Tuesday, May 16, 2017

Rest in Peace to the MP3


Written by Kat Bein — MP3s were all the rage even before you got that giant, clunky, gen-1 iPod, but today, MP3s are officially a thing of the past.

Major developer Fraunhofer IIS held most licenses for the use of MP3s, and it has announced it is terminating those licenses in light of better, lower-bit files, such as AAC, and the industry shift toward those files. The company's official announcement can be read online, and reads as follows:

On April 23, 2017, Technicolor's mp3 licensing program for certain mp3 related patents and software of Technicolor and Fraunhofer IIS has been terminated.

We thank all of our licensees for their great support in making mp3 the defacto audio codec in the world, during the past two decades.

The development of mp3 started in the late 80s at Fraunhofer IIS, based on previous development results at the University Erlangen-Nuremberg. Although there are more efficient audio codecs with advanced features available today, mp3 is still very popular amongst consumers. However, most state-of-the-art media services such as streaming or TV and radio broadcasting use modern ISO-MPEG codecs such as the AAC family or in the future MPEG-H. Those can deliver more features and a higher audio quality at much lower bitrates compared to mp3.

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Thursday, May 11, 2017

TuneCore Launches New Service Offering Advances to Artists


Written by PR Newswire — TuneCore, the leading digital music distribution and publishing administration provider for independent musicians, today announced the launch of TuneCore Direct Advance. A unique collaboration with Lyric Financial, the leading financial services and technology company serving the global music industry, the innovative new service offers U.S.-based TuneCore artists automated advances on their future distribution sales revenue.

With many independent artists and labels operating as small to medium-sized businesses with sometimes minimal resources, TuneCore Direct Advance is a valuable new offering that allows them to take advances on future earnings to help fund new projects and further their careers. From recording new material to purchasing new equipment to funding a tour, TuneCore Direct Advance provides a simple way for artists to access advances at their convenience, 24/7 and on their own terms. In addition, this new advance model does not require artists to pledge ownership of their music, which is often the case with many competing services. With TuneCore Direct Advance, independent artists can have full control of their finances while still maintaining total creative control of their music.

"This is a one-of-a-kind integrated offering that gives artists a hassle-free, reliable way to access their future earnings quickly and easily, eliminating the difficulty often associated with obtaining advances," says Scott Ackerman, CEO at TuneCore. "We are deeply invested in the careers of our artists and are committed to ensuring they have the tools and resources needed to succeed."

TuneCore Direct Advance is the latest addition to the company's comprehensive array of artist tools and services that are made to help them build successful music careers. The new service is available for U.S.-based TuneCore artists that meet certain eligibility requirements, including sales history and earning thresholds.

Qualifying customers can request a cash advance directly from their TuneCore Balance Page, and for a low, one-time fee, they will quickly and easily receive the money through PayPal or ACH (Automated Clearing House). The advance is repaid directly from future sales and automatically deducted from streaming and download earnings. Since this service operates as an independent process, artists avoid additional, time-consuming tasks often associated with obtaining advances, including registration and negotiations.

Based on direct feedback from customers, TuneCore recognized the need for a service that gives artists easy access to future sales income.

"As an artist for more than 20 years, I know firsthand the need for a money advance to cover anything from production to personal expenses," says Lito MC Cassidy, TuneCore Artist. "For the first time in my career, I not only feel in full control of my money but also relieved to know that by simply choosing the amount of money I need, I can receive an advance in seconds."

TuneCore Direct Advance was developed in partnership with Lyric Financial Founder and Chief Executive Eli Ball to give independent artists the ability to budget and access their royalties and licensing income at their convenience.

"For the last two years, we have worked to automate what has historically been a cumbersome manual advance process in the music industry," says Ball. "TuneCore Direct Advance is a simple, easy-to-use application that provides creatives with a clear view of their current and forecasted earnings, allowing them to request advances in less than a minute. These basic tools will be invaluable to any music industry professional in budgeting and managing the ups and downs of their cash flow. The deal we have announced today with TuneCore is a huge validation of the platform we have all worked so hard to create."

