Music industry experts analyzed six significant changes in the mobile music industry market. And music royalties from online services surpassed royalties from radio in the UK. Additionally, YouTube and Universal Music Publishing Group signed a deal that will expand content in over one hundred countries in Europe, Asia and Africa.

Six Signs of Growth in the Mobile Music Industry

Music industry analysts continue to predict explosive growth and change within the digital music arena, as established streaming companies like Spotify and Pandora take hold and enhance their services, and new players enter the marketplace. And as smartphones continue to become a tool for music consumption for more and more fans, music businesses across the board are looking to mobile for opportunities to expand their offerings. An article in Fierce Mobile Content on Wednesday explored six major issues that are affecting mobile music and how they will influence its on-going growth.

Issue #1:  Will Google’s size make success in the mobile and streaming market impossible? Google Music already lets music lovers upload 20,000 songs from their music libraries and stream on their smartphones for free. And it has confirmed that it is developing a subscription streaming music service, which, according to consumer analyst at Ovum Mark Little will launch this fall and compete with both Spotify and iTunes.

But Little said Google will hit some road blocks, including concerns over consumer privacy and resistance from labels against licensing their catalogs, thus likely delaying its entry into subscription streaming:  “They won’t want another Apple with significant market power and negotiating advantage.”

Issue #2:  Will consumers really prefer streaming services over radio? Despite Spotify’s rise during the past few years, Pandora is still the leader in the mobile music space. And director of industry analysis at the NPD Group Ben Arnold said its large music offering plus its highly-popular app are what continue to give it 39 percent of usage among Americans between the ages of 13 and 35.

But Arnold said he thinks Spotify’s subscription model will overtake Pandora eventually, because music fans no longer feel they need to own their music:  “The model has gone from own to rent.” He added that Internet radio is dissatisfying, because consumers want to hear entire albums, not just “hit singles.”  

Michael Bebel, head of music at Nokia, did not agree with Arnold based on research. Nokia Music concentrates on curated playlists because, “the highest use case out there was in radio.”

Still, which streaming model will ultimately take over remains up for grabs and will depend on where pricing settles and whether users are willing to pay higher subscription fees for high-fidelity music than for lo-fi music.

Issue #3: What will happen with social media? Patrick McMullen, Senior Analyst at social media analysis company Fizziology said that Facebook has significantly contributed to the rise of Spotify. The user experience is enhanced because Facebook users can share the music they are listening to in real time with friends on the social media platform. Rdio offered the same integration into Facebook, but the social aspects of Rdio have not been as high quality as Spotify’s, which could hurt Rdio in the long run. Experts agree that any music company that hopes to attract customers going forward will have to consider social media.  

Issue #4:  Are preinstalled music apps the next big thing? Spotify and Pandora have downloadable apps, but other companies have been working with mobile service providers to get their services preinstalled onto devices. Apple’s proposed streaming music service could come already installed on iPhones and iPads with a simple software update. And Amazon, with Kindle and a sizable music catalog, might also make streaming music an option on its own platform.

However, Apple and Amazon would have to have a really solid product rather than just relying on their popularity and reputations.

Issue #5:  Will competing companies become partners? Research analyst with HIS Screen Digest’s Mobile Intelligence Group Abel Nevarez stated that music services and platform/device manufacturers may forge partnerships in order to ease their entry into the mobile marketplace. And this could help companies better compete with giants like Google. Partnerships have already emerged, like Microsoft Windows Phone and Pandora and Samsung and Universal Music. Even Spotify has partnered with Deutsche Telekom to get its Premium service bundled into users’ monthly phone bills.

Other mobile carriers are launching their own streaming music services to distinguish themselves from the competition, like Leap Wireless’ Muve Music, which currently has over one million subscribers.   

Issue #6:  What will be the outcome of Apple’s price negotiations? Reports have indicated that Apple is negotiating with labels to license music for a potential ad-based streaming service. And Apple is asking for permission to implement a bargain-basement price of six cents per 100 songs streamed – half of Pandora’s rate. Spotify reportedly pays 35 cents per 100 songs.

Apple’s ad-based service would already have a willing customer base comprised of the hordes of users that have iOS devices and use iTunes desktop application. And Apple users would be more likely than others to download a song on iTunes after listening to it on an ad-based streaming service run by the same company. However, experts continue to agree that Apple could be pushed out of its own game if it continues to pursue licensing rates and terms that are undesirable for artists and labels.

Online Music Royalties Surpassing Radio Royalties in the UK

Royalties coming from digital music services like iTunes and Spotify officially surpassed those earned from royalties in the UK this past week, according to The Inquirer. This growth provides yet another indication that streaming music companies and online music retailers are bringing in significant revenue for the music industry.

An analysis conducted by PRS for Music showed that music royalty revenue rose by 32.2 percent last year, from 2011. Additionally, the study revealed that the increase in royalty revenues from online services was higher than in any other area. Radio only grew 3.1 percent in 2012.   

CEO of PRS for Music Robert Ashcroft said that online music services are definitely growing into a huge money maker for the industry overall and are helping in the fight against piracy:  “Copyright remains fundamental to the continued success of our members both at home and abroad, while the ever-increasing importance of licensed online services such as iTunes and Spotify underlines the value of music to the Internet economy.”

PRS for Music did, however find that, despite overtaking radio, royalties from online music sources are still below those coming from all broadcast media.

