Appetite For Disruption

Music Licensing Revenue Drops in 2007

I saw this story and wanted to highlight the relevant passage for my readers:

"Music fell by the largest margin (5.5%) to $125 million from $132 million in 2006..."

I've highlighted this before, but let me address this issue again.  This is no time for any artist, songwriter, label, or music publisher to be turning down revenue-enhancing opportunities.  This is no time to rest on one's laurels when a licensing request comes in and sit on it until the requestor is forced to go to another party to get what they need.  There is a glut of quality music supply, so the licensee, the buyer, holds the upper hand, not the licensor.

But licensees, as George Costanza might say - you've got hand.

360 Deals: The Missing Ingredient - Expertise

These days you can't get through a music blog or magazine without encountering the term "360 deal."  The term refers to record labels, who normally manage the recording (and sometimes the music publishing) careers of their artists, seeking to expand their influence into artist management, concert/event booking, merchandising, etc...

There have been stories pointing out success stories (from the label perspective) and warnings to acts to not sign these types of deals.  Why the warnings?  Because the labels lack the infrastructure and expertise in the areas of business they wish to expand into.  The ticket companies and concert promoters such as TicketMaster and LiveNation have been steadily acquiring the top merchandising companies.  Management firms like Irving Azoff's FrontLine Management have been snapping up key artist management talent - the star makers behind the stars.  The legal eagles representing the artists have not jumped ship to sign up with the labels.  And, lastly, most of the big booking agencies like ICM, CAA, and William Morris have retained their talent as well.

So labels are asking for a bigger share of the pie, but not proving they can deliver the services required for the artist to feel they would be getting more bang for their buck in a 360 deal.  Nor are they addressing the inequities and lack of royalty accounting transparency within their traditional sphere of influence, where artist managers and lawyers usually have to fight against the label hierarchy to achieve a just outcome for the acts they represent.

So imagine my shock when I read today in the New York Times that Universal Classics and Jazz would be opening up a full-service management practice for label artists, and that the entity would actually be run by someone with expertise in that arena, Jeffrey Vanderveen, formerly of IMG Artists management firm.  This entity still needs to learn how to fly (and with IMG suing UMG and Venderveen - it may not), but if it does, then it may prove to be a working model for how the rest of the industry on how to properly create an environment where the artist feels taken care of via a 360 deal.

Will the industry begin to win over the managers and agents, bringing them on board the label mothership?  Chances are they won't.  But this shows some level of understanding; acts want to be with people they trust.

What is "Selling Out?"

NOTE: Sorry - I started this post last week and just had the time to get it out today.

A discussion I've heard far too often, both among music industry personnel and those in the media and in the corporate marketing world, is that of trying to define what "selling out" is in terms of a musical act's relationship with a corporate brand.  On the one hand, it is an accepted fact that many acts need some kind of corporate involvement at certain times during their careers to help them financially or with major exposure boosts.  On the other hand, the artists themselves are rightfully wary of aligning themselves with brands in ways which leave them open to criticism from fans and press alike.  An article by Charles Moran in this week's Advertising Age explores this topic again.  Charles also co-writes the great Songs for Soap blog for AdAge.com with Mike Tunnicliffe, which explores the many different brand/artist interactions taking place these days.

One thing rarely discussed is this: artists - ALL artists - need to "sell out" to corporate interests at some stage in their career, and often this involves the corporations they align with the closest and with the highest stakes for their longevity - namely their own record labels and the radio stations/video outlets (and the conglomerates which own them).  Even in this digital, DIY age the large majority of artists seek to be signed by a record label so the label can provide marketing, PR, radio promotion, and distribution of their recordings.  Once the act has music to be released, then they need to go out and promote their single across the radio stations and video channels/outlets which they depend upon to drive their music up the charts, thereby driving album sales and the revenue they might receive based on that airplay.  Yet the major labels (and those indies which are divisions of major corporations) and the big radio conglomerates use music to their own ends just as any corporate brand seeking to license the content from those acts. 

