Happy New Year! In this last week of the year, technology innovation was highlighted as Megaupload launched a new online music locker and a Spotify executive shared her thoughts on the powerful present and future of digital music. Also, Reuters announced that the music industry has finally seen a profit in 2011 for the first time since 2004.

Megaupload’s New “Megabox” Music Storage Space Launched

The controversial file-sharing site Megaupload announced the arrival of Megabox, a web-based online music locker and player and fully-integrated music store. But an article published on the Billboard.biz site, the company may face some significant challenges.

Based in New Zealand, Megabox works similarly to many other online music lockers, including Google Music, Amazon Cloud Drive or mSpot. Music is uploaded using Megaupload’s file-uploading application Megakey and sent directly to the user’s online locker. While the website does not indicate exactly how much storage space each user gets, information implies that it is capable of handling anyone’s entire music library.

Megabox also has a social networking component that allows people to search for and follow friends and send messages to them using the service.

And the music purchasing element of Megabox is its least striking component, though it is connected to Amazon and 7digital. Information about available music comes from Sony’s Gracenote service.

But Megabox will likely have some legal issues to overcome. History has shown that P2P services can create successful free file-sharing services that attract significant numbers of users. But legally-created stores and viable services are a much different story in the digital space. Limewire tried its hand at an MP3 store, but the service shut down late last year. And iMesh debuted a service that mimics P2P in 2005 after settling its lawsuit with record labels.

Over 50 million people use Megaupload daily, and the site accounts for 4 percent of Internet traffic worldwide. The key to Megabox’s success could lie in being able to appeal to its global popularity and huge user base.

Some Quick Music Industry Predictions from a Spotify Executive

Spotify’s VP of marketing, Angela Watts last week shared her assessment of the digital music space in 2011 and gave her forecast for 2012 in an interview with The Guardian. While she focused her statements heavily on the influence her company specifically has had on the music business, she did offer some insightful words about how innovations in online music has changed the way people use it to connect with each other.

She named 2011 as a “watershed” for the music industry:  “The line between music access and ownership is blurring now that you can listen to whatever music you want, wherever you are.” And she added that new streaming services have expanded music listening and discovery into a collective experience that creates an ongoing conversation:  “We’ve seen a big psychological shift with the realization that you don’t need to own music, that your musical universe can be blown wide open by not only having all of your tunes at your fingertips, but that of your friends, your favorite artist … Music forms such an important part of people’s lives and is to be given the power to discover, share and enjoy an unlimited amount.”

In this interview, Watts also hinted that the Spotify platform would be significantly expanding its apps offering in 2012.

Music Industry Profits Officially Up in 2011

Year-to-year comparisons put 2011’s album sales up from 2010, so says a report released by Reuters. Though the Soundscan sales year does not end until January 1, numbers show that by a small margin of 1 percent, this year will mark the first year there hasn’t been a profit loss in the music business since 2004.

In 2010, sales had dropped 13 percent since 2009. And before that, they had been steadily declining by an average of 8 percent annually since the early-mid 2000s as the industry adjusted to the rise of digital music.
But there is concern among experts, as the big successes of 2011 will not be very easy to recreate in 2012. The two highest-selling albums were Adele’s 21 and Michael Buble’s Christmas. And neither of these artists represent what has made for the typical “hit.”

Reuters also provided a rundown of what was successful and what failed in 2011. The following are the top three:

1. “Retro.” Adele and the Black Keys gained popularity by making older music fans nostalgic and reinvigorating the idea of the “throwback” in a way that also appealed to the a younger generation. (And Adele’s 21 album should hit just under 6 million sales by January 1.)
2. The return of the Christmas album. Every year there is a strong Christmas album seller. And this year, everyone bet on pop star Justin Bieber’s release. However, Michael Buble beat him out by almost a million copies, selling 1,964,000 units. Buble’s Christmas is currently the #3 best-selling album of 2011 and will likely take over Lady Gaga’s #2 spot when the sales year closes.
3. The decline of the big rock band. While U2 set a record for the highest-grossing tour of all time in 2010-2011, some of the biggest rock bands of the 2000s fared much worse. Evanescence only managed to sell 284,000 units of its long-anticipated third album (hitting only 101 on the charts). And Coldplay only sold 877,000 copies of Mylo Xyloto, compared to their last album, which sold 721,000 copies within its first week alone. And the Red Hot Chili Peppers only managed to unload 458,000 of their new album, compared to their last one which sold 2.5 million.

With digital music still on the rise (and music retailers ever shrinking), many wonder whether or not 2012 could possibly offer another surge – or even a flattening out – for the music industry.

This past week, HITFIX looked back on the 10 most impactful events in the music industry in 2011. And the latest trends have shown big acts gravitating away from big venues. Also, the new chief executive of Sony Music UK talked to The Guardian about the current state of the music industry and the impact of EMI’s split sale.

The Top 10 Biggest Music Industry Events of 2011 Revealed

In her “Music Power Rankings” column on the HITFIX music site, blogger Melinda Newman listed the 10 most influential stories and events of 2011 this past week. In way of intro, she noted, “… any way you look at it, this was a watershed year for the music industry in that the old, traditional way of business continues to morph into something new and those who can’t shift with the times or continue to cling to the old way of doing things will fall by the wayside.” She added, “… it felt like  a little of the joy came back this year after a long, bleak period.”

