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.

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.

E-commerce Sales of Physical Product - Revisited

As I mentioned in my last post - sales of physical CDs were up 2.4% at E-commerce sites last year.  E-commerce sites can offer up wider selection of product, allow customers to listen to audio clips of tracks, and peruse editorial and customer reviews of the album.  What the E-commerce experience lacks in immediate customer gratification it gains in terms of ease of shopping experience.

Yet sales of albums at E-commerce sites represent just 6% of overall album sales.  For labels with huge catalogs facing further consolidation of record retail floor space E-commerce sites represent the last best hope for the compact disc.  So where is the great marketing effort on the part of the major labels, the RIAA, and independent labels to drive customers online to purchase physical product.  This does not mean shunning label retail partners.  So many major music retailers have online sites which sell music as well.

But it also broadens the number of accounts the distribution companies ought to be targeting to sell physical product (and digital music as well).  So many "non-traditional" retailers operate E-commerce operations.  Why not get these accounts to test the viability of music sales via their web site?  How can the labels get these retailers to give them visbility on their site?

The point is this: in this area where the labels have a growth story to sell we hear little from the industry touting this success.  Now is not the time to play possum.  Now is the time to flaunt your plumage like a peacock and go out and convert the non-believers.  CDs, especially catalog and deep catalog in this current market, need to be championed.  Get out there and grind it out!

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?

Will the Spice Girls Spice Up Victoria's Secret?

The biggest deal I was ever a part of was for Victoria's Secret.  Back in 2001, in coordination with Universal Music Group's Classics Group, we forged a deal to sell in two million custom Andrea Bocelli CDs in conjunction with his appearance on the brand's network TV fashion show.  I also worked with the brand on a much smaller deal in 2005 while at Sony BMG, developing a Chris Botti single-artist compilation which was sold during the Valentine's Day selling season of 2006.

I hadn't heard of the brand doing a deal to bring in any music CDs into the chain since.

In 2003, Victoria's Secret did a custom, single-artist Sting CD with Universal.  Sting also appeared on the brand's network TV fashion show special.  In 2004, I believe, Victoria's Secret launched a TV campaign featuring not only the music of, but the presence of, musical icon Bob Dylan.  At first, some questioned Dylan's choice for appearing in the campaign, but more so, there were voices critical of Victoria's Secret for using Dylan at all.  As Seth Stevenson from Slate noted at the time:

So, it makes some sense for Bob. But what about Vicky? Why would a brand that's about sexiness, youth, and glamour want any connection at all with a decrepit, sixtysomething folksinger? The answer, my friend, is totally unclear. The answer is totally unclear.

Even if Victoria's Secret hopes to bring in more boomer women, do those women want their underwear to exude the spirit and essence of Bob Dylan? Or, conversely, is Bob Dylan the sort of man they're hoping to attract? Even if you're of the belief that men frequently shop at VS for their ladies, I still don't see the appeal of this ad. I, for instance, am a man, and I can assure you that Bob Dylan is not what I'm looking for in a woman's undergarment. (And if I found him there—man, would that be disturbing.)

Victoria's Secret wouldn't return my calls, but media reports say the idea of putting Dylan's face in the ad (they'd been using his song—"Love Sick"—in ads for the past year or so) came straight from corporate chief Les Wexner. To the company's surprise, Dylan accepted their offer. It's at this point that someone at Victoria's Secret should have stopped the madness. Just because you can hire Bob Dylan as the figurehead for your lingerie line, doesn't mean you should. Perhaps no one was willing to say no to the big boss, or perhaps they fully expected Dylan to say no. Joke's on them.

Victoria's Secret also ordered up a few hundred thousand custom Bob Dylan CDs from Sony Music... CDs which did not sell well at all for the brand.

It was after that campaign that the brand shied away from making large commitments on selling CDs in its stores, despite the ad campaign receiving serious buzz when it launched.

Notice one other thing here: Andrea Bocelli, Sting, Bob Dylan, Chris Botti - they are all male artists that the brand surmised would appeal to its core female shopper.  They weren't appealing to the male aficionados of the Victoria's Secret catalog.  In that sense, most of these seem smart tie-in partner artists for this brand to align with.

So, imagine my surprise checking out the Wall Street Journal today and reading how Victoria's Secret is going to be the exclusive retailer for a new Spice Girls greatest hits CD through January of 2008 (paid subscription required).  Capitol Records is selling over 500,000 units of this release - on a one-way basis - to the chain.  The group will also appear on the upcoming Victoria's Secret fashion show broadcast.