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H.R. 1695 could signal pivotal year for music copyright


Written by Paula Parisi — The music industry-backed Copyright Accountability Act was introduced in the Senate Judiciary Committee this week with powerful bi-partisan sponsorship: chairman Chuck Grassley (R-Iowa), ranking member Dianne Feinstein (D-Calif.), and senators Patrick Leahy (D-VT.) and Orrin Hatch (R-Utah).

The fact that the Senate is moving forward with the same language as H.R. 1695, approved by the House of Representatives last week in a landslide vote of 378 to 48, bodes well for the measure, which proposes to make the Register of Copyrights a presidentially appointed, Senate-confirmed position.

Senate passage is trickier than moving a bill through the House, as individual senators have more power to obstruct, and more than a simple majority is required to advance most legislation. But the speed with which the senate has taken up a cause championed by music professionals has been noted and is seen to bode well for other recording industry initiatives.

Pending legislation includes the Fair Play Fair Pay Act, the Songwriters Equity Act, and the Allocation for Music Producers, or AMP Act. “We’re seeing some good momentum, and it feels like now is the time things are going to get going for the next year to year-and-a-half,” Recording Academy chief advocacy and industry relations officer Daryl Friedman said.

As the Copyright Accountability Act winds to the president’s desk, the next area of focus will likely Fair Play Fair Pay Act, which seeks equitable compensation for performers from broadcast radio stations.

“We’ve had significant movement on the performance royalty issue,” Friedman said, noting, “We’re the only country in the developed world where radio is exempted from paying for music,” putting the U.S. in the company of the U.S. is in the company of China, North Korea, and Rwanda. “This is our lead issue, and there’s momentum brewing to get performance royalties for artists,” Friedman added.

Under the present U.S. system, dating to 1934, songwriters are compensated for traditional radio airplay but the artists performing the songs are not. The estimated $17 billion a year over-the-air radio market and its National Association of Broadcasters trade group have been aggressively opposing changes to the old rules.

Non-interactive internet radio stations like Pandora and Sirius are required to pay performers (and the on-demand services must negotiate performance rates with the individual record labels or rights holders). The Fair Play Fair Pay bill, was re-introduced in the house as H.R. 1836 on March 30, but as part of a more complicated rules change is not moving as quickly as the Copyright Accountability Act.

Congressman Darrell Issa (R-CA) has introduced his own version of Fair Play, known as the Promote Act, which seeks to compensate performers. “Mr. Issa’s proposed legislation really calls the bluff of the radio stations” arguing that they provide ‘free advertising’ for artists, Friedman said. “When an artist plays a concert or their music is played on internet radio, or even used in a commercial, there is some promotional benefit, but the artist gets paid. So it’s not that promotion isn’t a factor, but radio shouldn’t be the exception that doesn’t have to pay a penny because of the excuse that it’s promotional.”

Songwriters have payment issues of their own, taking on the consent decrees that require the government, as opposed to the free market, to establish their compensation rates. “The fact is U.S. music licensing regulations are out of step with how people consume music today, and with how the rest of the world works,” ASCAP president and chairman Paul Williams said. “If millions of people around the world are streaming your song, you should be fairly compensated for it.” Even reliable hitmakers, Williams noted, “are struggling to get by in this new music economy.” ASCAP mounted a successful “Stand with Songwriters” advocacy day that saw artist including Peter Frampton and Matchbox Twenty’s Rob Thomas take to the hill on April 26, the day H.R. 1695 received house passage, and he vows more action ahead.

Other IP rights groups are joining in the fight. “We were thrilled to see the Copyright Accountability Act move so quickly and with so much support, getting approximately 90 percent of the vote on the house floor, and think it will get same reception in the senate,” said Copyright Alliance CEO Keith Kupferschmid, whose organization represents more than two million individual creators and 13,000 organizations, ranging from movie studios to newspapers. “This is going to be a big year for intellectual property owners.”