Her picks for the biggest music industry moments include …

1. Adele, who can be seen as one of the biggest success stories of the last several years. Her 2011 album 21 has not fallen out of the Billboard 200’s Top 10 since its release and has sold more than 5 million copies in the U.S. Not only has she been a big seller, but she has also been popular with critics all while staying on an indie label and maintaining creative control.
2. The rebound of album sales, which didn’t drop for the first time since 2004 and increased since 2010 (up 3.3% through September 30). “For the first time, it feels like maybe we’ve hit bottom and, through various new business models and strategies, can go forward.”
3. The “fire sale” on record labels, as the four major label groups condensed to three, with Universal Music Group buying the recording side of EMI.
4. Katy Perry’s emergence of one of the biggest pop stars of all time was sealed this past year, and she is fast approaching the record for the most songs from a single album to top the Billboard Hot 100.
5. U2’s proof that 360 tours still be lucrative (at least for mega artists), as their tour in 2010-2011 was the highest-earning tour ever, taking in $736,421,586, with over 7 million tickets sold, surpassing a record previously held by The Rolling Stones.
6. The powerful launch of the streaming service Spotify in the U.S. in July made Spotify the only online music service that has had any real impact in the online music market since iTunes.
7. The unfortunate rise of Rebecca Black’s song “Friday” showed that in the music industry “anyone, regardless of talent, can have their 15 minutes of fame … and then … try to extend it when it should have never happened in the first place. We live in a time where the fame is all that matters, not how it is acquired.”
8.  In 2011, Lady Gaga seemed to bring back the idea of the omnipresent pop star. Throughout the year, she kept up a rigorous touring schedule while also pushing herself heavily onto TV and radio. Despite all her work, she was only able to get one #1 hit with “Born This Way” and a label by Billboard as fans’ “most overrated” artist.
9. The untimely death of Amy Winehouse actually brought about her comeback as an artist. When she passed away over the summer, the only full album she had released in the U.S. was “Back to Black,” which debuted in 2006:  “… with her death came a new appreciation of her soaring talent and a lingering sorrow that another artist left way to  young and without ever reaching her true potential.
10. The death of Steve Jobs finally seemed to stop speculation (at least for now) about whether or not he had ruined the idea of the album. A close look at his life’s work showed the many ways he transformed the music industry and the technological world.

Will Big Music Acts “Downsize” Venues?

Music mega-stars may be following trends that have artists connecting more intimately with their fans by moving away from arenas and large amphitheaters and towards smaller concerts at medium-sized venues, according to a report in the Pittsburgh Tribune.

Many promoters in Pittsburgh and beyond have noted that artists like ZZ Top and Motley Crue, held out for huge stadium shows in the ‘70s and ‘80s, whereas in the past couple years, they have been going for medium-sized shows and a more personal experience for their fans.

In Pittsburgh, Bruce Springsteen has played the small venue Soldiers & Sailors Memorial Hall & Museum in Oakland, and Ray Davies and Bruce Hornsby both had shows at the Carnegie Library Music Hall.

Promoters and other industry experts have a variety of explanations for why the concert industry is becoming more “compact.” Columbus, Ohio-promoter and owner of the club Stage AE Scott Stienecker cited the decline of radio and the rise of easy access to music through the internet as a contributing factor:  “ [In the ‘70s, ‘80s and even ‘90s] We only knew what radio stations played for us … Now, there’s so much access to music. You’re sitting next to your buddy and he’s into Chip Tha Ripper … There’s so much music that is new, and they always want something tomorrow that’s different from today.” And more options means more bands are touring, and that it’s harder for one band to build a large-enough fan base to fill a stadium or an arena.

Other promoters cite a decline in talent (and a decline in the quality of artists’ live shows) as a reason there is less of a draw when artists come to town. Former Pittsburgh promoter Ed Traversari said, “You don’t have that same style where you used to get a CD or record and every song was good from top to bottom … Now it’s ‘I’ll pick one song from this band, one song from that band.’”

However, according to Billboard magazine, the superstars still do well. U2’s 360 tour is a good example. But other artists like Bon Jovi and Roger Waters both grossed in the $100 million range.

While younger artists like Taylor Swift and Lady Gaga did well last year touring, Gary Bongiovanni, editor of Pollstar is not confident that new talent will be capable of building lengthy careers:  “The question is will they be selling tickets five or 10 years from now … That’s a worrisome thing, because we don’t see a lot of evidence of a replacement crop of artists coming along … I think the conventional wisdom is that we will see more smaller shows and less of the larger shows at arenas.” He blames downsizing partially on mistakes that were made recently when bands booked tours at large venues and had disappointing attendance, often having to cancel shows and disappoint fans because of poor ticket sales:  “Bands that are savvy will underplay a market in order to build demand and provide a better show for patrons.”

Bongiovanni also talked about why playing smaller venues could mean a better show for artists and their fans:  “People who go to a sold-out show in an auditorium are thinking they’re in exclusive company and that they’re lucky to be there … if you’re in an arena, looking around at all those empty seats detracts from the experience.”

Musicians are becoming more aware that touring and the industry are changing. Bret Michaels performs at different-sized venues throughout the year. And when he plays larger venues with Poison, he brings along similar acts like Def Leppard or Motley Crue. According to Michaels, as an artist, you need to seek out a venue “you feel good at. But whether it’s big or small or medium sized … attack all of them like you’re playing Madison Square Garden.”

Nick Gatfield of Sony Music UK:  The Music Business “Needs a Massive Shakeup”

The new chief executive of Sony Music UK recently shared his thoughts on the fate of his former co-workers at EMI and why the music industry still needs big changes with The Guardian. Gatfield was senior executive for two and a half years before he leaving for Sony in January 2011.

Gatfield confirmed the rumors that there was a major culture clash between the “straight-laced bankers” of EMI’s owner Terra Firma and the creative music industry professionals:  “You had a private equity group and on top of that, people with ‘fast moving consumer goods’ type backgrounds trying to manage the business as if it was a production line of inanimate products.” He called it an “uncomfortable fit” and echoed Thom Yorke’s (of Radiohead) sentiments about EMI being like “a confused bull in a china shop.” Gatfield added, “Your ‘product’ is human beings who have opinions. [The art of managing talent is to] reduce the slippage.” But artists cannot be treated like commodities, because it belittles the art of making music. “You’re dealing with the psychology of running a creative business … The music industry is populated by very passionate and highly intelligent people. It’s not like everyone’s been asleep at the wheel.”

In his interview, Gatfield also talked about how piracy has reshaped the label system and the music industry. Piracy has taken a lot of money away from record companies. And according to Gatfield, the government’s implementation of a “three strikes” rule against offenders through the Digital Economy Act was a good start, but isn’t going far enough:  “Broadband businesses are being built on the back of illegal filesharing … As high-speed broadband becomes ubiquitous the problem is going to get bigger and bigger. We need site-blocking, and it’s an incredibly spurious argument for the ISPs to say that they can’t do it because they can do it and they do do it.” He feels the process of cracking down at the ISP level is too slow, as letters to offending customers saying their internet service will be diminished or cut off won’t be sent until 2013:  “… the lion’s share of the cost … is picked up by the recorded music industry.”