How many artists feel their careers were mismanaged by their labels, both when they were current artists, and with their catalogs after leaving a particular label?  Too many to count.  Those corporations keep cutting staff and roster acts as the industry's physical sales woes increase.  They also have lousy reputations for being dishonest in their accounting to the artists they rely on to develop the content the companies are based on.  But those labels are still the key engines for allowing artists to create and distribute their art as efficiently as possible across a wide range of media.  Even the band Birdmonster, once touted as a completely DIY outfit in Chris Anderson's classic business book "The Long Tail," has signed to a label.

How many artists decry how radio airplay decisions have been centralized by corporate behemoths, leaving virtually no local station autonomy and relying almost solely on audience research to make programming decisions?  How many fans hate when radio conglomerates change station formats in their local markets, thereby leaving music fans deprived of easy access to certain kinds of music?  Radio conglomerates especially just use music to sell advertising time and advertising programs to marketers.  So, in essence, while artists use radio to air their songs, the stations use the music to draw in audiences attractive to advertisers, and the artists have ZERO SAY in what advertising those stations play around their music.

Even the venue owners, ticket sellers, and concert promoters are large corporate entities which must be dealt with: Live Nation, AEG, Ticketmaster, etc...  and these companies all have divisions which deal with artist fan clubs, merchandising, and other key parts of the artist's live performance and ancillary revenue streams.

Many artists who would refuse any proactive alignment with a particular brand nevertheless do not complain when particular retailers, hotels, restaurants, banks, health clubs, etc... have in-store music systems which include playlists featuring their own music.

So, let me use a rather crude analogy.  Much as Mademoiselle Rimbaud, the busty French girl pleading to Mel Brooks's King Louis in "History of the World, Part I" pleads she simply does not "do it," I reply to those artists who think they aren't already neck deep in corporate involvement with the King's blunt response: "Come on.  You know you do it.  We all do it.  We love to do it."  There is always a price to pay for releasing one's art and striving to have it make an impact on as mass a scale as possible.  There is always a beast which needs to be fed.  And if you want to achieve mass success, then there is always a game to be played to fire up the engine of that success and keep it running smoothly... which doesn't mean there aren't conscious choices artists shouldn't exercise, just that any claims of artistic purity are proven false on prima facie evidence alone.

Noted music supervisor Josh Rabinowitz of The Grey Group writes a bi-weekly column for Billboard magazine entitled "With the Brand."  In last week's column (no link available through all my search efforts) he espoused the virtues of artists "selling in" to the world of music licensing and doing music promotions with brands.  Why?  The answers are obvious.  In an interconnected world where one is more likely to hear about a video via YouTube than MTV, or hear a new band or song on MySpace or "Grey's Anatomy" than on commercial radio, then the choice to be anything but completely channel agnostic is short-sighted thinking.  Yael Naim and her song "New Soul" are part of the cultural zeitgeist due to an Apple TV ad.  And both the artist and the brand can measure their success together.  Since her song was featured in the ad her download sales have been significant, and Apple can actually, in some fashion, track how much consumers are paying attention to its advertising by watching that immediate reaction.  Similarly, the company can also check out how many YouTube views of its commercial have been seen by consumers, and, as Yael Naim's record is released, how many albums she sells and her success in the digital and mobile arenas - in great part to her association with the brand.

Haven't those been the great questions marketers consistently seek to answer: "How can I quantify the effectiveness of the advertising my company and/or marketing agencies is producing?  How can I tell, in this TIVO/DVR world, if people are just skipping through my company's ads and ignoring them?"  The measurements above are imperfect to be sure, but they are still measurements one can gauge effectiveness by.  Was there any shot "New Soul" would have received any consumer attention in today's oversaturated media marketplace without a major ad or television licensing opportunity such as the Apple ad?  Did she stand any chance at garnering radio airplay of any significance?  No way.

The quotient may be different for some older tracks or artists whose music is used in such a way, but not by much.  90s dance star Haddaway had his once-ubiquitous hit "What is Love?" licensed for a diet Pepsi Max ad aired on this year's Super Bowl.  He had a tremendous increase in download sales after the ad was aired.  Was it an increase the Diet Pepsi Max brand manager thought was significant given his multi-million dollar media buy for the Super Bowl?  Who knows?  But it at least gave him some quantifiable evidence to suggest the ad was the sole reason for that sales increase.

