Friday, November 30, 2007
Warner Music Group Corp., home to Green Day and Missy Elliott, right, said yesterday its fourth-quarter profit slipped 58 per cent amid a softer international market and a decline in CD sales, but results topped Wall Street estimates.
The New York-based company said earnings for the quarter ended Sept. 30 fell to $5 million (U.S.), or three cents per share, from $12 million, or eight cents per share, in the prior year.
Quarterly results included $9 million in restructuring and implementation expenses and a $12 million benefit for a settlement with Bertelsmann AG related to Napster. The prior-year period included a $13 million gain on a Kazaa online music sharing settlement.
Quarterly revenue climbed 2 per cent to $869 million from $854 million in the year-ago period. Analysts polled by Thomson Financial had expected net income of two cents per share on sales of $874.8 million.
Warner Music Group is one of many recording companies struggling amid an industry- wide, multiyear decline in CD sales. Warner Music has stepped up efforts to find new revenue, focusing on agreements with artists beyond music sales so it can take a cut of touring, merchandising and artist management.
Thursday, November 29, 2007
"I should have been concerned at its being printed again and again by pirates, as they call them, and paragraph-men; but would that they do it justice and print it true according to the copy, they are welcome to sell it for a penny if they please."Defoe quickly realized that obscurity was a much bigger threat than "piracy" and by encouraging these "pirates" to sell copies of his work, it built up his own reputation and allowed him to go around the cumbersome publishing process of the time. The rest of Defoe's career was then built off of his name recognition since that poem was so widely distributed, allowing him the ability to make much more money off of future works. In other words, even the original "victim" of "piracy" quickly recognized how it could be used to his advantage, rather than worrying that it was a threat.
Another study of P2P networks has found that music file-sharing has no detrimental effect on the CD racket and, if anything, is associated with higher physical sales.
This time the verdict comes from two University of London economists working for Canadian government business tentacle Industry Canada.
Birgitte Andersen and Marion Frenz crunched government-sponsored research data, and concluded: "Among Canadians who engage in P2P file-sharing, our results suggest that for every 12 P2P downloaded songs, music purchases increase by 0.44 CDs. That is, downloading the equivalent of approximately one CD increases purchasing by about half of a CD."
U.S. album sales are down 14 percent year on year, according to data from Nielsen SoundScan, as more fans choose to buy music as individual songs through online stores such as Apple Inc's iTunes, or resort to using free file-sharing services to get music.
Warner Music stock is down nearly 70 percent since the start of the year as evidence of a faster-than-expected deterioration in music sales has become more clear to investors.
[Morris] wants to wring every dollar he can out of anyone who goes anywhere near his catalog. Morris has never accepted the digital world's ruling ethos that it's better to follow the smartest long-term strategy, even if it means near-term losses. As far as he's concerned, do that and someone, somewhere, is taking advantage of you. Morris wants to be paid now, not in some nebulous future. It was this attitude that prevented the record labels from letting go of the CD and embracing online distribution. To be fair, however, Morris claims that nothing could have been done differently:
"There's no one in the record company that's a technologist," Morris explains. "That's a misconception writers make all the time, that the record industry missed this. They didn't. They just didn't know what to do. It's like if you were suddenly asked to operate on your dog to remove his kidney. What would you do?"Even now, their major efforts are not intended to satisfy any particular need or necessarily build a long term model, but instead to wrest the control they inadvertently gave to Apple with the creation of the iTunes Music Store. iTunes remains responsible for the largest portion of Universal's digital music sales. To counter, Morris is presently involved in a making their Total Music plan a reality. Their plan is to offer users a "free" subscription plan for unlimited access to all their music. The plans would be subsidized by hardware vendors interested in taking a piece of the action from Apple's iPod and iTunes.The author points out that this plan may be ignoring a strong consumer preference for flexibility and simply be trading in one proprietary format for another, but Morris doesn't appear to care:
Unfortunately, Total Music will almost certainly require some form of DRM, which in the end will perpetuate the interoperability problem. Morris likely doesn't care. He is more committed to Total Music -- or any other plan that allows protection -- than he is to a future where music can truly be played across any platform, at any time. "Our strategy is to have the people who create great music be paid properly," he says. "We need to protect the music. I know that."
Tuesday, November 27, 2007
The plan is that they will release the album themselves via the Internet, but there will also probably be a vinyl release,' the band’s London-based manager, Vinita Joshi, said.
But the band is unlikely to follow Radiohead’s pay-what-you-like download model for its new recordings, he added.
Monday, November 26, 2007
By Antony Bruno, N.Y.According to a new report from JupiterResearch, digital music sales will not offset falling CD sales anytime soon. In its "U.S. Music Forecast, 2007-2012," JupiterResearch analysts say that while digital spending will increase to $3.4 billion over the next five years, CD sales will continue to fall. "That means digital music sales will not compensate for lost CD sales in five years," JupiterResearch VP and research director David Card in a statement. "Nor will they return the overall industry to growth. But digital's where the growth is." Music subscription services like Rhapsody and Napster aren't expected to play a significant role in that timeframe either, with analysts calling it a "niche" service.
By Jonathan Cohen, N.Y.A Trent Reznor-sanctioned home for fan remixes of his music is on hold due to a pending lawsuit between Universal Music Group and Google and News Corp.UMG is the owner of the master files Reznor has made available on NIN.com for fans to manipulate as they wish. In its suit against YouTube.com owner Google and MySpace.com owner News Corp., the company alleges those sites do not have "safe harbor" under the Digital Millennium Copyright Act because their users have uploaded Universal-owned content without permission.As such, sanctioning NIN remixes that may include content not owned by Universal would open the company up "to the accusation that they are sponsoring the same technical violation of copyright they are suing these companies for," Reznor says on NIN.com.So, Universal told Reznor they will no longer host the remix site and is "insisting" that Nine Inch Nails host it."In exchange for this they will continue to let me upload my Universal masters and make them available to fans, BUT shift the liability of hosting them to me," he says. "Part of the arrangement is having user licenses that the fans sign (not unlike those on MySpace or YouTube) saying they will not use unauthorized materials. If they WERE to do such a thing, everybody sues everybody and the world abruptly ends.""We are challenged at the last second to find a way of bringing this idea to life without getting splashed by the urine as these media companies piss all over each other's feet," he concludes. "We have a cool and innovative site ready to launch but we're currently scratching our heads as to how to proceed."The Nine Inch Nails remix album, "Y34RZ3R0R3MIX3D," was released Nov. 20. It includes reworkings by members of New Order, Laydtron and the Faint, as well as some tracks created by fans.
