Music Business and Trend-Mongering

Hot on the heels of Starbucks warning on Wednesday that they expect their earnings to drop to 15 cents a share (down from 19 cents a year ago) in the fiscal second quarter, Starbucks announced Thursday that they were ceding all management responsibilities for its music label, Hear Music, to its partner, Concord Music Group. Starbucks, which cut about 600 positions in February, is clearly looking for more ways to reduce costs.

“As part of our ongoing transformation, we are committed to examining all aspects of our business that are not directly related to our core,” said Howard Schultz, chairman, president and ceo in a press release here. “We have had numerous successes in music and books including eight GRAMMY® Awards and three No.1 books on the New York Times bestseller list. However, now is the appropriate time to restructure our Entertainment business to better align our efforts with our overall business strategies.”

Hear Music, founded in 1990, was purchased by the Starbucks in 1999. In 2007, the company partnered with Concord to release Paul McCartney’s Memory Almost Full, record, his first non-major label recording. Hear Music has also released music by Dave Matthews Band, Joni Mitchell, Paul McCartney, James Taylor, Simon & Garfunkel, and Wilco.

I’m a fan of alternate retail and distribution outlets, and completely targeted niche-marketing campaigns. But I tend to agree with Mr. Schultz in that perhaps managing Hear Music has interfered with Starbucks core market, and the resulting changes are designed to refocus what they’re good at: selling high priced coffee. The fact is that Starbucks/Hear have done some great things for developing artists (including being an instrumental partner in breaking Antigone Rising, whose members are current Berkleemusic students!), but the sales from Starbucks were marginal at best. The New York Times reported last month that on average each Starbucks location sells only two CDs per day!

Myself and Dave Franz interviewed some folks when we were at the SXSW music conference last month. Take a look at the two-part video interview here

You are probably already aware of this already, but if not, you might be interested in checking out the activities surrounding this Saturday’s Record Store Day. Details are here.

Some cool events happening nationally, including Bjork’s screening of her new 3-D video “Wanderlust” (complete with 3-D glasses!) at a number of indie stores:

I go in depth into brick and mortal retail in lesson 4 of my Music Marketing 201 course. I’m all about the Future of Music, and I know it might seem counter intuitive to discuss a marketing segment that is clearly struggling on whole, but I think to discount physical independent retail (I’m not talking about the big box retailers here), even if it is not necessarily a growth segment of the industry, is a mistake. There are some amazing independent retailers that can be tremendous partners for developing artists. Josh Madell at Other Music in NYC, Eric Levin at Criminal Records in Atlanta, Mike Dreese at Newbury Comics in Boston, John Kunz at Waterloo in Austin and many other forward-thinking music retail owners still play a big part in “breaking” artists. They are community focused, Internet savvy, and have an infrastructure in place to promote new music. A successful musician needs to have their marketing campaign firing on all cylinders. I still believe that a physical retail campaign, even if it is accomplished through consignment, should certainly be considered as part of the big picture for touring artists that can draw outside of their hometown.

Well, there’s certainly no shortage of news from the major labels lately. Following recent announcements from Warner (who are presenting a vague idea to charge people a flat fee for all the music they care to download from peer-to-peer sites), and Sony/BMG (who’s head, Rolf Schmidt-Holtz, revealed that he supports the idea of a DRM-free unlimited music service), The New York Times today reported that three of the four major labels (EMI is rumored to join soon) have struck a deal with MySpace to launch “MySpace Music.” The deal will be set up as a joint venture, where the labels will receive an equity stake, and MySpace will control and operate the organization. Reuters news service claims the service could launch in days.

Some interesting points:

• The major’s entire catalogs would be available.
• The labels will stream their music for free, and be paid through advertising dollars (MySpace apparently makes $70 million a month in advertising revenue currently).
• Tracks will be available for download DRM-free, so they can play on any MP3 player.
• The labels will also use the outlet to sell artist’s merch, ringtones, and tickets (which, thanks to the 360 deals the majors are going for now, will provide additional revenue streams for them).
• There is also a possibility of a subscription-based component that would allow users to pay a monthly amount for unlimited downloads (likely through subscription DRM).

It looks to be a real win-win situation for the labels (as well as consumers), apparently made possible through Universal settling their 2006 lawsuit against MySpace for roughly $100 million (which is rumored to be part of the deal).

The only wild card is if folks can be convinced to actually purchase music through MySpace. Shawn Fanning’s Snocap, which folks can currently use to create an online store on MySpace, has not been popular (check out what Derek Sivers, CEO of CD Baby, said about their past arrangement here).

Following hot on the heels of No Depression’s announcement that they were closing up shop, Harp Magazine, another one of my favorites, announced this AM that they too were ceasing publication.

From my old contact there, Jake Flack:

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I am very sorry to tell you that, effective March 20, 2008, I will no longer be the Associate Publisher of Harp. Because of the declining revenues and increasing costs related to print publishing, Harp is discontinuing publishing as of that date. The March/April issue (with Dave Grohl on the cover) will be the last issue printed and distributed. The company is shutting down operations and will not be publishing the May issue.

