This site is a blog for musicians and music industry people. It is a free educational resource and it is also the way I advertise my music consulting services. I am an entertainment professional with deep roots in the music industry. Throughout my music career I have been a major label A&R representative, a music supervisor, an artist manager, a reality show producer, a bass player and the head of a digital record label.
Posts Tagged ‘digital music strategy’
Music business executives discussed whether or not Sweden’s subscription music services model could help grow other music economies worldwide. And Jack Isquith of Slacker Radio explored why executives and artists need to do a better job of interpreting the needs of music fans. Also, environmental analysts discussed how the music industry has become more ecologically conscious in the Digital Age.
Will Streaming Music Create Sales?
Subscription streaming services have significantly boosted the music industry in Sweden, according to an article posted by the BBC. They make up 91 percent of digital revenues in that country, yet only 13 percent worldwide. And the Swedish music market grew almost 14 percent in 2012, revealed the IFPI. Still, because streaming subscriptions are the fastest-growing area in the digital arena, experts wonder, can Sweden’s successful model be replicated worldwide?
Felix Persson, a keyboardist and songwriter for some of Sweden’s pop superstars, including Abba and the electro-pop group Le Kid said he is a huge supporter of the streaming music movement, because it puts the power of music sales in the hands of artists and creators: “For the price of one album you can listen to as much as you want every month. It is democratic because it has moved the power from the decision makers at radio stations and labels to artists themselves, who can release the music they want on streaming sites and get paid for it.”
Per Sundin, managing director for Universal Music in Sweden said the boosted music economy in Sweden is also remarkable for a region where The Pirate Bay was launched that formerly had one of the highest piracy rates in the world: “We were the worst in the class … At international meetings, people looked at me like I was something the cat dragged in because I represented Sweden, where piracy had destroyed the market for everyone.” Now Sundin and other Swedish executives are being asked to travel to other countries to talk about how music streaming services can change the music industry.
Of course, the Swedish company Spotify has received a great deal of publicity since its launch in 2008 and now has 24 million active users in 25 different countries. And over one third of Sweden’s population is registered with the site. The company has also helped create a new live music culture in Stockholm, with a bar for gigs at its headquarters. Chief product officer of Spotify Gustav Soderstrom stated he believes the service has helped lure people away from illegal downloading and “rekindle a love of music.” “Spotify really started [in order] to combat online piracy, so I would say we didn’t create a behavior that didn’t exist, we just transferred it to a legal medium … It offered the same principle that you could get music for free, but all the music was licensed and it was better than the piracy networks because you didn’t have to wait for the whole file to download before you could listen to it.”
He also added, being able to draw music fans in from a relatively small population and get them to interact with each other has been invaluable to Spotify’s growth: “Sweden only has about 10 million people and so you reach a tipping point where so many people are using the service that the social aspect of music works really well. You can share a playlist… which wasn’t really possible technically with the piracy networks.”
The popularity of tablets and smartphones is also bringing users, particularly in the U.S., to services like Pandora and Rhapsody. European companies like Deezer, WiMP and rara.com are also doing well. Still, artists have complained about paltry royalties. Highly-publicized complaints from artists like Zoe Keating and others have showed how tens of thousands of plays of a song still do not bring many artists a significant paycheck.
However, in Sweden, Spotify has become a major source of income for some of the country’s most popular artists, including House DJ Avicii. This shows that over time and with more paying subscribers, the service might be able to offer more significant royalties. Avicii’s manager, Ash Pournouri said, “Spotify offers a proven revenue generator through streamed music … In Sweden, where the reach is greatest, the major labels are dependent on Spotify to bring their financials up to the levels of past glory days.”
Even Spotify’s Gustav Soderstrom admitted physical albums probably will never die completely, as there will always be “the need to create some physical manifestation of something you really like.”
He also admitted to not being a bona fide “music aficionado” when he initially came to Spotify. But his growing record collection proves that streaming sites can build users’ musical passions: “That is kind of my personal mission, to take boring people like myself and get them back into enjoying music.”
Note to the Music Industry: Listen to Fans
The music industry does not fully understand how music fans interact with music, and this evidenced by the fact that the same songs are played again and again on radio and that many people will pay for access to music instead of purchasing it. This is one statement Jack Isquith, senior vice president of strategic development and content programming at Slacker Radio made in a Fast Company article this past week.
The growth of technology and its application to the music industry certainly explains part of the shift of the business. But the real problem, in Isquith’s opinion is that major labels, radio stations and others are not listening to what audiences want.
And executives do not fully understand that embracing new technologies and better understanding their fans could actually inject much-needed money into the music market: “While listeners benefit from personalized digital music services, the industry also stands to gain from unprecedented insight into the behavior of tens of millions of music fans. And until the traditional music business gets a deeper understanding of how people actually consume music, they will continue to struggle with an increasingly digital world where access trumps ownership.”
This could be due to “analog thinking,” leftover from the ‘90s, when the Walkman and CDs were still powerful, and thus, the Billboard charts could actually provide insight into which songs fans were buying.
In 2013, social media, “big data” and smartphones have rendered many of the old terrestrial radio methods useless. Isquith presented the example of “Portable PeopleMeters,” which are clipped to people’s clothing and pick up signals that radio puts in its broadcasts. The meter “hears” the signal and notes the station and the time spent listening. However, this is not necessarily indicative of what people choose or even like; it only explains to which music they are exposed. The data from these devices reveals that vanilla pop is most popular … which only has people in the 18-34-year-old range running towards digital services.
And Isquith admitted, executives are also not good at analyzing the way people consume streaming music, as they struggle to shift from “small data” to “big data”: “The number of times a song is streamed is a good baseline. It tells you that someone listened to your song. But what about how many times it was skipped halfway through? Do listeners change the channel every time a certain song plays? How frequently is a song ‘banned’ from playing again, or ‘hearted’ to assure someone hears it in the mix more often? Or how often is the song shared with friends? This is big data, and music streaming services are capable of capturing billions of data points from hundreds of millions of tuning hours across tens of millions of consumers. In real-time; 24 hours a day, 7 days a week.”
He concluded, “It’s no longer about consumers just speaking with their wallets and car radio buttons. Consumers are telling us more than ever before about their tastes, preferences, and response to our marketing efforts with their actions.”
Technology Helping the Music Business “Go Green”
The music industry has actually managed to become more ecologically conscious, even as it faces challenges to generate revenue that have put it in a constant state of flux. Artists have been forced to increase their touring schedule to counteract the low revenues from digital music sales. And the writers at Greener Ideal asked, how has the music industry been addressing the environmental impact of their business?
The four factors that have kept music earth friendly are events, travel planning, digital sales and artists’ ability to maintain personal connections with fans.
In terms of events, festivals and shows – where thousands of people converge in one place at the same time – present a challenge when it comes to trying to stay “green.” Figuring out how to manage huge volumes of waste and deal with extreme electricity needs creates issues.
Events like the Glastonbury festival in the UK go to great lengths to protect the environment, in great part by encouraging attendees to be accountable for part of the clean-up process. They implement money-back deposit schemes for drinks cups and give recycling bags to everyone who passes through the gates.
Travel can also challenge environmental initiatives, especially for artists that tour internationally, because of the huge amount of air travel. Many artists have figured out ways to significantly decrease their air miles by following a “natural route” when touring instead of going back and forth repeatedly. Many bands also plan their music promotional activity so it coincides with tours. It not only cuts down on a tour’s carbon footprint, but it also cuts down on the sheer exhaustion that a rigorous touring schedule brings.
Digital sales have been financially difficult for artists and labels. But as music fans turn online to buy music, less physical products are being made. CDs, cassettes and vinyl all create a great deal of pollution during the production process. The rise of digital has meant fewer materials – including cellophane wrapping and general packaging – are needed to put out albums.
Artists’ ability to connect to fans personally through social media and the Internet has also allowed those that are passionate about the environment to spread the word about what they are doing to decrease their ecological impact. For example, Dave Matthews has used the “Solar Stage,” which uses solar to power his stage and publicly promotes environmental campaigns. Thom Yorke also works with Friends of the Earth’s “Big Ask” climate campaign.
Dave Grohl talked at SXSW about definitions of music business success and why artist independence is critical to surviving in the current marketplace. Also, technology leaders discussed how skillful data management will continue to be a key strategy for music industry leaders. And music publisher Matt Pincus stressed that YouTube needs to work harder to pay songwriters.
