Berklee College of Music Music Business Journal · 2019. 8. 27. · Music Business Journal Volume 8, Issue 3 March 2013 Berklee College of Music Inside This Issue Mission Statement

Music Business JournalVolume 8, Issue 3 www.thembj.org March 2013

Berklee College of Music

Inside This Issue

Mission Statement

The Music Business Journal, published at Berklee College of Music, is a student publication that serves as a forum for intel-lectual discussion and research into the var-ious aspects of the music business. The goal is to inform and educate aspiring music pro-fessionals, connect them with the industry, and raise the academic level and interest in-side and outside the Berklee Community.

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Peter Gotcher is Executive Chairman of Dolby Laboratories and Chairman of Top-spin Media, Inc. He founded Digidesign Inc. in 1984 and served as its President, CEO and Chairman. He won a Grammy (2000) and an Oscar (2004): both were for Technical Achieve-ment and honored Digidesign’s contributions to the recording and film industries. In the late 1990s, Gotcher became a founding partner at Redpoint Ventures of Menlo Park, California, a leading Silicon Valley technology venture capi-tal firm. He has served on the board of directors of fifteen public and private companies, includ-ing Line6, Avnera, Dash Navigation, Zing Sys-tems, and Pandora. Peter has a BA degree from the University of California at Berkeley and is member of the Board of Trustees at the Berklee College of Music. The interview starts by looking back at Gotcher’s earlier achievements but quickly turns to the current juncture and his direct in-volvement with Pandora and Topsin. Gotcher also touches on Daisy, a new streaming service that will launch later this year and which we write about at more length later in this issue.

MBJ: How did ProTools become the stan-dard for recording and music production?

Peter Gotcher: I started Digidesign with Evan Brooks in 1983 and we were not into record-ing systems. Our products were digitized drum and percussion sounds on chips that could be put into drum computers to make them sound better. When digital sampling keyboards and the Macintosh came along, things took off. The Mac was the first personal computer that could display a waveform, and our sound editing ca-pabilities evolved dramatically. Today, ProTo-ols has many components: the main applica-tion, different audio interfaces, and a universe of third party plugins. But it all goes back to having a visual waveform that you can edit and a traditional mixer element; to this day most of the work in ProTools happens there. There doesn’t seem to be a new paradigm to rethink how we record, edit, and process audio yet. Still, much innova-tion is happening in the world of virtual instru-ments and plugins.

MBJ: How do you remember the transition into Wall Street?

PG: Digidesign went public in 1993. I was in my early thirties and pretty terrified because I was the youngest CEO of a public company at the time we went public. I would argue that there was a short transitional period of time where I kind of dropped the ball. Go-ing public really limited the amount of time I could stay focused on the product side of the company. I was in effect its Senior Product Manager, although I didn’t necessarily write code or design the hardware. Now there were many new activities to spend time on, and investor relations needed work early on. The IPO roadshow itself was about fifty meet-ings and fifty presentations over a couple of weeks. Fortunately, I had mentors among my board members; one of them was a CEO of a publicly traded company and there were sev-eral with deep business experience.

MBJ: You are also known as the founder of Topspin, a software-marketing company, especially for new artists.

PG: I was on the board of a company named MusicMatch whose software was bundled with the iPod for Windows before Apple came out with a Windows version of iTunes. The company had about twenty million users but its search engine tended to recommend

A Streaming Giant? Page 4

Musicians’ ToysPage 6

Snapshots 2012Page 8

Roger Faxon & EMI’s SalePage 12

Irving Azoff & Live NationPages 14

Music Industry Insights From the Top:A Conversation with Peter Gotcher

By Emilie Bogrand

Table of Contents

Business ArticlesStartup Master: Peter Gotcher.................1Daisy.......................................................4The Products Industry.............................6Spotify and Orange.................................7Year in Review........................................8MIDEM 2013..........................................9Music Salaries.......................................10Roger Faxon Interview..........................12Azoff Resigns........................................14

Music and SocietyMusic and Football...............................13

MBJ EditorialMission Statement...................................1Editor’s Note...........................................2Upcoming Topics...................................16

SponsorshipBerklee Media....................................... 15

Editor’s Note

Volume 8, Issue 3 Music Business Journal

In this issue we examine the achievements of three very important men, each of whom has played an integral role in shaping today’s music business. We begin with insights from Peter Gotcher, who co-founded Digidesign and has served on the boards of Pandora, Dolby Laboratories, Topspin and many other influential media companies. Also a venture capitalist, Gotcher points to direct-to-fan as an emerging model within the music business. Roger Faxon was the CEO of EMI Music Group and recently steered the lynchpin company through its sale to Universal Music Group and Sony/ATV Publishing. Before then, Faxon led a distin-guished roster of businesses including Columbia Pictures, Sotheby’s Europe, LucasFilm and Mount Company. We also explore Irving Azoff’s departure from Live Nation, his feats over the years, and his rea-sons for leaving. In 2004, he founded one of the most powerful artist management firms in the world, Front Line Management. He later became CEO of Ticketmaster and eventually executive chairman of Live Nation Entertainment. Next, we follow the ongoing innovations by Beats By Dre. The audio products company is pre-paring to roll out a new music streaming service, currently called Project Daisy. By integrating Topspin into the service and enlisting the latter’s Ian Rogers as CEO, artists stand to forge stronger relationships with fans and tap into revenue from merchandise sales and touring. We check in with two recent music conferences. Through an analysis of the NAMM Show, we study the growing significance of the products industry. As other music income sources decline, music products account for a larger piece of the revenue pie. We also report on the prominent themes from this year’s MIDEM including brand partnerships and new models for fan engagement. One brand partnership in particular caught our attention. Spotify’s recent bundling deal with mo-bile provider, Orange-Switzerland is part of the movement towards creative monetization solutions for music streaming services. The “Orange Young” campaign bundles a one-year Spotify Premium subscription into a non-binding mobile plan for consumers under the age of 28. This year’s Super Bowl was a timely event that also reinforced the importance of brand partner-ships. Many musicians cashed in from being featured in multi-million dollar commercials. We docu-ment the effects that these advertising placements can have on an artist’s career and reveal the spikes in music sales that surrounded the game. Finally, we present a portion of Berklee’s detailed report on music industry salaries and focus on business-related jobs within the publishing, recording, touring, products and communications indus-tries. By examining findings like these and analyzing the key trends of the past year, we take time to look back upon 2012 in order to get a better perspective for the future.

From all of us at the MBJ, we hope you enjoy this issue.

Emilie Bogrand, Editor-in-Chief Chelsea Ira, Content Editor

Contributors Editor’s Note.................................................................................................................................................................... Emilie Bogrand Business Articles...................................................................................... Kyle Billings, Emilie Bogrand, Troy Church, John Ioannidis Chelsea Ira, Jessica Prouty, Annette Atieno Oduor Music and Society.............................................................................................................................................................. Megan Graney Staff................................................................................................................ Haven Belke, Kyle Billings, Perrine Virgile, Dylan Wolff

2 www.thembj.org March 2013

Management Editor-in-Chief............................................................................................................................................................... Emilie Bogrand Content Editor....................................................................................................................................................................... Chelsea Ira Webmaster............................................................................................................................................ Haven Belke, Itay Shahar Rahat Faculty Advisor and Finance..................................................................................................................................... Dr. Peter Alhadeff Layout Editor...................................................................................................................................................................... Haven Belke

innovation from other streaming radio ser-vices.

MBJ: Please compare Pandora and Spo-tify for us. Are Pandora’s programming methods more reliant on the human touch?

PG: Well it’s a mix. There’s the Music Genome Project, which is made of trained music analysts who listen to the music and capture all kinds of “genes” as we call them, i.e. the traits of the music. That’s the start-ing point. Then, we also have so many us-ers that we have billions of these “thumbs up” and “thumbs down” events. So we use that as well. And Pandora’s primary focus is “let’s build the best possible playlists for you.” That’s where a lot of our R&D goes. The user interface of Pandora hasn’t really changed all that much. We want to keep it simple. But a lot of the innovation is happen-ing under the hood – trying to make the play-lists better and better. That seems to trump everything else in terms of driving user en-gagement and satisfaction. Besides, the services are different. Spotify is an on-demand service. Pandora can’t do on-demand under the terms of its statutory license. When you look at music-listening habits, about 80% of music listen-ing is passive meaning it’s radio and you’re not picking every track. In the case of Spo-tify, you can do that. And there are a lot of passionate music fans that want to have a completely active experience and pick every track they hear. But that’s really only about 20% of listening. A lot of people have asked, “well why don’t you just have a subscription ad-on that is a track-on-demand product?” And we just feel like that’s been done fair-ly well and that we really do access a large enough market.

