Berklee College of Music
Music Business Journal Volume 6, Issue 5
April 2011
A Left-Brain Take on Music: The Rethink Conference By Frederic Choquette & Kerry Fee
Mission Statement The Music Business Journal, published at Berklee College of Music, is a student publication that serves as a forum for intellectual discussion and research into the various aspects of the music business. The goal is to inform and educate aspiring music professionals, connect them with the industry, and raise the academic level and interest inside and outside the Berklee Community.
Inside This Issue
Frontier Enterprises Page 4
One of the silver linings of the current crisis is the recognition that cooperation between business, government, academics, and the creative community is needed to right the ills of the music industry. That such a gathering will soon be taking place in the US, however, is surprising. In the US, music making is largely independent of government aid and continues to be a grass-root and street-smart effort. In contrast, Europe is more used to government action in support of the music industry--either to promote its exports, like in Sweden, or to enforce broadcast quotas to protect the mother tongue, as in France. Moreover, European scholars tend to make more of the connection between music and culture than their American counterparts. The “Rethink Music” conference that will take place in Boston on April 26-27 is an attempt to bring together bedfellows that, in the US, so far have been largely estranged from each other. In fact, the conference could become a catalyst to consider fresh perspectives on common issues. Never, for instance, have so many distinguished academics shared the podium with industry practitioners and gov-
ernment policy makers. Harvard, through its Berkman Center for Internet and Society and its Business School, will be present; and so will Berklee’s Music Business/Management Department, representing one the largest community of music students and teachers in the world. Rights’ stakeholders, top record label executives, public policy makers, and, of course, some of the talent without which the business could not exist, will also converge in Boston. The list of confirmed speakers can be found at www.rethink-music.com. The involvement of the French MIDEM organization, a true primus inter pares in international music business building—especially known for its January flagship show in Cannes—is also remarkable. MIDEM has chosen to piggyback on the new Berklee-Harvard connection to attempt its first US show since putting up a Latin Music Conference in Miami back in 1997. The MBJ interviewed the Executive Director of “Rethink Music”, Berklee’s Allen Bargfrede, who is Assistant Professor of Mu(Continued on Page 3)
Master Recording Rights Page 6
MOG: An Inside View Page 8
Apple Subscriptions? Page 12
This Year’s Grammys Page 13
Volume 6, Issue 5
Music Business Journal
Editor’s Note As we observe the sudden shifts in New England weather over these past few weeks, there seems to be a distinct sense of renewal in the air. We are surrounded by the much welcome change of the season, and the Music Business Journal’s latest release is as fresh as ever. Harmonizing the tone set by this month’s ReThink Music Conference, the MBJ presents a compilation of industry news that gives insight to the business’s future directions. Fred Choquette and Kerry Fee open things up with an insightful reflection and detailed interview with ReThink coordinators Allen Bargfrede and Chris Bavitz. As Boston’s first major music conference, and the first appearance of MIDEM in the U.S. in a while, the two share their thoughts on the event’s potential for the industry. Then, Nick Susi provides first hand accounts of this year’s Digital Music Forum East held in New York City and SXSW, held in Austin, TX. With the recent Citigroup acquisition of the EMI record label, the instability of the majors is more apparent than ever. I’ve provided an account of the deal along with other potential mergers and acquisitions. Also, the Recording Academy has faced a great deal of criticism at this year’s Grammies, and Fred Choquette writes on the controversy. Change in the industry is reflected perhaps in the discussion over the Grammy nominations. The world of the music cloud is taking shape quicker than ever. Kayleigh Mill has contributed an informative piece on the recently enacted “Apple Tax” and its possible implications. In addition, Ben Scudder provides us with an exclusive look into the inner workings of MOG through a detailed interview with the company’s mobile marketing director, Anu Kirk. On the law side of things, Luiz Augusto Buff shares a detailed analysis of Termination Rights and how that might affect artists. Ben Hong also provides a thought-provoking piece on Information Security as it pertains to consumer activity on the Internet. In addition to this month’s latest body of work, it gives me great pleasure to announce that after six months of rethinking our online presence, the MBJ team will be launching a brand new website that will feature our entire database of articles along with lots of additional content. Be sure to check it out soon at www.thembj.org.
Table of Contents Business Articles Rethink Music.........................................1 Digital Music Forum East.......................4 Corporate Takeovers...............................5 SXSW.....................................................11 The Apple Tax........................................12 Revisiting The Grammys.......................13 Law Section A Transfer of Rights?..............................6 Online Security......................................14 Interview Allen Bargfrede and Chis Bavitz............3 Anu Kirk.................................................8 MBJ Editorial Mission Statement...................................1 Editor’s Note...........................................2 Upcoming Topics...................................16 Sponsorship Berklee Media....................................... 15
Thanks so much for reading,
Evan Kramer, Editor-in-Chief
Management
Editor-in-Chief...................................................................................................................................................................Evan Kramer Content Editor...................................................................................................................................................................Nicholas Susi Webmaster..................................................................................................................................................................Itay Shahar Rahat Faculty Advisor and Finance.....................................................................................................................................Dr. Peter Alhadeff Layout Editor..................................................................................................................................................................Lau Meng Wai PR Managers.........................................................................................................................................Ben Scudder, Micah Deterville
Contributors
Editor’s Note.....................................................................................................................................................................Evan Kramer Business Articles............................................................Frederic Choquette, Kerry Fee, Evan Kramer, Kayleigh Mill, Nicholas Susi Law Section...............................................................................................................................Luiz Buff de Souza e Silva, Ben Hong Interview..........................................................................................................................Frederic Choquette, Kerry Fee, Ben Scudder Staff................................................................................................................................................... Frederic Choquette, Ben Scudder Staff (cont)...................................................................................................................Dahyun Ed Jeong, Kerry Fee, Micah Deterville
2
www.thembj.org
April 2011
Volume 6, Issue 5
Music Business Journal
Business Articles sic Business/Management. Bargfrede is also a copyright and music lawyer and the author, with Cecily Mak, of Music Law in the Digital Age (Berklee Press, 2009). Additionally, we approached Christopher Bavitz, a close collaborator of Bargfrede and the Assistant Director of Harvard’s Cyberlaw Clinic, a law school program at the Berkman Center for Internet & Society. Bavitz is a Clinical Instructor and Lecturer on Law at Harvard Law School. He currently teaches a seminar on Music & Digital Media and was an in-house lawyer at EMI North America for six years. MBJ: What focus will the conference have? Allen Bargfrede: Above all, it is a music industry event. Rethink’s focus is on copyright and recorded music, and on finding solutions to the current industry downturn. It will consider ways to save and restore the recording industry by involving creators, academics, and industry professionals. On the copyright front, for example, it will have a broad spectrum of views. Examining the parties in attendance, we have the Berkman Center at Harvard, which is perceived to be on the left of the copyright scale, and the Recording Industry Association of America, which is clearly off to the right. I see Berklee as somewhat of a neutral party (think “Switzerland of music”), because our interest lies solely in promoting creativity in music and providing a market for our graduates.
Rethink Music (cont.) It is the only conference that has a business model competition (with a substantial $50K reward for the winner), and a competition for public policy papers organized by Harvard’s Berkman Center. As you know, this event also involves MIDEM, which is coming to the US for the first time in a long time. MIDEM is known for putting up the world’s best-known annual music conference. It is primarily providing logistical support and marketing for the event. MIDEM has a built in marketing database, and a lot of connections and resources that regular conference planners do not have. Beyond that, the quality of the speakers and the programming is excellent, which is not always the case in pioneering events like this, and we’re also offering access to a pretty good lineup of exclusive concerts. MBJ: Please tell us about it AB: Berklee and the Berkman Center at Harvard are solely responsible for the content of the programming. We had a pre meeting in October at Harvard, with some key industry players to talk about what the issues really were that had to be discussed (with a view to find a solution). Rethink will feature about ten to thirteen different panel discussions a day, with topics including technology, licensing, new business models, and other professionals perspectives.
Christopher Bavitz: Yes, I think that an ideal outcome for Rethink would be to foster good, productive discussions at the event itself around legal rights, business models, challenges facing creators, and the like, then see those discussions become starting points for further conversations going forward. I know Allen Bargfrede and his team at Berklee have worked hard to ensure that a wide variety of stakeholders and viewpoints are represented at the conference. My hope is that discussions that begin here will continue after the conference has come to a close. It would be great to see the event have a real impact on the way people involved in the legal and business aspects of the music industry approach the challenges facing those who create and distribute music.
We have the number one or two executives from every major label coming, a United States Congressman, top managers, and heads of other successful startups. There have been at least two or three instances where we had a VP of a company saying he would attend, and the CEO stepped in and said, “there are so many CEO’s coming to this, I want to come instead of my VP.”
MBJ: Will Rethink work in a saturated conference market?
MBJ: What about the Public Policy Papers and the Business Plan Competition?
AB: It is a challenge, but Rethink has a lot of parts that will allow it to differentiate itself. This is the only conference that involves creators, academics, and industry executives.
CB: The Berkman Center ran a Call for Papers in connection with the conference, seeking policy proposals that advance the interests of music creators, consumers, and en-
April 2011
We also have a variety of artists scheduled to appear. The combination of Amanda Palmer, Ben Folds and Damian Kulash (Ok Go) is going to be really special--the three artists are going to go into a Berklee studio, do a collaboration, tape it, release it at Rethink the next morning, and then perform it live at night.
trepreneurs through changes in existing law. We will select a paper, and Harvard Law School’s Journal of Sports & Entertainment Law will publish it this spring. The author is expected to present at the conference as well. In addition to the Berkman Center’s Call for Papers, we have put together a briefing book collecting research and other resources for conference participants. The briefing book will identify key issues that relate to law and policy concerning music, and these issues will be addressed and expanded upon throughout the course of the event. AB: The Business Plan Competition is meant to give everyone, globally, a voice about solutions for moving forward. It is an opportunity to speak out and say: “I think this is the path the music industry should take.” A generous gift of a Berklee trustee has made this part of the conference possible. MBJ: So the intended audience of Rethink is broad-based? AB: Yes. This is a question that has come up over and over, and I think that we don’t have one specific target audience. We are trying to cater to the music industry professional, but the conference is also appealing to academics. We also want students and musicians there, which is why we had a special student/ working musician rate. Most other conferences have very wide discussion topics, i.e. marketing here and management there, whereas we have a dedicated focus but remain open-minded. We are also incorporating audience participation and feedback technology. Instead of passing around an open microphone at the end of a session, we are going to have SMS email, Twitter feedback, and displays on screen. The audience will be polled at the end of each session, and people can ask questions about something that was discussed. This will get the audience’s real feedback in an anonymous way. A record label employee, for instance, cannot raise his hand to support something against the interest of his label. I think this change is going to make things really interesting. If you put up a thoughtprovoking question, you may get 40% of the room to publicly agree—but 80% of the audience may agree or disagree anonymously. Rethink might show us a new and interesting dynamic here.
www.thembj.org
3
Volume 6, Issue 5
Music Business Journal
Business Articles
Music Companies Meet in New York By Nicholas Susi
On February 24, 2011, the 11th Annual Digital Music Forum East was held in New York City. The conference hosted a series of panels that assembled artist representatives, label executives, publishers, and technology companies to discuss the current issues regarding all aspects of the music industry. The conference commenced with a research presentation that analyzed the current state of digital music, and how consumer behaviors and attitudes have been an influence. Eric Garland, CEO and Founder of BigChampagne, and Russ Crupnick, President of NPD Entertainment, shared eye-opening statistics. Crupnick discussed how the music industry has catered to the consumer, slowing the increase of music prices, allowing more access to digital content, and offering more choices of services to use. Instead of expressing gratitude, “consumers are flipping us the bird,” Crupnick explained. He continued by showing that the population of buying music fans has declined by 20 million. Garland discussed that although YouTube is a viable alternative source for an artist to post content and earn potential income, few songs are able to amass millions of hits before the ad revenue starts to trickle in. The disproportionate income is the same for streaming as well – 1,000 streams equals about $1 of revenue for an artist. Only 5% of US consumers are using subscription services, and that includes free trial users. Is an artist’s extreme effort to accrue thousands, even millions of hits worth the small payoff? Crupnick pointed out that the remaining fans still willing to purchase mu-
4 www.thembj.org
sic are often times only buying CDs. He stated that 55% of paying music fans are only purchasing CDs. There’s always the argument that an artist can depend on their “super fans,” but is that enough to recover from the loss of so many buyers? “More people are listening to services like YouTube than they are their own libraries, and that is a trend that’s happening fast,” Garland added, “People play what they don’t buy, and buy what they don’t play.” So, if consumers don’t listen to the music they buy or download, and prefer to stream new content, maybe streaming services are still the answer. Beyond Oblivion seeks to be that answer. Adam Kidron, the CEO and CoFounder of Beyond Oblivion, presented a new business model. Recognizing the limited royalty checks from album sales and streamed plays, Beyond Oblivion strives to monetize usage. “With Beyond Oblivion, we believe that the download and the ownership should be free, and that what we must pay for and what people would be interested in paying for--and where people see the value is in usage,” Kidron explained. Beyond will not require subscription fees and intrusive advertisement interruptions. Instead, users pay a one-time lifetime-use fee. The size of this lifetime fee, however, is uncertain. Beyond Oblivion is setting out to have the largest infinite music library. The concept sounds nice, but it seems that it would lead to massive licensing pains, similar to Spotify’s constant headaches. Once Beyond aggregates a respectable music library, users would be able to access the music through a licensed player. Users could stream, download, and share music and playlists with their friends who have licensed players. These licensed players would be able to track play counts, regardless of whether the file was ripped, shared, or downloaded. This means artists and labels
would be paid micro-royalties per play, hence Kidron’s coining of the term “usage model.” Beyond encourages fans to virally spread music through social media, because more music consumed means more plays, which means more money. The Beyond player will function not only on computers, but also on smartphones and tablets. A beta version of this usage model will be released in April, and the official service should launch in June or later, depending on certain locations of the world. Beyond Oblivion most recently received $77 million in venture capital investment, but time will tell the true success of this new service. Following Kidron’s presentation, the various panel topics began. Spotify continued to cause quite a buzz in the cloud technology world, as well as the prospect of an Apple or Google streaming service being launched. Surprisingly, representatives from MOG and Rdio didn’t seem phased by the potential rivalry. Anu Kirk, Vice President of Mobile Products at MOG, and Carter Adamson, COO of Rdio, said they would welcome the healthy competition and be content with riding on the massive marketing dollars of Apple and Google to bring better awareness to subscription services to general consumers. Another panel aimed to determine the right amount of government involvement with illegal downloading and piracy affairs. This topic was extremely relevant due to the exhaustive efforts and money that are constantly pumped into bringing powerhouses like Limewire and RapidShare to court. What could have been a constructive civilized conversation turned into heated bickering. “The recording industry is falling, but the music industry is doing fine,” argued Julie Samuels, Staff Attorney at the Electronic Frontier Foundation. Rich Bengloff, President of A2IM, had other thoughts. “I have looked at the touring numbers over the last ten years,” Bengloff stated in rebuttal, “I’ve looked at the merch business, and the overall pie – whether it be endorsements, advertising, synchs – this industry has gone down however you want to measure it.” (Continued on Page 5)
April 2011
Volume 6, Issue 5
Music Business Journal
Business Articles
The Slings & Arrows of Industry Giants (From Page 4)
It’s certainly not a positive view of where the industry might be headed, but Bengloff’s brutal honesty hits hard. Finding who to put the blame upon seems to be a popular game among industry folk. “We’ve seen the decimation of the recorded music industry in terms of the staff, the personnel, and the creative product,” Mark Eisenberg, Digital Media Executive and Consultant for LatticeWorks Media explained, “So we have seen the worst case scenario when technology runs its course, without any type of bounds or restrictions.” Eisenberg’s statement suggests the fact that perhaps the government should place further restrictions on how the Internet is used within the music industry, especially in the case of Limewire and RapidShare. Of course, the converse argument points to the fact that technology enables an artist to make leaps and bounds that were inconceivable a few years ago. “We are living in the golden age,” stated Michael Petricone, Senior Vice President of Governmental Affairs at the Consumer Electronics Association. “There’s more music being made than ever before, there are more people listening to music than ever before, there’s more discovery than ever before. Meanwhile you’ve got independent musicians coming up with innovative business models that allow them to support themselves.” Petricone is right that technology allows more music to be made than ever before, but is all of that music great, quality music? Have the filters been lowered – filters that block inexperienced music made by people who see music as a hobby, which now has been poured into the same pool as serious musicians that struggle to create an art and a living? Ultimately, the same arguments and the same points were echoed across the panel, leading the discussion to nothing but a standstill. Hopefully the conversation will continue at the Digital Music Forum West, which will be held in Los Angeles on October 6, 2011. Despite the muddling of pessimism and optimism for the business, it is conferences like the Digital Music Forum that encourage forward thinking among industry officials.
April 2011
By Evan Kramer
EMI and Citigroup Ever since private equity firm Terra Firma purchased the EMI Group in 2007, the label and publishing giant has been caught in a proverbial purgatory of sorts; too substantial and progressive to falter, yet too financially uncertain to move forward. Having finalized the acquisition on the eve of that year’s economic credit crunch, Terra Firma quickly found itself pulling rabbit ears out of its pants pockets in the face of a $3billion loan from its lender, Citibank. Terra Firma Chairman, Guy Hands, then filed a lawsuit with Citibank claiming that his loan officer, David Wormsley, had misrepresented the label and effectively duped him into purchasing the company. November 4th 2010 saw the conclusion of a four weeklong battle in the New York Supreme Court that favored Citibank. Guy Hands’s Terra Firma was made responsible for the full amount of EMI Group’s debt. Now, to stay in control of EMI, Guy Hands had to find the necessary funds to pay the debt—an improbable occurrence. Following the New York Supreme Court’s decision, therefore, the transfer of EMI ownership had an air of inevitability. However, at the time of ruling, it was assumed by most that the transition would not take place until EMI’s March 31st, 2011 fiscal year-end, the time when Terra Firma was expected to default on its final loan payments. In an effort to expedite the process, and seize immediately control of the record label and publisher, Citibank asked for a solvency test that it expected EMI to fail. It did. As a result, Guy Hands and Terra Firma were removed early from the company and lost any stake they had in it. Research by Private Equity News would put Guy Hand’s Terra Firma’s loss at $2.7 billlion—perhaps the largest ever in the history of private equity.
having one of the strongest balance sheets in the music industry,” says Roger Faxon, CEO of the EMI Group. “This gives us strength to move forward ... We have plenty of headroom in our loan covenants and lots of liquidity.” While restructured balance sheets have a notable affect on EMI, they are also equally attractive to Citibank- who will use them as a selling point for potential investors as they begin the process of selling off the EMI assets, which include its valuable publishing catalog. “It’s pretty clear that Citigroup will not sell CDs… It’s not a comfortable place for a music business to sit,” Faxon says; he adds that “in due course, we of course are going to get sold; but it will be an orderly and profitable process.” A Potential WMG Merger The prospect of a merger between EMI and Warner Music Group has been on the radar since before Terra Firma snatched the company in 2007. Now that EMI is effectively back on the market, it is up to Warner’s capital investors –Thomas H. Lee Partners,
The acquisition improved the position of the label. Time was bought back from the March 31st, 2011 deadline (Citigroup took effective control on February 1st). In addition, the purchase reduced the debt level of the record label by more than 65%. Through a debt-for-equity swap, Citigroup was able to recapitalize EMI, reducing its debts from $5.5billion to just $1.9billion. “We have gone from a company that is vastly overleveraged to (Continued on Page 7)
www.thembj.org
5
Volume 6, Issue 5
Music Business Journal
Law Section
A Primer on Termination Rights By Luiz Augusto Buff
eign rights, trademarks, or any other federal or state rights. The terminated grantee has the right to exploit derivative works that were prepared under their grant, but not others. The provisions of the termination rights can be found in the 1976 Copyright Act in two different contexts, depending on when the grant was executed. The first, under Section 203, provides that grant of transfer or licenses that were executed by the author in or after 1978 may be terminated. Generally, the author, as well as his heirs or a duly authorized agent, has a period of five years, beginning after thirty-five years of the mentioned grant, to effect the termination. Works that were created prior to that date, but for which the grants were executed on or after January 1st, 1978, are also included.
By default a person that makes an original work and fixes it in a tangible form owns its copyright and consequently the exclusive right that will permit the extraction of commercial benefits from the creation. The economic exploitation of copyrights is com For works created prior to 1978 and monly made through the granting of transfers for which the grant was also executed before and licenses to other parties in exchange for that date, the provisions of Section 304 (c) and compensation. (d) are applied. The general rule is that the termination may be effective during a five year Generally speaking, songwriters asperiod starting fifty-six years after the copysign rights of a musical composition to pubright was first secured, regardless of the date lishers, while artists transfer their rights over of the grant. In these cases, for the grant to be their sound recordings to the record labels. subject to termination, it is not required that it Many of these licenses and transfers are usualbe executed only by the author, as in Section ly granted before the publication of the work, 203, but also by his heirs or executors. when it is not possible to predict its success. For this reason, authors are usually in a worse However, the transfer of rights back bargaining position than the transferees or lito authors is not automatic. In order for the censees--and end up collecting less than they termination to become effective under both could. Sections, the majority of the authors, heirs or duly authorized representatives must serve a In order to protect authors, the 1976 notice upon the grantees, expressing the effecCopyright Act established termination or tive date of termination. In order to be valid, “recapture” rights that give authors a second a copy of this notice must be registered in the chance depending on when the grant was exCopyright Office prior to the effective date ecuted. The statutory termination of transfers of the termination. The service of the notice and licenses allows the renegotiation of these should occur no later than two years and no grants, either by renewing the contract with earlier than ten years of the desired date of terthe original grantee or by recapturing that right mination. in order to enter into a new agreement with a third party. In the absence of action, the termination right disappears after the closing of the Termination is considered for any five-year window, leaving rights in the work works other than works made for hire, and permanently in the hands of the grantee unonly for U.S rights that are copyright related. til statutory expiration of the copyright term. It excludes the possibility of recapturing for-
6
www.thembj.org
For instance, for a grant executed on January 1st, 1978 the termination window will begin thirty-five years after the grant – from 2013 to 2018. If the author decided that they would want to terminate the transfers at the earliest possible date a notice should have been sent at any time between 2003 and January 1st, 2011. With regards to the application of the Section 304, a point to be highlighted is that as sound recordings were not contemplated by the Copyright Law until 1972, the first terminations of transfers for sound recordings made before 1978 will only be effective in 2028, fifty-six years after 1972. The first notices for such terminations will start to be served in 2018. There are certain works for which grants were signed prospectively by authors before 1978, but the works only came into existence after January 1st, 1978. These so called “gap grants” were the subject of recent analysis by the Copyright Office. At issue was whether or not the “gap grants” could be terminated, as the provisions of Section 203 are applicable only for grants executed after 1978 (Section 304 is not applicable because it requires a subsisting copyright in 1978 to become valid). After receiving comments from different stakeholders, the study clarifies that the Copyright Office will accept notices of termination for these works (it considers that the execution of the grants only becomes effective on the date when works come into existence). However, whether such notices of termination fall within the scope of section 203 will ultimately be a matter to be resolved by the courts. Many agreements between writers and publishers anticipate that any termination right should be renounced, with the publisher owning the copyright for its entire term. However, the Law states that the “termination of the grant may be effected notwithstanding any agreement to the contrary.” The intention of the legislation was to secure for the author the rights of termination independently of any language that might be set out in an agreement, i.e. forcing them to give up their future rights without renegotiation. “Agreements of the contrary” were the subject of recent court decisions addressing the Section 304 termination provision. In the cases of Milne v. Stephen Slesinger, Inc. (Continued on Page 7)
April 2011
Volume 6, Issue 5
Music Business Journal
Business Articles
Industry Giants (cont.) (From Page 6)
(9th Cir. 2005, Winnie the Pooh Character) and Penguin Group (USA) Inc. v. Steinbeck (2nd Cir. 2008, works of John Steinbeck), the courts decided that the renegotiation of the agreement during the termination window revoked the original grants and were not deemed to be “agreements to the contrary”. They denied, therefore, the possibility of termination. However, in the Classic Media, Inc. v. Mewborn, (9th Cir. 2008, Lassie Works) the court preserved the termination rights considering a post-1978 assignment as an “agreement to the contrary” and therefore “attending the congressional intent to give the benefit of the additional renewal term to the author and his heirs”. There is yet no case law related to Section 203, as its provisions will only become effective on 2013.
(From Page 5)
Bain Capital, and Providence Equity Partners- to decide whether or not to make another bet on the music industry. Despite the fact that GoldmanSachs was recently hired on to seek out potential buyers for WMG assets, label executives still maintain vocal interest in placing a bid for EMI when the opportunity arrives.
One of the constraints that Warner has is European and US regulators. But given these economic times, and the current status of the music industry, it is possible that government oversight might be relaxed to stimulate the economy. The expectation that “regulators need to play the role of facilitator and help the industry make money rather than fending off a monopoly” is reasonable, and is widely held by investors today such as Anil Narang, a partner at MKM Capital Advisors that discussed the Warner-EMI merger in Billboard Works made for hire are the sig- Magazine. nificant exception for termination provisions The consolidation of EMI and WMG and will provide a fertile ground for litiga- tion in the following years. The exemption would have a significant impact on the music inexists because in such cases there is no trans- dustry—and not just the recording industry. EMI fer of copyright and the employer or com- Publishing, for instance, already holds a commissioner shall be considered the author of manding lead in overall market share at 18.1%. The addition of Warner/Chappell’s 12.7% share the work from the moment of its creation. would afford the new company control over more Record labels would like to consid- than a third of the industry’s total publishing aser sound recordings as works made for hire. sets. Moreover, the consolidation of both comArtists, however, argue that this cannot be pany’s artist rosters, executive staff, and financial applied to sound recordings, as they do not assets would create a very favorable competitive fall in one of the nine types of works listed position in regards to the other two majors. on the definition of a work for hire (Section 101 of the Copyright Law). As sound record- The role of BMG ings are typically a joint work of different Another player interested in EMI and artists, producers and engineers, the discus- sion of who can be considered the author Warner is the German Bertlessmann Music Group will increase. In effect, the period between (BMG). Their interest, however, is focused excluthe service of a notice and the effective date sively on acquiring publishing assets, not record of the termination resembles a period of re- labels. Because of this, they may be at a disadvannegotiation for record labels and artists--at tage against a package-deal offer for both. least for those who have maintained com The saga of BMG is worth telling. Its mercial value throughout the years. recorded music business joined forces with Sony As we approach 2013, discussions Music in 2004, creating at the time the largabout the termination provisions are becom- est global record company with a 21.5% market ing more relevant. The Future of Music Co- share. BMG then ran into liquidity problems that alition recently affirmed “as more copyrights were unrelated to its music operations. It decided become eligible to revert back to creators, to start selling off assets in 2007, when it sold we may find that the artists themselves ex- back to Sony its 50% stake in Sony BMG for ploit their works in novel ways that could be $1.5billion. BMG’s separate publishing arm, not beneficial to the overall health of the music part of the Sony-BMG merger, was also auctioned marketplace.” At the very least, the upcom- off to Universal Music Group for $2.6billion. ing termination of transfer provisions will However, by 2009 Bertelsmann reprovide a valuable window for authors to opened shop. It began focusing exclusively on exploit.
April 2011
music publishing, and entered into a joint venture with private equity firm Kohlberg Kravis Roberts & Co. (KKR). Under the leadership of its new CEO Hartwig Masuch, BMG is by far the fastest growing publishing company in the industry. In the past 18 months, the company has embarked on an acquisition spree, picking up the likes of Crosstown Songs America, Stage Three Music, Cherry Lane Music Publishing, Evergreen Copyrights and Chrysalis. As of Q3’10, BMG is the 6th largest music publisher in America, as measured by the Harry Fox Agency. Bertelsmann is currently one of the front-runners going after the publishing assets of both EMI and WMG. With a 5.2% market share in Q3’10, acquisition of the EMI catalogue could vault BMG to a controlling share of around 23%. BMG’s CEO is on record for saying that BMG is “not interested in buying a major label, [and that] they have a scalable infrastrucure [as a publisher only]”. He does not rule out, however, a future interest in controlling master recording rights to extend the reach of BMG services—which is where EMI and Warner’s recorded businesses will come in. Bibliography: http://www.guardian.co.uk/business/2010/oct/13/citigroup-emi http://www.ft.com/cms/s/0/6a075f9a-ddf8-11df-88cc00144feabdc0.html http://www.emii.com/Articles/2695369/Hedge-Funds/ Other-Articles---Hedge-Funds/Terra-Firma-Seeks-11.1BFrom-Citi.aspx http://www.billboard.biz/bbbiz/others/take-it-to-thebank-citigroup-s-emi-takeover-1005021212.story http://www.billboard.biz/bbbiz/others/how-citigroup-outfoxed-guy-hands-in-its-1005020642.story http://www.billboard.biz/bbbiz/industry/record-labels/emi-and-warner-music-destined-to-be-together-1005015022.story http://www.billboard.biz/bbbiz/others/is-terra-firma-sinvestment-in-emi-the-biggest-1005024732.story http://www.billboard.biz/bbbiz/others/the-publishersquarterly-q3-10-1004126550.story http://www.billboard.biz/bbbiz/others/bmg-in-a-majorkey-1004126554.story
www.thembj.org
7
Volume 6, Issue 5
Music Business Journal
Interviews
MOG’s Anu Kirk By Ben Scudder
Services like Rhapsody charge a monthly subscription fee to grant users, with browsers or mobile apps, access to an extensive music catalogue. The content is stored on a server somewhere other than the user’s hard drive (i.e. “the cloud”). There is no need to safe-keep a personal music collection or move it around devices. MOG is an example of a pioneering cloud-based service, and we wanted to know more. Anu Kirk, is the Lead Product Manager of Mobile Content.
distributors trying to make sure that your record was at Tower Records, the Virgin Megastore, Sam Goody, and the warehouse. Now you make sure that you’re on MOG, iTunes, Rhapsody, and Rdio. The label has some interest in getting their stuff to us as well. MBJ: How does MOG compete with and differentiate itself from other major streaming destinations such as Rdio, Rhapsody, or Grooveshark?
MBJ: What is MOG doing to acquire licenses/content? Where do you feel MOG has the most potential for growth in terms of its catalogue? Anu Kirk: MOG uses a company called MediaNet as the provider for our catalogue. We also have our own in-house licensing team of people with some legal background, some label background, and we proactively reach out to specific labels that we want to make sure that we have on board. This process is based on feedback from our users, who request such content, but also on our knowledge of the industry and our desire to bring in, so to speak, cool labels. We reach out and ask these labels if they’d like to be part of MOG. We have contracts, or terms that we offer them, we send out an agreement, and hope that they sign. MBJ: Do you find that MOG has been reaching out to smaller indie labels lately, or is MOG still focused on trying to make deals with larger independent or major record labels? AK: Well, I feel that ‘indie label’ is sort of a vague term. Fifteen years ago, an indie label would have been something like Amphetamine Reptile, or something like SST [Records]. But today, an indie label can literally be a guy that’s made a couple of records on his computer. I definitely think there’s a dif-
8 www.thembj.org
ference between that and a company that has been around for a couple of years with a sizeable catalogue and sales of physical product. And sometimes, if it’s a label that people have heard of in spite of the tiny genre it serves, we go after it. But many smaller labels that are genre specific, or even just digital, come to us directly because they’ve heard about the service and they want to make sure their music is placed. Many are happy to go through an aggregator like IODA, CD Baby, Tunecore, or a service like that. One of the interesting things about being a record label today is that it is not all that different from what running a label was like back in the days of physical media. Think about what you’re trying to do at a label: you’re trying to sell your product. In the old days, you would be on the phone with
AK: MOG operates a business, in many ways, very similar to Rhapsody and Rdio. All of these services are comprehensive subscription services that charge the same amount of money for access to a similar catalogue of music. The way that most of these services tend to differentiate themselves is through the quality of their service, the user interface design, i.e. the “packaging” with which the app is delivered. We’ve also differentiated ourselves by being on different kind of platforms than other companies. Rdio, for example, has done a pretty good job of getting on to mobile phones, but they have not done a great job with consumer electronics integration and they don’t have a Chrome App for the Google Chrome browser. Rhapsody has done a pretty good job of getting out to a little more, but they have not been as aggressive about adopting new platforms and technologies as MOG is. I don’t think that any of the services really believe that their catalogue is substantially better or worse than another. MBJ: MOG’s “radio slider” feature allows people to customize and control their radio experience. Does MOG hold any exclusivity over that technol(Continued on Page 9)
April 2011
Volume 6, Issue 5
Music Business Journal
Interviews ogy? How do you perfect/develop that technology so that users get a quality mix of artists on demand? AK: One of the things you had asked was how do we differentiate ourselves. The radio slider feature that allows you to move between the original artist and similar artists is a good example of the type of differentiation that MOG is interested in attaining. The other services may have similar types of features, but they are not presented as elegantly or stylishly as the slider. This radio feature is, I think, a key feature of MOG. One of the problems that other music services have is that you pick the song or an album, and it plays that song or album and then stops. The service plays the one song you like, then you’re listening to silence until you figure out what you want to hear next. With MOG’s radio feature built right into the play queue, after a song is played we add stuff that you’re going to like. This makes discovery super easy. The slider uses a particular algorithm that we developed over a couple of years for matching similar artists, and gives the user control over how much and how wide they want to go. We think it’s something really unique to MOG. MBJ: What are your feelings about free trials? How do they affect MOG’s specific business and subscription rate? AK: Well I think that giving people the ability to try the service is extremely important. Even though subscription services have been around for decades, many people are unfamiliar with them; they don’t really know what they are all about. People want a free trial because they want to see if the service has music that they want to hear, and they want to check out the interface. I think the free trial is absolutely essential. In terms of how long that trial should be, that’s something that the industry is constantly experimenting with, as is MOG. When MOG initially launched its web subscription service before they had the mobile phone apps, the trial was one hour long. That was a very short period of time, but all you needed to get out of those trials was an email address. The concern was that if you made the trial any longer, people would be creating fake email addresses just to listen to music for free. But currently, we’ve been experimenting with free trials that are 7 days or 14 days. I’m sure you saw the announcement that Rhapsody is going to try and give people a 60-day free trial. I think there’s a certain point where you reach diminishing returns for free trials. What you really want to do
April 2011
is give people some idea of how the service works, but you don’t want to remove the sense of urgency or excitement about signing up. It’s really important. The other piece is that you want to make sure that the user isn’t just sitting there with a clock ticking, that they are actively engaged with the product, and that they understand what it is and how it works. So it’s critically important, but also one of those things that we have to keep experimenting with to find the right balance of duration and how much you pester the user during the trial. MBJ: What are your feelings towards the actions that Spotify has taken to bring its service into the U.S? How do you see this affecting MOG’s business? AK: Well, the funny thing about Spotify is that they have been “about to come into the US” for two and a half years. I don’t want to sound overly skeptical, but until they launch here, it’s sort of an academic discussion. Spotify gets a lot of press for a couple of reasons. They have the totally free option, and you can’t have it in the U.S. right now-so it’s got kind of the thrill of the forbidden. They also happen to have a pretty good product. It’s not substantially different than MOG, Rhapsody, or any other subscription services, but they’ve done a pretty nice job of executing against a very small feature set. For this, they get a lot of credit. But if they launch in the US, it is highly unlikely that they are going to have the same free model that they have over in Europe. And if they do have it here, it is highly likely that everybody else who is in the States will offer exactly the same thing. The labels can’t just give one set of deals to one company and not offer the same to others. It just doesn’t work that way. That said, obviously everybody is concerned because they do have a fantastic reputation based on a few people using it and saying it’s awesome when free. But mostly, we’re taking a wait-and-see approach. We’ve done a lot of talking internally about what we think our strengths and weaknesses are relative to Spotify, and how we can counter their next
moves. I think of them as another competitor that may or may not enter the market in the summertime. I would be surprised if what they launch is substantially different than what’s already on the field. MBJ: When could we expect to see MOG available outside of the US? AK: I can’t comment on that publicly, I can tell you it’s something that we are very interested in, and that we are investigating. We want to make sure that if we do launch overseas, it’s going to be a quality experience and something that everyone can be excited about and give us platform to build on for the future. We definitely want to do it. Much like Spotify coming to the States, moving overseas is a little more complex than it appears on the surface. It’s not like you can just copy your software to a computer in a different country, turn it on and off you go. You have all sorts of compliance issues, and have to do deals with the labels locally. So yeah, we’re definitely looking at that but we can’t give a timeframe. MBJ: The MOG Music Network is a destination within MOG that provides news, reviews, and blogs on current music events and trends. Does this platform lead a lot of people to subscribe to the MOG service? What percentage of MOG’s overall business does this account for? AK: The MOG Music Network is a network of blogs that MOG partners with to help deliver advertising for those blogs. You have all these people who are very passionate about music, writing all these cool entries, and keeping up with the music scene. These are people who want to write about music for a living; they don’t want to worry about monetizing their ads. So we have a partnership deal where MOG takes care of selling the ads on the sites in exchange for the revenue. We have something like 1,800 blogs there, though I’m not quite sure what the number is now. It’s a separate business from the subscription service, and we have a loose linkage
(Continued on Page 10)
www.thembj.org 9
Volume 6, Issue 5
Music Business Journal
Interviews (From Page 9) between the two. Obviously, we think there is some of value in having those blogs out there with the MOG name present, because it does encourage people to come check out the service. It also reminds people that we are in the business of getting excited about music--not just billing your subscription on a credit card. It works out rather well, we leverage some of the blogs content on the MOG website, and the blogs help MOG get more subscriptions.
MBJ: Do you find that people are using the apps such as the Google Chrome App, or mobile apps, more often than they are actually visiting www.MOG.com? If so, how might MOG’s model change to adapt to the app trend? AK: We’re still trying to analyze the data ourselves. It’s funny, doing that type of analysis you would think would be very easy and important, but we’re so busy building the site and the service that doing detailed tracking and trying to draw conclusions from this data is difficult. When you get any group of smart people together to look at some numbers, you’ll get totally different conclusions. What I can tell you is that usage across different platforms is really dependent on the user. One person might only use it on their iPhone, one person might be using it on everything, and some people might be going back and forth between platforms to try and find which one works best for them. We definitely see a lot using more than one platform partially because that’s the key value that MOG brings to the table- the idea that you can get all your music anywhere that you want. The chrome app is definitely the direction that we want to go in for the website. We like the fact that it is very clean and simple, focused on music listening with fewer of the distractions that are present on the website. We want to move the existing site more in that direction. It’s just that we have a relatively smaller team for that and it takes us a little while to get where we want to go. MBJ: There is a lot of discussion and speculation on what companies like Apple and Google will do next. Where do you see the industry headed if Google or Apple decides to release their own cloud-based service? AK: Well, I actually think that with Apple’s recent announcement about it’s plans to charge subscription services 30%, it is much less likely that they’re going to launch something. Right now, it’s a lot of rumor and speculation for both Google and
10 www.thembj.org
Apple. I would honestly be surprised to see them not do something in the space, but if you look at those companies, traditionally Google has not charged users for things. Most of their products are free to the consumer. It would be very difficult for Google to launch something like MOG or Rhapsody and make it free to the user without them losing lots of money. What I heard they might be doing is making a locker for mp3 files, and something like that may fit in with what Apple is doing. It’s hard to say, but I think you can make a strong argument that Apple is assembling all of the pieces to launch some kind of integrated digital media service that includes eBooks and movies. Again it’s really just speculation, and nobody really ever knows what Apple is doing and I’m very reluctant to speculate. I will say that I think if Apple or Google entered into the same business, it would actually be a great thing for MOG because one of the things those companies would do is drive the market, advertise, and explain these new services. It’s sort of like the iPodthere were mp3 players before the iPod, but it was very difficult for people to understand what they were. One of the great things about Apple’s Internet marketing is that they spend a ton of money educating people. If those guys came in and did the same thing for the subscription music business, that would be awesome. I also think it’s healthy for the industry to have competition.
to go through with this, MOG we will just simply remove the ability for people to sign up and pay for the app from within the app. They’ll have to go to our own site to sign up. And Apple seems to say that this is a legitimate way to avoid the levy. MBJ: MOG’s CEO, David Hyman, is an active collector of vinyl. This seems to suggest that an interest in physically delivered music. Given your line of work, how is the physical experience different in your opinion and how does that transfer into the MOG service?
AK: Historically, subscription services have positioned themselves as “never buy a CD or a record again”. This is not the case of MOG, and is not a realistic way to look at music. The way I like to describe it to people is that that, on balance, these types of services encourage more purchasing of music and spending. Think of it this way: four-fifths of the households in the US, or more, pay for cable or satellite television. They still go out to the movies, or buy a DVD, watch pay-per-view videos on the web, or use Netflix. They use all of those things, and in some cases more than they did before. So I just think it’s a question of making the pie bigger, and it means that you have choices. If you wake up one morning and you have “Sweet Home Alabama” stuck in your head, you don’t have to go and buy the song for a buck, and you don’t have to go and MBJ: You had mentioned Apple’s an- buy the CD for $20. You can go to MOG and nouncement about the 30% revenue tax it play it. I like to say that choice drives more would collect from all subscription services informed buying. through its Apple store. What action has MOG taken to respond to that announce- MBJ: What advice would you give to aspirment, and when will it go into effect? ing music business professionals entering AK: Apple will not implement this until the end of June, so it hasn’t affected anyone yet. Apple has been sort of vague about whether or not they intend to collect from services like MOG or Rhapsody. I love developing for the Apple platform, and it’s a great and wonderful platform to work with. I also recognize Apple’s right to monetize its platform. I think what people like Rhapsody [and us] have taken issue with is the amount that Apple wants to charge. Being a music service like Rhapsody or MOG is somewhat like running a record store, and the margins are not huge. None of the existing services can afford to support a 30% payout. It is also fair to say that I don’t think any of the services today are making anywhere near 30% of gross revenue themselves, so they would in effect be giving Apple a bigger cut of their earnings. And it is hard to argue that Apple adds more value to MOG than MOG adds to MOG. We’re not making 30%. I think the most likely outcome in the short term is that, were Apple
the market today?
AK: I think it’s an absolutely great time to be a musician or a creative person, because the tools are so powerful and cheap. It’s a challenging time to be a music businessperson, because the business model is uncertain right now. People are experimenting. The down side is there’s no formula that says, “Okay, if you do this then you’ll have a successful business.” But the upside is that you have this opportunity to do something new and exiting that nobody else has thought of--which could make a big difference. I’d mostly say to people getting into the business: don’t limit yourself. Dream big and go for it, try and think about something that will be exciting and make it happen. I’ve been a musician myself since I was fifteen, and I’ve been working in the digital business for ten years. Keep dreaming, keep trying, and keep coming up with new things. That’s when the magic happens.
April 2011
Volume 6, Issue 5
Music Business Journal
Business Articles
Taking Stock of SXSW By Nicholas Susi
South by Southwest (SXSW) is a music, film, and interactive festival and conference that is held annually in Austin, Texas. This most recent SXSW Music (March 14-21, 2011) had the highest attendance ever, with over 14,000 people flocking to the scheduled events. The music festival offers artists a chance to reach new ears, and it offers fans a chance to discover new music. SXSW Music, however, is not just about concerts and parties; it congregates the industry’s top CEOs and prospective entrepreneurs together for prosperous and productive industry discussion– creating an excellent opportunity for businesses to explore new ideas and expand their networks. Allen Bargfrede and Chris Bavitz (the Berklee and Harvard minds behind the ReThink Music Conference) led a panel on how an artist’s experience in the music business informs their creative process, and vice versa. Typically, panel topics are strictly business, but this panel provided great insight to both the business and creative side of the equation. Holland songwriter, Sondre Lerche, discussed his career and the importance of having both a strong business and creative mind. He began his music career on a major label, and he admits that the label was a huge factor in launching his career; despite the bad reputation labels are given. After releasing a few records under the label, he parted ways to establish his own label and record on his own terms. He continued to use a major label for distribution, but his latest album will be self-released. The gradual evolution of his career led to increased profits, not only because he continued to make quality music, but also because he continued to make smart business decisions. Granted, every success story differs from artist to artist, but the panel did outline the fact that labels still have a role in the industry and that independent artists must have a strong business mind to be successful. The topic of branding and licensing was also popular among panels, and one in particular discussed the possibility of brands becoming and/or replacing record labels altogether. Brands are beginning to take on the roles that labels typically fulfill. Once an artist establishes a joint venture with a brand, the brand becomes a tastemaker, providing international promotion, distribution, and even tour funding. Kerri Cockrill, the director of brand entertainment at Blackberry, explained that the artist benefits the brand by introduc-
April 2011
ing new customers and giving a face and sound to the brand. For instance, Blackberry released the new Torch multimedia phone and they sought out DJ/Producer Diplo of Major Lazer to give a face and sound to the product. Blackberry sponsored Diplo’s latest tour, and both the artist and the brand received massive exposure from their travels. Diplo earned significant income through licensing and touring with Blackberry, none of which was required to be recouped, which would have been the case with a label. There are cases where branding has failed, however. Ron Faris, the head of brand marketing at Virgin Mobile, explained that recently, Honda and Tommy Hilfiger both ran campaigns with the Vampire Weekend song, “Holiday,” during the same months. Occasionally, the two commercials aired back to back and the song played twice, doing a disservice to both the brand and the song. All in all, artists and brands have to be selective when establishing joint ventures, but the collaboration could lead to a major payoff on both ends. Perhaps the most controversial speech was given by SXSW keynote speaker, Bob Geldof, who is best known for his help in organizing Live Aid in 1985. He is extremely passionate about music and utilizing music to bring communities together to help those in need, and his speech did not stray from those qualities. “People talk about the demise of the industry, and those within the industry are worried,” stated Geldof, “But the industry is only a function of the music, and the music is only successful when it’s relevant.” His speech was based around the “end of relevance” for music. He talked about how rock and roll changed his life, because rock and roll demanded that the world adapt around it, rather than adapt to the world. He worries that songs are becoming trivial with no context; that the art is not being used to its full potential. He worries that music is not making a loud enough noise against politics
and hunger. It’s not enough for an artist to be complacent with keeping their day job and playing the bars at night. He stated that artists and their songs don’t change the world and that their lyrics don’t have to literally demand change, but change must be suggested through feeling in music to give a push to a community. “The fan club of 6,000 people of a community of interest is far more powerful than 6,000 friends. It’s an oxymoron… you cannot have 6,000 friends.” The attendance for this year’s SXSW Interactive surpassed the attendance for SXSW Music, and Geldof worries that it’s a testament to where people’s priorities lay. Human language cannot express the sensations and emotions that music can. He believes that the Internet and blogging craze is dumbing down the noise for change. He admitted blogs could lead to brilliant conversation, but they instead echo personal prejudices and make noise with no intent and no filter against it. Since the eighties, the most successful music has been made by superstars about material things. He believes new technology has potential, but it has instead given the illusion of talent, where everyone has the means to say something important and instead say nothing. Geldof’s speech was met with a standing ovation, although not everyone may have agreed with his views. But such is the allure of SXSW. It offers an incredibly vast palette of showcases and panels, morphing Austin into a churning engine that monetizes people’s passion for music and encourages reflection upon the past and future of this industry.
www.thembj.org
11
Volume 6, Issue 5
Music Business Journal
Business Articles
Apple Sets Terms and Prepares for Subscriptions By Kayleigh Mill
The iPod, iPhone, and iPad seem to have taken over the music market. Apple, in effect, rules like an empire over it all. Yet there are threats. Music licensing seems to be moving towards cloud-based subscription services, and the challenge to the existing mp3-based music model is all too real. Indeed, streaming services such as Rhapsody, Rdio, and MOG provide a simpler, and oftentimes more cost-effective, way of accessing and enjoying music. Apple’s recent announcement of a new 30% levy on all subscriptions via in-apps should be seen in the light of the competition for subscriptions, where the computer company is hoping to prevail.
is economically untenable.” He adds: “The bottom line is we would not be able to offer our service through the iTunes store if subjected to Apple’s 30 percent monthly fee vs. a typical 2.5 percent credit card fee.”
Subscriptions via in-apps are accessed though an existing application, and are a new and growing source of revenue. Apple has always taken a cut of a third from song and album downloads. Historically, that was the value added by major label distributors to music sales in the physical world. In 2003, when iTunes was launched, the same terms in the physical domain were applied to the new online world. The majors had tried and failed with their own versions of MusicNet and PressPlay, and finally capitulated to Apple, licensing in full their product to them. Unfortunately, they did it on the same terms that they had traded earlier. Now it was the record labels that had to pay Apple, instead of the consumer paying that value directly to the label distributors.
From a consumer point-of-view, it seems advantageous for Apple to open yet another market. In-app subscriptions could tap into a previously untouched segment of the population. Apple’s apps are extremely user-friendly and the in-app subscription process is no exception. There is no need to deal with credit cards, transactions are mostly one-click away, and users can opt out of sharing their information with the music services. The simplicity of Apple’s approach, and the added privacy, could bring a sizeable influx of new subscribers.
This may be the next iteration of the hold of Apple in the music marketplace, which continues to impact artists and their labels. Apple’s devices are popular, so its decisions affect cuttingedge services like Rhapsody, Rdio, or MOG. In Apple’s model, announced early in February, publishers set the price and length of the subscription, i.e. weekly, monthly, bi-monthly, quarterly, bi-yearly or yearly. Consumers choose and pay accordingly. Then Apple processes all payments, from which the 30 per cent levy is deduced. Apple requires that subscriptions made directly by the publishers at least match or are an improvement over the terms offered in the Apple store. Steve Jobs
12 www.thembj.org
Erwin is apparently not afraid to pull out Rhapsody from Apple. If so, Rhapsody would still be offered on Android smart phones and on mobile browsers, like Safari on the iPhone and the iPad. Last.fm co-founder, Richard Jones, and Rdio’s CEO, Drew Larner, expressed similar concerns. With the financial difficulties that these companies face already, their frustration with Apple grows.
has made it clear that he wishes one-click purchases to be the norm. Effectively, Jobs is asking publishers of content to adjust prices so that the end user’s experience is simplified. This is good for Apple, because it helps sell hardware, but costly for content creators and aggregators. The plight of music streaming services, for instance, was described by Rhapsody’s CEO, John Erwin. Erwin argues that “[this Apple-imposed arrangement comes] in addition to [other] content fees that we pay to the music labels, publishers and artists, [and]
Is Apple in the wrong? After all, companies such as Rhapsody and Rdio are not required to use Apple’s services. And Apple is entitled to charge them. This is reminiscent of the discussions between Apple and the majors over variable pricing. It took a while for Apple to accommodate variable pricing, and in the meantime the labels agreed to Apple’s terms because they feared losing the new online market—then turned legal by Apple for the first time. At this point, streaming services have several options to weigh. On one hand, they could stick with Apple, accept the cut from profits, and hope that the amount of new subscribers covers the revenue lost to Apple. A similar but more proactive approach would be to raise the price of subscribing to ensure (Continued on Page 16)
April 2011
Volume 6, Issue 5
Music Business Journal
Business Articles
A Controversial Grammy Night By Frederic Choquette
Yet the Recording Academy does not necessarily have just music sales in mind. Esperanza Spalding’s talent and genius are unquestionable, but her jazz-based target audience seems limited for a Best Artist of the Year award. If the Academy had wanted to reach a larger audience, they would have picked Justin Beiber, who’s mellow and bland pop tunes seem to have the capacity of reaching millions. Interestingly, Bieber did not seem to need the award as much. Digital album sales of his Never Say Never increased by two-thirds after this year’s Award Ceremony (www.grammy.org).
Technology has changed not just how music is transmitted but also how it is made, helping independent artists become national sensations in a matter of months. The Grammys, however, are designed to reward talented artists and musical excellence. The challenge is when the “flavor of the week” overshadows a distinguished act. On February 20th, the New York Times published a long and passionate plea from renowned hip-hop producer Steve Stout that questioned the selection methods at the Grammys. Many were quick to label this as an artist’s publicity stunt, but Stout’s brief produced reactions globally, and not just from fans but the creative community and industry professionals. Had the Grammys lost touch with mainstream culture? The Recoding Academy maintains that the Grammy Awards are “awarded to artists and technical professionals for artistic or technical achievement, not sales or chart positions.” Commercial success should have little bearing, if any, on a Grammy. ‘Artistic achievement’, of course, is a loaded phrase encompassing much meaning. Therein lies the difficulty—and this in spite of the openness of the voting by members of the Academy and the strict criteria for selection, including “no less than creative or technical credits on six commercially released tracks, or their equivalent”. The reader can consult terms at http://www.grammy.org/recordingacademy/awards/voting-process.
April 2011
As members on the nomination committee are industry professionals, the yearly winners can often be at odds with public opinion, for the criteria is not usually congruent with that of the casual music listener. This begs an important point. If the Academy’s choice does not fit into our current cultural and musical mosaic, could it lose touch and deny accolades to the talent in society that is most loved? Advocates of the advancement of music as an art form will say that it is good to promote artists who, in their own individual way, are guiding music to new and unexplored places. However, critics cite occurrences of grandfathered artists stealing Grammy awards with a mediocre album or song. An example that is often quoted is Eric Clapton’s 1992 win for Layla. At the time, it was believed that Nirvana’s Smells Like Teen Spirit should have made the honor. Still, the Grammys do advance the cause of album sales for lesser known, but promising talent. Artists like Lauryn Hill and Alanis Morissette, although definitely not anonymous by any means before their respective wins, saw up to six digit boosts in album sales, and this propelled their careers to new heights. Another example is Esperanza Spalding, winner of 2011 Best New Artist. Spalding has witnessed a nearly five-fold increase in album sales to date (www. grammy.org). In fact, one would be hard pressed to find any past winner of the big awards whose sales failed to grow after the televised show. The Recording Academy, in short, has a key role in promoting new artists in the marketplace.
It is also important to note that while there will always be some debate as to the legitimacy of the awardees, the Academy has clearly made significant efforts to keep the various performances seen during the ceremony in line with popular culture. For instance, this year’s performers included Lady Gaga, Eminem, Katy Perry, Drake and Rihanna, all of whom are international pop icons. Perhaps the approach to determining the role of a music artist in our everchanging culture has been defined too narrowly. What if the scope of their engagement to society is not to fulfill one specific goal but instead to fill many of them simultaneously? Using this explanation, the general unpredictability of the results becomes much more understandable as goals may vary from ceremony to ceremony or even from award to award. Although the legitimacy of some of the past winners is debatable, one cannot overestimate the positive impact the Grammy’s have had on the promotion of music through media. Finally, it has to be said that Steve Stout’s grievances may have some validity. The Recording Academy did use the most popular artists of the day to promote a show full of upsets. But this compromise over TV ratings should not be viewed as defining the Academy over time. Choosing the Grammy Awards is a complex proposition for many of its voting members. The choices they make both promote sales and contribute to music’s general appreciation. The Recording Academy should be judged on a variety of fronts. Reference http://www.huffingtonpost.com/steve-stoute/steve-stoutegrammys_b_825377.html
www.thembj.org
13
Volume 6, Issue 5
Music Business Journal
Law Section
The Trade-Off Between Connectivity & Privacy By Ben Hong The survival of a business depends today on the gathering of information for marketing purposes. A successful company has to analyze data, plan, and then execute a strategy. The Internet and today’s technology have made the first step quick and efficient. Google Analytics, for example, generates detailed numbers about website visits, summarizes the information into convenient charts, and helps users strategize and develop marketing plans.
Much like any other business, the music industry requires information to target specific fans. After all, music without people willing to listen to it has no market value. However, the Internet’s potential raises issues of privacy and information security. As the Internet has only been commercially available for about fifteen years, users are still not educated enough to understand the significance of good privacy protection. We tend not read the terms of service when signing up for website. Younger generations are prone to be more vulnerable because they are not trained to think much about privacy. Thus, we continue to find cases of online defamation, unsolicited emails, and the creation of personal information databases without the requisite clearance. In August of 2010, a group representing minors and parents sued Warner Brothers Records, as well as Disney and several other corporations, for placing flash-based cookies developed by Clearspring Technologies onto user systems that enabled tracking of visitors that web-surfed beyond their sites. Plus, these cookies had an ability to regenerate once deleted, without notification or asking for the consent of the user. Since the federal government lets private database owners decide how, when, and where they can share this information, it ends up being sold to third parties such as ad agencies. Finding a balance between privacy and good ethics is complicated, and there is a trade-off between more security and the benefit of the new technology. In December 2010, Apple, Pandora, and a number of other top smartphone manufacturers and software developers were sued for possible privacy breaches. According to the lawsuit, iPads and iPhones containa Unique Device Identifier (UDID) that acts as a cookie for web browsers, and can track
14 www.thembj.org
es.” In their prepared testimony, they asked lawmakers to update and amend the federal privacy law “to limit the ability of Social Network companies to disclose user information to third parties without informed and explicit consent.” They urge the FTC to investigate Facebook’s business model, as users cannot keep up with the countless changes and updates to their privacy policies. Without easily accessible information on the updates, users have no control about where their personal information goes. The following are some examples of controversial features in Facebook, as listed on EPIC’s official website:
all activities performed by the user. The cookie retrieves personal information such as location, age, and gender that can be collected and sold to third party ad agencies. Officially, the purpose of UDID is for Apple to approve the installation of new software. The user cannot turn off the UDID, because it protects mobile carriers from pirated software. With the release of the iPhone4, congress has questioned the collection of “a range of user information, including location specifics.” Nevertheless, Steve Jobs has said that users have the ultimate control whether to purchase the device or not, and they also have the ability to turn off the real-time geographic locator. (To view a table that shows personal data collected from several popular apps in the iPhone and Android, see: http://blogs.wsj.com/ wtk-mobile/.)
(i) Facebook requires “accurate, current and complete” information of users as they activate their account, thus, requiring online identities to match their real life identities. (ii) Facebook allows users to invite their colleagues and friends via a contact importer, which downloads all the contacts from users’ existing e-mail accounts. The website does not specify what happens when these e-mail addresses are given out. (iii) Users can utilize various applications via the Facebook Platform, which was introduced in 2007. For users to gain access to these applications, Facebook has to share their data. (iv) Facebook displays social ads and pages that target users demographically, using collected information upon the creation of a Facebook account.
Facebook, of course, has introduced many useful innovations and is officially supportive of privacy terms. But on March 2, 2011, replying to a letter by Congressmen Ed Markey and Joe Barton, Facebook could still say that it would “go forward with a proposal to provide users’ [information] to third-party application developers.” In the meantime, reports of cancelled accounts are rising. Facebook scored just 64 on the American Customer Satisfac Facebook has also had to deal with tion Index’s (ACSI) 100-point scale. an onslaught of privacy concerns, and recent The above suggests that, regardbreaches have led to an ongoing investigation. less of Facebook’s practices, there has On May 7th 2010, fifteen organizations, including the Electronic Privacy Information Center been a movement in Congress to amend (EPIC), filed a complaint to the Federal Trade federal privacy law in accordance to probCommission (FTC). Facebook, they said, “has lems raised by social networking websites. engaged in unfair and deceptive trade practic- While “the United States Constitution does (Continued on Page 16)
April 2011
Volume 6, Issue 5
Music Business Journal
Berklee College of Music
Music Business Journal Volume 6, Issue 5
www.thembj.org
April 2011
Upcoming Topics Visit the MBJ online!
Topics in the next issue:
www.thembj.org
Social Commerce
Please write to us at:
Live Music Production
[email protected]
Rebecca Black
Apple (cont.) (From Page 12)
that the cost of Apple’s levy is covered. For after tax earnings to break even, however, it appears that these services would have to raise their prices by more than the levy. The higher prices may discourage potential subscribers and cause current subscribers to cancel their subscriptions. Conversely, music streaming services could withdraw from the Apple ecosystem completely. If all music-streaming services boycott Apple, the company would be forced to reconsider its stance. The loss of every available streaming service would harm its image of providing a cutting edge music and entertainment experience. Also, Apple isn’t the only company that produces mobile devices that support streaming; Android would gladly pick up the slack. Many analysts have speculated that Apple may be intentionally putting streaming services at a disadvantage in preparation for launching their own subscription cloud service, MobileMe. Mobile Me is expected early in June, and would corner all the revenue from its service and collect very well from competitors—a smart business plan. Judging by how popular most of Apple’s endeavors are, they may well end up leading the music-streaming market. They recently bought rival Lala, which they will shutter on May 31st. They also invested in a $1 billion data center in Maiden, N.C., which they hope to leverage later in the spring. Apple is still dealing with licensing issues but as the record labels rely mostly iTunes sales, an accommodation is likely.
Sources - “Apple Data Center Opens In Spring To Support Cloud.” Hypebot. Web. 22 Mar. 2011.
. - “Apple Launches Subscriptions on the App Store.” Apple. Web. 22 Mar. 2011. . - “Apple To Shut Down Lala On May 31, ITunes.com Launch Impending?” TechCrunch. Web. 22 Mar. 2011. . - “Apple’s Big Subscription Bet: Brilliant, Brazen, Or Batsh*t Crazy?” TechCrunch. Web. 22 Mar. 2011. . - Bruno, Antony. “Apple’s New Subscription Rules Could Kill Streaming Music Services | Billboard.biz.” Music Business | Music Industry | Record Sales | Billboard Charts | Billboard Hot 100. Web. 22 Mar. 2011. . - “Rdio CEO Says New Apple Tax Makes It “Untenable” For Them to Exist On IOS Devices.” Hypebot. Web. 22 Mar. 2011.. - “Rhapsody CEO Blasts Apple: New App Store Terms - “Economically Untenable”” Hypebot. Web. 22 Mar. 2011. . - “Will Apple Back Down From 30% Charge?” Hypebot. Web. 22 Mar. 2011. .
The Music Business Journal will be released three times in the Fall, three times in the Spring, and once in the Summer.
Privacy (cont.) (From Page 14) not contain the word privacy,” the concept of it prevails throughout its amendments, and it is recognized as a penumbral right; i.e. a right by implication. At stake here, and from an individual perspective, is the balance between a great user experience and the safeguarding of private information.
If user behavior is the measure of our concern for privacy, it may appear that this is not such a priority for most of us. Acording to statistics posted on Facebook, its user base has more than 500 million active users, who spend over 700 billion minutes on the site a month. Artists and bands will certainly continue to utilize the benefits of having access to a large user base, from which they may plan their marketing strategy. In fact, if Congress pushes its agenda too much and forbids all the features within social networking platforms that touch on privacy concerns, the advantage of utilizing Facebook and other websites may disappear. Connectivity and sharing are two key concepts of social networking, and as long as this is valued more highly than privacy, control of an individual’s profile over the Internet might become more and more elusive. Sources http://www.dmwmedia.com/news/2010/08/16/disney-warnerrecords-sued-over-clearspring-tracking-cookies http://www.hypedsound.com/news//details/LAWSUIT-ACCUSES-PANDORA-OF-PRIVACY-INVASION http://digitalmusicnews.com/stories/122710pandoraprivacy http://digitalmusicnews.com/stories/062410apple http://epic.org/privacy/facebook/in_re_facebook_ ii.html#summary http://www.foreseeresults.com/news-events/press-releases/facebook-flops-in-acsi-ebusiness-report.shtml http://www.facebook.com/press/info.php?statistics