YouTube, Universal Music Expanding Video Offerings to 127 Countries

YouTube and the Universal Music Publishing Group (UMPG) struck up a deal that will expand the offering of Anglo-American content to 127 countries in Europe, Asia and Africa. The deal includes all videos that feature music, plus user-generated content, said Billboard Biz.

The deal was enabled by UMPG’s pan-European licensing agreement with the Society of Authors, Composers and Publishers of Music (SACEM). It is to be called the “Direct Administration and Licensing (DEAL). Songwriters and composers attached to European societies other than UMPG will have to follow their own licensing agreements.  

Spokespeople for DEAL said the new agreement will help with transparency, coordination and data sharing between YouTube and UMPG and give artists and rights holders a fairer share of YouTube revenues.   

Zach Horowitz, UMPG chairman and CEO stated, “The digital market can only flourish if creators receive fair remuneration delivered through efficient and innovative licensing solutions.”

SACEM CEO Jean- Noël Tronc added, “SACEM is proud to be the first authors’ society in the world to have signed an agreement of this scale with YouTube, the world’s leading digital platform of music videos … This contract bears witness to our commitment to increasing both the visibility of works and the remuneration of our members with a major partner, YouTube, the number one vector for discovering works on the Internet.”

Major labels continued to take issue with Apple’s appeals to start a streaming music service. And YouTube spokespeople officially confirmed the channel would be launching a subscription music service later this year. Also, ASCAP released payout details and other financial information for 2012.

Major Labels Continuing to Resist Apple’s Streaming Music Service

Apple, Inc. has reopened talks with record labels in order to secure rights to start its previously-attempted streaming music service, according to a March 7 exclusive in the New York Post. But labels are continuing to push back due to an incredibly low royalties proposal. Apple, initially tried to license music for this new streaming service in time to release it alongside the iPhone 5, but the industry’s largest publisher, Sony/ATV, ultimately killed the plan by refusing to negotiate.

Sources said Apple initially made an offer to Sony of 6 cents per 100 songs stream, which is half the 12 cents per 100 songs paid by Pandora, the leading online radio service and the company Apple has identified as its major competitor in this corner of the digital marketplace.   

Labels have agreed that Apple’s music service could potentially offer them a new revenue stream. But they are reluctant to agree to such a low price in the midst of highly-publicized music industry fights against Pandora’s proposal to lower its current royalty rate. Because Apple also currently has $137 billion in cash, many also believe the company should have to pay at least the rate set by the Copyright Royalty Board, which is 21 cents per 100 songs streamed and applies to companies without established broadcast stations.

Terrestrial radio-run online services like iHeart Radio pay 22 cents per 100 songs streamed, whereas subscription service Spotify pays 35 cents per 100 songs streamed – the highest rate among digital music services.

Apple has been further motivated to get into streaming radio because it has seen 50 percent of its iTunes revenue come from mobile devices, with Pandora being one of the top apps in the App Store.

Apple is also looking to its proposed iRadio to help it take better advantage of its iAds advertising platform. Sources said that record labels are asking for an up-front fee and a percentage of ad revenue along with the streaming fees.

Apple’s chief music negotiator, Eddy Cue, caused problems when he tried to pull in Sony/ATV in order to roll iRadio into the iPhone 5 Launch. When Sony/ATV declined, he was forced to approach Universal, Sony and Warner reps, who have yet to be satisfied with a deal from Apple. An unnamed music industry source close to the situation revealed that everyone at labels is still preparing counter offers after a string of initial meetings.

Rich Greenfield, a media anlyst with BTIG said that there could be a real opportunity for a service like iRadio in the marketplace:  “People spend two hours a day listening to radio. Google, Apple and Amazon are fascinated by the opportunity to get into music in a bigger way. Pandora doesn’t make any real money … Everyone is trying to figure out a better structure.”

YouTube Entering the Subscription Music Service Sector

Streaming media giant YouTube will officially launch a subscription music service in late 2013, said Fortune. After on-going media speculation, the service has announced it has its own negotiating team in place and an operating unit, but will have some elements that overlap and complement new features that could be part of Google Play, Google’s Android music platform.

The two new streaming services are different but part of Google’s efforts to grow its presence in the creative digital marketplace. Google Play is a digital locker for music that allows users to buy, store and sort their tracks. But YouTube’s service will allow users to listen to tracks for free. Both will likely have subscription fees that will provide additional perks for users, including, in the case of the YouTube service, ad-free access.  

The news of YouTube’s new service was released by sources in the music industry and at Google:  “While we don’t comment on rumor or speculation, there are some content creators that think they would benefit from a subscription revenue stream in addition to ads, so we’re looking at that.”

YouTube has remained free up to this point, despite being one of the world’s most heavily-trafficked music services. It currently sells ads against its music videos, giving a cut of revenue back to record labels.

Fewer people subscribe to streaming music services, and of those that do, spending per month is lower than in other sectors. However, major music labels have still managed to make money through streaming services. The Warner Music Group earned about 25% of its digital revenue from streaming in 2012. However, labels still have not reached an agreement about how much of their content they should give away and are still working on the details of providing a better user experience on YouTube’s upcoming service, particularly within the ever-growing mobile space. Both representatives of music companies and YouTube are concerned that if they go with a “freemium” business model, listeners might once again get used to not paying for music, once again putting all the pressure on ad sales to subsidize free content.

Still, the subscription-based model is not necessarily more lucrative than relying on advertising. Free attracts more customers, but when there is a subscription fee attached, the customers have to actively pay for music, which brings in much-needed money to an industry that has been struggling for over a decade and just this year saw its first increase in sales in 13 years.