MBJ: Pandora is offered in the U.S., New Zealand, and Australia. Why does it seem to be running into problems elsewhere?

PG: Almost none of the countries outside the U.S. have statutory licenses for Internet radio, although Canada may get there soon. From day #1, Pandora could play any art-ist. We just had to pay the statutory royal-ties to SoundExchange. Like terrestrial ra-dio, no artist can tell us that we can’t play their songs. The royalties are fixed. We tried very hard, for example, to launch in the U.K. and we had to do direct deals with every la-bel and every publisher; they are incredibly

March 2013 www.thembj.org 3

Business Articles


from the All Music Guide or one of those oth-er data sources. Many of the postings are old. A better alternative is to let artists claim their space on the service by uploading pictures and videos, making comments, and placing their own Topspin offers as well.

MBJ: Daisy will be a streaming service. Are you bullish about the medium?

PG: Yes. I’m a believer that streaming is the way of the future and that downloads are prob-ably just a transitional format, and probably won’t last a full thirty-year cycle like others have. Streaming is where the big audiences are; think about terrestrial radio: its audience went out to the record stores and bought CDs and even with a fairly low conversion rate it made a difference. The economics of streaming are, of course, challenging. Look at Pandora be-ing basically break-even and Spotify losing many tens of millions of dollars; artists, on the other hand, complain about the size of their payouts from such services. But also, expecta-tions of how much, when and if you pay for music have just really changed dramatically. The root of all this is the unbundling of the al-bum and the establishment of the single song economy. In my view, fighting piracy is like trying to get toothpaste back in the tube. The challenge for artists and ser-vices like Daisy is what to do with these very large audiences they will be creating. I think of Pandora: we had over 10,000 artists that were played for more than 250,000 uniques last year. Radio never had that kind of reach. The problem now is closing that loop. We should let artists get head-to-head with that listening activity, make offers to acquire more fans, and exchange a free track for an email address. All of that classic direct to fan stuff works much better when you have large-scale exposure. With that many impressions, fan acquisition is easy and you don’t need to con-vert many to generate transactions. (Editor’s note: Gotcher is a Round B investor in Pan-dora.)

MBJ: Do you think there is room for both Pandora and Daisy?

PG: Yes, I think they are fairly complemen-tary services. It will be interesting to see what Daisy does in terms of a ‘radio offer-ing’. When Spotify came out people thought it would cannibalize Pandora and that hasn’t happened at all. Pandora’s market share of U.S. Internet radio is about 72% now. Ironi-cally, the high royalties stifle competition and

artists that were already popular. I was wres-tling with a question: how does a new artist get traction with a search engine and get rec-ommended sooner rather than later? I had spent time and brainstormed this topic with Shamal Ranasinghe, so I hired him. MusicMatch went with it, and we spun an early version of Topspin there. But Ya-hoo later acquired MusicMatch and did not follow through. At the time, the concept was based around targeted marketing for new art-ists, including the identification of strong cor-relations with symbiotic artists for purposes of reaching more fans. But we were now free from Yahoo and could get behind a broader mission, and this became “let’s just let artists go direct to fans and offer an alternative to the traditional label structure.” Shamal really deserves credit for keeping the idea going and restarting the new Topsin. I provided some seed funding with him as a co-founder. After that, we hired a small team of about five or six people. We ended up raising several rounds of venture capital and the company is doing well.

MBJ: Can you tell us a little bit about Top-spin since CEO Ian Roger’s departure?

PG: Ian is going to run a project called Daisy, which is a new on demand music service. He’s staying involved with Topspin and has become the chairman of the board. He’s ac-tually taking my place in that role. He has been a fantastic evangelist for the company and we feel that in his role at Daisy he is go-ing to have so much artist interaction – and Topspin will be integrated into Daisy - that it will probably continue to promote Topspin’s interests as well. I would defer to Ian to give you the full story, but what they are trying to do dif-ferently with Daisy is to both allow artists to manage their presence and profile pages, and to make offers directly within the service. To-day, if you are on another music service and you click on the artist’s bio, you typically get some pretty stale info that they’ve licensed

A View From the Top (cont.)(From Page 1)



Business Articles


The Promise of Daisy

Project Daisy, a developing music streaming service, has been dubbed by its cre-ators as the new standard for the future. But, until recently, much of the details regarding the differentiating features have been withheld. Built on the MOG platform and founded under the Beats Electronics umbrella, the venture is headed by CEO Ian Rogers and Chief Creative Officer Trent Reznor. By partnering with Top-spin, Project Daisy plans to integrate music discovery and artist connection into a stream-ing service, allowing fans to simultaneously discover music and connect with and support talent. This feature alone stands to bring direct-to-fan marketing to a whole new level. With the mass appeal Beats can bring to the table, the new service could grant musicians access to a huge consumer base. Following the major success of its headphone line, Beats Electronics recently broke into the streaming industry with its pur-chase of MOG, for which it paid $10 million.1 After the acquisition, Jimmy Iovine, CEO of Beats Electronics, announced plans to create a service that could compete, among others, with Spotify. “Right now, these [companies] are all utilities,” Iovine claims, “It’s give me your credit card, here’s 12 million songs, good luck.”2 The creators of Project Daisy empha-size four main selling points: sound quality, mu-sic discovery, direct-to-fan integrations, and the ability to “take music subscription services to the mainstream.”3

Sound Quality

Although no formal details have been released regarding sound quality, Iovine et al stress its importance. Considering Beats Electronics has built an empire on head-phones, it makes sense to integrate superior audio quality into their service. “We have an entire generation that was brought up on sound being inferior,” says Iovine, “so we will have the best possible quality and it will have glob-al scale.”4 Beats succeeded in bringing high-quality, high-priced headphones to the main-stream music listener. “We had to get young people into the sound,”5 says Iovine, wishing for evangelists of better audio. This might be difficult. Streaming appears to be the way of the future but some music lovers argue that sound quality is being compromised. With 320-kbsp for premium listeners, Spotify is at the top end. However, most other services are nowhere near. Xbox Music Pass offers 192-kbps streaming. Pan-dora subscribers also receive 192-kbsp, but the ad-based streaming model offers only 64-kbps.6 Therefore, the real question is whether the average consumer, fed on a staple diet of sub-par audio resolution, will care enough to take Iovine, and Daisy, seriously.

Music discovery

As a music service, Daisy will func-tion similarly to others in that it will provide listeners with on-demand music and make recommendations. In addition to algorithmic suggestions, Daisy plans to use input from music connoisseurs to create a platform “in which the machine and the human would [sic] collide more intimately.”7 Creative Officer, Trent Reznor, claims that purely algorithmic recommendations have “begun to feel syn-thetic,”8 and compares Daisy’s more intimate approach to that of a local record store owner. Iovine claims that digital music is missing “cultural context.”9 In short, by combining a more personal approach to music recommen-dations, and adding direct-to-fan capabilities, Daisy hopes to re-awaken the music culture.

Direct to fan integration

Ian Rogers was the CEO of Topspin until he became the CEO of Daisy in early January. Meanwhile, Beats has invested in Topspin and plans to integrate GoDirect into their streaming service.10 Rogers still acts as the Executive Chairman at Topspin and says

that the plan is “to set the gold standard for how artists can be integrated into consumer music services.”11 Topspin artists will be able to display products, merchandise, news, and tour dates to the people who are listen-ing to their music. In addition, listeners will be provided with easy access to the artist’s Twitter, most likely either through a display on the site or a direct link. Considering the minimal returns and royalties artists are receiving from streaming services, other forms of revenue, including touring and merchandise, have be-come more important. Daisy’s Topspin in-tegration could potentially enable artists to increase the reach of their marketing efforts relating to products and tours. Listeners may be more inclined to purchase a shirt or attend a show if the information is right in front of them. “There shouldn’t be a walled gar-den where the streaming service is just a util-ity that delivers the sound,”12 says Bob Moc-zydlowsky, Senior Vice President of Product/Marketing at Topspin. With the emergence of social media, fans are increasingly seek-ing a more intimate connection with their fa-vorite bands. By integrating a communica-tion tool like Twitter into a streaming service and allowing artists to make offers directly, Daisy may help to accelerate the process of converting casual listeners to true, dedicated fans. Of course, these features will most likely only benefit artists using Topspin, which is a strategic play on Topspin’s part. If the service is successful in providing a better artist-fan connection, they will most likely see a new influx of users. On the other hand, if there are not enough Daisy artists using Topspin to provide value to the con-sumer, Daisy could lose its key differentia-tor, making it no different to other streaming services.