By Antony Bruno, N.Y.BETA Records, an online marketing and promotion service for indie artists, is planning a new site, expected to go live early next year, that lets users discover new bands based on their similarity with bands they already know. The company implemented audio fingerprinting technology from Audiobaba to power the service, that aligns indie artists with more mainstream acts with a similar sound. Users will enter in the name of an established act, hit search, and the results will list a number of new emerging artists that have similar styles and sounds.
Sunday, November 25, 2007
Years after the Napster revolution liberated music, industry labels are still hot on fighting the war on piracy. Earlier this month, the association representing big players like Capitol Records and Sony BMG hailed their first victory ever on the legal front, a $222,000 penalty against a Minnesota woman found guilty of illegally sharing music online. But few, if any, believe this isolated win will alter the decisively linear trend of those swapping tunes on the web. At this point, people see the content issue as settled: free music is their right. If the establishment standing in their way has any knowledge of history, they’d work to find new ways to engage “the people” in order to stay relevant—or perhaps more importantly, employed.
This past week at CMJ, musicians, managers (and those aspiring to be) filled rooms at NYU’s Kimmel Center to hear industry advice on how new bands can “make it” in these changing times. One panel, “Music Business Primer: Marketing and Promotion”, had a message for the music industry—you’re not going to win this one, recognize that free music is the future and just work to control it. The panelists suggested that bands should consider releasing free downloads as a way to build community around their music. The MuseBox’s George Davis described the new revenue model well: “It’s all about tickets and t-shirts.”
Prince has been working this model with much success. The artist, who escaped his contract with Warner Music in 1994, had the music industry in a huff when he gave his most recent album away with a British newspaper. A digital music pioneer, Prince also lent early support to P2P and was one of the first to sell music directly from his website. Now Madonna is following suit by leaving Warner Music and signing with Live Nation for a $120 million 10-year deal. As she explained, “The paradigm in the music business has shifted.” While the deal will require Madonna to produce three more albums, the real focus is clearly on expanded touring and merchandise that Madonna, as her own brand, can sell to fans. The Live Nation deal includes all-things-Madonna, including everything from her website to DVDs, music-related TV and film projects, and corporate sponsorships. For someone who is a walking commodity, perhaps this is the best way to go.
But free music can actually make money again. Bands and labels should stop working outside the trend and, instead, ride the digital wave by directly engaging fans. A great case study is the Peoria, Arizona band The Format, which recognized the loyalty of its fans and stopped releasing their albums in the traditional fashion. Their 2005 EP, “Snails”, was made available exclusively online and at their concerts. In 2006, the band, having been dropped by Atlantic Records, was on its own when its new album, “Dog Problems”, leaked online two months before its release. Instead of losing out on the inevitable file-sharing about to take place, the band debated for all of two hours before releasing its CD for a discounted $7.99 on its website. Within the first hour, the site sold 600 downloads, and 2,000 within the first month. Loyal fans actually paid for music they could have gotten for free when given the digital avenues to do so.
Fast forward to this month, when Radiohead made headlines through the digital-only release of its seventh album, “In Rainbows”. Radiohead’s decision to offer their album for a customer-selected price is an unprecedented example of how bands can leverage their fan base to make money off digital music—and build hype. Radiohead made the announcement about “In Rainbows” exclusively on its website without any forewarning, shocking both fans and the press. Jeff Gerst, an independent media consultant and self-described “superfan” who worked with Radiohead in 2000 told NGT, “There it was, with a little post on the website, without some big buildup, like finding a treasure in the woods.”
Fans turned the pay-what-you-want option into a test of loyalty, with an estimated two-thirds of fans actually paying an average of $5-8 for the album. While that’s about half of price of an iTunes album, take the following into account:
1) When an estimated 1.2 millions fans downloaded the CD on its release date, many had never heard the album’s music before—it wasn’t on the radio or leaked on the web. And many paid for it anyway.
2) The band released the music on its own, giving it direct access over the estimated $6-10 million it generated on day one. With a record label, the band would have needed to sell 10 times more albums to reach that same profit.
3) While some fans voiced outrage over the download’s reduced quality (not as good as a CD, but better than iTunes) and statements by management that the digital release was only a promotion for the physical CD, a reported 700,000 orders have already been placed for the extremely pricy $81 special edition “discbox” debuting in December.
4) The 10-song digital release is a mere 43 minutes, significantly less than the average CD—meaning the band is producing less material but still marketing it as a full album. The band is actually adding 8 more songs in the “discbox” edition, which means more fans will be compelled to buy the “discbox” later on.
5) In November, the band will start planning an old-fashioned physical CD release in stores, which it still expects to do well despite the digital offering. As manager Bryce Edge told the U.K.’s Music Week, “If we didn’t believe that when people hear the music they will want to buy the CD, then we wouldn’t do what we are doing.”
Other bands are reportedly working on their own plans. Shortly after Radiohead, Nine Inch Nails announced plans to divorce from Interscope Records, saying that would work towards a “direct relationship with the audience.” Oasis just released their first download-only single, “Lord Don’t Slow Me Down.” Meanwhile, artists including Mos Def, White Rabbits, and Cold War Kids are signing up with RCRDLBL, the Downtown Records/Peter Rojas venture that pays artists for exclusive digital tracks with online advertising dollars.
So what does this all mean? Well, it means that clever marketing will help the music industry thrive again. It means that controlling one’s music instead of handing it over to old-school record labels with outdated methods will yield bigger payoffs. It means that releasing music when customers want it, in a way that makes them feel like their money is worth something—is a part of something—will reshape the music world into a reality that works for everybody.
Saturday, November 24, 2007
Those illegally sharing files will face the loss of their net access thanks to a newly-created anti-piracy body granted the wide-ranging powers.
