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Thursday, February 3, 2011

Intrigue In Major Label Land

So now that Citibank has taken back EMI from the investment group Terra Firma for non-payment, what now? It's almost certain that Citi will sell off EMI's parts to cover as much of the debt as possible (they've already written off about $3 billion), but who are the buyers?

It's said that Warner Music Group really wants EMI publishing badly, but they have a problem as well. Apparently the company that bankrolled Edgar Bronfman Jr to buy Warners in the first place, Thomas Lee Partners, wants out badly and has hired Goldman Sachs to find a buyer. So how does Warner buy something when they're up for sale themselves? With help from a Russian oligarch, that's how.

Apparently Leonid "Len" Blavatnik, who's on the Forbes list of billionaires with $7.5 billion in net worth, is big buddies with Bronfman and it's been reported that he may fund the sale of EMI and buy TMP out of the deal as well. Warners would then sell off their own publishing arm, Warner Chappell Music, to KKR/BMI Rights Management, and be a lot stronger than before, thanks to a new publishing catalog that features The Beatles and Pink Floyd, among others.

But don't be surprised if the other remaining labels, Universal Music Group and Sony Music, have some say into this as well. Even though Universal is more about current music as opposed to catalog, they do own the major market share of today's music business, and would find such a piece as EMI Publishing too savory a tidbit to pass up.

So there's a lot of intrigue in major label land as they all jockey for position at the top of a hill that's getting smaller and smaller every day.

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You should follow me on Twitter for daily news and updates on production and the music business.

Check out my Big Picture blog for discussion on common music, engineering and production tips and tricks.

Wednesday, February 2, 2011

4 Steps To A New Music Business

By now everyone has read a string of thoughtful predictions by many great music industry minds regarding the future of the music business, and most of them certainly have merit. Let me propose the 4 steps that I think would help thrust the music business truly into Music 3.0. Some of these you’ve no doubt heard before, but some you may have not.
1) New Blood For The Industry - The music industry was creatively at its best when the pioneers of the business (Berry Gordy, Ahmet Ertegen, Mo Ostin, Jac Holzman, etc.) were actively running their companies. They were fans first, businessmen second, and they intimately knew their audience well because they were part of it.
Everything changed in the 80’s when the increasing music industry revenue became so attractive that these entrepreneurs were bought out by multi-national corporations. From that point on, the quarterly bottom line was king, not the music. Where previously a label could wait as many as 4 or even 5 albums for an artist to break (as in the case of David Bowie, Alice Cooper, Fleetwood Mac and Red Hot Chili Peppers among others), soon the policy became one and done if sales were not immediately up to expectations. To make matters worse, MTV became a primary music promotional tool, so the development cycle soon spun around image, rather than music, which further depressed creativity.
But that’s beginning to change as we witness a big shakeout in the music industry right before our very eyes. With the music industry no longer the cash cow that it was, the big business that controls the industry will soon drop away, as will the old guard who ran it. In their place will be a new crop of music entrepreneurs who, like their early predecessors, love the music that they sell just as much as their customers do. They’ll nurture talent because they believe in them, just like before, and music will become vital and exciting again, and with that, will come back healthier (though probably not as profitable) than ever.
2) Micropayments Makes Sales A Snap. 99 cents per song download is a barrier. Even 69 cents is a barrier that gives a consumer pause before purchasing, which takes the impulse buy away. That’s because consumers are more keenly aware than ever that those amounts add up quickly, so as a result, there’s a built-in incentive to download the same file illegally or not buy at all. But what if the cost of a track was mere pennies, like a dime or a nickel, or even less? Would you be willing to purchase it then? And what if it could be easily charged to your phone bill or an online account like Paypal so the transaction was so easy, or even automatic, that you didn’t have to think about it? Would you go through all the trouble of finding it on a torrent and illegally downloading a file that might be corrupted?
I think the answer is that you’d take the easiest way and pay the few pennies. History has shown us that when the consumer is given the choice, convenience nearly always wins. 
OK, there are a number of problems with this scenario. The first is that the transaction fees with banks are so high (supposedly 10 cents of every iTunes transaction, and even higher in other online purchases), that transactions in cents are currently not feasible. This barrier seems like it will be broken soon, as rumor has it the new iPhone 5/iPad 2 will feature a new mobile payments system from Apple that will allow low cost direct transactions directly with your personal bank account.
But other barriers exist as well. A deal still has to be worked out with publishers, as mechanical royalties of 9.1 cents still apply to every download, although it’s way lower ($.0019 or even less) for a stream. And you can bet that a major label will never go for a low price transaction with any of their artists unless it can be proven that it’s driving the piracy factor down and sales number up.
That being said, if you’re an indie DIY artist, micropayments can be a great way to make at least a little money on your work.
3) Subscription Is The New Download - This seems like a contradiction to #2, but it’s not since I believe they’re complimentary, not mutually exclusive. Music subscription has been talked about to death, but the bottom line is still true - consumers are beginning to see the value in subscription music, and their interest will only grow. There’s both a lot of hope and a lot of record label resistance to subscription music. On the one hand, everyone likes the idea of a steady monthly income that $10 a customer (the reported target price) might bring. On the other hand, how that money gets split up has labels, publishers and artists all wringing their hands in simultaneous anxious hope and fear.
But consumers are seeing the value of not condemning 20+ gigs of hard drive real estate to a library that provides you no discovery options, and where you only listen to a few hundred songs anyway. An all-you-can-listen-to, anytime, anywhere option that subscription promises is beginning to make more and more sense to more and more people. Someone will get music subscription right, and the world will beat a path to their door.
4) A New Approach To Piracy - To date the RIAA’s approach to piracy was to punish the hell out of anyone caught indulging in illegal music downloading in order to make a nasty example that would deter all others from even thinking about participating in such a heinous crime. Didn’t work, did it?
Let’s try another technique instead. How about taking the same approach that countries often take when they catch a spy?
When a spy is caught they’re given the option; come and work for us as a counterspy, or be prosecuted. What if the industry used the same mindset? Register with a music subscription service (assuming that a widespread subscription service is in place) for a minimum number of years (say, like 5), or be prosecuted. I bet you already know which one everyone would take. This way, you turn illegal file sharers into customers, you take the incentive out of illegal file sharing in the first place, and the artist, publisher, and labels get paid. Everyone wins.
Will these 4 steps completely change the music business? Probably not by themselves. But they’re a good start to reinvigorating the industry and finally bringing us into the new music age - the age of Music 3.0.