Bringing it to the mainstream

Daisy’s model questions the true nature of streaming services. In order to re-ceive the full benefit from Daisy’s service, users will have to be involved with the site while listening. They will need to be reading a musician’s Twitter posts and looking at the tour dates and merchandise sales, as opposed to simply using the service for background music while on Facebook, doing home-work, or commuting to work. The major-ity of music consumption is passive so,

By Chelsea Ira



Business Articles


(From Page 3)

Peter Gotcher (cont.)

fragmented. It really is very challenging to pull off something like Pandora unless you can operate under a statutory license. We’re hoping that the way we do business in the U.S will be the logical evolutionary path for these other countries because it makes sense, but it’s an element that we don’t control.

MBJ: If licensing costs continue to be as high as they are, is Pandora’s business model viable?

PG: Well, increases are kicking in. We had one in January and we will have another one next year. At the end of the day, Pandora will survive if we do a really great job of selling advertising – primarily mobile - and we con-tinue to make our subscription offerings bet-ter. I don’t think we’re waving the flag that “Pandora’s going out of business if we don’t get lower royalties”. We did that three or four years ago because royalties then would have put us out of business in pretty short order. Fortunately, that changed, but the revi-sions are still tough for us to take. Pandora’s survival is not at risk. We’re a much less valuable business with high royalties but that’s not the end of the world. I believe that the high royalty rates are stifling innovation and preventing Pan-dora’s competitors from being funded.

MBJ: Could you please elaborate?

PG: Most V.C.s that understand the online space look at Pandora’s cost of content and say, “we can’t build a business at that level.” You can’t do subscription-only radio and get more than a few hundred thousand subscrib-ers. That’s been tried. I think the reality of it is that radio, as it has been for many de-cades, needs to be free and ad-supported. Or at least have free and ad-supported compo-nents. And these royalty rates and the chal-lenges of scaling an ad-sales organization make it an un-investable area. David Pakman, the former CEO of eMusic, is a person who has a ton of do-main expertise, experience and knowledge. Pakman was pretty articulately at the arbitra-tion hearings. He knows the music-licensing world very well and went on to become a V.C. He made a very clear case about why new Internet radio companies are un-invest-able. I suppose you could look through one lens and say, “maybe that’s good for Pan-dora – keeping competition out of the mar-ket,” but I think it’s just bad for fans, artists,

and innovation. More participants make a healthier market. Now if the rates actually went up in 2015, that could be catastrophic but I don’t think anybody is predicting that.

MBJ: How do you see the market for new music business startups? What are you looking for as an investor?

PG: The truth is that the category is becom-ing overcrowded and generally less attrac-tive from a financial investment standpoint. There’s no shortage of entrepreneurial cre-ativity. People are coming up with a lot of interesting ideas. But, there are all the con-tent licensing issues, whether it is statutory royalties or the realities of having to do con-tent deals directly with the labels. That’s a tremendous risk factor in starting a new digi-tal music service. Now in the case of Daisy, they are very well funded by a very successful busi-ness, Beats. They are going to try to take a different tack. And they are going to have all the benefits of the celebrity marketing muscle that Beats can bring to the game. They are not funded by traditional V.C.s. My advice is, if you want to do a fundable music startup, the key is to stay away from requir-ing direct content licenses from labels. The whole transition of this industry to direct-to-fan is happening more slowly than any of us would like but I’m still a firm believer that it will happen. There will be continuing op-portunities for companies that facilitate that transition. There are some new music start-ups that I consider particularly interesting. For instance, Chromatik is a music educa-tion network and system for music teachers to interact with their students remotely. But what I’m most excited about in the online space is the stuff we’re doing at Berklee Mu-sic and the Coursera courses. (Editor’s note: Gotcher is also a Berklee Trustee). Berklee obviously has some credible faculty and cur-ricula being developed all over the world. At Coursera, we’re able to give that away for free. I think there are 125,000 people signed up right now for those classes. And that’s good business, because it will be a driver for both the online and the brick and mortar school.

MBJ: What about music and the venture capital market?PG: There’s sort of a climate of “haves” and have-nots” in a lot of venture-funded compa-

nies today. V.C.s and angels are doing more seed investing, with many companies get-ting some level of early stage funding. But there’s always been a high mortality rate of companies going from seed funding to doing a real series A financing. And it seems that today, especially, there will not be enough series A rounds for most of them. But at the other end of the spec-trum, you see a company like Spotify, which has obviously generated a fair amount of market traction while losing a substantial amount of money – they reputably raised another $100 million dollars at a $3 billion valuation. It’s almost as if there a few hot companies that get very high valuations but it’s a struggle for everybody else. Series B and series C financing rounds are not as buoyant as they have been in the past.

MBJ: You recently joined the board at Trion. Why did you choose to invest in a video game company?

PG: Yes, that one was a little bit off the beat-en path for me. I’ll tell you why: I have four sons and they range in ages from seventeen to twenty-two; they all played video games to a greater or lesser degree--including some shooting games which made me think that “I’m definitely going to limit the amount of time you spend doing this.” But as I look back over the last few years, a couple of my boys have become interested in massive multi-player strategy games. In these games an ad-hoc team is formed with people from all over the world. They collaborate to solve pretty complicated problems. So a light went off in my mind. I think I also heard a TED talk on the topic. I now believe this collaborative game dynam-ic is going to be ingrained in the behavior and culture of their generation, and inform problem solving moving forward. When the V.C. investors at Trion approached me and asked me to join their board, my first reaction was “well, I don’t know anything about the gaming industry, I’m not a gamer, you don’t want me.” Their response was “well, we have a lot of gaming experts and you have had success in other entertainment and media related businesses, and we think we could benefit from those perspectives.” We talked about it for a long time and I finally joined. I’m learning a ton about this industry. It’s living up to my ex-pectations that it’s going to be a fascinating area to watch.

Business Articles



to an educational experience, jumpstart a ca-reer, or even start an endorsement deal.

Education and Development

Music education is a major em-phasis. During the show, this correspondent spoke to a member of NAMM’s board of directors, Menzie Pittman. Pittman is an educator and owner of The Contemporary Music Center chain store in Virginia. She links education with the advancement of the products industry; without it, and the nec-essary follow up, Pitman believes interest in playing an instrument could abate: “it’s not simply my job is to sell you a guitar, or a keyboard; we’d like to teach you how it works, how to play it, we’ll put you in groups, and we’ll prepare you for a summer performance”. This is passionate advocacy for learning, and is hardly found in any other branch of the music trade. During the convention, NAMM members can also partake in professional development sessions at NAMM Univer-sity, Generation Next, H.O.T. Zone, and the NAMM Idea Center to help build their busi-ness and network with the industry.NAMM also has several public service pro-grams including, “Wanna Play?” for people of all ages, from toddlers to seniors. “School Jam USA” invites high school musicians to perform and raise additional funding for their school music programs. College stu-dents have the opportunity to attend the win-ter NAMM show through NAMM’s “Gen-eration Next” program.

Forward

As baby-boomers get older, well-ness is having a bigger emphasis in senior citizens’ lives, with music being a huge part of it: learning an instrument at old age will become common. At the other end of the spectrum, early childhood learning is be-coming critical and a matter of public pol-icy. Both factors bode well for the products’ industry and should expand music educa-tion and instrument purchases. Finally, it is good to encourage college majors in music business and education into a products’ ca-reer. The trade might not have the glamor of rock-and-roll, but no one attending NAMM can walk out without being amazed at the sheer variety of occupations and business dreams built around music.

accurate portrayal of the future of the industry. As we look forward to what’s to come in music gear, NAMM is the pointer.

Business Economics

Though more stable than the recorded music market--because, after all, NAMM repre-sents the business of musicians’ accessories –- it is not immune to general trends in the economy. Trouble in the housing market after 2008, for example, has affected piano sales, and the 2011 tsunami in Japan affected electronic musical in-strument sales. Besides, governments, both at the state and federal level, make decisions about education and impact music manufacturers and retailers that sell to schools. New products and innovations by the leading computer companies also play a role.

