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Music Business Journal
Volume 6, Issue 4 	 February 2011
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.
(Continued on Page 3)
	 China’s music industry is immense
and has enormous potential. It has over six hun-
dred million users of mobile phone and counts
nearly five hundred million web surfers. Its
Internet market is the largest in the world. Yet
digital distribution is largely unmonitored, and
in general the market is so unregulated that il-
legal downloading of music is rampant.
	 In spite of its vast usage, China does
not rank among the top five digital markets.
By share of value, the US (39%), Japan (19%),
UK (16%), France (12%), and Germany (9%)
far exceed China, which is aggregated into a
Rest Of World category that represents half of
one-tenth of all digital music sales. The Interna-
tional Federation of the Phonographic Industry
(IFPI) estimates that nearly 99% of all music
downloaded in China is done so without proper
clearance.
	 In an attempt to take advantage of a
later correction in the sales of digital music,
Google Music Search was launched in March
2008. Released exclusively in China, this new
service is a platform that offers free, unlim-
ited music downloads from most major labels.
Google seems to be saying, “let’s join the pi-
rates”—and so gain a foothold in a market that
is likely going to be ebullient as time goes on.
Ironically, since Google’s service is only avail-
able in China, music consumers around the
world have been highly vocal about bringing
the same service to their respective countries.
Google Music Search and Baidu
	 In fact, Google’s Music Search was
launched to directly compete with the number
one local search engine, Baidu. Baidu grants
millions of users access to illegal downloads.
Instead, Google Music Search also allows us-
ers to download unlimited free content, but it
is completely legal. Google’s music catalog is
limited, however, with only 1.1 million songs.
Since Baidu has been in operation for longer,
it can offer hundreds of millions of songs
to download, which is much more enticing
to music consumers. Furthermore, Baidu’s
search engine gives users multiple download
links of the same song, as well as different
file format options (wav, mp3, aiff). Baidu’s
advantages have made the site hugely suc-
cessful in maintaining its large Chinese user
base and trumping Google Music Search.
	 This can be seen in the numbers.
Baidu has a search market share of about
60%, where as Google’s search market share
is only 26%. Baidu’s lead may be attributed
as well to its willingness to abide by the huge
Chinese system of state Internet censorship,
also known as “the Great Firewall of China.”
Baidu spokesman Kaiser Kuo has stated, “We
State of the Industry
Page 4
Charts Galore
Page 9
Can I Sell You a Ticket?
Page 7
Radio, Law, and Congress
Page 10
Gorillaz in Our Midst
Page 6
China’s Road Forward:
By Sahil Mehrotra
A Lesson There?
Table of Contents
Business Articles
Google and Baidu..................................1
An Essay on the Music Industry............4
Gorillaz, Apple, and Microsoft..............6
AEG and Ticketmaster...........................7
Financing Music....................................8
New Music Charts.................................9
Green Instruments................................12
New Cloud Technology........................13
The Importance of Being YouTube......14
Law Section
Performance Rights Act........................10
MBJ Editorial
Mission Statement...................................1
Editor’s Note...........................................2
Upcoming Topics...................................16
Sponsorship
Berklee Media....................................... 15
Editor’s Note
Volume 6, Issue 4	 Music Business Journal
	 Despite the favorable ground hog’s day report, it seems that we’re still in for another six weeks
of frosty weather. Nonetheless, the Music Business Journal team is proud to introduce its first release
of the year 2011. Hopefully this latest batch of industry news will help get you through the lingering
winter cold.
	 In this issue, Sahil Mehrotra leads with an informative piece on digital music distribution in Chi-
na. Given the country’s commanding world lead in Internet usage, music downloading is relatively
inconsequential. With Google’s free Music Search service and others like it, China stands to make
considerable progress and could be a leader in the digital domain.
	 Continuing with digital, Jamie Anderson shares a thorough review on the recent Consumer Elec-
tronics Show and the heavy emphasis that was placed on cloud-based subscription services for 2011.
Dean Miller also reflects on the effect that YouTube has had on the music industry.
	 AEG Live has just recently made the transition into the ticketing business in a joint venture with
Outbox Enterprises. Athena Frost fills us in on the details and what it could mean for its largest
competitor, LiveNation/ Ticketmaster. Billboard is also cutting new turf with a progressive charting
service called Uncharted. Nick Susi reports on how the business of artist ranking is changing.
	 Animated UK band, the Gorillaz, have made technological history with the release of their latest
Plastic Beach- fully created and produced on the Apple iPad. Micah Deterville shares the details and
reports on the conflict that arose from the band’s contracts with Microsoft products. Luiz Augusto
Buff gives us a full analysis of the current state of the industry and makes thoughtful predictions for
2011.
	 For the last two years, terrestrial radio has been in a Supreme Court battle over the RIAA’s pro-
posed Performance Rights Act. I’ve provided a report on this long-standing issue, which could result
in a 7%-8% royalty payment from radio stations on all sound recordings. As traditional industry ap-
pears to be crumbling, new tech startups are on the rise. Kiefer Wells provides an informative piece
on how venture capital companies are fueling this transition. In closing, Minden Jones has written
on the musical instrument production business. Due to the depletion of essential raw materials,
manufactures are forced to find suitable alternatives and move their processes towards a “greener”
standard.
	 It my pleasure to introduce the Music Business Journal’s first release of 2011. Be sure to stay
connected with us online and keep an eye out for our new website scheduled to launch next month!
Evan Kramer, Editor-in-Chief
	 Contributors
	 Editor’s Note.....................................................................................................................................................................Evan Kramer
	 Business Articles.............................................................Luiz Buff de Souza e Silva, Minden Jones, Micah Deterville, Kiefer Wells
	 Business Articles (cont)........................................................Jamie Anderson, Sahil Mehrotra, Dean Miller, Nick Susi, Athena Frost
	 Law Section......................................................................................................................................................................Evan Kramer
	 Staff..........................................................................................................Witt Godden, Ben Hong, Ben Scudder, Frederic Choquette
	 Staff (cont)..........................................................................................................................Dean Miller, Dahyun Ed Jeong, Kerry Fee
2 www.thembj.org	 February 2011
	
	 Management
	 Editor-in-Chief..................................................................................................................................................................Evan Kramer
	 Content Editor.........................................................................................................................................................................Nick Susi
	 Webmaster..................................................................................................................................................................Itay Shahar Rahat
	 Faculty Advisor and Finance.....................................................................................................................................Dr. Peter Alhadeff
	 Layout Editor..................................................................................................................................................................Lau Meng Wai
	 Marketing Manager.......................................................................................................................................................... Minden Jones
February 2011	 www.thembj.org 3
Business Articles
the world, Top100.cn has built the largest le-
gal music database in China (over one mil-
lion songs). Yet, despite the collaboration be-
tween Top100.cn and Google Music Search,
Baidu’s illegal music database trumps the
numbers of Googles’s selections by a large
margin.
China’s Model and the Rest of Us
	 Piracy in China has affected local
record labels and their artists. As a result,
talent is being pushed hard and crowded out
of the market. CDs are regarded mostly as a
promotional tool. Since pirated music is so
widely available, many consumers have been
downloading any and all music they can get
their hands on, regardless of whether or not it
suits their taste. On the bright side, and given
the hopelessness of the traditional market in
legal recordings, this may give artists an op-
portunity to reach an exponentially greater
audience: if piracy is the means of exposure,
larger audiences may be obtained at concerts,
where artists can, get endorsement deals and
land commercial appearances; also, fans that
are not willing to spend money on albums,
may have an interest in supporting artists
through the products and services they en-
dorse.
	 Overall, the stranglehold that Chi-
nese piracy has on recorded music could be
lessened. Google Music Search could, given
time, catch up with Baidu. Its challenge is to
outweigh Baidu’s longevity, extensive music
database, and file format options. Certainly,
better customer service and delivery of prod-
uct will be a requirement if Google is to wean
customers for legal downloads.
	 There has been speculation that
Google Music Search may launch globally,
particularly in the United States. If so, labels
may have to learn to live with an ad-gener-
ated revenue service. Given the difficulties
that Spotify has experienced here, this seems
a long way off yet. Artists too will have
to come on board, and although a younger
breed might (because free music would be
a quick way to gain mass market exposure),
megastars may not. Finally, it is good to re-
member that China by-passed the CD revolu-
tion, and so is less bound than other countries
to the idea that recorded music has to fetch its
value. Its model may not be as easily export-
able.
Sources
1.https://www.cia.gov/library/publications/the-world-fact-
book/geos/ch.html
2.http://www.forbes.com/2009/08/27/music-search-inter-
net-intelligent-technology-google.html
3.http://www.economywatch.com/world_economy/china/
4.http://www.theregister.co.uk/2007/11/01/music_in_chi-
na_feature/
5.http://www.web2asia.com/2009/03/31/download-free-
licensed-mp3s-google-music-china-explained
6.http://www.musicdish.com/mag/?id=12822
7.http://news.asiaone.com/News/Latest%2BNews/Digital-
One/Story/A1Story20101205-250895.html
8.http://www.gordonchoi.com/google-music-
search-20090420
9.http://techcrunch.com/2009/03/30/google-china-signs-
big-music-for-free-mp3-search-engine/
do have an aggressive and extensive system
to comply with regulations.” Google has
voiced opposition to China’s Internet censor-
ship policies, but it is possible its stand may
be hurting it commercially.
	 On the other hand, users of Google
Music Search have written favorable testimo-
nials in their blogs. They claim that the ser-
vice’s selection and audio quality are superb.
Although the most recent releases may not be
available, most US artists are searchable as
well as a large variety of Chinese artists, all
of which are available on high quality MP3
format.
	 Google Music Search’s business
model is based on banner advertising, and
it is expected to generate an annual revenue
of 100 million Yuan ($14.6 million) within
the next few years. The revenue is divided
amongst approximately 140 label partners, in
addition to the four major labels: Warner Mu-
sic Group, Universal Music, EMI and Sony
Music Entertainment. Song distribution is
handled through Google’s partner Top100.cn,
a locally owned Chinese company that oper-
ates in Beijing and was established in 2005.
	 Top100.cn is essentially a one-stop
shop for Chinese consumers to easily discov-
er, listen to, and download music. Users can
also purchase other music products like ring
tones, CDs, and concert tickets. The web-
site provides legitimate music downloads in
China, with licensing partners such as EMI,
SonyBMG, and other indie labels. Having
signed with over one thousand labels around
		 China’s Road Forward (cont.)
