There is a fascinating story on TorrentFreak regarding the revenues for an artist from a streaming service such as Spotify. Or, more correctly, the lack thereof. The popular Lady Gaga makes quasi-nil from Spotify, despite being a top artist on the service. This is an excellent example of the inherent problem in the musical industry. If we cannot fix this, piracy will never be abated.
The problem is the lack of a connection between the dollar of the consumer, and collection of that money by the artist. Right now, the lengthy and convoluted transfer process sucks the dollar dry, depositing a few spry cents in the hands of he artist.
Of course, this is supposed to be “the way it works,” due to high costs involved with music production and the like, but it seems to be nearly endless. Once an artist has paid back the recording costs in royalties, the rates that artist receives are still pathetic.
If I put my music on Amie Street, and I sell a song, I get the majority of the money. If I am a major label artist, and I sell a song on iTunes, I get a far, far smaller cut.
The connection from the fan to the band, financially, has been broken. The fan knows that their purchase will hardly help the band, or more precisely that the marginal benefit from their purchase to the band is near zero, so why do it? The cost to the fan is much higher than the marginal benefit to the band, so the fan just torrents the damn song.
There was a lot of noise when Brogan and Gary V wrote their books. Pundits said that internet people do not actually buy things, so both books were straight going to fail. Bullshit, it turned out. Crush It and Trust Agents both did well. People will still pay for quality, and they will pay if the know where the money is going.
How many people do you think bought Crush It because it was a good book, versus it being the Gary V book. Something to think about.
The vision from the consumer of the music industry is a dark room with cigar smoking lawyers. A far cry from the mixing board or the stage.
The point is, until there is a much more direct line from my purchase, to the coffers of my favorite band, I will (euphemistically) be inclined to take the lowest cost route, and fire up The Pirate Bay.
What to do? Well, artists need to stand up and attempt to take control of the situation, especially with emerging market openings such as Spotify. There is no industry without artists.
It has long been like this, out of proportion. But there was never an alternative solution to acquiring music. Now there is. I would make a healthy wager that if there was a way for people to buy music, where a full 50% of the total cost went to the band, sales would double. Overnight.
Food for thought. What do you think about the artist pay model with Spotify, and in general?
Record companies, large and small, invest around US$5 billion a year in music talent, support a global roster of thousands of artists and typically spend US$1 million to break successful pop acts in major markets.
The figures are published in a new report issued today highlighting the work of major and independent record companies as the principal investors in artists’ careers. Advances, recording, marketing and promotional costs are the biggest items of record company spending on artists, commonly totalling six figure sums.
There are more than 4,000 artists on major record companies’ rosters combined, and many thousands more on independent labels. There is continuous re-investment of revenues derived from successful acts into new talent. It is estimated that one in four artists on record companies’ rosters were signed in the last 12 months.
Record companies are the largest investors in music talent, ploughing around 30% of their sales revenues - around US$5 billion worldwide - into developing and marketing artists. This includes an estimated 16% of sales revenues that is spent on artist and repertoire work (A&R), a proportion that significantly exceeds the proportionate research and development (R&D) expenditure of virtually all other industries. In addition, labels pay significant sums in royalties to featured performers.
Recorded music has a massive economic “ripple effect”, helping generate a broader music sector, including live music, radio, publishing and audio equipment, estimated to be worth US$160 billion annually. IFPI estimates that more than two million people are employed globally in this broader music economy. “Investing in Music” report
Investing in Music is published today by IFPI, representing the recording industry worldwide, in collaboration with WIN, the international network of independent record labels. The report provides new figures and outlines the special skills and services companies provide in developing and promoting artists.
Alison Wenham, Chair of AIM/WIN, says: “The direct route afforded by the internet is open to all. However, mixing the talents of business and creativity is often a minefield, with creativity often compromised by the challenges of running a business, which requires totally different skills. Artists generally prefer to leave the complex administration of a rights based business to someone else.”
The report uses data from IFPI’s member record companies and case studies from around the world, including David Guetta, Kasabian, Little Boots, Jason Mraz, Belanova, Mousse T and Stephane Pompougnac. Highlights include:
* A&R combines internet technology and traditional scouting skills, playing a critical role in bringing artists to a wide audience. Labels help their artists cut through the digital noise, with more than 2.5 million hip hop and 1.8 million rock acts registered on MySpace alone. * Record labels invest increasingly through “broad rights” deals across different activities of an artist’s work, including live and merchandising and branding. Multi-album deals are often important in allowing a return on this substantial investment. In many cases, artists and record labels enjoy long term partnerships. * The work in the studio to record the album and select the singles remains a very significant investment and area of collaboration. * The marketing skills and resources of record companies, from video production to online promotion, are essential in bringing artists to a mass audience. An international marketing “war machine” helps artists develop into global stars. * Despite the success of the live music sector in recent years, recorded music remains the foundation for a successful artist career.
John Kennedy, chairman and chief executive of IFPI, says: “Investing in music is the core mission of record companies. No other party can lay claim to a comparable role in the music sector. No other party comes close to the levels of investment committed by record companies to developing, nurturing and promoting talent.
“One of the biggest myths about the music industry in the digital age is that artists no longer need record labels. It is simply wrong. The investment, partnership and support that help build artist careers have never been more important than they are today. This report aims to explain why. Investing in Music is about how the music business works. It explains the value that music companies add, helping artists to realise a talent that would typically go unrecognised and get to an audience they would otherwise not reach.
“Much of the value added by music companies is invisible to the outside world. Yet it is the investment and advice from labels that enable an artist to build a career in music and which, in turn, creates a beneficial ripple effect throughout the wider music sector.” High levels of investment
It is estimated that the recorded music industry spends around 30% of its total revenues - around US$5 billion a year - discovering, developing and promoting talent. Of that, a global average of 16% is spent on A&R, with a higher than average level in certain countries such as the UK (where A&R investment totalled 23% in 2007).
Global music industry investment in A&R is considerably higher than similar investments in other industries. In the UK, the pharmaceutical and biotechnology industry, widely acknowledged as a leader in research and development, invests 15% of its gross revenues in R&D (BIS R&D Scoreboard, 2008).
A&R spending today, however, is under greater pressure than ever from the impact of illegal file-sharing and other forms of piracy. In France, industry data shows record companies invested 12% of their turnover in marketing artists in 2009, a proportion that fell from 15% in 2006, at a time of reduced revenues which have been largely attributed to illegal file-sharing. How the investment breaks down
Investing in Music outlines the very substantial investments involved in developing and marketing successful artists. In the UK and US, it is estimated that it typically costs more than US$1 million to break a pop artist. This is spread across an advance paid to the artist, recording costs, video production, tour support and promotional work. A typical example of the breakdown of the costs of breaking a new pop act in major markets is as below:
Advance US$200,000 Recording US$200,000 3 videos US$200,000 Tour support US$100,000 Promotion/marketing US$300,000 TOTAL US$1,000,000
* Payment of an advance to the artist. Such an advance allows an artist to give up their day job and concentrate on writing, rehearsing, recording and performing music. Advances are recoupable from an artist’s sales, but are not recouped if those sales do not reach certain levels, leaving the record company bearing the risk of investment. A typical advance paid to a new pop act in major markets is US$200,000, but often will be higher. Advances for an established “superstar” act will commonly be in excess of US$1 million.
* Financing of recording costs. Costs could be over US$200,000 for a new artist to record an album, though employing a top producer can drive this above US$50,000 per track. Hiring large numbers of session musicians or an orchestra can also drive up the budget. In this way, investment in recordings benefits a wide community of musicians and technicians.
* Production of videos. Video costs can also range widely. Some of the most expensive ever produced involved days of filming and editing, costing around $1 million. A typical cost for filming videos to promote a new artist’s album is around US$200,000.
* Tour support. New artists in particular need to be heavily supported by record companies. The level of tour support required is highly dependent on the nature of the artist. Tour support would typically cost around US$100,000 for a new artist in one market.
* Marketing and promotion. These are often the biggest budget items for a record label taking an act to the public. Labels invest heavily in marketing and promoting artists to a broad audience. Such promotion builds the brand identity from which artists can then earn money from numerous sources, such as live touring or merchandise. A typical investment in marketing and promoting a new act is US$300,000.
* Royalty payments. Payment of royalties is usually based on a percentage of revenues, licensed or synchronised income revenue streams. Teams in music companies are responsible for collecting and distributing royalties to the featured performers, producers and copyright owners.
The virtuous “circle of investment”
Recording contracts typically commit artists and labels to work together to produce a series of albums. Artists benefit from heavy upfront investment that would be difficult to secure elsewhere and record labels have the opportunity to recoup their outlay over a period of time.
Achieving commercial hits is the basis of the “circle of investment”, by which music companies plough back the revenues generated by successful campaigns to develop new talent and help fund the next generation of artists.
Continually investing in new talent is a hugely risky business, as only a minority of the artists developed by music companies will be commercially successful in a highly competitive market. Estimates on the commercial success ratio of artists vary between one in five and one in ten.