I'm all for making deals, but I think the question now, as back in 2004, is what does Victoria's Secret get out of this deal?  In this case, more specifically, the question to be raised is: "Why is Victoria's Secret partnering with a group out of the limelight since earlier this decade, a group which has no current relevance to the U.S. marketplace, a group whose hits (even "Wannabe") faded into the ether of pop ephemera?  And even if they are able to answer that question in a reasoned manner, then why in God's name did they purchase so many of these CDs... on a one-way basis?!?!"  Is Mrs. Beckham's allure really that compelling to the Victoria's Secret audience?  More than Rihanna?  More than Fergie?  More than Beyonce or Jennifer Lopez (both of whom own their own fashion lines, so their fit with the brand may well have diminished)?  But at least those acts are more fresh and current-sounding than the Spice Girls.  I've sold frontline CDs into "non-traditional accounts" on a one-way basis, and record companies should continue to sell CDs into these accounts using that method.  I'm sure the label is taking a certain amount of margin hit in order to make that scenario more palatable for Victoria's Secret.  BUT, there was seemingly little incentive for the chain to commit so much money - and I'm assuming it's at least $3 million - to purchase this amount of CDs.  Yes, they are going to be selling the CDs for a profit, but just as with other merchandise sold in their stores, Victoria's Secret will be stuck with a lot of cold merchandise if the Spice Girls CDs don't sell well.

Yes, CDs are more of an impulse buy item than in years past.  Yes, it is smart for a record company to sell in releases to chains like Victoria's Secret.  But shouldn't the merchandise fit into the lifestyle of the chain's customers?  For all the research done on fabrics and designs by the Victoria's Secret team - my preliminary instinct is that they went with the Spice Girls based on instinct alone.  If an American can name as many, or more than, three Spice Girls hits they are a rare exception, and this is a U.S.-only deal.

So the big bet Victoria's Secret is making is that the Spice Girls' presence will help cause a run on their stores for the CD, but, more importantly, lead to an uptick in sales overall at their stores during this promotion.  I applaud the brand for finally going outside of the "male artist" box and noticing their predominantly female customer base enjoys music from and admires female artists as well.  It remains to be seen if the Spice Girls, and this particular greatest hits project of theirs, will serve to move the needle in a positive direction.

Hotel, Motel, Holiday Inn - The Major Labels Find Hospitality Partners

Two very similar marketing deals between major label groups and hotel operators popped up this week.

The more significant deal was between Sony BMG and hotel conglomerate Starwood.  Meanwhile, EMI has partnered up with hotel chain Fairmont Hotels & Resorts in a similar deal.

Kudos to both label groups for securing these partnerships with their respective partners.  However, I am curious as to why a hotel chain would want to establish such an exclusive arrangement with one label group, even major label groups such as this.  In the Sony BMG deal, it says that:

"Another goal is to create compilation CDs that will be sold at each hotel. At a price of $20, a compilation for W Hotels -- including such acts as Goldfrapp, Nina Simone, DJ Krush and Dirty Vegas -- has already been developed. Sony BMG and Starwood will share revenue on each CD sold."

$20?!?!  The labels can't even sell single artist CDs by major artists at most music retailers for the suggested list price of $18.98 - how many CDs does Starwood think they can actually move for $20 apiece?  Room service and the mini-bar are expensive enough, so why try and gouge your customers on the price of a CD when the goal should be to maximize customer purchases by selling those compilations at a reasonable price and having those customers spread the word about the W experience with friends and colleagues, with the CD serving as the soundtrack those customers then play for their party guests and friends in their homes and cars?  The release states that Sony BMG and Starwood "share revenue" on each CD sold.  The way I read that is that Starwood pays Sony BMG to produce the CDs, earning them revenue, and then Starwood sells the CD at their ridiculous markup, earning them revenue.  If the model is different, then someone please let me know, but that's the traditional model for developing a private label CD compilation for sale.

A better question for each hotelier involved here would be - why tie yourself to one label when there are services which can offer similar offerings (DMX Music, PlayNetwork, Muzak, and Trusonic come to mind) which have access to content from multiple labels, including independent labels, thus ensuring an accurate and more representative branded music experience for hotel guests which focuses less on major label priority releases and more on the particular hotel brand?  DMX must be somewhat rankled - Starwood is listed as one of their key hotel clients.  I know Sony BMG says they will license in 3rd party label content for the playlists for each Starwood chain, but you know Sony BMG is going to focus first and foremost on their own owned content - as well they should.