Dave Grohl, on Why Musicians “Come First”
Dave Grohl reiterated the importance of artists to the music business in his much-buzzed-about SXSW keynote speech, reported the Los Angeles Times. He took the focus off the many business troubles of the music industry and put it back on important issues musicians need to focus on in order to personally define and achieve success: “I am the musician … and I come first.”
He shared his own struggles with his former band Nirvana and current band the Foo Fighters – how he has sometimes lost the philosophy of “artist independence” and has been almost destroyed by the “guilt” of success. After the release of Nevermind in 1991, which turned rebellion against mainstream music into Top 40-worthy hits, Grohl said he eventually learned lessons that brought him back to his punk-rock roots in Washington, D.C.
Grohl also celebrated his fans and shared his favorite music while encouraging artists to give into the “DIY” movement and nurture their uniqueness: “Who’s to say what’s a good voice and not a good voice? The Voice? Imagine Bob Dylan standing there singing ‘Blowin’ in the Wind’ in front of Christina Aguilera. ‘I think you sound a little nasally and sharp.’ It’s your voice. Cherish it, respect it.”
He added that he finally discovered his own “voice” while traveling to Chicago with his family. A cousin introduced him to Black Flag, the Ramones, Buzzcocks, Descendents and the Minutemen, then took him to his first-ever gig, Naked Raygun at the Cubby Bear. He said it was “the most ferocious noise – bodies were flying everywhere … I was in heaven and it was our secret … I was no longer one of you. I was one of us.”
But it was at a “Rock Against Reagan” show in 1983 in Washington, D.C. while watching Jello Biafra of the Dead Kennedys that solidified his passion for music: “I was free. I wanted to incite a riot, or an emotion, or to save someone’s life to inspire them to write a book or pick up an instrument … I wanted to be someone’s Naked Raygun.”
Grohl attributed Nirvana’s explosive success in 1991 to either timing or the many young people tired of the pop acts that were dominating the charts. But he also said that the band’s “reluctant stardom,” which continues to be perpetuated by the media was a fallacy; even Kurt Cobain wanted to be “the biggest band in the world.”
Grohl recalled being amused by sharing the top of the Billboard charts with bands like Roxette and Phil Collins, and how that kind of success continues to confuse artists: “It was beyond everyone. It made absolutely no sense. It was simply unimaginable. It was the type of hopeless, shallow aspirations that we have been conditioned to reject, ultimately relieving us of any intention other than to just be ourselves.” And ultimately, that quest for Nirvana band members to be themselves produced the more stripped-down, rawer In Utero, which became their cry of independence.
Still, he and Nirvana band mates struggled to process its success: “How do you process going from being one of us to one of them? Guilt. Guilt is cancer. Guilt will confine you, torture you, destroy you as an artist. It’s a black wall. It’s a thief.”
It was Cobain’s death that reminded him to stop perpetuating the concept of the “guilty pleasure” and stop living by the industry’s definitions of success. He said Psy’s “Gangnam Style” is one of his favorite songs, and criticized Pitchfork’s numeric formulas for determining “the value of the song.”
The first Foo Fighters album was created by his own label Roswell Records, so he could own the album and determine exactly where it went and who heard it: “We own the album … and we’ll license it to you for a little while, but you have got to give it back because it is mine.”
The lesson learned from Grohl’s career that he wanted all the artists performing at SXSW to take to heart seemed to be to live in a “bubble” and make that space their own: “At 13 years old, I realized I could start my own band. I could write my own song, I could record my own record. I could book my own shows. I could write and publish my own fanzine. I could silk-screen my own T-shirt. I could do all this myself. There was no right or wrong, because it was all mine.”
The entire transcript of Grohl’s speech can be found in Rolling Stone.
“Data” is the New Music Business
Data-centric services could totally empower the music industry. This possibility was reiterated by interviews published in The Guardian this past week with Alex Vlassopulos, vice president, commercial at Omnifone and Vevo’s senior vice president Nic Jones.
Vlassopulos said that as music in the cloud strengthens as a business model and social media continues to personally connect consumers and artists, the music industry is finally getting the hang of new technology and getting more people to buy into subscription music services, especially through mobile.
However, he stated that global music licensing is complicated and will likely continue to be a challenge: “Global music licensing is a complicated beast involving dozens of licenses from labels, publishers and collection societies for a single track.” But he added, he feels that these complications are worth navigating in order to make more music accessible to global audiences: “In short, there is a huge amount of work required to license music on a global scale. Given the vast volume of tracks created by millions of musicians to enrich our lives, it’s a small price to pay.”
And in the digital world, according to Vlassopulos, data will be the future of music: “In the digital media world, music is data and therefore data is the future of music. I am not saying physical music will no longer exist, but digital music consumption will continue to grow. Cloud-based subscription services … will soon be the prevalent distribution method.”
He made some additional predictions: “The bundling of music with mobile and internet data tariffs will really drive subscription music growth in both western and emerging markets … In addition, by analysing user data, the digital music ecosystem is gaining a deeper understanding of consumers and the evolving music marketplace. This enables service providers to more accurately target marketing campaigns as well as fine tune recommendation, service functionality, curation and much more. Ultimately, data analytics will help drive more paying subscribers and increase revenue.”
Vevo’s Nic Jones reiterated the importance of data going forward, but claimed that music service users will want to know more than just artists’ music and a large volume of tracks as they buy into subscription services: “People will want to see content about how a band started, where they got together, which clubs they go to …Intelligent, data-centric services could herald the rebirth of the music industry.”
In a speech given at the MediaGuardian Changing Media Summit on March 21, Jones said that Vevo’s success is proof that music fans want to see a wide range of content in the new music industry. They want to see build-your-own music discovery platforms as well as curated content.
He expressed, “Data is useless unless you can turn it into information and do something with it, but people still want the opportunity to be curated by more than algorithms … the crucial point is that it is people wanting interaction … discovery is what most people who love music are all about.”
Jones said that Vevo is adapting as it accepts that the streaming model will not disappear, espousing Vlassopulos’ notion that experimenting with different models is essential for music tech companies in the current marketplace. Still, the goal of innovation will be to find a business that can be mass marketed: “Spotify is doing a great job but is not mass market yet, and it’s too early to say that those listening patterns are reflective of the whole market. Music subscriptions need to become mass market.”
Why YouTube Should Pay Songwriters and Publishers More
YouTube needs to work a little harder at paying songwriters and publishers, explained founder/CEO of SONGS Music Publishing Matt Pincus in a guest post on Billboard. As Pincus said, because songs like the “Harlem Shake” and agreements covering UGC content and Vevo videos have recently completely transformed so many aspects of the music industry for the first time in years, YouTube has officially become “the mainstream music business” and should thus be paying artists and publishers more appropriately.
As he pointed out, there are billions of streams of music, whether a popular a capella version of a hit song or a short musical parody being watched by millions, yet no money is changing hands, even though a Multi-Channel Network (MCN) is distributing the videos.
Pincus clarified what MCNs do and why they should be sharing the wealth: “MCNs like Maker Studios and Fullscreen Media are aggregators of original content on YouTube. There are hundreds of them currently operating, garnering tens of billions of views a month. With backing from Google, Silicon Valley venture capital firms or large media companies, MCNs are distributing hundreds of hours of music related content and selling tens of millions of dollars of advertising, with almost none of it going to songwriters and music publishers.”
As Pincus pointed out, MCNs act similarly to record labels by signing video creators to deals that give the MCN the right to produce, market and distribute content via YouTube. MCNs are snatching up content so quickly that they distribute almost any YouTube video that gets seen by a large audience. Even the media is starting to refer to them as “the next Cable Television,” yet they are paying nowhere near what cable TV pays songwriters, etc. each year. And this could mean legal battles ahead.
Pincus went on to explain the difficulty artists and publishers will have trying to flag their unlicensed content on YouTube, since YouTube does not and will not flag MCN content, and most content can only be found by time-consuming manual searches for individual videos.
Similarly, Pincus stated that MCNs have not been great at actively pursuing licenses for broadcast music: “Maker Studios signed a deal with only one major music publisher two weeks ago … Fullscreen Media, another leading MCN, has agreements with only two of the majors. Neither MCN has licensed more than a handful of independent publishers, and the terms of their agreements with majors have not been extended to the trade.”
Pincus concluded, “Until then, herein lies the irony of the YouTube landscape: If a 6 year old kid sings a song and puts it on YouTube, the writer gets paid. If she’s any good and actually obtains an audience, an MCN like Maker Studios — with $35 million in VC funding from Time Warner, the Murdoch family and others – will sign her. Then, the money stops flowing to the writer, whether the video stops streaming or not.”
YouTube, Maker Studio and Fullscreen media were unresponsive.
