YouTube Has All The Leverage In New Label Negotiations

If you’re a record label, or an artist, band or publisher for that matter, the one thorn in your digital side is YouTube. Why? It’s by far the most widely used streaming service for consuming music, yet it pays the least of all the services. However, it’s come to light that YouTube’s licensing agreements with the three major labels have either expired or are about to, which brings new hope that renegotiated terms might mean increased revenue for the industry.

That hope may prove false though, since YouTube continues to hold all the leverage - in fact, it holds virtually all of it.

Until now, the major labels could drive a hard bargain with all other streaming services that not only gained them hefty upfront fees, but also even a piece of the company in some cases. If a music service didn’t like a label’s terms, it still had no choice but to take the deal, otherwise it would be minus the label’s catalog, which could mean a death blow to the service.

Not so with YouTube.

Since so much of the music on the service is illegally uploaded by its users, the company is able to dictate the license agreement terms, since if a label balks and refuses to agree to the deal, its music will still appear on the service.

In fact, Warner Music tried this very tactic a few years ago, but after a year of its songs still appearing on YouTube yet generating zero revenue, the company acquiesced and signed a deal on YouTube’s terms. Getting some money is better than no money at all.

All this is made possible thanks to the 1998 Digital Millennium Copyright Act (DMCA), which protects YouTube and other similar services in that they can’t be held liable as a result of unlicensed content that its users might upload. A record label can ask that the content be taken down, and YouTube will comply, but chances are that content will be re-uploaded immediately and the cycle will continue. Plus the burden of finding any unlicensed versions lies with the labels, all of which spend a great deal of time and resources searching for violations. 

So YouTube is in the drivers seat in these negotiations. Even if the labels don’t like the deal presented, they have no recourse since their music will find its way onto the service, but the labels will get zero money if they pull their catalogs because they don’t like the terms.

Read more on Forbes.

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Patrick Mahoney From Manhead Merch On My Latest Inner Circle Podcast

If you're in the music business you've heard how increasingly important merchandise is to the revenue stream of an artist.

My guest on this week's Inner Circle Podcast is Patrick Mahoney of Manhead Merch, who's going to tell use about how merch licensing deals work, as well as what the hot merch is these days.

In the intro I'll discuss how Warner Music and Sony Music plan to give back at least some of the profits to their artists if and when Spotify goes public. I'll also give some tips for setting up that cool mastering compressor plugin that you probably have but were afraid to use.

Remember that you can find the podcast at BobbyOInnerCircle.com, or either on iTunes, Stitcher and now on Mixcloud and Google Play.

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Room Tuning Expert Bob Hodas On My Inner Circle Podcast

This week I'm pleased to have on my podcast the go-to guy that studios big and small use to fix the sound of their rooms - Bob Hodas.

Bob has been tuning rooms for over 20 years and there's nothing he hasn't seen. From big commercial studios (like the famous Record Plant) to home studios to mobile trucks to dubbing stages to home theaters, Bob as tuned them all.

In this episode we discuss some of the common problems that listening environments have, as well as how he goes about tuning a room.

On the intro I'll take a look at the music video site Vevo and why Warner Music might finally sign on, and look a little into the pitfalls of self-production.

Remember that you can find the podcast at BobbyOInnerCircle.com, or either on iTunes or Stitcher.

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Soundcloud And Warner Music Make A Deal

Soundcloud has been trying to become more than just a way for artists, bands, and DJs to showcase their music, and the service took a big step forward yesterday with a new licensing deal with one of the major labels in Warner Music.

The deal means that Warners and Warners artists (hopefully) will get paid anytime someone plays one of their songs on the platform. This includes any of the very popular DJ mashups that the service is becoming noted for.

Warners will also take a cut of the ad revenue generated, as well as a cut of the revenue from Soundcloud's yet-to-be-introduced subscription service.

On top of that, the Wall Street Journal reports that Warners will also get a 3 to 5% stake in Soundcloud as part of the deal.

What the Warners deal does is legitimize Soundcloud in the eyes of other labels and in the investment community, allowing the service to raise additional capital and make the next major label deals a bit easier. For artists, it means that they'll finally get paid if someone plays their music on the platform (providing they're signed to Warners, at least at the moment).

On a related side note, I always suggest that people use Soundcloud if they want me to listen to their tracks. It's so much more convenient that sending a file.

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Prince Comes Back To Warner Bros And Shows The Boundaries of DIY

The rallying cry of many musicians today is “Do It Yourself” or DIY, meaning that it’s now possible to do so much of the grunt work necessary to make it without the help of a record label. For instance, you don’t need a label to act as a bank to supply money for recording any more, since most every musician has a studio at home these days that’s far more powerful than what The Beatles used in their heyday. You don’t need the label to manufacture your product, since it’s now possible to print limited runs of CDs if necessary, and virtual products cost very little to distribute. As far as promotion, social media and YouTube play such a big part in getting the word out, and so much of that can be done directly by the artist.