However, he does feel that in the next two or three years, the music business will start to rise up again. And the digital revolution has not been completely detrimental to the industry; downloads make up around 35% of Sony UK’s music sales.

“In a weird kind of way this business needed a massive shakeup.” And now that the industry has been downsized, he feels the key is to focus on breaking new acts:  “The business has to be less cynical … If you have a brilliant piece of music people will flock to it and they will buy it. Quality will win out.”

This past week, lawsuits loomed as Megaupload sued Universal, and Sony and Warner both lashed out against free streaming service Grooveshark. Also, the head of digital at Universal Music shared his thoughts on the likely future of the music business.

Tables Turned on Universal Music Group (UMG)

In recent years, whenever there has been news of a lawsuit in the music industry, the story is usually about a major record label suing a digital music provider over copyright issues.  However, last week the story was the opposite: Megaupload – a Hong Kong-based popular file-sharing site – filed suit in California on December 11 against UMG after the label blocked an original promotional music video created by Megaupload from YouTube, according to an article published last week in The New York Times.

The “Mega Song” video was posted on December 9 and featured pop stars such as Will.i.am, Kanye West, Mary J. Blige, Diddy, Alicia Keys and many others. They sang and spoke in support of the Megaupload site. Footage of their performances was interspersed with stats about the file-sharing service. Hours later, the clip was taken down by YouTube when UMG claimed copyright infringement.

The video seemed to be an original composition created by the file-sharing site, with the total consent of the artists. However, a spokesperson from the major label stated the reason for the take down as “unauthorized use of a performance from one of our artists,” though the artist has not been identified specifically. The Hollywood Reporter speculated it was Will.i.am’s lawyer Ken Hertz who filed a takedown notice and claimed the artist had not agreed to appear.

In the lawsuit, Megaupload states that all artists appearing in the video signed release forms that permitted the footage to be used for promotional purposes. In a statement, Megaupload’s lawyer, Ira P. Rothken said that every artist shown in the clip had signed an all-encompassing release form.  He added that the case was not even necessarily about copyright issues:  “Each star was completely aware of what they were doing and the things they said.”

The Digital Millennium Copyright Act protects YouTube and other similar sites if they unknowingly host illegal content, as long as they respond immediately to takedown notices. Rothken declared that the takedown incident is also a case of a major record label attempting to fight against free speech when it doesn’t agree with the actions of its artists.

Grooveshark Under Fire … Again

Sony Music Entertainment and Warner Music Group are set to sue free streaming service Grooveshark last week over copyright infringement, joining a lawsuit filed in Manhattan by Universal, who claimed the service had violated copyright laws with the help of its executives.

Even though three of the four major labels are gearing up to go head-to-head with Grooveshark, not everyone in the music industry is against the company, which allows its users to upload songs in their own collection and share them through streaming with other listeners.  The New York Times revealed the service has garnered the attention of several major advertisers , including Mercedez-Benz. And the company holds licensing agreements with a number of indie labels and with Merlin, an overarching organization that represents thousands of micro labels.

Once again, the Digital Millennium Copyright Act came into play, as Grooveshark claimed its music service is protected, as a company that provides third-party content and continues to comply with takedown notices filed by original copyright holders:  “We respect the intellectual property of all artists, and our strict policies are designed to ensure that our users only upload content to which they are entitled.”

The recent suit from Universal stated that Grooveshark’s executives had uploaded thousands of songs themselves, claiming to have proof in the form of e-mails from the company’s executives that bragged the company had been able to grow significantly without paying any record labels. The label also claimed that they had filed thousands of takedown notices, but continued to see the same music appear. Sony and Warner are expected to have similar evidence.

If Grooveshark is found guilty of breaking copyright laws, federal statutes could command penalties of as much as $150,000 per song.

UMG’s President of Global Digital and the Future of Music

Rob Wells, who has overseen digital at Universal – home of superstars like Lady Gaga and U2 – for just over a year recently spoke to CNET about where he feels the music industry is headed. A self-professed lover of Spotify, he has regularly stated that he plans to take a very “progressive” approach to digital music.

When asked about whether he thought the music industry might finally be emerging from its slump and ditching some of its old attitudes about technology, he discussed the shifting attitudes of the music fan:  “I have a very macro view of the industry …  Consumers [globally] are invigorated again about music. They’re invigorated about new services. They’re invigorated about new devices, which are driving adoption of new services. In five, to 10 years, when we compare back a bit and look at this massive transition and upheaval of the business, I’m hoping 2012 will be an important year … not just from a digital perspective, but [from a] repertoire perspective.”

Wells was also asked whether he saw any one music service as having the “momentum” to change the playing field, and whether any of the current services would be capable of taking down the dominant iTunes. He believes the rejuvenation of the music industry will not necessarily be about knocking down existing services to make way for new ones:  “The phenomenal thing we’re seeing is that all of these services are happily coexisting. We haven’t seen a decline in any existing service’s revenue alongside the launch of a new service or new model in any existing markets … These new platforms and services are all complementary.”

He added, “This stuff about digital revenues and how freemium will have fun at the expense of other services is kind of irrelevant because it’s incremental money. What we try to ensure is that there is plenty of clear air for every service to exist. “

And what are Wells’ thoughts on piracy, which obviously continues to be a hot topic with the potential looming changes in copyright laws as they relate to digital and online content? He thinks the business needs to go back to its heart:  consumers/music fans. “… Since piracy continues to be a challenge, we work to ensure that all of these services can happily coexist because ultimately this is about consumer choice. And the consumers are kind of favoring some services above others and of course you’re getting some churn, but what we’re not seeing is consumers churning away from richer revenue streams onto lesser or cheaper revenue streams.”

Last week, older artists and songwriters as well as analysts and legal experts discussed why induction into the Rock and Roll Hall of Fame and potential copyright amendments are keys to their continued success in the modern music industry. Also, RightsFlow was acquired by Google to help manage YouTube licensing.