Music product trends also parallel mu-sic tastes. In 2011, DJ products rose 9.1% cor-responding to the rise of electronic dance music in the United States. Acoustic guitars accounted for 52.5% of the total guitar market in 2011 as trends in popular music shifted from contem-porary rock to a more acoustic-focused country style. The NAMM show hosts a diverse net-work of companies ranging from large to small, domestic and international. Larger exhibitors, such as Gibson, Yamaha and Roland, have en-tire rooms to showcase products. Four halls in the convention center are dedicated to larger and mid-size companies while hall E consists of many international companies and smaller ex-hibitors. There are also other levels where edu-cational/professional development panels take place. Products include fretted and brass in-struments, audio pro gear, general accessories, pianos and organs, print music publishing, per-cussion, and school music. Connections within this network are important because they can lead

The Importance of Being in ProductsBy Jessica Prouty

Overview

The music products market is the un-sung hero of the music industry. It is made up of manufacturers of instruments and instrument accessories, audio pro gear, recording software, trade magazines, and educational materials for musicians and K-12 music learners. As re-corded music drops in value, sales in this sector stay resilient. Moreover, because there are so many small businesses and manufactures, and the typical producer cycle at NAMM goes from industrial design to production, marketing, and distribution, the sector employs the largest labor force in the music industry by far—more than live music, and much more than recorded music and publishing. Over time, its significance has grown relative to the other sectors of the music busi-ness. In the early nineties, the U.S. music prod-ucts industry was valued at $4.6 billion. Then, it was overshadowed by recorded music sales worth at least twice as much; instead, by 2011 recorded music sales were worth only $7.1 bil-lion compared to the ever-rising $7.6 billion of music products. In short, the music products industry has pulled ahead: although it may be premature to say it is the new cash cow of the business, like recorded music once was, ana-lysts should take notice.

The NAMM Show

Its most important annual event is for trade-only attendees. The general public is not allowed in. As usual, NAMM, for National As-sociation of Music Merchants, happens at the Anaheim Convention Center in California ev-ery January. There is a summer version in Nash-ville, but it is the winter show that sets standards every year. The 93,000 attendees and 1,700 ex-hibitor companies make NAMM the second largest music products show in the world; Musikmesse in Frankfurt, Germany, is larger only because it accommodates the general pub-lic. You have to be an insider to attend NAMM, and, in the products trade, NAMM is still the number one event of its kind. The NAMM show revolves around the interaction between exhibitors and buyers (such as distributors, retailers, and the music education trade). Exhibitors present new prod-ucts in booths along the show floor, while the buyers have the opportunity to see the products firsthand and negotiate price and delivery. Ne-gotiations made on the floor establish the sales flow and revenue for the next year, providing an


Business Articles


(even though Swedish singer Jonathan Johans-son recently broke through Spotify’s stream-ing’s limitations and made $20K in the first week of his album release).4 Bundling would help the carriers too. In recent years, the U.S. mobile market has experienced a loss in customer loyalty, ac-cording to David Goldman of CNN Money.5 It may be a sign of a healthy and competitive marketplace, but it also forces mobile carriers to reinvent their very best offers. This some-times means subsidizing new products. But the verdict is still mixed: Spotify’s deal with Deutsche Telecom in Germany helped up-sell smart phones but did little for customer reten-tion.6 Deezer, a French music streaming service and competitor to Spotify, is also in-volved with Orange. Orange is an investor in Deezer and has partnered with it for other bun-dling deals around the world. However, while Deezer may outdo Spotify in sheer numbers countries, i.e. 215 vs 17, Spotify is still win-ning in terms of key locations, and, notably, in the United States, the largest music market in the world. Spotify is integrated there with Facebook, a huge obstacle to any rival. Inevitably, the question arises as to why Spotify’s bundling strategy is not yet workable in the United States--although a precedent exists: mobile service provider Sprint teamed with Boku, a mobile payment company, to offer Spotify subscriptions bill-able to Sprint’s monthly bills; Boku also has partnerships with other service providers in-cluding AT&T, Verizon and T-Mobile.7 The reasons might be technical. Na-tionally, there is a bottleneck of bandwidth ac-cess. As the Federal Trade Commission puts it, “despite significant investment in networks and advances in wireless efficiency, demand for mobile broadband service is likely to out-strip spectrum capacity in the near-term; with-out action to address this spectrum crunch, service quality is likely to suffer and prices are likely to rise.”8 Reactions to the so-called “spectrum crunch” are mixed among carriers and analysts. Many major service providers in the U.S. ap-pear to be satisfied with the amount of spec-trum available to them.9 Cisco, nevertheless, predicts that mobile Internet data traffic will grow by a factor of eighteen in three years,10 which would of course exacerbate any current problems. On the other hand, a 2012 study by

the mobile intelligence company Validas im-plies that throttling data usage, or charging in tiers for data allowances, has no effect on data usage by mobile users.11 Still, like the U.S., the U.K. seems to be facing much of the same issues: its govern-ment recently announced a plan to invest £11.6 million in 5G technology12; the U.S. on the other hand, has not even seen 4G-LTE become ubiquitous among mobile service providers. None of this seems to deter the tele-coms or the online music providers. Orange, for instance, is expanding into the U.S. with three Android phone models: Orange San Francisco, Orange San Francisco 2, and the newest Orange San Diego came onto the mar-ket starting in 2012 as a low-cost smartphone option.13 If Orange is positioning Deezer here, it should have the advantage of lower transac-tions costs than Spotify over licensing issues. After all, Spotify provided the model’s proof of concept among recorded music sellers.

Endnotes1. Fingas, Jon. “Spotify Signs Deal with Orange Switzerland to Bundle Music with Youth Plans.” Engadget. AOL Inc., 21 Jan. 2013. Web. 20 Feb. 2013.2. Little, Mark. “Music feels the benefit of bundling as Ovum predicts subscriptions to drive 15% growth in digital.” Ovum. Ovum, 27 Aug. 2012.3. Ifpi. Digital Music Report 2012.4. Sydell, Laura. “How Musicians Make Money (By The Fraction Of A Cent) On Spotify.” NPR. NPR, 26 Sept. 2012. Web. 20 Feb. 2013.5. Goldman, David. “Cell Phone Customers No Longer Loy-al to Their Carriers.” CNNMoney. Cable News Network, 26 Mar. 2012. Web. 20 Feb. 2013.6. Andrews, Robert. “Spotify Gets a Leg-up in Germany from Deutsche Telekom Bundling.” PaidContent. GigaOM, 31 Aug. 2012. Web. 20 Feb. 2013.7. Rao, Leena. “Mobile Payments Startup Boku Launches Billing Partnership WithÂ Sprint.” TechCrunch RSS. AOL Inc., 3 May 2012. Web. 20 Feb. 2013.8. Federal Communications Commision. “Spectrum Crunch: The Cell Phone Industry Hits Its Limits.” Spectrum Crunch. Federal Communications Commision, 3 Mar. 2011. Web. 20 Feb. 2013.9. Goldstein, Phil. “What Happened to the ‘spectrum Crunch?’” FierceWireless. FierceMarkets, 28 Sept. 2012. Web. 20 Feb. 2013.10. ”Cisco Visual Networking Index: Global Mobile Data Traffic Forecast Update, 2012–2017.” Cisco. Cisco, 6 Feb. 2013. Web. 20 Feb. 2013.11. Chen, Brian X. “Is Throttling Smartphones Pointless? Study Suggests So.” Bits. The New York Times Company, 23 Feb. 2012. Web. 20 Feb. 2013.12. HM Treasury. Department for Business Innovation & Skills. Government Investment Secures £1 Billion for Univer-sity and Private Research. HM Treasury. Government of the United Kingdom, 8 Oct. 2012. Web. 20 Feb. 201313. McCann, John. “Orange San Diego Review.” TechRadar. Future US, Inc., 18 Oct. 2012. Web. 20 Feb. 2013.

