Grooveshark Shuts Down

If you enjoyed the free online music service Grooveshark at any time of the 8 years of its existence, you probably wondered about how it was able to stay in business. The service was basically a way to search for any song, then play it from within the Grooveshark player on your browser.

The big problem was that the service didn't license any of the material it played or pay royalties either, and as a result, the service was hit with a lawsuit that could have resulted in the company owing the record labels as much as $756 million.

That legal battle was finally found in favor of the labels, and as part of the settlement, Grooveshark has been shut down immediately. The company had as many as 20 million users, who must now look for a new music service.

In a statement on the company's website, it admitted that it had "made serious mistakes." "We failed to secure licenses from rights holders for the vast amount of music on the service,” it reads. “That was wrong. We apologize. Without reservation."

What's more, the company's founders are forbidden from starting a new music service under the threat of a $75 million fee for damages.

The technology to distribute music is easier to create than obtaining the necessary licenses to make it operate, which Grooveshark unfortunately discovered way too late. That's a main reason why technologists and venture money have been discouraged from entering the business in recent years.

Is that stifling innovation? Maybe, but it's more important that creators get paid at least something for their efforts whenever possible. Now if you could only find a way for more of it to find its way into the pockets of artists and songwriters and less into the label coffers.

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Sell A Million And Make Zilch - Another Example

Yeah, it sounds really cool to get a record deal with a major label. Wow, you're label mates with Coldplay, or Brittney, or Nikki, or Bruno. The problem is, the chances are that even if you go platinum right out of the box, that doesn't mean you'll make any money. As you can see from the graphic on the left, there's not much left over after all the bills are paid.

Here's an excerpt from an eye-opening article in The Root that should be a must for any artist contemplating a deal with any label. It outlines the various places that the money goes from a record sale.
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"SLRP: The suggested list retail price of a CD is currently $16.98, while the standard wholesale price -- what retail stores pay the label per CD -- is about $10. Once the retailer gets the CD, they can sell it for however much they'd like -- hence "suggested." Artist's royalties are a percentage of the retail price. Superstars can get 20 percent of the SLRP, but most get 12 percent to 14 percent.

Packaging charge: 25 percent of the SLRP goes back to the record company immediately for what's called a "packaging charge" -- that's the label literally charging the artist for the plastic case in which his or her CD is sold.

Free goods: In essence, "free goods" are a roundabout way for labels to discount records so stores will be more inclined to buy them. So rather than sell Best Buy 100,000 records at the regular wholesale price, the label will sell them 100,000 records for the price of 85,000. The artist is then paid for the 85,000 CDs, not the actual 100,000 sold to the retailer.

Reserves: Records, especially records by newer artists, are generally sold with the caveat that retailers can return to the label whatever copies they don't sell for a full refund. Thus to ensure they don't lose too much money on artists, record labels will sometimes pay artists for only 65,000 copies out of 100,000 copies, just in case 35,000 (25,000 if you consider the free ones) are returned. If the retailer ends up selling all their copies, the label will then pay the artist the balance owed, which can sometimes take years.

Distributor: Music distributors are entities designed to promote and distribute records. The major labels maintain in-house distributors, while most all indie labels use private distribution companies. For smaller bands' records, the distributor can take as much as a 24 percent cut of the SLRP; bigger bands might only be charged 14.2 percent.

Songwriter/publisher: If an artist doesn't write his or her own music, someone else has to. And someone who writes a song must first go through a music publisher, whose job it is to place that song with a recording artist who will agree to perform it. If an artist buys the song, the writer and publisher then receive 9.1 cents for every copy of the song sold, a sum they must then split.

Personal manager: This manager guides the career of the artist and gets about 15 percent of the artist's gross earnings.

Business manager: This manager is the artist's money man, making sure the musician repays his debts and invests his earnings wisely. A business manager charges 5 percent of an artist's gross.

Lawyer: While it's not always the case-many charge hourly-some artist's lawyers charge 5 percent.

AFTRA and AFM: These are the musicians unions. Singers join AFTRA (the American Federation of Television and Radio Artists), while players join AFM (the American Federation of Musicians). If an artist cuts an album, he has to join a union, which will then take $63.90 in base dues plus 0.743 percent of the artist's first $100,000.