Spotify topped five million paid subscribers worldwide and announced plans to expand as a music discovery platform. Also, artists and music industry experts shared what legacy artists are really doing to supplement their income in the ever-evolving music industry.
Will Spotify Corner the Music Discovery Market?
Spotify’s chief executive Daniel Ek announced recently that the streaming platform now has five million paying subscribers (and 15 million active users) worldwide and will add a more “human” touch to its offering in early 2013. And alongside this news came word that as of December 6, Spotify now offers the entire Metallica catalog, according to Billboard.biz.
Since its U.S. launch one year ago, Spotify has convinced a million U.S.-based users of the benefits of its paid offering. Ek also revealed that his company has paid out $500 million in royalties to artists and labels and that this number is growing as more people sign up for the service.
Ek, who has previously declared that his goal is to have all the music in the world available to Spotify listeners made the announcement about Metallica finally getting on board at a New York press conference. He mentioned that a suite of new features will be rolled out early next year that will help music fans more easily connect with bands, each other and discover the new music that is most aligned to their tastes.
Ek admitted, “Spotify is great when you know what you want to listen to, but not so great when you don’t.” He said that enhancements to the service will include a new page that suggests music (similar to Pinterest), photos and information about recommended artists.
Spotify also plans to add album reviews and Songkick concert details so users can get more real-world information about recommendations and their favorite artists: “We want to make discovery even more seamless and intuitive … How do you do that? You make it truly human, and you make it personal. We want discovery on Spotify to give users the context that’s been missing.”
Spotify has already begun to reach out to celebrities and industry experts who will create playlists to connect to their fans and help them find new music. At the press conference, Ek displayed a playlist that Bruno Mars developed. Thanks to the new features, users will be able to follow not only artists but also other music fans that share the same interests.
The press conference also showed how much the digital music landscape has evolved since Napster days, as it reunited Lars Ulrich and former Napster co-creator Sean Parker, who were engaged in a well-publicized battle in the late 1990s that damaged both of their public profiles. Ulrich has continued to make headlines for fighting tooth and nail against having any of Metallica’s music on peer-to-peer sites or music streaming services. Ek brought the former foes on stage to “bury the hatchet.” Parker admitted that he and Ulrich were “more alike than different,” while Ulrich praised Napster for being “smart,” before announcing the entire Metallica catalog would now be accessible to Spotify users.
Ulrich said that after his band recently reclaimed rights to its music, “We wanted to see what were the best options out there … Spotify has really solidified itself as not only the leading streaming service, but pretty much the only one. We were reay to jump as soon as we took control of our own masters.”
Ek said that the philosophy that will inform his company’s growth is simple: “It’s not just about having a big catalog. It’s about finding great music.”
Legacy Artists Adjusting to Industry Shifts
The music industry continues to grow and shift, leaving even the most established artists scrambling to find new revenue sources, despite some positive evolutionary signs in the past few years. And according to Phil Rosenthal of the Chicago Tribune, even major acts like Elton John and the Rolling Stones are concerned about the future. And while some are upping their touring frequency and the price of tickets to make up for revenue losses brought about by digital music, others are reluctant to overcharge. Thirty-seven years ago, John admitted to Playboy, the cost to fans for tickets should be based on the value of the experience being offered: “I’m very anti putting the price (of tickets) beyond eight-fifty … To see a Sinatra, to see a Piaf if she were still alive, to see a Dietrich, yes, I would say charge what you like, because you’re only going to see these people once in a life time, or you’re the Rolling Stones … Now it’s rather macabre: ‘Should we see them ‘cause they might not be around next year?”
But the Stones have endured, and are celebrating their 50th year as a band with a series of shows. And they will in fact be asking for $831.90 – including Ticketmaster fees –from fans for front-of-the-house general admission and reserved floor seats at their upcoming show at Brooklyn’s Barclays Center. Fans that want to invest in premium packages and merchandise will pay more.
While the costs to fans of experiencing the Stones live are on the highest end of the spectrum, the willingness for bands like this to charge as much as they can get is more proof that since the music industry completedly changed years ago, performers have had to get really creative about ways to earn money. Many established artists have gone on the road and invested huge chunks of their budget in marketing back catalogs, merchandise and more personalized experiences with their super-fans.
Still, said Rosenthal, others have turned to seeking out live shows at personal residences and any other venue – no matter how big or small – in order to earn a living, using the Internet as a way to get the word out and create a new community of fans who are willing to support them financially and otherwise. Amanda Palmer, of course, has become a poster child for the new entrepreneurial spirit within the music industry. She made history last summer when she reached her $100,000 album project goal on the crowdfunding site Kickstarter in just seven hours, eventually hitting a record-breaking $1.2 million.
Hard-working singer/songwriter Dan Navarro plays 80 shows per year, showing up for fans on ocean cruises and playing shows at people’s homes. Originally a part of the signed duo Lowen & Navarro, he started to reach out to his audience for support when the group was dropped in 2003: “The new revenue stream choice – if there is a choice – comes down to deciding between new things to sell or new ways to sell the old thing, or more likely combos of both … Demand for music hasn’t gone down one iota. It’s actually increased. But it’s been effectively devalued … To make it viable [has meant] a return to an old system, the oldest part of which is to do it yourself.”
And musician, producer and director of programs for the advocacy group Future of Music Coalition said that the “DIY artist” spirit has been around for a long time; reaching out to fans directly is not a novel phenomenon: “Fan funding is something that’s gotten a lot of attention, especially because of Amanda Palmer … But it’s something that’s existed a really long time if you go back to patronage and classical music 100 years ago.”
The Future of Music Coalition recently conducted a multi-year study on artist revenue streams that showed there are 42 potential music revenue sources, though no artist can use all of them at once. A singer/songwriter might use 25, whereas a classical or session musician might only have access to a few. Some of the less considered sources of income include ring tones, YouTube partnerships, persona licensing, speaking engagements and teaching.
But Rosenthal points out that because some revenue streams have become more valuable, the value of others has diminished. For example, because TV shows and films have started to license more music from bands in recent years, those that once made their living composing and performing scores might be seeing less opportunity.
Of course, the impact that digital music has had on traditional radio has also been hotly debated. Traditional radio stations and streaming radio companies continue to fight over royalties as up-and-coming acts find their opportunities for radio exposure dwindling. Kurt Hanson, chief executive of the Chicago-based Internet radio operation AccuRadio said, “The big three [recording] labels each want to [continue to] receive $100 million checks each year … All of us who are webcasters are fully supportive of paying reasonable royalties to musicians. [But] I think it’s important to recognize that the potential value to those musicians of radio airplay, and of building their fan bases, is far greater.”
Rosenthal points out that in the modern market, “exposure” can still make a sizable impact on an artist’s success, at any stage in that artist’s career. U2 gauged the market in 2004 and decided that it could reach the most new fans by attaching itself to Apple’s marketing. In 2005, Bono told the Chicago Tribune, “We piggy-backed this phenomenon to get ourselves to a new younger audience.”
And David Bowie seemed to be predicting the demise of the old music industry order when he made $55 million in January, 1997 selling “ Bowie Bonds,” a security attached to 10 years of royalties to 287 of his songs across 25 of the albums he recorded prior to 1990.
Navarro explained that artists that want to make it need to prepare to work much more proactively than artists 20 years ago: “The old passive way was you make a record, you put it on the radio, you generate income from record sales as an artist or radio play as a songwriter, and there’s your nut … Now you have to go out there and grab it.” But he added, the payoff for hard work now can be much greater for artists that are willing to go for it, play some of the much smaller or creative venues (like churches, etc.) and take out the middle man. “All the money goes to the artist, everything they take in, unlike a proper venue that has to take a percentage for overhead and their own profit.”
Even Elton John, who at one point put touring third on his list of revenue sources, will play 120 shows in 2012, including many at smaller cities like Kalamazoo, Mich. and Evansville, Ind.
As Navarro concluded, you have to get out there. “If you don’t get out there live, there are very few opportunities to hit the well … That seems to be key to a lot of people who have survived in the new paradigm.”