Spotify recently signed a bundling deal with Orange-Switzerland’s “Orange Young” line of cell phones offered to customers under the age of twenty-eight. The Swiss deal is important be-cause it could be a harbinger of things to come. It also reveals that Spotify is banking on bundling services with telephone carriers to build a mo-mentum that it may not yet have on its own. The “Orange Young” campaign offers three-tiered non-binding mobile plans equivalent to U.S. $32, $72, and $87. Bundled into them is a twelve-month, unlimited subscription to Spo-tify Premium.1 While this deal targets the mobile market, customers will also have access to the Spotify premium service on their desktop and get some exemptions in monthly data usage. If Spotify Premium normally costs about $14, arguably the new plan is being sub-sidized on both sides of the transaction. Spotify gains access to Orange’s large distribution net-work and will acquire customers effortlessly. In turn, Orange can use Spotify as a sweetener for potentially new lifelong customers. Spotify’s strategy uses a free, ad-based service to attract new users and create a large cus-tomer base. Over time, and after building a large customer base, Spotify may attempt to taper its free service so that users are compelled to switch to the premium service. Bundling, therefore, can be an effective way to gain paying customers. This is working well outside of the United States. Twenty-five percent of Spotify’s premium subscribers in Sweden are a result of its bundling deal with Telia, which offers TV, mo-bile, and landline bundles. In fact, Mark Little, an analyst at Ovum, a branch of Informa Telecoms and Media, predicts that bundling deals will be one of the major factors pushing the emerging unlimited-music subscription segment to nearly 50 per cent growth annually. Yet, given current global music sales of about $15 billion, it is hard to imagine the $22.5 billion market that Little does for 2017; if, as he also claims, bundling will boost digital music revenue by 15% annually,2 the recording industry would truly emerge from its Dark Age into its Renaissance. Things are still slow. The 2012 Digital Music Report3, put out by the International Fed-eration of the Phonographic Industry (IFPI), gave the number of paying Spotify subscribers at 2.5 million worldwide—not yet a critical mass. Art-ists still receive more royalties from streams by paid subscribers and, in Sweden, ninety percent of Spotify’s user base has upgraded to Premium

By Troy Church

Bundle It and They Will Come



Business Articles

Ten Music Business Highlights from 2012By Emilie Bogrand

As the music industry’s traditional structures continue to fall away, new models are building upon unsteady foundations. Some of the new companies that stepped onto the playing field in previous years fought in 2012 to stay in the game. Major music companies merged and reorganized while digital startups gained more and more attention. Digital Mu-sic News reported that 1 in every 43 venture capital dollars was spent on music related busi-nesses last year. One example, The Echonest, a music data and analysis company, popped up from under the radar and secured over $17 million in funding. With success stories from Amanda Palmer, Kickstarter pushed funding into uncharted territory, creating viable new streams of capital for musicians. Here are ten examples of trends and events that marked the music industry in 2012 and that will continue to have an impact on the months and years to come.

1) Electronic Dance Music was the dominant new genre of 2012. Flooding the mainstream market and pop audience, the EDM industry is reported to have an annual worth of approximately $4 billion. Acts like Skrillex, Swedish House Mafia, Deadmau5 and Avicii drew herds of fans to specialty and major festivals across the globe. In 2012, Dutch producer and D.J., Tiesto, earned over $22 million.

2) Live music revenues have contin-ued to rise since 2010. The Coachella Valley Music and Arts Festival, for example, expand-ed from one weekend to two in order to sat-isfy the higher demand. Meanwhile, recorded music sales continued to stall. 2012 was also the first year during which digital albums outsold other formats and channels including physical copies and distribution outlets.

3) Streaming services faced some negative publicity last year yet they continue to accumulate more users and subscribers. Re-ports detailing Spotify’s poor payouts to art-

ists sparked conflict between copyright hold-ers and the online tech sector. Meanwhile, on Capitol Hill, Pandora turned to litigation in an attempt to lower intellectual property costs via the Internet Radio Fairness Act. Rumors about a similar Internet radio service by Apple spread across the media outlets, sinking Pan-dora’s stock.

4) Crowdfunding emerged as a new fundraising method for small businesses and musicians. Amanda Palmer set a prece-dent when she raised over $1 million in only one month using Kickstarter. IndieGogo and PledgeMusic are also important crowdfunding websites for musicians. As it currently stands, artists and businesses in the U.S. cannot trade equity for online donations. That may change this year when the JOBS Act goes into effect and relaxes equity regulations for small busi-nesses.

5) Venture capitalists and angel investors are increasingly present at music conferences such as MIDEM and South By Southwest. A study by the National Venture Capital Association, PricewaterhouseCoo-pers, and Thompson Reuters indicates that total financing across all sectors dropped 10% in 2012 while financing of music companies rose by 34%. A separate international survey, quoted in Digital Music News, put Sonos at the top of the pack, raising $135 million. Deezer and Spotify trailed closely behind.

6) EMI Music was acquired by the Universal Music Group for almost $2 billion. The sale represents a continuing consolidation among the major music companies. Now, only Universal, Sony and Warner remain. The Eu-ropean Commission finalized the deal nearly one year after the acquisition was announced in November 2011. The approval by the EC came with the stipulation that Universal would sell off one third of EMI’s assets.

7) The publishing sector continues to tap revenues and is taking better advantage of market inefficiencies and licensing holes. Technology helps and is increasing the market share of independent companies like Kobalt Music and Rights Flow, now under Google. The “Do It Yourself” model continues to gain traction here too, as control decentralizes and moves away from traditionally powerful enti-ties. In what could be a sign of the times, and a threat to the PROs, Sony/ATV/EMI Publishing withdrew its digital catalogue from ASCAP and BMI, recently preferring to negotiate mar-

ket rates directly—and with good results, driv-ing collections from Pandora up by as much as one-fourth.

8) Two young ladies dominated the charts for recorded music sales in 2012. Tay-lor Swift’s album, Red, was the year’s stron-gest debut. Adele’s 21 was the year’s highest selling album for a second consecutive year on iTunes – an unprecedented accomplish-ment by any artist. The singer continues to break records after being the first female artist to win six Grammy Awards in one night.

9) South Korean rapper, Psy, crossed international borders and entered the U.S. mainstream with his viral hit song, “Gangnam Style.” In November 2012, the music video became the most-watched YouTube video in history. He quickly signed a management deal with Scooter Braun, who discovered Jus-tin Bieber and Carly Rae Jepsen. Until now, K-Pop acts have experienced difficulty break-ing into the U.S. market. If Psy continues to make progress as a cultural crossover, it will be an impressive achievement.

10) Dr. Dre is 2012’s top-earning musician according to the Forbes’ list: “The World’s Highest Paid Musicians 2012”. The artist, producer and entrepreneur earned $110 million between May 2011 and May 2012, mostly due to his Beats headphone line. The success of this merchandise venture exempli-fies a creative strategy to maneuver the shift-ing music industry – and it proves that there is still money in the music business. Dr. Dre, Jimmy Iovine and Ian Rogers plan to intro-duce a new streaming service called Daisy later this year.

Many have agreed that streaming represents the future of music consumption, but the debate over how its meager profits are allotted is widespread and impassioned. On-line radio services like Pandora and interactive streaming applications such as Spotify argue that their businesses help musicians and copy-right owners. But musicians, songwriters, record labels and publishers have expressed concern over being devalued and undercom-pensated for their work. Some see streaming as a race to the bottom. Billboard Magazine named 2011 “a year of tectonic shifts” and de-scribed 2012 as “a year of consolidation and contention.” In the wake of ongoing changes and conflict, perhaps we can hope that 2013 might be a year of compromise and coopera-tion.

Business Articles



vation, and embracing a more optimistic vi-sion for the business.

Still, there is a question mark about the relevancy MIDEM. A global and wired marketplace and the drop in value of record-ed music sales seem to justify a more austere approach to travel budgets all round, even for publishers (for whom MIDEM was histori-cally valuable). Moreover, conferences like SXSW, non-existent twenty years ago, are cheaper and cater to innovation and startups just as well. MIDEM is certainly a good fit for European policy makers looking, among other things, to harmonize music rights and get the pulse of the industry. But more is needed to rescue the event, which could become a regional rather than international gathering: attendance seemed to be much lower than in 2012, and the overall trend was already downwards.

Endnotes

1. Brandle, Lars. “Did Midem 2013 Hit the Target?” The Music Network, Feb. 1, 2013. http://www.themusicnet-work.com/music-features/industry/2013/02/01/did-midem-2013-hit-the-target/

MIDEM is one of the largest conven-tions devoted to the state of the music industry. Hosted annually in the southern-coastal city of Cannes, France during the final days of Janu-ary, this event draws mostly European policy makers, labels, publishers, artists, start-up en-trepreneurs, and other music business interests, including some students.

When it began in 1967, MIDEM served as a venue for companies of different nations to negotiate deals. It was a forum for discourse upon which music’s globalization hinged. In its infancy, industries of various nations revered MIDEM as a festival of op-portunities – a place to showcase their artists and ideas to potential partners. In 1968, for instance, early MIDEM organizer, Bernard Chevry, could tell Billboard Magazine that it was a venue for music industry participants to discuss problems, exchange products, expand their business internationally, and discover the strengths and opportunities of other nations.

Global is as global does, and the business has changed. Today, artists and mu-sic intermediaries may enjoy more indepen-dence and freedom and find followers or users among the most specific niches of the Internet, diminishing perhaps the need for face-to-face encounters. Meanwhile, lumbering labels con-tinue to look for a way to knock down walls instead of fitting through doors.

Midem 2013

Richard Gottehrer, co-founder of Or-chard, has touched on the importance of “rein-vention”, a major point of interest at this year’s MIDEM conference.1 Indeed, through a litany of competitions and panels, several forward thinking individuals showcased a variety of new ways to interact with, perform, and mon-etize music.