The anti-piracy body comes out of a deal agreed by France's music and movie makers and its net firms.
The group who brokered the deal said the measures were intended to curb casual piracy rather than tackle large scale pirate groups.
"Columbia is stuck in the dark ages," Rubin told the Times. "I have great confidence that we will have the best record company in the industry, but the reality is, in today's world, we might have the best dinosaur. Until a new model is agreed upon and rolling, we can be the best at the existing paradigm, but until the paradigm shifts, it's going to be a declining business. This model is done."
Wednesday, November 21, 2007
The agreement, announced Tuesday, aims to make Yahoo more appealing to online video fans in the face of stiff competition from YouTube, Google Inc.'s rival video service.
Under the deal, Yahoo will offer more Sony BMG music videos to more of its users across the globe. In addition, users will be able to add some of that music to clips that they create at home, offering a legal alternative to widespread piracy of Hollywood entertainment.
The videos will be available on Yahoo's various video properties, such as Yahoo Video and Yahoo Music. Users also can embed the clips on their personal Web sites, such as Facebook , using software called widgets.
Financial terms of the partnership were not disclosed. Generally, in such arrangements, Internet companies share revenue from online advertising with the copyright holders.
Sony BMG, a recording industry powerhouse, is a joint venture between Sony Corporation of America and Bertelsmann A.G.
Bruce Springsteen, Christina Aguilera, Foo Fighters, Justin Timberlake and Bob Dylan are among its biggest artists.
The deal marks the first time that Yahoo has been able to license music from a major recording company for its users to upload and edit. But Yahoo, in Sunnyvale, is still playing catch-up to its main competitor because Sony BMG entered into a similar video deal with YouTube last year.
YouTube, a subsidiary of Mountain View's Google, was the most popular video destination in September, with visitors viewing 2.5 billion videos, according to comScore Inc. Yahoo was a distant third, with 381 million videos viewed.
Because of piracy fears, Hollywood has been reluctant to make all of its content available online. Many studios also have criticized Internet companies for failing to do enough to stop the problem, particularly Google, which was sued earlier this year by Viacom for $1 billion over allegations that it failed to adequately remove pirated material from YouTube.
As part of the deal announced Tuesday, Sony BMG's music will only be available through a Yahoo branded video player, because of the copyright protections built into it.
Tuesday, November 20, 2007
Monday, November 19, 2007
Friday, November 16, 2007
Things like this should be making the music industry ecstatic. Digital music means fewer CDs to press, package, and ship out to retailers. And the smaller amount of inventory means that there is also no dread of costly returns once a hyped-up project pulls up lame.
This should be a Nirvana nirvana or a Green Day green day, but the blissful ka-ching melody is ringing hollow in the ears of the music labels. The industry execs are not satisfied. Donning the watchdog street clothes of the Recording Industry Association of America, the record labels have gone on to sue music fans and satellite radio providers while giving the industry's digital-download gorilla -- Apple Computer (Nasdaq: AAPL) -- an earful over pricing instead of a heaping bowl of warm gratitude.
It's embarrassing. It's troublesome. It's greed at the first sign of a lifeboat.
The day the music liedRemember when the music companies were pointing to peer-to-peer piracy as the root of waning CD sales? Industry sales have fallen in four of the past five years, and they somehow think it isn't due to a disconnect with what the masses wanted.
Digital music, in both legal and illegal forms, had stimulated consumers' music-listening appetites. The labels just didn't get it at the time. By and large, they still don't.
This doesn't mean I condone the original incarnation of Napster (Nasdaq: NAPS). It's just that everything from the iPod's success to the whitewashed reconstruction of the Napster model to the financial turnaround at Warner Music Group (NYSE: WMG) would have never happened if not for tens of millions of teens hitting up the peer-to-peer networks for pirated downloads.
Behind every disruptive technology, there is always an established industry crying foul. Digital downloads are no different, only this is a unique situation because the whining has come from the same camp that stands to benefit the most from the disruption.
Music-file sharing may have hurt the music makers in the near term, but it was also the perfect set of training wheels to teach the masses how to embrace portable music-listening solutions. Does anyone really think that Apple's iTunes store would have lapped the billion-download mark if consumers hadn't already gotten a taste from Napster?
Piracy is bad, but in this case, it proved to be no different from the chicken joint at the mall's food court that hands out free samples on toothpicks, all to bring in the bigger sale down the road. OK, so maybe the original Napster situation was more like mall patrons swiping the samples when the chicken joint is looking the other way, but the end result is the same. Consumers are hungry for digital music, and the labels remain the top choices on the menu.
Model citizensThere is money to be made in distribution by piggybacking on others' content. No one does this as well as Google (Nasdaq: GOOG). It is the leading search engine because it is able to sift through the content of others better than its rival sifters do.
That doesn't make the content creators any less important. In digital music, most of the attention has gone to the digital-music streamers and peddlers, such as Apple, Napster, and RealNetworks (Nasdaq: RNWK). The credit is well earned, but the music industry itself will be the ultimate beneficiary. You already see it in the stunning digital-music growth at Warner, offsetting moribund growth elsewhere.
The record labels were left for dead a couple of years ago. The five major labels were in a daze, scrambling for either new ownership or sector consolidation. There is money to be made there, especially after the companies become the lean, mean, high-margin machines that they are capable of in this glorious digital age.
There are other opportunities, of course. Motley Fool Rule Breakers subscribers have already been exposed to a few of them in XM Satellite Radio (Nasdaq: XMSR) and Akamai (Nasdaq: AKAM). XM is benefiting from ears being awakened to music that matters again. Akamai is there to speed up digital distribution of online stores like Apple's. Both companies are clear plays on the renewed interest in recorded music, but they are also lifelines to the music industry itself. XM is able to provide deeper playlists in narrower niches than conventional radio can, and it's going to drive music sales higher. Akamai makes the downloading process more efficient, and that, too, will sway music fans to go digital.
So let's hope that the major labels will can it on the whining. It lacks vision, even for an industry that is more concerned with eardrums than eyeballs.
Relish the disruption. The dirty little secret is that the joke isn't on you.