Volume 6, Issue 4	 Music Business Journal
Volume 6, Issue 4	 Music Business Journal
Business Articles
By Luiz Augusto Buff de Souza e Silva
4 www.thembj.org	 February 2011
and $9.99 for an album. Being the most
prominent store in the online environment,
major record labels started pressuring them
to reconsider this pricing structure; maybe
not every song was worth the same to cos-
tumers. The concept behind the argument is
the price elasticity of demand. To maximize
revenues the labels defended that hit songs
could be sold at higher prices without loos-
ing significant demand and deep catalog
songs had to be sold at lower prices, driving
interest for more people to buy them. In 2009
Apple accepted the claim and introduced a
three-tier system, with variable prices of
songs at $0.69, $0.99 and $1.29. The labels
could raise revenues, and the system could
help redirect interest to album sales, as they
became cheaper. Higher quality files, bun-
dled with bonus features such as animated
lyrics, artist photos and liner notes were part
of other new ideas to help boost album sales.
The iTunes LP was a line of albums that of-
fered these premium contents to fewer peo-
ple at higher prices, in effect aggregating the
old visual experience of the physical album
into a download.
	 Apple’s agreement with major la-
bels stated that 33% of the income is kept by
the iTunes Store, similar to traditional values
of physical distribution. The remaining 67%
goes to the labels that split it with artists as
traditional CD sales. When all is said and
done, the artist usually ends up with around
10% of the price of a download. Labels get
away with this by wording contract agree-
ments to consider such downloads as sales
of song copies and applied traditional ac-
counting schemes. Now there is a current
of thought that argues that iTunes Store
downloads are licenses and not distribution
of products. In fact, recent court decisions
are adopting the argument of licenses, ap-
plying a 50/50 split between labels and art-
ists, which is devastating for the former but
great for the latter.
	 Even with digital channels being
responsible for more than one quarter of the
overall music sales in the world, the fight
against piracy and illegal file sharing is still
running. Accordingly to BMR – the UK’s
umbrella organization representing the in-
dustry of the British music industry, just
37% of listeners download music legally.
The majority is still taking advantage of il-
legal file sharing, and the difference for the
digital market of less developed countries
could be even bigger. As expected, in their
study, BMR also identified that the main
reason for downloading music illegally is
that it is free and it saves money.
	 Digital retail stores are compet-
ing with free content spread on the web. To
prevail in this new scenario, legal business
models have to take advantages of gratis op-
portunities and not just look at its downside.
For some futurists, it is important to give
away control of their works in exchange
for attention, thus affording them an ex-
panded consumer audience. Just like word-
of-mouth, file sharing could be viewed as a
marketing tool for people to discover new
music; if they like what they hear, they will
seek more and different product by that art-
ist.
	 With very few marginal costs in
online distribution, it is easy to give away
songs for free in an effort to reach a small
segment that is willing to pay for premium
content. This is the idea that inspired busi-
ness models like Topspin. The company
provides a structure with powerful market-
ing and selling tools with which the artists
can develop a profitable relationship direct-
ly with the fans after giving away a couple
of songs for free.
	 More than ten years have passed
since the debut of Napster shook the record
industry. The file-sharing software gave mu-
sic listeners access to an immense diversity
of music for free, causing a shift in industry
power from record labels to consumers. The
popularity of MP3 files increased even more
with the success of the iPod. Even before
Napster, recorded music sales were drop-
ping year after year, due to discounts that
labels were given to wholesale prices glob-
ally. Those numbers dropped even further
when the demand shifted to the free content
available on the Net. After the panic, artists
and the music industry started to understand
the opportunities that the Internet was offer-
ing, and started to migrate to new models of
marketing and distribution through the online
world. Still, adaptations are a necessity in the
legal system to guarantee the functioning of
the creative process. The fight against piracy
continues but hopefully a new business mod-
el that takes advantage of the “feels like free”
system will drive people to a legal form of
consumption that not only will attend the de-
mand for lower prices, but will help elevate
the value of music back to a sustainable level.
	
	 In 2003, with the intention to pro-
vide legal content for their successful iPod,
Apple developed the iTunes Store. The iPod
had become the worldwide standard media
player but the lack of legal content was the
main issue that the company had to face.
After forming agreements with all the major
record labels, the digital retailer store was
a booming success and is now responsible
for more than 70% of the digital sales and
the biggest retailer store in the overall mu-
sic market, accounting for 25% of the mar-
ket share, accordingly to IFPI (International
Federation of the Phonographic Industry).
	 Before the online-based sales of
music products, in order to get access to one
specific song the listener had to buy an entire
album. That meant that to buy one song, one
had to pay for the ten (or more) other songs
that came with it. One of the major changes
that happened with the iTunes Store was the
commercialization of single tracks- making
it cheaper for listeners to buy their favorite
songs. The number of units sold increased
significantly but the sales performance of the
recorded music products dropped radically.
	 When the iTunes Store first opened,
prices were fixed at $0.99 for a single-track
The Music Industry in 2011
(Continued on Page 5)
February 2011	 www.thembj.org 5
Volume 6, Issue 4	 Music Business Journal
Business Articles
	 With the decreasing power of record
labels, artists will start to organize themselves
as small businesses, benefitting from the so-
cial media networking tools that allow a di-
rect and two-way relationship between artists
and fans. Inspired by that direct relationship,
companies like Artist Share are now offering
artists the opportunity to raise money for proj-
ects through fan funding. The idea is to build a
sustainable environment that remunerates art-
ists in their creative process. With this model,
fans can contribute with all sorts of monetary
values in exchange for access to the artist’s
creative process—at audio sessions for album
credits, in the production of videos, sheet mu-
sic, and other. It is a sustainable system that
affirms that the true value of music lies on the
artist’s creativity.
	 In past years, artists got similar type
of investment through record label advances.
The old model was based in a recoupment sys-
tem that often made it very difficult for artists
to start generating revenues from the sale of
their products. In the fan-funding model, 85%
of all generated income goes directly to the
artist. Maria Schneider – one of the most im-
portant contemporary jazz composers – won a
Grammy for best large jazz ensemble album
with a fan funding based project via the Artist
Share website.
	 Probably the most important growth
trend of the music industry is streaming. The
model is based on acquiring access to a large
database of songs that can be played directly
into users devices without file transferring.
Free subscriptions are sustained by advertise-
ments, while paid subscriptions allow users
access to improved content such as higher
quality audio files, expanded database, mobile
capacity and offline usage, all commercial
free.
	 Non-interactive streaming offers
pre-made playlists that are configured to try
match listener’s interests and tastes. It is a
passive service that is authorized by blanket
licenses for the use of the compositions from
performance rights organizations (ASCAP,
BMI, etc.) and a compulsory license for the
use of sound recording issued by Sound Ex-
change. To keep the service legal, there are
certain restrictions that companies like Pando-
ra have to follow in order to avoid interactive
streaming.
	 Allowing users to manage the da-
tabase, choose songs and create playlists to
share with friends requires a totally different
form of licensing. In addition to the blanket
licenses issued by PRO’s for the use of com-
positions, interactive streaming requires me-
chanical licenses and a license for the digital
performance of the sound recording negotiated
with each appropriate rights owner. These re-
quirements make interactive streaming much
more expensive to the service providers and
it can be impractical to license all the content.
In Europe, the Spotify model has been expe-
riencing high levels of success. The company
made an agreement with a Swedish Internet
Service Provider that allowed the user to pay
the premium subscription on their broadband
bill. Recently they declared that two thirds of
their income was used to pay licensing agree-
ments and other rights to keep the service le-
gal. Currently, Spotify is trying to arrange li-
cense agreements in order to make the service
available in the US. With the company plan-
ning global expansion, they are aiming to turn
illegal file-shares into users of their services.
	 Expanding the opportunities for the
music industry even further, mobile phones
are becoming the easiest interface between us-
ers and the online world. These small portable
devices are consistently getting cheaper and
reaching all different social classes. Ringtones
and ringbacks are helping artists to develop
their marketing strategies as well as making
revenue. A recent study made by Myxer -a
broadband service provider- pointed out that
almost three quarters of mobile phone us-
ers listen to music on their phone, via MP3,
streaming or through the use of apps.
	 Despite this, Nokia recently shut
down its unlimited download service, Ovi
Music Unlimited (formerly “Comes With
Music”) in more than thirty countries, leaving
it available only in China, India, Brazil and
South Africa. However, they are still explor-
ing the Ovi brand, with applications and music
stores as well as other services. Nokia also just
announced a strategic alliance with Microsoft,
in order to develop a new mobile ecosystem.
Vodafone, the largest mobile phone telecom-
munications company of the world also has a
music service called 360 Music, offering un-
limited downloads for subscribers.
	 There’s no denying that the changes
brought with the digital era have had a nega-
tive effect on record sales, but fortunately, the
live music sector is still in constant growth.
Concert ticket sales almost tripled in value in
the last ten years and that only accounts for
the public sector. Private sector events like
weddings and corporate banquets make up a
much more substantial industry and have been
experiencing similar rates of growth. Consoli-
dating both of these values would make the
real figure for live music much bigger than it
is being reported. Live music in the past was
used as a marketing tool to sell recorded music,
now it is becoming a vital source of income for
artists. The live experience is enhanced with
sophisticated venues and breath-taking produc-
tions that are driving price increases of tickets
and also encouraging people spend more money
in merchandising.
	 Digital advances are providing a better
structure for the publishing sector of the music
business as well. Sophisticated mechanisms of
tracking song performances bring more evenly
distributed royalties as well as increased revenue
from collection. Issuing mechanical licenses is
getting easier with new services RightsFlow,
which handles all procedures involved with li-
cense acquisition online. Before the development
of these tools, the process to obtain a license was
very difficult and many times, independent art-
ists didn’t get licenses because they didn’t know
how.
	 It is evident that the digital era has
brought new forms of business to the music in-
dustry. New models will most likely survive best
on the mantra that music is everywhere and that
it should be free (or at least feel like it). The in-
dustry may be in somewhat of a slump, but value
at the consumer level is increasing quicker than
ever- in essence rebuilding a foundation for the
business for the sake of sustainability and lon-
gevity. Never before have people had the un-
limited access to music that they do now. Direct
relationships with artists and fans will create a
more democratic environment, as more artists
will have opportunity to reach their listeners.
Sources
1) Alhadeff, Peter. “US Music Industry Statistics: A Reapprais-
al.” MEIEA Journal, 2008.
2) Alhadeff, Peter. “The Value of Music and the Trappings of the
Market place, 1990-2005.” MEIEA Journal, 2006.
3) Bargfrede, Allen/Mak, Cecily. “Music Law in the Digital
Age”. Berklee Press, 2009.