Production music companies are more than happy to be to taking corporations' easy money and leaving the moralizing to the artists with egos who find these opportunities to be analogous to selling one's soul.  There is a market to be served and they are glad to serve it as efficiently and cheaply as possible.

So every artist needs to take a step back and truly ask themselves this: if they are willing to give up their masters to one company - the record label, or if they are willing to go and provide programming to radio conglomerates who don't have any vested interest in music per se, then why are other types of brand partnerships taboo?  They shouldn't be, and if you don't think fans realize this, then you're selling yourself... short.

Another Ray of Hope for Record Companies & Artists

What we know about the record business is this: the legal digital download market, while growing, is not growing fast enough to negate or offset either the downward turn in CD sales or the illegal downloading market.  Labels are in deep trouble.

And while the labels are now busy making all their tracks DRM-free for certain online retail partners such as Amazon, it's ironic that two of the industry's new cash cows relies on closed systems: the popular video games Rock Star and Guitar Hero.  Both games offer the user the abvility to upload additional tracks to the game... and the results are phenomenal:

In the two months since MTV Networks and Harmonix released the music-based videogame "Rock Band," players have purchased and downloaded more than 2.5 million additional songs made available after the game's initial distribution.

Activision, meanwhile, said it has sold more than 5 million new songs via download for "Guitar Hero III: Legends of Rock" since it began adding downloadable content in early November.

Now Aerosmith has upped the ante for artist involvement amidst this robust environment for interactive music video games.  My question is why every other major guitar-centric rock band of the past 4 decades isn't doing the exact same thing?  Led Zeppelin.  Lynyrd Skynyrd.  Black Sabbath.  KISS.  Bon Jovi.  Ozzy Osbourne.  Etc...

It's so typical that a band which specializes in resurrecting its career over and over again gets the big picture - an artist's masters and copyrights are assets, and those assets need to provide continuous income or lose value.  And why have one's tracks appear on Guitar Hero via generic game characters when they could appear with the band's own iconic images and patented stage moves?  THIS is how a band introduces new generations of fans to its music while not alienating core, older fans.  And THIS is how to initiate and execute a brand extension properly.  This partnership doesn't mess with the soul of the band or the brand.  It enhances both (as opposed to, licensing "Dream On" for a Buick TV commercial after doing a killer automotive deal with Dodge just a few years earlier).

These games are important to the industry not only because of the obvious licensing revenue and digital track upload potential, but because the downloads take place via a closed system; the tracks work on the games, not your mobile device or digital library/service of choice.  No free downloads here.  This is mostly good news, but it also means the labels are going to look at this and say: "Instead of releasing new music or licensing our catalogs via the Internet, we will now seek to also develop solid revenue streams via closed systems where we have more control, and consumers need to buy music to obtain it."

The Bottom of the Pile

HITS magazine has been posting the manifestos of Terra Firma head Guy Hands re: the company's recent purchase and now management of recorded music giant EMI.  I liked this one in particular (free registration required).

Among the ways Terra Firma states it will add value to EMI is listed this:

Exploiting assets Moving the prioritization of the exploitation of the catalog from the bottom of the pile to the top

I find that statement both laugh-out-loud funny and cry-out-loud tragic.  Funny, because that's what record companies and music publishing companies ought to be doing every day in the first place.  Tragic, because these labels can't maximize catalog exploitation until they are able to license each and every artist's catalog they own at will, and that is unlikely to ever happen.  Every artist contract is different, and those artists who retain artist consent clauses will be loathe to give up their rights just for the sake of the record company's financial health... but unless the record companies make the attempt to make licensing and exploitation a more seamless process, then the catalogs of the major cash cow artists those labels control will never be able to be maximized financially.

I applaud EMI for stating that a change needs to happen going forth in order for the company to maintain financial health... but why did it take until 2007 for one of the major labels to realize this new reality?