DIY is indeed a viable option until the point where the artist rises to the level of star, then all DIY bets are off. In order to break on through to the other side of international superstardom, the marketing infrastructure provided by a major record label is almost a necessity. A DIY artist can opt to try to reinvent the wheel, or go to a label with experience and expertise to make things happen on a larger scale. 

This is exactly where superstar Prince finds himself, as his recently announced new deal once again returns him to the Warner Music fold, a surprising move that many industry observers thought could never happen. Warners was the label that originally launched Prince into stardom, but the falling out between the parties became so vile that Prince labeled himself a “slave,” then changed his name to that unpronounceable insignia as to create a new trademark that would not promote his previous Warner releases. Read more on Forbes.

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Warner Music Goes To Kickstarter

If you've never read music insider Bob Lefsetz' newsletter, then you really should. Love him or hate him (he gets equal parts of both), he comes up with both an interesting global perspective of the music world as well as some breaking news or commentary on breaking news.

One of the bigger stories that he's let us in on is the fact that Warner Music has just tied in with Kickstarter to offer a recording contract to any act that raises $100,000 or more, or if they get 1,000 people or more to contribute.

First of all, I don't know why anyone would want such a deal under those circumstances, since if you've raised that amount or have that many fans willing to support you, you probably don't need a major label, at least under their terms.

What this offer does go to show you is how well an old adage really applies. It goes something like this - "A record label doesn't sign you for your music, they sign you for your audience." This means that they generally don't give a crap about you or your songs, but if you have a line around the block waiting to see you when you gig, they're interested big time.

Another Lefsetz piece of news is that Warners has also hired Amanda Palmer to teach their acts how to self-promote. I don't know much about her music, but I do know that she's great at getting people to passionately care about her, so this is probably a good thing. Will her methods translate to other artists? I don't think we can be sure, since she has such a strong personality, which is part of her allure with her fans.

If all this is true (and there's no reason to think it's not), you have to hand it to Warners for at least trying to stay relevant and trying something new. It's long been held that they've been the major label leaders when it came to understanding our new digital world, now they're trying harder than ever to prove it.

PLEASE NOTE: This news might be a product of April Fools day. I'm still checking out the validity. It's not like Lefsetz to do this sort of thing, but you never know.

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Major Label Death Predictions May Be Premature

Could everyone's predictions about the demise of the major record labels be premature? What we've heard over and over in the press (and sometimes on this blog) is that the major labels were floundering in red ink, about to go belly up any second. While revenue for the industry is less than half of what it was at it's peak, and profits did take a hit for a while, it appears that everyone has missed the point that the labels have been evolving with the business, and they're pretty healthy as a result.

Case in point - according to Billboard, in the first six months of 2012 Universal Music Group, Sony Music and Warner Music Group had together reported profits of $356 million. Yes, that's profits!

Now take into account that EMI doesn't disclose their finances at the moment because they're privately held by CitiBank (at least until the sale to Universal is finalized), and the CEO of BMG Rights Management has said that their profit would be over 250 million Euros this year (about $325 million), and you can see that no one inside the big music corps are worried about their bonuses.

Then the fact that we're heading into the strongest buying season of the year makes analysts think that the major labels will make over $1 billion in profits in total for 2012.

Here's the fact as it stands today - DIY is great for any artist that's either starting out to even a star level, but if you want to break into superstardom, you still need a major. They're the only ones with the infrastructure to take an artist to those heights, at least at the moment.

That said, the more you DIY and the stronger your audience, the greater your bargaining power is. It's almost like there's no middle ground these days when it comes to making a major label deal. Either you're completely at their mercy with a 360 deal or you have all the leverage because you've built an audience without them.

Whatever the case, the major labels are not going away any time soon. Now if only we had a new crop of indies.

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

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Warner Music Loss Down Thanks To Digital Sales

Warner Music Group's 3rd quarter report is out, and if you look at it closely, it really is a indicator to the trends of the music business today. Here's what we discovered:

• Warner's loses were $32 million, which were down from $46 million last year at this time. This is considered a positive somehow, which is the crazy world of publicly traded companies for you. It always amazes me when a company gets hammered for having only a 14% increase rather than the predicted 15%, and this is much the same. WMG is still losing money, and even though it lost "only" $32 mil, that's not that great when you factor in that there was actually a $11 million tax benefit figured in.

• Total revenue decreased about 5% to $654 million, and much of that they attribute to an unfavorable exchange rate. 

• Recorded music sales slipped 8.4%, and publishing revue also slipped from from $97 to 84 million.

Now for the good news:

• Digital music revenue climbed 13% to $230 million and represented about 35% of WMG's income.

