Music Business and Trend-Mongering

This past Wednesday the House Judiciary Committee’s Subcommittee on Courts, the Internet, and Intellectual Property met to discuss the proposed Performance Rights Act. Like many things related to the record business, it’s a contentious issue. Depending on where you stand, the Performance Rights Act is either: A) long overdue, the artists have been getting screwed for years, or B) another instance of the RIAA (the trade organization that represents the major labels) scrambling to pull in income from anywhere they can, and in this case they are biting the hand that has fed them for years.

There’s a ton of information (and mis-information) out there, and it’s confusing. Here’s a condensed version of what’s going on, as I see it.

Background
Broadcasters in the U.S. have traditionally only paid royalties on the public performance of a composition to the appropriate performance rights organization (ASCAP, BMI, SESAC). This money is then paid to the writers of the compositions. Unlike most other western nations, broadcasters in the U.S. have never compensated the artists themselves for any public performances. The same holds true for bars, restaurants, and retail stores. For the past 80 years, the record industry and the broadcasters have lived in harmony. The record industry worked the broadcasters, songs were played on the radio, records were sold, and everyone made money.

Players
On the side of radio is the NAB (National Association of Broadcasters), represented by spokesperson Dennis Wharton. Mr. Wharton is trying to build momentum for his cause by referring to the group he represents as “America’s hometown broadcasters,” which is not the first phrase that comes to mind when I think of Clear Channel, a massive radio conglomerate and NAB member. Two members of congress, Reps. Gene Green and Mike Conaway (both from Texas, the corporate headquarters of Clear Channel) have also introduced an anti-royalties bill called the Local Radio Freedom Act, which has been gaining support in Congress.

Those in favor of the royalty include the MusicFIRST Coalition, who was represented last week by Frank Sinatra’s daughter and recording artist, Nancy Sinatra. Marybeth Peters, the Register of Copyrights, also supports the bill, as does the RIAA (who incidentally back MusicFIRST). Sound Exchange, who has close ties to the RIAA, apparently will be responsible for collecting these new royalties, similar to their current role in collecting digital performance royalties.

Details
As submitted by Rep. Howard Berman of CA, the Performance Rights Act will:
(1) grant performers of sound recordings equal rights to compensation from terrestrial broadcasters;
(2) establish a flat annual fee in lieu of payment of royalties for individual terrestrial broadcast stations with gross revenues of less than $1.25 million and for non-commercial, public broadcast stations;
(3) grant an exemption from royalty payments for broadcasts of religious services and for incidental uses of musical sound recordings; and
(4) grant terrestrial broadcast stations that make limited feature uses of sound recordings a per program license option.
(5) provides that nothing in this Act shall adversely affect the public performance rights or royalties payable to songwriters or copyright owners of musical works.

Arguments
The artist’s (and the RIAA’s) point of view is simple: the old ways of doing things no longer work in the new music economy. The artists have made significant money for the songwriters (and broadcasters) of radio hits, but have received nothing from the airplay of their music. A performance right in sound recordings has been imposed on digital services since 1995, including the controversial royalty on Internet radio. It is unfair that U.S. terrestrial radio gets a free ride when all the other radio platforms, as well as international broadcasters, are required to pay the artists for public performances.

The NAB contends that terrestrial radio has always been a partner for the artists, responsible for millions of dollars in record sales. Commonwealth Broadcasting President/CEO Steve Newberry, speaking on behalf of the NAB on Wednesday, thinks that “…local radio provides to the recording industry what no other music platform can: Pure music promotion. Radio is free, radio is pervasive, and no one is harming record label sales by stealing music from over-the-air radio.” He went on to mention that if the bill passes “…the value of this extraordinary promotion, and all of the financial benefits that come from it, will be harmed. Ultimately, less music will be played, less exposure will be provided for artists — particularly new artists — and music sales will suffer.” The NAB also believes that the blame for dropping revenues in music is misdirected, and that the real problem for artists is restrictive recording contracts.

My Opinion
The NAB and the RIAA (the jury is still out for me on Sound Exchange, who have a heavy RIAA affiliation) are not organizations that have the artist’s best interest in mind. Their job is to represent the best interest of their member companies. And although the NAB is framing this as a battle between the “local broadcasters” and the RIAA (taking advantage of the RIAA’s terrible PR problem), this issue affects artists at every stage of their career, signed and independent. Although income is falling, the broadcasters are still making money (radio revenues came in at about $20 billion in 2007, according to ICBS Broadcast Holdings President/COO Charles Warfield, who testified on behalf of the NAB) based on the content these artists produce, and to say the artists should not be compensated for this is the embodiment of the old-school record business.

For me, the real question is if terrestrial commercial radio is still effective at selling music. Fewer and fewer people are tuning in to the large commercial stations that make up a large part of the membership of the NAB, and the play lists at commercial radio are so tight that the number of artists that commercial radio “breaks,” in terms of converting radio play to mechanical royalty sales, is miniscule. While I think non-commercial radio (in particular college radio and NPR) and some commercial Triple A stations are good promotional options for independent artists (radio play helps to get folks to shows where they can buy merch, it provides some legitimacy for a press campaign, and also could work to help a licensing pitch, for example), I’m not convinced that radio works to move records anymore at such a significant rate that it pays for itself. Promoting to radio is expensive, even to non-com radio (see my earlier post on this), and of course there is no guarantee you’ll get spins anyway.

