Warner Music home to artists including Madonna and James Blunt, reported a fourth-
quarter profit on a gain from a legal settlement. Revenue fell as album sales declined. New releases from groups including Danity Kane and Mana failed to match last year’s recordings from Blunt and Faith Hill. CEO Edgar Bronfman boosted more profitable digital sales, which almost doubled to 12.2 percent of revenue. Music companies look to sales from downloads, cell phones and online videos to make up for falling CD revenue.

“Revenue was a little lighter than expected,” said Eric Handler, a Lehman Bros. analyst who rates the stock “neutral” and doesn’t own it. “Digital was quite strong — they’re outpacing the market on that,” Handler said. He said CD sales were “quite weak.”

Without the $13 million gain from a lawsuit against online file-sharing service Kazaa, the company lost $1 million

(reporter, Don Jeffrey )

• Doug Morris: The people who write music deserve to be paid for their compositions. The also should have some say about how their compositions are altered. I think that people are very lax about the respect that people should have for other people’s works. I hate…to see these groups work for two years, making an album spend enormous amounts of money, putting their creative juices into something that’s $9.99 in Best Buy and people would rather have it for free. For me, being a music person it’s very hard to watch that. (Read the full Reuters interview with Universal Chief Doug Morris)
• Radio exec gets Sirius again about XM merger
  Surius CEO Mel Karmazin has talked about a possible merger before, noting it could eliminate a lot of duplicate operating costs – not to mention, skeptics say, a lot of programming choice. Here is what to expect if a merger did occur:
  it would shrink music choices, since it would presumably not carry duplicate channels. Since XM and Sirius have different approaches in areas like oldies and popular standards, this could wipe out the sounds that enticed some people to subscribe in the first place. (Biz/Money)
• Russia agrees to shut down Allofmp3.com
  Russia has agreed to shut down Allofmp3.com and other music sites based in that country that the U.S. government says are offering downloads illegally. “AllofMP3 doesn’t expect the Russian government to take any action against the company since it operates within the current law,” said Rory Davenport, an Allofmp3.com spokesman. “The company is fully committed to its business.”

 Russia is known not to act out on its claims.

• Australia: Digital Sales are not filling the void of the loss of physical CD sales. (via Coolfer/The Age)
  “Digital ain’t filling the void,” says one industry veteran who did not want to be named. “While iTunes has made inroads there are still vast illegal markets.”

Sony BMG’s director of digital services, Gavin Parry, was one of the few industry executives to talk publicly this week.

“It has been pretty erratic,” he says of physical sales this year. “Some months have been down 10 per cent and other have been down 30 per cent. Globally there are some indications that digital isn’t replacing the void but for Sony BMG, it is. We are up. If people are sitting back waiting for iTunes to fix it, they’re in strife.”

Read the article in Digital Music.

Steve Gordon the author of The Future of The Music Business and the former Director of Business Affairs at Sony TV and Video has this to say……..

Gordon is skeptical that musicians will ever see a dime of money from Microsoft’s “royalty” payment. He writes, “Although this pattern of not paying artists for digital music sales is dreadful, the chances of artists seeing anything from the royalty placed on Zune is even worse. There is nothing in the standard recording agreement that says the labels must share income derived from licensing digital devices. Labels are only responsible for paying for exploitation of music, not licensing electronic devices. So why would the labels share anything with the artists when they already disregard clauses in the recording agreements that would benefit the artists?”

How do labels survive in the techonoligical transition? First,
technological transitions are great times to make gobs and gobs of money. You need to start thinking about creating new revenue streams.

Universal Music Group chief executive Doug Morris said he may try to fashion an iPod royalty fee with Apple Computer Inc. in the next round of negotiations in early 2007.

Universal was the first major record label to strike an agreement with Microsoft Corp. to receive a fee for every Zune digital media player sold.

“The Zune (deal) was an amazingly interesting exercise, to end up with a piece of technology,” he added.

MP3s are a fad like any other. Sure, digital music files will most likely be around forever and will continue to grow, however it’s probably premature to say that it will be the end of the physical product. Digital files are in response to a quality of music- disposable. There is no commitment in a digital file as it can be obtained and erased with a click of a mouse. You may throw a track on your iPod and rock it for a while until a hot new track comes out and you need to make some space. Then it’s like you never had the song in the first place. Digital files are being heralded as ‘the future of music,’ but as someone passionate about great music, I find that somewhat sad. If the future of music is disposable, replaceable and forgettable, then I am glad I hung onto the cds that I purchased, because it looks like I’m shit out of luck when it comes to new music.

Newcomers to the music industry are putting all of their eggs in the internet basket, the polar opposite behavior of old timers who think if they close their eyes and wish it away things will return to ‘normal.’ The web-obsessed entrepreneurs are trying to bank in on the theory that people live their lives almost exclusively online. They live there, they work there, they shop there, they hang out there, and it’s where their friends live. As MySpace and other sites have shown us, the novelty WILL wear off. Young Americans, especially, do not have the attention span to make a real commitment to something like a website, no matter how many people are on their buddy list and no matter how addicted to it they once were. The internet is unreliable, and I am not talking about connection. Sites, often times, are here today and gone tomorrow. Those who do stick around and obtain some level of popularity are quickly purchased and commercialized, stripping it of all ‘cool factor.’

Those in favor of internet only marketing cite the success of Gnarls Barkley as an example since their iTunes sales were so impressive. It seems they have already forgotten how much they spent on television advertising and the large amount of radio play they received, not to mention the video and press. The internet buzz and promotion definitely played a part, but it was in no way their sole outlet for promotion. What got people interested was the band name. It’s clever. Their music is unexpected. A name like Gnarls Barkley conjures up all kinds of assumptions, none of which are realistic. Again, clever. The song was good, hence the downloads. The album, however, is quite another story. If digital files have replaced anything, it’s the single, which hasn’t really existed in the US for years anyway.

One thing has become very clear over the last couple years- things are changing. Everyone is looking for a way to make music marketing easier. The industry wants a simple formula they can plug any artist into and be successful. Unfortunately, that is no longer a possibility. Things have changed and they will continue to change. Cookie-cutter marketing is no longer an option. You need great, unique artists, and you must market them in great and unique ways. If the artists are original and are bringing something special to the table, why would you even consider working them the same way as Joe Average and The Typicals? I’m sorry, but it’s not going to be easy, nor should it be. As professionals in this business we should be armed with the creativity, ingenuity and passion to be successful and work with successful artists. If you can’t take the heat, get out of the oven.

AJ, KOAR