Dick Wingate is a digital entertainment executive with over 30 years of experience in the music industry and also serves as the Principal in DEV Advisors, a consulting firm and affiliate of New York-based DEV (Digital Entertainment Ventures). He got his start in the music industry working at the college radio station and after graduation, went to work for an indie record label. Soon after, he became one of the youngest product managers ever hired by Columbia Records, where he worked with artists including Bruce Springsteen, Elvis Costello and Pink Floyd. His work with labels continued throughout the late ‘80s, as a senior executive at Arista, Polygram and Epic. Throughout his career, Dick has had a passion for technology and helped pioneer the digital music business, acting as Senior Vice President of Content Development at Liquid Audio, Inc., the company responsible for the first end-to-end digital music platform. He was also the President of Media Development and Chief Content Officer for Nellymoser, Inc., one of the earliest mobile app businesses. Most recently, he acted as General Manager of East Coast Business Development for TAG, Strategic, a digital entertainment consulting company that offers business development, content licensing, strategic partnership and distribution services. At DEV Advisors, he joins a deep roster of other media executives who help connect technology to the music industry and provide digital business strategy, content acquisition and licensing and connect key people to resources as they develop their products and businesses.
I talked to Dick about his vast experience in the music industry and how he has seen digital music evolve over the past three decades. He also discussed why artists need to be entrepreneurs to succeed in the current industry climate and delivered some advice for artists about the importance of innovation and building dynamic relationships with their fan base.
Thanks so much for taking some time to chat, Dick. How did you get into the music business?
I got into the music industry through college radio, as many people do. After college, I immediately went to work for an independent record label and about a year later, was approached by Columbia Records to become one of the youngest product managers they had ever hired. I spent the next three years there working with artists like Bruce Springsteen, Elvis Costello, Pink Floyd and many others. I became an A&R man for Epic Records in the early ‘80s. After discovering Aimee Mann and having a hit with “Voices Carry” and then also having a #1 hit with Eddie Grant’s “Electric Avenue,” I became the head of A&R at PolyGram Records in the late ‘80s.
In the early ‘90s, I became very interested in technology. There was no Internet yet, but interactive technology was starting to be used in retail stores. I got involved helping program and license all the music for an in-store previewing system called the iStation that was state of the art at the time. I had my first experience on an entrepreneurial level working with a startup, licensing music and obtaining the first-ever license that Billboard granted for interactive charts and touch-screen operated system for music stores.
In the mid ‘90s I was briefly head of marketing for Arista Records, then quickly switched over to BMG and got involved very deeply with their early Internet strategy. This was in about 1996, and I helped build some of the early websites for BMG artists, including their first online store, which was called Get Music. I also negotiated deals with AOL to put AOL software on various BMG artists’ CDs. During that time I also started consulting with other companies that had come to BMG and were looking for help with their Internet strategy. I met with a lot of the early streaming music companies, which included Audio Net, Real Networks and Liquid Audio.
I thought Liquid Audio was the most well-thought-out solution for the music industry at the time, so I started working for them in addition to working with BMG, eventually going full time with Liquid Audio in 1998. We ultimately became far and away the leading licensed digital music distributor. Most major labels and independent labels first complete catalog licenses were with Liquid Audio, including Universal. We had thousands of labels and hundreds of websites to which we distributed music, including Tower Records, CD Now, Barnes and Noble, Best Buy and even Amazon, though they weren’t yet doing commercial digital downloads.
In 2002, there was a change of ownership and control in the company after a failed merger, and most of the senior management left. The company was sold to Anderson, which is the company that provides all the music and merchandising for Wal-Mart. And Liquid Audio became the back end of Wal-Mart’s digital music store. And they never really promoted it, so the story had a sad ending. But, as Liquid Audio, we did lay the groundwork for the first commercial downloads in the United States from major labels. Our first downloads were from Duran Duran and became available 15 years ago. And we had a lot of the first digital music technology innovations that eventually became the standard.
Following the sale of Liquid Audio, I started consulting with a number of companies, one of which as putting on-demand music creation systems in McDonald’s in Germany: Digital Transaction Machines (DTM). We put systems in McDonald’s that allowed you to create a playlist and actually burn a CD in the restaurant. They were used in a number of places in Europe. It was quite an experience and really broadened my experience with European licensing and retailing.
I was also on the advisory board of an early leader in mobile streaming and application development: Nellymoser. The company created the first on-demand streaming music app in the U.S. called Warner Music Jukebox. It launched in about 2005 or 2006 and ran on Sprint as the first unlimited streaming subscription app. We also built apps for MTV, Comedy Central, ABC Television, AT&T and Virgin Mobile, before the release of the iPhone.
That was my deep dive into mobile technology and application development. Of course, once the iPhone came out, the entire paradigm was changed, because the carriers no longer had complete control over application distribution. And that exploded the market and enabled free applications, which did not exist prior to the iPhone. Previously, carriers wanted to get paid every month for applications.
Well, Apple has made a habit of bolstering their hardware through free IP.
Yes. Following my stint with Nellymoser – which is still one of my clients – I started consulting again. And I’ve been working with various digital entertainment companies – typically startups or early-stage companies – helping them with their business development, content licensing and distribution strategy, or helping them find strategic partners and financing.
Earlier this year, I moved my consulting business to a new company, Digital Entertainment Ventures, which was founded by Alan McGlade, the former CEO of MediaNet and of The Box TV Network. Alan and I created an advisory services company in association with the venture fund. So, there’s Digital Entertainment Ventures (DEV) and DEV Advisory Services, which I run. I wear two hats: I represent the fund; I run the Advisory Services group.
I always tell artists that they are their own companies. Building an early-stage startup is not that much different from building an artist’s career.
It couldn’t be more similar, actually.
As someone who is an investor, an advisor and has a background in both early-stage startups and in the music business, what do you look for when you’re kicking the tires on a prospective client or investment opportunity?
It’s funny that you said that, because I’ve made that same analogy between entrepreneurs and musicians recently in a couple other situations. Someone said to me, “You were an A&R guy who moved towards a role of entrepreneur and getting involved with other companies as an advisor. How did you make the transition?” And if you think about it, trying to identify entrepreneurs and young companies you think will be successful in the market is very similar to finding musical talent.
You can look at the lead singer as the CEO or Founder because that person is usually the most important. And you have to ask yourself, “Is this person someone I want to work with? Is this person the right person for the long run to run the company, or are they just the visionary that helps shape the product but shouldn’t run the company?”
Then, as an investor, you look at the “supporting cast”/the other company “Founders.” And in music, that’s the band. Is the band strong enough, or do some of the players have to be upgraded? It’s no different from an A&R guy trying to decide if the drummer or guitarist is good enough.
Then you ask, “What’s the product?” Presumably, you’re interested in the product. But the question is, “Is it done and good enough, or does it need a lot more development?” That’s like asking about the material as an A&R person: “Is there enough good material, or does it need to be developed more before it’s brought to market?” Does the band need to write more songs to bring this to fruition?
You have all these parallels between the entrepreneurial business world and the music world. And sometimes as an investor, you think, “It’s okay for now, but it’s not quite good enough to get them all the way.” One of the things I learned from working for Clive Davis was, when he was trying to decide whether or not to sign an artist, he would consistently ask his A&R staff, “Is this an artist that you can see headlining Madison Square Garden – not a club, not a theater, but Madison Square Garden? Is it that good?” You have to ask yourself a similar question when you’re looking at investing in new companies: “Is this product good … or is it game changing?”
I never thought of it until this very moment, but we are really in a situation similar to the one the music business was in in the ‘80s and ‘90s when we were flush with people repurchasing their catalogs on all the updated formats. There are a lot of startups out there whose whole business strategy is, “I’m going to do something that Google or Yahoo! wants to buy.” I’m seeing a lot of lazy tech companies whose entire strategy revolves around getting bought by Google.
Well, some of that is, no doubt, laziness. The goal used to be to go public, but that isn’t typically a goal anymore. A lot of companies are created to get purchased, and they do that by building an audience. Even though it’s not really monetizable, there is usually a company out there that will look for a specific feature or audience.
That’s the kind of thing that I’m constantly evaluating when I look at technology. I ask myself, “Is this a great feature, or is this going to be a great company?” Because, there are a lot of good features out there, but some of them lack a good monetization strategy.
I get excited when I see a new product and the monetization strategy has actually been thought out in advance; they haven’t just said, “We’ll build an audience and then figure out how to monetize it.” That’s the conundrum that Facebook, Twitter and FourSquare are in: These are all great products, but they weren’t initially designed with monetization in mind. The monetization has to be bolted on, and sometimes it works, sometimes it doesn’t. You have to think about whether what you have is a feature that would work well in someone else’s app or whether it can actually work successfully on its own as a standalone company.
One of the companies I was wrong about was Shazam. When I first saw it, I thought it was a great feature, but I didn’t think it could be effectively monetized. It seems like the company is doing great and actually get a significant amount of affiliate fees by driving sales to iTunes. But I wouldn’t have jumped on it in the beginning.