The level of investment in new artists required remains high, despite the development of new distribution channels for recorded music. In fact, the fragmentation of music distribution across many different physical and digital channels has often brought extra costs to record companies that are now working with many more retail partners.
* US$5 billion a year invested in artists by record companies worldwide * Around 30% of revenues spent on artist development and marketing * US$1 million to break a new artist in major markets * US$160 billion “broader” sector employing two million people
Last week's bankruptcy and resurrection of fan to artist funding site SellaBand caused many to take a closer look at the model. Indie artist Matthew Ebel, familiar to Hypebot readers for his success selling subscriptions to his streamed basement concerts, has decided to pull out of SellaBand entirely. While this guest post shares Ebel's story, there's a broader message about the cost of putting anyone between an artist and their fans.
A modern artist really doesn’t need microfinancing of any kind. Especially micro- financing that’s badly managed to the point of declaring bankruptcy. The easiest way to cover this is a simple comparison between Sellaband and my own subscription service, Matthew Ebel dot net. Of course, by “my subscription service”, I mean “what any artist can offer direct to their fans”.
I get funding directly from my fans on a monthly/yearly basis.
Believers are promised one new album once $15k (or whatever) is reached, if ever.
I already give my subscribers 2 new songs, fully produced, every single month.
If the target is ever reached, an artist can hire a professional studio, engineer, and producer.
For as little as $5,000 I can buy better equipment and hire a professional engineer in my own studio.1
If the target is ever reached, believers get one album (retail value $10) from their artist.
Every year my subscribers get one or two albums’ worth of new material and, depending on the subscription level, stickers, mugs, shirts, etc.
Sellaband holds onto believers’ money until the artist’s goal is reached, if ever. If they disappear, so does the money.
Subscribers’ money goes directly into better studio equipment, goodies for the annual goodie bags, the annual Beer Bash, touring, rent, food, etc. with no one holding the money hostage.
Sellaband charges a percentage to handle the money, on top of anything PayPal takes.
PayPal is the only middle man taking a cut, and even that may change soon.
Believers may, if the artist allows, share in revenue generated from the album if it is ever produced.
Subscribers can use affiliate links to share in revenue from referrals for as long as they stay subscribed.
I’m sure there are other comparisons to make, but frankly this was enough for me. What it all boils down to is one simple equation:
If every fan who bought a Part via Sellaband spent the same money on a Matthew Ebel dot net subscription instead, I would be able to make much better music and they would get music and goodies immediately.
This is true for any artist, not just me. It’s why I’m leaving Sellaband, and it’s why I think artists should take a much more critical look at micro-financing schemes before jumping on board with them.
Many eMusic subscribers assumed that the 2009 price increases were instituted to lure Sony to the eMusic catalog. (I also wrote that the Sony addition was likely a major factor in the decision to raise prices.) But in an Inc. magazine piece titled Coping With Fury at a Price Hike, Adam Bluestein lays out a chronology where the introduction of the Sony material to the eMusic catalog was meant to make a change that had already been decided upon more tolerable:
Stein knew there was only one way to prevent even more labels from jumping ship: raise prices for subscribers. He also knew that eMusic couldn't get away with another price hike without offering something in return. He sought ideas from his executive team and eMusic subscribers, and he held a series of focus groups. All the feedback pointed in the same direction: eMusic needed to broaden its catalog. And given that eMusic had nearly exhausted the universe of independent labels, Stein says, "It was pretty obvious that in order to take a big swing, we needed to start working with the major labels."
At the time, eMusic did say that a rate increase was necessary to keep current labels happy. However, given that the price increases weren't disclosed until after the Sony announcement, it's easy to understand why so many subscribers (and industry observers) thought the changes were made specifically to accommodate Sony.
While some of their longstanding subscribers (those who saw the biggest changes in their plans) no doubt would've preferred to keep their more-generous pre-Sony plans, the eMusic subscriber base is growing and turnover among new subscribers has decreased:
By fall, the dust appeared to have settled. Despite the uproar in the blogosphere, the site's subscription base held steady, rather than dipping slightly, through the traditionally slow summer months, and by year's end it was growing again. Among new subscribers, first-month turnover, or churn, was down 7 percent by early fall and has continued to decline.
As I noted in December, the change in subscription plans didn't result in a meaningful increase in per-download payments to labels for the third quarter of 2009. The fourth quarter of 2009, though, produced the largest per-track payment that I've seen in the past five years -- 39 cents per download.
Digital technology continues to transform the music industry. Most believe that this transformation is causing the industry to evolve into something new that will resemble nothing that has come before it. Others are beginning to suggest that perhaps the music industry is instead reverting back to a state closer to how it all began. What will all of this mean for musicians?
I hope all you wonderful readers have had the opportunity to read through the comments of last month’s Can Music Stand On It’s Own piece. If you haven’t I highly recommend that you do yourself a favor and spend some quality time reading through them. There’s a lot of great insight in there from some truly bright folks.
One subject that kept surfacing is the changing role that fans may eventually play in the creation and performance of music. The idea is that as technology improves it will become easier and easier for ‘non-musicians’ to create music and become instead amateur musicians.
This has already begun in a big way. Garageband comes preloaded on every new Mac. Samples and loops exist for every instrument, timbre and sound imaginable. Auto-tune can whip even the most tone-deaf of voices into a presentable shape. Electric guitars can now tune themselves and a single synthesizer has the versatility to replace every member of the band.
The future that some are predicting takes these advances even further, imagining instruments that essentially play themselves and computer programs that turn music theory into an automated process.
What does this mean for music? When anybody can participate in music the gap between the capital ‘A’ Artist and everybody else eventually evaporates.
Is Fan Participation something new, or something old?
Before getting into what all of this may mean for professional artists and the music industry, it’s important to get some perspective.
There are those who talk about this idea of fan participation as though it is the next evolution of the musical experience. The coming ‘amateur age.’ Some see it as an opportunity – for example, artists who encourage their fans to participate in the creation and performance of their music can potentially cultivate loyalty and buy-in that can lead to greater exposure and increased revenue.
Others see it as the final nail in the industry’s coffin. The amateurs will, by virtue of their much larger numbers, eventually overtake the professional musicians. The mystique of the artist that has prevailed for centuries will fade when greatness no longer comes at the expense of thousands of hours of practice and sacrifice. Business will grind to a halt. If anybody can do it who’s going to pay for it?
Another group of folks sees this possible future as simply an inevitable normalization. According to blogger and music teacher Ethan Hein (who is also one of the lovely commenters from last week,) “The specialization of music to professionals or highly dedicated amateurs is a historical and cultural anomaly. For most of world history, music was something that everyone participated in as part of daily routine.”
In other words fan participation is not an evolution, it’s a kind of primal baseline. It’s a center that music culture is forever drawn into no matter how far out it may venture at certain points throughout the course of history. Everyone is supposed to participate in the musical experience – the professional musicians of the 20th century are the outliers, the exceptions. The very idea of a ‘music industry’ is based on the inaccurate assumption that this ride we’ve been on for the past four decades would last forever.
Is the professional musician really a historical anomaly?
If music as a viable business is destined to be nothing more than a glittering speck in the sands of time there are some serious implications. With substantially less – or even zero – money to be made the music industry as we know it will effectively cease to exist. This goes beyond creative deconstruction – this is essentially just deconstruction.
Yet before we all resign ourselves to this fate and toss out the practice routine, I have some issues with this conclusion.
First of all the idea that with the exception of the 20th century music has always been “something that everyone participated in” is flawed. Sure, over the centuries taverns have been filled with rousing choruses and prison lines sang spirituals to the slow beat of the pick-axe. These were community experience – there was no training or discipline required to participate.
However, there have also been for centuries traveling musicians and performers playing for tips or food as a bartering tool to acquire goods or crafts. There is clear evidence of highly trained musicians in ancient Greece and Rome. There are even Old Testament references to skilled artists and musicians who spent years honing their craft. In other words, there has always been a division between artist and amateur.
Don’t give up – but don’t get comfortable either
With that in mind, I don’t think there is anything wrong with working hard to ensure that musicians continue to be able to earn a living for the art they create. In fact, I think that to do anything else would be irresponsible. Of course, I’m not trying to suggest that good folks like Suzanne Lainson and Ethan Hein are suggesting that we just give up on music as a profession. I do see how easy it might be for many musicians to consider their version of the future and get discouraged.
Music will remain a viable business as long as artists and those supporting them continue to find creative solutions to new market challenges. Whether it signals the pop-pocolypse or not, the ever-shrinking divide between the artist and the amateur poses a challenge. But it also provides a whole new world of opportunities for creative artists to find ways of engaging with fans and driving revenue.
This is certainly not the time to give up on the dream of creating and performing music for a living. It isn’t an easy dream to realize, and it isn’t getting any easier, but the opportunities are there for the taking.
eMusic's Per-Song Payout for Q4 2009
March 01, 2010 - by David Harrell Back in December, I reported that eMusic's per-song payout rate for the third quarter of 2009 increased only slightly from the previous quarter, despite a major price increase, via the reduction of the number downloads allotted for various subscription plans. (Rather than a fixed per-song payout, eMusic shares 60% of its subscriber revenue, minus certain deductions, with the labels in its catalog. That shared revenue then translates into a per-track amount, based on total subscriber download activity for the quarter. In theory, reducing the number of downloads available to subscribers should increase the payout rate, but that rate is also directly affected by whether or not subscribers use all of their allotted downloads.)