4) Beall, Eric. “Making Music Make Money”. Berklee Press,
2004.
5) Hosein, Trish. “Mechanical Dues and Rightsflow”. The Music
Business Journal, 2010.
6) Kusek, David/Leonhard, Gerd. “The Future of Music – Mani-
festo for the Digital Music Revolution”. Berklee Press, 2004.
7) Leonard, Gerd. “Music 2.0”. Gerd Leonhard, 2008.
8) Madden, Mary. “The State of Music Online: Ten Years After
Napster”. Pew Internet, 2009.
9) Owsinski, Bob. “Music 3.0 – A Survival Guide for Making
Music in the Internet Age”. Hal Leonard Books, 2009.
10) Music and Copyright, Issue 415. Informa UK Ltd.
11) IFPI Digital Music Report 2010.
12) “What’s Working in Music – Having a Ball”. The Economist,
2010
6 www.thembj.org	 February 2011
Volume 6, Issue 4	 Music Business Journal
Business Articles
Gorillaz Do the iPad
	 In November 2010, Damon Albarn,
the musician behind the hit animated UK band
the Gorillaz, announced that the follow up to
their successful release “Plastic Beach” would
be recorded on an iPad. In his press release
to NME magazine, Albarn said that he “fell in
love with the iPad as soon as [he] got it…so
[he] made a completely different kind of re-
cord.” The Gorillaz strategic use of Apple’s
product is certainly a novel one. However,
their publicized enthusiasm over the iPad is
surprising, since the Gorillaz have an exten-
sive partnership with Microsoft to help launch
Internet Explorer 9.
	 The 15-track album “The Fall” was
released on Christmas as a present to the Go-
rillaz fans, and it was available as a free down-
load on their website. The Gorillaz previous
album releases came at about once every four
years, so fans were shocked to receive a new
album only one year after “Plastic Beach.” At
the time, Albarn was touring extensively, so
he wanted to release the “The Fall” during his
tour to prove the album was recorded solely
with the iPad. He used twenty different appli-
cations to craft the album, including SpeakIt!,
Mugician, Amplitude and Moog Filatron.
	 The ability to take the studio on the
road has completely revolutionized the way
Albarn thought about making music. The iPad
allowed him to create music that “sounds like
an English voice that has been through the vo-
By Micah Deterville
coder of America.” Overall, the album dem-
onstrates both the creative prowess of Albarn
and the powerful versatility of the iPad.
	 The iPad was not the first of the Go-
rillaz involvement with upcoming technologi-
cal advances. In September 2010, Microsoft
recruited the Gorillaz to endorse the launch of
Internet Explorer 9. Leila Martine, the direc-
tor of Windows Consumer Business Group in
the UK, said that they wanted to “work with
a leading-edge artist that used the web as a
critical part of their medium to showcase the
possibilities that could be created with Inter-
net Explorer 9.” She reported that the Gorillaz
creativity was perfect to showcase the new op-
portunities of Internet Explorer 9.
	 The Gorillaz design team, Zom-
bie Flesh Eaters, used Internet Explorer 9’s
HTML5 to revamp the entire layout of the Go-
rillaz homepage. Murdoc’s Room, a section of
the website named after the fictional bassist
Murdoc, was completely dedicated to the new
version of Internet Explorer. Murdoc’s Room
featured the capability to load multiple videos
on the same page, which is made possible by
HTML5. The page also featured a 7-minute
animated video of Murdoc discussing the abil-
ities of the new browser with his new friend
“Mike O’Soft.” Microsoft released a down-
loadable Gorillaz-themed layout for Windows
7, in which icons become Gorillaz characters.
	
Although Microsoft has not released a state-
ment regarding the Gorillaz glorification of
the iPad, Microsoft is probably not pleased
with the Gorillaz use of an Apple product. In
January 2011, after the release of “The Fall,”
Microsoft made a presentation that encour-
aged Windows 7 Slate resellers to sell directly
against the iPad. The PowerPoint from this
presentation was leaked onto the web, and it
dictates specific comparisons to its tablet com-
petitor. Microsoft’s presentation advised busi-
nesses to avoid integrating the iPad into their
IT infrastructure, stating that Apple’s product
lacks adequate business programs and invites
security issues. Clearly, Microsoft views the
iPad as a threat, and the Gorillaz involvement
with the iPad could not have been viewed fa-
vorably.
	 Other artists have utilized Apple
products to further their career. YouTube
showcases videos of DJs mixing with iPads,
and bands performing in subways with only
iPhones emulating guitars, synths and full
rhythm sections. Artists and businesses are
recognizing the benefits of creating partner-
ships to increase each other’s exposure. The
Gorillaz are no exception to these artist-busi-
ness relationships. With the support of a brand
and new technology, the opportunities for art-
ists like the Gorillaz are endless.
The new joint venture between An-
schutz Entertainment Group and Outbox En-
terprises is newsworthy. AEG Live is one of
the primary entertainment presenters in the
world, owning and operating a total of 105
major venues around the globe, and the new
venture will likely give it more clout. With
Outbox Enterprises, AEG may now have, in
the words of a CNET technology journalist,
“the best ticketing interface ever.”
	 AEG Live CEO, Tim Leiweke,
made the announcement on February 2nd.
The venture didn’t come as much of a sur-
prise to Ticketmaster, however. Since the
merger between Live Nation and Ticketmas-
ter in January 2010, the Department of Jus-
tice has pressured AEG to establish its own
ticketing business and so promote a healthier
competition with Live Nation. Indeed the
day after AEG made its announcement, Live
Nation’s stock fell 3%.
	 “For the first time in 20 years there
will be two serious competitors in the tick-
eting marketplace,” says Outbox’s co-CEO
and president, Fredric Rosen. And Outbox’s
ticketing model is arguably better than Tick-
etmaster, as it uses the ‘white label’ model,
which offers venues control over their own
ticketing. “We believe that the future is all
about empowering venues to give consum-
ers the best online experience possible,” ex-
plains Rosen’s counterpart, Jean-Francoys
Brousseau. “Outbox Enterprises is designed
to be responsive to the needs of venues and
their individual brands in order for them to
create deeper and more engaging relation-
ships with the consumer.”
	 AEG represented nearly one-tenth
of Ticketmaster’s sales last year, bringing in
about $55 millions in revenue from services
fees. Regardless, Live Nation Entertain-
ment’s chairman, Irving Azoff, could shrug
off the new development. Azoff does not
consider the AEG/Outbox joint venture to be
a threat. As a ‘white label’ ticketing compa-
ny, Outbox would have to oversee multiple
ticketing sites specific to each venue’s needs.
“What I don’t understand”, says Azoff in a
Billboard interview, “is [that] none of them
are talking about how to market and sell tick-
ets; they’re just talking about ‘we’re going to
give you a site you can run yourself…I think
running a bunch of individual sites is inef-
ficient from a marketing perspective.”
	 Azoff’s point may be well taken.
Conquering the web is all about consolida-
tion. Sites such as Apple, Google, Amazon
and eBay are successful because of their abil-
ity to integrate user products. Ticketmaster
does just that, making them the number one
player in the ticketing market, as well as the
third largest e-commerce site in the world.
Being paired with Live Nation, the worlds’
largest concert promoter, gives Ticketmaster
much power.
	 AEG will be moving 10-12 mil-
lion tickets per year to Outbox Enterprises.
Outbox has major clients, such as Cirque du
Soleil, the Bell Centre in Montreal and the
Kodak Theatre in Los Angeles. Furthermore,
certain venues are expected to switch their
services from Ticketmaster to Outbox as
soon as their current contracts expire. More
and more venues want the ability to execute
their own ticket transactions. This would
drive more traffic through a venue’s web-
site, giving the site greater value and more
use for the operators. In addition, venues
would finally control exclusive ticketing da-
tabases that include information on inven-
tory, pricing, and consumer data and profiles.
Although venues have always had access to
this information, this was previously con-
trolled by third parties rather than the venues
themselves.
	 AEG is trying to maintain their
current relationship with Ticketmaster, as it
is understood that the ultimatum given by the
Department of Justice made the separation
inevitable. “We are going to have an existing
relationship with Ticketmaster and Live Na-
tion,” says Leiweke. “And we want to make
sure we don’t burn any bridges here, we take
our time, and we take a little bit of pressure
off them and us on the transition.” Conse-
quently, AEG is making the move to Outbox
gradually. They plan to sell multiple venues’
tickets with them within the next six months,
and expect to have Outbox Technology fully
integrated by 2013.
	 Competition in the ticketing indus-
try comes as a relief. Ever since the merger
with Live Nation, Ticketmaster’s monopoly
in the market has been undeniable. It is re-
A New Standard for Concert Tickets
By Athena Frost
freshing to see multiple ticketing options on
the horizon and venues that seek more control
will have more choice with the ‘white label’
concept. Still, Ticketmaster is successful
because their methods truly work and it will
probably remain the number one ticketing
site. Ultimately, competition will determine
the most successful industry practices. In the
meantime, representatives from Ticketmaster,
TicketsForce, and TicketFly claim they are
happy with Outbox as AEG’s business part-
ner. It sounds endearing. But these archrivals
may not be as accommodating of each other’s
interests in the long-run.
Sources
1)http://www.fortherechord.com/aeg-enters-the-concert-
ticket-marketplace-with-a-new-joint-venture/
2 ) h t t p : / / w w w. p o l l s t a r. c o m / b l o g s / n e w s / a r -
chive/2011/02/03/755251.aspx
3)http://www.ticketnews.com/news/Live-Nations-Irving-
Azoff-relishes-competition-with-AEG-Outbox021109825
4)http://www.ticketnews.com/news/Live-Nation-stock-
price-drops-three-percent-following-AEG-Outbox-
news021103713
5)http://www.billboard.biz/bbbiz/industry/touring/aeg-s-
leiweke-and-outbox-s-rosen-talk-to-1005022192.story
6)http://www.billboard.biz/bbbiz/industry/record-la-
bels/exclusive-irving-azoff-on-ticketmaster-compet-
ing-1005025552.story
7)http://classic.cnbc.com/id/41404609
8)http://www.prnewswire.com/news-releases/aeg-cirque-
du-soleil-and-jean-francoys-brousseau-owned-outbox-tech-
nology-and-fredric-d-rosen-to-form-joint-venture-to-pro-
vide-electronic-ticketing-solutions-115176099.html
Business Articles
February 2011	 www.thembj.org 7
Volume 6, Issue 4		 Music Business Journal
Volume 6, Issue 4	 Music Business Journal
Business Articles
8 www.thembj.org	 February 2011
Venture Capitalists: Paying for the Muse
By Kiefer Wells
	 The rebirth of venture capital, origi-
nally fueled by the equity related collapses of
the early 2000s, is in the air. Publications like
Fortune and the Wall Street Journal seem fix-
ated on the notion that large-scale venture in-
vestments are poised for a major take-off. But
interest in independent music-related startup
companies is not altogether evident yet.