I think the unspoken lesson in here is, if you’re looking at running your music career as a company, clearly you have to have a product in mind. You have to have an audience and also something to sell to that audience.
I realize you’re doing more than just working with music-related technology. But since you do work with people in that space, which portions of it do you expect will grow and which do you think will become irrelevant in the future?
Clearly, streaming will continue to grow as a percentage of music consumption. There is less and less need to own a file, as long as you have access to it. The one piece that’s still up for grabs in that area is the automobile, though there is certainly plenty of competition. Once there is true Internet connectivity in the car, on an airplane or in the subway – once you have cached music – there will really not be a need for ownership anymore. I think we are moving towards a very streaming-centric music industry, if we’re not there already. The whole idea of managing thousands of music files and putting them on an iPod will slowly drift away.
The monetization piece is really problematic, because the rates that actually end up flowing through to an artist are fractions of a penny per song; streaming doesn’t make a whole lot of money for artists. And their download numbers are modest, so they have to make their living on the road and through merchandizing. That’s just the world we live in right now.
I think we need to get streaming subscription services to real mass market. And I don’t mean a few million people. Right now – and don’t hold me to these numbers – I think Spotify is claiming 20 million subscribers. But three-quarters of them are not paying a fee. And they claim a 20-25-percent conversion rate, but that is probably higher than they’re seeing in reality. But even if it’s really that high and you have four or five million, that’s still peanuts compared to what the music industry needs the revenue to be.
A situation where you have 50 or 100 million subscribers is what the industry needs to ramp up to. Paying $5 per month, or whatever amount it ends up settling at, should just be something consumers expect in order to have their music anywhere, anyhow, anytime. Bundling streaming services has become the easiest way to get people to pay for it. Apple is the one company that can establish subscription music in a very significant way, because they have so many credit cards on file. I think everyone in the industry needs Apple to go in that direction, but the company just hasn’t gone there yet. They will probably milk every bit of the download model they can with iTunes before they offer a subscription service.
I’m sure they have it in beta already. And whenever the transition is optimal, they’ll roll it out.
If you think about it, Apple’s whole model is to get you to iTunes as often as possible, even though iTunes is not really its main moneymaker. If Apple were to offer a subscription service, you’d have less reason to go to iTunes on a regular basis; on the music side, you wouldn’t be making any purchases other than the subscription fee once per month. At some point in their financial modeling, they will likely say, “If we can convert a certain percentage of our customers to a subscription, what’s the tipping point? How many of those subscriptions will we need to cover the loss of a la carte music?”
Where do you see mobile headed? In my experience, the smarter phones get, the worse they are as phone and email devices. Is mobile just going to go towards more streaming?
It already has. You can’t really even separate mobile from any other format at this point. If you include tablets and phones, we’re already at a very high adoption rate. And that’s only going to get higher, quickly. If, as rumored, Apple is going to come out with an iPad “mini” at a lower price point than the regular iPad, it will just explode the tablet market.
Do you have any more advice you can share for artists trying to thrive in the current climate?
I think this is the time for artists to be experimenting as much as possible with how their music is presented and how it’s released to the public. We’re at a point where it’s important to have music flowing regularly and to maintain a close relationship with your fan base.
And it’s also a time where using and developing mobile apps doesn’t have to be expensive. There are companies that enable a fairly cost effective way of getting an app out there, but having an app out there is only as good as how you use it. There has to be a regular flow of content and communication through the app, because, research shows that a huge majority of apps on people’s phones get abandoned quickly. Somebody coined the term “zombie apps”: They’re on your phone, but they’re never opened. We all have apps we hear about, download, use once or twice and then forget. If an artist app becomes a zombie app, it’s not useful.
There are also new technologies that are coming to bear. SonicNotify is very interesting company that DEV invested in and is actually being integrated into the Mobile Roadie platform, so you can wake up the app with an offer, notification or link to a new piece of music or video and do it in a geo-targeted way. So, it can be set to go off in a specific city venue or retail chain. It actually scales down to a three-foot radius. It’s an audio notification that’s inaudible to the human ear, but it wakes the app up when you’re in a specific location. It can even be as specific as the frozen food aisle at Whole Foods.
There are lots of these things out there that let artists get creative and communicate with their fans, whether to make offers or just to alert people to a new piece of media, a new tour date or anything else. For example, SonicNotify would be very useful for letting people know about a new tour date that has just been added and offering people with the app the first shot at the tickets.
That’s great. And with how personal artists are getting with their fans, it could be, “I’m going to a movie. The first four people to respond get to go with me.”
Yes. And I think if a band is going to embark on mobile apps, they have to be willing to keep them fresh. Otherwise, they just get forgotten. And they need to have some exclusive content only available through the app. Not everybody is going to be able to do what T-Pain did with Viddy. But that’s the gold standard for creating a separate experience on mobile and creating an app that became a hit just because of the experience of using it.
And then you have Bjork, who decided to release an app for every single song on her Biophilia album. That may be a bit of overkill, because people might not want 12 apps from one artist, but it did get her a lot of attention.
The need for artists, music entrepreneurs and executives to adapt to technology was highlighted last week as the head of the new EMI/Universal discussed the company’s area of focus going forward. And industry analyst Mark Mulligan followed up the previous week’s keynote speech about whether or not streaming services have hit their ceiling with more stats supporting why Spotify must change its business model in order to grow. Also, the chairman of the Production Music Association (PMA) talked about how the landscape for film and TV music has changed in the past few years and how music supervisors are choosing artists and tracks to use in their various projects.
Are Smartphones and Tablets the Future?
The chairman of the new EMI/Universal conglomerate Lucian Grainge announced the company would be focusing heavily on developing strategies for smartphones and tablets in order to expand its reach to Brazil, India and Egypt, according to a report in Financial Mail.
The EMI deal was finally cleared by the European Commission on Friday, contingent upon it getting rid of some of its assets. Grainge stated that the rapid expansion of Google’s Android platform for touchscreen phones as well as increased sales of the iPad and other tablets provides an opportunity to vastly increase the sale of digital music.
According to Grainge, “The trends that we are seeing alongside the spread of the latest technology, from tablet computers to the Android phones, make emerging markets increasingly attractive for digital music – and that’s paid-for digital music or digital music with revenues attached …”
Universal/EMI will be looking at countries like India, Brazil, Turkey and Egypt, which have been shown to be full of music fans that want to hear music from local and international artists: “Content is at the heart of it – the most important part.”
Grainge pointed to The Beatles – whose catalog is part of EMI’s assets – as proof that bands and artists can continue to make money off their recordings throughout the world “forever.”
Grainge is tasked with getting rid of approximately 30 percent of EMI’s revenues to meet the demands of the EC. He plans to hire an executive to oversee this process, which will mostly unloading parts of the Parlophone label catalog. EMI’s current chief executive, Roger Faxon left the company on Friday, with more layoffs to follow.
Mark Mulligan: “Losing Free Customers is a Good Thing for Spotify”
Top music industry analyst Mark Mulligan was met with some skepticism from the music business in recent weeks when he questioned the actual growth potential of companies like Spotify, Rdio, Mog and Rhapsody as part of his speech at the Future Music Forum in Barcelona. As a rebuttal, he gave further context to Spotify metrics in an entry on his own Music Industry Blog on September 24.
Mulligan said, numbers show that Spotify had to acquire about 1.8 million users per month just to keep 400,000 of them. Estimate are based on the fact that Spotify reported 32.8 million registered users at the end of 2011, 10 million of which were active. And in March, 2011, Spotify reported 1 million paying subscribers – 15% of active users – putting their active users at 6.7 million. Spotify announced 10 million registered users in September 2010.
Mulligan admitted that there are likely “monthly and seasonal variations” in these figures, causing the exact numbers to be different each month, and that many of the 1.4 million new monthly users that lapse may pick up the service again later in the year. But regardless, if 2011 is any indication, Spotify has to sign up quite a bit of new users than it keeps.
Mulligan also pointed out that this customer loss is actually not a sign of an ailing business model: Losing low-level and free users will actually strengthen Spotify’s business going forward. Since Spotify’s model is about ideally selling premium subscriptions – which is what will help the company itself, along with labels, publishers and artists make money from their work – the “free” part of its business is just a marketing tactic. The number of free users that keep listening is not actually important. What is important is how many of them convert to paying customers.
“… It benefits Spotify if those users who have no intention of paying churn out early on from the free service as it means less cost to Spotify’s bottom line. As challenging a path towards profitability as Spotify may find itself on, it would be a dramatically more difficult road if all of those 32.8 million users were active. So Spotify’s business model and margins actually benefit from the majority of those new free users churning out of the service early, allowing Spotify to focus on migrating the remaining engaged free users to paid.”