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Tuesday, May 9, 2017

Is Pandora on life support? Non-interactive streaming takes a hit


Written by Tim Ingham — Pandora’s active user count is at its lowest point in two-and-a-half years – despite the recent launch of a subscription service which is supposed to save the company.

According to fresh SEC documents analyzed by MBW, the platform’s total active user count in the 30 days to end of March this year stood at 76.7m.

Compared to the previous year, that figure has shrunk by 2.7m people.

Bear in mind that Spotify’s paying subscriber count – not just free users, but actual cash-spending customers – grew by 10m just in the six months to March this year.

According to a new report from CNBC, Pandora is now actively trying to sell itself within the next 30 days.

To be frank, any prospective buyer better have balls of steel. Or a magical turnaround plan.

Or both.

Yesterday, Pandora posted a $132.3m net loss for the three months to end of March. That’s a widening of 15% on the the $115.1m net loss posted in the same period of 2016.

Pandora’s latest quarterly revenues, meanwhile, grew at a slower pace – up 6.3% YoY to $316m.

The company’s guidance suggests it expects to post a net loss in this quarter (the three months to end of June) of around $110m – $125m.

Here’s where things get grisly.

Last year alone, Pandora posted a $343m annual net loss. More than a third of a billion dollars.

Combined with its Q1 2017 and expected Q2 2017 losses, that figure will soon easily top half a billion dollars (at approx $595m) across just 18 months.

To date, not even counting the $110m+ Pandora expects to lose in the current quarter, the company has cumulatively torched $734.5m.

By the end of calendar 2017, it’s highly likely that at the current run-rate, Pandora’s lifetime losses will sail past $1bn.

Gulp.



So what of Pandora’s dual subscription service – the $4.99-a-month Pandora Plus and the $9.99-a-month Spotify clone Pandora Premium?

The firm announced yesterday that it now counts 4.71m paying subscribers amongst its shrinking user base.

Unfortunately, that’s not as impressive as it first sounds.

Pandora Plus was essentially a replacement for another $4.99-a-month service, Pandora One.

In Q1 2016, Pandora confirmed that Pandora One counted 3.93m subscribers.

So Pandora only managed to add… 780,000 paying customers in the subsequent year.

To be fair, that’s only really a reflection of the rejigged Pandora Plus service, which launched in September last year.

As for its $9.99-a-month Pandora Premium product, the company confirmed yesterday that over 500,000 users signed up for a free trial after it became available in March.

Even if all those triallsts start paying full whack, however – and even if Pandora could somehow hold on to a margin of 30% – it would still only make the company $18m.

It’s fair to say we’re way past that figure scratching the surface of Pandora’s annual monetary issues.

Pressure is now piling on Pandora’s board to sell – and not only from once-loudmouth outsiders like 10% stakeholder Corvex.

The firm’s current share price stands at $10.02.

That’s 21% down on where the stock price was as recently as January 3 ($12.72), and a massive 73% down on its high point in February 2014 ($37.42).

To put that into context: Pandora’s current total valuation (market cap) stands at $2.35bn.

That’s approximately $650m down on what it was worth just three months ago.

And it’s approximately $6.4bn down on what it was worth in February 2014.

Most galling of all: SiriusXM majority owner Liberty Media reportedly put in a $3.4bn bid for Pandora last summer… which was rejected.

That’s over $1bn more than the company’s current valuation. Eeesh.

Are there any more hidden costs around the corner for Pandora?

Well, yes – and they’re not insignificant.

According to its latest SEC filings, as of March 31, 2017, Pandora has future minimum guarantee commitments of $686m to pay music content rights-holders.

$278.6m of this money must be handed over in 2017.

Pandora ended the first quarter of 2017 with $203m in cash, cash equivalents and investments.

You’ll notice that’s not enough to cover this year’s pre-agreed content bill with labels and publishers.

And Pandora, remember – as we’ve extensively covered here – is a business that loses money.

Issues like these are a key part of the reason why Pandora has just agreed to take on $150m in investment from hedge fund giant KKR.

As a result, Richard Sarnoff, KKR’s Head of Media & Communications for Private Equity investing in the Americas, will join Pandora’s Board of Directors.