It’s been my distinct pleasure to work with all of you. For the past five years I’ve been very fortunate to work with so many wonderful people who are dedicated to putting out and promoting great music. I’ve always felt that Harp provided a first class platform for giving independent music a voice that otherwise might not have been heard. We were able to do that because our advertisers shared that vision.

I apologize for the mass email but time dictates this rather impersonal notice. Best of luck to everyone and thank you so much for everything!

Jake

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It’s always a drag to see another positive entity in the music business go down, but I suppose I am not incredibly surprised. When I think of the parties and folks at SXSW that made an impression on me, much of it was online focused: Ioda’s party on 6th and Red River, Imeem’s event, the Ourstage folks, and so on. Similar to mid-level indie labels, I think mid-level music print mags are in for a tough haul, in particular those that are not making a serious push for online business. Online businesses with marketing dollars prefer to spend it on online advertising: certainly keyword buys, but also newsletter affiliation, banner ads, and contextual marketing. With online marketing, you can pinpoint exactly how successful a particular campaign is, and more importantly, online marketing folks know that it is easier to attract someone that is already online than it is to to attract someone that is offline. To survive these days, Harp and others need to monetize their online efforts by creating an online community, that A) folks want to be part of, and B) advertisers see value in.

Those that are not evolving are going to be left behind…

Whew. Just got back from one of the largest music conferences in the world – SXSW (South By South West) in Austin, TX. It’s like a musical wonderland down there. I was floored by Earthless, These are Powers, A Place to Bury Strangers, Chuck Prophet, Mark Kozelek, Brad Barr, The Peasantry, and in particular, Monotonix, which might have put on one of the most ridiculous/riveting performance I have ever seen. Check them out:

I suppose that seeing good music at SXSW is a given, but now that I am back and catching up with my RSS feeds and emails, it’s a little surprising for me to see that some folks have an opinion that SXSW is a waste of time for bands, the business has changed in such a way that the industry folks in attendance don’t make a difference anymore, and that the conference is so crowded there is little chance that bands can make any impact anyway.

To me, that’s a bit of a close-minded and jaded way to look at things.

It might be true that the major label A&R folks that are at SXSW are interested in locking bands into 360 deals that are likely not in the best interest of artists. But from a promotional and business standpoint, there are fantastic opportunities. We all know the Internet has changed everything about the business – sales, distribution, and how music is discovered. Commercial radio has fizzled as a means to expose folks to new music, having been replaced by blogs and online music communities. And the blogs have been in full effect at SXSW. Sean Moeller runs a tremendous music blog/site called Daytrotter, and he’s been holed up at Big Orange Studios in Austin the whole week recording exclusive live sets and interviews with folks like Peter Bjorn, from Peter Bjorn and John, Kaki King, and Johnathan Rice. The notion that there is too much competition at SXSW is discounted by that fact that the Internet allows the new breed of tastemakers to bring SXSW to you. All it takes is one blogger writing about your performance to make an impact on hundreds or thousands of folks immediately, both through editorial and multimedia content.

It always comes back to the music. If your music kills and you work hard, good things will happen. Berklee put on a show on Friday afternoon at Friends on 6th street, where my good friend and Berklee alum Brad Barr performed. Brad played a beautiful Townes Van Zandt-inspired set (to my ears) of original music. Directly after the show, Brad was approached to play a solo set at the High Sierra Music Festival in California next year, as well as an opportunity to play Middlebury College. Cory Brown, the founder of artist-friendly Absolutely Kosher records, was in attendance too, rocking out to The Peasantry. It’s tough for me to see how these things could be viewed as anything but positive for Brad and The Peasantry.

Barry Kelly, Dave Franz, and myself shot some video interviews with heavy hitter forward thinking industry folks while we were down in Austin. I’ll post a link when we have the piece edited all together.

I’ve talked a lot about how TuneCore and CD Baby are great online distribution options for independent bands. The two are set up differently, with CD Baby taking 9% of sales, and TuneCore making money on a $19.98 annual fee plus $.99 per store per record upfront costs. We run the numbers in my course on which is the better option for online distribution, and at low sales, there is very little difference between the two services. But at higher sales figures, there’s quite a bit of difference.

Eliot Van Buskirk at Wired’s great music blog just wrote a quick piece on what Trent Reznor likely paid to distribute his new record, ‘Ghosts I-V’ to Amazon. It’s really pretty amazing:

“Trent Reznor found a great deal for distributing his comprehensive new Nine Inch Nails album to the Amazon MP3 store: going through TuneCore, while keeping ownership of the master recordings and 100 percent of royalties. Now we can see why he was so eager to leave his record label.

This is assuming TuneCore charged Reznor its standard for delivering a 36-song album on the Amazon MP3 store for the first year; I have a question in with TuneCore to try to confirm:

$35.64 ($0.99 per track)

$0.99 to put one album in one online music store

$19.98 charge per album

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$56.61: Total cost to distribute Ghosts I-V to Amazon MP3

That’s not the only efficient aspect of Reznor’s plan. He’s using BitTorrent to distribute the first 8-song volume of the album to fans for free, and the innovative aspect of the release generated lots of (deserved) press attention.”