Record advance: Unlike touring fees, of which the record company can only recoup half, record advances are 100 percent recoupable. That means that if the label fronts an artist $75,000 to pay for whatever he or she needs to record an album--studio time, new instruments, etc. -- the artist then owes the label that initial $75,000, regardless of whether the record is a success or not."

Depressed yet? Don't be. Hit artists have always made 90% plus of  their money on touring and merchandise, but if you have a 360 deal where the label gets a piece of your touring and merch income, that job at McDonald's might be looking better and better.

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The Music 3.0 Week In Review

Here are the posts from the last week of Music 3.0: The Blog Behind The Book.

Record Labels Claim They Lost $75 Trillion To Piracy.
When asked to estimate the damages they incurred in their suit against file-sharing service Limewire, the major record labels claimed they lost $400 billion (with a "B") on the low end, to $75 trillion (with a "T") on the high end. Read More...

10 Great Music Marketing Ideas
Here are 10 music marketing ideas from the Music 3.0 Internet Music guidebook. It’s easier to sell your music if you add extra value to it, so it helps to think outside the box when it comes to distributing your music. Read More...


Amazon Is First To The Digital Locker. So What?
Today Amazon announced a digital music locker service that enables users to upload and stream their music on multiple devices...  Read More...


The Best Time To Tweet
If you're using social media for promotion, then the timing of when you do it is critical. Read More...



How "Friday" Proves That Payola Still Exists
What's confusing is that the 60 million views have turned into just 12 radio plays so far. Read More...

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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.

Record Labels Claim They Lost $75 Trillion To Piracy

Yes, you read the headline correctly. When asked to estimate the damages they incurred in their suit against file-sharing service Limewire, the major record labels claimed they lost $400 billion (with a "B") on the low end, to $75 trillion (with a "T") on the high end. This is what they estimate they've lost to piracy in the 10 years of its existence.

OK, let's look at how incredibly grossly inflated those figures are. First of all, $75 trillion is more than the GDP of the entire world, which was only $59.62 trillion when last calculated in 2008 (you can bet it hasn't gone up since then).

Now let's look at the low end of $400 billion. In 2010 the world-wide revenue from recorded music was $35.1 billion, and the US portion of that was $12.6 billion, according to eMarketer:Global Music. And how does that add up to $400 billion? Even over 10 years at a generous 20% loss, it still only adds up to $25 billion. And recent figures by the NPD group found that only 16% of Limewire users downloaded music at it's peak, and the figure in later years was closer to 9%. Regardless which figure you go with, the numbers thrown out by the labels are completely absurd.

Luckily, the judge saw through the farce and called it like it is - ridiculous.

This is the problem with the music business today. It's all about the money. If record labels and the conglomerates that own them would concentrate more on the music than the accumulation of green, we'd have a much healthier business with more quality music and lots more fans that want to buy it. Fat chance of that happening.

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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.

Singer-Songwriter Meets A Suit

Here's another of those hilarious animations that illustrate an all-too-real situation in the music business, this time showing the interaction between a female singer-songwriter and a record label suit. For those of you new to the music business, you'll be shocked that everything you've heard can be true. For those of you who have been around for a while, it will be all too familiar.

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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.

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

How To Know When You Need A Label

It's time for another excerpt from Music 3.0: A Survival Guide For Making Music In The Internet Age. Although DIY (do it yourself) is very in vogue these days, there comes a time when the only way you can jump to the next level is to partner with a record label. This excerpt details when to know that time has come.

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This entire book so far has been about getting along in the new music world without a record label, but there does come a time when having a label is worth considering if you want to jump to the next level as an artist. Record labels are not intrinsically bad, it’s just that you have to weigh the advantages versus the disadvantages to determine whether the time is right for you to be associated with one or not. 

It’s easy to look at them as buffoons (like we do politicians), but most of them are surprisingly smart. This last 10 years has been humbling for them. It’s shaken out the people that were only in it for the money, so most of the people at labels today are in it for the right reasons and are more entrepreneurial.

Derek Sivers

You might want to consider a label if:

They’re offering you a staggering amount of money. If this happens, you either must be hot enough for a bidding war to have broken out or they really, really believe in your future. Just remember that this might be the last money you’ll ever see and it may have a significant negative impact on any credibility that you have with your fan base. Best to test the notion of signing with a label with your tribe just to see the reaction first since they won’t buy anything from you if they feel you sold them out.

You need money for recording, touring, or any other needs. One of the things that labels do really well is act like a bank using your music as collateral. Major labels still do this as well as ever before, but is it worth the price you’re going to pay in terms of the freedom that M30 offers?