In the MidemLab contest series, for instance, a collection of ventures took on one of the biggest challenges in today’s music landscape: finding a way to introduce addi-tional value. The hype and extensive coverage of this start-up competition reinforces the in-creasing importance of creative thinking in the music industry. In the end, Evan Lowenstein’s “Stageit” – a service that enables artists to per-form impromptu concerts online and allows fans to show their gratuity by tipping - received an award for innovation in content monetiza-tion. Additionally, Fleur Pellerin’s start-up,

By Kyle Billings

“Audience.fm” received a special prize for cre-ating a new approach to artist/fan engagement.

Another key theme at this year’s MIDEM was the evolution of branding. In re-sponse to record sale troubles, many artists have opened up to brand partnership opportunities in an attempt to support their careers. The festival included numerous events geared towards ob-serving recent advertising campaigns and offer-ing advice on how to maximize potential. The challenge in organizing effective branding, as many panelists and contestants addressed, is the difficulty in creating a mutually beneficial, “au-thentic” partnership. One panel questioned the effectiveness of Taylor Swift’s affiliation with Diet Coke, while rapper Theophilius London spoke about which type of car he would love to customize and endorse.

Many companies are attempting to form more genuine affiliations with artists. The electronics company, Philips, is using its “Sound of Creation” campaign to collaborate with the Portlandia theme song creator, Washed Out. NOKIA is working with Rihanna to create mobile apps and host web-casted performances. This growing industry-wide motion towards deeper, more meaningful, branding relation-ships will undoubtedly lead to more opportuni-ties for artists and companies in the future.

Context and Final Thoughts

Blogger and tech-visionary Robert Scoble succinctly summed up the state of the industry during his speech. He explained that music today has the most value for consumers when in “context.” This statement resonated across the festival, both in Scoble’s “Visionary Monday” presentation and from other panelists throughout the weekend. At its core, the con-text concept suggests that consumers today are responding more positively to music when it in-tertwines with other aspects of their lives. This idea is becoming the basis of many developing approaches towards advertising, social media, and new monetization models.

In summary: this year’s conference offered a variety of interesting perspectives on the future of music. As the music industry has given way to a surge of independence, confer-ences like MIDEM are now valuable not only to the major players, but also to start-ups, stu-dents, and passionate entrepreneurs willing to experiment. These are the people exchanging refreshing ideas, pushing collectively for inno-

The Future of Music and MIDEM



Business Articles

A Berklee Report on Music Industry Salaries: Business JobsIn December 2012, Peter Spellman, head of Berklee’s Career Development Center, produced a listing of salary ranges for US music positions in performance, writing, business, audio technology, education, and music therapy. This is the update of a similar report published in December 2010. Here we reprint, with permission, the business salaries. The complete report can be found, in PDF format, at www.berklee.edu/pdf/pdf/studentlife/Music_Salary_Guide.pdf or www.thembj.org. The MBJ staff has not ascertained the accuracy of the data.

B U S I N E S SCATEGORY JOB TITLE SALARY ADDITIONAL INFORMATION

Music Products Instrument Maker $15,000 - $65,000 Training or apprenticeship programs are required. Pay scale depends on the quality of the work, reputation, and amount of experience.

Instrument Repair Technician $9 - $55/hourPiano Tuner $100 – $185/tuningMusic Dealer – Sales $13,000 - $50,000 Salary often tied to commissions.Marketing/Advertising Specialist $28,000 - $116,000Music Instrument and/or Acces-sories Distributor

$19,000 - $75,000

Music Publishing Music Editor $20,000 - $60,000 English or Journalism degree helpful.Notesetter $15,000 - $50,000 Transcribes music and sound onto paper for other musi-

cians to read and perform.Song Plugger (Sales Representa-tive)

$20,000 - $64,590 Pitches compositions from their publishing house to art-ists and record companies to be recorded and performed.

Copyright/Licensing Administra-tor

$20,000 - $60,000 Manages all the exclusive rights related to a creative work. Business/law experience/ education helpful.

Record Industry A & R Representative $27,000 - $85,000+ Researches talent for the company to sign to recording contracts.

A & R Administrator $25,000 - $65,000 Responsible for much of the clerical functions of the department.

Artist Relations Representative $25,000 - $65,000+ Acts as a liaison between company’s artists and media, etc.

Regional Sales Manager $35,000 - $85,000+ Supervises the sale of the label’s records to wholesalers and/or retail outlets in a specific region, creating sales campaigns and policies, and overseeing sales staff.

Artist Manager 10% - 50% of artist’s earnings

Negotiates business relationships, advises on all business decisions, and guides creative directions for the per-former they represent.

Music Attorney $70,000 - $150,000+ Evaluates all legal issues concerning musicians, par-ticularly issues with copyright, trademark, and contract negotiation.

Webmaster $28,000 - $150,000+ Designs and maintains the company’s website dealing with site architecture and functionality.

Digital Marketing Manager $24,000 - $55,000 Communicates the value of a company to their cus-tomers through digital advertising channels like social media, websites, and email.

Website Content Producer $28,000 - $75,000 Develops interesting and unique content for a label’s site including artist bios, stories about upcoming tours, announcements about new releases, and features about label artists.

International Department Varies Oversees foreign sales and ensures effective communi-cation between domestic and foreign affiliates.

Business Articles



Concert Industry Booking Agent $20,000 - $1,000,000+ Commis-sions range, typically 10% - 20% of the act’s gross income per show.

Secures engagements for musical groups through building relation-ships with buyers.

Tour Coordinator $35,000 - $175,000+ Researches and assembles tour details.

Road Manager $25,000 - $125,000+ Supports artist on tour regarding travel, budget, merchandise, etc.

Tour Publicist $30,000 - $100,000+ Announces an act’s tour to both fans and the media through press releases, press conferences, and special promotions.

Advance Person $25,000 - $48,000 Arrives ahead of the act on tour to prepare for a concert.

Concert Promoter $0 - $1,000,000 Manages all details of presenting a show.

Concert Hall Manager $26,000 - $90,000+ Oversees all activities that hap-pen in the facility.

Concert Hall Marketing Director $25,000 - $100,000+ Develops advertising campaigns, creates marketing materials, and pitches to press outlets for their venue.

Stage Manager $24,000 - $75,000+ Supervises all technical needs for sound, lighting, electric, and staging both on stage and back stage.

Sound Technician (see also Au-dio Technology section)

$27,000 - $65,000+ Working in a club, theater, con-cert hall, arena, performing arts center the resident sound techni-cian provides house sound and monitors for concerts/events.

Music Communications Publisher or Editor of Music Books or Periodicals

$24,000 - $100,000 These positions require strong writing skills, a good contact net-work, and previous experience.Music Journalist $15,000 - $30,000 $50 - $150

for a review $100 - $500 for a feature

Public Relations Specialist $25,000 - $200,000Music Blogger $23,000 - $66,000

Non-Profit Arts Administration

Administrative Assistant $20,000 - $35,000+ Typically, entry-level arts admin-istration positions require organi-zational/interpersonal/ computer skills, office work experience, and knowledge of music/arts.

Development Associate $36,000 - $55,000+ Previous fundraising experience is required. Experience in public speaking and database manage-ment are also necessary.

Public Relations $30,000 - $75,000 These positions require relevant work experience, strong com-munication skills and computer skills.

Executive Director $20,000 - $250,000 Bachelor’s degree is required and a master’s degree is pre-ferred.


Business Articles


Roger Faxon, Captain of Industry

Roger Faxon has had a distinguished career in the entertainment industry. He was executive vice president/COO at LucasFilm, a founding partner of the film and television production unit Mount Company, and a senior executive vice president at Columbia Pictures. He joined EMI in 1994 after serving as CEO of London-based Sotheby’s Europe. Until a year ago, he was CEO of EMI Group. Faxon or-chestrated the sale of EMI’s Recorded Music and Publishing Assets, respectively, to Univer-sal Music Group and Sony/ATV Publishing.

MBJ: You have extensive knowledge of mu-sic, TV, and film. Where is it all going?

Roger Faxon: You have to think about “digi-tal” as a modality. It doesn’t create revenue, it’s the content that does. Digital is a way to reach consumers. We’ve seen a plethora of ways in which that happens, but we’re only at the very beginning. Right now, in the TV and cable world, programming is reaching consumers outside of the normal network of schedules and cable systems. This changes the structure of how entertainment reaches con-sumers. It also changes very fundamentally the economics of how entertainment products are financed. We’re going to see huge changes here. People are less likely to subscribe to a cable system today because they have so many alternatives. With an appropriate modem, like Apple TV or Google Box, you can watch Netf-lix, Hulu, YouTube, or other services.