Legendary Artists Look Towards Cleveland to Lengthen their Careers

How can older, established bands and solo artists compete with younger up-and-comers in today’s music business? The answer lies in being inducted into the Rock and Roll Hall of Fame, according to a recent article in The New York Times. Not only does recognition by the Hall of Fame bring immortality to many legendary artists, but it also could mean more sales and a bigger paycheck.

Many older bands and artists have been hit in today’s ever-shifting music industry, with sales dwindling and music fans gravitating towards younger acts. The net worth of the music industry is half of what it was ten years ago. To counteract this, every fall, managers and record labels fight to get their oldest artists nominated in hopes of them getting officially acknowledged as the “royalty of rock.”

Rewards for those that score a place can be huge. Weekly record sales for artists that are inducted typically jump between 40 and 60 percent in the few weeks after selection, says David Bakula, a senior VP at Nielsen SoundScan. A Grammy might help an artist sell more of a particular album, but Hall of Fame induction usually means more sales across an entire catalog.

However, the path to getting recognition in the Museum is not an easy and can take many years. And controversy has historically accompanied the process of selection. It starts with a nominating committee of 30 music critics, entertainment lawyers and recording executives who narrow the playing field down to 15 worthy artists. Then another committee consisting of 500 people that includes past winners chooses just five inductees. Artists cannot qualify for a spot until 25 years after their first recording, which means today, artists that started releasing music in the 1980s and earlier are eligible.

According to artists and others who have participated in and witnessed the induction procedure, there is a lot of backstage lobbying, and most of them are not even sure how acts get chosen during the first step. As an example, the Bee Gees were ignored 11 times before finally making it in 1997. And in spite of 27 studio albums and 45 years of non-stop touring, superstar Alice Cooper was rejected 16 times, finally being invited to join the ranks in 2011. As Cooper said, “I used to think when you got in, you’d understand how it worked, and how you get nominated – there would be a secret handshake, and there’d be a dossier about Area 51 and the president’s assassination.” However, nothing was revealed to him.

Rhino Records, in control of Cooper’s back catalog capitalized on his induction by running 30-second spots on TV during the induction ceremony and making Alice Cooper compilations, boxed sets and deluxe editions available both online and at physical retailers. As a result, in 2011, the number of young people attending his concerts increased significantly, and sales of his entire collection rose from 75,000 to 115,000 from 2010, to 2011.

And not only do record sales increase for inducted artists, but new, career-reviving opportunities appear. In 2009, now 74-year-old Wanda Jackson, “the queen of rockabilly” was inducted and got to collaborate on an album with Jack White as a result. Suddenly she was appearing everywhere, making television appearances and opening for Adele during her 2011 tour.

Labels benefit also, when awareness of some of their back catalogs is increased and people start buying older albums.

Those being inducted in 2012 are Guns N’ Roses, the Beastie Boys, Donovan, Red Hot Chili Peppers, Laura Nyro and the Faces. The official induction ceremony will take place in April, 2012.

“Funkytown” Songwriter is Leading the Copyright Fight

The emergence of a long-existing provision in U.S. Copyright Law could cause a battle between Minneapolis-based songwriter Steven Greenberg and the music industry. And this battle could cause other songwriters and artists to start a war. Greenberg was responsible for writing the 1980 hit “Funkytown,” which led to huge sales for Mouth to Mouth, the record by Lipps Inc.

Since the ‘80s, his song has been used in TV shows, films, commercials and stage productions. Greenberg also gets paid for the song being institutionalized in several museums around the world. While “Funkytown” has not been played as much as the most-played song in history – which is “Yesterday,” by the Beatles, at 7 million recorded performances – its performances are approaching two million.

While Greenberg has refused to discuss finances publicly, the royalties and licensing fees his song has generated throughout the years have provided a great source of income. However, Universal Music Group, who owns the song’s copyright, has made even more money on “Funkytown.” The label has taken most of the funds generated by the song.

A 1976 amendment to the Copyright Act could cause revenues to shift. The amendment allows song authors to take back ownership of the song’s copyright 35 years after its creation, and it applies to every recording released since January 1, 1978. And Greenberg is the first songwriter in the country to file a “termination of transfer” notice with the U.S. Copyright office. If he is granted the transfer, the copyright will revert from Universal to him in 2015.

Greenberg said, “I’ll then own my own copyright and I’ll be able to negotiate with anyone I want, therefore giving me a much, much better royalty rate, licensing, you name it … I just get a much better deal all the way around.”

If more artists take advantage of this provision, it could mean another massive blow for the music industry, which continues to reel from the digitalization of the marketplace. As Greenberg’s attorney, Ken Abdo said, “If you can imagine having the vault of the catalog of major hit songs from 1978 on – and there are many – start reverting to the authors, that’s going to eviscerate the economic core of many of these record companies.”

Experts believe that labels and publishers will fight, arguing songwriters are employees of their record companies, making everything they produce their employers’ intellectual property. Obviously, artists will maintain they are independent contractors who deserve to ultimately own everything they create.

If artists win this battle, in an increasingly DIY-favorable environment, many will take control of the sale and marketing of their music. However, others like Greenberg may allow their labels to continue to handle their song’s copyright with a renegotiated contract. Greenberg predicted an entirely new music business:  “I think companies are going to pop up all around the country if this thing happens, and there already are companies [that administer artists’ copyright] … [These new companies] will do it for a lot less, and who knows, maybe they’ll do it better.”

Abdo also stated that music fans could be impacted when songwriters pursue this copyright transfer:  “This potentially changes the entire economic environment for the purchase of music.” However, the full impact on every piece of the puzzle will remain unknown until Greenberg and other artists take their cases to court.

YouTube and RightsFlow Merge

The popular online video site YouTube acquired the New York-based royalties company RightsFlow on December 9 in order to help it identify the owners of music people use in posted videos. The deal was made to help YouTube better manage its relationship with content owners, who are not typically asked by video creators before their music is used for free.

RightsFlow is in control of a database of over 30 million songs and helps ensure artists get paid royalties when these songs are used. YouTube already has a Content ID system that identifies songs uploaded by its users, but until acquiring RightsFlow, it did not have a mechanism that could find the songs’ rights holders. Content owners will now be able to decide to take down videos that use their music, or leave them up and collect a share of ad revenue.

