-cultural influence.

Check out this blog that appeared this week in a major Pakistani newspaper that explains why Eddie Vedder is so important to that country.

The station’s space was reclaimed and the equipment sold off.  (This turned out to be a good thing for me, personally, because the guy bought the transmitter for a new station.  When it went on the air, he was the first person to give me a radio job.  But I digress.)

It would take sixteen years before the U of M realized its mistake and was able to put a new station, UMFM, back on the air.  A right had been wronged.  Meanwhile, though, the entire city was deprived of the boom in independent music, punk, hip-hop and all things alternative.

As someone who lived in Winnipeg for much of that time, all that anyone got was a steady diet of Bon Jovi and Whitney Houston from the commercial stations.  Hip-hop?  Forget it.  Thank God for MuchMusic.

For decades, if you wanted to hear the newest and coolest, the place to listen to was the local campus station.  Alt-rock would not be what it is today had it not been for the support of college radio beginning in the late 70s.

However, something resembling what I saw in Manitoba back in 1980 is is beginning to happen again, especially in the US.  Colleges and universities are selling off their campus stations to community groups, who then change the format to something other than a diet of independent music and otherwise non-mainstream music.

Why?  Because the prevailing thinking is that students aren’t listening to radio anymore.  They’re getting all their music online and therefore don’t listen to any radio stations anymore.  Why should the school bother with the expense of a campus station?

It’s rather sad, really.  This isn’t good for music, either.  Campus stations are traditionally where everyone gets their start.  If college radio disappears, that’s another avenue no longer open to new bands.

And I’m not the only one who feels this way.  Check out this article from last Sunday’s New York Times.

“Apple has once again captured the attention of the Internet world with the unveiling of the iCloud, an online backup system that will allow users to instantly store their content on Apple computer servers so that they can be accessed anywhere from any device…While the licensing approaches differentiate Apple from its competitors, all three cloud music services share a common characteristic when it comes to Canada — none will be available here anytime soon.

“The Canadian market features at least three legal issues — licensing, levies, and the lack of legal flexibility — each of which could create a significant entry barrier.”

Read the rest here.

And what with the rampant speculation of what Steve’s people might do given (a) the recent cloud offerings from Amazon and Google; and (b) the technology Apple acquired when they purchased Lala, there was always going to be room for disappointment.  In the end, though, we ended up with a good news/bad news sort of day.

I’ll leave the announcements regarding OS X Lion, iOS5 and the other aspects of iCloud for other people.  Instead, I’m going to confine these semi-random observations to the new relationship between iCloud and iTunes.

Good news!  Re-Downloads Are Here!

For the first time in the digital age, we can re-download music purchased from an online store to multiple devices–up to ten, in fact.  Buy an album or song from iTunes on your Mac and have it automatically pushed and synced via WiFi to your iPod Touch, iPhone or iPad.

But What Does This Mean for My PC?

What does this mean if your iTunes library lives on Windows-based PC?  Not sure yet.

Wireless iTunes Syncing?  Really?

Yes!  Wheeeeeeeeee!  Cut the white wire!  About bloody time!

iTunes Software Is Still Fat and Bloated with Unnecessary and Half-Baked Features

Boooooooooooooo!  And there’s still no web interface, which cuts into its flexibility.

iTunes Match Sounds Like a Pretty Good Idea

With 18 million songs in the iTunes master library, there’s a decent chance that a scan of your iTunes music collection will find a match–including music files of, er, dubious providence and origin.  Sure, you may have some remixes, indie tracks, obscure songs, bootlegs and live tracks with no matches, but most people should do fine.

The quality of the music files will be good, too:  256 kbps with no DRM.  This means that if you have a song was ripped at, say 128 kbps, you’ll end up getting a version that’s better than the original.

Scanning and matching will also save time.  Unlike Google Music and Amazon’s Cloud Player, you don’t have to upload your own tracks to your digital locker.  If you have a big library, that can take days, weeks or even months.  ITunes Match should work in minutes.

There’s a generous storage limit, too.  As long as you pay your $25/year, you can access up 20,000 songs from iCloud as long as you have them on your home hard drive.  Presumably it’ll stay that way that way until you stop paying.