YouTube may already be creating features to complement Google’s future music service:  The site started embedding click-to-buy links on user-uploaded songs that lead back to Google Play, Amazon MP3 and iTunes. Many experts speculate a user’s “collection” of music, purchases and listening histories might eventually be visible between the two platforms.

YouTube and Google will release more details in the coming months as the services develop.

ASCAP:  $827 Million in Royalties in 2012

The American Society of Composers, Authors and Publishers (ASCAP) announced that it distributed more than $827 million in royalties to songwriters, composers and publishers in 2012, up from 2011. Last year was also the fifth consecutive year ASCAP passed the $800-million distribution mark. Annual revenues for the organization were $941 million – the third highest revenues in history – but still 4.5-percent lower than in 2011.

Cable revenues were up 20 percent, and foreign revenues made up for the decline in revenue earned from radio and background music. ASCAP also saw growth innew media and general licensing for bars and grills, hotels and live pop shows.   

ASCAP President/Chairman Paul Williams said, “Our goal in 2012 was to ensure a healthy, steady stream of royalties to our members who depend on ASCAP’s advocacy and collective licensing to pay the rent and put food on the table. The music of our members is more popular than ever all around the world, especially through the proliferation of online and wireless services. We are navigating in a complex, rapidly changing environment in which huge, cash-rich technology companies are developing business models that fly fast and free with our copyrights. Only a thriving community of songwriters and composers – who can make a decent living from their work – can ensure a vibrant music eco-system going forward.”

ASCAP CEO John LoFrumento added, “Looking forward to 2013 and beyond, the news is good. We are poised to return to year-over-year growth in our domestic revenues … With foreign revenues remaining consistently high, we are looking forward to a bright future for our members in the coming years.”

ASCAP added brand-new features to its online tools in 2012, such as ASCAP OnStage, ASCAP Play Music and a new-and-improved mobile app that allows members to access the PRO’s tools on their mobile devices.

More details about 2012 financials can be seen on the ASCAP website.

Global music sales were up in 2012, thanks to continued digital innovation, while digital piracy rates dropped significantly. And Google started discussing licensing with labels in preparation to launch a new streaming music service to complement Google Play.

Positive Sales Could Mean Official Music Industry Recovery

The International Federation of the Phonographic Industry (IFPI) released a report in London declaring worldwide music sales had increased by .3 percent in 2012. Released on February 26, the report reveals the first official growth spurt since 1999, which could signify that the official recovery of the business is finally in progress, according to The New York Times. And analysts believe this growth is largely due to continued music technology innovation.   

Total music revenue last year was $16.5 billion – significantly less than the $38 billion taken in when the industry was at its peak in the late ‘90s. However, the news is still heartening. Frances Moore, chief executive of the IFPI said, “It’s clear that 2012 saw the global recording industry moving into the road to recovery … There’s a palpable buzz in the air that I haven’t felt for a long time.”

The music industry has been in decline for years, as record labels and other companies that long followed old-school business models have resisted or struggled to adapt to new technology and come up with viable digital business plans that lure music fans away from acts of online piracy. But the fact that digital sales and other new revenue sources grew enough to offset the loss of physical CD sales in 2012 could mean that more businesses are finally embracing the digital revolution.

Edgar Berger, chief executive of the international branch of Sony Music Entertainment said, “At the beginning of the digital revolution it was common to say that digital was killing music … [But now it could be said] that digital is saving music.”

Digital revenue comes from diverse sources, including downloaded singles and albums from platforms like iTunes and Amazon, which have continued to rise in spite of the introduction of explosively-popular subscription streaming services. Spotify, Rhapsody and Muve Music attracted 44 percent more subscribers in 2012, bringing the total number of streaming music subscribers to 20 million. And there will likely be new services from Apple and Google in the coming months, as royalties from musical performances and marketing music uses also grow.

Despite increased revenue overall, there is still a disparity between the music economies of different countries. Eight of the 20 largest music markets grew last year, but in Russia, China and other countries that still have “emerging” markets, piracy is still a major problem that suppresses the success of legal digital services.

And some formerly thriving markets like Britain have experienced troubling decline. The bankruptcy of retail music chains like HMV have many experts concerned that CD sales will decline too rapidly for the digital marketplace to pick up the slack.  

Sales slipped in the U.S. in 2012. But London-based research firm Enders Analysis released a separate report last week, which predicted that the U.S. market would rebound in 2013, going from $5.32 billion to $5.35 billion.

Enders Analysis Senior analyst Alice Enders said the reported growth is “huge” and a “milestone,” but that growth might be slow in 2013, because CD sales would likely experience a major fallout. She added that the music industry might not ever return to its previous size, but it could still become healthy and profitable again, particularly since switching to digital delivery of music has significantly lowered operation costs for record companies.    

Labels, fearful of online piracy, notoriously resisted digital distribution. While they initially did not see the opportunities for profit it presented, they started to embrace the models they rejected, like free, ad-supported music services.

The IFPI report indicated that the industry earned 34 percent of revenue from digital sources last year, more than other media outlets. In the U.S., India, Norway and Sweden, digital sales already account for 50 percent of total sales.

Some analysts believe that if music executives had taken a progressive stance in 1999, growth would not have taken over a decade. Paul Brindley, chief executive of the consulting firm Music Ally stated, “If there is a lesson to take away, it is probably that the earlier you can embrace new business models and services, the better.”