	 According to the National Venture
Capital Association, major venture capital is
directly responsible for over a fifth of Gross
Domestic Product. Moreover, every year,
more than two million companies apply for
VC funding, representing about a-tenth of
businesses nationwide. Less than a thousand
of them actually receive funding, and less than
fifteen are in the business of music. It is es-
timated that about one out of every hundred
dollars invested in music comes from venture
capitalists—which is probably higher than the
proportion of music-related revenues in US
GDP. This, as well as a dearth of traditional
funding for music, suggests there is much po-
tential for VC activity.
	 The majority of companies that re-
ceive venture funding are technology-based
businesses that have introduced new products
that revolutionize the technological world.
Skype, for example, received funding from
Draper Fisher Jurvetson, a VC powerhouse
out of Menlo Park, CA. Skype was started in
2003 by the same entrepreneurs behind Ka-
zaaa and with the support of DFJ, grew to its
partial sale in 2009 for $2.75 billion. Skype
serves as a perfect model of what VC busi-
nesses typically chose to invest in. Skype was
an Internet based business that was trendy,
had a lot of consumer appeal, and did some-
thing that had never done before. Skype was
a successful VC investment that proved to
be well worth the risk. In fact, most music
startups are web-based businesses attempting,
like Skype, to turn a traditional industry on its
head. Aderra, Eventric, Bandzoogle, Mozes
and many other recent innovators tend to in-
tegrate technology and open more markets for
smart phones, tablets and other devices.
	 The presence of constantly chang-
ing charts, plummeting album sales and the
decline of the major labels do little to help
the stability of the music market. Often, non-
traditional approaches to business discourage
traditional investment practices. Despite the
great opportunity for profit that comes with
inherent risk, only small boutique-like firms
and angel investors may be willing to en-
ter the market. Major investment firms and
VC companies are yet absent, but there are
examples of smaller investors. Harmonix,
a company out of Cambridge, MA notable
for creating Guitar Hero received $100,000
in funding from small-scale investors inter-
ested in their development. Harmonix has
created innovative music video games, of-
ten using trial and error methods to deter-
mine what the consumer wants. After pre-
vious unsuccessful attempts to break into
the video game market, they were swiftly
bought out by Viacom on behalf of MTV
for $175 million in 2006, and created Gui-
tar Hero. Recently, Viacom put Harmonix
up for sale after weaker than expected sales
of the Rock Band 3, but the company, ap-
parently, was able to engineer its own in-
dependent repurchase. Overall, Harmonix’s
success can be accredited to the company’s
experimental development methods and the
unwavering help of small-scale investors.
The same could be said of Grooveshark,
an ever-growing web-based popular music
streaming service, originally made possible
by small scale seed funding.
	 Perhaps the best example of a
startup that defies old notions of doing busi-
ness is Topspin, a private venture financed
by ex Pro Tools founder Peter Gotcher and
managed by Ian Rogers. Topspin gives art-
ists the tool to record, and release record-
ing product and other merchandise directly
to fans. It empowers creators by making
them less dependant on the traditional cash
advance, for money can be made sooner
through the website, whose platform is
optimized to pinpoint targets rather than
blanket fans. Brian Eno, among others, has
become a user. Topsin’s model caters espe-
cially for young aspiring independent artists
and, though still not fully proven, seems to
point the way forward. Gotcher and Rogers,
incidentally, are a marriage between an in-
dustry pro and angel investor (Gotcher) and
a Young Turk (Rogers).
February 2011	 www.thembj.org 9
	 Since the early evolution of the
music industry, there has been a struggle
to find a way to accurately measure suc-
cess among artists. From this need, music
charts emerged to provide the most up to
date analysis. Charts direct consumers to the
hottest albums to buy, and help record labels
prioritize which artists are best to invest in.
For instance, the Billboard 200 analyzes re-
cord sales and airplay statistics gathered by
Nielsen SoundScan and the Recording In-
dustry Association of America (RIAA), and
a list of rankings is produced.
	 Yet it seems the process of mea-
suring an artist’s success by record sales and
airplay is becoming irrelevant. The current
industry is facing problems like the decline
of physical and digital music sales and the
rampant growth of piracy. This illegal music
consumption cannot be adequately tracked,
so the chart rankings have become skewed
and inaccurate in terms of overall artist pop-
ularity amongst the mass audience.
	 BigChampagne, a media track-
ing company, recognized the need to reas-
sess how to measure an artist’s success. It
released the Ultimate Chart, which debuted
at the New Music Seminar (NMS) in July
2010. In addition to tracking traditional
sales and airplay, The Ultimate Chart con-
siders a vast array of online statistics includ-
ing streaming plays and social media activ-
ity on Facebook, MySpace, Twitter, Last.
fm, and YouTube. The chart also recognizes
other ways that fans access music by means
of companies like Pandora, AOL, Yahoo,
Amazon, and Clear Channel.
	 Through the Ultimate Chart, Big-
Champagne has attempted to exploit the
importance of an artist’s online presence
and fan base. However, even with these
additional online statistics factored in, the
same mega stars that top the Billboard 200
are also topping the Ultimate Chart. Artists
like Pink, Katy Perry, Bruno Mars and the
Black Eyed Peas sweep the rankings on both
charts. If the artists who have the best on-
line presence are the same artists who have
plenty of success in physical sales, what is
the point of having both charts?
	 Fortunately, the New Year has
brought new charts that stray from house-
hold names and focus on emerging artists
that have yet to hit the mainstream. Earlier
this month, the NMS debuted The Artists on
the Verge Top 100 Chart which showcased
artists that are “on the verge” of breaking
into the industry. To determine the rankings,
the chart analyzes music sales (physical and
digital), ticket sales, frequency of gigs, tour-
ing history, merchandise sales, media (both
online and print), social media activity, and
online buzz. The NMS aggregates this data
from its partners, which include BigCham-
pagne, Next Big Sound, ReverbNation, and
OurStage. Like the Ultimate Chart, the
Verge Chart recognizes more than just tradi-
tional sales and airplay and accommodates
the new business model.
	 The Verge Chart makes a sincere
effort to truly expose the artists that need the
exposure to launch their careers. Artists who
have sold over 10,000 albums are not consid-
ered for the chart. Any artist that is signed
to a major label or a significant indie label is
disqualified. The current list of the best 100
emerging artists includes Kurt Rosenwinkel,
Lady Lamb Beekeeper, and The Pains of Be-
ing Pure at Heart. The Verge Chart not only
offers these artists online exposure, but also
grants them other valuable opportunities.
Since the chart is in association with the
NMS, the top ranked artists are offered prime
performance slots at the bi-annual conferenc-
es. At the New Music Seminar LA 2011, the
Daylights received the title of the Artist on
the Verge and received $50,000 in consulta-
tion, promotion and gear.
	 In January, Billboard also released
a new chart dedicated to emerging artists,
called Uncharted. The chart features artists
that have not appeared on major Billboard
charts, like the Hot 100 or the Billboard 200.
Like the Ultimate Chart and the Verge Chart,
Uncharted examines traditional sales and air-
play, as well as streamed plays, page views,
and fans on social networks.
	 Billboard Editorial Director Bill
Werde suggests that “record labels, publish-
ers, and other music companies are always
looking for ways to make smarter bets on
emerging talent.” He describes Uncharted as
a platform with the intention of “launching
careers…[and serving] as a conduit for artists
to step onto a broader stage, ultimately top-
ping one of the major Billboard charts.”
By Nick Susi
	 DJ GirlTalk was recently ranked
on Uncharted due to his direct-to-fan model
for distribution, in which he made the al-
bum downloadable for free. Girl Talk is a
relatively well-known name, but since free
downloads are not tracked by Nielsen Sound-
Scan and do not receive airplay, Girl Talk
had no means of getting onto the Hot 100 or
Billboard 200. Therefore, Uncharted offers a
legitimate opportunity to be ranked based on
an artist’s reach and access to fans, not only
by conventional standards.
	 In another example, rap artist Trap-
hik earned more than one million YouTube
page views, 14,000 new channel subscribers,
2,600 Facebook fans, and 1,900 new Twit-
ter followers – all in one week. With these
astounding numbers, Traphik easily topped
Uncharted at number one. However, Trap-
hik has been ranked number one every week
since Uncharted’s debut. His high rankings
have increased his online exposure even fur-
ther, ramping up his already massive play
counts and following. With this constant cy-
cle of exposure, it seems that Traphik could
hold his spot on Uncharted for a very long
time. Might this defeat the original purpose
of Uncharted’s mission to grant many emerg-
ing artists with exposure? Uncharted may
fall into the same problem as its big brother
charts- with the same artists cycling through
every week.
	 Another obstacle that these new
charts face is the artificial inflation of an art-
ist’s online statistics. Online bot programs
can be bought which artificially increase play
counts and friend counts. Factors other than
music can also play a role in an artist’s rank-
ing based on web data. Famous actors and
actresses that have made albums as side proj-
ects have begun finding their way onto Un-
charted. Their popularity in television and
film has indirectly given their albums mass
online exposure, inflating their stats. These
celebrities with albums include Taylor Mom-
sen (Gossip Girls), Hayden Panettiere (He-
roes), and Steven Seagal (martial arts/action
star). Their positions on Uncharted are ex-
cluding many artists who would benefit from
this well needed exposure.
	 In the modern music business,
the general listener has found new ways to
Toppling the Old Music Rankings
Volume 6, Issue 4	 Music Business Journal
Business Articles
(Continued on Page 16)
10 www.thembj.org	 February 2011
Volume 6, Issue 4	 Music Business Journal
Law Section
	 Imagine Joe Smith as the head of
a small chain of radio stations somewhere in
the US’s mid-west region. Despite the down-
sizing of his staff, dwindling ad revenue,
and the growing uniformity of the station’s
playlists, Joe could at least end the year on
a positive note. He survived running a small
terrestrial broadcast operation, which in and
of itself, was quite an accomplishment. Later
in the day, however, a stern record industry
lawyer of the Recording Industry Associa-
tion of America walks into his office and tells
him that he would like to collect a first-time-
ever royalty on the use of his playlists. The
amount asked, Joe estimates, is about one-
tenth of his existing revenues—and he barely
broke even! Joe becomes depressed. While
the lawyer meticulously walks him through
the legality of the request, Joe can only think
about being solvent. In fact, Joe Smith’s
plight may not be unlike that of a thousand
other small broadcasters who, on February
4th 2009, learnt that a revision of the Per-
formance Rights Act was being proposed
to Congress and the new law asked for such
royalties.