For the fourth quarter of 2009, however, the per-song eMusic payout rate increased more than 10%, from 34.2 to 39 cents for single song downloads. This amount is the largest payout rate we've received in the five+ years that we've been in the eMusic catalog. For comparison, here are the eMusic per-song payout rates for the past four quarters:
While the eMusic rate is significantly less than the payout for 99-cent iTunes downloads, it has increased steadily over the past year and is now 56% of the standard iTunes payout of 70 cents. Given that new eMusic subscribers pay more for their downloads than older subscribers (while eMusic adjusted the plans for all subscribers last year, most existing subscribers were given plans that were more generous than those available to new subscribers), it's likely that the payout rate will continue to rise somewhat as eMusic adds new subscribers and/or loses older ones. Given that per-download eMusic prices are lower than those in the iTunes store, the subsequent label payout rates will, of course, always be less.
Breaking into the music business is not easy without the right contacts and a willingness to work.
That was just one of many bits of advice a panel of music business professionals from Nashville provided to University of North Alabama students Tuesday.
The panel noted that whether you're wanting to become a performing artist, songwriter or someone working in artist management or some other facet of the business, you have to be persistent and willing to work once you get your foot in the door.
If you're an intern, you should be willing to be the person who doesn't mind answering the phone or handling mundane tasks because it will eventually pay off.
Learn to network and make the best use of contacts you develop along the way. Embrace modern technology such as the Internet and social networking tools Facebook, MySpace and Twitter.
Tuesday's event was presented by the National Academy of Recording Arts and Sciences' Grammy U.
Grammy U is the college-level membership arm of the academy, the creators of the prestigious Grammy Awards, according to Kelly Tillotson, a Grammy U student representative.
The panel included Fletcher Foster, senior vice president and general manager of Universal South Records in Nashville; Johnny Gates and Jamie Jarbeau, members of the Atlantic Records recording artists, The Invite; Faith Quesenberry, artist manager at Vector Management; and Melissa McAllister, marketing manager of Universal Music Group of Nashville.
The discussion was moderated by panel member Tracy Gershon, the newly appointed senior vice president of Warner/Chappell Music in Nashville.
The panelists touched on a variety of topics based primarily on students' questions, such as do they seek out new artists or do the artists come to them.
Gershon said it's a combination of both.
"I'm constantly going to clubs looking for talent, surfing the Web," she said.
She said a person in her position gets a lot of calls from people wanting to break into the business, including relatives.
Foster said he is always searching for new talent and keeping up with the trends in music.
That question led to a discussion of how social networking Web sites have affected the music business.
The sites give fans a connection with the artist, a glimpse into their life, and a way to keep fans updated on new projects.
"We found half our fan base on Twitter," Gates said.
Despite that, he still prefers one-on-one contact and will hang out after shows and talk to fans.
The panelists suggested that the students pour themselves into their work during their
internships.
The best interns, they said, are the ones willing to do any job and ask if there is anything else they can do.
Foster said he wanted to answer the phone and use his full name so callers would remember who he was. He said he tried to be very helpful, which is something people remember.
McCallister said internships can provide a person with confidence and knowledge of the profession, plus it can lead to contacts that will increase chances of landing a job.
Dr. Bob Garfrerick, chairman of the UNA Department of Entertainment Industry, said it's always helpful for students to be able to speak with professionals in the field they want to join.
So often bands or musicians seek out management thinking that they need management from the start or even just too early in their careers. With all that needs to be done for an artist’s career, it can seem very daunting and overwhelming. Artists are often so confused by the amount of information available and most of it not very good, that they are often more paralyzed than when they started due to the staggering amount of info and no clear direction.
The role of a good manager takes on so many forms. Managers require pay for their services and most bands can’t afford their own bills, let alone a manager. A manager is often a business consultant, negotiator, accountant, image consultant, promoter etc. A manager is often needed to achieve almost any measure of success in the music business, even then most bands and artists know that a manager can’t do it all and that success or failure is solely the responsibility of the artist or band. The artist or band have the final say and have to provide the show and content that makes them marketable. If they aren’t able to provide that or aren’t committed to the success of the band then rarely is it the fault of a manager that goals aren’t achieved. The band and artist are the “Founder” of the company and the manager is the “CEO”. This is called the “music business” for a reason. Artists and bands have a ton of responsibility to achieve the success they are seeking. If the band or artist isn’t willing to work as hard as the manager, then it is very hard to achieve anything and the manager is wasting their time at this point. A commitment on both parties is essential to make it work and the band or artist need to trust the manager’s advice and handle their responsibilities whether the band or artist agree or not.
So that begs the question, when does an artist or band need a manager? The answer is simple. Not until there is something to manage. Most artists and bands don’t perform enough or have enough to work with for a manager to do anything with and be effective. The artist or band should be playing 80+ paying shows a year and have a very solid press kit before seeking out management. There should be a solid fan base at least regionally if not nationally. In the beginning stages of a band or artist’s career, it is wise to seek out a good manager who offers hourly consultation to be able to help set the artist or band in the right direction. The manager can then follow up at regular intervals if the goals are being met, before signing the band or artist full-time, when they are ready.
There has been a lot of discussion on this blog and on the Internet about the end of the album as an organizing principle. Spending mind time on the decision to make albums or to sequentially release singles is missing the point.
Revenue from the sale of music is slowing considerably for everyone. Reoccurring revenue, which is the ongoing stream of revenue you make outside of touring, is going to come from consumers that tune into and fall in love with your brand on the Internet.
To persuade fans to tune in, to fall in love with, and to spend money on your brand, you need an elaborate plan that goes way beyond the album or singles decision. You will have go far beyond creating a MySpace page that features five of your songs and ten pictures of your band. You will have to rethink what it means to be entertaining on the Internet.
The name of your brand, the URL you use, the first word you type, the sequence in which you release your songs, your lyrics, the images you feature, the videos you release, the messages you type, and everything you put into your online presence should be part of an elaborate plan to seduce fans.
The concept of seduction does not have to be sexual. I use the concept of seduction to convey complexity and long term planning. Map out a two year or three year plan that elaborately pulls people into your world of images, poetry, lyrics, stories, music, mystery, hints, clues, energy, characters, plot, storyline, drama, intrigue and excitement.
A regular old website or MySpace page is not the ideal vehicle for building a brand upon. Your name and your image may not be the ideal vehicle to build a brand upon. Start by thinking like the creator of a television series. What do you call it? What is it about? How many “seasons” will it take to tell the story? Make the presentation simple and compelling, but make your plan to seduce - elaborate, intriguing and complex. 
Australian Copyright Agency Paid Itself More Than It Distributed To Content Creators
One of the key problems we have with any sort of collection agency/performance rights organization/collective licensing scheme is that they introduce an unnecessary bureaucracy into the equation and, as a result, money gets redirected from the actual creators to the bureaucracy itself. It's a giant economic inefficiency that harms content creators. Case in point: Michael Geist points us to the news that the Australian copyright collection group, The Copyright Agency Limited, spent more on its own staff than it gave out directly to content creators. In 2009, it paid its staff $9.4 million, and it disbursed... $9.1 million directly to content creators.
Now, to be fair, the article buries the fact that CAL also gave $76 million to publishers "on the assumption that a proportion of this money will be returned to authors," but it also notes that it has no checks to see if that money is ever distributed. In other words, CAL doesn't actually do anything concerning that $76 million other than pass it on to other bureaucracies (not content creators) -- who might just be keeping it, rather than disbursing it. As the report notes, CAL collected $114 million last year, and can only say, for certain, that $9.1 million got distributed to actual content creators. Now that's efficient! Certainly, some of that $76 million may have reached content creators, but no one knows for sure.
So, again, we're left wondering why such a setup makes sense at all? All that's happening is that money that could go directly from fans/consumers to content creators gets filtered through inefficient bureaucracies that take huge cuts. That harms content creators.
Quote for the day
February 17, 2010
"The music business is a cruel and shallow money trench, a long plastic hallway where thieves and pimps run free, and good men die like dogs. There's also a negative side. " - Hunter S. Thompson
Digital Britain Minister Insists No One Is Creative If They Don't Earn Money
On the face of it, that's an incredibly stupid thing to say, and is amazingly offensive to the vast majority of people in the world who are creative amateurs.
Note: I did not say "the vast amount of creative people in the world who are amateurs", though this would also be true. Most people in the world do creative things for no money. The vast majority of music in the world is made for cultural reasons that are not economic. To suggest that the only reason to be creative is with the expectation of payment is utterly offensive.
Beyond stupidity But it's not just stupid and offensive -- it's corrupt. It's so manifestly and obviously false that it could not possibly be the considered belief of a rational human being.
The alternative (and indeed, the only plausible conclusion) is that it's a deliberate falsehood in order to support something that is utterly indefensible when examined with any intellectual honesty.