You’re spending too much time on certain aspects of a career. A label can take some of the burden of marketing and distribution off your shoulders. You still have to be involved on some level though, or you run the risk of things getting way off course before it’s brought to your attention. If you don’t have a manager already, this might be a better association than a label when you reach this point.

You need expanded distribution. If you need distribution into brick and mortar stores beyond what a small indie label can provide, a major label can be your friend. They have the relationships, the sales force and the means to collect the money. If you’re distributing by yourself, you’ll get paid if and when the stores feel like it since you have no clout. In some cases, you can’t even get into the remaining chains and retail stores because you don’t sell enough to get on their radar. A major label or large indie sells the stores a lot of product and they’re trusted, so it’s a lot easier for them to get the retailer to take a chance. Plus, the label has some leverage in that they can always threaten to withhold in-demand product if they don’t get paid.

You want to expand into foreign territories. Let’s say that you have a huge following in Germany via your online efforts, but you can’t service them properly because you live in Kansas City. A major label can use their overseas resources to promote you and get product in the stores there. It saves you the hassle of reinventing the distribution and marketing wheels.

You need economies of scale. Sometimes the power of a big label can be used to your advantage as they can cut a better deal with a service (YouTube and MTV come to mind) than you ever could as an indie.

In the video business there was a conscious decision made that video was no longer going to be free anymore. How can it be promotional if MTV doesn’t play it? It has become a product, so we’re going to make money out of it. It turns out there’s a tremendous demand for music videos and they can be monetized. Now we’re the biggest channel on YouTube. But it’s better for us to deal with YouTube on a centralized basis, than as individual labels.
Howard Soroka - Vice-President of Media Technologies - Universal Music Group

You need major marketing. The one thing a major label does well is to market you traditionally. If you want airplay on radio and appearances on television, a label may be your only hope. If you want reviews and articles in mainstream media, they still have the clout to get it done. 

If you feel that you’ve gone as far as you can go as an indie artist. If you need help to push your career over the edge to stardom, then a major label or major label imprint may be the way to go. This is what they do, sometimes well, sometimes not. 

Unless you have a specific need for any of the above that you’re sure you can’t fill any other way, it’s best to stay independent for as long as you can as long as M30 is around. Who knows how long it will last? Maybe a year or two if we’re lucky, but maybe a lot less than that, which might be lucky too since it will spell the latest music business evolution.

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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.

The Relevancy Of Record Labels In The Digital Age

Mark Mulligan recently posted "Three Key Questions For Record Labels In the Digital Age" on his blog which goes over some points I made in my Music 3.0 Internet Music Guidebook. Here are the questions asked:

1) Are record labels relevant any more? 
Despite all the talk to the contrary, they sure are, just not in the same way as before. Once upon a time (back in the Music 1.0 through 2.5 days) a label was virtually the only way to go because there were so few legitimate alternatives. In Music 3.0, artists have more ways than ever before to do it themselves without label help, but there comes a time when you need a label's infrastructure if you wish to go to the next level popularity and sales-wise.

Take a look at every big seller on the charts today. Almost all of them are on a label, and the ones that aren't on one used a label to propel them to where they didn't need one any more.

Can the labels do a better job? Absolutely. Can an artist or band or artist do it themselves? Yes, until you hit that certain point when you need the infrastructure to really blow up. That being said, the point where you need a label is getting further and further away each day.

2) Are they innovating enough?
I think the industry as a whole stopped innovating by 1980 when it was taken over conglomerates like Vivendi, Time Inc., Thorn and Sony and the bottom line was more important than the nurturing of talent. If there's one thing that could turn the label's fortunes around, talent incubation is it. We'd get better product, artists would view them as a viable alternative because of long-term support, and we might even see some new superstars and trends arise as a result. It's probably a pipe dream to ever expect this to happen though.

3) What role should they play?
Certainly not the 360 deal where they take a piece of everything from merchandise to touring along with record sales. The record labels were only ever good at a few things - marketing, sales and distribution. Even those core competencies have diminished greatly over the years, so why would anyone ever let them assume what is essentially a management role? If anyone is ill-suited to be someone's manager, it's a record label.

But if they would concentrate on marketing, sales and distribution in the digital domain (to be fair, some are trying), they could remake themselves into a viable alternative to DIY. Until then, hello DIY.