History of the Performance Rights Act
	 When it comes to musical works,
there are two classes of expression that are
governed by copyright law. The first, the
rights to a composition, refers to the actual
musical work (lyrics and melody; the sec-
ond, the sound recording right, addresses
the use of master recordings (the recorded
product). Composition rights are typically
held by the original composer or the work’s
publisher, while sound recording rights are
generally controlled by the performing artist
or the record label that distributes the record-
ing. Since the dawn of the terrestrial radio
industry, broadcasters have paid royalties
to composers and publishers for the use of
their copyrighted compositions. In the US,
these royalties have been collected and dis-
tributed to composers and publishers through
three performance rights organizations:
Broadcast Music Inc. (BMI); the American
Society of Composers, Authors, and Publish-
ers (ASCAP); and the Society for European
Stage Authors and Composers (SESAC)—a
misnomer that dates back to the 1930s.
	 If you’re wondering why record la-
bels and performing artists, and their sound
recordings, have been left out of the money
pool, it is for good reason. The relationship
that labels and artists have had with terres-
trial radio has been immensely beneficial for
both parties over time, despite the fact that no
money ever changes hands. On the one hand,
broadcasters enjoy the free, unlimited use
of sound recordings, which draws in listen-
ers and attracts advertisement revenue. But
on the other hand, labels and artists reap the
intangible benefit of free promotion to the
mass consumer audience--a crucial element
in popularizing new releases. A recent study
for the National Association of Broadcasters,
reveals that free radio airplay generates some-
where between $1.5 billion to $2.4 billion in
annual music sales for the major record la-
bels. In fact, labels have held radio to be so
valuable over the years that, before they were
penalized, they likely spent millions of dol-
lars bribing disc jockeys to move their cata-
logues to the top of their playlists in a practice
known as ‘payola’.
	 Over the past forty years, Congress
has viewed this symbiotic relationship to be
“mutually beneficial” and refused numer-
ous attempts to impose royalty payments on
sound recordings--first in 1971,when it grant-
ed copyright protection for sound recordings,
and then in 1976 when revisions were made
to the Copyright Act. The Digital Millenium
Act of 1998 recognized a Sound Recording
royalty for subscription and non-subscription
services over the Internet, but no reference
was made about payment from broadcasts via
traditional airwaves. The RIAA now argues
that technological change requires that a new
exception to encompass terrestrial radio be
written into the Performance Rights Act.
Consequences
	 Enactment of the Performance
Rights Act could stand to drastically upset
the balance that’s been established between
labels and broadcasters. The proposal would
create a compulsory license that would re-
quire radio stations to pay set royalties to la-
bels for the use of each sound recording that’s
broadcasted. This would create an entirely
new set of expenses (in addition to royalties
currently being paid for compositions) on an
already beleaguered terrestrial radio industry.
	 With the new legislation, small-
range independent radio stations would be
forced to pay a flat fee that would vary in size
depending on situational factors, but would
be capped at a maximum of $5,000.00 per
year. While this may seem manageable, larg-
er stations will not be getting off as easily:
stations above a specified annual revenue
mark will be required to pay a percentage of
their total earnings as royalty compensation
for the use of the sound recordings. Rates
have not yet been determined, but royalty
fees for satellite radio are currently hovering
around 7.5% with the expectation of an 8%
rise by next year.
	 Considering the current state of
the economy, and the multitude of digital,
streaming, and satellite competitors that are
beginning to absorb market share, the Perfor-
mance Act really could not be coming at a
worse time for terrestrial radio. On average,
local stations have watched their ad revenues
slip between 10% to 50%, depending on the
market. Moreover, the radio industry as a
whole has experienced an 18% decline since
2009. This tightening of receipts has already
forced well over three-hundred radio stations
nation-wide off the airwaves.
	 While the growing loss of these
stations is certainly a concern, broadcasters
also argue that the diversity of their program-
ming will be compromised. Fewer will fight
for the same pool of listeners, and indie, ex-
perimental, and locally produced music will
be sacrificed. It is possible too that many sta-
tions might abandon music all together in fa-
vor of the popular talk-radio format. Stations
who could afford the levy would re-stream
popular radio shows that have proven ratings
and the tried-and-true top 40 would be the
most rotated material.
Terrestrial Radio Today
	 Nevertheless, the radio business
generally appeared to be doing quite well in
the last quarter of 2010. With industry giants
like Clear Channel and CBS venturing fur-
ther into digital territory, listenership seems
to currently on the rise for the first time in
years. This is music to the ears of the record-
ing industry.
	 Yet, the devil may lie elsewhere.
According to Arbitron & Edison research,
an estimated 43 million Americans (one in
six) listen to Internet radio on a weekly ba-
sis. Broadcasters now say that streaming
The Pressure Mounts On Terrestrial Radio
By Evan Kramer
(Continued on Page 11)
February 2011	 www.thembj.org 11	
Law Section
(From Page 10)
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Volume 6, Issue 4	 Music Business Journal
accounts for 10%-15% of total listening for
some stations with 10%-25% of that occur-
ring on mobile devices. Given these trends,
CBS Radio relaunched its radio.com service
in July of last year. In partnership with last.
fm, the platform creates a Pandora-esque
experience for listeners, allowing them to
program their own non-interactive channels
based solely on their own individual musical
preferences. Clear Channel also added some
additional web-only channels to its platform
last year, including artist branded pages for
groups like Linkin Park and Nikki Sixx.
Many of these new channels are offered com-
mercial-free with a paid subscription service.
	 Riding on advancements like these,
digital radio has seen a year-on-year ad rev-
enue spike of 22% according to the Radio
Advertising Bureau. In an estimate made by
SNL Kagan, receipts are projected to double
by 2015 from $552m to $1 billion. These
uplifting figures aren’t just limited to digital
radio either; terrestrial radio enjoyed a 25%
gain last September compared with the same
month period in the year prior.
	 Yet it is remarkable that Pandora
still outperforms much of the current radio
market. In the past year, its listenership ex-
panded a staggering 140% thanks to its user
friendly, total programmability model. More-
over, the technological disparity between
streaming and terrestrial radio is made ap-
parent in the same Arbitron & Edison sur-
vey quoted already. Out of the core music
age bracket (12-34), Pandora out performed
terrestrial radio listenership by more than
double (13% compared with 6%) and 8 out
of 10 (78%) respondents said that terrestrial
radio was simply too difficult to personalize
(they must have assumed they could!). Fi-
nally, Pandora has signed a number of very
lucrative deals with Ford Motor Company
and Mercedes-Benz to include its service as
an added feature in their new lines of automo-
biles. With such a formidable foe on the rise,
terrestrial radio and digital streaming services
alike must compete to hold market share.
The Future of Radio
	 On the whole, it’s interesting to note
that since its debut in the early 1900’s, ter-
restrial radio has gone relatively unchanged
from its original format. More than hundred
years later, live or recorded programming is
still being transmitted, and the listener hears
what is chosen for her. Instead, the last
twenty years have witnessed much change.
Consumers have been conditioned to expect
instant access and total programmability
with zero interruption all the time. To illus-
trate, XM Radio can ensure crystal clear and
commercial free reception across all States.
Terrestrial radio is finding it harder to com-
pete.
Satellite Radio and Pandora are slowly
phasing terrestrial radio out of cars, offices
spaces and shopping centers. last.fm and
other services like MOG are now offer-
ing streaming radio channels that are fully
customizable--down to the individual artist
and the percentage of deviation from that
particular style. And as with almost every-
thing else on the Internet, social networking
is fully integrated and has opened the new
paradigm of musical discovery and online
radio listening.
But the concept of terrestrial radio will be
alive for a while. The need for hands-free,
playlist-oriented programming is still very
real, but terrestrial radio must compete with
many other options and the medium has to
be perceived as more flexible.
In the meantime, the dispute about the new
terms of the Performance Rights Act con-
tinues into its second year, with little move-
ment since the latter part of 2010 and no
clear outcome. If the fortunes of terrestrial
radio improve, the broadcast industry will
likely come under more pressure. After all,
the Digital Millenium Act of 1998 brought
the US in line with European legislation that
recognized that record labels could exercise
their sound recording right and collect from
broadcasters. Back then, however, the US
recognized the sound recording right more
narrowly and allowed the labels only to col-
lect from webcasters (i.e. internet radio and
others). Record labels, no doubt, have more
of a chance to win a more fundamental revi-
sion of the Performance Rights Act with a
better economy.
Business Articles
Volume 6, Issue 4	 Music Business Journal
12 www.thembj.org	 February 2011
The natives are usually forced to comply
since they live in isolated forests with few
job opportunities. Plus, the government owns
the land, so the Tanzanian villagers have lit-
tle control to prevent loggers from harvesting
the trees. With the trees becoming scarce, the
economic opportunities for the villagers are
little to none.
	 Sound and Fair avowedly strives to
create a communal management of the for-
ests with the guidance of the Forest Steward-
ship Council (FSC). This is an independent,
non-governmental, not-for-profit organiza-
tion established to promote the responsible
management of the world’s forests. It is na-
tionally represented in more than 50 coun-
tries around the world. In particular, an FSC
certification ensures that the chain of wood
supplied for instrument manufacturing has
been harvested responsibly from verifiable
sources.
	 In fact, many villages in southeast
Tanzania have helped the MCP. In Decem-
ber 2009, the Kikole village in the Kilwa
District of Tanzania oversaw the first harvest
of mpingo under the guidance of the FSC.
Better harvesting translated into higher prof-
its. As the supply of the African blackwood
is dwindling, its higher price helped lift the
Kikole village out of its poverty and make it
proud.
	 The FSC carefully tracks that the
manufacturing process of the mpingo up-
holds their certification standards. For in-
stance, after the harvest, the timber was dried
for nearly a year. The wood was then shipped
See the Tree, How Big It’s Grown
from the Kikole village to the FSC-certi-
fied Sandali Wood Industries sawmill, lo-
cated in the port city Tanga in Tanzania.
The sawmill then processes the timber that
is converted into woodwind instrument
billets. The billets are manufactured and
exported by FSC-certified Klicksi Ltd into
the UK, where they are delivered to Han-
son Clarinets, the biggest manufacturer of
clarinets there.