It's the direct result of corporate lobbying, it's entirely disingenuous, and it's a bald-faced lie echoed to support the interests of powerful and moneyed multinational organisations.
He goes on to suggest that a statement like that, so revealing in how Timms views the world, should get Timms fired, as he's basically admitting that he's only there to protect corporate interests, rather than actual creativity.
Why pay $9.99 for unlimited on demand streaming music when you can get it for free? It seems that Warner Music’s chief executive Edgar Bronfman Jr. has had enough, stating that “free streaming services are clearly not net positive for the industry” and adding that WMG will no longer license to such services. Such a stance is both understandable and also flawed. Services like Spotify and YouTube are crucial tools in helping the music industry transition from the 20th-century distribution business of selling units, to the 21st-century paradigm of monetizing consumption. On-demand, access-based services will be the foundation stone of the 21st-century music business. Added to that, the majority of consumers simply have no appetite for paying for digital music, certainly not on a subscription basis. Free and subsidized services are quite simply part of the future. But, and it’s a big “but,” these services and their associated business models still pose many as yet unanswered questions. From the record labels’ perspective, on-demand free music services such as We7 and Spotify have yet to deliver the goods. They haven’t made a dent in illegal downloading and they haven’t converted enough new consumers to pay for digital music. (Spotify’s 250,000 paying subs is an encouraging start, but is just 3.6% of its 7 million total installed base.) And there is a very real threat that these services are educating mass- market consumers that music online is free. It’s one thing having spotty teenagers downloading from BitTorrent casting nervous glances over their shoulders, but having their parents stop buying CDs in favor of streaming Spotify into their living rooms is another proposition entirely. And to top it off, all these services have yet to learn how to make ad-supported music pay. (Pandora is a notable exception, but it took many years to finally hit operational profitability in 2009 and it isn’t even fully on-demand, so has lower rights costs.) The nightmare scenario for the record labels is that consumers in the tens of millions are wooed by free music, only for the services to go to the wall in couple of years time after having failed to build robust businesses. The free-music-vacuum would inevitably be filled by the grey market. So how can these two opposed positions be balanced? Free music services will get there, but only as a part of a three-tier monetization hierarchy: 1. Premium: the smallest in size but highest in ARPU (average revenue per unit) segment 
2. Subsidized: the best balance of scale and ARPU, with telcos and device manufacturers hiding some or all of the cost to consumers
3. Ad supported: the largest segment but lowest ARPU Free music services can work, and bring real value to the music industry. But only if they are clearly positioned in this market-level hierarchy and if sophisticated consumer lifecycle strategies are used to identify the right consumers to migrate up the chain at the right time. It’s not the end of the line for Spofity et al, but the outlook at the start of 2010 is very different from a year ago. Expectations are more realistic and building audiences in a sustainable manner is paramount. It is probably no bad thing that Spotify wasn’t able to launch in the U.S. in late 2009. Spotify wouldn’t have been able to afford strong success (an extra 10 million or 20 million free customers to the bottom line could have been crippling) and the nascent digital status quo would have been disrupted. (However, different the value proposition Pandora may be, I wonder just how many PC-only users would remain loyal given the option of Spotify.) The original Napster started the free-music race, but if the industry doesn’t enable the likes of Spotify to pick up the baton and run with it, BitTorrent et al will continue to do so regardless. Mark Mulligan is an analyst at Forrester Research, where he serves, and contributes to the Forrester blog for Consumer Product Strategy professionals.
Norway court rejects industry bid to block The Pirate Bay
February 11, 2010 - (API)
OSLO — A Norwegian court has rejected a record industry appeal against telecoms operator Telenor for refusing to block access to popular file sharing website The Pirate Bay, a plaintiff said Wednesday.
The Oslo court of appeal said that it is not currently possible, under Norwegian law, for a judge to order an Internet service provider to halt traffic to websites from which illegal downloading happens.
"In the spirit of the law on intellectual property, Telenor does not contribute to behaviour that is reprehensible or could be subject to awarding compensation" by letting its customers access The Pirate Bay.
The extract of the court's verdict was published by Tono which is Norway's Performing Rights Society and one of the plaintiffs in the case.
Tono argues that the European directive on intellectual property "has not been correctly implemented in Norwegian law."
Before the case was first heard in November last year, Telenor argued that it refused to implement what it called "censorship."
"You cannot sue a ladder manufacturer because someone used one of his ladders to commit a burglary," Atle Lessum, a spokesman for Telenor, told the newspaper Verdens Gang before the hearing.
"We therefore reject imposed censorship like this," he added.
The Norwegian government has announced it would review its intellectual property law in the light of new technologies.
Founded in 2003, The Pirate Bay makes it possible to skirt copyright fees and share music, film and computer game files using bit torrent technology, or peer-to-peer links offered on the site.
None of the material can be found on The Pirate Bay server itself.
1) Decontextualize first, promote second. Artists are in love with their songs/music, and they should be. However, prior to throwing a year of your life into promotion, force yourself to get anonymous feedback from at least thirty friends, twenty artists, and from ten industry professionals. If most love your songs, then promote. Otherwise, go back to the classroom/studio and learn how to make “better” music first. 2) Don’t listen to industry promotion professionals that were successful in 1999. Nobody has the answer to obtaining and sustaining mass-market exposure. Nobody! I don’t care what someone says they did in the past; make them demonstrate the success they obtained six months ago. 3) Seek experienced production people. When it comes to making music, experience is way under-rated in this industry. Studios have gone out of business because everyone is a producer/engineer now. Find the most experienced/successful producers, engineers and songwriters you can find. Money spent on a successful producer or a great songwriter will go further than money spent on a promotion “expert”.
4) Don’t go it alone, it’s almost a waste of time! (translation: promote and collaborate with other artists)
5) Act like a software startup. Expand your definition of a “band” to include people that can handle things like social media, video production and software development. Find someone to help you use the equity in your venture to compensate everyone involved.
Last year, Radiohead expressed their growing discomfort with record labels that abuse copyrights for their own benefit, while harassing their fans. In a recent interview, Radiohead guitarist Ed O’Brien said that he doesn’t believe piracy is killing the music industry, but that the industry will kill itself if it doesn’t adapt to the digital age.
In an attempt to take a stand against the labels, several well known artists including Radiohead formed the Featured Artists Coalition last year, a lobby group that aims to end the extortion-like practices of record labels and allow artists to gain more control over their own work.
Radiohead and others are unhappy with the fact that the labels, represented by lobby groups such as the RIAA and IFPI, are pushing for anti-piracy legislation without consulting the artists they claim to represent. Radiohead, who used BitTorrent to leak one of their songs, went as far as being willing to show up as a witness against the RIAA in court.
In a new MIDEM interview, Radiohead guitarist Ed O’Brien stands up for file-sharers once again, stating that piracy is not killing the music industry in his view.
O’Brien is no stranger when it comes to piracy. “There’s a very strong part of me that feels that peer-to-peer illegal downloading is just a more sophisticated version of what we did in the 80s, which was home taping,” he said, something the music industry strongly discouraged at the time.
“If they really like it, some of them might buy the records,” he said, adding that if they don’t buy the albums they might buy a concert ticket, t-shirt or other merchandising.
“I have a problem about it when people in the industry say ‘it’s killing the industry’, it’s the thing that’s ripping us apart’,” O’Brien said, adding: “I don’t believe it actually is.”
According to O’Brien the music industry is using analogue business models in a digital age. “You’ve got to license out more music, more Spotifys, more websites selling more music. You’ve got to make it slightly cheaper as well to get music in order to compete with the peer-to-peers.”
Radiohead’s guitarist says he’s surprised that the music industry is still struggling with the digital transition, and urges the labels to “move quicker” and get their content out there at a fair price.
Artists have always needed fans - lots of them - but now more than ever, they really need friends. Not groupies, but a group of smart individuals, or even - shockingly - a label.
But the operative word was 'partner,' not 'label,' during the New Music Seminar in Los Angeles on Tuesday. "This is not about 'oh I need a label,' this is about, 'oh, I need a partner,'" TopSpin CEO Ian Rogers relayed. "The value chain is moving from what used to be artist-label-distributor-retailer-fan to artist-marketing partner-technology-fan. There are a lot of people who are going to be in that technology box, and there are a lot of people who are going to be in that marketing box."
Sounds perfectly logical, and other experts agreed. But the subtext was striking - suddenly, all the Long Tail, do-it-yourself zeal of previous years was getting updated by something more realistic.
Even by some of DIY's more ardent supporters. "I'm tired, tired of hearing about 'DIY, I don't need a label' crap. Tired of it," ReverbNation chief Michael Doernberg stated. "Because the truth is that everybody needs advisors. The question isn't 'do you need help?' - the question is, 'who?'"
And TuneCore? In the days leading up to the Seminar, Tommy Boy Silverman found himself in a high-profile spat with TuneCore CEO Jeff Price. The debate canvassed a few topics, including the extreme difficulties that artists face when trying to 'break,' whatever the definition of that is. Is serious promotional firepower needed, or can a career get jump-started from scratch?
