Music Industry Threats & Opportunities Chris Bakerwww.musicstudentinfo.com
“The record industry as we know it is dying, but the music business is exploding”
Opportunity Summary• The traditional major label value proposition is outdated and on the verge of collapse.• The global decline in recorded music revenue is in excess of 23% (IFPI)• Despite exponential growth, 100% in 2006, the digital business has not offset the physical sales decline, representing only 0.06% of the global business (IFPI)• Internet file-sharing involves 800 million unauthorized music files at any one time (CRIA)
Opportunity Summary“Major labels have been late in exploiting emerging technologiesand new business models. Their obsolete strategies have notallowed them to monetize the opportunities and have turned awayartists and consumers”The Chicago Tribune
Opportunity Summary• The major labels have been so focused on recovery that the creative process, nurturing of talent and artist development has been largely ignored.• The major label/artist relationship is not perceived as a partnership but rather as an ‘Us vs. Them’ proposition.• Artists are looking for an alternative to the standard label/artist relationship which is based on a contractual model that dates back to the early 1970’s
Opportunity Summary • Despite the fall of the major label model, the music business is thriving • Live touring in 2006 broke records for gross revenues: 1. Attendance was up 5.6% in 2006 (billboard.com) 2. Revenues were up 13.3% (billboard.com) 3. Ticket prices increased for Top 100 tours to a record $57 last year (pollstar.com) • Global revenues from music publishing in 2005 were up 8% from the year before to $4.25 billion • The $10billion video game industry recently surpassed Hollywood in revenues (The San Francisco Chronicle)
Opportunity SummaryArtists with strong representation and strong brands also derive significant income from: Record Sales Touring Legal Downloads Sponsorship Ringtones Endorsements Publishing (Synch, Mechanicals, Performance) Appearances Merchandising (Tour, Retail) Video Games TV and Film
Opportunity Summary Touring & Sponsorship Touring This income is based on a fee for each show/concert. It allows an artist to exploit their albums and brand outside of an album cycle. The fee is largely a direct correlation of the value of the brand to the consumer. Sponsorship / Endorsement Sponsorships involve a commitment by an artist to use a company’s product. The fee is typically based on a term in which they must use that product. An Endorsement requires the artist to champion or support a product. This is typically with little time commitment or risk to the artist. The fee is commonly based on a term in which the artist must contribute to the branding of that product.
Opportunity Summary Record Sales Record Sales Direct Label With direct signings to a label the artist stands to make an average of $1.50/unit. This is based on a advance recoupable from this royalty (100% recording, 50% video). License Deal The artist covers the costs of recording the album, videos and artwork. They then license the product to a record company and use their established marketing, promo, sales, etc. departments at a cost to the record company. Enhanced Distribution The artist engages a label for manufacturing and distribution, and other minimal services (i.e. publicity / marketing). The artist maintains a higher profit margin. Distribution The artist engages the label to distribute their product. Although the highest profit margin, the artist is responsible for marketing, promotion, publicity, etc
Opportunity Summary Downloads & Ringtones Legal Downloads With more than 500 legal on-line services worldwide the global digital-download market tripled between 2004 and 2005. Access to music is increased and consumers are able to select only the songs they want. Master owners, artists and songwriters profit from these purchases. Ringtones In 2005 the US ringtone market reached $600million. The purchase of these ‘tones’ from both sites owned by the communication companies, and private entrepreneurial sites, earn money for master owners, artists and songwriters. The Caribbean now has a chance to win in this area of business because of the high penetration rate of mobile phones in the region, and profitable telecom companies.
Opportunity Summary Merchandising Appearances An artist is often paid to simply attend an event, appear on TV, or host an award ceremony. Merchandising Tour Souvenir items at live shows can include t-shirts to ‘tour books’. An artist can sell a value of merchandise equal to that of 10% of the ticket sales for the show. Retail An artist will often do a deal with a retailer or manufacturer to carry their souvenir items. In most cases the artist will see 15% of the retail value of the product.