But there’s a twist: if Pandora manages to sell itself within the next 30 days, the KKR deal would be off – and it would only have to pay the investment company a $15m kiss-goodbye fee.

This looks for all the world like a short-term lifeline: if Pandora fails to sell this month, and ends up taking on KKR’s money, you can expect its $150m cash injection to last around four months (judging, once again, by those hefty net losses).

Once this stack has been burned through, Pandora risks look more frail and more financially exposed than ever before.

It was once an industry pioneer.

But now Pandora needs to find a buyer, and fast – or it could be facing up to a terminal fate.

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Thursday, May 4, 2017

Is the music industry putting itself out of business?


Written by Ross Gerber — There was once a time when mid-level bands with a modest following could make a pretty decent living playing music. They’d put out a record, sell a couple hundred thousand copies and then go on tour to promote it – which would drive additional sales, even as the tour itself was lucky to break even.

For the largest acts, this formula was a bona fide moneymaking bonanza, lining the pockets of all involved, including the musicians, managers, promoters and record labels. For everyone else, it didn’t produce vast riches but nonetheless supported careers and promoted the creation of new music.

Times, however, have changed. Besides a handful of superstars, it’s impossible for bands and musicians to generate significant revenue taking this approach. And the reason is simple: Consumers won’t pay much for music.

Napster jump-started this trend back in the 90s, pirating content and making it available online, producing a generation of listeners who didn't value music because they were able to download it for free. Then, streaming services basically continued the practice.

The likes of Pandora and Spotify don’t steal content, but they still offer it for free with the support of ads. Others such as Apple Music and Amazon Music obviously aren’t stealing either and do charge users, but it’s a nominal fee. Both models result in most artists getting the shaft, receiving, in most instances, less than a penny per stream.

(Incidentally, the streaming services themselves aren’t faring much better. Pandora and Spotify have always struggled to turn a profit, while Apple Music and Amazon Music are money losers, in place as part of broader distribution play that merely supports other parts of their company’s other businesses. Another irony is that music has become devalued at a time when there are more ways than ever to promote it, thanks to social media platforms like Facebook, Twitter, Instagram and Snapchat.)

Because of this, musicians have had to adjust. Some have begun to focus their efforts on brand building, using their music, in effect, as a form of advertising to hock products and services for companies. Megastars like Beyonce and Lady Gaga, and Michael Jackson before them, have always done this, pushing everything from soft drinks to clothing to fragrances.

But more and more, musicians from across the spectrum are pursuing this path to prosper. One good example is Gary Clark Jr., a talented artist but hardly a household name who has endorsement deals with Lincoln and John Varvatos. In the past, purists probably would have called him a "sell out." Now, it's called getting paid.

Ostensibly, playing concerts is another way to boost the bottom line. But save a precious few, most musicians are neither able to draw big audiences nor command the type of prices that make touring worthwhile – and the ones who can are senior citizens who play to audiences that are either roughly the same age or only slightly younger.

Bruce Springsteen (67), Paul McCartney (75), the Rolling Stones (formed in 1962) were among the top-grossing acts last year. Also on that list was Guns N' Roses, the founding members of which are all in their fifties. Even the surviving original members of the Grateful Dead tour successfully more the 20 years after the death of Jerry Garcia. An orchestra ticket for their upcoming show at the Hollywood Bowl in Los Angeles goes for nearly $400.

Who are the next generation of stars that will replace these aging performers, and does it matter given the current generation’s preference for festivals like Coachella, where the music is almost incidental to the experience?

Some probably question why anyone should care about all this. After all, the consumer is winning, since the principal fallout has been that accessing music content is cheaper than ever before. Further, large industries have always gone through difficult transformations – what makes the music industry’s struggles any more noteworthy?

The reason is that without meaningful changes to the way musicians get compensated, creativity will suffer immeasurably – and with it, the entire music industry. Consider that the revenue streams created by record sales and concerts once formed an informal infrastructure that continually bred new artists. Without such revenue streams in place – or something similar to replace them – the time will come when musicians will have no practical way to stay afloat, forcing them to give up and many would-be ones never to try at all.