And this “free churn” concept is what led Mulligan to question the profit opportunities for streaming services. As he pointed out, while the “free-user-leakage” factor fits in with Spotify’s business model, it challenges the foundation of that model.
Two-thirds of Spotify’s customers in 2011said “no” to something that was free, which means that streaming audio may not be appealing enough to music fans. The reasons that Spotify’s free users disappear are varied and include advertising, the inability to burn to CD and the fact these digital tracks cannot be downloaded for offline listening. While a lot of these issues can be rectified by paying $9.99 per month, the average consumer is not spending that much money on music monthly anymore. In fact, that number is the average spend for only the top 20% of music fans.
Mulligan stressed that because most consumers will not experience the incredible ease of use and features attached to the full streaming audio experience, they will never be enticed to pay for it. Therefore, cheaper price points will be the key for Spotify and other streaming services going forward.
Production Music Hitting a Crossroads
Where is production music heading in the future? And how can artists get their music into film and television?
These are some of the questions Sonic Scoop asked newly-appointed Production Music Association (PMA) Chairman Randy Thornton recently, in anticipation of the organization’s upcoming gathering, “The Future of Production Music: Opportunities, Challenges & Threats” on October 11 in New York City. The PMA is a non-profit organization that promotes and protects the rights and interests of publishers and composers of music used in film, television, radio and other media. Thornton, also the CEO of Warner/Chappell Production Music said he is anticipating some big challenges for those working with production music going forward.
The production music market has actually managed to stay profitable and stable, even while the rest of the industry has been thrust into chaos. However, while the number of production music catalogs and creators has been expanding, the amount that customers have to spend is decreasing. And the retitling of tracks – which is legal and lets rights holders put the same song in a variety of libraries – is creating some confusion for those distributing revenue.
Thornton pointed out that the biggest issue in the production music industry as it expands has become keeping the quality of music high and selling that quality to those that have much less to spend than in previous decades: “I feel that the biggest challenge currently facing the production music industry is that of maintaining the value of our music in the marketplace … The current environment is one of increasing competition for ever-dwindling budgets. The upside is that there are more potential clients than ever. The downside is that many clients are being squeezed financially and are therefore pressured to look for ‘alternative sources/practices’ for production music, many of which are detrimental to the sustainability of the industry as a whole … I feel that it is critical that we strive to maintain or elevate the value of our music, thus enabling a viable financial future for our industry as a whole.”
And the landscape has changed significantly in the past five, to 10 years. The PMA currently represents 450 catalogs, which is ten times more than it represented a decade ago. And decreased budgets, combined with the splitting apart of many TV, film and new media companies has created mass confusion when it comes to analyzing licensing models and the cost/benefits of each one: “Education and a commitment to understand current needs on both sides of the fence are crucial to ensuring real progress for our industry.”
Thornton stressed that he feels recent changes in the production music climate could actually provide positive opportunities: “The production music industry has consistently grown in both size and quality over the past 10 years: Long gone are the days of clients bemoaning the fact that they ‘had to use a library cue.’ The creative and production values of current production music works are leading the world in many segments of the market, including the work of many GRAMMY and Emmy award-winning composers and producers.”
And this could offer many new artists the chance to start diversifying their careers by writing production music: “Clients have a huge choice these days when it comes to choosing music, and their choice more often than not centers around creativity and production values — both of which are good news for our industry!”
Experts examined the future shape of the music industry last week, as stats continued to reveal predicted sales numbers and growth areas in the music industry for next year. And leaked tax records showed that the RIAA has experienced deep financial losses in 2012. Also, Pandora spoke out against a new bill regarding music royalties.
The Near Future of Industry Growth
The rest of 2012 will continue to be full of growth and reorganization within the music industry, according to further analysis of Strategy Analytics’ latest Global Recorded Music Forecast. The Music Industry News Network presented a break-down of consumer spending through the year, and offered some positive insights about formats to watch.
Streaming revenues will likely increase by 40 percent at about five times the rate of download revenues earlier in the year, topping out at $1.1 billion. And download revenues will grow to $3.9 billion, allowing streaming services to take over the market as the highest revenue growth engine. In fact, they will generate an additional $311 million for the music business, $8 million more than downloads.
Overall digital and mobile purchases will grow to $8.6 billion, whereas there will be a 12.1 percent decline in physical product sales, meaning that digital music will build its global share of recorded music. While digital spending will continue to dominate through 2015, eventually taking over the market, some countries, like the U.S., Sweden and South Korea will transition to digital more quickly than others.
The Director of Digital Media at Strategy Analytics, Ed Barton explained, “Although downloads still account for nearly 80 percent of online music revenues, this market is maturing, and spending is flattening in all key territories. Streaming music services such as Spotify and Pandora will be the key growth drivers over the next five years as usage and spending grow rapidly.”
But why will this shift take place? According to Barton, as music fans become more comfortable with new digital formats, they are coming to value “accessibility and availability” over building huge libraries of outright-owned music. And this drives growth in instant-access streaming services like Spotify. He added, “The emergence of cloud storage of a subscriber’s existing music library for seamless streaming to a range of connectable devices improves the value proposition further.”
And what will happen specifically with U.S. music revenue? By the end of the year, streaming revenues will grow at four times the rate of downloads, bringing online streaming and downloads up to double the share of music spending in the U.S. than worldwide. And U.S. physical product sales will decrease less than the global rate, declining by 9 percent. Physical spending won’t wait until 2015 to be overtaken by digital; this shift will happen in the U.S. by the end of the year.
Barton sees the Report’s numbers as a positive sign: “Having stabilized long term revenue declines resulting from the downsizing of packaged music spending, the industry will be hoping that digital can rebuild the U.S. market to something approaching its former stature.”
Is the World Ending for the RIAA?
Leaked tax records show that the RIAA could be in serious financial trouble, partially because of the continued high salaries of top executives within the organization and its investment in piracy lawsuits, along with the decreased investment of major record label executives that serve the company. Its revenue dropped by just under 50 percent in the past year, according to information presented by TorrentFreak and Digital Trends this past week.
One of the biggest proponents of anti-piracy initiatives like the Stop Online Piracy Act, the RIAA is showing signs of falling down. Its recent tax filings reflect that the organization’s revenue for the period ending March 31, 2011 has fallen by 44 percent over the previous two years, topping out at $29.1 million, compared to the $51.35 million it garnered in 2009. The number of employees on the payroll also decreased from 117 to 72. These huge drops lead many experts to believe the numbers for 2012 will drop even further, given their increased efforts to bring down pirates and fight against the changing music industry.
The fall in revenue can be in great part attributed to a drop in dues paid by major record label employees that serve as RIAA members. In a tax filing from 2009, the RIAA reported member dues of $49.8 million, as announced by Digital Music News. The new number is $27.9 million.
Of course, the first part of 2011 was one of the best for the music industry, as Nielsen SoundScan showed. For the first time in six years, total album sales rose by one percent.
Even though there has been a drop in overall revenue and member dues within the RIAA, executives are still earning impressive salaries. Former RIAA Chairman Mitch Brainwol earned $1.75 million, more than any RIAA employee. And the Chairman and CEO Cary Sherman, who at the time was the President, earned $1.36 million. The nine other most-well-paid employees get salaries between $309,000 and $715,000.
While the amount of money the RIAA spends on lobbying the U.S. government has held steady at $2.3 million per year, the amount of money the RIAA has collected in legal fees has dropped. While it has continued to aggressively pursue major anti-piracy lawsuits, it decided to stop going after individual infringers.
Pandora Getting Louder about New Music Royalties Bill
Online music service Pandora is continuing to get riled up about Rep. Jerrold Nadler of New York’s draft legislation on music royalties, according to The Hill. Spokespeople for the company claim it will only serve to discourage technological innovation and is also discriminatory against Internet radio.
Pandora is, however, backing a draft bill designed by Rep. Jason Chaffetz of Utah. This bill is designed to lower the royalty fees Internet radio stations pay so they are on even ground with cable and satellite radio stations. Chaffetz’s legislation would force Internet radio to be held by the same standards outlined by the 801(b) section of the Copyright Act.
Tim Westergren, founder and chief strategy officer of Pandora said, “The current system for establishing royalty rates is astonishingly unfair … Fairness demands that all music related rate settings utilize the same 801(b) standard.”