Piracy Rates Down in 2012

Illegal downloading and file sharing was down in 2012, a report conducted by research firm NPD Group found. CNet reported that NPD’s Annual Music Study 2012 found that of the music fans surveyed, 40 percent of those that downloaded music via P2P services in 2011 admitted they had decreased this practice or stopped it altogether in 2012. The year 2005 was the high point of P2P file sharing network use, with 33 million people using them. In 2012, the use of P2P services overall decreased to 21 million.  

A decrease in piracy was also seen in other areas. Songs burned from CDs owned by friends and family was also down by 44 percent. And the number of songs grabbed from digital lockers was down 28 percent.

NPD said there were three reasons for lower piracy rates. First, free music streaming services that gave music lovers a robust listening experience attracted former illegal downloaders. Half of the people surveyed said they had cut back on illegal downloads or stopped completely because of increased options afforded by free, legal streaming.

Secondly, the music industry’s legal actions have driven a lot of P2P sites out of business. For example, former P2P giant Limewire shut down almost two years ago after being found guilty of violating copyright.  

Third of all, many P2P sites have made users susceptible to viruses and spyware, which prove to be too high a price to pay for free music. Of those P2P users surveyed, 20 percent said they curbed their downloading behavior because a favorite site went offline or infected them with a virus.

Russ Crupnick, NPD’s senior vice president of industry analysis confirmed, “In recent years, we’ve seen less P2P activity, because the music industry has successfully used litigation to shut down Limewire and other services … Many of those who continued to use P2P services reported poor experiences, due to rampant spyware and viruses on illegal P2P sites.”   

Google Approaching Labels to License New Streaming Service

Google, Inc.’s Android division is in negotiation with music companies to support launching a new subscription music-streaming service like Spotify, revealed insiders. The Wall Street Journal. These negotiations are happening alongside YouTube’s push to get licenses from music labels to start a paid music video subscription service.

If Google can cut deals with labels and publishers, the new streaming service would be an added feature of Google Music, which currently allows music lovers to share music from their legally-purchased catalogs online and buy new songs. Google Music users can stream songs through their PCs or mobile devices. The service has the best functionality on devices that use Google’s Android mobile operating system.  

The music streaming market continues to grow, as more companies diversify their offerings. Apple is also having discussions in order to license music for a Pandora-like radio service.

Details have not emerged about how Google’s new YouTube-based video subscription service would operate, but representatives have been talking to online video creators about including their videos. The implications of this potential venture for Vevo, LLC – which has a partnership with YouTube to show most of the major music labels’ videos – are also unclear. Vevo gets 4 billion video views per month and has paid out over $200 million in royalties in the past three years.

The RIAA issued a report accusing Google of failing to make good on its promises to punish pirate websites. And a survey showed continued sales growth in the musical instruments and equipment industry. Also, Billboard announced it will start incorporating YouTube plays into its Hot 100 chart formulas.

Google Breaking Anti-Piracy Promises

Google has not been making an effort to hide pirate sites, even though it promised the music industry six months ago to downgrade the sites in search results, according to a report filed by the Recording Industry of America on Thursday. In August, 2012, Google made an announcement saying it would look at the number of valid copyright removal notices for each site and create a new search algorithm that would make sites with many copyright complaints appear lower in search results.  

The RIAA’s report last week stated it sees no proof that the new policy has actually penalized music piracy sites, and during the past six months, Google has received tens of millions of copyright removal requests. Steven M. Marks, RIAA’s general counsel said, “Searches for popular music continue to yield results that emphasize illegal sites at the expense of legitimate services, which are often relegated to later pages. And Google’s auto-complete function continues to lead users to many of those same illicit sites.”

Ben Sisario of The New York Times said the problems outlined in the RIAA report point to the two-faced company Google has built. One Google features an array of entertainment services that have licensing agreements with major labels, music publishers, movie studios and other media companies, such as YouTube and Google Play. And these features are becoming an integral part of the entertainment industry.

Google’s other side is its search engine, which has become “the road map to the Internet” people follow to find all content. Some of its methods are heralded by the entertainment industry, but a lot of them are not.

Google responded to the RIAA’s claims in a statement, saying that the company is making a serious investment in anti-piracy measures and will continue to work with the entertainment industry to offer more valuable content:  “We have invested heavily in copyright tools for content owners and process takedown notices faster than ever. In the last month we received more than 14 million copyright removal requests for Google Search, quickly removing more than 97 percent from search results … In addition, Google’s growing partnerships and distribution deals with the content industry benefit both creators and users, and generate hundreds of millions of dollars for the industry each year.”

Musical Instruments and Equipment Sales Increasing in 2013

Consumer demand is increasing for musical instruments and accessories, said a January survey conducted by the top financing provider for music dealers GE Capital, Commercial Distribution Finance (CDF).

The survey revealed that 38 percent of its respondents are expecting an increase of five, to ten percent in sales this year, and 43 percent expect their sales to increase more than ten percent. The results showed that fretted instruments, keyboards, percussion and amplifiers will likely be the big sellers, representing 44 percent of revenue. And professional audio equipment will come in second at 37 percent.   

Many brick-and-mortar retailers also seem to be growing their online presence, as 27 percent of respondents stated online sales will be between 15 and 45 percent of their business in 2013. Still, 36 percent said that online sales make up 15 percent or less of their business, and 17 percent have still not opened up shop online.  

As more consumers head to the Internet to buy instruments and musical equipment, many retailers reluctant to create an online presence are concerned, with 40 percent saying they believe that online retailer and auction site purchases will affect the music industry significantly in 2013. And 19 percent are worried that reduced budgets for school music programs will affect their sales.