All of which means that the music business may not be a much of business at all before too long.

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TuneCore offering Advances to Artists against future sales


Written by Bryan Yurcan — While there seems to be something of a detente between banks and fintechs as they start to partner more, especially on general consumer financial products, some fintech companies are still looking to beat banks in serving specific types of customers.

The latest example is a partnership announced last week between Lyric Financial, a firm that provides financing services to musicians, and TuneCore, a digital music publishing and distribution provider for independent musicians. The two companies are offering a product, TuneCore Direct Advance, that allows TuneCore artists to take advances against their future distribution sales revenue.

If musicians who use TuneCore needs money to fund a tour or new album, they can fill out some basic information using the service online or on a mobile device. Since TuneCore already has that musician’s sales history, there’s no need for them to input any financial information. Based on that sales history, an algorithm created by Lyric Financial determines whether the musician qualifies for the advance and, if so, the terms. He can then receive the money within 24 hours via PayPal or the ACH network into his bank account.

TuneCore Direct Advance is part of a larger trend of tech solutions that bring innovation to a previously cumbersome, niche market. Last month the fintech firm Exactuals partnered with City National Bank on a service to automate residuals payments to employees in the entertainment business. While that service featured a partnership with a bank, TuneCore Direct Advance does not, and that’s by design, said Lyric Financial founder and CEO Eli Ball.

Typically, musicians not signed to a major record label (which makes up the vast majority of independent artists) would use credit cards or a personal loan from a bank to fund things like tours or new projects, he said.

“We wanted to offer them something different,” Ball said. “Credit cards and bank loans can be dangerous; they can get upside-down with those real quick. But this is not a loan; it’s an advance based on forecasted earnings. So for example we’ll buy $100 of their future sales for $95 today, so the creative gets the $95 and we’ll collect the $100 directly from their distributor" — in this case TuneCore — "at a later date. We priced it competitively because we hope it can replace credit cards and bank loans for" independent artists.

Musicians who use the service would pay 3% to 5% on the advance, based on the length of the payback period. Such a rate should make the service an attractive alternative to traditional credit cards and loans, said Craig Focardi, an executive adviser for retail banking at the research and consulting firm CEB.

“If it is 3-5%, and they’re also not looking to force other products on them, then that’s a good rate and I can see it being appealing for an independent musician looking to finance a project,” he said.

Focardi said such customers, who may have been difficult and not cost-effective for banks to serve in the past, can start to become more profitable thanks to technology.

“If banks could provide an integrated, turnkey service like this for independent musicians it could be something for them to look at,” he said. “This is one of the attractive things about the development in technology; previously expensive to serve customer segments can be made more profitable.”

But the firms behind TuneCore Direct Advance believe they have an edge over any loan or advance that a traditional financial institution could offer because the musician’s sales data is already integrated. That makes the application process easier.

“The traditional [loan] process involves filling out a lot of paperwork and it’s time-intensive,” said Scott Ackerman, TuneCore's CEO. “But we already have all the artists’ information. Essentially all they need to do is press a button.”

Lyric Financial plans to roll out this service beyond just indie musicians and to the larger music industry community. In addition to its partnership with TuneCore, Lyric is also working on a deal with “ a major music corporation” to provide a similar service to its artists, Ball said.

“We envision this as being a ‘virtual ATM’ that works with suppliers to help manage cash flow and budgeting for musicians,” he said.

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Monday, May 1, 2017

New Blurred Lines Appeal Argues: Artists Can't Copyright a Groove


Written by Ashley Cullins — Lines have been drawn in the copyright battle between Marvin Gaye's heirs and artists Pharrell Williams and Robin Thicke -- and they certainly aren't blurred.

Since Williams and Thicke appealed their 2015 trial loss, in which a jury found their "Blurred Lines" infringed upon Gaye's "Got to Give It Up," scores of musicians and songwriters have pledged their support to one side or the other.