Price was not on hand, though the consensus seemed to fall somewhere in the middle. Indeed, Doernberg offered ReverbNation as a well-oiled technology partner, not a superhighway to DIY superstardom. In the end, 'experts agreed' that even the best DIY weapons need a supporting platoon, or at least a well-coordinated band of brothers. Other questions related to marketing spending levels may take more time to answer.
But what will this next-generation team look like? According to Rogers, different bands require different and customized support structures. But the manager will be a critical part of the future structure. "The manager is truly... the artist partner who quarterbacks and puts it together," Rogers noted.
But getting the right manager? That is a difficult challenge. The legendary fist-thumping, bus-touring manager of old suddenly needs digital credentials, and oftentimes, a more sophisticated resume. "Someone has to quarterback it all, and that takes strategy," Tommy stated. "There aren't that many good managers."
Join the celebration of EFF's 20th year defending your digital rights! Our birthday fundraiser on February 10th will be hosted by beloved TV geek Adam Savage at the DNA Lounge in San Francisco, where he will celebrate EFF's two decades as only he can, with the help of many EFF legends and luminaries!
DJs Adrian & the Mysterious D, the duo that founded the seminal, globe-trotting mashup party "Bootie," will get people moving with their genre-mashing blend of tracks, with guest DJs dropping sets throughout the evening.
Doors open at 8 p.m. We'll be asking for a $30 donation at the door to fund our work defending your digital freedom.
WHAT: EFF's 20th Birthday Fundraiser with Adam Savage and Surprise Special Guests!
WHEN: Wednesday February 10, 2010 Doors open at 8 pm Asking for a $30 donation
WHERE: DNA Lounge 375 Eleventh Street San Francisco, CA 94103
Please RSVP to events@eff.org. This is an all ages event.
3 More Rumors From Midem
February 01, 2010
Several strong sources point to the release of a Zune phone. This article from ars has evidence seems to confirm it.
Subscription music service MOG's goal of licensing via ISP's and mobile company's is getting closer to reality. Nothing is firm yet, but both sides see promise. Then again, a growing number of competitors are fighting MOG in the same space...
Will Spotify ever come to the U.S.? The major labels are increasingly skeptical that as supported Spotify will ever deliver real
revenue and may even hurt sales. Some are willing to give it a try, but at least one seems far less interested.
What can the music industry learn from Farmville?
January 26, 2010
Media futurist Gerd Leonhard did his thing on-stage at MidemNet this afternoon, talking about some of the new business models being used outside the music world. One of the most fascinating was Farmville.
Zynga’s social game is absolutely huge on Facebook, as you’ll know if your friends and family are clogging up your news feed with lost pigs, horses and chickens. It’s got more than 73 million users on Facebook, and is generating millions of revenues from selling virtual items.
Leonhard held it up as an example to the music industry, particularly its free-to-play model. “What can we learn from Farmville? It all starts with free. Farmville gets people hooked, then sells them virtual tractors. People will buy anything once they’re hooked.”
He suggested that the music industry should be looking more deeply into interactivity and virtual items, as well as social media. “Go inside the social networks with music!” he said.
“How come Facebook doesn’t have music? 8.7 billion minutes are spent a day on Facebook, so why can’t we make a deal – hopefully not individually, but collectively.”
That’s something of a simplification, though. There IS music on Facebook, through apps like iLike, and some virtual items. But Leonhard is absolutely right to say that the explosion in social games has by and large passed music by. In 2010, that will hopefully change.”
You no longer need to spend a great deal of time chasing management, booking agents or labels. I am not suggesting that any of these types of strategic partners aren’t helpful but I do find that many artists seek to engage partners far too early in the trajectory of their careers. Before you seek out someone to partner with you ask yourself the following questions:
· Have you played out locally on a regular basis for at least six months?
· Do you have a corporate entity and an intra-band agreement?
· Have you trademarked your name?
· Are you registered with a Performance Royalties Organization? (ASCAP, BMI, SEASAC)
· Do you have a professional looking website for your project and a presence on social networks?
· Have you made “no apology” recordings of your songs that you think are representative of your ability?
· Do you have a bio on your musical career that doesn’t peak when you were eight years old and taking piano lessons?
· Do you maintain an ongoing online and offline positive relationship with a large group of people you could call fans without feeling funny about it or including your parents and extended family?
If you answered no then your business is not yet off the ground. You don’t yet have a viable and fully formed product. In any business it is very difficult to get an investment for a blueprint concept or an idea. Getting funding for a start up business becomes much easier the more time and effort (and money) the entrepreneur puts into it. You have to remember that seeking out management, agents or labels is asking someone to invest in you. It might not be financial investment but the amount of time a partner like this would need to devote to developing an artist’s career is usually a full time job. What do you bring to the table other than your talent?
I read Tribes on a flight from Orlando to Reno heading out to Lake Tahoe to snowboard last year. I didn’t look up for the entire trip until the book was finished. Seth is a brilliant marketer and was also featured as one of 5 bloggers musicians should be reading. This book is all about creating tribes in your niche and industry and the fact that you do not need a tribe of millions to make an impact. This is especially important to bands and artists. Building a tribe of a few hundred to a few thousand around your music and your movement can be the difference maker in your career. This is a must read!
I had the opportunity to interview John for Personal Branding Magazine a few months back and the guy is a really smart small business marketer. Most indie bands are operating (or should be operating) like a small business. Duct Tape Marketing is all about simple, affordable and effective marketing ideas and strategies - all things that musicians want to hear in a marketing plan.
You all know the concept, now really understand the concept. In the Internet Marketing world we call this “Moving the Free Line.” Chris just makes it a business model. If you need some convincing that giving away your music can grow your business and your bottom line, this is a book that you need to read.
The coolest part about the book - it lives by its own rules. The ebook is available for free, or you can grab the hardcover from Amazon or your favorite book store.
The original marketing handbook. It took me a while to come to terms with this series. It wasn’t until my buddy Chris, talent buyer for the Plaza Theatre. started coming at me with awesome marketing ideas (and then started selling out shows left and right) that I started listening. There are man adaptations of the book, but the original is where you are going to get the biggest bang for your indie budget.
Chris is probably the brightest mind in social media. As someone who writes for one of his cleint’s sites, Workshifting, and having a few conversations with him, I can say that if you want to build relationships with your fans, you need to read this book. Julien and Chris lay out a framework that musicians can run with to start to create a trust with their fans and having fans become rabid followers - helping you grow your Tribe. (These 2 books are wicked back-2-back)
I hope you take some time while in the van, the hotel or taking a break from the studio and keep educating yourself on the business end of the music business. These are 5 of many great books to dig into to get your mind going and conversations started among your music team.
If you have read any of these books, let’s chat in the comments. Or if you have other suggestions I’d love to hear them and check them out myself.
Should stations pay artists to play their tunes? Get ready for one of the year's biggest battles.
WASHINGTON -- One of the biggest lobbying fights in the nation's capital this year could involve a traditionally non-Washington subject: rock and roll.
At issue: whether AM and FM radio stations should pay royalties to performers on recorded music played over the airwaves, and if so, what those rates should be. Right now only composers and their affiliated publishers reap these payments.
In one corner is the MusicFIRST Coalition, which includes the Recording Industry Association of America, several artist groups and SoundExchange, the folks who collect licensing fees from satellite and Internet radio stations and distribute it in the form of royalty payments to musicians. They say it's not fair that session musicians and others who play or sing on records played on the radio should be denied compensation.
Poppycock, argues Dennis Wharton a spokesman for the National Association of Broadcasters, the group on the other side. Half of the money would go to record companies, and "Who has abused artists worse than the record labels traditionally?" he asks. "No one."
Led by the NAB, broadcasters including Clear Channel Radio, Emmis Communications and National Public Radio have formed the Free Radio Alliance in opposition to the Performance Rights Act. The legislation would require terrestrial broadcasters to pay performance royalty fees. Stations with less than $1.25 million in annual revenue would be allowed to pay a flat fee of no more than $5,000 per year.
According to the NAB the bill would impose an additional financial burden on broadcasters during a recession and would drive many music stations into talk radio or out of business. Moreover, the industry group says, radio airplay is already free promotion for artists.
U.S. album sales in 2009 declined for the eighth time in nine years, according to Nielsen SoundScan, while online song downloads grew too slowly to close the gap.
The data, released Wednesday, indicate that the recorded-music industry is still struggling to adapt to the digital age, even as SoundScan said digital downloads now account for 40% of music purchases.
Variety sums up the less-than-stellar but still not-apocalyptic figures:
The music biz may be undergoing drastic shifts, but music still sells. Though sales of physical albums continued to wither in 2009, the number of overall music purchases rose 2.1% last year, according to year-end figures from Nielsen SoundScan.
Between Jan. 5, 2009, and Jan. 3, 2010, total album sales (encompassing CDs, cassettes, LPs and digital albums) plummeted 12.7%, with almost 374 million units sold (down from 428.4 million in 2008). Overall album sales (including all albums and “track equivalent” digital albums) fell 8.5%, with nearly 490 million units sold vs. 535.4 million the previous year. Internet sales of physical albums plunged 8% during the same period. Nonetheless, the digital realm, which accounted for 40% of total U.S. music purchases, experienced a continuing upswing: Digital album sales gained 16.1%, while digital track sales climbed 8.3%. A staggering 1.1 billion digital tracks were sold last year.
Though its sales levels were humble, the old-fashioned vinyl LP witnessed the biggest percentage sales gain last year, climbing 33% with 2.5 million sold. Two out of three vinyl albums sold were purchased at independent retailers.
It seems as though the first era of digital music may have come to an end. Napster died, P2P lived in some black market twilight zone, streaming services on ad-supported revenue were suffocated by unsustainably high licensing fees, and subscription services sputtered along, never quite capturing the imaginations of music fans. 2009 ended in a flurry of acquisitions (LaLa, iLike), launches (Vevo) and shutdowns (iMeem), which dramatically rearranged the digital music landscape. When the dust finally settles, expect digital music to begin anew.
With that in mind, here are my five predictions for music in 2010.
1. Labels Will Get Smart
It’s been coming for more than a decade, but major labels are starting to grasp the digital opportunity. They’re licensing music on more sustainable terms, diversifying their business model, investing in new technology and, most critically, understanding more than ever what it means to be truly consumer-led.
As market leaders, major labels have the resources and the networks to profit most from the changes currently taking place. The move from physical to digital hasn’t been as fast as many people might have wished, but that’s because digital still doesn’t pay like physical does.
CDs, when they sell well, still mean big money. Digital isn’t like that. But that’s changing, and as major labels have shrunk, their capacity for change has increased. Expect 2010 to be the year that the bad press on the major labels starts becoming more favorable.
The promises of the digital age — deeper understanding of the music consumer, integrated ticketing and merchandise, direct-to-consumer sales, and fans as marketing teams — are all about to become a reality, and major labels will lead the charge.
2. Physical CD Sales Will Continue to Decline
To ensure at least one of my predictions comes true, I’m going to forecast that globally, sales of physical CDs will decline in 2010. That’s one thing you can definitely count on.
3. Release Strategies Will Evolve
The traditional model of building buzz through radio singles followed by a carefully timed album launch will still be the norm for commercial pop music. But at the edges, we’re going to start seeing a new model for releasing music that’s more attuned to the diverse community of music consumers.
The new model, pioneered by Topspin Media, will be the multi-tiered, staggered release. Artists will offer free, full streams and selected downloads early to the curious and the devoted, building their fanbase as they grow. Traditional release schedules will follow, in tandem with more innovative products, at more diverse prices, to more accurately segmented groups of fans.
Rather than just a plastic CD, we’ll start seeing multiple tiers of music product: free streams and low quality mp3s, simple digital and physical packages, enhanced audio and packaging on digital and physical releases, and then levels of premium products including vinyl, merchandise, and increased access to the artist.
We still think of music in its physical form as a CD on the shelf. Increasingly, we’re going to understand it as a suite of music products — T-Shirts, mugs, books, framed art, signed lyric sheets, USBs, and once-in-a-lifetime music experiences.
4. Music Will Live Legitimately in the Cloud
It’s been talked about for a number of years, but 2010 could be the year we start thinking of music less as a finite product and more as an infinite, on-demand reservoir to be accessed at any time for a fee.
This process will roll out in tandem with the evolution of music “products.” Even if music is universally accessible, it’s still key to people’s idenity. We still need something to put on a coffee table, something to pass to friends, something to put under the Christmas tree and something to signal to the world that “this music is part of me and I want you to know it.”
iTunes, as ever, is in the driver’s seat to make the most of this change. Its acquisition of LaLa could see them own the streaming market as it currently owns digital music.
Spotify’s buzz seems to have cooled, but it’s still the best-placed streaming service to take advantage of the cloud’s potential.
Grooveshark’s growth, if it continues, is going to make it a serious player in the streaming game.
MySpace, with iMeem and iLike in its back pocket may also consolidate its place in the land of the streaming.
And finally, Google –- who owns the bridge over the moat, digitally speaking –- could pull the rug from everyone and facilitate properly integrated music streaming into its search platform.
Whoever emerges at the front of this pack will be in new territory, providing access to the world’s music, anytime, anywhere on any device.
5. Who Knows?
There’s some as-yet untested consumer models building momentum.
Guvera is promising the world, not just to the music industry, but to advertisers as well. Whether consumers buy into its advertisement for content exchange remains to be seen.
Rdio, with serious pedigree and some big money backing it, hasn’t poked its head up completely yet, but you can be assured that whatever it offers isn’t going to be lightweight.
Lost in all the buzz is the fact that some legacy digital music companies — Last.FM (), Pandora () and MySpace to name a few — still have the established brands, the existing customer base, and the revenue streams that preserve their lives beyond the froth of the tech/music blogosphere.
And of course, there’s Facebook. The biggest country in the world (or soon to be), Facebook and music have always been awkward bedfellows. If Zuckerberg and Co. can figure a way to integrate music with the Facebook platform, the existing user base would guarantee a big chunk of the market overnight.
It all adds up to create a big void of uncertainty, one that will be filled in the way the web knows best — by its end-users. What those end-users decide they love will ultimately determine the winners and losers in the digital music economy. As a passionate music fan, I can’t wait for the competition to heat up. For those on the digital frontier, music really is better than it’s ever been.
Shockwaves from the launch of Napster in 1999 are still being felt by the music industry right up to Apple’s acquisition of Lala in 2009 and beyond. The difficulties faced by an industry trying to rely upon a previously buoyant CD market in the face of all things digital is described by Mark Mulligan as part of Forrester’s Mobile Trends Review.
Mulligan identifies four clear stages in the the industry’s digital strategy during the ‘noughties’:
Stage 1 : Denial
Labels fail to recognise what Napster represents and steadfastly refuse to licence content to similar providers such as MP3.com on the assumption that the digital irritant will disappear and normal service will be resumed.
Stage 2 : Confusion
Digital advocates within the majors encouraged the licensing of content to services such as Rhapsody, but in the face of rising MP3 downloads, the official services were severely limited by the assertion that digital purchases must be ‘tethered’ to specific PCs.
Stage 3 : Acceptance
The arrival of the iPod and its accompanying iTunes store transformed the official digital music market overnight. However, with recovery seemingly in sight, P2P networks continued to thrive and official digital revenues failed to offset the decline in CD sales.
Stage 4 : Rebuilding
We now have a music industry prepared to make the very decisions it veered away from at the start of the decade. In particular, the licensing of content to the likes of Spotify.
Mulligan concludes that what might still appear to look like desparation might simply be recognition that the evolution being undergone by the music industry is still far from complete.
In the music business, this decade belonged to the fans
December 24, 2009 - By Greg Kot
"It's up to you" — so said Radiohead when fans clicked to download the band's "In Rainbows" album from its Web site in 2007.
Radiohead had become the equivalent of the busker on the street corner, playing for tips.
But as one of the biggest bands in the world, Radiohead also was posing a question: "What's music worth?"
That was the decade's signature moment in pop music, a sign that fans — once a faceless marketing demographic — were now de facto distributors, marketers, publicists and coconspirators.
Previous decades were dominated by personalities and movements, larger-than-life figures such as Elvis Presley and the Beatles, and cultural shifts such as hip-hop, rave music and punk. But the 2000s belonged to music technology and delivery systems. Most of all, the decade belonged to fans.
The combination of broadband Internet access and file-trading software such as Napster seized power and control over music from a handful of corporations and transferred it to the laptops and cell phones of consumers. Since 2000, the industry has seen its business cut by one-third to less than $10 billion annually, while compact disc sales have been chopped in half, to fewer than 500 million annually.
Though sales of digital music have increased, those gains are far outweighed by rogue peer-to-peer file-trading networks. Web-tracking services estimate that for every digital file that is sold, 40 are traded in violation of U.S. copyright law.
Even as massive judgments were awarded to the music industry in highly publicized copyright infringement trials against Jammie Thomas-Rasset and Joel Tenenbaum, jurists noted the inadequacy of 20th century copyright law in addressing the new digital reality. Though a jury ultimately awarded the record industry $1.92 million in damages because Thomas-Rasset was found to have made 24 copyrighted music files available on her home computer, she "acted like countless other Internet users," U.S. District Judge Michael Davis said. "Her alleged acts were illegal, but common."
Copyright holders have reason to gripe.
Intellectual property that consumers covet is certainly worth something — as Radiohead's "In Rainbows" marketing strategy implied. Yet the industry is hardly blameless in the shift to illegal file-sharing. As consumers made their desires clear by shifting from physical product to digital music, important catalogs such as the Beatles and AC/ DC still can't be purchased from legitimate music stores like Apple's iTunes. But fans can download the songs of any band through countless black-market sites; indeed, just about any song you can possibly think of is a mouse click away, for free.
As recently as a decade ago, it could take the dedicated fan months to track down obscure releases. Now they can be found in a matter of seconds, turning music into the cultural equivalent of tap water or oxygen. More music is more accessible to more people than ever, and yet that very ubiquity makes it feel somehow less essential.
Music fans hang on to their portable music players, the iPod in particular, rather than the music they hold.