• 25% of the digital revenue came from streaming, which amounted to $54 million, or about 8% of total revenue.

• Domestic revenue was up slightly to $282 million from $276, mostly on the basis of hit records by Jason Mraz, Lincoln Park and B.O.B.

If you want to see exactly how their revenues break down, Digital Music News did a nice graphics below.

What does this tell us? Major record labels are sinking, but very slowly as they hold their own, at least for now. Digital music income may be rising, but it's not going to replace the sales of physical product, and streaming music makes the situation even worse, as that doesn't replace the income from digital downloads. Oh, and the most important piece of the puzzle - you still need hits to make money.

If you're from the musical old school, you're probably lamenting the fact that the business model is changing from the way it previously worked. If you're not tied to that paradigm, you're embracing the change, as a new business model will have to replace the old one at some point. None of us know what that that is at the moment, but we're all on the lookout for it. When you find it, let me know, please.

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Help support this blog. Any purchases made through our Amazon links help support this website with no cost to you.

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.

For Warner Music - Let The Bidding Begin

While everyone is aware that EMI Records is virtually down the tubes thanks to their recent default on their Citibank loan, now it looks like Warner Music Group might go before them. According to a report in Reuters, several parties have already started to put in bids for the once venerable company, including private equity firm KKR (who now owns BMG Rights Management), Russian billionaire Len Blavatnik (who already owns 2% of Warners), as well as Universal Music and Sony Music.

There's a lot of intrigue around the issue in that Warner Music CEO Edgar Bronfman is telling everyone that they may spin off their Warner/Chappel publishing arm so that they (WMG) can buy EMI, but because of the huge debt load of WMG, that looks unlikely to happen.

There are a lot of other strategic plays possible, but whatever happens, it looks like the Big 4 major record labels will soon be down to the Big 3, and maybe even the Big 2, very soon.

As I said before, I see this as a good thing, since we're nearing the end of the old music business and starting the new one based on Music 3.0. By the end of the year, our industry may look very different than what we see today.

Read the entire Reuters article here.

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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.

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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Help support this blog. Any purchases made through our Amazon links help support this website with no cost to you.

Pink Floyd Defeats EMI In Court

EMI keeps getting kicked in the ear in court, as it loses yet another legal battle, this one with Pink Floyd. Actually, the company suffered two setbacks. The Floyd had sued EMI over an alleged $15.7 million in unpaid royalties from 2002 to 2007, but the court also ruled in their favor in another matter that had much larger implications.

Music Week reports that the court recognized the band's 1999 contract which specified that EMI could only sell Pink Floyd music as albums are also covered digital downloads. In other words, it prevents EMI from selling individual Floyd tracks online, which would be a potential financial windfall when the company needs it most.

That being said, it's also been reported that EMI may be put out of its corporate misery any day now, with creditor Citibank taking it back to sell off the parts in the hopes of covering some of the debt. The latest buzz has BMG Rights Management making off with EMI Publishing and Warner Music Group ending up with the catalog rich record group.

On one hand, it's such a shame that such a storied company could meet such an inglorious end. On the other, this is a case of over-reaching greed reaping a sad reward for EMI owner Terra Firma.

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

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Help support this blog. Any purchases made through our Amazon links help support this website with no cost to you.

Warner's Earnings An Industry Warning?

Warner Music Group's quarterly SEC filing today is symptomatic of a number of trends in the music business, and not surprisingly, most of them aren't good. Here are a few lowlights.

• Revenues declined 13 percent from the previous quarter and 7 percent for the year. While you can blame this on many things, I believe it's an indictment of the quality of music. Lots of good music = lots of sales = lots of revenue. If you give us music that goes in one ear and out the other, it will never have any catalog value, which directly translates into long term revenue.

• Digital revenue grew 7 percent for the quarter and is now 30.9 percent of WMG's total revenue. Great, but that's not enough to offset the decrease in CD sales. Generally speaking, digital revenue industry-wide is flat to slightly declining, yet I see no company adjusting for a world with less revenue unless it's by the weight of a balance sheet.

• CD sales have been hurt by a drop in retail floor space. You can't buy a CD even if you want to these days. Try to find a music retailer in a mall; it's hard. There are some large cities that don't even have a single record store, and the ones that are left have such a limited selection that it's only a matter of time until they die as well.

• CEO Edgar Bronfman Jr. stated on a conference call with analysts that music in the cloud presents a "significant opportunity" to increase sales next year. This was a pep talk for the financial analysts. The fact of the matter is that no one knows how music in the cloud will be accepted. In my view, it's going to be a tough sell unless the industry finds a way to easily convince the public that it's a lot more convenient than storing music on your hard drive as you do now. No one except the music industry is waiting for this to happen, and they only want it because it will move everyone into a subscription model, which is the "Holy Grail" business model that the major labels crave. Make no mistake, music in the cloud is in our future, but it will take someone like Apple to lead the way, not a record label like WMG.

