In 2004, I asked an executive in a major label sales department what the dominant configuration was that fans used to listen to music. His reaction was predictable, which was why I phrased the question the way I did. The dominant configuration was the compact disc. I suggested to him that the dominant configuration that fans used to listen to music was the mp3 file—the dominant configuration that he used to sell music was the compact disc.  Not the same thing at all. My friend looked at me like a dog on a mirror.
Then I asked him if he thought he would be doing a good job if there was a configuration that resulted in hundreds of millions of “listensâ€? a month and he wasn’t selling music in that configuration. Again, dog on a mirror. But I knew the truth: The lawyers won’t let him. He has to sell digitally in either Microsoft’s or Apple’s DRM.Â
Locks Keep Out the Honest People
In case it hasn’t dawned on anyone—DRM, like locks, keeps out the honest people, whether it’s Microsoft’s, Apple’s, or whatever’s DRM. The DRM for sound recordings on digital files will always be relatively weak if for no other reason than the simple fact that you can’t put a $99 security solution on something that sells for $0.99 and the computer manufacturers refuse to cooperate with developing copyright-respecting protections. Plus, copy protections on CDs have not been uniformly successful (to be extraordinarily kind). The fact that DRM is hackable is not a reason not to use it. The day man invented fire the first arsonist was born, but thankfully that did not stop the use of fire.
-“The music industry these days tends to not take musicians and make stars out of them. They tend to take stars and make musicians out of them. That’s just the way it is…For now there is one thing people can’t download, and that’s us. Now it’s about staying out there on the road. That’s how you’re a rock band these days.”- Robby Takac Goo Goo Dolls
-Check out new music from Aphasia. For more information contact Drake Shearer at drake@zigzagcommunications.com
Check out some new music from unsigned artist Rides Again who we talked about several months ago. New song is called Apology (mp3). For more information contact Garry Francis c/o Prize Fighter Management at or 416-434-4244. Legal is Chris Taylor
Universal Music is backing a start-up called SpiralFrog that will allow consumers to download songs for free. It will rely on advertising for its revenues, offering a different business model from that of Apple Computer’s popular iTunes music store.
The service, SpiralFrog, represents a departure from Apple’s 99 cents-a-song business model and other legal download services which charge a subscription fee by being completely free. It is due to start up in December.
“Offering young consumers an easy-to-use alternative to pirated music sites will be compelling,� said Robin Kent, SpiralFrog’s chief executive and the former head of the Universal McCann advertising agency.
Perry Ellis, the fashion company, said it would advertise on SpiralFrog. Levi’s, Aeropostale, Benetton and others have expressed interest. “Our audience is into music and can be more easily reached on the web,� said Oscar Feldenkreis, president of Perry Ellis International.
Remember when MTV use to show your favorite videos?
Websites including Yahoo, Myspace and Youtube are using music videos and stealing MTV’s market share.
The music video strategy is a smart one for online companies, says David Hallerman, a senior analyst at eMarketer. After all, Internet advertising is a fast-growing market expected to bring in $16 billion this year alone, according to eMarketer projections, and advertisers particularly covet the teenage and young adult market.
Analysts say MTV can’t afford to be complacent. “Right now I don’t really view (competition) as a problem because MTV has an Internet presence and they are the main brand,” says Robert Routh, a managing director at Jefferies & Co. “Could it become a problem if Viacom doesn’t carefully monitor the situation as time goes on? Sure. If MTV continues to focus more on the television product, then it could become a problem. We saw that with AOL, which was the dominant player online for years. Now look at what has happened.”
Last week, MTV Networks purchased gaming site and online video outlet Atom Entertainment for $200 million (see BusinessWeek.com, 8/11/06, “I Want My GTV?”). Earlier this month, MTV’s college campus network acquired Y2M: Youth Media & Marketing Networks, a publisher of online college newspapers (see BusinessWeek.com, 8/3/06, “Viacom: I Want My Demographic”).