Universal Music is testing different levels of packaging and pricing for CDs. For example, a basic CD will have a low-cost cardboard case and a lower retail price to compete with cheaper digital versions. "Deluxe" editions will cost more but will include more durable jewel cases with locking mechanisms (it'll be harder to bust the jewel cases, much less the CDs inside) as well as bonus content for hardcore fans.
As news reports noted, music giants like Sony's (NYSE: SNE) BMG, EMI, and Warner Music Group (NYSE: WMG) have made few attempts to innovate with the CD format for the past 20 years, despite recent sagging sales. With cheaper digital music now available, it makes perfect sense for the recording industry to recognize that CDs lend themselves more toward a truly collectible experience than a costly, cookie-cutter product destined to collect dust.
Of course, Universal Music's move to get on the right track is hardly a surprise, with variations of the idea already floating around. Although I struggle with my addiction to Apple's (Nasdaq: AAPL) iTunes Music Store, I have definitely fallen for some higher-priced collectible CDs lately. I'm a sucker for B-side and rarity compilations, which sometimes include bonus artwork, booklets, and lyrics, as well as large cardboard covers that hearken back to the heyday of the LP, once more giving your musical taste a higher profile on the shelf. Packaging and extras like these could help the music industry lure diehard fans, especially now that the labels can also add bonuses like videos or live footage to the package. (Apple's already experimenting with a digital version of the "package deal.")
Initiatives like this might not save the CD -- digital music has clearly entrenched itself with consumers -- but it could certainly help bolster the format's lagging sales growth. The major labels' considerable bellyaching over music sales and complaints about piracy's threatening effects -- and their inevitable surprise and shock that consumers might actually pay for digital music -- only exposed them as an old-fashioned industry apparently loath to give consumers the changes they demanded. There's clearly no excuse for the industry to suppose that the old way is the right way any longer.
Warner Music has made a deal with YouTube through which it will post music videos to the site and share any revenues garnered from related advertising. YouTube has been gradually adding ads to its wildly popular site.
Just last week, Vivendi's Universal music arm had some fighting words for YouTube and News Corp.'s (NYSE: NWS) MySpace, implying it plans to strike back at both sites for copyright infringement. Although I had to admit that Universal had a bright idea recently, its attitude toward current community-based trends shows that it just doesn't get where things are headed and continues to ignore what appeals to its very own customers.
Warner Music, on the other hand, is showing that it does indeed get where things are headed, and wants to play ball. A Wall Street Journal article quoted Alex Zubillaga, the company's executive vice president for digital strategy and business development, as saying, "This is a phenomenon which kids have embraced which is only going to continue to grow. We're much better innovating and embracing this than trying to stop it."
Indeed, many companies are trying to find ways to harness user-generated video and make media companies happy -- consider Google (Nasdaq: GOOG) Video. However, like it or not (and some companies haven't liked it -- consider General Electric's (NYSE: GE) and Vivendi's NBC Universal's reaction to one viral success on YouTube last winter, although NBC played nicer recently), YouTube is clearly the player that has caught on with the masses. (I waste an extraordinary amount of time viewing clips on YouTube, myself.)
Apparently YouTube is not only attaching advertising to its site, but it's coming up with an automated system that will troll its site to digitally identify copyrighted material and attempt to pay some advertising revenues to copyright holders that have decided to play nice (if not, such infringing videos will be removed from the site). YouTube is obviously trying not only to operate more profitably (it's well known the start-up has been burning far more cash than it generates), but also reach out to media companies and circumvent the legal problems that could potentially hurt its popular though nascent business. It's a tall order, but it's obviously looking at ways to address all these issues.
Music companies should think outside their traditional boxes and embrace these new trends, as Warner is trying to do, but many still seem to operate under the notion that playing the tough guy won't hurt their images with their customers. Right now, Warner is putting many of its rivals to shame by illustrating that it's willing to work with the will of the crowd, not against it.
MySpace has a deal with Gracenote, a company that provides technology to identify copyrighted materials, to help it police its site for illegal uploads on MySpace pages. Gracenote is also known for providing the database that identifies users' music for Apple's (Nasdaq: AAPL) iTunes. Ironically, MySpace is well known for its musically focused teen fan base, who often do post clips of copyrighted works, a practice some might call darn good advertising. (MySpace plans to eventually sell music, too.)
I've seen a few articles floating around here and there recently, discussing how some teens are fleeing MySpace for various reasons. These include boredom, social pressure, uncomfortable or even scary situations (think stalkers, con artists, or other sketchy encounters), or even the invasion of privacy they feel upon realizing their parents and teachers are signing on and monitoring their pages. Facebook (recently rumored to be eyed by Yahoo! (Nasdaq: YHOO) as an acquisition target) recently loosened its standards for who can enter that previously youth-oriented site. Some buzz implies that teens aren't happy about opening up their domains to us square adults -- which shouldn't come as any surprise.
Meanwhile, copyright is a controversial issue these days. There's a legitimate argument that playing a little bit fast and loose with copyright has helped make some sites -- and their content -- increasingly popular.
Consider Google's (Nasdaq: GOOG) YouTube. Although YouTube is trying to convince copyright holders to share ad revenues instead of pulling copyrighted video clips, that's not cutting it with some companies. For instance, YouTube has been asked to pull SouthPark and other Comedy Central clips off its site. Interestingly, a recent Reason magazine interview with South Park creators Trey Parker and Matt Stone indicates that they have no problem with fans downloading their show, but it seems that Comedy Central and/or parent Viacom (NYSE: VIA) isn't amused by its presence on YouTube. (Some interesting asides: SouthPark is a popular download on for-pay iTunes. And in another ironic twist, former Viacom crony CBS Corp. (NYSE: CBS) seems to "get it" -- it's been uploading some high-profile clips to YouTube itself, like Katie Couric's recent interview with Michael J. Fox concerning Rush Limbaugh's comments.)
I think corporations that take the hard-line approach run the risk of alienating their most coveted potential customers -- teens, techies, and early adopters who are all about a new way of consuming content (a way that also helps popularize content through viral means). It wouldn't be the first time media companies have shot themselves in a foot this way, but one lame foot might keep them back in the race to the Net's next hot thing.