And yes, the tracks will be resident on your devices; you won’t kill your data plan by streaming your music from Apple’s data centre.  Again, I presume they’ll disappear from your devices if you stop paying for your subscription.

Wait:  Did You Say That Apple is Going to Scan My Computer?

Apparently.  And “scanning” means “data collection.”  What will Apple do with the information they gather?  Think the record labels would be interested in these kinds of analytics?  This sort of consumer data from 200 million iTunes account holders is worth a lot.  You have to think that the deals they sealed with data covered this sort of thing.  I thought that the $100-150 million in cash Apple advanced to the major labels was low.

And what about indie labels?  As far as I can tell, they get bupkis in this deal.  They’ll just have to go along with the arrangement brokered by the majors.

And what about the RIAA?  Will they be paying visits to those suspected of having less-than-kosher music collections?

Did They Say This Service is Just $25 a Year?  Wow!

Certainly sounds like a bargain, doesn’t it?  And all tracks purchased through iTunes will be synced for free.

But did I mention that this is a US-only thing for now?  Boooooo!

Great!  That’s So–Um, Wait a Second…

Doesn’t this mean that we’ll be paying (again!) for the privilege of listening to music that we already own?  Yes it does, sunshine.  Call it (a) a tax on CDs; (b) strong-arming people to buy music on iTunes, locking in customers; (c) nickel-and-diming the music fan to death.  Take your pick.  I pick all three.

So Where Does That $25 a Year Go?

The four major record labels.  Apple has essentially figured out a way to monetize  music piracy.  Rather than get nothing for stolen music, the labels are happy to get pennies on the dollar.  If enough people sign up to manage your iTunes on iCloud, it could turn into a nice revenue stream for the labels.

As for Apple, it looks like a loss leader.  But if this becomes another way for them to sell more of their premium-priced hardware, it’ll be worth it.

Er, Forgive Me, But This Sounds More Like “iSync” Instead of “iCloud”

It does, doesn’t it?  My impression is that the tech-savvy portion of the general public things that the “cloud” is someplace where you store stuff until you decide not to store it anymore.  Apple’s iCloud doesn’t really work like that.  It is, however, a very welcome replacement for MobileMe.

So That’s It?  Where’s That Streaming Service Everyone Seemed to be Talking About?

Keep in mind that that Apple traditionally has their big music-related event in September, which is when much of what was announced today will become available.  I’d put money down on more iTunes/iClouds developments then.

So was there anything truly game-changing and revolutionary announced today?  Not really.  While most of these additions/enhancements are welcome and/or overdue, I’d categorize today’s event as rather dull by Apple standards.  So did the stock market, which started selling off Apple even before Steve finished up his part of the keynote.

But Apple always takes the long-term view.  What we heard today just sets the stage for what they’re headed in the years ahead.

Comments?  Deconstructions?  Please share them below.

That’s all very good, but no matter what these companies introduce, they’re still going to have to work hard to catch up to the entity that’s been offering anywhere/anytime music streaming for years.  It’s called YouTube.

Consider:

1. YouTube’s selection of music is far bigger than anything even iTunes can offer.
2. It’s been available on mobile platforms (including the iPhone) for years.
3. It’s got video–HD video in many cases.
4. It’s completely legal (Some of the postings violate copyright, but YouTube itself is a legal service.)
5. And have you ever paid to see or hear something on YouTube?

And YouTube is getting bigger.  At last check, 48 hours of audio and video is being uploaded every minute.  That’s the double the rate of last year.  And last weekend, THREE BILLION VIDEOS were accessed.  Google Music is nice, but the real winner in that company’s portfolio is YouTube.

Here’s a nice chart that illustrates things.

This sale is costing Amazon a ton of cash.  If their wholesale cost on a digital album is $8.40—and that’s a reputable figure—they’re prepared to eat millions.  Selling 300,000 copies would cost Amazon about $2.2 million.  If they sell 400,000 copies, that’s almost $3 million.

But the fight for digital download supremacy in the US is getting very, very competitive.  Amazon wants to steal market share away from Apple and iTunes—and they want to stop Google in its tracks when it comes to selling music.  This is just the kind of promotion that will help.

And hey, if these people want to get into price wars, that’s fine by me.