Trent is using a Creative Commons license with this current release, which I also think is noteworthy

Yes, I was humming the Boyz II Men song when I wrote that title.

I got an email yesterday announcing that one of my favorite magazines is ceasing publication. I’ve been a fan of No Depression, an amazing pub mostly covering the alt-country world (the magazine was named after the debut record from Uncle Tupelo, the band Jeff Tweedy was in prior to forming Wilco) since 1998 when I started advertising there for Rykodisc. The editorial was great, and the folks running it were absolute pleasures to deal with.

We all know the Internet has changed the music and publishing industries forever, and No Depression really was caught in the perfect storm between the two. The editors wrote a goodbye letter of sorts, which laid out their dilemma:

“…advertising revenue in this issue is 64% of what it was for our March- April issue just two years ago. We expect that number to continue to decline.

The longer answer involves not simply the well-documented and industry wide reduction in print advertising, but the precipitous fall of the music industry. As a niche publication, ND is well insulated from reductions in, say, GM’s print advertising budget; our size meant they weren’t going to buy space in our pages, regardless.

On the other hand, because we’re a niche title we are dependent upon advertisers who have a specific reason to reach our audience. That is: record labels. We, like many of our friends and competitors, are dependent upon advertising from the community we serve.

That community is, as they say, in transition. In this evolving downloadable world, what a record label is and does is all up to question. What is irrefutable is that their advertising budgets are drastically reduced, for reasons we well understand. It seems clear at this point that whatever businesses evolve to replace (or transform) record labels will have much less need to advertise in print.

The decline of brick and mortar music retail means we have fewer newsstands on which to sell our magazine, and small labels have fewer venues that might embrace and hand-sell their music. Ditto for independent bookstores. Paper manufacturers have consolidated and begun closing mills to cut production; we’ve been told to expect three price increases in 2008. Last year there was a shift in postal regulations, written by and for big publishers, which shifted costs down to smaller publishers whose economies of scale are unable to take advantage of advanced sorting techniques.”

I get a lot of my music news updates from RSS feeds from maybe a dozen or so outlets, but I love kicking back with Paste, Magnet, Harp and No Depression as well. As Barack Obama says, change is what’s happening, but in the case of No Depression, it doesn’t mean that I have to like it.

With everything that is happening right now with the Copyright Royalty Board and the new mechanical royalty rate discussions (which will be the first time ever that rates are set for digital products such as digital downloads, subscription services and ringtones - more here from Eric Beall), I thought it might make sense to talk about how you, as an independent musician, can get into the digital music retail game. I did a quick interview for CNN/Fortune last week on the topic of digital distribution, which is a fair enough primer on the basics. Text is below, and shortened interview can be found here.

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The good news is that a lot of what independent labels did for artist in the past can now be accomplished by the artists themselves. Distribution is key among the tasks that in the past were monopolized by labels and are now open to almost anyone through forward-thinking online distributors. Two companies in particular have empowered artists to get their music on iTunes, Rhapsody, eMusic, and the other online retailers: CD Baby and TuneCore. Essentially these online distributors do exactly the same thing – they have direct relationships with the digital retailers and provide a bridge to get your music into the stores. However, they operate slightly differently. CD Baby charges a small fee (currently 9%) for every sale that generates online. Tunecore charges no fee on sales, but instead charges a one-time fee, per store, per album for delivering the music, and one-time charge per song you upload (both charges are currently $.99), plus a $20 annual fee. You’ll need to run the numbers to see which one works best for your particular situation. There are other online distributors popping up all the time, but these two are the most established and have a proven track record of success.

One important factor to note: distribution follows marketing. One does not market their music by getting on iTunes. The key is to generate interest outside of these retailers and to drive folks to the outlet so they will buy your music. This is best done though a fully integrated marketing campaign that focuses on effective traditional outlets, and also takes advantage of the marketing outlets and technologies that are now available to the independent musician (Internet marketing is a big part of this, of course). Quick advice: be sure to have your own Web page to start (do not make the mistake of only having a MySpace page), and tour, tour, tour. Of course, checking out my Music Marketing 201 course wont hurt either. ☺

The NYT had a great article this AM about Microsoft’s offer to purchase Yahoo. What I found interesting is the commentary on the reason why Silicon Valley is lukewarm on the idea: they prefer innovation from forward-thinking smaller companies rather than acquisitions by major companies trying to play catch up.

Here’s a link to the piece:

http://www.nytimes.com/2008/02/03/technology/03valley.html?hp

I think some parallels could be made to the music industry – the folks that I think will make it are innovators, developing and refining the way we listen to, distribute, and buy music; they are doing something that’s different. I think it’s important to recognize the fact that the music industry is not immune to the same basic economics and trends that affect the technology sector. Building a creative business from the bottom up that fills a defined niche seems to me to be a much more sound approach than creating a business that relies on the traditional industry gatekeepers, particularly given the current state of the music business.