When it comes to what consumers want these days, is the recording industry starting to get it, or not? Judging by some news headlines last week, I'm still leaning heavily toward "not."
An Associated Press article pointed out that despite the recording industry's traditional paranoia about copyright issues, particularly online, it is slowly starting to experiment with making online content available using the unrestricted MP3 format. Despite the ease with which users could copy it, since MP3 doesn't include restrictions to guard against piracy, its major benefit would be that the content is compatible with a multitude of devices, most notably Apple's (Nasdaq: AAPL) dominant music player, the iPod.
Limited content from a handful of artists here and there has been made available in MP3 format through venues like Yahoo!'s (Nasdaq: YHOO) online music store. If the experiment is a success and expands, it could be helpful to the online music services that would like to compete with iTunes, but have little traction given the fact that the iPod is such a popular device -- and maybe they could give iTunes a bit of a run for its money.
This experiment, while tentative (the article mentions only a few tracks and artists distributed using this approach), may show that the recording industry is starting to get it, in terms of recognizing that compatibility, not to mention compatibility with the top dog in MP3 players, is an important part of online distribution. But then again ...
I also ran across news citing HollywoodReporter's claim that the Recording Industry Association of America (RIAA) is attempting to lower the royalties its members pay out to publishers for digital content, including ringtones, which should trickle down to the payments the artists themselves are getting. Songwriters, composers, and artists can be one and the same and often participate in royalty-sharing agreements with publishers, and even if third-party publishers' payments were lowered they would be likely to charge the artists more. The RIAA is the trade association for the recording industry, and major labels EMI, Sony's (NYSE: SNE) BMG, Warner Music Group (NYSE: WMG), and Vivendi's Universal Music Group are all members.
The recording industry always contended that piracy hurt not only its own profits, but in effect took money from the pockets of the artists themselves. Lowering the royalties the major labels pay to artists would, of course, in effect mean the recording industry is shooting itself in the foot once again.
Industries that don't present themselves as particularly friendly to customers and suppliers are tasty candidates for disruption, and that's been abundantly clear regarding the recording industry for years now. Regardless of copyright law, let's just face it: Consumers don't seem to think highly of the major labels, and the RIAA in particular. Why should they, when it tries to keep the status quo and avoid innovation by filing lawsuits against children and grandmothers? I recently wrote about SNOCAP, created by Napster (Nasdaq: NAPS) creator Shawn Fanning, and its deal with News Corp.'s (NYSE: NWS) MySpace, and I can't help but think artists will increasingly form direct relationships -- and commerce -- with fans. In the not-so-distant future, will we really need the major labels as middlemen, hit machines, and tastemakers? The Internet's making distribution and payment easy, and users are coming to the conclusion that with the help of technology and like-minded fans across all niches, they can find what entertainment they like among countless choices without the labels' marketing schtick and tired avenues like banal Top 40 radio.
The AP article pointed out that the well-known MP3 format some labels are experimenting with is, obviously, one of the oldest digital music formats. Maybe that's an ironic way to end this piece; what do you make of an industry that's still looking backwards to "innovate"? And seeks to cut payments to its bread-and-butter talent -- who's ripping off artists again? Maybe one day some of these old-school industry execs will be forced to pick up some instruments, because they'll be the only ones left at the labels, singing the blues.
Do they get it or don't they? It's hard to tell sometimes.
Rumours are circulating that Google is in talks with Simon Fuller, the founder of 19 Entertainment, about launching an IPTV service to distribute entertainment and music in new and innovative ways.
The partnership is believed to involve creating original content which would compete with major UK TV networks.
Google has been paving the way to expand its internet TV services after launching a Video TV and film service last year on a pay-to-view basis.
Google now owns YouTube and has built up its content through major deals with producers and broadcasters including ITN, CBS and Sony BMG.
Today, Ray Beckerman's RIAA litigation blog noted that the attack lawyers' lawsuit boilerplate has changed dramatically, and no longer tries to pin a "making available" claim on the hapless defendant. In a nutshell, that claim used to be a central pillar in the RIAA strategy, because it's fairly easy to show that some files were made available for download from a given IP address. Easy money if the lawsuit were to go anywhere.
But few of them ever did, and many suits have been thrown out because it isn't actually illegal to have a pile of files ready for others to download. Someone actually has to download them, which is a much harder point to prove. Sony BMG (NYSE: SNE), Warner Music (NYSE: WMG), Vivendi's (OTC BB: VIVEF.PK) Universal Music, and EMI (OTC BB: EMIPY.PK) can't lean on that crutch anymore.
It's real. It's happening. There's no way the RIAA could afford to start many more lawsuits when the chances of winning dwindle to nothing. Good riddance.
According to a press release from Merlin, a licensing agency for independent labels, its agreement with SNOCAP will allow musical content from "potentially thousands" of independent labels worldwide to be distributed through MySpace, as well as other sites that allow html to be edited. Merlin claims such independents represent 30% of overall music market share and 80% of new releases. (And of course, while Merlin says that it wants to function as "the fifth major" in the industry, according to a Reuters article, one might wonder at what point -- and to what degree -- bands will start going on their own.)
In November 2005, I identified SNOCAP as an interesting private entity to keep an eye on, not least because it was headed up by Napster (Nasdaq: NAPS) creator Shawn Fanning. SNOCAP's technology allows sites to sell music directly to fans. Although it took a while, last September it announced that it was going to be a part of MySpace's bid to become a music retailer, which was significant, since MySpace has been a big success with young people and music was arguably one of the drivers of its popularity.
SNOCAP provides digital licensing and copyright management tools. MySpace's SNOCAP MyStore is live, and sells unprotected MP3 files which, importantly, are compatible with Apple's (Nasdaq: AAPL) iPod music players.
Merlin says it represents and seeks to license Web 2.0 new media. According to Reuters, it secures licensing deals with emerging media such as that found on MySpace and Google's (Nasdaq: GOOG) YouTube.