Nadler’s bill is backed by most other groups and companies within the music industry, because it would help improve compensation to artists when their music is played on digital radio services and on radio stations’ live-streamed online broadcasts.
The 801(b) standard is used in order to figure out the royalties that will be paid by the industry to music publishers and songwriters. Westergren stated, it is unfair that the industry will not use the same standards it uses on all other entities to force Internet radio to be responsible for paying artists. He added, “Congressman Nadler’s discussion draft would only perpetuate this hypocrisy and worsen an already flawed legislative mistake that is discriminating against new technology and hampering innovation.”
Chaffetz’s and Nadler’s bills have both caused a battle within the music industry and digital radio services regarding music royalties. And many are unsure of Chaffetz’s bill because they believe it could take money from artists.
Nadler himself has expressed that he agrees with Pandora about the need for equal rates, but that the bill that opposes his is not the solution: “The solution is not to get to parity at the expense of artists as Rep. Chaffetz’s bill proposes … We can and should both level the playing field for Internet radio and ensure that artists are fairly compensated …”
Signs that music industry business models are continuing to change were prevalent this past week as record industry executives sought out money-making opportunities outside the traditional system and Spotify moved into the #2 money-making spot for major record labels. Also, analysts looked to Louis CK’s successful “DIY comic” career for valuable lessons about making it in the music business.
Unscripted Reality Television a Creative Opportunity for Executives
With the music business landscape continuing to change from the old order to the new, record industry executives have been seeking new money-making opportunities in unscripted reality television as judges, music supervisors and creative consultants on shows like American Idol, The Voice and others, according to an article on CNN.
Artists have long gone after other streams of income as digital music has made its impact on the business, decreasing their reliance on royalties, concert dates and merch sales. Major stars like Beyonce, Carrie Underwood, Gwen Stefani and Queen Latifah have teamed up with cosmetic brands, and even hip-hop and rap stars like Diddy, Jay-Z and the Williams Brothers have picked up liquor brands, nightclubs and book publishing imprints. And, of course, Christina Aguilera, Paula Abdul and Britney Spears have joined up with reality shows as judges.
And now record label heads like Jimmy Iovine (Interscope), Mathew Knowles (Music World Music), Ron Fair (producer of the Pussycat Dolls/Queen Latifah/Black Eyed Peas) and Antonio “LA” Reid (LaFace Records/Island Def Jam/Epic) are now turning towards unscripted TV shows.
Iovine, who has worked with major pop and hip-hop sensations like Lady Gaga, LMFAO, Mary J. Blige and 50 Cent recently became an in-house mentor on American Idol. And Beyonce’s father Knowles, who broke Destiny’s Child and now runs his own label has been an executive producer for and appeared on the worldwide-broadcasted reality show Breaking from Above. Revered producer Fair has appeared on Keyshia Cole’s BET reality show The Way It Is and has also been a judge on the Canadia talent competition show Cover Me Canada. And Reid, who helped break P!nk, OutKast and Toni Braxton internationally joined Simon Cowell as a judge on the American version of X-Factor.
And these are only four examples. Many other behind-the-scenes music industry professionals have moved into other areas of entertainment in an attempt to continue to stay afloat when jobs that existed in the old system disappear. Before moving onto different areas of the business himself in 2003, David Geffen said, “You have to be prepared to lose for years and years and years in order to build a successful record company. That’s just a fact.” Since leaving the label system, he has continued to produce Broadway shows and major films, including War of the Worlds. And Lisa Cortes, who worked for Def Jam and Mercury for years has turned to film production, putting out Monster’s Ball and Precious.
Even corporations are adjusting. Last week, Sony began to look for takers on its New York headquarters after Sony Music Entertainment dissolved Jive and Arista into RCA in order to cut costs.
For some, Hollywood is too big a shift for music industry veterans, so they even turn to non-musical-competition reality TV. Mona Scott-Young – a former hip-hop dancer and former manager of Missy Elliot, Busta Rhymes and Maxwell – has found great success with Love & Hip Hop on VH1. She said, “I think what’s been happening in music within the last few years and with it changing so drastically, I think that everyone has had to expand their horizons … Not just from a business model for an economical standpoint but also being able to tap into every medium and every resource that’s available in the pursuit in building their brand or even promoting their projects and their artists. So television is a very natural medium.”
Scott-Young added that the transition is not so bizarre as those watching it happen might initially believe: “There is also the thought process that a lot of the talent made for very successful film and television projects came out of music and … the television networks and film studios leveraged and capitalized on [it]. So I think the thinking was that we might as well move into these arenas ourselves and take advantage of the very same things we spent so many years building.”
Spotify Now in #2 Music Industry Revenue-Earning Spot, Behind Apple
After all the complaints that have flowed through the music industry since Spotify’s launch in the U.S. about how the streaming service brings in lackluster revenue, it has now become the #2 revenue source for major music labels, an inside source within the company told Business Insider this past week. And the #1 source is of course, Apple’s iTunes, which paid an estimated $3.2 billion to record labels in 2011.
Last month, official numbers showed that 23 million people used the service for a combination of free and paid services. However, the source said that the gap between Spotify and Apple revenues is still large: “iTunes is way up here … and everyone else is way down here.”
Still, at the 2012 SXSW conference in Austin, Spotify investor Sean Parker said, “If we [Spotify] continue growing at our current rate in terms of subscriptions and downloads, we’ll overtake iTunes in terms of contributions to the recorded music business in under two years.”
Founded in Sweden in 2006 by Daniel Ek, Spotify is raising $220 million in 2012, which would give it a $4 billion valuation. And Goldman Sachs has invested $100 million, according to the New York Times. In 2011, Spotify raised over $100 million and was valued at $1 billion.
News of Spotify’s latest fundraising efforts were first reported back in March, but investors told Business Insider they were unsure of its prospects, because Spotify does not own the content it is selling – the labels do. However, many music business experts feel that as business models continue to change within the music industry, labels will support Spotify as an alternative to iTunes, which many have felt is gaining too much control over the marketplace.
What DIY Musicians Can Learn from Comedian Louis CK
What does it take to be a successful DIY artist in today’s music business? Louis CK has an idea, according to a piece posted in the “Underwire” section of Wired. By reinventing the entertainment business with creative and successful models and focusing heavily on what his fans want, he is reshaping the way all entertainers should manage their own careers.
Louis CK’s first surprising step was to agree to work for next-to-nothing just to have total creative and business control over his FX hit Louie. His feeling was that it was more important to him to make the type of show he wanted to make (and that his most diehard fans would want him to make) than to make millions.
Then he decided to go the same experimental sales route that Radiohead went in 2007 when the band used a “pay-what-you-want” model by selling a $5 comedy video direct to fan on his website instead of shopping it to HBO or Comedy Central as a special. By selling it online without any DRM, he opened himself up to a lot of piracy … but he still sold over $1 million worth in less than two weeks.
And now, Louis CK is making another major move by selling tickets for an entire tour on his website at just $45 per seat, for all seats and in all cities. And within that price is all taxes, fees, etc.
So, which lessons can DIY musicians take from Louis CK’s business moves? There are at least five:
- Be good.And now, be even better, because with the plethora of streaming music services erupting, the music business is shifting to favor repeated listens.
- Stay in control. Louis CK teaches the lesson that it is better to keep creative control over the art you produce, no matter where you are in your career. Otherwise, they get “watered down” and your message and mission gets clouded by “competing visions.”
- Keep deals simple. Even though technology is complicating the way musicians and other artists put out their material and connect with their fans, Louis CK has proved that simple deals are still most attractive. Bundling and fees do not sell more products or tickets. Selling one unit of something for a flat price works best.
- Get rid of fees. Ticket sellers were outraged when Louis CK refused to go through Ticketmaster or any other service to sell his latest tour. But he espouses the idea, “Who cares?” He recently wrote, “Making my shows affordable has always been my goal but two things have always worked against that … High ticket charges and ticket resellers marking up the prices. Some ticket services charge more than 40 percent over the ticket price and, ironically, the lower I’ve made my ticket prices, the more scalpers have bought them up, so the more fans have paid for a lot of my tickets. By selling the tickets exclusively on my site, I’ve cut the ticket charges way down and absorbed them into the ticket price. To buy a ticket, you join nothing. Just use your credit card and buy the damn thing. Opt into the e-mail list if you want, and you’ll only get e-mails from me.” So, when musicians use a direct sales model, they are also able to collect e-mail addresses from their fans. When selling through iTunes or other platforms, they don’t get the e-mail addresses and usually, even worse, someone else does.