In a blog post, YouTube product manager David King said, “We’ve already invested tens of millions of dollars in content management technology … We want to keep pushing things forward.” He added that by acquiring RightsFlow, the company is enabling the chance for more music to be available on YouTube and for the platform to be a better way to launch new artists.

Official terms of the deal were not released.

(And if you are looking to get your cover songs licensed legally by Limelight/RightsFlow, you can link directly through the main page of the Musician Coaching site.)

Napster officially called it quits and folded into Rhapsody last week. Also, in the wake of the EMI sale, experts discussed whether or not the music industry will never reach a point where one major label controls it. And finally, several analysts and legislators explored the complexities of SOPA legislation.

Napster and Rhapsody Merger Finalized

Napster had its last day on November 30. As of December 1, it officially merged with the #1 American on-demand music service Rhapsody, a month after the company finally bought the digital music company from Best Buy.

Of course, Napster has been a controversy in the music industry since its launch in 1999 as a peer-to-peer file-sharing service designed to help users swap music files. It only lived in its original incantation for two years before it was shut down by court order. Music industry trade groups including the Recording Industry Association of America filed hundreds of lawsuits against its users for copyright infringement and illegal downloading.

While it has been over 10 years since the original Napster ceased to exist, what many in the music business have called “the Napster effect” has profoundly shaped the way the digital music space has evolved. The company’s model brought to light a major supply-and-demand problem:  Consumers did not want to pay $20 for an entire CD when all they wanted was a few songs off that CD. They also wanted a simple and inexpensive way to get digital tracks. The death of Napster brought about the birth of services like iTunes, Rhapsody and others that would follow.

Rhapsody was founded in 2001, and currently allows its users to download unlimited songs for $10 per month. It has 800,000 subscribers.

Financial terms of the Napster/Rhapsody merger were not released.

Will One Corporation Ever Control the Music Business?

The answer is “not entirely,” according to many entertainment industry experts. Many in the music business have been concerned about an impending monopoly by major record labels ever since EMI was put up for public auction and sold to Universal Music Group (UMG), who bought the record label component, and Sony/ATV, who purchased its publishing division.

Professor Nick Baxter-Moore of Brock University in Ontario, Canada said, “… It might be argued that one reason why EMI wasn’t sold as a whole to either [Sony/ATV or UMG] was to avoid regulatory obstacles being thrown up to block the sale.”

Still, the purchase of EMI has brought the number of major record labels down from four, to three:  UMG; Sony/ATV; Warner Music Group. What were referred to as the “Big 5” became the “Big 4” in 2004 with Sony’s acquisition of BMG. The reduction to three has had many seeing the possibility of a recorded music monopoly in the near future.

However, Baxter-Moore and others feel that, while many are declaring the downfall of the music industry, it will never get to a point where any one major corporation has control:  “We might get to a point whereby two corporations exercise a duopoly – a situation in which two major firms control the majority of the output of a given industry – that would arise if, or rather when, either Universal, or, more probably, Sony acquires Warner Music Group.”

He also believes that the strength of indie labels means they will never fully go away and allow for a single label to control output:  “We might see a recording industry in which Universal and Sony and their many and respective subsidiaries control about 70-75 percent of the market (as long as neither one controls, by itself, 50 percent) and with national, regional and indie labels accounting for the other 25 percent.

While major labels are being purchased for huge figures, independents have slowly been brought into the spotlight in recent years, almost to a level of being competitors of the bigger labels. For example, Arcade Fire’s album The Suburbs, released on Merge, was one of the top-selling albums of 2010, and Adele’s 21, attached to XL was by far the most popular. Both these indie labels have been around for almost 20 years and have adopted business models similar to the majors because they release some music they feel will be more widely popular so that they can fund the release of records from emerging or fringe artists.

As Baxter-Moore asserts, while monopoly may not be inevitable, the EMI purchase could still cause some complications for artists and industry professionals:  “Corporate concentration is bad for any industry … The sale of EMI, whether in one piece or two, contributes to further concentration of the music industry … History tells us this is bad news for musicians, for the music product, and for audiences and fans.”

The Stop Online Piracy Act (SOPA) Legislation:  It’s Getting Complicated

Critics within congress of the Stop Online Piracy Act (SOPA) officially introduced a “legislative framework” for an alternative bill that they hoped would address some of the concerns many have had about the legislation on December 2. Their proposal was to update U.S. trade laws to implicate that downloading protected content – like a song, album or a movie – from a foreign-owned website would be treated the same as illegally importing foreign hard goods.

SOPA has caused some controversy since it was introduced. Critics have complained the bill directly attacks the freedom of online speech and hinders technological innovation. But proponents claim it is a necessary solution to the huge and growing problem of online piracy, citing stats that show that forty billion music files were shared illegally in 2008 – 95 percent of all music downloads worldwide – and that three-quarters of the video games released in late 2010 and 2011 were acquired illegally.

According to a recent editorial in The New York Times, “Musicians, moviemakers, authors and software designers are not the only victims. Piracy’s cost is measured in less innovation and less economic activity, as creators lose hope of making a living from their creations.” Still, the editorial stressed that legislation needs to be “tightened,” and that infringement as defined by SOPA is too broad and could actually cause some domestic websites that are not breaking any laws to be shut down unjustly.

Under the bill, copyright owners could tell direct payment providers like Visa or advertising networks like Google to shut down a website by filing a notice that the site or even just “a portion” of it “engages in, enables or facilitates” intellectual property infringement, or is ignoring this infringement on purpose. Once accused, websites would have five days to prove innocence. And companies like Google and Visa would be immune to being sued by websites that were cut off wrongfully. So, technically, copyright owners could prevent a website from earning money with one accusation. Provisions could affect websites that are already protected by the 1998 Digital Millennium Copyright Act, which protects U.S. sites with massive amounts of under-controlled like YouTube as long as they take down copyright-infringing material when it is brought to their attention.