It has also acquired gaming sites Xfire and GameTrailers, along with indie film site IFILM. Last year, Viacom tried to acquire social networking giant MySpace, which also streams music videos from independent and major artists, but lost out to News Corp. (see BusinessWeek.com, 7/19/05, “News Corp.’s Place in MySpace”).
YouTube is handily beating nearly all of the traditional media outlets for traffic.
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Green Day, the Red Hot Chili Peppers, and new discoveries James Blunt and Gnarls Barkley has helped grow Warners market share to 19.3%, up from 16.7% in 2005, according to Nielsen SoundScan. Check out the below quotes from CEO of Warner Lyor Cohen taken from the Los Angeles Times.
The industry is in need for artist development.
“the industry needs to develop artists who are profitable over the long term, even if they don’t start out big. We wanted to give ourselves more time for artist development, but to do that, we had to lay off a lot of people so we could afford to move more slowly. The whole industry is still bloated. Everyone needs to get in better shape”
A&R is more important than marketing and promotion.
The other change we’ve made is placing A&R [artist and repertoire, those who discover and nurture talent] executives above marketing and promotion employees. Record people want to work for an A&R-driven music company. We’re still three to five years from becoming a really substantial company, but the only way we can get there is if A&R is on top.
It’s ok to drop artists who have the potential to sell millions of records.
When Warner’s label heads were cutting their artist rosters, I told them, ‘My man, you’re gonna cut an act that’s going to be successful across the street, and it’s OK.’ I have cut many platinum acts in my career. At [Island Def Jam], I cut the Baha Men, who went on to sell millions and millions of records. But for me, the Baha Men would have represented short-term positive results that would have led me down the wrong road.
Our industry wastes money on hundreds of acts because executives are afraid to cut an artist who might be successful somewhere else. We’ve got to change that mind-set. My background lets me tell my executives: ‘You don’t have to snare all the successful bands. Just focus on making the ones you have snared successful.’
The Biggest Challenge facing the music industry.
The digital revolution is baked into the very capillaries of our organization now, and we have to push experimentation every day. We have to be willing to try things that may fail, and partner with anyone we can. Right after joining Warner, I asked for special funding to start an incubator system to build relationships with young executives outside the company. There was a temporary CFO who thought that sounded too loosey-goosey and said it was dangerous to risk money on anything nonessential. But Edgar [Bronfman Jr.] supported the idea, and that’s how we found [the band] Panic! at the Disco. The band’s manager, a guy in his 20s named John Janick at the Fueled by Ramen Co., is one of the best record execs I’ve ever met. I expect him to be an integral member of our management team, but in today’s music industry, we wouldn’t have discovered him if we didn’t try this experiment.
Lyor Cohen responds to his outlandish behavior questioned by critics.
There’s no question that I’m an outsider in the traditional record industry. I’ve been an outsider for more than 25 years. I’m an entrepreneur, and so I look at things differently. Here’s an example: I could never get my acts on Jay Leno or David Letterman’s shows. Finally, I hustled a few acts on the shows, and I realized it didn’t sell any records. So I stopped caring about those shows.
Music insiders care. They want to feed their ego by saying they know Leno or they’ve shipped millions of records, even if a whole bunch get returned. I care about moving the needle. So I encourage risk-taking. And the only way to encourage risk-taking is to take risks yourself, which means sometimes you’ll fail, or people will say you are too aggressive or controversial. But someone needs to jump in the pool first for a party to get really great. I’ve always been willing to be that guy.
A&R people are the utmost important even above the marketing and promotion people. Why? Because you can’t market or promote anything until you find the talent. You can be the greatest sales person in the world but if you have nothing to sell, your going out of business. The fact remains is that the music business is in turmoil and no one has the answers yet. It’s a work in progress. It’s taking risks and eventually a successful model will be found. The industry needs to focus on new talent because “new” artists’ are the lifeblood of any company.
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