Giving indie labels a better form of distribution is as significant as allowing artists to sell directly to fans, another possible effect if MySpace's music commerce initiative really takes off. It's interesting in the sense that it could take some of the shine out of Apple's iTunes, which has been the pioneer in paid digital music downloads. But it also poses an interesting question for the major record labels, Sony's (NYSE: SNE) Sony BMG, Vivendi's (NYSE: V) Universal Music, Warner Music Group (NYSE: WMG), and EMI.
I've long wondered whether the days where major music labels and other old-school media concerns function as middlemen and tastemakers are drawing to a close; at the very least, it seems they face serious challenges. After all, the Internet eases distribution, and consumers today can easily find entertainment without relying on the majors -- word of mouth, recommendations engines, and similar community-driven Net innovations are just a few ways, with many of these falling into the Web 2.0 arena.
It remains to be seen how well MySpace's music store will resonate with users, but it doesn't seem difficult to imagine that it will be a success, given the site's popularity and history of musical overtones. Overall, music seems to be taking an interesting turn these days, making this Fool wonder whether labels will eventually become an anachronism if artists can just as easily communicate directly with -- and sell to -- their fans.
Here are five alternative models for selling music, many of which are actually being tested by artists, entrepreneurs, and even the major record labels themselves.
It's easy to get discouraged over the latest Nielsen SoundScan music retail data. CD unit sales fell a staggering 19.3% during the first half of the year. After watching compact disc sales dip in all but one year on this side of the millennium, 2007 isn't bent on reversing the trend.
These are physical discs that we're talking about, with hard-to-open wrappers and plastic jewel cases that chip way too easily. It's a different world in cyberspace, which saw a 60% surge in digital album sales over the same six months.
Unfortunately for those who fear shrinking pies, only 23.5 million virtual discs were sold. The actual CD platform moved 205.7 million copies. Combine the two formats, and the music industry still suffered a 15% dive in unit sales through the end of June this year.
It's not just quality failing quantityCynics would argue that the quality of the content, or lack thereof, is feeding consumers' apathy. With last week's top-selling album belonging to Miley Cyrus -- better known as Disney's (NYSE: DIS) Hannah Montana to the preteen set -- it's easy to blame the pipeline.
That would be a shortsighted. The charts tell us a more compelling story.
Second on the chart is American Idol winner Kelly Clarkson's My December. Go a few notches lower, and you'll find Paul McCartney's latest CD. It peaked at the third slot a couple of weeks ago, twice as high as his previous studio album. With a Disney soundtrack, an artist launched by a Fox TV show, and McCartney's release on Starbucks' (Nasdaq: SBUX) Hear Music label, it's easy to see that the hottest titles are coming from unlikely sources.
For traditional labels like Warner Music Group (NYSE: WMG), EMI, and Universal, that may be an even bigger problem than sluggish CD sales. The majors can offset the pain of sluggish CD sales with fatter margins elsewhere. In addition to the beauty of inventory-free sales through Apple's (Nasdaq: AAPL) iTunes and other digital distributors, the top music companies can cash in by selling ringtones, not to mention the relatively new revenue stream of ad-sharing through video websites like YouTube and MySpace TV. The major labels' challenge to make sure that they have a product that consumers crave.
Web-savvy bands are launching their careers through social networking sites. Websites make it too easy to promote new material, sell merchandise, and reach out to engage their growing fan bases while creating more interactive relationships.
In the worst-case scenario for the labels, the distribution power will shift toward recording artists. And the best-case scenario? Well, basically, the exact same thing happens -- just a bit more slowly.
The new eardrum economySo what will die first: CDs or major labels? Neither will go down without a fight. Nearly 90% of the albums sold so far this year were physical CDs. That figure will shrink over time, but there are still too many music fans who prefer to own tangible products, even if their first step is to copy the CDs to their computers and transfer them over to their portable media devices.
It doesn't hurt that the digital industry is priced to move singles, not full-length albums. It's a symbiotic relationship between CDs and downloads right now. Pressed onto physical discs, singles could never cover the overhead at $0.99 a pop, no matter how briskly they sold. However, pricing digital albums at the same $10 mark at which many new CDs are now priced gives the actual product the edge.
Add it up, and you'll find that we can't kill the CD for now. The fate of the major labels actually rests in their own hands. They've already gone through waves of consolidation and layoffs, but they may still need to become even more nimble.
The labels don't have to die -- they just need to adopt a new approach to the game. Major labels aren't as relevant as they used to be. Instead of bankrolling CDs and slick videos, they'll need to grab a bigger cut of artists' success beyond mere album sales.
Whether this involves snapping up companies like Live Nation (NYSE: LYV) and IAC/InterActiveCorp's (Nasdaq: IACI) Ticketmaster, or taking a more material stake in the acts they sign, the music industry will look very different in five years.
Stagnancy is a tune that no one wants to hear.
The jury decided to fine Thomas $9,250 for each of the 24 songs (many looked like contenders for Really Lame '80s Night parties, in my opinion). That's quite a premium, since tracks go for $0.99 a pop on Apple's (Nasdaq: AAPL) iTunes or for $0.88 apiece on Wal-Mart's (NYSE: WMT) service, for example.
My Foolish colleague Anders Bylund recently noted a legal boilerplate change suggesting that the industry might back away from the idea that making a track available for downloading, even with no takers, was worth pursuing because so many of those cases had been thrown out of courts. In Thomas' case, it wasn't proven that anyone actually downloaded the files, yet she's being forced to pay anyway, so the RIAA may disappoint Anders and not back down after all.
If the logic sounds fuzzy to you, you're not alone. Some consider the whole idea illogical. The major labels -- companies like Sony (NYSE: SNE) and Bertelsmann's Sony BMG, Vivendi's (OTC BB: VIVEF.PK) Universal, and Warner Music Group (NYSE: WMG) -- are apparently pouring millions into pursuing music fans. Judging from comments at the trial, they have nary a clue how much they're losing from illegal downloading, among other details that point to utter cluelessness.
Those who own these companies' shares should think long and hard about this crusade -- spending millions to gain a couple of hundred thousand here and there (or settlements in the couple of thousand-dollar range) doesn't sound like the smartest use of cash, does it?
What short-term thinking and a short-sighted waste. The RIAA's "strategy" seeks to distract attention from its anachronistic business model, and an industry that goes out of its way to inspire fear in its customers strikes me as one that investors would do well to avoid.