The SOPA legislation – as well as similar legislation in other countries like Belgium, Italy and Finland that is already being enforced – was largely inspired by the need to stop foreign, “rogue” websites like the Pirate Bay in Sweden, a bit torrent site that has already been coming up with workarounds to allow it to continue to provide illegal content to its users. According to Torrent Freak, “The Pirate Bay Dancing” add-on has already been created by a group of coders called “MAFIAAFire” in order to redirect Pirate Bay and other bit torrent websites to new domains so if their domains are seized by regulators, their content has new homes. Undoubtedly, regardless of which shape new legislation takes, these types of workarounds will be inevitable.

The newly-shaped bill introduced in Congress on December 2 was designed to address many of the concerns about free speech and commerce. U.S. Senators and Representatives who worked on the new framework said they believe that creating a “21^st century trade policy” will help prevent infringement while “ensuring the continued free flow of legitimate commerce and speech.” The revised bill would make it possible for a U.S. copyright holder to petition the International Trade Commission to investigate digital imports. That organization would then decide whether the company was violating intellectual property rights. According to these legislators, getting behind the trade laws helps them stay away from the “pitfalls” inherent in the original SOPA, which they claim gives the government too much power to control the internet based on little more than suspicion, does not provide clear definitions for the justification of shutting down an entire site and hinders the openness and innovation that drives the Internet.

In an official joint statement, the group of Representatives and Senators who came up with the new framework said, “By putting the regulatory power in the hands of the International Trade Commission – versus a diversity of magistrate judges not versed in Internet and trade policy – we will ensure a transparent process in which import policy is fairly and consistently applied and all interests are taken into account …When infringement is addressed only from a narrow judicial perspective, important issues pertaining to cybersecurity and the promotion of online innovation, commerce and speech get neglected.”

This past week in the music business, newly-released statistics showed that all artists need a mobile strategy. And experts predicted that strong holiday music sales could finally put the industry back on track. Also, a new company was launched that could breathe new life into the video market by selling high-quality online videos of iconic classic rock moments.

The Importance of Mobile for Artists Stressed at Billboard’s “FutureSound”

Facts about people’s mobile behavior  came to light at Billboard’s FutureSound conference in San Francisco, as digital music executives gathered to discuss the challenges involved and lessons they are learning as they immerse themselves in the digital world. And Michael Schneider, CEO of MobileRoadie, the top self-service mobile app platform for musicians stated that artists need to start building a marketing and distribution strategy for mobile much as they had to build one for the internet back in the mid ‘90s.

Schneider said, “Back in 1995 … when there were 19,000 websites on the web, brands weren’t sure what to do with the Internet. Nobody knew.” Of course, today, with over 300 million websites out there, all musicians know that to be successful, they must have a solid presence online and interact regularly with their fans.

In 2007, sophisticated smartphones first became available, but were initially ill equipped to provide users with a good web browsing experience: “Every industry suffered from not paying attention to the mobile experience consumers had,” Schneider explained. However, with the mobile market now expanding at a “staggering” rate, the time for artists to take advantage and add apps and other smartphone-friendly strategies for reaching their fans with their music is now, according to survey results:

• Smartphone users check their phones 150 times per day, on average.
• Four people are born per second, whereas 39 mobile phones are sold per second.
• There are 5.5 billion people with mobile phones, and 21% of them use smartphones.
• iPhone users spend over 90 minutes per day using apps.

Mobile unfriendly flash-only websites are becoming obsolete as every industry pays more attention to making commerce transactions and other critical customer interactions possible from smartphones. According to Schneider, “By 2013, there will be more people accessing the Internet through mobile devices than their desktops … By 2014, mobile will be a $35 billion/year industry.”

2011 Could Be the Year for Music Sales

Figures released by Nielsen SoundScan for the first three quarters of 2011 showed a 3.2% increase in album sales. And many experts have predicted that a strong holiday selling season could mean the best year for the music industry since 2004.

Major labels, most notably Universal Music Group (UMG) have decided to combat the DVD industry during the holidays by featuring high-profile ad campaigns for their releases in circulars and major music retailers. Major label releases that are expected be heavy holiday hitters this year include Drake’s Take Care, Justin Bieber’s “Under the Mistletoe,” Coldplay’s Mylo Xyloto, Rihanna’s Talk That Talk and Taylor Swift’s Speak Now World Tour Live.

And mid-year album sales have not been this strong since 2004, mostly thanks to digital sales. But a chain merchant told Billboard that while the total number of transactions is as high as ever, customers are spending less money per sale this year, and some label executives have stated they are concerned about how the still-ailing economy will affect music fans’ spending. A senior executive stated, “It’s hard to get a read on how the holiday selling season will go … Since the financial crash, everything has been so erratic.”

Still, the push for additional late-November promotion by major labels – and a plan for aggressive pricing on many releases – suggests a relatively optimistic mood within the music business. UMG has offerered a total of 115 titles to a variety merchants at wholesale prices, presented with a rebate from actual sales of these titles from November 20 through November 27.

Will “The Speek” Grab the Dollars of YouTube-Loving Music Fans?

A new British video service launched recently and hopes to distract music fans from free sites like YouTube and Vevo, and make a profit from hard-to-find footage of rare moments in classic rock and R&B. “The Speek” – named after the Speakeasy, a famous London nightclub in the 1960s and ‘70s – is selling downloads of approximately 100 rarely-seen performances.

The music industry is no stranger to the challenge of getting fans to buy music and videos when they can get them for free through streaming services like Spotify or YouTube, and many critics wonder how The Speek will survive. But as an article last week in The New York Times pointed out, record companies have long been selling video downloads on iTunes for $2 that can be found for free in other places, and the few companies that have started selling archival footage are predicting that niche collectors and aficionados will probably pay a couple dollars to own pieces of history.

Matt White is one of four music and tech executives running The Speek, which was previously called Digital Video Singles. He said, “Music videos are a good part of the business … There is a whole music video section on iTunes, and some of them can have very high [sales] numbers.”

Videos in The Speek’s collection include Bob Dylan’s electric version of “Maggie’s Farm” at the Newport Folk Festival in 1965 and a performance of the Big Bopper’s only Top 10 hit “Chantilly Lace.” Also available are three short films made by the Big Bopper just months before he died in 1959. He created the films as part of a larger business plan, which was more than two decades ahead of its time:  to create promotional music videos for television.