	 Both European and American re-
tailers will be able to buy high quality
instruments that have been FSC-certified
in 2011, when Hanson clarinets launches
its new production line. Whereas illegally
felled trees cannot be traced, Hanson’s
clarinets can be linked back to a source
that is sustainable.
	 Other instrument manufacturers are
also taking similar steps. For example, small
business owner and handcrafted snare-drum
maker Greg Gaylor gets his timber from a
local lumber supplier with sustainable busi-
ness practices. Furthermore, the Les Paul Ex-
otics by Gibson Guitar Corporation is a line
of six guitars made from certified wood, and
a portion of their proceeds is donated to the
Rainforest Alliance. Mariner Guitars has de-
veloped a guitar made from Paulownia wood,
which grows back quickly after being harvest-
ed. Paulownia wood only takes seven years
to mature, wheres mahogany takes over forty
years.
	 In time, it is likely that music play-
ers and businesses will become much more
aware of the environment. Guitar players, the
most numerous breed of playing musicians
anywhere, could especially learn from wood-
wind players.
Sources:
1) Sound and Fair
http://soundandfair.org/worlds-first-sustainably-harvested-
african-blackwood-generates-new-income-for-tanzanian-
forest-communities
2) Mpingo Conservation Project
http://www.mpingoconservation.org/reports/MCP%20Prin-
cipal%20Report%20on%20BPCP%20Consolidation%20
Award.pdf
3) Forest Stewardship Council
http://www.fsc.org/about-fsc.html
4) http://www.emagazine.com/view/?508
5) http://www.globaltrees.org/soundwood.htm
	 Music instrument manufactur-
ers are a source pleasure for players and
non-players alike. Without them, sound
would not be as heavenly or music as
good. Yet some hurt the environment.
Wood that used to be plentiful, for in-
stance, can become over-harvested in the
process of creating such wondrous tools.
Fortunately, conservation efforts are be-
ing made within the music industry.
	 The African blackwood tree,
also known as mpingo in Swahili, is an in-
ternationally valued source of hardwood
that grows in twenty sixAfrican countries.
The natives make carvings from the wood,
which contribute to the local economy of
these remote villages. Mpingo trees take
seventy to one-hundred years to fully ma-
ture, at which point the wood is primarily
harvested to manufacture clarinets, oboes,
and bagpipes.
	 Mpingo is excellent for woodwinds
because of its ability to cope with the mois-
ture created by the musician, and its capac-
ity to be carved without chipping. The wood
contributes to the unique tone and resonance
of these instruments. Unfortunately, the high
demand for the wood has caused mpingo to
disappear at an alarming rate, which is en-
vironmentally and economically devastating
for the surrounding villages.
	 In an attempt to counter this defor-
estation, a new initiative has emerged that is
bound to help everyone in the music chain,
including the musicians that play the instru-
ments made with mpingo, the manufacturers
that produce them, and, ultimately, the pub-
lic that hears them. It is appropriately called
Sound and Fair.
	 Sound and Fair was established “to
realize a sustainable trade in African black-
wood through a fully-certified chain of cus-
tody linking village communities in Tanzania
to woodwind instrument musicians in the
West.” It also collaborates with the Mpingo
Conservation Project (MCP) to increase
awareness about sound environmental prac-
tices.
	 In the regions where African black-
wood trees grow, particularly in Tanzania, the
natives are vulnerable to exploitation. Log-
gers enter the forest and hire the locals under
unfair wages. They prompt the locals to cut
down the trees without any regard to the land.
By Minden Jones
February 2011	 www.thembj.org 13
	 With the music industry in a fren-
zy to coax users back to a paid-based model
of for media, cloud based subscription ser-
vices and mobile devices seem to be the way
of the future. In the UK, Spotify has seen
growing success with its cloud-based music
service, allowing users to pay a low month-
ly fee that enables them to download and
stream music to their computer from a vast
library of music. In the United States, Rhap-
sody has emerged as the largest cloud-based
music service available. Similar to Spotify,
Rhapsody allows users to stream music from
their online libraries, as well as download
a certain amount of gigabytes to their mo-
bile devices. The arrival of 2011 brought the
Consumer Electronics Show (CES) held in
Las Vegas, along with new models of cloud-
based technology.
	 The most exciting new service
introduced at CES this year is called “Uni-
fi”, and is produced and controlled by the
RealNetworks family. RealNetwork sis
noteworthy for their media players, which
are mostly PC-compatible. Their free me-
dia player can be downloaded to PCs, and
they can play any musical content avail-
able in the library in a customized, easy to
use interface. Unifi hopes to bring together
people’s need for media on the go, including
music, photos and videos. Unifi, which was
warded the “Best of CES” prize for software
and apps by CNET.com and Engadget.com,
will merge all the media from a consumer’s
computer and mobile devices into one online
database. This database will automatically
organize and filter one’s pictures, music and
videos, and allow easy access to said data
from anywhere with an Internet connection.
This means consumers can not only access
their iTunes libraries from anywhere, but
also have one place to store all their photos
and videos, which they will easily be able to
send directly to Facebook, YouTube, Twit-
ter, Flickr and Tumblr.
	 In order to stream media from
Unifi’s database, one must be connected to
the Internet. Typically, uploading pictures to
various websites and downloading content
to a mobile device requires a fairly strong
Internet connection. However, for commut-
ers and people who are not within range of a
wireless network all the time, this service is
still very appealing. Unifi has incorporated a
way to download media to one’s mobile de-
vice when connected to a wireless network,
enabling them to have the media with them
on the go. People who take the subway to school
and work would be able to download music to
their iPhones or iPods while connected to the In-
ternet, but still have access to the content when
their connection fades.
	 Unifi will release its public beta within
the next month. They have announced that this
service will be a “freemium” service - meaning
that the first 2 gigabytes of storage will be free,
and for anything after that the consumer would
pay a monthly fee. Though RealNetworks hasn’t
yet announced anything specific yet, they did
say that it would cost “roughly the same amount
as one cup of coffee per month.” With a price
lower than $10 a month, possibly even $5 a
month, this service is sure to be a huge attrac-
tion to consumers nation-wide. The hope is that
it will entice consumers back to a paid-based
model for getting media.
	 Also at CES this year, a cloud-based
music service by Cricket wireless was unveiled.
Cricket is a relatively small wireless service pro-
vider that has a small selection of flip phones
and smartphones available to consumers. At
CES, they announced their own version of a new
cloud-based music service availably exclusively
to Cricket subscribers. For $55 a month, users
will get a cell phone plan that includes unlimited
talk, text, web surfing, and music downloads.
“Muve music” is the moniker Cricket gave to
this music downloading service that will be in-
corporated into their monthly plans. Deals with
Warner Music Group, EMI and Sony Music
were made to offer an extensive and desirable
catalogue to their consumers.
	 Muve music differs from other cloud-
By Jamie Anderson
based music services like Unifi and Rhap-
sody. The main difference is that users are
only allowed to download music directly to
their phones and no other devices. Mean-
ing, people with iPods and other mp3 players
wouldn’t be able to transfer the music to their
existing library. Muve is also not compat-
ible with computers or tablets, which again
does not allow consumers to transfer their
downloaded music from their phones to their
iTunes libraries on their computers. The mu-
sic files will not be DRM protected, but they
will be encrypted with a new type of Dolby
PCM code. This encryption allows users to
download music to their phones faster than
they would be able to from their comput-
ers, yet inhibits users from connecting their
phones to any other device to transfer music.
Jeff Toig, Cricket’s vice president of product
marketing released a statement saying, “Our
files are not DRM tracks, but the area on the
card that the music lives in is protected. If you
are a paying customer, the door to that content
is open. If you are not a paying customer, the
door to that content closes”.
	 Cricket’s phones come equipped
with 1 GB of free space, which could hold
approximately 3,000 of Muve’s compressed
songs. Connection to Cricket’s 3G network
allows users access to music in a variety of ar-
eas as well as a fast download speed for their
media. The music will be stored on a memory
card inside the phones. Initially, each phone
will only come with a 1 GB card, but more
frequent users have the option to upgrade to
either a 4 GB or 8 GB card for more music
storage at an additional one-time price.
The Future of Cloud Technology
Volume 6, Issue 4	 Music Business Journal
Business Articles
(Continued on Page 16)
Volume 6, Issue 4	 Music Business Journal
Business Articles
14 www.thembj.org	 February 2011
Celebrating YouTube’s Influence on Music
	 There has been no other website that
has revolutionized the Internet like YouTube.
Since its launch in 2005, it quickly became the
most talked about and frequented websites in
existence. YouTube’s ability to quickly share
videos, embed them on other sites and do all
its functions at no cost to the consumer have
made the company extremely popular. But it
became apparent early on that monetizing this
success would be a challenge: although You-
Tube’s first year was very successful in estab-
lishing a strong brand, 100 million hits per day
yielded profits of only $15 million.
	 The key, therefore, was to find a way
to monetize the service without sacrificing
the business’s vision of easy and free access
and diffusion. YouTube made its profits from
advertisements played on the site and videos.
When the company first started, it was diffi-
cult to anticipate which videos would go viral
and which members would have a following
of their own. This made it hard for advertisers.
While YouTube’s embedding functions helped
launch its popularity, the sheer variety of its
video postings were all over the place. In time,
the videos became easier to classify and mar-
keting became more focused.
YouTube and Music
	 Music videos, especially, would
make YouTube more desirable for advertis-
ers. For a while, music videos made up over
half of its content. If an artist had a strong fan
base and fared well on the charts, it was very
likely that audiences would follow.Advertisers
took notice, and You Tube at last became a top-
grossing website.
	 Yet major record labels became
threatened by the easy accessibility of music
videos. Because no proper compensation was
paid, they proceeded to use the courts to re-
move videos where copyright infringement
was noted. Warner, in particular, did not take
kindly to YouTube’s earnings and made a point
to shutter all unauthorized content. At the time,
YouTube had no way of preventing copy-
righted materials from being uploaded and, as
a result, could not track infringing material.
Warner has since made amends with YouTube
and now allows content that is not completely
in violation of copyright. Instead, Sony, EMI
and Universal have chose to share their music
videos with Vevo—a service that only displays
professional high-quality product.