They collect music and then dispose of it, certain they can replace it with a few mouse clicks.
Just about everything (except for maybe the latest "American Idol" star) feels smaller, more niche. The age of the Beatles, U2 and Madonna — the all-encompassing global superstar — is in decline. Within this fragmented culture, in which every movement no matter how obscure has its own Web site and cult following, great music still is being made.
Communities of listeners are sprouting up for countless styles of music and tiny underground explosions of creativity that in past decades wouldn't have stood a chance of getting noticed.
There's hope for the little guy and gal who can't get a deal with one of the major labels.
But the question remains, what's the music worth? It leads to more riddles: How will content creators get paid, and by whom? Who will decide what constitutes legal file sharing? Can the notion of an Internet that is democratic co-exist with 20th century copyright law?
Now all industries that depend on intellectual property for revenue — movies, television, books, video, newspapers, magazines — face a similar crisis. As this anxious decade comes to a close, we are no closer to a definitive solution, a new business model, than we were at its chaotic start.
But Radiohead's approach suggested that the very notion of an all-encompassing business model may be outmoded. It's not a one-size-fits-all world anymore.
Artists and tech geeks debated the future of the industry at SF MusicTech
By Jennifer Maerz
December 18, 2009
The fifth annual SF MusicTech Summit was only on its second round of panels last week when cellist Zoe Keating aptly summed up a major goal for the event. She was a panelist in a discussion concerning the ways musicians can "get popular" when she observed the difference between typical music summits and tech-based ones like this. "At music conferences, everyone's trying to hold on to the crumbs of the past," she observed, "while tech conferences are trying to figure out the future."
Her opinion was validated as the day progressed at the Hotel Kabuki, where 800 musicians and tech geeks gathered to swap business cards and debate exactly where they should be putting their efforts.
Should bands spend more time creating a giant Twitter following, like Keating, who has 1.3 million signed up for her feed? How exactly will artists be helped by the fact that Google joined forces with MySpace? The future definitely wasn't in the decision to allow Third Eye Blind singer Stephan Jenkins' "special presentation" at MusicTech's finale. His bizarre ramble lasted 30 minutes and could be boiled down to his discovery that bands sell their CDs on the Internet. One attendee muttered to a friend as they left the room, "I spent all day getting smarter, and Stephan Jenkins just made me dumb again."
The summit stayed interesting, however, because nearly every argument regarding where the music-tech industry's biggest inroads are being made ignited strong opposition. The disparity made clear that musicians should stay educated on tech issues regardless, because innovations that can benefit them are happening all the time. As West Indian Girl's Francis Ten put it, the musicians who watch VH1 specials and think bands still get "discovered" the old-fashioned way are sorely mistaken.
Ten was moderating Keating's panel, a group that debated which Web tools work best for musicians. Keating comes from a tech background, was an early Twitter adopter, and uses every publicity weapon in her arsenal. She has sold 30,000 records without a label that way. Other acts need a push from a savvy manager. Whitesmith Entertainment's Emily White said she recently started managing Brendan Benson, a solo artist who also performs in the Raconteurs. She claims to have helped his ticket sales for one concert jump from 150 to 600 in four days, just by tweeting back information about upcoming shows to Twitter discussions of Benson.
White was adamant that artists no longer need labels to do their publicity, arguing that acknowledging fans online and at shows will help boost sales. Not so fast, countered David Katznelson, a veteran of Warner Bros. who now runs the indie Birdman Records. "Most bands claim to love Twitter," he said, but they won't always make time to network with fans. Hence the need for a label — even a small one — to put in the work and put up the cash to help records get sold.
That conversation marked another general theme for MusicTech. For years, we've been sold an image of the untouchable artiste with an aide who handles the dirty business details. That view goes hand-in-hand with an act that refuses to hang with its followers, believing it's better to stay mysterious. Those are valid attitudes, but thousands of struggling musicians have to work to keep fans interested enough to buy their stuff, come to shows, and get friends to do the same. At that level, the panelists said, sites like Twitter and Topspin, as well as the old-fashioned postshow meet 'n' greet with the crowd, generate more income than acting aloof from fans.
MusicTech also drew the big guns. Representatives from Google, MySpace, Pandora, and YouTube took the stage to spin the myriad ways they're working to get music to consumers faster. Speed and instant gratification — two ideas that were completely foreign to record labels a decade ago — are prime objectives. But while that's great for giving musicians exposure, a later panel with Gang of Four's Dave Allen reminded artists that Google is a double-edged sword. Its recent deal to put its streaming partners at the top of music searches logically most benefits its partners. Allen, who is head of a digital strategy company, encouraged artists to at least run their own Web sites so searches bring fans directly to the bands first, and not, for example, to MySpace.
Family of the Year, a group whose name was mentioned in multiple panels, was MusicTech's most dynamic example of musicians in step with their tech side. The Silver Lake indie-pop act is a walking record label. Members take up specific tasks related to Twitter, e-mail blasts, Web design, and other duties. They also embarked on a cute promotional concept. As drummer Sebastian Keefe explained on a social networking panel, Family of the Year created an "old-school Twitter" tour. Send in $5, and the group will mail you one-line postcards from the road.
Whether snail mail will help Family of the Year become the next Third Eye Blind remains to be seen. By the time the free wine was spilling at the end of MusicTech, crystal balls were only slightly clearer than when the attendees were sipping complimentary coffees earlier that morning. But even with all the disagreements and confusion, it was refreshing to be in the presence of so many new ideas rather than hearing people complain that there are too few crumbs to go around anymore.
Boasting more than 2 million users in Britain alone since their launch last October, Spotify, like Pandora, is a force to be reckoned with. They present the new model of music discovery services. However, with reports of a far less than expected number of users choosing the premium services, and advertisers being slow on the uptake, the service’s future is very unclear.
Allow me to also preface this article by clearly stating that, I love both Spotify and Pandora. They are indicative of where music discovery is headed and should be cherished as such. They are far different to anything that has come before. Some people however, as you read on you will no doubt discover have not realised this yet. They both start with the letter L.
A Bleak Outlook
The Guardian is reporting that Spotify is looking to raise more venture capital. The Times estimates Spotify is looking for between £20m and £30m; bringing its valuation up to nearly £200m.
The take up of the premium service in May was reportedly 17,000, less than even 1 percent of the total user base. This worrying figure is bolstered by the fact that it (the premium service) only grew by 2,700 over the previous month, whereas the free user base is supposedly doubling. So far, all the premium service gets you is the removal of advertising, a few “social features, a download service ... and exclusives”. Not the most enticing subscription on the Internet.
Much has been speculated about just how large the shortfall between Spotify’s licensing payments, and the amount recouped from advertising and premium services is. Spotify pays labels a per song royalty, and it supports this with advertising and its premium service. The fact that it is even paying per song is partially worrying, as it's ultimately unsustainable though probably necessary to get the large labels on board.
It’s Not Their Fault
If Spotify, Pandora or any other online music discovery service - be it a website or online radio - were to fail, it would not be their fault. Well, at least not entirely. It can’t be totally their fault. They are all filling a very obvious consumer need. No, it would be the labels and the lawyers who are to blame.
It would be the labels and lawyers’ fault for extorting these services for more than they can afford. Pandora this week finally settled with SoundExchange on a royalty rate (see below), and has subsequently had to limit its free service to just 40 hours a month. This is stacked on top of the fact that it is already geo-locked to America, due to previous licensing issues.
It would be the labels and lawyers’ fault for not seeing and understanding how the industry has and is changing. Attention. It’s the new money (see below). Really it is. Obscurity is more of a burden than piracy or low royalty rates. Not being heard is worse than not making money.
It would be the labels and lawyers’ fault for not changing and adapting their business models to accommodate the economy of abundance, uncontrollable distribution and what “FREE” now means.
A Royal Royalty
Spotify pays labels a per song royalty. Their goal was to have enough people on the premium service, and have enough advertising to support the free portion of the business. Recent news and the analysis of other services would lead us to believe this business model is significantly unsustainable. However, I believe they are completely misguided with their approach, and have misinterpreted users motives for using a music discovery service.
A recent agreement between SoundExchange and Pandora has almost set the precedent for performance royalties for online “webcasters” (streaming services). Pandora will pay “the greater of 25 percent of revenue” or a per song royalty fee every listen, “starting at .08 cent for songs streamed in 2006 and increasing to 0.14 cent in 2015”. Traditional broadcasters only pay a royalty rate of about 3% to 4%, and yet Pandora is being forced to fork out a whopping 25%. As a result they have had to significantly limit their service. In the long term (or is that long tail), this benefits no one.
it would be the labels and the lawyers who are to blame.
Another headache brought about by the apparent need to pay royalties is per country restrictions. Spotify is only available in a few countries, this is mainly due to the difficulty in gaining worldwide licenses. Pandora has been US only for a long time now. Many artists (or should I say their labels?) are struggling to agree on who owns who in which country. Artificial Scarcity is one thing; closing the door on millions of potential fans is another whole ball game.