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You should follow me on Twitter for daily news and updates on production and the music business.

Check out my Big Picture blog for discussion on common music, engineering and production tips and tricks.


Tuesday, February 1, 2011

Apple's Subscription Experiment

The iPad was supposed to be a boon for magazines and newspapers - sort of a way to bring them back from the dead, so to speak. It was a way for them to jump into the future. Not only would publishers be able to deliver their publications in electronic form, but also include embedded audio and video as well.

There was only one problem. Apple refused to allow subscriptions and subscription pricing, forcing these publications to charge full retail for every published issue, which drove the price up, and the online sales down. This was good for Apple because they controlled the customer (who bought the newspaper or magazine from Apple), but bad for the consumer and the publisher.

Now it appears that Apple is finally ready to allow publications to employ a more familiar subscription model that should increase both sales and consumer satisfaction.

Apple will soon dip its subscription toe in the water with the publication of  the new iPad newspaper The Daily, which is a joint venture between Rupert Murdoch and Apple. You can be sure that publishers will look at this closely, but many are still dubious because the subscription is with iTunes and not directly with the publisher.


But this news subscription model may be a test case for music subscription as well. Although much of the music industry has dreamed about a sub model for the last few years, there's a lot of fear about just what might happen when its finally a reality (sort of like the Egypt situation). The customer will be Apple's, not the record labels, which scares the crap out of them (it should). And just how does the money get divided anyway? And how much will funnel back to the artist and songwriter in the end?


No one knows the answers to these questions, but this first media subscription could tell us a lot about the music business model for years to come. Stayed tuned as the media world gets ever more interesting.


You can read more about Apple's subscription model here in an article on readwriteweb.com.

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You should follow me on Twitter for daily news and updates on production and the music business.

Check out my Big Picture blog for discussion on common music, engineering and production tips and tricks.

Monday, January 31, 2011

Why Digital Music Has Failed

It's amazing how just a single sentence that gets picked up by the mainstream press can set off a media firestorm. Mark Mulligan, an analyst for Forrester Research specializing in digital music, found that out recently after a line from a presentation he recently gave at Midem regarding the current state of digital music was picked up by the New York Times.

The quote that set things off was "As things stand now, digital music has failed."