Lastly, terrestrial radio is no longer in the position to say that the promotion they wield is far superior to these other non-terrestrial radio outlets that do pay a performance royalty, in particular for developing artists. I think there needs to be parity between all forms of radio: satellite, online, and terrestrial. I’m confident that non-terrestrial radio will continue to gain market share over the coming years, and I think it’s likely that terrestrial radio will continue to lose listeners, too.

My only major concern with the Performance Rights Act (other than reservations about Sound Exchange and possible collection issues) is the effect it might have on the small non-commercial terrestrial stations that work to promote local artists. The bill does stipulate that these smaller stations will pay a smaller annual flat fee of $5,000, but profit margins are so razor-thin at non-commercial radio, that even this could cause a problem.

Would love to hear your thoughts!

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.

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

——————

$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.

In addition to Music Marketing 201, I’m also teaching Dave Kusek’s Future of Music course. The first lesson in the course looks at the difference between the music business and the record business (there’s a big difference, of course), what a major/independent label offer musicians, the importance of touring and merch, and an overview of publishing.

Part of the first assignment in the course has students evaluate a hypothetical situation involving a songwriter that is beginning to have some success, and is now being courted by a major. The question: should this artist take the major label deal?

It’s a pretty broad question in theory, and one that requires a lot of questions in return. What are the terms of the deal? Is this a 360 deal that will require this artist to relinquish control (financially and creatively) of merchandise, touring income, publishing? Does this artist feel that a major label can effectively do things that the artist cannot do for him/herself?

From a critical thinking standpoint, all the above (and more) should be considered (by a lawyer, if possible). But from a knee-jerk standpoint, my first thought is to walk away. Consider these two news releases from last week. The first is from London’s Guardian paper:

“EMI, bought by Guy Hands’ Terra Firma group last year, confirmed today that worldwide headcount will be cut by between 1,500 and 2,000 as it slashes costs.

Confirming EMI insiders’ fears, the company said ahead of staff briefings this morning that it was launching ‘a series of wide-ranging initiatives within its recorded music division to enable the group to become the world’s most innovative, artist friendly and consumer-focused music company.”

On the flip side, there continue to be interesting ideas popping up on how artists can run their own label. Take a look at this company, called Slice The Pie. The company enables artists to connect with financers who want to invest in music. It looks to me like the company is in its infant stages, but it is definitely an interesting idea.

I’ve worked at labels. And while I think that a small tightly run forward-thinking label can survive and prosper in this environment (Stone’s Throw is one of my favorite examples at the moment), I still think the majors are a ways off from being even remotely close to navigating the current environment. I think times are going to continue to get worse for the majors before they get better, and the resources available to independent musicians are going to continue to improve.

Occasionally I hear folks complain about the fact that there is no good music out there any more (this myth was recently perpetuated by LA Reid in this, my “quote of the year”). But the fact is, many of the major national and regional outlets that in the past were the gatekeepers of new content (in particular radio, retail & TV) have ether been homogenized in such a way that they are ineffective at presenting new music to consumers, they are now irrelevant as tastemaking outlets, or both. There’s a whole new world of music promotion that is rising up from the ashes of the old guard that is primarily user-generated: thousands of blogs (Brooklyn Vegan and Day Trotter are excellent outlets focused on indie music) and online radio stations (Pandora is leading the pack) are doing a fantastic job at discovering and promoting new music. There are more outlets then ever to hear/promote new music, they might just not be quite as obvious as they were 10 years ago.

All this being said, I do love seeing quality music from real “developing” artists playing real songs on national TV. I got turned onto Feist from the work she has done with Broken Social Scene, an amazing collective out of Toronto. She’s got a new solo record out and a new song, (“1,2,3,4”) that was heavily promoted in the new iPod commercial. Check her out performing on the Today Show yesterday:

I’m loving the promo video that Sony made to support the Miles Davis On The Corner box set (the 8th, and last, in an incredible series of high-end sets designed for Miles completists). The 12 minute video, which Sony has provided to Amazon to help sell the $140 set, contains footage from Miles’s On The Corner band playing in Vienna in 1973, as well as a recent interview with the core members of that band (bassist Michael Henderson, guitarist Pete Cosey and alto sax player Dave Liebman) in Miles’s former backyard on W.77th in NYC!

Watch it here: On The Corner Interview
Although Bitches Brew is considered the real departure (from traditional jazz) album, On The Corner is the record that I continue to go back to. What Miles was doing 35 years ago would not seem out of place at all if it was released today. Truly a timeless record.

A lot of the credit has to go to producer Teo Macero, who pretty much compiled On The Corner from a series of jams. Check out a 2004 video interview with Teo (who does a great Miles impression) from Artists House Music: