Monday, August 31, 2015

Using iTunes is now illegal under UK copyright law

Written by Christopher Hooton

Copying CDs onto computers, phones and MP3 players is illegal again

In scenes similar to the government's accidental banning of everything, the High Court has overturned copyright legislation to make the transferring of copyright works from one medium to another illegal - one of the main traditional uses of iTunes.

The government legalised copying for private use last year, a practice most thought was already legal.

But, as TorrentFreak reports, the private copying exceptions have been overturned and the Intellectual Property Office has confirmed that ripping a CD in iTunes is no longer allowed.

"It is now unlawful to make private copies of copyright works you own, without permission from the copyright holder – this includes format shifting from one medium to another," a spokesperson told the site.

The IPO apparently specifically noted the copying of music from a CD to an MP3 player - something that is not only possible on iTunes but, at least when it first came out, was its main function.

In fact, one of the first instructions upon installing iTunes is to 'import your favourite CDs with just one click'.

Don't expect the police to come barging down your door and seizing your copies of the Lion King soundtrack any time soon however.

"As this is a complex area of law, the Government is carefully considering the implications of the ruling and the available options, before deciding any future course of action," a government spokesperson said.

"The Government is not aware of any cases of copyright holders having prosecuted individuals for format shifting music solely for their own personal use."

Click here to read from this article's source.

Friday, August 28, 2015

Streaming now accounts for 72% of recorded music market in Denmark

Written by Tim Ingham

Digital is taking over in Denmark: 88% of music companies’ revenue comes now from digital music sales.

According to figures for the first half of 2015 released by the IFPI, revenue from streaming has risen by 14% compared to the same period in 2014.

That drove a very small (0.4%) rise in income from recorded music in H1 2015, despite the fact that physical sales fell by 35% year-on-year.

Downloads dropped by 13% in the period.

IFPI Denmark Director Jakob Plesner Mathiasen said: “The interim figures for 2015 confirm the trend we have seen over the last few years.

“The streaming services continue to ensure overall growth in the market, while consumers [are still buying] CDs and downloads. ”

Streaming constituted 72% of the market in H1 2015, downloads accounted for 16%, while sales of physical products only claimed 12% of the market by value.

Jakob Plesner Mathiasen added: “Five years ago streaming was a marginal source of income for music companies. Today, streaming 72% of music companies’ revenue from recorded music.

We also know that the Danes streaming more than 800,000 different titles a day and over 100 million songs per week.

“It is a spectacular development that testifies to both industry and consumers have been innovative in recent years. ”

Denmark’s recorded music industry posted its biggest annual income for four years in 2014, growing 1.8% to DKK 437m (€58.6m).

Click here to read from this article's source.

Thursday, August 27, 2015

48% of Apple Music Trial Users Have Abandoned the Service

Written by Paul Resnikoff

Amongst active Apple iOS users…

Are you aware of Apple Music?

Are you currently using Apple Music?

If you’ve already started a free trial on Apple Music, are you still using it?

If you’ve already started a free trial on Apple Music, have you turned off the auto-renewal option in your iTunes settings to prevent an automatic subscription start?

Survey conducted by MusicWatch using a statistically-significant sample size of 5,000 participants. The results were released yesterday. Apple quickly refuted the claims, telling the Verge that 79 percent of free trial users are still actively using the service, though they have not refuted other published findings of the survey.

Click here to read from this article's source.

Wednesday, August 26, 2015

Frankie Knuckles’ Vinyl Record Collection Has an Awesome New Home

Written by Krystal Rodriguez

The house legend’s legacy lives on

As a mural tribute to Frankie Knuckles is currently in the process of being painted over, someone else has found a way to ensure the late house legend’s legacy lives on.

A Bronx-bred Chicago transplant, Knuckles is considered a pioneer of house music due to his role in developing the genre in the 1980s; its namesake comes from the venue in which he DJed, Warehouse. Last year, he passed away unexpectedly at the age of 59.

As Art News reports, his prized record collection will be put on display in his adopted hometown’s new arts center, the Stony Island Arts Bank, thanks to local artist Theaster Gates. The establishment, originally an old bank built in 1923, was due to be demolished by the city until Gates bought it and converted it into an art space.

Scheduled to open to the public on October 3, it will serve as a “hybrid gallery, media archive and library, and community center” with a focus on African American culture, according to Gates. In addition to the vinyl collection, the space will house 60,000 lantern slides from local universities; the archives of Johnson Publishing, home to publications such as Jet and Ebony; and a collection of racist objects Gates refers to as “negrobilia.”

Click here to read from this article's source.

Tuesday, August 25, 2015

Tidal looks like a time bomb — here's what went wrong with Jay Z's music-streaming service

Written by Travis Lyles

It seemed like a happy marriage in January this year when rapper Jay Z bought Aspiro, the parent company of the streaming platforms WiMP and Tidal. All the products were rolled into one premium music-streaming service, called Tidal.

The new company, which relaunched on March 30, said it would offer customers higher-quality listening than the other streaming services on the market while helping subscribers discover music through curated playlists.

The goal for Jay Z: challenge far more established streaming giants such as Spotify and, hopefully, win.

A billion-dollar roster of artists joined the endeavor, including Coldplay, Deadmau5, Daft Punk, Alicia Keys, Calvin Harris, Jack White, Madonna, Usher, Arcade Fire, and Rihanna. Also on board was Jay Z's wife, Beyoncé, among many other artists who assumed co-ownerships of Tidal.

Jay Z touted Tidal as the artists' platform, reportedly offering millions of dollars and equity stakes in the company to some choice talent.

Artists initially praised Tidal for presenting their music in such a high-quality format. And musicians would be paid "double the royalties of other streaming services," according to former Tidal CEO Andy Chen.

Chen told the International Business Times in November, "It's a win-win for everyone."

Maybe not. Tidal had a rough launch less than six months ago, and things have been turbulent ever since.

Now the company looks like a time bomb.

What went wrong

For starters, Tidal's biggest selling point — high-fidelity audio — requires a $20-per-month subscription.

Tidal's cheaper $10-per-month service doesn't offer much incentive to switch from a different option, because it is nearly identical to its similarly priced competitors.

"They probably could've did something more exciting," rapper 50 Cent said in a radio interview in May. "Why would you actually buy Tidal to get something that would be everywhere else?"

Interest in the app has been crashing, too. According to App Annie, it was not among the 500 most downloaded apps in the US earlier this year and as of Tuesday was the 107th most downloaded app in the music category.

Another problem, often overlooked, is that Tidal's high-fidelity service streams songs at 1,411 kilobits per second. That is roughly 40 megabytes of data for one 3-1/2-minute song. Some subscribers could end up maxing out their data plans if they're not careful.

The revolving door

Tidal's executive suite has been unstable. Chen exited as CEO in April amid reports of further shake-ups within the ranks.

Peter Tonstad stepped in as interim CEO but left less than three months later.

"It was a wasted opportunity," streaming expert Russ Crupnick told The Wrap, referring to Tidal's rough start. "I think they had a window in which people were listening, but unfortunately that opportunity was squandered."

Last month Tidal lost yet another key executive in US sales and marketing manager David Solomon, who was hired to pump up Tidal's US presence.

Most recently, the company's senior vice president of label and artist relations, Zena Burns, quit two months into her tenure. Jeff Geisler, the chief marketing officer for Roc Nation — another of Jay Z's companies — left last month, though it's not clear whether he worked directly with Tidal.

What could happen if Jay Z leaves

For what it's worth, Jay Z and his associates have offered no indication that they plan to give up. Last Friday, Tidal neither confirmed nor denied reports Jay Z was thinking of jumping ship, responding on Twitter with only a loosely quoted Mark Twain reference:

"Lies can spread around the world while the truth is putting on its slippers."

Madonna, a co-owner of Tidal, told the Associated Press last week, "It's just the beginning, so we're working out a lot of kinks."

Jay Z may not leave right now, but mounting legal troubles are adding to the pressure. Tidal is entangled in a $50 million lawsuit filed by Cash Money Records over a Lil Wayne mixtape that was streamed exclusively in July. Cash Money says Tidal's use of Lil Wayne's music was "a desperate and illegal attempt to save their struggling streaming service."

With Apple Music's relative success and Spotify still enjoying a huge following, the streaming space could prove to be a tough code for Tidal to crack. And Jay Z's rumored departure could strip away some huge name recognition from the app and possibly cast its future to the wind.

Business Insider has reached out to Tidal for comment.

Click here to read from this article's source.

Monday, August 24, 2015

Can 1 Trillion Streams Save The Music Business?

Written by Bobby Owsinski

It’s funny how all the players in the music business are faced with the same questions when it comes to streaming distribution. Are all streams being counted? How many actually generate revenue and how much is it? Is the revenue actually making it to the right places?

Artists, bands, musicians, songwriters, managers, labels and publishers ask these questions every day and the answers they receive are often vague, or worse, contradictory.

Take for instance the latest data from a survey conducted by Next Big Sound that counts the number of streams for the first 6 months of 2015. The company found that there were 1,032,225,905,640 (or 1.03 trillion) song plays on Pandora, Rdio, Spotify, SoundCloud, Vevo, Vimeo and YouTube during that period.

Now what’s interesting is that this is only a partial list of streaming services with significant subscriber bases. iTunes Radio, Deezer, Slacker, Rhapsody and Google Play, among others, weren’t included, so this total could actually be low.

Now here’s where the confusion comes in. Nielsen Music’s mid-year report states that there were only 135 billion on-demand streams during the first half of the year. This was based on data from AOL, Beats, Cricket, Google Play, Medianet, Rdio, Rhapsody, Slacker, Spotify, Xbox Music and YouTube/Vevo.

As you can see, only Rdio, Spotify and YouTube/Vevo were included in both surveys, but doesn’t that 135 billion figure still feel a little low? Some discrepancy is understandable due to the fact that Nielsen only included interactive services and not radio-like services like Pandora, but a difference of a factor of almost 10 screams out that something’s not quite right here.

Then there’s the question about getting paid, because after all, one trillion is a lot of streams.

It would be nice if there was a single rate that each and every stream was worth regardless of the streaming service that it came from, but unfortunately it’s not that simple.

For instance, interactive streams where the user can actively choose which song is streamed (like Spotify) pay a higher rate than non-interactive streams that are more radio-like (like Pandora). Plus the free tier of both pays less than the premium subscription tier. To make it a little crazier still, different countries may pay different rates, Spotify pays what amounts to a bonus for greater market share, YouTube pays less than them all, and some views might not pay anything.

Got that? If you don’t that’s okay, it’s complicated, which is why there’s so much confusion.

That does explain why whenever you see a per stream rate from a streaming service, it’s always an average and not the true amount (Spotify claims to pay $0.006 on the free tier and $0.0084 on the premium, for instance). If you’re an artist that’s lucky enough that most of your streams come from the premium tier, then your rate is above the average. On the other hand, if most come from the lower tier, then you’ll probably be unhappy with the payout and cause a ruckus on social media.

Yet a trillion of anything is a huge number (and as we’ve seen, that’s not even the grand total) and you’d have to think that it’s worth some decent amount of revenue as a result.

Glenn Peoples ran some numbers in an article in Billboard using a pretty good cross-platform/tier average of 0.35 cents per stream (or $.0035). He calculated that the value of 1.03 trillion streams equals about $3.6 billion, or $7.2 billion over the course of the year.

According to the IFPI, streaming music brought in about $2.2 billion in global revenue to the music industry last year. Given the current streaming numbers and revenue outlook, it looks like there should be quite a jump in industry income from this end of the market at the end of the year.

Or not.

Pandora only paid 0.14 cent per free tier stream and .25 cent per premium tier stream last year, Soundcloud (which is growing like a weed in terms of number of streams) hasn’t paid much in royalties at all (although it did recently sign deals with indie label representative Merlin and Warner Music), and YouTube still remains stingy with its 55% payouts (most others are around 70% of total revenue) while flooding connected devices everywhere with more music.

All that said, we can take heart in the fact that at least one area of the music business is still growing at a crisp pace that shows no signs of flattening out. Let’s just hope that the 1 trillion figure winds up counting for something.

Click here to read from this article's source.

Tuesday, August 18, 2015

Money in the music streaming business keeps mysteriously disappearing. Here’s why.

Written by Kelsey McKinney

A ton of money in the music industry is going missing. Some companies, like Kobalt Music Publishing, have platforms that watch their money in real time. And yet according to a recent report by Berklee College of Music, somewhere between 20-50 percent of royalty payments aren’t making it to the correct recipients. And in a $45 billion dollar global music economy, that figure certainly isn’t chump change.

So where is all of that money going? The business of streaming music, as it stands today, is confusing, muddy, and incredibly mysterious. And that’s part of why it’s so controversial.

From the very beginning, the check written could be wrong.

Companies that stream music—like Spotify, Pandora or Apple—pay artists in exchange for playing their songs. Somewhere between the company cutting a check to cover the music and the artist— be they a performer, a songwriter, a sound engineer, or a producer— depositing money into a checking account, dollars are disappearing.

In their report, Berklee surveys the current music industry using studies, first accounts and input from Berklee students and faculty. It both tackles the issues currently facing the music industry and provides suggestions for how to affect change going forward. One of the biggest problems the report addresses is the lack of transparency in the industry that allows money to go missing.

Streaming companies swear that they are cutting giant checks every year, and that they cannot be held responsible for the mess created by the music industry. Daniel Ek, the CEO of Spotify, wrote in a blog post last November, “As I said, we’ve already paid more than $2 billion in royalties to the music industry and if that money is not flowing to the creative community in a timely and transparent way, that’s a big problem.”

Those payouts should be easy to prove; the companies can produce statements of how much money they’ve paid out. But it’s difficult to be absolutely certain that the dollar figure on the check is the correct amount.

Some musicians, record labels, and publishers—folks who used to make a lot of money in the music industry—are upset and believe that streaming doesn’t pay properly. Think about Aloe Blacc’s op-ed for Wired or Taylor Swift’s op-ed for the Wall Street Journal. Both predicate their points on the argument that there’s no money to be made in streaming and that streaming companies are part of the problem.

According to a report out of Berklee College of Music titled Fair Music: Transparency and Payment Flows in the Music Industry, which was released this in early July:

“Streaming services are paying roughly the same percentage of their revenue (70 percent) to right holders as iTunes has paid on download sales for the past 12 years. The stories report that little or no royalties are paid, but too often, this news coverage either incorrectly states the nature of the contractual terms or provides only the amount of the check but doesn’t show the details of the payment flows, such who’s paying who for what”

Whether the checks coming out of streaming companies are exactly precise isn’t a symptom of sloppy calculations on their part—it’s a symptom of a greater problem in the music industry in general.

No one knows who to pay for a play.

In the music industry, everything is privatized—including basic information. Think about the liner notes that used to come with music when it was sold in vinyl, cassette, or CD formats. If you flipped the pages past the lyrics you found credit for everything on every song: who wrote it, who recorded it, where they recorded it, who played bass on track 4, etc., etc.

That information is owned by whoever owns the rights for that album (sometimes the label; sometimes the artist themselves), and there’s no comprehensive, searchable database open to the public that can be used by members of the industry—be they streaming companies or artists themselves. There’s not even really an easy way to find out who owns the rights to which albums.

An artist, of course, knows what they are credited for, and maybe their label even has solid records of every work they deserve to be paid for. But that record isn’t public, and there’s no way for a third party (like a streaming company, a movie production company, anyone who wants to play music legally) to know exactly where their check should be going.

What this means for streaming companies is that sometimes paying an artist for their work is a lot more complicated than just cutting a check—because they aren’t exactly sure who should get paid for the play.

Even once the money from a song transfers hands from the service to the label it could still get lost. Sometimes—in these old databases transcribed from paper to computer and moved through system after system—songs are attributed to the wrong name, and the wrong person gets paid. Sometimes no one is assigned a song and so no one gets paid for its play. But because all of these databases are private, there’s no way for an artist to see if this is happening to them; it’s just a reality of the industry.

No one knows exactly how payment is calculated, nor exactly where it’s sent.

With the exception of non-direct streaming platforms like Pandora and Rdio, no one really knows how the payments for Spotify, Tidal, and Apple Music are calculated. Every company determines their own system.

Despite the way we talk about streaming, Spotify doesn’t calculate their payouts based on a “per play” system. Instead, an artist is paid based on how big of a percentage of Spotify’s total plays they make up, then some fancy calculus is performed, and a number is created.

That’s confusing, sure. But the bigger problem is that once that number is decided, it is handed over to a record label, and the label decides how the money gets filtered.

There is zero transparency in the industry; the dollars paid out from the streaming companies are not traced to their final sources. Because labels function as independent companies, they do not have to disclose how much of the money from streaming they are choosing to keep. Additionally, most artists sign contracts that involve promising that they won’t talk about how much their label is keeping.

Over the phone, Allen Bargfrede, an associate professor at Berklee who spearheaded the transparency report, told me, “What’s happening upstream is the real issue here—what’s happening between the moment a person plays your song and the moment you get paid.”

It’s a dark, winding labyrinth where it’s incredibly difficult to see what’s happening. There are no data standards to help monitor where money is supposed to go, and the music industry has failed to institute a system to help keep up with all of the moving pieces in this puzzle.

“There is plenty of technology out there to fix these problems; it just hasn’t been adopted,” Bargfrede told me.

Too many people are entitled to a chunk of the money without accountability.

Where artists get frustrated, and rightfully so, is when the check they receive in the mail doesn’t add up to as much as they think it should.

The music industry, like many creative industries, functions underneath a heavy velvet curtain of non-disclosure agreements and back-room deals that are kept private. Artists, for example, sign to a record label—which helps them distribute, market and package their work—often without a legal consult. Some musicians end up signing away far more of their profit than is probably necessary.

Once this happens, though, there’s nothing an artist can do. Non-disclosure agreements keep artists from being able to call out labels and publishers without breaking their legal contract; and often they don’t have the data to make a case, anyway.

According to the Berklee report, “labels generally receive around 60 percent of the revenue of a subscription service (and pay a small fraction of that to artists), whereas publishers and writers receive 10 percent, with the service keeping another 30 percent for operating costs.”

But all an artist sees is the final number on their check.

Allen Bargfrede told me that “there seems to be a lot of sensationalism about low payouts, but those reports are so vague. When someone says, I received a $1,000 check for my plays on Pandora… Who did you receive the check from?”

I spoke with Charles Caldas, CEO of the indie label group Merlin, and he said when talking about the revenue projection for Merlin’s conglomerate of indie labels in 2015: “We expect $160 million in revenue just from audio streaming. $160 million dollars is not nothing. I don’t think that $160 million is getting hidden by streaming companies, because we’re seeing it. So it must be getting hidden at some other point.”

At which point? By whom?

No one can tell how the money is divided up.

According to a report from the Recording Industry Association of America (RIAA), streaming services contributed 27 percent of total industry revenues in the first half of 2015. That’s up seven percent from last year. That percentage has been steadily moving upward since the early 2000s.

“A lot of people are seeing their download revenue going down as the streaming revenue goes up. Five years ago people were unsure, but I think the evidence is now there that streaming is going to become the dominant form of consumption,” Matt Bristow, the director of UK record label Red Cherry told me.

This, of course, does not mean that the amount of money these labels are making off of streaming is equal to the amount of money they might have made off of physical copies. But there is certainly money to be made in the streaming world.

In fact, Merlin sent out a survey to all of its members to query how they were functioning in the streaming economy, and found that “Streaming/subscription income is driving digital growth. One in three respondents report that income from audio streaming and subscription services now accounts for over 50 percent of their digital revenue—up from one in five in 2014.”

In other words: The music industry continues to make money. But because there’s no transparency—and so much red tape in the form of non-disclosure agreements—there’s no way to see exactly where the money is going.

The frustrating part is that this is a mystery than can be solved. With a little cooperation and a lot more transparency, we have the technology to accurately track cash as it travels through the business. But cooperation in an industry swarming with change and fear is a lot to ask.

Click here to read from this article's source.

Who wants to buy Beatport?

Written by Tim Ingham

SFX Entertainment boss Robert Sillerman was supposed to have taken the company private by now – but it hasn’t happened.

Sillerman missed his deadline on Friday (August 14) to buy the 62% of SFX he doesn’t currently own for $774m.

However, he clearly didn’t manage to raise the cash in time, which sent SFX’s value plummeting by more than a third.

The company lost 7% on its share price on Thursday, before falling by a wince-worthy 28.35% on Friday to an all-time low of $1.39 per share – a market cap of just $135.7m.

What this means is that US-based SFX is now stuck between a commitment to going private and Sillerman’s seeming inability to make that happen.

The next logical stage, then, is a fire sale – and according to SFX, that’s certainly an option.



Here’s what the company told investors in a statement following Friday’s stock market nightmare:

“The special committee and its advisors will entertain offers for the entire Company as well as assets not central to the Company’s core business through at least October 2, 2015.

“Sillerman has agreed to cooperate with the special committee to obtain the best available offer for the Company’s shareholders.”

However, Sillerman remains interested in taking SFX private, said the board, either on his own or with outside backers.

Obviously, his ability to do so will have been helped by the fact that when he last agreed a buyback fee for the company, it was at $5.25 per share.

As of this morning (August 17), he’d have to pay less than a third of that price.

Alongside its huge live music brands such as Tomorrowland, one of the most prized assets within SFX’s control is Beatport.

The digital music platform caused alarm bells regarding Sillerman’s capability to buy back SFX last month, when it briefly froze payments to independent labels.

SFX acquired Beatport for $50m in 2013.

Click here to read from this article's source.

A Radical Plan to Save the Big Music Labels: Shrink the Big Music Labels

Written by Peter Kafka

A decade and a half after Napster, the music business is finally changing. But only grudgingly: Even as music labels have begun to embrace digital streaming, they are still trying to protect the sales of $15 albums, a format consumers have long rejected.

And despite protests to the contrary from label executives, they are still doing business the way they always have: Pouring money into new albums, with the hope that a small fraction of them will become huge hits, and make up for losses everywhere else.

The late Dave Goldberg had a better idea: He wanted to radically reinvent the modern music label, by cutting its staff and expenses dramatically, focusing almost entirely on digital and moving away from making new music.

Under Goldberg’s plan, the big label of the future wouldn’t try to sign Taylor Swift, or the next Taylor Swift. It would lose a lot of the sex appeal the business still maintains and its revenues would shrink. But it would end up being much more profitable, and much more valuable.

When Goldberg died last spring, he was running SurveyMonkey, a very successful digital polling company. But he started his career in music — first at Capitol records, and then via Launch Media, a digital music company he co-founded and ultimately sold to Yahoo. He always retained a keen interest in the industry and its inability to adapt to the digital world.

Over the years, Goldberg would offer his prescription for the industry to anyone who would listen. Now the world can see it, via a memo he wrote to Sony Entertainment CEO Michael Lynton last summer. The memo surfaced earlier this year via the Sony hack, and some industry folks have referenced it since then. I’m re-printing here because it’s relevant for the music industry, and any other business that is struggling to reinvent itself (that is, most industries).

Goldberg wasn’t delusional about how difficult it would be for Sony Music, which Lynton oversaw, to transform itself.

“I think this amount of reinvention has rarely been done inside a public media company and it would be tough for Sony as a company to stomach the complaints from artists, employees and related parties,” he told Lynton.

But here are his main ideas:

- Cut back on new releases, limiting them to smaller acts that won’t command big advances and marketing costs. The goal isn’t signing big acts, but “safely getting some good music out that has longevity.”

- Cut back on label employees who sign new artists and market them, but spend some money on the technology the label will need to track licensing revenue, etc.

- Cut back on international operations. “This is a huge part of the cost base with very little value.”

- “Dramatically” change digital licensing to get more competitors to offer both subscription services and free, ad-based services. Goldberg suggests offering Spotify, Google and everyone else flat-rate deals that encourage them to “heavily invest in growing their user and revenue bases because they would see improved margins on each incremental sub. … If Netflix wanted to pay 200 MM per year to give all of its 40MM subs a music subscription — that should be encouraged, not scoffed at.”

And here’s the full memo:

Core strategic assumptions:

Music is becoming a purely digital product. A digital-only recorded music company will be a much more profitable one after one-off restructuring costs. It will have lower revenue and higher margins. Its revenue will be very stable and grow with the overall digital music market growth. It will be a much more valuable company with its revenue base solidly coming from subscription and ad revenue. It will be valued like music publishing companies or cable channels, not like recorded music companies today. Margins for recorded music should eventually be above 40% on that lower but growing revenue base.

Catalog provides 50% of the revenue and 200% of the profits of recorded music. This has generally been the case for the other recorded music companies when the analysis was correctly done. The correct analysis requires including reissues, live albums, greatest hits releases in catalog. Catalog needs to be defined much more broadly to include all music that hasn’t been created in the last 2 years- EMI used to call the Beatles releases “new music” even though they clearly weren’t under a new album contract.

In addition, streaming revenues tend to be more heavily weighted to catalog. Pandora and Spotify are probably 65% catalog under this definition. Licensing and synch revenue are mostly catalog as well.

Therefore, if Sony Recorded Music (ex-Japan) is doing $250MM in EBITDA today, catalog is probably generating approximately $500 MM and the new release business, which is 98% of the headcount, is losing $250MM per year. The catalog is also primarily generating this revenue off “deep” catalog that is at least 5 years old or older. The great classics of pop music are stable earners, much like the consistent songs that generate most of the music publishing revenues.

With catalog providing the base profits, new releases need to be cut back dramatically to the point where the new business either breaks even or loses a small amount of money (justified by the long term catalog income stream of those songs). Thus, if the new release business is oriented towards building new deep catalog, it changes the entire process from trying to pick big hits to safely getting some good music out that has longevity. This will bias new releases to genres like rock and country that typically have had strong catalog. These also happen to be the genres that don’t have expensive producers so more music can be created for the same A&R dollars.

The record company needs to act like a music publisher for new releases- putting up very little money but not trying to hold artists for long contract periods or to keep as much of the revenue. Advances would be $50k with a 40% revenue share after the advance. Losses in new releases are generally driven by expensive fixed headcount and built-in marketing costs for new releases that don’t pay off. The new release business budget, employees and capital need to be ring-fenced from the catalog so that it stands on its own with a Lifetime Value assessment of the capital deployed.

Most fixed headcount in new releases will need to be eliminated, artists will need to be paid quickly and transparently, deals will need to be simple and fair and catalog replenishment is the only goal of the new release business. Artist contracts that have large fixed marketing costs will need to be restructured or sold off as there will no longer be headcount to do the work.New releases will be tested on consumers before added money is spent to ensure that it isn’t wasted.

In short, the new release business will become like an independent label. Publishing and recorded music A&R should be combined to ensure that all recorded music releases had a combined publishing deal and that you can capture the publishing value from the catalog you create. Not all new publishing writers would be on recorded music contracts but all new recorded music contracts should be combined with publishing.

Physical distribution is going away- it doesn’t need to be eliminated prematurely but it needs to follow digital and not drive it. The record company will want to milk the physical CD business but not worry about supporting retailers with credit to make quarterly numbers. Jamming product into the channel needs to be eliminated and the digital business needs to be the priority.

Internationally, most local repertoire will probably have to be eliminated. The record company will want to sell off the local repertoire or spin out the local labels and focus on English language repertoire globally, unless there is some country that has managed to be profitable on its local repertoire (i.e.Japan). This is a huge part of the cost base with very little value. Digital distributors do not need local new release labels to work with as they are all regional or global players. International local publishing repertoire will need to be evaluated but much of that cost and infrastructure shouldn’t continue either.

Digital licensing strategy needs to change dramatically. The record company and the publishing company need to understand the economics and the ecosystem of the DSPs and work to help them grow profitably but also to ensure that there are multiple providers. Pandora should be incentivized to build a subscription business, Spotify to enter the radio space, new entrants to have an advantage in the beginning and much more international access to digital content.

The simplest way to start would be to offer Pandora, Spotify, Google, Amazon and others a new three year deal. This would be a 10-15% premium over their expected payment for the 3 years but they would get unlimited use of the music during that period. This would incent them to heavily invest in growing their user and revenue bases because they would see improved margins on each incremental sub.

Additionally, the record company would make licenses transparent and simple for all new entrants while removing the price setting constructs from on-demand subscription. If Netflix wanted to pay 200 MM per year to give all of its 40MM subs a music subscription- that should be encouraged, not scoffed at. The goal for digital is for subscription and ad based services to become the predominant means for people to access music. These services need margin to attract capital to make the investment to grow their user bases. This should help build more stable long-term revenue streams for both recorded music and publishing.

Publishing needs to extract itself from the tax of the PROs (ASCAP, BMI). The technology is available today to enable direct licensing of public performances for radio and TV- if the costs of the PROs was shared equally between broadcasters and publishers, this could result in an incremental 7%-9% revenue increase to publishers on the same base of content. In addition, record companies should be able to get a US performance right for analog radio by pushing hard to move as many listeners to digital radio as quickly as possible.

Headcount reductions will take time but after the restructuring period, it should be possible to run Recorded Music with a few hundred people and the same for publishing. More investment will be needed in technology for royalties, reporting and licensing content and revenue will certainly come down on the recorded music side but the absolute and relative margin improvements should make up for it.

It should be easy to double margins without much change- Warner now has an 18% OIBDA margin on a lower revenue and publishing based compared to Sony’s 11%. But the goal is to get to a 40% margin on the combined Sony Music business, albeit on lower revenue. This should be a growth business that grows with the digital business and gets a substantial premium on its valuation because of the margin, the stability of the cash flow and the growth.

If the whole business had $587MM of OIBDA on $5.4 B of revenue last year, it should get to $1.6B of OIDBA on $4B of revenue in 3 years. This would be an almost 3X improvement in absolute earnings but would be a 4-5x increase in valuation because of the margins and the growth tied to digital. The new business would be growing 10-20% annually with high margins.

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Wednesday, August 12, 2015

Laidback Luke Op-Ed: Pay to Play, Dance Music's Payola

Written by Laidback Luke

The DJ/producer speaks on the Beatport charts, festival bookings and the need to preserve passion in dance music.

It’s getting more and more apparent how big of a monster the dance scene has become.

I’m a glass-half-full kind of guy, so in that sense, I feel that at least everyone is talking about EDM now, and no one seems to be talking that about hip-hop anymore in the way it ruled the past. Even Jay Z owns a piece of Calvin Harris and deadmau5 now through his Roc Nation setup. Whereas kids in America wanted to become rappers five years ago, they now want to grow up to be DJs. Dance music has come a long way!

As it has grown, dance music has integrated an entirely new element into its system, something that has become integral yet quite invisible: payola.

Per Wikipedia: "Payola, in the music industry, is the illegal practice of payment or other inducement by record companies for the broadcast of recordings on commercial radio in which the song is presented as being part of the normal day's broadcast. Under U.S. law, 47 U.S.C. § 317, a radio station can play a specific song in exchange for money, but this must be disclosed on the air as being sponsored airtime, and that play of the song should not be counted as a 'regular airplay.' The term has come to refer to any secret payment made to cast a product in a favorable light (such as obtaining positive reviews)."

Look at the various methods used to reach the top regions of the Beatport chart, which is often referenced to rate a DJ's relevancy in the scene. A lot of DJs rely on this all-important chart to get bookings or increase their fees. With labels often locking artists into 360 deals, which include a percentage of gigs, they are incentivized to help push up the Beatport chart positions by giving out free headphones in return for a purchase receipt from the customer. Or helicopter rides, or free tickets to a gig, or any other cute action you can come up with to generate sales.

My label Mixmash Records decided to give this a go earlier this year and offered a full refund in return for a purchase receipt. For some reason, this action drew a bunch of complaints and Beatport decided this was considered chart manipulation. So they deleted the sales result from the chart, which kicked us out of their top 100. Surprisingly, Beatport does not communicate what their rules are when they refer to chart manipulation, nor do they respond to other similar cases, which are allowed to remain in the charts.

Editor's note: Beatport responded to the issue with the following statement in January. “While conducted in the open from a reputable label with no history of artificially influencing sales, the campaign impacted Beatport policies regarding chart eligibility. Out of fairness to other labels, Beatport had no choice but to remove the track from the store as a result. The decision to remove the track in question was not to punish Mixmash Records, Laidback Luke, or Tujamo, nor should it be seen as an accusation of any wrongdoing against any of the parties involved. The track was re-added shortly after with a new track ID to reset the chart position.”