Music video downloads account for a very small piece of the music business, and the music video industry has been in decline for several years. The Recording Industry Association of America reported that video download sales hit their height in 2008 with $41 million. And after the first year of operation for Vevo – owned by the major labels – in 2010, video download sales had already dropped to $36 million.

Of course, several videos sold on The Speek have already been spotted on YouTube, though in lower quality versions. But because the company has deals in place with archives around the world, White stressed that it will still provide plenty of films for the most avid music fans that cannot be found anywhere else:  “We have enough of an indication that there are serious collectors who are going to appreciate a major discovery being liberated from the archive.”

This past week, Google finally decided to officially enter the music space. And music industry experts noted that the split of EMI could actually bring about the rise of DIY and indie. Also, 200 record labels decided to bail on Spotify after hearing predictions about its potential impact on artist revenue.

Is it Too Late for Google Music?

On November 16, Google, Inc. finally officially entered the music space with the release of Google Music. And many experts feel this move comes too late if the company wants to compete with Apple – which debuted its iTunes store almost a decade ago in 2003 – and other music download providers. Google Music allows users to stream up to 20,000 songs online and listen to tracks on mobile devices and computers. Google has partnered with 1,000 record labels, including Sony, Universal and EMI to make 13 million songs available for sale. Google has yet to reach an agreement with Warner Music Group because of the label’s concern over the company’s anti-piracy controls.

The release of Google’s new music service comes in the midst of a heated competition in the space to gain the attention of music fans who are moving quickly towards the smartphone space to fulfill their listening needs, as well as mobile advertisers who are looking to back the best providers. Aside from iTunes, Google must contend with Amazon – which has recently redesigned its music download and music storage services – and Spotify, who recently partnered with Facebook and has been gaining U.S. subscribers in record numbers.

According to Ray Valdes of the market analysis firm Gartner, Inc., Google is “coming into this market rather late in the game, where there are large, established players … You can say it’s a saturated market.” To set itself apart from other services, Google Music has been putting extra focus on its expansion into providing music, television and movies for devices running its Android mobile software and on helping users connect through music on the Google+ social network.

Experts note that not only is Google late to offer an online music store, but it is also late to develop its own MP3 players, in this case, linked to its own Android devices. Apple released the first iPod in 2001. And for the past decade, the company has been benefitting from the massive consumer shift from CDs to online music services.

While Android has been competitive with iPhone since it entered the smartphone market in 2008, many feel that Google could have a much harder time gaining the trust of music fans that have been using the very established iTunes service to download over 16 billion songs and counting. And even Amazon, the world’s largest online retailer, has been offering music services since 2007.

And Spotify, along with possibly some other streaming music startups like Rdio, Inc. will provide another challenge for Google. Since coming to the U.S. in July, Spotify has gained two million paid subscribers. And Rdio is planning to offer song streaming free of advertising, and free of charge.

Google Music is not Google’s first move in the music arena. In early 2011, the company introduced a feature that stores song libraries and playlists and provides a recommendation service based on users’ collections. However, it did not allow the purchase of songs.

Other industry professionals feel that even if Google cannot reach an agreement with Warner or if this agreement takes time, its power on the internet could still help Google Music do well. Studies showed that Google’s network of websites gained the most visitors in September, with 1.1 billion.

EMI Sale Could Be Good for DIY

Citigroup announced it had finally established an agreement to sell off EMI Group in two pieces for $4.1 billion. Universal Music Group will buy the EMI recorded music arm for $1.9 billion, and Sony/ATV is set to buy the publishing arm for $2.2 billion. This leaves only two remaining major labels, further marking big changes  that have been happening for the past 20 years in the music business.

While many music industry professionals have been worried about the consolidation of the industry and potentially too much power given to too few major labels, Sony and Universal, according to an article published in the E-Commerce Times, other experts feel that this consolidation will actually be great for DIY and indie artists. According to music industry consultant and author of the book I Don’t Need a Record Deal, Daylle Deanna Schwartz, “…the components always remain in place, just in different form … EMI’s sale will make independent music that much bigger.”

Still, others feel that the loss of a record company means the discovery and development of fewer breaking, new artists. And when fewer up-and-coming artists find a home at a major label, the consumer could be hurt as well, as fewer artists are being introduced into the market each year. Of course, this discounts the power of independent labels and artists – who have begun to make their presence known at the Grammys.

Many DIY artists and indies are excited about the prospect of the EMI sale bringing about a stronger independent music community. How, specifically, could they benefit from fewer major labels? Eugene Foley, an agent at Foley Entertainment and author of Artist Development — A Distinctive Guide to the Music Industry’s Lost Art predicted, “The independent labels will continue to become a welcoming home for former major label executives and home to talented artists who need the guidance of a supportive record company.”

And, a stronger independent music label community could also further support the move towards digital music distribution and marketing. Schwartz added that with the sale of EMI, artists will have less opportunity to be signed to the big labels and thus will be more inclined to move towards indies – which have been ahead of their major label counterparts in the digital distribution arena – or go the DIY route. She also said, “At first the music labels didn’t take the internet seriously, then they were afraid of it, and then they started their legal actions against it … Meanwhile, the independent artist started grabbing domain names and websites where they can sell their music.”

Schwartz also noted that indie labels and DIY artists understand firsthand what the internet can do for music and the industry:  “They are younger and hungrier and not married to the old system … They don’t have the rules or gigantic budgets and complex deal-making processes weighing them down.”

Over 200 Labels Abandon Streaming Music Services

Music distributor ST Holdings recently decided to take its 200 labels off Spotify, Simfy, Rdio and Napster after the results of a study conducted by NPD Group and music industry group NARM. The company bailed out because the report found that having access to tracks has caused some music fans to avoid purchasing those tracks, thus showing that streaming music services are in some cases discouraging sales.

The distributor released an official statement on Wednesday:  “As a distributor we have to do what is best for our labels. The majority of which do not want their music on such services. They provide poor revenue and have a detrimental [effect] on sales. Add to that, the feeling that their music loses its specialness by its exploitation as a low value/free commodity,” Only four of their over 200 labels said they wanted to remain in the music streaming space.

Spotify responded to this mass ST Holdings exodus respectfully, saying it hopes the company will come around:  “Right now we have already convinced millions of consumers to pay for music again, to move away from downloading illegally and therefore generate real revenue for the music business.”

Spotify also added that it had some questions about how the study was run, because Spotify’s effect cannot necessarily be measured by traditional label revenue markers. It is instead measured by how many users pay for Spotify and how much the rate of music piracy goes down, which will not be able to be measured until streaming services have been around for a longer. The company stated, “Artists can – and do – receive very substantial revenues from Spotify … As Spotify grows, these revenue streams will naturally continue to grow.”

Spotify has driven $150 million worth of revenue globally to rights holders in the three years it has been in business.

Piracy took a hit this week as music industry professionals urged officials in the UK to block user access to The Pirate Bay. And the future of the music business was made clearer for fans and artists as analysts pointed subscription services as the catalyst for industry growth in the next few years and Rihanna’s manager expresses the need for artists to release more material to satisfy fans in the Digital Age. Also, Google+ finally started to roll out its business offering.

BT Group Asked to Shut Down Pirate Bay by Mid November

The British Phonographic Industry (BPI) – Britain’s recorded music industry trade association – sent a letter to the global telecommunications services corporation BT Group last week requesting that they block access to the Swedish site The Pirate Bay, the popular music, movie and software piracy website. BT Group had previously turned The Pirate Bay into an “over-18” site. But adult users can still contact their ISPs to unblock access.

A UK court ruled in late October that BT Group must deny users access to the file-sharing site Newzbin2. And many experts are saying that this ruling could set a precedent that could eventually strong-arm all ISPs into blocking any and all illegal file sharing websites. But according to Sam Gibbs of Gizmodo, who wrote an article about the ruling on October 26, if you are “tech savvy” enough to navigate usenet, you getting around blocks will not be that difficult, even with more strict systems in place on the ISP level:  “When will content producers wise up and give us the content we want, in a way we want and for a price people are prepared to pay?”

Another Gizmodo writer, Gary Cutlack reported that Newzbin and its UK-based users have already taken steps to circumvent a potential blockade if there is an ISP block:  “Newzbin itself claims that 93.5 percent of its active UK users have already downloaded the app in preparation for the block, which if it ever does start working, should ensure they can still queue up stacks of NZB downloads …”

In early November, Gibbs reiterated his position on the news of BPI’s request for a block and supported Cutlack’s comments. He stated that he was still in support of “give us what we want, at a price we think is affordable, and in the form we want it in.” He added, “Just like the case with Newzbin, IP blockade isn’t likely to impact those savvy enough to be using The Pirate Bay and BitTorrent too much … The creative industry bodies have to be seen to be doing something against piracy I guess.”

And it is not just writers and pirates who are rebelling against the creative industry. Recently, both BT and Ofcom (another British ISP) have stated their skepticism about whether web-blocking strategies are going to be the way to reduce piracy.

The letter from BPI is well-timed with U.S. copyright debates, as lawmakers continue to discuss new copyright protection laws and the possibility of getting rid of a Federal Communications Commission regulation that prevents ISPs from blocking and censoring information on the internet.

Pirate Bay owners were already prosecuted and found guilty of copyright infringement by the Swedish Supreme Court in 2009. However, the site continues to see high traffic, with a global Alexa.com rating of 79.

Are Subscription Services the Future of the Music Industry?

A market study conducted by the technology research company Gartner revealed that music subscription services will fuel profits in the music industry for the next few years. Spokesperson for the company Mike McGuire says that because the music industry has been going through a total revolution thanks to the rise of new technologies and the fall of physical media, “Music labels, artists, publishers and new distribution intermediaries are developing new business models to address consumers’ changing behavior.”

The industry analysis showed that the number of downloads from iTunes and other services is slowing as subscription services come into the picture. Gartner is predicting that subscription services will make up over $500 million in revenue for the music business, with downloads bringing in a little over $3.6 billion.

They are also forecasting that subscription revenue will grow over 50% in 2012 to bring in over $800 million, with download revenue increasing by only 6 percent. Subscriptions could make up over $2 billion in profits by 2015, over half of what is expected from traditional download services.

While the Gartner report exhaustively discussed challenges like diversification of services to please customers, access to cloud services and creating processes to help fans find new music, it failed to address the hot topic of copyright enforcement.

Artists Need to Be More Active, According to Rihanna’s Manager

Artists need to release more material to keep their fans happy, so argued Rihanna’s manager Jay Brown last week in an interview with the BBC about the 23-year old singer’s upcoming Talk That Talk album. The old music industry model was to have an artist release a new album every three, to four years. However, Brown stated, “Kids want new material all the time … I think you become disposable when you put out an album every three years.”

Talk That Talk is Rihanna’s sixth album since she debuted as a teenager in 2005. She has sold over 20 million albums globally and despite a heavy touring schedule, has managed to continue to produce one album annually with the help of mobile studios.

After stressing that Rihanna works so hard to produce new material because she loves to go into the studio and wants to give back to her fans, Brown asserted that, under the business models embraced by the old music industry, albums had become “bloated” with overly-long running times. He also believes that albums should be generally shorter in length, because otherwise, fans will end up skipping over tracks. He cited Sarah McLachlan’s 1997 Grammy-winning album Surfacing as a perfectly-paced record, with just 10 songs and a total running time of 41 minutes. And it was released at a time when labels were trying to over-stuff 80-minute CDs with music to try to make fans believe they were getting more for their money.

And in the past few years, the biggest sellers have been shorter albums, including Amy Winehouse’s Back to Black and Adele’s 21. Rihanna’s upcoming release is just over 35 minutes. However, Brown said, “When we were deciding the tracks to put on there, I wasn’t thinking about minutes and seconds … I just wanted to make sure it was all hits.”

Google+ Your Business Unveiled

Last week, e-mails started going out to Google users announcing the release of its new business offering “Google + Your Business.” Several celebrities and major companies like Anderson Cooper and Burberry have already started using the platform. And bands like The All American Rejects are already building their presence.

Google+ Your Business is a collection of tools and products that, in the music industry, could help bands connect with fans more personally and build their brand. Like regular Google+, the business edition allows users to host “Hangouts” to chat with fans and “Circles” to organize their fan base into targeted groups. It also offers increased ad capabilities and social recommendation features.