Opportunity Summary Publishing Publishing Mechanicals For each album (or song) sold the songwriter/publisher will see approximately 8cents per song, per album sold. With no conditions on which song the consumer actually purchased the album for, the songwriter/publisher’s income can very quickly add up. Performance With songwriters/publishers earning royalties for radio, TV play and live performance this is often the most common ‘high-earner’ for copyright owners. Synch The use of music in formats like films, advertisements and other public applications earns money for the artist and songwriter. Worldwide campaigns can earn 6-digit figures for non-exclusive and temporary uses.
Opportunity Summary TV, Film, Video & Games TV and FILM Placement of music in television shows and movies generates an upfront licensing fee (as well as back-end performance fees). These fees can be income for both songwriters and artists as ownership of master rights also generate income. Often very minimal portions of songs, i.e. 10 seconds, are licensed for 5-digit figures. Video Games Artists or songwriter’s music in a video game must be licensed by the producer. This fee is paid upfront and has been proven to also affect album sales, artist brand, etc. in a positive way. This fee is split between songwriter/publisher and artist/master owner.
Opportunity Summary• While the record business is under siege, the overall music business is thriving.• The music business will benefit from a new model that: is an entertainment company focused on artist brands and branding core business is brand marketing and exploitation, focusing on management and content signs recording artists as well as songwriters and producers, and offers an array of support including management, business management, publishing administration, contractual negotiation and record label services launches with a strong, established artist base of internationally renowned artists already generating significant income.
Opportunity Summary• The music business will benefit from a new model that understands the opportunities within the global digital music market and is proactive in tracking emerging business models, for example: there are 498 online music services available in over 40 countries.• Social networking sites have exploded in popularity.• Advertising supported models such as video licensing are future revenue models.• Portable music players totaled 120 million in 2006, an increase of 40%• Third generation mobile technology has reached over 50% penetration in Japan, and is rising in the rest of the World.
Opportunity Summary China & India• The music business will also benefit from a focus on underdeveloped markets that have major growth opportunities (specifically China and India) despite a lack of infrastructure and intellectual property law:• China has a small digital music business, but with 430 million mobile subscribers, fast growing broadband and high consumer demand, China is potentially the fastest growing market for music consumption.
Opportunity SummaryWith a population of 1.1 billion, and an entertainment industrythat is expected to grow by 200% in the next 5 years, India’sfilm and music industries have begun to work together aidedby digital infrastructure, affective distribution formats and amore conducive and effective regulatory regime, to combatpiracy and get the listener back into the buying model.
Opportunity SummaryThe music business will also benefit from a new model that:• Creates trust with artists through transparent business management, streamlined, simplified agreements and a overall career focus• Aligns artists financial goals with company goals• Derives revenue from all creative activities with less emphasis on record sales
Opportunity SummaryFuture growth in the music industry will come from: 1. REVENUE DIVERSIFICATION 2. FOCUS ON FULL BRAND MANAGEMENT AND EXPLOITATION 3. IMPROVED COOPERATION BY ALIGNING STAKEHOLDERS INTERESTS
Organizational StructureBased on the income streams of an All Rights ManagementCompany, the following specific duties should be looked atcarefully and be applied with true diligence. Label Relations 1. Spearhead label strategies for artists 2. Liaise with the record labels 3. Solicit labels for unsigned artists internationally 4. Provide label services for distribution deals Digital Media 1. Spearhead global digital strategy 2. Liaise with global partners in major markets 3. Establish strategic alliances in other territories with global digital partners 4. Research new digital innovations and developments
Organizational Structure Touring 1. Develop touring strategies for artists 2. Seek out large scale tour opportunities 3. Work with promoters to advance shows 4. Manage tours of artists Merchandise, Endorsements and Synchronization 1. Build strategies for brand exploitation 2. Pitch for endorsements and sponsorships 3. Exploit and coordinate merchandising/sponsorship opportunities 4. Solicit music library for synchronization opportunities Publishing 1. Oversee potential catalogue acquisitions and publishing deals 2. Liaise with co-publishers, sub-publishers and administrators 3. Handle song registrations, licenses and royalties