- Control the relationship with fans. Louis is in charge of selling his brand to his own fans. He owns everything from the TV show (which he also edits), to the live, taped special and the tour. That means he can control the messages he is sending out and build trust with his fans that will keep them coming back for more.
This past week marked technological breakthroughs as Record Store Day 2012 revealed some innovative new tools to help small business owners, music fans and artists seamlessly combine digital and physical products. And indie bands gained a major supporter as crowdfunding site RocketHub partnered with eMusic to help increase dollars and awareness. Also, Forbes revealed a new book by music manager Tom Gates about how travel can help artists and music industry professionals make sense of the music industry and better manage their careers.
Record Store Day 2012, Tradition, New Tools and Better Business
This year’s Record Store Day was more exciting than ever for artists, small record store owners and others in the industry, as they were poised to celebrate a 1.3 percent rise in 2011 record sales – the first sales increase since the early 2000s. This five-year-old initiative was designed to build support for small music businesses and reinvigorate the spirit of “record store culture” (which has suffered in recent years thanks to a shift to digital) and was originally started by Michael Kurtz, head of the Music Monitor Network, a coalition of indie record stores that provides resources and brainstorms about how small business owners in the space can continue to compete with major music retailers.
An article posted on the CNBC site last week detailed Record Store Day’s small beginnings and some exciting, big new tools that have sprung forth from it in the past half decade and now benefit indie record stores, music fans and artists of all sizes. Five years ago, Kurtz talked to labels and his friends to gauge their interest in a day-long celebration of the unique culture of record stores as well as art and music. His first response came from Sir Paul McCartney, who had recently performed at an Amoeba Music shop in California, which he said had reignited a passion for small record stores. Many other artists reached out, and the first Record Store Day took off with the support of 300 stores in April, 2008.
This year’s day involved the participation of 1,700 independent stores worldwide and a huge number of special edition releases. Aside from re-building awareness about the value of small record shop owners, Record Store Day has also breathed new life into the vinyl record market. Stats from Nielsen Soundscan reveal that in 2006, only 1.4 million records were sold. But in Sepember, 2007, as Kurtz and his Record Store Day co-founders met to try to figure out how to get people to love buying music again, they decided to combine the uniqueness of vinyl with the special atmosphere of people’s local record stores. Record sales grew 89 percent in 2008 and continued upward with a 33-percent rise in 2009. As a testament to Kurtz’s initiatives, 67 percent of vinyl sales last year were sold through the independent stores supported by Kurtz’s annual event.
According to Kurtz, even artists continue to recognize the distinctiveness of vinyl: “Vinyl is not massive in the grand scheme of album sales and downloads – it will never be that – but it’s very real … When we were first making these Record Store Day releases, in conversations with artists so many were adamant about not pressing the exclusive releases on CDs. All the artists said they wanted vinyl.”
Record Store Day has also been teaching small business owners more about how to market to their customers and build their companies. This year, there were 300 in-store performances, a slew of one-day-only sales and special releases that brought out music fans in droves. The Flaming Lips released 10,000 copies of a new record in collaboration a wide range of artists, from Ke$ha, to Bon Iver. Each copy of this album sold was different, offering a special message inscribed at the end of the record.
But while vinyl has grown, its growth still pales in comparison to the rise of digital sales, which take up 50.3 percent of the market. And many music fans live in areas without local small retailers. As a response to this reality, this year Kurtz and his cohorts announced “Third Option,” a widget designed to blend the physical and digital sales worlds. The first step was the release of an iPhone app that let people find all the stores and specials within their area. Then, “Third Option” – a link placed on band websites, record store websites, band pages, etc. – was revealed.
The Third Option button says, “Buy Local,” and when users click on it, they are automatically taken to the site of the small, independent store closest to them. Then, they have the option of either buying the music at the store, buying it online from the store and having it shipped to them or buying it digitally, with the proceeds going to the small retailer. This button has already been implemented by many artists, including Bruce Springsteen. Thousands more are expected to follow suit, which Kurtz hopes will make this widget as visible on websites as links to iTunes and Amazon.
Kurtz also stressed that Record Store Day and Third Option can both help support not just local businesses but entire communities: “John Kunz, who runs Waterloo Records [in Austin, Texas], showed us this study on how purchasing locally effects the local community, and [it] found that when you purchase something locally, a larger percentage of the tax dollars stay in the community, meaning schools don’t have to close, potholes get fixed, and so on … We feel passionately that it’s better if the money stays in the community so that it can remain healthy.”
RocketHub + eMusic = More Powerful Crowdfunding
On Friday, the crowdfunding site for creatives, RocketHub announced its new partnership with eMusic and the eMusic Selects program, which has provided a launch pad for emerging indie artists since 2008 and offers marketing, publicity and editorial support to help them navigate the industry. The expanded eMusic Selects program will bring more support to indie bands trying to raise money to support their creative endeavors, with “matching funds” for select campaigns.
The RocketHub-eMusic partnership will kick off with the Iranian post-punk band The Yellow Dogs – the 25th indie band to be featured by eMusic. RocketHub offers a wide range of tools that help artists raise funds and get their music and message out there. Thanks to the new partnership, fans can now directly support The Yellow Dogs and other artists that are signed to eMusic Selects and have their dollars go even farther, because eMusic has signed onto be the first partner brand to match all funds raised through this project.
The Yellow Dogs’ album Upper Class Complexity can be purchased through eMusic for a limited time. The band is made up of friends from Iran’s new punk scene, who met at a park called “ghorbaghe,” where musicians, skaters and street artists would meet to explore their art – illegal in Iran. After gaining popularity in its home area, the band now resides in Brooklyn. A video detailing the band’s story can be found here.
The Yellow Dogs crowdfunding campaign – a push to raise funds for the band’s first-ever World Tour – started on April 27. Fans that want to support the band can visit their RocketHub page.
(Also check out Rick’s interview with RocketHub CEO and co-founder Brian Meece here.)
Wayward: Fetching Tales from a Year on the Road
A recently-released book by manager and music industry jack of all trades Tom Gates (Christina Perri, Good Old War) about what his experiences on the road, traveling the world by himself taught him about life and even the business provides some helpful lessons for those looking to follow their passions and build solid careers. According to a review in Forbes, the book combines memoir with practical advice for navigating the ever-changing music business climate.
Like many others in the industry, Gates had a love of music before he started managing musicians or working for labels: “I used to spend every penny I had on records and read liner notes, and I had a subscription to Billboard magazine when I was 12 … It was when I went to college and I went to my college radio station and I realized, ‘is this a f****** job?!’” Since graduating from Central Connecticut State University in 1992, he has worked for everyone from Roadrunner Records, Arista and the Nettwerk Music Group, playing every role from promoter, to A&R professional to band manager (a role he has played since 2000).
In 2008, Gates began to feel trapped living and working long hours in New York City, and explored ways he could add his lifelong desire for more travel to the table. A few bands he was managing went through huge changes, with one breaking up and another putting emphasis on a studio album. He saw his opportunity to take a break and in January of 2009, decided to step out on a year-long, worldwide travel adventure.
Wayward: Fetching Tales from a Year on the Road is Gates’ book about his experience, released on eBook in March and immediately jumping to the top of the best seller list on the iTunes’ bookstore.
The book details everything from watching Obama’s inauguration in a bar in Argentina, to watching a dubbed version of the new Star Trek film in France, to eating dog in Vietnam, to working with Patti Smith in New York. While on the road, he managed to stay connected to art and music, writing for Matador – an independent travel site – and posting pieces on his personal blog. One of the book’s chapters, originally a blog post entitled “On Drowning,” was written up by AbsolutePunk in February 2009 and detailed the breakup of one of his former client’s – the band, The Format – as it coincided with events that were happening on his travel journey.
And as Gates was traveling, the bands he had been managing were moving forward. Brand New – his main client when he first left – released the fourth album, Daisy in 2009 and managed to reach #6 on the Billboard 200. And The Format members had separated but started their own projects. In fact, one of the band’s main songwriters, Sam Means became a graphic designer and worked with Gates to make the cover of Wayward.
After returning to the U.S., Gates moved to L.A. and jumped right back into music, becoming part of the team at Bill Silva Entertainment. And he has learned from his experiences that a career in music is perfect for an avid traveler, and that traveling can actually lend new perspective to artists that can help keep them motivated to push their careers forward: “The great thing about managing bands is that you can go to these places while managing that band … Before I went on the trip, I could end up letting the music business completely and totally overwhelm me some days, and now it doesn’t … When the water runs out in the well in Laos and you’re on an island, it’s a problem … When an artist misses a flight …it’s a different kind of problem.”