Most said they are no longer concerned about overall consumer demand for their products. Dave Wilson, commercial leader of CDF’s diversified products group said, “Like others in the industry, we’re optimistic about consumer demand this year … Although wholesale purchases were soft heading into 2013, we think that will turn around now that we’re seeing positive signs in the U.S. economy. Unemployment rates are declining, consumer confidence is improving and home sales are increasing, all of which are good news for sales of instruments and related products.”

In an attempt to help grow music education in U.S. public schools, CDF has been supporting Little Kids Rock, a program begun in 2008 that offers free instruments and lessons to students in schools without music programs across the country.

GE Capital’s survey included 104 retailers, manufacturers and distributors.

YouTube Will Factor into Billboard’s Hot 100 Chart

Billboard magazine’s 55-year-old Hot 100 singles chart will not incorporate YouTube plays into its formula, The New York Times said. Baauer’s viral video song “Harlem Shake” will debut at No. 1 this week as a result of the change.

“Harlem Shake” got little attention when it was offered up as a free download in May. But by last week, over 4,000 videos featuring fans dancing along to the song were being put up on YouTube every day.

And download sales and Spotify streams of the track also exploded. While Billboard had been planning to include YouTube in its charts for two years, it was the popularity of “Harlem Shake” that pushed it to update its policies immediately, according to editorial director Bill Werde:  “The notion that a song has to sell in order to be a hit feels a little two or three years ago to me … The music business today – much to its credit – has started to learn that there are lots of different ways a song can be a hit, and lots of different ways the business can benefit from it being a hit.”  

Billboard has also been making other moves to modernize the Hot 100. Aside from sales and airplay, it now includes data from streaming services like Spotify. In recent years, YouTube has been critical to making songs wildly popular many months before they get picked up by radio. Songs like Psy’s “Gangnam Style” and Carly Rae Jepsen’s “Call Me Maybe” provide solid examples. And so does Gotye’s Grammy-winning hit “Somebody That I Used to Know.”

“Harlem Shake” only had 18,000 downloads since its release in May. Once the tens of thousands of YouTube videos began to go up last week, it sold 262,000 downloads.  

Billboard’s charts are based on data from Nielsen SoundScan, a company that has also been trying to update. When it first started in 1991, it offered up third-party sales data that changed the way record labels, retailers and others marketed and sold their products. Now Nielson also looks at radio plays and major streaming services. Senior analyst David Bakula said, “We want to measure how much consumption is going on, in whatever form a consumer chooses to consume something.”

Last week was marked by some big wins for independent labels and artists as Clear Channel Media signed a new radio royalties deal with country label Big Machine and DIY darling Amanda Palmer hit the $1 million mark on crowdfunding site Kickstarter. Also, YouTube fine tuned its licensing deal with music publishers.  

Applause for Clear Channel-Big Machine Deal

Indie country label Big Machine cut a first-of-its-kind deal with Clear Channel on June 5 that will pay its artists royalties and also potentially spark online radio growth. The deal – effective immediately – will finally pay artists like Taylor Swift, Tim McGraw and Reba McEntire for songs played on traditional radio stations. As part of the agreement, the artists will earn a fixed percentage of revenue on Clear Channel station websites and on its iHeart Radio streaming service, which will allow Clear Channel to run promotional campaigns to increase its online audiences without going over its budget.

Big Machine CEO Scott Borchetta stated that he sees this groundbreaking agreement as an investment in the future of digital radio as well as the first big radio win for a small label:  “We’re going to more than double our income from Clear Channel in the short term, and they’ll make it up on the back end as digital continues to grow.”

Radio broadcasters and the music industry have been at odds for nearly 100 years when it comes to paying royalties to artists. Prior to this point, songwriters and music publishers were compensated, but not performers.  The chairman and CEO of the Recording Industry Association of America (RIAA) Cary Sherman sang praises for the deal at a congressional hearing, “The Future of Audio,” on June 6:  “We’re obviously delighted that the biggest radio group acknowledged that something should be done.”

However, Sherman and other industry leaders said that individual deals will not be the answer going forward; an industry-wide agreement needs to be met. Jazz musician Ben Allison, who is also the governor of the New York branch of the Recording Academy (the Grammy® Awards) said, “Terrestrial broadcasters have an inexplicable ‘free ride’ when it comes to performance royalties … This makes corporate radio the only business in America that can legally use another’s intellectual property without permission or compensation.”    

Broadcasters also want to keep government out of the radio royalties issue. The National Association of Broadcasters (NAB) issued the following statement after the Clear Channel-Big Machine deal was announced:  “NAB remains steadfastly opposed to a government-mandated performance tax on local radio stations.” The radio industry’s recurring argument is that radio provides free promotion for artists that allows them to build their fan bases and sell more records.

Regardless, this past week’s Clear Channel deal shows the corporation is finally willing to invest in online radio and make its iHeart Radio app a priority. Clear Channel Chief Executive Bob Pittman stated, “This is a big step, but we think this investment is an opportunity worth taking to align our interests in all of our revenue streams and grow digital listening to its full potential with record labels and their artists as our partners.”

Amanda Palmer’s $1 Million Kickstarter Win

As the music industry has shifted away from the traditional label system and musicians have had to take control over their own careers, crowdfunding sites like Kickstarter, RocketHub and others have developed as a trend to help them raise money for their creative projects. Indie sensation Amanda Palmer (formerly of the punk cabaret duo The Dresden Dolls) made history this past week when she raised $1 million in one month on Kickstarter to fund her record Amanda Palmer & the Grand Theft Orchestra. According to Simon Usborn of The Independent, her success could be the sign of a huge shift in the music industry.