	 YouTube has also created an environ-
ment in which anyone can be creative and be
acknowledged for their talents. This environ-
ment that nurtures development and provides an
equal opportunity for success has been coined
“The YouTube Phenomenon.” Artists have
been discovered and their careers have flour-
ished due to exposure in YouTube. This has led
many groups out of obscurity. Pomplamoose,
the indie duo from California, gained popular-
ity on YouTube by uploading videos of unique,
stylized covers of pop and top 40 songs. Their
reputation on YouTube earned them features in
advertisements from major companies like Toy-
ota and Hyundai. The group used a popular way
of displaying music on YouTube that has been
called “video songs.” Jack Conte, one of the
members of Pomplamoose, said that its videos
are well liked because “what you see is what
you hear.” They offer viewers a new conception
of music that give them a completely new expe-
rience—for instance, a backstage pass allowing
them to see all of the effort and execution that
went into every track. Pomplamoose’s success
did not go unnoticed by the majors and soon the
band was faced with many offers. Pomplamoose
refused all of the deals saying that their “goal is
not to make hits…[but ] to make a self sustain-
ing business.” In reality, the band had achieved
that goal already by making low budget videos
for YouTube that showcased their creative tal-
ents.
	 Many artists share Pomplamoose’s
views. Besides, the music business seems to
adapt now more to the DIY model, and YouTube
gravitates in that direction. In March 2010, You-
Tube launched the Musicians Wanted program
and made Pomplamoose its first partner. Inde-
pendent artists can partner directly with You-
Tube and earn a share of the advertising revenue
from their videos. This system provides an op-
portunity to make revenue without the constrict-
ing demands and needs of a record label. Ok
Go, a band that got its start on YouTube from
a music video choreographed on treadmills,
dropped their major label, EMI, after the label
refused to let fans embed music videos to share
on other sites. Instead, they joined YouTube’s
Musicians Wanted program. Since the release
of the band’s video “Here it Goes Again,” they
have received over 6 million views on YouTube
and continue to gain followers, endorsements
and success without any help from a major.
	 YouTube has revolutionized the In-
ternet and completely changed the face of the
music industry. It may be the Cinderella in the
By Dean Miller
story, as it is often conveniently forgot-
ten. But it has eliminated the barrier for
musicians to reach greater audiences and
now artists no longer need to rely on ma-
jor labels to launch their success. Plus,
YouTube has lit the way for many other
websites to expand how fans consume
and enjoy music. The music industry has
started to evolve. Arguably, it now recog-
nizes better the need to create a new busi-
ness model that serves the creative pro-
cess more compassionately while giving a
better understanding of customer service
and fan relationships. You Tube has been
there all the way.
Volume 6, Issue 4	 Music Business Journal
MBJ
Visit the MBJ online!
www.thembj.org
Please write to us at:
theMBJ@gmail.com
Topics in the next issue:
Rethinking Music
From SXSW
Copyright Economics
The Music Business Journal will be
released three times in the Fall, three
times in the Spring, and once in the
Summer.
Upcoming Topics
Volume 6, Issue 4	 February 2011www.thembj.org
Music Business Journal
Berklee College of Music
The Charts (cont.)
discover and consume music. Artists have
adapted their strategies in order to be suc-
cessful in this new model and the music
charts need to track this success accordingly.
Clearly, these new charts are not perfect,
however they are on the right track to grant-
ing exposure to emerging artists that would
otherwise not be seen on the major charts.
The charts recognize the need for innovation
and their mission to reevaluate the defini-
tion of an artist’s success is certainly taking
shape.
Sources
1) Alhadeff, Peter. “U.S. Music Industry Statistics: A Re-
appraisal.” MEIEA® HOME PAGE. Web. 13 Feb. 2011.
http://www.meiea.org/Journal/html_ver/Vol08_No01/Al-
hadef-2008-MEIEA-Journal-Vol-8-No-1-p13.htm.
2) “Another Chart? NMS Delivering “Artists On the
Verge...” - Digital Music News.” Digital Music News Blog.
Web. 13 Feb. 2011. http://www.digitalmusicnews.com/stor
ies/020811verge#NhsUjT8RzL6UBj0MWOc8UA.
3) “’Billboard’ Launches Uncharted Chart for Little-
known Artists | The Music Mix | EW.com.” Music News,
Reviews, Albums, Concerts, and Downloads | The Mu-
sic Mix | EW.com. Web. 13 Feb. 2011. http://music-mix.
ew.com/2011/01/25/billboard-uncharted/.
4) “Billboard Launches Uncharted, The First-Ever Ranking
Of Undiscovered Artists | Billboard.biz.” Music Business |
Music Industry | Record Sales | Billboard Charts | Billboard
Hot 100. Web. 13 Feb. 2011. http://www.billboard.biz/
bbbiz/industry/indies/billboard-launches-uncharted-the-
first-ever-1004139757.story.
5) Mantis, Amy. “Big Champagne: The Meaning of Suc-
cess.” Music Business Journal-Berklee College of Music
| Music Business Articles | Music Industry News. Web.
13 Feb. 2011. http://www.thembj.org/article.php?article_
id=283.
6) Nagy, Evie. “Uncharted Territory: News and Notes on Bill-
board’s New Chart of Emerging Artists | Billboard.biz.” Music
Business | Music Industry | Record Sales | Billboard Charts |
Billboard Hot 100. Web. 13 Feb. 2011. http://www.billboard.
biz/bbbiz/genre/randb-hip-hop/uncharted-territory-news-and-
notes-on-billboard-1005015932.story.
7) “NEW MUSIC SEMINAR ANNOUNCES THE DEFINI-
TIVE TOP 100 ARTISTS ON THE VERGE CHART | New
Music Seminar.” New Music Seminar | . Web. 13 Feb. 2011.
http://www.newmusicseminar.com/blog/press-releases/new-
music-seminar-announces-the-definitive-top-100-artists-on-
the-verge-chart/
8) “Uncharted Territory: Billboard Debuts New Chart of
Emerging Artists | Billboard.com.” Music News, Reviews,
Articles, Information, News Online & Free Music | Billboard.
com. Web. 13 Feb. 2011. http://www.billboard.com/news/
uncharted-territory-news-and-notes-on-billboard-1004139722.
story#/news/uncharted-territory-news-and-notes-on-bill-
board-1004139722.story.
9) “Uncharted Territory: Jamie Lynn Noon Jumps to No. 2,
Girl Talk Moves In | Billboard.com.” Music News, Reviews,
Articles, Information, News Online & Free Music | Billboard.
com. Web. 13 Feb. 2011. http://www.billboard.com/news/
uncharted-territory-news-and-notes-on-billboard-1005022862.
story#/news/uncharted-territory-news-and-notes-on-bill-
board-1005022862.story.
	 Currently, Cricket’s wireless 3G ser-
vice is limited to certain areas. High coverage
areas include Miami, Dallas, San Francisco,
Baltimore and Cleveland. With the launch of
Muve, Cricket plans to expand its coverage to
13 new major markets, including Washington
D.C, Charlotte, Chigaco, Memphis, Nashville,
Pheonix, Milwaukee, Witchita and San Diego.
Additionally, the Muve service is only avail-
able to Cricket subscribers with a Samsung
Suede phone. This phone isn’t a smart phone,
however it does come equipped with a touch
screen, minimal buttons, and a fast 3G connec-
tion where available. According to Jeff Toig,
Cricket is adding a new line-up of smartphones
to its small collection in the next few months,
and they will expand its Muve service to other
smartphones operating on other selected wire-
less carriers.
	 The explosion of file sharing and
the over saturation of bands in the market are
two of the main contributors to the loss of rev-
enue in the music industry. With cloud-based
subscription models emerging and gaining
popularity, the announcement of new and im-
proved services at CES showcased a promis-
ing upturn in the way consumers find and lis-
ten to music. RealNetwork’s Unifi software is
sure to turn heads for not only the consumers
who crave music on the go, but also the mil-
lions of Facebook, Youtube and Flickr users
nation-wide. Cricket’s Muve service is one to
keep an eye on, although the wireless company
has numerous features to add and problems
to tweak before Muve becomes a household
name like Rhapsody or Spotify. These exciting
announcements and advancements in cloud-
based technology suggest promise for 2011.
The Cloud (cont.)

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february2011

  • 1. Music Business Journal Volume 6, Issue 4 February 2011 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. (Continued on Page 3) China’s music industry is immense and has enormous potential. It has over six hun- dred million users of mobile phone and counts nearly five hundred million web surfers. Its Internet market is the largest in the world. Yet digital distribution is largely unmonitored, and in general the market is so unregulated that il- legal downloading of music is rampant. In spite of its vast usage, China does not rank among the top five digital markets. By share of value, the US (39%), Japan (19%), UK (16%), France (12%), and Germany (9%) far exceed China, which is aggregated into a Rest Of World category that represents half of one-tenth of all digital music sales. The Interna- tional Federation of the Phonographic Industry (IFPI) estimates that nearly 99% of all music downloaded in China is done so without proper clearance. In an attempt to take advantage of a later correction in the sales of digital music, Google Music Search was launched in March 2008. Released exclusively in China, this new service is a platform that offers free, unlim- ited music downloads from most major labels. Google seems to be saying, “let’s join the pi- rates”—and so gain a foothold in a market that is likely going to be ebullient as time goes on. Ironically, since Google’s service is only avail- able in China, music consumers around the world have been highly vocal about bringing the same service to their respective countries. Google Music Search and Baidu In fact, Google’s Music Search was launched to directly compete with the number one local search engine, Baidu. Baidu grants millions of users access to illegal downloads. Instead, Google Music Search also allows us- ers to download unlimited free content, but it is completely legal. Google’s music catalog is limited, however, with only 1.1 million songs. Since Baidu has been in operation for longer, it can offer hundreds of millions of songs to download, which is much more enticing to music consumers. Furthermore, Baidu’s search engine gives users multiple download links of the same song, as well as different file format options (wav, mp3, aiff). Baidu’s advantages have made the site hugely suc- cessful in maintaining its large Chinese user base and trumping Google Music Search. This can be seen in the numbers. Baidu has a search market share of about 60%, where as Google’s search market share is only 26%. Baidu’s lead may be attributed as well to its willingness to abide by the huge Chinese system of state Internet censorship, also known as “the Great Firewall of China.” Baidu spokesman Kaiser Kuo has stated, “We State of the Industry Page 4 Charts Galore Page 9 Can I Sell You a Ticket? Page 7 Radio, Law, and Congress Page 10 Gorillaz in Our Midst Page 6 China’s Road Forward: By Sahil Mehrotra A Lesson There?