In a recent blog post explaining trying to put the quote into context, Mark explained:


"Digital music is at an impasse.  Digital music has failed to reach its three key objectives:
1 – to offset the impact of declining CD sales,
2 – to generate a format replacement cycle and
3 - to compete effectively with piracy.
With music’s first digital decade behind us we’re still trying to define a role for mobile, we’re still waiting for a 99 cents downloads market to emerge outside of iTunes, we’re still waiting for 9.99 subscriptions to break out of a niche, we’re still trying to work out how to make the economics of ad supported add up, we’re still waiting for piracy to decline, we’re still watching recorded music revenues decline and we’ve still got CDs as the bedrock of music sales.
The simple fact is that current music products do not meet consumer demand and the divergence between emerging consumer behavior and legitimate music products is widening at an alarming rate."

Mark's right and he's hit the nail exactly on the head as to one of the reasons why the music industry is in its current state of doldrums.

You can't take a product that sells for $10 to $18 and replace it with one that sells for $.99 and expect the industry to remain healthy. Plus, you can't sell fewer products than you did in the past and expect everyone in the business to remain smiling either.

I'll give you another major factor, one discussed in posts here before - it's the music. Instead of making a judgement as to whether or not music is as good as "the old days," I've got a better way to describe it - it's just stale. There hasn't been a major trend in about 20 years since hip hop hit mainstream, so there's been no new blood to energize the overall music scene. Prior to that, we experienced a new trend every 11 to 13 years from the beginning of recorded music. We're long overdue.

One prediction is electronic music just might be the next trend. Sure, it's been around for a long time and is a huge underground scene right now, but it hasn't broken to mainstream yet. I don't know if a new trend would be enough to breath new life into music sales, but anything new in music that breaks big is bound to be healthy for the entire music scene.

Will it overcome the points the Mark makes? Probably not. But it might stop the bleeding and at least stabilize the industry to a point where we can recover because we have a known reference point of revenue.

Anyone else see a new musical trend on the horizon?

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You should follow me on Twitter for daily news and updates on production and the music business.

Check out my Big Picture blog for discussion on common music, engineering and production tips and tricks.

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Sunday, January 30, 2011

Are Music Piracy Numbers Overblown?

It's always so difficult to determine what to make out of any statistic regarding content piracy, since it's all such a big guess. Think about it for a second - if it's as difficult as it is to get precise numbers on real sales that aren't being reported (anything outside of SoundScan, like direct downloads or CD sales off an artist's website, usually isn't taken into consideration), what makes anyone think that the piracy numbers are anything more than a number pulled out of thin air?

I've heard from usually reliable sources that for every 1 legal digital download there are 20 that are pirated, yet others have told me it's only 1 in 10. Last week the IFPI reported that sales from digital albums dropped 12%, and in their minds it was mostly due of pirated music (you can read more about the report here). Don't you think it could be because the number of cash cow CD sales are down, or maybe because there hasn't been as many really big hits lately, or that music in general is soft because there hasn't been a new trend that pushes sales for a while?

Former EMI president Rupert Perry once told me in an interview for my Music 3.0 book that even back in the 60's they always thought that they were losing at least 20% of their sales to piracy, so this isn't something new to the industry at all. But it certainly makes for a convenient excuse when sales decline year after year the way they have.

Now a study conducted at Carlos III University of Madrid in Spain, in collaboration with scientists at the IMDEA Networks Institute, the University of Oregon (USA) and the Technical University of Darmstadt (Germany), seems to give us a better picture of exactly what's happening in piracy land.

According to an article on Smarplanet, the researchers found that illegal file sharers tended to be either  organizations (like record labels) that put up fake or malware-infected files to discourage piracy (called “fake publishers”), or "top publishers" who earn a profit from advertising and subscription using pirated content as bait.

In the end, the study concluded that "since BitTorrent’s popularity is tied to a small group of users who engage in illegal file-sharing for 'economic benefits,' if the same users lost interest or simply disappeared, BitTorrent’s traffic would be 'drastically reduced.'”

This suggests that piracy, while still a problem, isn't as bad a problem as we've been lead to believe, and certainly no worse than it's ever been. The problems of the music industry must lie somewhere else, which is something that we'll cover in another post.

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You should follow me on Twitter for daily news and updates on production and the music business.

Check out my Big Picture blog for discussion on common music, engineering and production tips and tricks.

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