The Attention Economy
It’s long been said that attention is the new money. That is, whatever is getting the most attention at any given time is the most valuable. More valuable and sustainable than performance royalties. A recent Harvard Working Paper titled “File Sharing and Copyright” drew some interesting conclusions regarding file sharing. Stating that in a study of “2,135 artists” studied over a ten-year period, the demand for “concerts increased due to file sharing.” In short, Complimentary Goods thrive in an attention market (at least in the scope of the music industry).
Also interesting to note is that the same paper drew the conclusions that “unless the industry drums up support for a new release, it is apparently difficult to give it away for free.” This sentiment whole heartedly supports the concept of an attention market, in that the only music that is being shared is music that is garnering attention. If a song or album has no attention, then demand for it is absolutely minimal. So much so that it may never be downloaded, listened to or talked about.
Taking a brief look at other music discovery services you can see these results ring true. Major artists, i.e. artists with a large amount of attention, fare well with large fanbases on the services. The more attention an artist has the more successful they are. Interestingly thesixtyone does not pay a royalty fee to artists, instead opting to have prominent links to allow a listener to purchase the music, or otherwise connect with an artist. Strangely enough, more and more big artists are finding it valuable enough to be on.
What Makes A Good Music Discovery Service?
A good music discovery service should facilitate two things: simple and relevant discovery of new music, and the subsequent discovery of new artists. Both go hand in hand. A good music discovery service, like thesixtyone, Pandora, Last.fm and what Spotify could potentially be, enables you to find new music (and old music you forgot!). Most importantly, it initiates a connection to that artist. The part to monetize therefore should be the connection to fans, not the discovery.
The labels are already benefiting by being given unprecedented access to listeners on Spotify, by apparently being able to market merchandise and other goods to them. This information, properly used, is enough to begin a relationship with a fan, which is arguably all a music discovery service should do; connect artists with fans.
The Hype Machine ranks songs based on activity in the blogosphere, providing an indication of which artists are hot right now. That is, which artist currently has all the attention. It also enables a fan to begin an economic relationship with an artist. As I previously discussed, these few things are now more valuable than money.
Now, this isn’t to say give all your music away for free. There is still a decent amount of revenue to be made in selling music. However, we need make it mutually beneficial for a fan to discover a new artist, their music, and vice versa. We need to remove as many barriers as possible for fans to discover new music and create relationships with artists, economic or otherwise. Anything else is just prolonging the inevitable.
UPDATE: TechDirt has more on this if your interested.
Getting The Music Business Over The 'But We Must Sell Music' Hump
from the it's-not-all-there-is dept
On Monday, I attended and participating in the always excellent twice yearly event, the SF Music Tech Summit. As always, it was a fun time, full of interesting people. While smaller than some of the big music events, pound for pound, I tend to end up in a very high percentage of fascinating chats with people at SF Music Tech. The panel I was on was the first in the morning, and was officially called "meet the press," even though at least two of the five panelists (myself included) don't consider ourselves press. I didn't mean to stir up much controversy (never do), but I apparently got a few vocal folks in the audience riled up on a few points. The one that got some attention on Twitter, was the claim that live music was growing. A few folks started screaming and no one then let me back that up, but the numbers don't lie. A lot of people came up to me afterwards with stories of success by focusing on live music, and I even heard from some folks who are involved in organizing live shows who say that the "complaints" about live shows tend to come from those who focus only on a subset of live venues that have struggled lately -- but that the overall live market is thriving (as the numbers show).
However, there was a second point that I later tried to make that again I never had a chance to follow through on, and wanted to do so here. People were asking about what business models are working for musicians, and I started listing out some examples, and a loud gentleman in the front row yelled out that the business model that had to be at the center was selling music. I responded with what I thought was an important question: "Why?" and again people started yelling. Of course, no one answered the question, and then the panel shifted gears to another topic.
But, the reaction from the crowd on that question cemented for me one of the biggest reasons why some in the industry have struggled to grasp new business models. As I discussed in my NARM presentation a few months ago, selling music is just not a good business model, but it doesn't mean there aren't good, music business models. It's just that selling music isn't a very good one. Instead, you need to learn to use the music (which still needs to be good, and is still the central reason why these other business models work) to sell something else -- something scarce, which can't easily be copied. That can be attention, access, time, creative ability, cool physical products, whatever. All of those things are made more valuable the more popular the music is, and you can build all sorts of powerful and immensely profitable businesses once you recognize that.
But if you still think that selling the music or making money directly from the music has to be at the "center" of any music business model, you're shutting yourself off to the largest opportunities out there. But, the thing is, music has always been a product that makes something else more valuable. While there was some disagreement on the panel from someone about how record stores were profitable in the 70s, that's a case where the music was making the vinyl (and later, plastic) more valuable. Today, it makes iPods more valuable. As the big box retailers know, it acts as a loss leader to bring people in to buy higher margin goods. Music is great at selling other, higher margin things. If you ignore that in the music business model, you're missing the big opportunity.
This isn't to downplay the importance of music, or say that the quality of music doesn't matter. It absolutely does. But the music is not the scarcity, and you don't make money off of selling something that's abundant. You use the abundance to figure out what other scarce goods it makes more valuable and you sell those. So, people can complain and shout all they want, but it doesn't change the basic fact that until you recognize that selling music directly just isn't a very good business model, you're limiting your market tremendously.
People should pay for their music the way they pay for gas or electricity.
I originally published this article in Forbes Magazine nearly 4 years ago.
“More people are consuming music today than ever before, yet very few of them are paying for it. The music recording industry blames file sharing for a downturn in CD sales and, with the publishing companies, has tried its best to litigate this behavior out of existence, rather than try to monetize the conduct of music fans. These efforts are fingers in a dike that is about to burst. Digital media are interactive, and people want music that they can burn to CDs, share and use as they wish. The music industry should instead look at turning this consumer phenomenon into a steady stream of cash–lots of it.
The industry ought to establish a “music utility” approach to the distribution and marketing of interactive digital music, modeled after the water, gas and electricity utility systems. It should be done voluntarily to work best for all parties, or it may eventually be legislated through a compulsory license provision.
Under a plan colleague Gerd Leonhard and I propose, con-sumers would pay a flat music licensing fee of $3 to $5 a month as part of a subscription to an Internet service provider, cellular network, digital cable service wireless carrier or other digital network provider. This fee would let people download and listen to as much music as they care to, from a vast library of files available across the networks.
These fees would result in a huge river of money. With approximately 200 million people connected to a digital network in the U.S., the potential annual revenue stream for a music utility model could be somewhere between $7 billion and $12 billion for the basic service. That is already comparable in size to the existing U.S. recorded music market, which in 2003 was $12 billion at retail, according to the Recording Industry Association of America. This basic service would be augmented with various opportunities, including packages of premium content, live concerts, new releases, artist channels, custom compilations and more. The revenue potential of these premium sources is enormous, too.
How would this money be divvied up? We propose that the industry voluntarily establish a “music utility license” for the interactive use of digital music. This license would compensate all rights holders, including the record labels and artists (for the master recording) as well as publishers and composers (for the underlying composition), with the license fee to be split in half between the owners of the sound recording and the owners of the composition, after deducting a percentage for the digital network providers. This license would be available to anyone willing to implement its terms. The digital network companies would be required to track and report which music had been used, by employing existing digital identification and tracking technologies.
There is already precedence for such a flat-fee system in cable television and in the utility-like models of public broadcasting in Europe. Streaming digital music is already provided in basic cable plans. Cable television itself at first resisted this model, but its economics eventually led to a larger market, providing more consumer choice and more revenue streams overall. Old media almost never die. Cable television did not replace broadcast television; instead, it expanded the market dramatically, by letting video flow like water into new revenue streams–instead of down the drain.
Certainly a music utility would be a radical and complex undertaking, and there are many important details to negotiate, such as the exact nature of the license, how the funds would be administered, the specific tracking method, what collection of technologies would be employed and others. Yet there are inventors and technologists outside the mainstream music business hard at work trying to figure out how to make this happen. It’s time for the main players in the music business today, namely the large record publishers, to cooperate with the inventors and jointly create a future for music where the money really flows and the global market for music can grow from $32 billion to as much as $100 billion.”
Today this idea is closer to reality than you might think. The major labels have seen their revenues cut nearly in half from their peak, and paid digital downloads and advertising models have not grown to contribute nearly the decline in CD sales. The labels are in a very tough position and are looking at the utility model as perhaps their only remaining path to survival. The pain has finally gotten too much to bear.
Choruss is a new company spearheaded by Jim Griffin, and incubated by Warner Music Group whose mission is to “build a sustainable music subscription platform providing unlimited access to music for a flat monthly fee”. Choruss has been diligently acquiring the required licenses from all the “major labels”, independent labels including aggregators A2IM and Merlin and the National Music Publishers Association. The company has been granted one-year licenses for up to seven universities to offer subscription services for unlimited, DRM-free downloads as a proof of concept. This trial is set to begin in 2010.
Bruce Warila
In an attempt to take a stand against the labels, several well known artists including Radiohead formed the Featured Artists Coalition last year, a lobby group that aims to end the extortion-like practices of record labels and allow artists to gain more control over their own work.
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