Now, in the latest filing, attorneys for the duo are asking the 9th Circuit to determine whether a "groove" is protectable and if a judge should have ended this fight himself instead of sending it to a jury.

"[T]he two songs in this case are not the same, and the district court should have granted summary judgment," states the brief filed Monday. "Rather than address the fatal flaws in their musicology evidence, the Gayes attempt to distract the court with irrelevant issues and assert a copyright in musical elements beyond those found in their copyrighted work, which is the lead sheet (and not the sound recording) to Marvin Gaye’s musical composition 'Got To Give It Up.'"

Specifically, Williams and Thicke take issue with the implication that copyrights would preclude artists like them from being inspired by someone else's work. "A 'groove' or 'feeling' cannot be copyrighted, and inspiration is not copying," she writes.

One of the central issues in the appeal is whether U.S. District Judge John Kronstadt erred in his decision that the jury couldn't hear the original sound recording of Gaye's song, but that it was appropriate for it to hear a version that was stripped of anything not expressed in the sheet music. At the time the work was created, the U.S. Copyright Office only accepted written notation as a deposit copy when a registration was filed.

The Gayes argue that the decision to ban the original sound recording favored Thicke and Williams — who argue that Kronstadt was correct to bar the recording but erred in allowing the music experts to testify about it.

Using only Gaye's lead sheet for comparison, Williams and Thicke say it's clear the works are not substantially similar — and they should have prevailed on summary judgment.

"The district court erred in holding that the issue of substantial similarity was for the jury just because the musicology experts presented conflicting opinions," states the brief. "Under the district court’s approach, musical composition cases would enjoy special immunity from summary judgment determinations merely because the parties offer competing musicology experts."

Williams and Thicke are asking the 9th Circuit to either reverse the judgment or vacate it and remand the case back down to the lower court for a new trial. The full brief is posted on The Hollywood Reporter.

Click here to read the full brief.

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Friday, April 28, 2017

It's been 14 years! April 28, 2003: Apple Opens iTunes Store


Written by Brian X. Chen — 2003: Apple opens the iTunes Music Store and starts to revolutionize the music-recording industry, one song at a time. Between the mid-1980s and late 1990s, the media were undergoing a massive conversion from analog to digital. The music industry hated it.

Much to the chagrin of the Recording Industry Association of America, internet users quickly caught on to digital music as a free alternative to paying for albums. In fear of declining album sales, record labels filed lawsuit after lawsuit against online services Napster and MP3.com for hosting digital music, as well as Diamond Multimedia, a Korean company that released an MP3 player called the Rio. Clearly, for the recording industry, change wasn’t easy.

In stepped Steve Jobs. The Apple CEO harbored a vision in 2002 of an online music store hosted by Apple that would be easy to use, complete in selection and reliable in performance. These factors, Jobs thought, would be enough to convince customers to pay for something they could otherwise obtain for free illegally. The store, then, would enable record labels to compete with pirates rather than pursue a futile attempt to destroy them.

But in order for online music to work, Jobs believed his store would have to allow customers to purchase music in a completely different way: a la carte. Convincing labels was hardly easy.

“When we first approached the labels, the online music business was a disaster,” Jobs told Steven Levy, author of The Perfect Thing. “Nobody had ever sold a song for 99 cents. Nobody really ever sold a song. And we walked in, and we said, ‘We want to sell songs a la carte. We want to sell albums, too, but we want to sell songs individually.’ They thought that would be the death of the album.”

Jobs started his talks with the big players first: Warner Music and Universal. Apple flew the firms’ teams up to Cupertino, California. In a boardroom at One Infinite Loop, Jobs proceeded to present his plan.

Jobs first reeled in the labels with one crucial proposal: Apple would sell songs through iTunes, music-player software that was then available only for Macs. After all, how could Apple, whose Mac operating system held only single-digit market share, ruin the record business if the iTunes Store took off?

After a series of long and painful negotiations, the two labels ultimately agreed they would play, but only after Apple agreed to bake in some restrictions (aka digital rights management): iTunes-purchased songs would be limited to being playable on three “authorized” computers, and a playlist could only be burned on a CD seven times.