Millions are spent on these punitive endeavors (instead of on innovation), and by winning, the industry's quite likely losing any remaining shred of consumer respect. The RIAA may continue beating up on its customers, but in the long run, I'll bet it will end up as stuck as a broken record on an endless loop of trouble.
Last week, Radiohead announced that it's going solo and releasing its next album digitally, without the helping hand of a major label. Nine Inch Nails followed suit this week. Now Britain's Telegraph.co.uk is reporting that Oasis and Jamiroquai may follow suit.
Can you believe it? Being unsigned is the new signed. That could make the tens of thousands of garage bands and webcam crooners that amass modest yet dedicated followings on sites such as News Corp.'s (NYSE: NWS) MySpace and Google's (Nasdaq: GOOG) YouTube the new music-industry leaders.
Well, not exactly. Established artists have every incentive to leave a label. The real industry profits lie in touring. Once they have a dedicated fan base, it's more important to nurture that than to have labels bankroll CDs and place songs on the radio.
Besides, have you seen the perpetually falling state of CD sales? Have you heard the thin playlists on terrestrial radio?
Labels are in trouble. Warner Music Group's (NYSE: WMG) unsuccessful bid to land EMI earlier this year wasn't so much about synergy as it was about survival.
And in a case of atrocious timing for the industry, this comes on the heels of the record labels' $222,000 legal victory against a Minnesota mother who allegedly made songs available on a peer-to-peer file-sharing network.
No matter where you stand on the issue, you have to agree that the labels may lose more than they gain here, even before you begin to back out legal costs. How many irate music fans, upset over the decision, will make it a point not to buy CDs anymore?
Great! Just what the record companies need: another reason to explain away free-falling sales of prerecorded music. Labels are already struggling with their unfeasible business models. Can they really afford to make themselves even more repulsive to both artists and fans?
The dynamics have changed. Broadcasters such as Disney (NYSE: DIS), java brewers such as Starbucks (Nasdaq: SBUX), and stardom magnets such as CKX's (Nasdaq: CKXE) American Idol are the new architects of the music industry.
Cue the major labels funeral mixtape. Make sure it's got NIN's "Head Like a Hole," Radiohead's "Creep," Jamiroquai's "When You Gonna Learn," and Oasis' "Don't Look Back in Anger" on it. If the labels still can't figure out that the songs are about them, why bother mourning.
Listening to Nine Inch Nails' Pretty Hate Machine with my friends Liz and Laurie is one of my fond but hazy college memories. Almost 20 years later, Nine Inch Nails' Trent Reznor has ditched the traditional music industry, having announced that his band is now liberated from record labels. (Oasis and Jamiroquai may be heading that way, too. My Foolish colleague Rick Munarriz covered the developments earlier today.)
A long time comingYou could probably see this coming. According to CNET's blog, Reznor's been showing his displeasure lately with his label, Interscope -- owned by Vivendi's (OTC BB: VIVEF.PK) Universal Music Group -- and told fans at an Australian concert in reference to his music: "Steal it. Steal away. Steal and steal, and steal some more and give it to all your friends." According to the article, he was expressing frustration at how much the labels charge for CDs.
"Steal it" is hardly a new idea. Back in 1992, when I bought Gub, an early album from mercurial industrial supergroup Pigface (which has had an ever-changing lineup of musicians, including Reznor in those early days -- and he was on that album), the packaging had a sticker on it that pretty much said the same thing. A good paraphrase of that sticker would be: "Steal this album, and if you won't steal it, at least copy it and give it to all your friends." It's a little ironic, since that album was on the Invisible label from Martin Atkins, which certainly wasn't a major. But the point was probably not only to make an antimaterialistic, troublemaking message, but also to help spread the word abut the band and get people to come to the shows.
Of course, the music industry only grudgingly tolerated copying before the Internet provided the framework for massive file-sharing, and the industry's getting meaner all the time and hitting closer to home. At the recent high-profile trial over file-sharing in Minnesota, an industry lawyer was quoted as saying that making a single back-up copy of an album, such as you might do when you load it onto your computer and iPod, is stealing. According to Salon, the lawyer said that's "a nice way of saying 'steals just one copy.'" That makes me wonder whether they think they can come after you if you sing a song in the shower.
I never bought Pretty Hate Machine, although I had it in my dubbed tape collection. However, in the subsequent years, I bought up a whole lot more Nine Inch Nails for my CD collection; two of my all-time favorite albums are The Downward Spiral and The Fragile. My point is, you could call me a thief in 1989, or you could call me a lifelong fan in 2007.
Creative Destruction 101When I wrote about the RIAA's legal victory earlier this week, expressing my opinion that the music industry's shortsightedness is probably a fatal error, I received an irate rebuttal from one guy who seemed to think that I don't believe artists should get paid, and of course that's not the case. I know some people seem to take it as a point of pride that they never pay for music, and I can't get behind that.
However, I have a funny feeling that most music lovers are itching for the opportunity to support their favorite bands without feeling like they're getting gouged by middlemen. After all, digital piracy really began to take off when CD prices did, and many argue that the industry doesn't pass money on to most artists in any meaningful way, even while it complains that piracy hurts artists.
Reznor made his announcement on the official Nine Inch Nails website, and although it doesn't reveal any more details, it will be interesting to see what Reznor plans with his next album. Will he do something similar to Radiohead's "pay whatever you want" campaign? Or maybe bundle it with a Sunday newspaper the way Prince recently did?
Investors can see this entire drama as an apt lesson in Joseph Schumpeter's economic idea of "creative destruction," which is only a losing situation for those who don't evolve.
The future of music is bright. Music is more popular (and more easily distributed) than ever, and that includes diverse niche offerings. Musicians can distribute digitally on Apple's (Nasdaq: AAPL) iTunes. News Corp.'s (NYSE: NWS) MySpace has teamed with Snocap to help artists deal directly with fans as well. Some musicians just set up a website and a PayPal account.