• Music publishing revenue fell 12.9 percent, mostly due to the drop in mechanical royalties. This one is bad. Music publishing has always been the steady, if under the radar, performer in the business. Until recently, that is. There are a lot of industry execs quivering in the their Gucci's over the fact that publishing revenue is declining too.

• The company has $430 million of cash on hand. This is code for, "We collect cash so we can make a run at buying EMI." WMG has kicked EMI's tires before. Now it gets serious.

Can't wait for the next quarter. Some big things are going to happen in the business, if this earnings report is any indication.

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Natty's Fan Funding - Brilliant Or A Scam?

As if we didn't need more evidence that the era of the major record label is over, now comes this. Atlantic Records is asking the fans of trip-hop artist Natty to fund a release. The company as teamed up with the fan-funding platform Pledge Music to try to make this happen.

My first reaction to this news was, "Is Atlantic (really it's parent Warner Music Group) in that bad a shape that it can't afford to fund a record?"

My second thought was, "The audacity of the company to even think of such a thing. If they can't even provide the budget for a record, why be on the label at all? What good are they?"

But then I examined the story a bit to find that this outside funding is actually not for Natty's second Atlantic album at all. It's for a separate stripped down collection of songs. Could this be a brilliant PR move?

Here's why it just might be a lot smarter move than the music pundits think:

1) I'm posting about it now, and it's been all over the music press this week. What better way to get some publicity before the album is released?

2) The press and the buzz will be on-going as everyone keeps track of just how much is raised. It's a no-lose proposition. If he doesn't raise enough, he's in the news. If he meets his goal, he's in the news.

3) Natty will have another set of songs to release as soon as the momentum dies down of the real album. He could release the songs as a collection, or he can release them one at a time online. Either way, it doesn't impact the real album at all except call attention to it.

4) It allows Natty to make a lot of other PR moves that he couldn't other wise. All of the extras that most artists do for a fan-funded record can be employed here, all keeping his name in the news. For instance, Natty will give a private acoustic concert in your own home for £600 - £5,000, all the way up to Natty remixing your track for for £1,200.

The downside - It's been reported that Atlantic won't be sharing any profit from the record with the fans that paid for it. Now that's a scam.

Expensive Music Sells Slowly As Predicted

Last year when the the major labels finally got their way with variable pricing on iTunes, industry pundits were pretty unanimous about the idea being a poor one. Why increase the price of hit songs in the middle of the worst economic times since the Great Depression? Why increase the price for the hits to $1.29 when the $.99 was proven to be a workable model?

But that's not how major record labels work, who seem to have knack for doing the exact opposite of what's best for them, their artists, and their customers.

While the first month after the price increase already showed a decrease in downloads, the labels were quick with their spin, saying that revenue actually increased despite the lower sales figure. This is ultimately only a short-term business model in that revenue is not the end-all in Music 3.0. The idea is to expose the music to as many people as possible. A larger audience means more catalog sales, more concert attendance and more merch sales, so anything that lowers the sales numbers is counter-productive.

Now comes a backhanded admission by Warner Music's CEO Edgar Bronfman that the strategy was misguided, suggesting in his comments on the company's recent earnings call that if nothing else, the timing of the increase was poor. This coming on the news that iTunes digital track sales in December grew only 5%, down from the usual double digit growth even in the midst of the Christmas buying season. Bronfman also confirmed that Warner's digital sales growth had slowed to only 8% over the previous year, which was up 20% over the year before that.

Are digital music sales flattening as the market becomes mature? Yes they are and it was bound to happen. But raising the prices have appeared to accelerate the trend. It's all downhill from here until digital music subscription reaches the tipping point.

The Importance Of A Short Release Cycle

If you've read my book, "Music 3.0: A Survival Guide To Making Music In the Internet Age," you know that one of the things that I recommend to artists and bands is to release music in a far more timely manner than we're used to today. In order to stay relevant to their fans, an artist must release a song or two at least every quarter (preferably every 6 to 8 weeks). This keeps the fans involved and has the added benefit of giving the fans a chance to absorb each song, instead of gravitating to only one or two when an album is released. Indeed, the days of the 2 year wait in between albums is over if an artist wants to keep his fan-base.

Now it seems that Warner Nashville has gotten the message and is now prepared to release 6 song albums on a more regular basis.  In face, Warner's is dividing Blake Shelton's "Hillbilly Bone" as a "Six Pak," a 6 song album of new material to be released on March 2 that will be followed by another six-song release in August.

Warner Music Nashville SVP of Sales and Marketing Peter Strickland told Billboard that the Six Pak will enable artists "to deliver music to [fans] on a much more regular basis at a value price package." The only thing they've not told us yet is how much the package will cost, which will be a major key to its success.