In the strictest sense of the word, this is not payola as it is not a direct "pay for play," but the idea is the same -- influence beyond what could be considered marketing in order to gain success. So call it payola. Call it what you will, it’s (still) here, and it’s all over the dance industry in numerous ways.

We’re all familiar with the implications of artists buying likes, followers, plays, views and so on. But what about Facebook’s algorithm? It either rewards or penalizes you for boosting (paying for more exposure to a larger audience) posts. This is a completely legal and accepted business practice that "buys" you more views and potentially allows for more likes and engagement to be generated. Nowadays, this is even generally perceived as marketing.

I’m currently doing an Asia tour, and one of the promoters told me that if she wanted to book a bigger-name DJ from a certain agency, she was often forced to book a smaller DJ -- so-called packaging. I sometimes get tweets from fans asking me why I can’t come play in their favorite city, and in certain cases, that’s due to what festivals I’m playing.

Due to the size and competitive nature of the festival industry, we DJs are often bound to exclusivity and territory restrictions that can cover various states or even countries, as well as any type of performance. For instance, at times I can't play for a club run by a competing promoter for up to half a year after a festival took place -- even if the festival promoter has no club available to me. Sometimes this means I can’t play a cool underground club for a few hundred hard-core fans if I want to play a festival main stage for 50,000 people. Both are important to do though, so it frustrates me.

Discussions between agents, managers and promoters are ridiculously detailed for fees, billing sizes, pixel sizes relative to other artists, special guest lines, and even which side we'll appear on the flyer. It all impacts artists' profiles and is used as a trade-off when negotiating deals. The bigger agencies often have the upper hand here as they have more artists to supply and thus more leverage. These negotiations reference not only Beatport charts, but also Facebook likes, Twitter followers and DJ Mag Top 100 positions. There's therefore a big incentive to influence them one way or another, be it by buying, marketing or boosting.

Corporate investors are now involved and they often extend offers to promoters that they can't refuse. Such investments require return, and lineup strategy and conversation gets weighed down even more by charts and apps that continuously poll the audience about what they like, who they are going to see on the day, and what they want and appreciate. The result? A blur of lineups that look the same everywhere, and musical curation disappears. With this, it's telling us old-school, rebellious and true dance music heads that a conversation about pop artists playing too many festivals isn’t even a worthy topic of discussion when it comes to dance music.

With little to no A&R direction from the promoters’ side, there's no effort to manage fans' expectations. So somehow it ends up being the same usual suspects playing the same rundown of hits and playing it safe. The stakes are too high with so much money involved, so risks can't be taken. We DJs feel that pressure too.

Curation by numbers has now resulted in opening DJs being forced to guarantee a certain number of ticket sales to be given a slot in a big club. In many cases, opening DJs end up investing their own money into those tickets and buy themselves the slot. This obviously has nothing to do with real talent or the ability to properly open a night with the right music. I often wonder how much dance music’s payola stimulates organic growth. We need quality artists and real talent to sustain this industry. Even from a purely economic perspective, what is happening makes little to no sense. We are not nurturing enough resources to sustain a reliable output.

I’m a positive guy, and it’s all about passion in the end. Festivals like Tomorrowland, EDC and Ultra broke through because their passion for details was genuine. We are walking a thin line here by having this big, corporate takeover without a vision for keeping the scene alive. I, for one, am willing to fight for the real art of DJing. And I try and spread the word around how awesome it is to be able to produce and master tracks by myself and encourage others to do so too.

Another example, boxing. We don’t want to have what happened to boxing happen to dance music. Look at the Mayweather-Pacquiao match. What should have been the fight of the century turned out to be a dud. It was so overhyped, so overcalculated and so disconnected from the real boxing fans. It seemed to be all about the celebrities and the stories leading up to the fight, and I guess somebody forgot about the actual art of boxing. I tweeted it straight after: "When it’s all about the money, passion is lost."

We all need to understand what’s going on and be part of this debate. Everyone needs to decide their individual role in this. Keep an eye out for real talent, real passion and nurture and develop that. Phonies won’t bring us quality, and they won’t sustain the scene. I’m not just only talking about DJs, but promoters, agents, managers, bookers and radio too. Everyone has their part to play. It’s all our responsibility to step it up and let it grow, rather than let it sink.

Laidback Luke is a Filipino-Dutch DJ/producer with more than two decades of experience in the dance music industry. Luke owns Mixmash Records and supports rising talent through sub-label Ones to Watch and his production forum, whose users have included the likes of Avicii and Afrojack.

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