Palmer made the announcement she would be ditching record labels and recording a new album in April with the help of the fan-funding site Kickstarter. Her goal was to raise $100,000 from fans, who would get a variety of special opportunities commensurate on their level of investment. For a dollar, she said fans would get a digital download of the record. For ten thousand dollars, they would get a whole day to hang out one on one with Palmer herself.

Palmer reached her goal within six hours and in a month, had raised over $1 million thanks to 25,000 fans. This feat caused her to see fan-funding as “the future of music:”  “The industry has long needed a new system, and crowd-funding is it.”  (As a side note, a party was held for Palmer in New York City this past week where many artists played, including Shayfer James, who has been previously featured in the Musician Coaching newsletter.)

However, many experts continue to debate whether or not the crowdfunding model works consistently for artists, and whether or not cutting out the middle man is a new trend. Radiohead released its album In Rainbows in 2007 through its website and asked that fans pay what they wanted. And SellaBand.com was already offering investment opportunities for fans.  

Still, Palmer was the first to make $1 million – more than any record label would invest in an artist the size of Palmer. Manager Colin Roberts, who works at Big Life Management (Scissor Sisters/La Roux) said that while music stores used to get away with charging a lot more money for albums than artists do on their own now, fans were always frustrated about spending. They have come to see labels as rich, powerful and greedy, even though the labels are losing money. Now that fans have a new way to get music, Roberts agreed with Palmer that “the tide has turned,” in part thanks to a change in attitude among artists:  “In the past it felt like holding a cap out. Artists used to say, ‘no way!’. Now there’ll be a conversation.” Big Life is currently considering moving to crowdfunding to support some of its acts.  

Roberts and others continue to agree that fan funding does not work for every artist. It works best for those that have a strong fan following and a heavy online presence. Without fans, there will be no funding, so new artists will still likely have to rely on traditional models in the beginning (and throw in some money themselves).

Roberts also said that record companies should definitely pay attention when their big names turn towards fan funding:  “When Coldplay say, ‘We’ve just done four nights at the Emirates, do we need EMI to sell records?’ That’s when they should be worried.” He added that Palmer’s feat, while impressive is not revolutionary:   “What would really change the game is if people could do this from nowhere in their bedrooms … But unless you’ve got hype, that’s not viable. Nobody’s found that model yet.”

YouTube:  A Sweeter Deal for Music Publishers

YouTube declared it had inked a deal that “opens the door for more songwriters, publishers and content creators” in its blog this past week. The Google-owned site came to an agreement with BMG Rights Management, Christian Copyright Solutions, ABKCO Music, Inc., Songs Music Publishing, Words & Music, Copyright Administration, Music Services, Reservoir Media Management, and Songs of Virtual , publishers that represent works from artists including Adele, Cee Lo Green, Foo Fighters, The Rolling Stones, Sam Cooke, etc. The deal will give these entities more opportunities to earn money and improve their copyright protection.  

Elizabeth Moody, head of YouTube Music’s strategic partner development wrote that the deal will bring “more of the great music you all love on  YouTube, and more opportunities for artists to make money.” What that means according to PC Mag, in layman’s terms, for YouTube users is that the next time they upload a video with their favorite song playing in the background, the Content ID system – an audio and video matching tool – might not cut out the audio track or remove the video from the site. The improved Content ID system will give content owners the option to leave the copyrighted material online and place ads next to it that will allow them to earn money.  

YouTube made a similar agreement last year with the National Music Publishers Association (NMPA) and Harry Fox Agency. This contract and the previous contract will allow YouTube to monetize nearly all the user-generated YouTube videos with accompanying music. When publishers enable YouTube to run ads with videos that feature their compositions, the publishers, songwriters, record labels and artists will make money, “so they can reinvest in their careers and keep making great music, and the music industry can thrive,” said Moody.

Google has been heavily attacked recently for aiding piracy via the Google search engine and YouTube. While Google has been working to fight this problem, not all within the music industry are convinced. Google announced plans in late May to publish copyright takedown notices on a daily basis, but the RIAA felt this action was insufficient. (See last week’s Musician Coaching news story.)  

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.”

Last week, legal and copyright issues came to the forefront of music business news as antitrust regulators discussed the potential results of a merger between EMI and one of the other three major record labels, the National Music Publishers’ Association settled its long-standing lawsuit with YouTube and the music industry expressed concern about how music-locker services might affect the marketplace.

Officials Relaxed about EMI Merger Ramifications

Antitrust regulators are not raising many red flags when it comes to the potential EMI Group merger with either Universal Music Group, Sony Music Entertainment or Warner Music Group, according to an article published in the Los Angeles Times last weekend. And this surprises some executives and others in the music community, given the merger would  mean the number of major labels in existence would be down to just three, from the six that existed in the late 1990s.

Why is no one worried? According to experts, it’s because major labels don’t have the power they once had because of the revolutionary changes technology and other factors have brought to the music industry. Digital channels especially have loosened record companies’ hold on the marketplace, and online retailers, including iTunes and Amazon.com have helped artists become less dependent on labels to peddle their music to fans. Similarly, social media and other online resources have brought much less expensive marketing tools directly to musicians, making relationships with labels and attachment to the labels’ large marketing teams less necessary.

Mark Lemley, an antitrust law professor at Stanford Law School adds, “… Things have changed. There are new sources of competition in the digital environment, and the dominance of the four majors has been reduced.”

However, while certain truths about the modern music landscape do decrease some fears about the potential EMI absorption within U.S.-based legal circles, regulators in Europe – where there are different standards – are watching the situation very closely. According to Michael Cohen, an antitrust litigator with Paul, Hastings, Janofsky & Walker in Washington, D.C., two factors are of the most concern to officials:  market power; the ability to collide. Officials will need to know the answer to some important questions:  Will the merged firm be able to dictate prices that EMI and whichever firm takes it on don’t independently have the power to dictate right now? Will the environment caused by the merger make it easier for the companies that remain to get together to collude?

This isn’t the first time major music companies have been questioned about pricing issues. In 2002, labels paid $67.7 million to settle lawsuits filed by a few states’ attorneys general. The charge was that the labels were inflating CD prices by coercing retailers into agreeing to minimum prices. And in 2003, the FTC ruled that Vivendi Universal and Warner had broken antitrust laws when they prohibited discounting of the Three Tenors’ records.

Now, digital music services, including iTunes and Amazon often discount music in order to compete. As an example, Amazon recently decided to sell Lady Gaga’s album Born This Way for just 99 cents. Pricing is a common area of focus when it comes to music companies. However, another concern of regulators in the Digital Age is curbing technological innovation. Many others worry that if major music companies are given too much power in their industry, they might prevent the efforts of innovative start-up companies.

Citigroup, Inc. took over EMI after Terra Firma Capital Partners was unable to pay off a $5.4-billion loan in February. And the first round of bids on the company is expected to come around in the fall. EMI currently holds 10% of the recorded music business and 20% of the publishing business worldwide. Included among EMI’s charges are mega-stars like Katy Perry, Pink Floyd and Willie Nelson.

National Music Publishers’ Association Settles YouTube Copyright Suit

The National Music Publishers’ Association (NMPA) finally resolved its copyright infringement lawsuit with YouTube, according to Billboard.biz. While details are not yet available, the resolution is good news for music publishers, who have been waiting for news since the suit was first filed in 2007; now they have license agreements with YouTube and will get royalties from YouTube for musical works that appear in videos on the site.

The Harry Fox Agency (HFA) will be in charge of setting up the licensing agreement, which will include synch rights for music in user-generated videos. However, even publishers not with HFA will be able to benefit from the agreement. Royalty payments will be determined by global advertising revenue earned by those videos that use the music.

While the appeal is still pending, the NMPA and music publishers including Edward B. Marks Music Company, Freddy Bienstock Music Company and The Rodgers & Hammerstein Organization have already filed notices to dismiss their appeal. More information can be found about the resolution on the NMPA website.

The Music Industry Braces for the Impact of Music-Locker Services

In May, LimeWire agreed to pay $105 million to settle a copyright infringement suit filed against them by the major labels. And Wired magazine called this event “the end of an era,” so reports an article published on Law.com last week. And this “era” was the 10-year period when the recording industry fought to stop unlicensed music swapping online through P2P networks.

However, now the music industry faces a new challenge:  As global music sales continue to decrease, new cloud-based music-locker services like those begun by Amazon, Apple and Google have cropped up making many industry professionals and some artists concerned about copyright issues yet again.

Cloud-based music services are a direct response to the increased use of mobile devices, including smartphones and the recently-released iPad. They allow users to upload their digital music files to remote web servers and access them anytime, anywhere. But according to some, the cloud-based model technically involves copying copyrighted content, and new licenses need to be administered. Many in the music industry also point out that there could be a lot of loopholes in music-locker systems that might give fans more ways to swap files illegally. As Steven Marks, general counsel of the Recording Industry of America (RIAA) points out, “For some services, the term ‘cyber-locker’ is a misnomer because the content is not locked.”

Experts on the other side of the equation disagree that cloud services could potentially violate existing licensing agreements and think the recording industry is focusing too heavily on the finer points of the law and not enough on establishing realistic business strategies that work in the current environment. Corynne McSherry, the Electronic Frontier Foundation’s intellectual property director says, “You don’t need a license for simply providing storage for people to upload their music … They want to wring every possible cent out of every reproduction of music. That’s listening to your lawyers and not your business people.”

Amazon was the first of the major companies to get into cloud-based music storage, revealing the $20-per-20-gig Cloud Drive service in March, despite opposition from the industry. Google also started its Google Music Beta in May without obtaining any additional licensing deals. Apple announced its iCloud service in June after making deals with the four major record labels to give them 70 percent of iCloud revenue. Apple approached licensing differently from its competitors because it set up its service differently:  With Cloud Drive and Google Music Beta, users must upload files manually, whereas iCloud scans the songs on a user’s computer and grants that user access to identical copies in the central Apple database for all songs it recognized.

Major music labels have not commented on whether they will sue Amazon and Google over their lack of licenses. However, an anonymous source from one of the labels stated that he thought that Amazon and potentially Google would probably eventually cut licensing deals simply to compete with Apple.

This past week in music, there were two tech successes:  a record label publicly embraced Spotify; YouTube presents live streaming concerts. Also, the industry fears Billboard might take a turn for the worse. And finally, a DIY country artist took the spotlight to talk about his why he hasn’t needed record label support or radio hits to make a living with his music.

Warner Music Group Loves Spotify

The music industry is fast approaching the point where digital revenue will surpass lost physical sales, according to Warner Music Group (WMG) CEO Edgar Bronfman, Jr.. A report on August 4 stated that a 13 percent growth globally in digital helped bring digital revenue closer to 46.7 percent of U.S. recorded music.

According to Bronfman, new business models for selling and distributing music like unlimited access, mobile and streaming will help improve revenue in the music industry considerably. Although many reports surrounding the launch of, particularly, Spotify in the U.S. indicated WMG was unhappy about progress towards new free services “in the cloud,” Bronfman Jr. has stated he would like to see WMG get off iTunes. He also states he welcomes new models, especially Spotify, as long as they can provide labels and artists with a living wage through their paid subscription services.

He said, “With the advent of the cloud, you’re going to see significantly broader music service introduction, strategic distribution, and, I hope, a reacceleration of overall digital growth beyond the growth of digital downloads, which is what the industry has really been living on since their introduction in 2004.”

When asked to comment specifically on Spotify, Bronfman Jr. added, “Their traction has been very encouraging. We’re very pleased with the progress so far. The kinds of levels that Spotify is achieving in Europe with regard to moving free users to premium paid subscriptions is also encouraging. If that keeps up, they will be a very profitable company themselves and will generate significant profit to Warner and the industry.”

Unfortunately, Spotify has already run into trouble in the U.S. Its use of an undeletable tracking cookie, created by Kissmetrics, has caused the start of a class-action lawsuit against Kissmetrics by other clients, including Hulu, GigaOM, 8tracks and Slideshare.net. However, the company has already stopped using this feature and has started to work towards getting it removed from existing accounts.

YouTube Presents Streaming Concerts

This weekend, YouTube continued its new initiative of live concert streaming with coverage of Lollapalooza, which is running August 5-7 in Chicago. YouTube, owned by Google, Inc., also plans to cover another huge summer festival, Austin City Limits in Texas, September 16-18. The company has previously streamed music festivals:  Tennessee’s Bonnaroo; San Francisco’s Outside Lands; Southern California’s Coachella Valley Music and Arts Festival.

The introduction of live, streaming music events is part of YouTube and the music industry’s push towards digital festival experiences. Streaming festivals work well for video sites; they make sponsors want to see their names attached, since these well-known events often get users to stick with the stream longer than they would for regular three-minute videos (the average length of a YouTube video). In fact, viewing length of streaming festivals averages almost an hour. Additionally, it’s good for artists because festivals involve many artists, and YouTube can showcase multiple musicians per day.

The streaming live coverage of Lollapalooza and Austin City Limits on the video site will be sponsored by Dell and Advanced Micro Devices, Inc. and will include a primary live stream of actual performances as well as an additional feed of backstage areas and interviews. Each event will also be linked to Facebook and Twitter and will be available for four weeks after the end of each festival.

Is Billboard Going Under?

Suspicious signs of Billboard’s decline have been showing up since January, when, according to a Digital Music News Source, the paper edition of the magazine failed to show up without explanation. And later that month, they put a freeze on subscriptions.

While the publication seems to be holding on, reports from the inside have ranged from statements that the company is “on the verge of economic collapse,” to a general feeling of uncertainty and anxiety over the future of the long-running company and its digital and physical publications, which have become music industry standards and important resources for artists of all shapes and sizes.

A huge sign happened on Thursday morning, when Billboard suspended registrations on Billboard Pro only four months after launching the service. Billboard is asserting that the resource is just taking a break so it can “revamp and relaunch the site later this year.” And those with current memberships are not being asked to leave.

Another sign of trouble is that Richard “Mad Dog” Beckman – known for his ability to bring content to Billboard that appealed not just to the business minded, but also to concert promoters, publishers, etc. and for relaunching the Billboard Music Awards – was  removed from the day-to-day operations of Prometheus Music Group (who has only owned Billboard for a few months and also is responsible for several other related trade magazines, including the Hollywood Reporter and AdWeek). Jimmy Finkelstein, the chairman of Prometheus is stepping in.

Unfortunately, the biggest problem is that investors are expressing a desire to get out.  More news is expected to emerge in the coming months.

Corey Smith Reaps the Benefits of DIY

DIY country artist Corey Smith talked to Pollstar recently about how he has been able to build a successful and lucrative music career without the help of a major label, an arena tour, or a #1 hit. In five years, he has gone from a teacher to a touring, hard-working musician.

A theme that comes through powerfully in Smith’s story is his willingness to play anywhere. This past week, he played a House of Blues in Orlando and a tiny bar in Sarasota. And at the end of the month he will play a packed amphitheatre in Orlando – an audience of about 7,000-8,000.

Smith’s story is similar to the story of a lot of artists:  He started small and with modest goals. He said, “When I was still teaching high school, I began playing little bars around town. That was a very gradual thing, picking up a few gigs here and there, being happy if 50 people came out to a local bar. When I first started out, my goal was to make some extra cash doing something I love and writing songs for people. That goal turned into, “Wow, maybe I could make a living doing this, a good living. Maybe even $100,000 a year playing at bars within a 3-hour radius of my house.” And when audiences started responding to him, he slowly progressed in steps to finding a manager and a booking agent so he could delegate some business tasks and focus on making music.

Other themes from Smith’s career trajectory have been his ability to think of running his music career like a business and his willingness to stay flexible so he can roll with a music industry that is currently in flux:  “… In this day and age, artists will have to play more roles to succeed. They’re not going to just be musicians or writers or artists. And another notion is we need to embrace the digital change taking place because it’s already taken place. It’s a reality, and the ones who can succeed are the ones who’ve accepted that reality and made it work for them.”