MBJ: What about the streaming of live events, like concerts, on YouTube, VEVO, or other providers?

RF: Live compels people to gather in a broad-cast environment, to use an old fashioned term. They want the immediacy of the experience. That tends to be the most powerful way for channels to maintain their positioning. People have loyalties to programs. They want to see their programs when they first come out be-cause they want to chat about them. However, as we’ve seen quite consistently, Tivo has revealed a huge viewership, which has time-shifted the television world.

MBJ: Do you forecast any radical changes with respect to the financing of music or the entertainment industry?

RF: Yes, and Tivo is a great example of these changes. Tivo reports that if 60% of the shows are time-shifted, advertising is bypassed. And then of course, there is “the hopper”, which is a mechanism TV is using to tie in its subscribers

By John Ioannidis

by essentially giving them the ability to com-pletely jump over all ads. So, that fundamen-tally shifts the economics of linear television. With 40% of the audience time-shifting and 60% skipping ads, the entire economic system of network television is turned on its head.

MBJ: What about music and the do-it-your-self approach? Is it really a paradigm shift?

RF: Perhaps it will be in the future. Right now, there are no effective, naturally available

means artists can use to become broadly and widely known without spending substantial sums of money. Let me explain. Record com-panies do not discover completely unknown artists. It’s very rare for somebody with no audience or records to break through. Major companies go out and find those people who already have an audience. The size of the fan base varies, but that’s what they’re looking for—and artists today, it is true, are much more effective at developing their own fan base than they were at any other time in our history.

But there is a ceiling. The reality is that the old world still exists, and it is the big-gest part of the music market. 45% of the mar-ket is sold in stores. 80% of the awareness of music is from radio. The things that made the

record companies important as intermediaries in the past still exist. Bargaining power, on the other hand, is very different than it was. Today, you have mini bands with established brands coming into the record companies with support from the marketplace. So that has changed, but the reality is that record companies still need to be in the mix. If the major labels become more and more effective at marketing –and that means reaching consumers and exciting them about the music – they will preserve their position in the chain. But they won’t maintain, over the long term, the power they’ve had by virtue of distribution.

MBJ: How do you see the recorded music divisions of the major record labels evolv-ing?

RF: I think there are two ways for them to go. They could stay pretty much as they are, in which case their relevancy will slowly erode as others who are more willing to experiment with new forms of distribution find effective ways of exciting consumers: they will weak-en, but likely not go away. Alternatively, the major record companies will understand that their central role is to create demand for music and market it. They have to be absolutely fo-cused on deriving value wherever anybody in a commercial setting listens to music or experi-ences music. They will have to develop differ-ent skills than they had in the past and reach out to new kinds of businesses. If they do those things, they will grow the market substantially.

MBJ: You led EMI through a turbulent era under Terra Firma. EMI was forced to turn the company over to Citigroup, and eventu-ally sold its publishing to Sony and its re-corded music division to Universal. Do you think that the executives at Sony and Uni-versal should themselves be worried about the future?

RF: The circumstances are different. At EMI, a private equity company created leverage and borrowed huge sums to buy the business on the basis that the market and the business would turn around in an ex-traordinarily short period of time. Then, the financial market crashed and they couldn’t re-finance. This forced the sale. But even in debt we made a lot of money and both the record and publishing sides of the business were oper-ating extremely well. Many people would say that we were the most profitable business in the industry.




Music and Society

Music Meets FootballBy Megan Graney

(From Page 12)

The Super Bowl is a TV extrava-ganza that has a special place in American life. Viewers tune in regardless of the fortunes of their football team, often just to watch the jaw dropping commercials and the extravagant halftime show. This year, an audience of 114 million, three times as much as the number of viewers of the Grammys, saw the Baltimore Ravens defeat the San Francisco 49ers at the New Orleans’ Superdome. The music industry was there in force. Jennifer Hudson and 26 students from Sandy Hook Elementary School kicked off the event with an emotional delivery of “America the Beautiful.” Alicia Keys joined in for a gra-cious accompaniment during the National An-them. Above all, many would argue that Be-yoncé, with other members of Destiny’s Child, gave one of the most memorable halftime shows since Michael Jackson’s Super Bowl performance in 1993.

The Halftime Show

In the past, halftime shows were not focused on headliner superstars or big produc-tions; instead, ensemble type performances were the norm. Michael Jackson changed this and set a precedent for the future. Since then, Madonna, The Rolling Stones, Prince, Jus-tin Timberlake and Janet Jackson performed. This was Beyoncé’s year (at the Superdome, she also announced her new European and American tour, “Mrs. Carter Show World Tour ”, a reference to her marriage with Sean Carter, i.e. Jay-Z). Music revenue drastically increases in connection with the Super Bowl, as mil-lions of people are reminded of old songs or

exposed to new singles. Beyoncé was the most-discussed musical performer of the night on Twitter, prompting more than a third of the night’s 750,000 music related tweets. Her mu-sic sales subsequently soared through the roof following the release of her fifth album. Be-yoncé experienced a 230% boost in her digital album sales during the week leading up to the big game, and Destiny’s Child’s leaped by a re-markable 600%. The trio released Love Songs a week before the game, a strategic plan that undoubtedly benefitted the album’s sales. Digital song sales also received a boost: Beyoncé’s most downloaded songs were “Halo” and “Single Ladies” and overall her sales tripled and Destiny’s Child’s qua-drupled. Indeed, it appears that compared to an average day, any song performed sold three times as much. The event equally impacts catalog music. Destiny’s Child’s “Say My Name,” wasn’t even played at the Super Bowl, but be-came the song of the week, while Kelly Row-land, who in the past sang a few songs with the group, was bumped up to #27 on the iTunes R&B Chart for “Kisses Down Low”.

The Commercials

Halftime performers are not the only musicians benefitting from the Super Bowl. The songs that are placed in commercials also see a spike in revenue. Background music can make or break a thirty-second ad, which is why companies pay big money to place the right track. Shortly after the game, 7digital, a music provider that carries more than 22 mil-lion legal, high quality, tracks, followed Super

Bowl ads and documented the boosts artists received in digital music downloads. Apparently artists received a lot of love from football fans this year. Budweiser’s Clydesdale “Brother-hood” ad plucked at America’s heartstrings. Fleetwood Mac’s single, “Landslide” was the soundtrack for the touching commercial and, as a result, saw a 500% increase in download sales. Building on the increased awareness, the band conveniently lined up a three-month tour beginning in April. “I Wish” by Skee-lo played during Toyota’s “Wish Granted” com-mercial and consequently saw a 300% increase in download sales. Similarly, The Rolling Stone’s “Sympathy for the Devil” saw a 600% increase in download sales after being featured in a Mercedes Benz commercial. Finally, Psy made an appearance on a bucking pistachio, “Gangnam Style”, for the “Get Crackin” commercial. Sexy long-legged pistachios, and Psy, may not do for the fruit what his original YouTube video, with a billion plus views, did for him. But growers must be pleased: Korean Pop and its newfound dance helped brand their pistachios as exotic rather than plain. As for Psy, he immediately added another 100,000 views to his hit.

Universal, on the other hand, is part of Vivendi. Vivendi has some issues – and some debt – but they’re taking care of that by selling some of their telecommunication busi-nesses.

Sony’s entire business operation is facing some financial challenges, but I don’t think anybody expects they won’t be resolved. Besides, the consortium that, led by Sony, bought EMI publishing, had other parties holding a majority of the ownership. The Abu Dhabi fund, Mubadala, is actually in control. So the entity that contains EMI Music Publish-ing should have no financial difficulties.

By the way, I’m well known for ar-guing that merging the recorded music and the publishing divisions of a major is a good thing, particularly as we move forward in a digital world where licensing is key. As the two busi-nesses become intertwined they become more compatible and complementary, and there is a lot of value in that. Naturally, it can be diffi-cult organizationally: the larger a business is, the slower it responds to change, making the merger harder at the start; in successful busi-nesses, it could even reinforce entrenched ways of doing things.

MBJ: Do you think much about success,

and if so what would you say is the root of your success?

RF: I believe it is curiosity and my absolute admiration for creativity: you have to love it, enjoy the way it operates, and the people who make it possible. There is a third element too, I think, which is being completely honest and open with others; if my colleagues feel that they have benefited from my actions, and I from theirs, together we have been successful. Beyond that, in a big organization like EMI, with more than five thousand em-ployees, it is important to project a vision and trust others. That is what really made EMI so successful.