The problem is aligning a hotel company with a particular major label group in such a significant way means that the success of the partnership rises and falls with the quality and popularity of that label partner's content - as it relates to each individual chain within the company's portfolio.  No one can dispute that each label involved here has significant catalog which can be targeted towards these companies' customers; the question is in the execution of these partnerships will the labels skew their offerings too much in the way of current artist ephemera, or rely on the catalog stalwarts that business and leisure travelers might be looking to hear for a sense of comfort away from their home environments.

The Tween Market

Pursuant to my previous post, here's another mention of the high-flying tween music market.  But I have to say that the other major labels have yet to even come close to Disney Music Group's success because of the multi-channel synergy they employ.

The article mentions Sony BMG's act Paula DeAnda, who records for the Arista label.  I worked the Limited Too and Justice accounts for the company when her record came out, and I can tell you her record was NOT targeted at tweens.  There were at least 3-4 tracks with guest raps from Hip-Hop artists, and Hip-Hop is not appropriate for tweens..  While that is a statement I agree with it's not me setting those rules.  It's the retail gatekeepers for the tween market - Limited Too, Justice, and Club Libby Lu - that are setting the rules.

Top 40 radio may have played "Walk Away" by Paula DeAnda, but unless that artist, or any other artist looking to break into these key three accounts, has a whole album full of squeaky clean tracks, then that label can kiss their chances of success goodbye.  Because parents trust these brands.  They'll pay full price on CDs at these chains' stores because of that trust factor.  All three of the chains cater to tween girls, girls who are already exposed to too many oversexualized and profane images in the media through other channels.  These chains are an effective filter for parents.  The music may be somewhat disposable, but at least the songs are tunes parents can feel okay about their kids singing along to without further contributing to their pre-pubescent maturation.

I believe in the tween market as a market to be targeted by the record labels, but they will be sorely disappointed if they think just "talking the talk" about the tween market will win them converts at tween retail.  Case in point: I happened to be in a mall yesterday and walked into the Limited Too store - only one non-Disney title was stocked by the store!

Personally, I think the real big win would be to find a tween country artist.  Why?  Because country is an already healthy genre, it's a genre of songwriters (who can easily shape songs to this market), and it's not dependent on Radio Disney per se.  Country radio dwarfs Radio Disney in terms of influence and size. 

Shotgun Wedding?

Over the past few years record companies have made pronouncements that they would like to be in business with bands not just with regard to their recording careers, but also with regard to touring revenue, corporate sponsorship, and merchandising revenue.  Most of the time these desires are laughed at by both artist managers and artists alike.  If anything certain artists with solid careers and clout have taken an opposite tack.  Not only did Paul McCartney decide to release his new record via a partnership between Concord Records and Starbucks Coffee Company, but he also owns all his masters from his solo career.  He took those with him when he left EMI and will probably shop them around to a label to distribute or create his own label.

In fact several successful artists from the heyday of the music industry obtained the rights to at least their future master recordings, if not their catalog recordings as well, when re-negotiating their record deals.

Some high profile acts have negotiated new recording contracts which do indeed give the label more of what they want: a share of the act's non-recorded music revenue streams.  Both Korn and Robbie Williams signed deals like this with EMI owned labels.

Now there are rumors that Warner Music Group might be interested in purchasing one of the industry's big artist management concerns.  But I, for the life of me, can't see that happening.  It would ruin any management company's credibility with its artist roster because the manager is person tasked with, among other things, managing the record company relationship.  If that boundary is compromised, or has the perception of being compromised, then that manager is most likely going to be sacked.  While I still believe artist managers need to get out of the license approval process in order to streamline licensing of repertoire across all potential record company revenue channels they do play a constructive role in holding the label's feet to the fire and working with the label re: the artist's schedule management.  This isn't MGM in the golden days of Hollywood.  The "studio system" which existed for the movie business is gone, and for the music business such tight reins on the acts dissolved when Motown Records' artists like Marvin Gaye and Stevie wonder fought for more artistic control (though every once in a while you get some Svengali manager/label head like Lou Pearlman who is successful in developing acts out of a defined, repeated formula).

One can say "we're all creative businessmen. Such an arrangement could work with the proper checks and balances."  There are a lot of pitfalls the artist could face if both manager and label were aligned together.  Any manager worth her salt ought to keep the foxes from the label out of their chicken coop.