Freefall or Opportunity Knocks?

When it comes to Sales in the music industry, as Elton John once sang, "... it's a sad, sad, situation / And it's getting more and more absurd."  The decline is sharp, and no one seems to be able to keep the wolves at bay.  It is harder and harder for artists and record companies to count on the new release album being a mass medium.  In the Ethan Smith article referenced above artsits manager Jeff Rabhan is quoted as saying:

"Sales are so down and so off that, as a manager, I look at a CD as part of the marketing of an artist, more than an income stream... It's the vehicle that drives the tour, the merchandise, building the brand, and that's it.  There's no money."

To me, this just highlights the conundrum that will plague the industry once they become just owners of back catalog - they still have to depend on artist managers with this philosophy to approve license requests.  The Business Affairs depts. at labels are smoking crack - GET RID OF THE ARTIST CONSENT CLAUSES IN ARTIST CONTRACTS.  It does not serve the labels' interest, and if this quote is representative of the new attitude of the artist manager community, then screw them.  They've obviously abdicated their responsibility to maximize the artist's multiple revenue streams as provided by the record label.

THE OPPORTUNITY - YES, THERE IS AN OPPORTUNITY

The Top five music accounts: Wal-Mart, Best Buy, Target, Transworld, and Apple's iTunes account for approximately 65% of the market for recorded music. 65%!!!  Over 800 record stores closed in 2006 - over 800!!!  CD sales still represent over 85 percent of all music sold (legally).  Some might look at those figures and shed more than a few tears.  Some might look at it and cheer on the decline of the major labels.

Not me.  Call me the cockeyed optimist.  I walk through drugstores that stock greeting cards, ice cream, and home video titles.  I walk through supermarkets stocking HBA merchandise, books, Starbucks kiosks, and home video titles.  I walk through specialty retail chains that work with companies to design customized music playlists to be piped into their stores.  The one thing missing in all of these types of stores is a coherent strategy to sell pre-recorded music titles.  Why would I think there is a market for music at these stores?  Here's why: the common denominator between mass merch accounts and the supermarket/drug accounts is that these companies never want you to leave the store.  Otherwise, why so many merchandise categories?  Why so many aisles?  The consumer has dictated to retail: "I want to make one stop whenever possible to pick up basic food, drug, HBA, and entertainment products."  And the consumer is boss.

In my local A&P there's a dump bin of various music titles - some even current hits - located after the registers.  That's right, after I've whipped out my credit card, bagged my groceries, and done a jig to make sure my toddler doesn't throw a tantrum on the check-out line - that's when I'm ready to browse through a bin of mixed CD titles.  Are they out of their freaking mind?!?!?!  If that's the music merchandising strategy chain-wide, then someone deserves to be fired.

I walked through a very clean, very nice Super Stop & Shop today.  There is a nice, wide-aisled Book section in the store, where magazines and home video titles are also positioned.  Where's the tunes?

Two things come into mind here:

1. Commercial music titles are just too damned expensive for most chains to make a decent profit on selling them, and can't sell them through at full price when mass merch. accounts are selling them as loss leaders.
2. Most commercial music titles lack distinction, and these stores, when they do merchandise music, stock too many titles for one to break through the clutter in a consumer's store visit.  Think about your local supermarket or drug chain.  If you don't have a specific need for a product, then if it's not on an endcap do you see it?

So what if brands like this took a more comprehensive approach, a more lifestyle-oriented approach, to the pre-recorded music category?  Why not go the private-label compilation route?  The brand could create attractive packaging, possibly get certain accounts to co-op the product in exchange for placement of a product coupon in the packaging, develop a limited series of titles for sale.  Is it a bigger commitment to the category? Certainly.  But it's also a smarter strategy than going at the category half-assed with no distinction in the marketplace.  Whole Foods seems to be doing alright with the limited commercial CD title strategy, but they are an exception.

What's even more amazing is that chains like this have hundreds, if not thousands of stores.  Even a product test of private-label CDs in a portion of a chain's stores might be enough to convince a chain of the concept.