Business Articles

Irving Azoff Leaves Live Nation

Three years shy of his tenure with Live Nation, executive chairman Irving Azoff has called it quits. He was reportedly frustrated by the constraints of working at a public com-pany, which he deemed as stifling to his entre-preneurial spirit. As Azoff moves forward, he is taking some of Live Nation’s biggest clients with him. Live Nation may be well served to reflect on Azoff’s departure as a signal to fo-cus on creative innovation and keep up with the changing times.

Background

Azoff, who came primarily from a management background, joined Live Na-tion as a result of two mergers, the first being between Front Line Management Group and Ticketmaster in 2008. Azoff founded Front Line in 2004, and grew the company into ar-guably the world’s largest artist management firm. Front Line boasts a roaster of over 250 artists including Christina Aguilera, the Ea-gles, Seal, Van Halen, Neil Diamond, Fleet-wood Mac and Steely Dan. In 2008, America’s largest ticket sales and distribution company, Ticketmaster, purchased the majority share (30%) of Front Line Management for $123 million – a move that lead Azoff to become CEO of Ticketmas-ter. Azoff steered Ticketmaster through a sec-ond merger with the world’s largest concert promoter, Live Nation, in 2010. Azoff was ap-pointed Live Nation Entertainment’s executive chairman in 2011 before his departure at the end of 2012. The Ticketmaster/Live Nation merg-er has been successful. The share prices of both companies rose by approximately 15% soon after, and the deal itself was reported to be worth $835 million. Live Nation Entertainment poses a triple threat combining three companies at the top of their game: Front Line in artist manage-

By Annette Atieno Oduor

ment; Ticketmaster in ticket sales and distri-bution; and Live Nation in concert promotion. Azoff himself states that Ticketmaster has done well since the merger with Live Nation and that its prospects look promising.

Resignation

So why leave, one may ask? Azoff claims he was discouraged in his efforts to re-form the concert business. He had planned to use the Ticketmaster/Live Nation merger to fix problems plaguing the concert business such as rapidly rising ticket prices and widespread scalping. He also wanted to kill service fees and create a long-planned online market to bundle T-shirts and downloads. However, despite his best efforts, Azoff’s plans of reformation faced an impas-sible wall. He attributes his frustrations to the struggles of running a public company. He felt that the board was constricted by the treasury and institutional shareholders, making innova-tion difficult. Conflicting interests between man-agers and promoters within Live Nation was also a key factor in Azoff’s departure. Accord-ing to Azoff, he could not achieve coopera-tion within the industry to institute paperless ticketing, dynamic pricing and all-in ticketing – three things he believed to be important for artists and consumers.

Repercussions

In fact, one of the concerns caused by Azoff’s departure from Live Nation is the likely power shift between managers and pro-moters. Azoff came from the management side of the business and looked out for the artists’ best interests. When Azoff was with Live Na-tion, artists usually won financial negotiations with promoters. However, with Azoff’s de-parture, it is predicted that Michael Rapino’s promoters will try to seize power within Live Nation. Rapino, the CEO at Live Nation, is from the promotion side of the business and is believed to be more concerned with the inter-ests of Live Nation’s venues rather than those of the artists. This shift in power from manag-ers to promoters could end up hurting artists. Another concern is the loss of pre-vious and potential revenue from Azoff and his management clients. As one of the most powerful managers in rock music, Azoff is now a free agent. In leaving Live Nation, he takes with him some longtime clients includ-ing Christina Aguilera, The Eagles, and Van Halen, costing Live Nation revenue.

The Eagles, for example, focus heavily on touring and grossed $173 million from tours between 2008 and 2011. In ad-dition to ticket sales and merchandise, The Eagles can command top dollar for VIP sales and private events. Van Halen grossed $54 million from its 2012 tour. Live Nation will receive favorable treatment when dealing with Azoff and has secured the right of last refusal to promote at least 75% of his artists’ concert dates in 2013 and 2014. Nevertheless, Azoff’s retention of these clients allows him to explore other op-tions outside of Live Nation, including Live Nation’s largest rival, AEG Live. Moreover, although Azoff has a two-year non-compete agreement with Live Nation, he is allowed to work on projects including recorded music, TV, movies and publishing. For example, Christina Aguilera reportedly earned about $10 million from the last season of “The Voice,” representing a huge chunk of potential revenue that Live Nation will not have a stake in. The 1976 Copyright Act provision, which allows artists to reclaim ownership of post-1978 works 35 years after their creation, comes into play here. The departure of The Eagles will cost Live Nation revenue from the band’s recording and publishing catalogs, especially given that the band is set to take ownership of the rights to their 1979 release, “The Long Run,” next year. Van Halen also has four albums that are eligible to revert back to the band’s ownership in the next five years under the same provision. There is also another potential power shift to consider as a result of Azoff’s departure. Liberty Media, one of Live Na-tion’s largest shareholders, will buy 1.7 mil-lion of Azoff’s 2.6 million shares representing a 26.4% stake in Live Nation. Some sources predict that Liberty Media’s John Malone will expand his presence within the company, pos-sibly resulting in layoffs and other corporate cuts. Live Nation will need to adapt to the loss of its leader and rethink some of its practices in the face of change. The company could struggle without a veteran closer like Azoff to sign major tours because of compe-tition from AEG Live. Nevertheless, there is some good faith surrounding Live Nation’s future as evidenced by a 4% rise in shares oc-curring shortly after Azoff’s departure. Still, uncertainty looms over the company, who has yet to clarify who Azoff’s successor will be.

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(From Page 4)

The Promise of Daisy (cont.)

the team at Daisy will need to create some incentive to keep users engaged with the page. Perhaps Daisy will only be attractive to dedicated music fans, therefore making the goal of “bringing it to the mainstream” harder.

Conclusion:

The service is scheduled to launch globally in late 2013. Daisy’s approach to streaming could be a game changer for the industry. “We’re going to do this right,” says Rogers. “We’re going to take streaming subscription services to the mainstream and we’re going to win.”13 The sentiment may be an expression of hope. But the creative team of Rogers, Trent Reznor, and Jimmy Iovine, is experienced and the startup is at least bound to make a splash. Moreover, Daisy owes its deep pockets to the success of the headphones

of Dr. Dre. There is something especially refreshing about this. The business got its initial seed money from the sale of a music product by an artist, not an angel or venture capitalist looking for an ad-financed venture for which music is just a social object. For the trade to be self-sufficient, and for music to matter as something more than a medium at the service of things other than the sound made, Daisy could perhaps be welcome news.

Endnotes

1.http://www.billboard.com/biz/articles/news/1084843/beats-electronics-acquires-mog2.http://www.fastcompany.com/3004702/beats-electron-ics-announces-subscription-music-service-project-daisy-trent-reznor3.http://www.hypebot.com/hypebot/2013/01/details-of-beats-daisy-project-revealed-ceo-ian-rogers-states-our-mission-here-is-to-win.html4 . h t t p : / / w w w . d i g i t a l m u s i c n e w s . c o m /

permalink/2013/20130110beats5 .ht tp : / /www.bi l lboard.com/biz /ar t ic les /news/re-tail/1083361/beats-by-dre-press-conference-announces-part-nership-with-trent6.http://www.pcworld.com/article/2014023/streaming-mu-sic-showdown-xbox-music-versus-the-world.html7.http://pitchfork.com/news/48879-nine-inch-nails-best-of-due-with-new-songs-reznor-working-on-streaming-service-with-beats-by-dre/8.http://pitchfork.com/news/48879-nine-inch-nails-best-of-due-with-new-songs-reznor-working-on-streaming-service-with-beats-by-dre/9.http://www.latimes.com/entertainment/envelope/cotown/la-et-ct-beats-partners-with-topspin-daisy-subscription-ser-vice-20130110,0,305852.story10.http://topspinmedia.tumblr.com/post/40186276350/top-spin-beats-creating-artist-opportunities-inside11.http://www.fistfulayen.com/blog/2013/01/beats-daisy-topspin-putting-the-pieces-together/12.http://www.latimes.com/entertainment/envelope/cotown/la-et-ct-beats-partners-with-topspin-daisy-subscription-ser-vice-20130110,0,305852.story13. http://www.hypebot.com/hypebot/2013/01/details-of-beats-daisy-project-revealed-ceo-ian-rogers-states-our-mis-sion-here-is-to-win.html

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Berklee College of Music Music Business Journal · 2019. 8. 27. · Music Business Journal Volume 8, Issue 3 March 2013 Berklee College of Music Inside This Issue Mission Statement