The RIAA -- and its members, including Sony (NYSE: SNE) and Bertelsmann's Sony BMG, Warner Music Group (NYSE: WMG), and Universal -- may have enjoyed a legal victory last week, but their long-term worries remain. Having several major bands give them the heave-ho within a week seems to be a significant sign that the time is ripe. When it comes to the traditional music industry's business model, these developments sound like yet another crack in a broken record.
Last year Minus wrote our biggest royalty cheques ever because of digital sales. If people can buy stuff digitally at a good price they generally will. People don’t want to rip other people off as long as they don’t feel they’re getting ripped off themselves. To do this properly you need to be able to track what’s happening with a record and bring people into an on-demand service. Why own 100 records when you can have anything you want, whenever you want? There’s a company called Sound Cloud looking at sharing music on a global scale. But you could take things even further. Right now an MP3’s tags can tell you basic information about a track like its name or artist. But what if you could encode more than that? You could break each track down into its individual loops and elements, and each of these elements and loops would be encoded with information about what influenced them or who made them. Then you could start to build a way of tracing how a track came to be. It would work like a genetic code so that in ten years’ time you could trace a track’s family tree, looking at where it came from and the software or machines that created it.
So are you saying we should get rid of ownership of music?
I’d like to get to a place where I don’t even have to carry a computer or a mechanical storage device for music. I don’t care if I have some physical object that contains these non physical assets, I’d like all my music stored somewhere and to be able bring that list down whenever I need it. So imagine if you had this cloud where all these songs were stored and encoded and you could pluck them down in real time during a performance? But what if you want to get deeper and you want to have just the high hats from a track and map them over the sound from another song playing. This kind of interactivity is where I want to get to. Getting down to the molecular level of songs. That would be amazing.
This is a very alpha site and there are a few bugs (I can only get the flash player to work on Firefox on a PC, no luck with IE or Firefox on Mac), and the interface could use some help with flow. But the core business model is killer, something I haven’t seen before.
Artists can upload their music to Amie Street for promotion and sale. Users form social networks with friends, listen to, and purchase music. All songs are DRM-free in MP3. Songs appear to be at 192kpbs quality level, although it may just be whatever the artist uploads.
All songs are free to start. Prices fluctuate over time based on demand for the song - currently the highest priced song, “Against the Wall” by Danny Ross, is $0.36. 273 songs have been uploaded so far. This demand based pricing model seems like a good way to sell music.
Soon, you'll be able to hear the entire music catalogs of labels like Warner and EMI for free, without commercial interruptions, on a social networking site called Cyloop.com.
Cyloop.com, headed by Argentina-born Demian Bellumio, began life as ElHood.com, a social network website geared toward Hispanic musicians. The company changed its name to Cyloop in August with goals to expand globally, including English-language offerings. On Monday, Cyloop.com announced it had signed deals with heavyweights like Warner and The Orchard, which distributes the music of about 6,000 independent labels.
Members can stream as much music as they want and create playlists to save and share with other members. The catch: You have to be logged in to Cyloop.com to play the music. And, forget about downloading the songs to your computer.
The partnership is a new chapter in the evolution of the music industry, as labels are experimenting with new technologies to make up for money lost on in-store album sales and from illegal downloads.
''We want Cyloop to not only be a site, but be a platform that powers the music labels,'' Bellumio said.
Bellumio, 31, said he expects to close a deal with Sony and Universal before the end of the year.
Cyloop allows users to create custom playlists based on the music the site features, and it allows artists to upload and promote their own music.
Cyloop is home to many independent Latin artists; English-speaking artists include Wilco and comedian George Lopez. With a staff of about 70, the company builds profile pages for artists and expects to have 100,000 artist profiles by the end of the year.
Unlike other sites such as MySpace.com, Cyloop users cannot create their own content. That makes Cyloop more attractive to advertisers, who don't want their ads next to potentially risqué content, Bellumio said.
The site is supported by on-screen advertisements, but there are no audio commercials interrupting the music. Billboard now sells the ads for Cyloop in the United States. The record labels split the ad revenue with the site, a new business model for the labels, Bellumio said. Major sponsors include Microsoft and Ford Motor.
Monday's announcement included the news that Cyloop.com will now run the music channel of Terra.es, Spain's leading Internet portal. With roughly 17 million unique visitors a month, according to Bellumio, Terra's traffic can bring a nice boost in advertising revenue to the 1-year-old site.
Bellumio wouldn't reveal Cyloop's traffic numbers but said the target is at least 5 million registered users by next year. As of now, 40 percent of Cyloop's traffic is from the United States.
Music downloads and subscriptions are a $1 billion industry, with subscriptions making up $200 million of that, said David Card, an analyst with JupiterResearch. The biggest successes in the digital music business, he says, ``are the 99-cent singles that you can play on your iPod.''
But downloading isn't growing fast enough to keep up with declining CD sales. Global piracy of recorded music has cost the United States $12.5 billion in economic output and 71,060 jobs annually, according to an August report by the Institute for Policy Innovation.
''If you are a record label or publisher, you need to tap into multiple revenue streams,'' said Card.
But Card said it is too early to guess if this new model will save the industry or match the revenue from digital downloads. And he is skeptical about Cyloop's plans to profit off advertisements.
''Right now no one is spending any money on digital audio ads,'' Card said. ``There's no guarantee that anyone will see those ads whatsoever.''
Bellumio, a former vice president of corporate finance for Terremark, said he doesn't expect the company to be profitable until next year. The company has so far raised more than $11 million in venture capital financing.
The next step for Cyloop is to explore how to get involved in the mobile phone market, Bellumio said. It already started filming webisodes in its new video studio overlooking Washington Avenue in Miami Beach.
He said he plans to use the studio for filming music videos and eventually create a live-audience Latin music show, similar to MTV's TRL.
For artists themselves, social networking sites have become critical to promoting themselves, even if they don't make any money.
Jason Calleiro, 27, who toured the United States and Canada for years with the band Glasseater , said he depended on online message boards for marketing and communicating with fans.
His new Miami-based social networking site, OurScene.com, which launches in a few weeks, will offer artists the chance not only to give away free music downloads, but also to communicate tour dates with fans and sell merchandise -- the real moneymaking paths.
''I definitely think the industry needs to rethink ways of getting income,'' Calleiro said.