Labels BMG and EMI soon followed, and later Sony hopped on board. Apple opened the iTunes Music Store on April 28, 2003, with 200,000 songs. (Simultaneously, Apple released its third-generation iPod.) In the first week, iTunes Store customers bought more than a million songs. Six months later, Apple convinced the labels to allow iTunes to be shared with Windows users.

Apple announced at its final Macworld show Jan. 6, 2009, that iTunes would cease selling songs encumbered by DRM restrictions. Though a significant step for Apple, Jobs was not present to make the announcement — he was on medical leave. The Wall Street Journal later revealed that Jobs successfully underwent a liver transplant. He resumed his post in June 2009.

The iTunes Store has expanded to include movies, TV shows and the App Store providing third-party software for iPhone, iPod Touch and iPad customers. To date, the iTunes Store has served more than 10 billion songs, 200 million TV shows, 2 million films and 3 billion apps.

Sources: The Perfect Thing: How the iPod Shuffles Commerce, Culture and Coolness, by Steven Levy; Wikipedia

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Friday, April 7, 2017

TONIGHT 4/7 join Eddie Nicholas, Adam Cruz and Glenn Thornton in Jersey!


We're at it again TONIGHT in Bloomfield! Come and join us at Ash Lounge, 142 Bloomfield Ave, Bloomfield, NJ with Eddie Nicholas birthday celebrations!!! #housemusic #JerseySound #MixtapeSessions #FreedomRadioHour #DWildMusicRadio #EddieNicholas

Thursday, April 6, 2017

Spotify and UMG trade exclusivity for smaller royalties


Written by Josh Constine — Spotify has long refused to restrict new releases from its ad-supported non-paying listeners because it would make the streaming app confusing. It wanted all music available to everyone, always. But as it preps to IPO, it needs to negotiate better royalty rates with the major labels, and allowing this “windowing” practice is a bargaining chip it’s finally going to cash in.

Today Spotify confirmed that it’s struck a deal with Universal Music Group to pay the label less per stream, but only allow new releases to be streamed by Spotify Premium subscribers for up to two weeks, The Verge reports. Ad-supported listeners will have to wait. TechCrunch reported in February that Spotify would seek to renegotiate its licensing deals to pave the way for a 2018 IPO. Similar windowing deals with other labels could follow.

The result is a degraded experience for its free-tier listeners, but a boon to the startup’s long-term financial health. Users should understand that for Spotify to survive as an independent music company, it may have to cut some corners on satisfaction.

Spotify is the only top-tier music streaming service that offers an on-demand free tier, which is great for users who won’t pay $10 per month, and serves as an effective funnel getting people hooked until they do pay to ditch ads and restrictions.

Spotify is also the only leading on-demand streaming app that is solely a music company. Apple, Google and Amazon all make money in other ways and just offer music as a complementary service. Meanwhile, Spotify lives or dies by its royalty rates.

Yet today’s deal is a sign that Spotify has grown to a scale where it’s finally getting leverage over the record labels. Only because its unique free tier has gotten so popular can it extract lower royalty rates per song play by briefly holding new releases back from these users.

Spotify has four other ways it’s gaining power versus the labels as it negotiates new royalty rates:
  • Scale – With 50 million paying subscribers, plus its free tier, labels need their music on Spotify if they want to have a hit, and can’t skip out on the revenue it brings.
  • Non-music content – Spotify is developing video content like its Drawn & Recorded cartoons and new Traffic Jams in-car song creation mini-shows that don’t require it to pay out to labels.
  • Becoming a label – Sources tell TechCrunch that Spotify is experimenting with signing label-like deals with artists to pay them up front in exchange for a cut of their recording revenues, so it ends up paying itself when users stream these artists.
  • Playlists that dictate the Top 40 – Spotify now has the power to choose what becomes a hit thanks to its control of extremely popular playlists like Discover Weekly and Release Radar. If labels don’t play ball in royalty negotiations, they might see their artists absent from these trend-defining playlists.
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