  • 2. Table of Contents Business Articles Google and Baidu..................................1 An Essay on the Music Industry............4 Gorillaz, Apple, and Microsoft..............6 AEG and Ticketmaster...........................7 Financing Music....................................8 New Music Charts.................................9 Green Instruments................................12 New Cloud Technology........................13 The Importance of Being YouTube......14 Law Section Performance Rights Act........................10 MBJ Editorial Mission Statement...................................1 Editor’s Note...........................................2 Upcoming Topics...................................16 Sponsorship Berklee Media....................................... 15 Editor’s Note Volume 6, Issue 4 Music Business Journal Despite the favorable ground hog’s day report, it seems that we’re still in for another six weeks of frosty weather. Nonetheless, the Music Business Journal team is proud to introduce its first release of the year 2011. Hopefully this latest batch of industry news will help get you through the lingering winter cold. In this issue, Sahil Mehrotra leads with an informative piece on digital music distribution in Chi- na. Given the country’s commanding world lead in Internet usage, music downloading is relatively inconsequential. With Google’s free Music Search service and others like it, China stands to make considerable progress and could be a leader in the digital domain. Continuing with digital, Jamie Anderson shares a thorough review on the recent Consumer Elec- tronics Show and the heavy emphasis that was placed on cloud-based subscription services for 2011. Dean Miller also reflects on the effect that YouTube has had on the music industry. AEG Live has just recently made the transition into the ticketing business in a joint venture with Outbox Enterprises. Athena Frost fills us in on the details and what it could mean for its largest competitor, LiveNation/ Ticketmaster. Billboard is also cutting new turf with a progressive charting service called Uncharted. Nick Susi reports on how the business of artist ranking is changing. Animated UK band, the Gorillaz, have made technological history with the release of their latest Plastic Beach- fully created and produced on the Apple iPad. Micah Deterville shares the details and reports on the conflict that arose from the band’s contracts with Microsoft products. Luiz Augusto Buff gives us a full analysis of the current state of the industry and makes thoughtful predictions for 2011. For the last two years, terrestrial radio has been in a Supreme Court battle over the RIAA’s pro- posed Performance Rights Act. I’ve provided a report on this long-standing issue, which could result in a 7%-8% royalty payment from radio stations on all sound recordings. As traditional industry ap- pears to be crumbling, new tech startups are on the rise. Kiefer Wells provides an informative piece on how venture capital companies are fueling this transition. In closing, Minden Jones has written on the musical instrument production business. Due to the depletion of essential raw materials, manufactures are forced to find suitable alternatives and move their processes towards a “greener” standard. It my pleasure to introduce the Music Business Journal’s first release of 2011. Be sure to stay connected with us online and keep an eye out for our new website scheduled to launch next month! Evan Kramer, Editor-in-Chief Contributors Editor’s Note.....................................................................................................................................................................Evan Kramer Business Articles.............................................................Luiz Buff de Souza e Silva, Minden Jones, Micah Deterville, Kiefer Wells Business Articles (cont)........................................................Jamie Anderson, Sahil Mehrotra, Dean Miller, Nick Susi, Athena Frost Law Section......................................................................................................................................................................Evan Kramer Staff..........................................................................................................Witt Godden, Ben Hong, Ben Scudder, Frederic Choquette Staff (cont)..........................................................................................................................Dean Miller, Dahyun Ed Jeong, Kerry Fee 2 www.thembj.org February 2011 Management Editor-in-Chief..................................................................................................................................................................Evan Kramer Content Editor.........................................................................................................................................................................Nick Susi Webmaster..................................................................................................................................................................Itay Shahar Rahat Faculty Advisor and Finance.....................................................................................................................................Dr. Peter Alhadeff Layout Editor..................................................................................................................................................................Lau Meng Wai Marketing Manager.......................................................................................................................................................... Minden Jones
  • 3. February 2011 www.thembj.org 3 Business Articles the world, Top100.cn has built the largest le- gal music database in China (over one mil- lion songs). Yet, despite the collaboration be- tween Top100.cn and Google Music Search, Baidu’s illegal music database trumps the numbers of Googles’s selections by a large margin. China’s Model and the Rest of Us Piracy in China has affected local record labels and their artists. As a result, talent is being pushed hard and crowded out of the market. CDs are regarded mostly as a promotional tool. Since pirated music is so widely available, many consumers have been downloading any and all music they can get their hands on, regardless of whether or not it suits their taste. On the bright side, and given the hopelessness of the traditional market in legal recordings, this may give artists an op- portunity to reach an exponentially greater audience: if piracy is the means of exposure, larger audiences may be obtained at concerts, where artists can, get endorsement deals and land commercial appearances; also, fans that are not willing to spend money on albums, may have an interest in supporting artists through the products and services they en- dorse. Overall, the stranglehold that Chi- nese piracy has on recorded music could be lessened. Google Music Search could, given time, catch up with Baidu. Its challenge is to outweigh Baidu’s longevity, extensive music database, and file format options. Certainly, better customer service and delivery of prod- uct will be a requirement if Google is to wean customers for legal downloads. There has been speculation that Google Music Search may launch globally, particularly in the United States. If so, labels may have to learn to live with an ad-gener- ated revenue service. Given the difficulties that Spotify has experienced here, this seems a long way off yet. Artists too will have to come on board, and although a younger breed might (because free music would be a quick way to gain mass market exposure), megastars may not. Finally, it is good to re- member that China by-passed the CD revolu- tion, and so is less bound than other countries to the idea that recorded music has to fetch its value. Its model may not be as easily export- able. Sources 1.https://www.cia.gov/library/publications/the-world-fact- book/geos/ch.html 2.http://www.forbes.com/2009/08/27/music-search-inter- net-intelligent-technology-google.html 3.http://www.economywatch.com/world_economy/china/ 4.http://www.theregister.co.uk/2007/11/01/music_in_chi- na_feature/ 5.http://www.web2asia.com/2009/03/31/download-free- licensed-mp3s-google-music-china-explained 6.http://www.musicdish.com/mag/?id=12822 7.http://news.asiaone.com/News/Latest%2BNews/Digital- One/Story/A1Story20101205-250895.html 8.http://www.gordonchoi.com/google-music- search-20090420 9.http://techcrunch.com/2009/03/30/google-china-signs- big-music-for-free-mp3-search-engine/ do have an aggressive and extensive system to comply with regulations.” Google has voiced opposition to China’s Internet censor- ship policies, but it is possible its stand may be hurting it commercially. On the other hand, users of Google Music Search have written favorable testimo- nials in their blogs. They claim that the ser- vice’s selection and audio quality are superb. Although the most recent releases may not be available, most US artists are searchable as well as a large variety of Chinese artists, all of which are available on high quality MP3 format. Google Music Search’s business model is based on banner advertising, and it is expected to generate an annual revenue of 100 million Yuan ($14.6 million) within the next few years. The revenue is divided amongst approximately 140 label partners, in addition to the four major labels: Warner Mu- sic Group, Universal Music, EMI and Sony Music Entertainment. Song distribution is handled through Google’s partner Top100.cn, a locally owned Chinese company that oper- ates in Beijing and was established in 2005. Top100.cn is essentially a one-stop shop for Chinese consumers to easily discov- er, listen to, and download music. Users can also purchase other music products like ring tones, CDs, and concert tickets. The web- site provides legitimate music downloads in China, with licensing partners such as EMI, SonyBMG, and other indie labels. Having signed with over one thousand labels around China’s Road Forward (cont.) Volume 6, Issue 4 Music Business Journal
  • 4. Volume 6, Issue 4 Music Business Journal Business Articles By Luiz Augusto Buff de Souza e Silva 4 www.thembj.org February 2011 and $9.99 for an album. Being the most prominent store in the online environment, major record labels started pressuring them to reconsider this pricing structure; maybe not every song was worth the same to cos- tumers. The concept behind the argument is the price elasticity of demand. To maximize revenues the labels defended that hit songs could be sold at higher prices without loos- ing significant demand and deep catalog songs had to be sold at lower prices, driving interest for more people to buy them. In 2009 Apple accepted the claim and introduced a three-tier system, with variable prices of songs at $0.69, $0.99 and $1.29. The labels could raise revenues, and the system could help redirect interest to album sales, as they became cheaper. Higher quality files, bun- dled with bonus features such as animated lyrics, artist photos and liner notes were part of other new ideas to help boost album sales. The iTunes LP was a line of albums that of- fered these premium contents to fewer peo- ple at higher prices, in effect aggregating the old visual experience of the physical album into a download. Apple’s agreement with major la- bels stated that 33% of the income is kept by the iTunes Store, similar to traditional values of physical distribution. The remaining 67% goes to the labels that split it with artists as traditional CD sales. When all is said and done, the artist usually ends up with around 10% of the price of a download. Labels get away with this by wording contract agree- ments to consider such downloads as sales of song copies and applied traditional ac- counting schemes. Now there is a current of thought that argues that iTunes Store downloads are licenses and not distribution of products. In fact, recent court decisions are adopting the argument of licenses, ap- plying a 50/50 split between labels and art- ists, which is devastating for the former but great for the latter. Even with digital channels being responsible for more than one quarter of the overall music sales in the world, the fight against piracy and illegal file sharing is still running. Accordingly to BMR – the UK’s umbrella organization representing the in- dustry of the British music industry, just 37% of listeners download music legally. The majority is still taking advantage of il- legal file sharing, and the difference for the digital market of less developed countries could be even bigger. As expected, in their study, BMR also identified that the main reason for downloading music illegally is that it is free and it saves money. Digital retail stores are compet- ing with free content spread on the web. To prevail in this new scenario, legal business models have to take advantages of gratis op- portunities and not just look at its downside. For some futurists, it is important to give away control of their works in exchange for attention, thus affording them an ex- panded consumer audience. Just like word- of-mouth, file sharing could be viewed as a marketing tool for people to discover new music; if they like what they hear, they will seek more and different product by that art- ist. With very few marginal costs in online distribution, it is easy to give away songs for free in an effort to reach a small segment that is willing to pay for premium content. This is the idea that inspired busi- ness models like Topspin. The company provides a structure with powerful market- ing and selling tools with which the artists can develop a profitable relationship direct- ly with the fans after giving away a couple of songs for free. More than ten years have passed since the debut of Napster shook the record industry. The file-sharing software gave mu- sic listeners access to an immense diversity of music for free, causing a shift in industry power from record labels to consumers. The popularity of MP3 files increased even more with the success of the iPod. Even before Napster, recorded music sales were drop- ping year after year, due to discounts that labels were given to wholesale prices glob- ally. Those numbers dropped even further when the demand shifted to the free content available on the Net. After the panic, artists and the music industry started to understand the opportunities that the Internet was offer- ing, and started to migrate to new models of marketing and distribution through the online world. Still, adaptations are a necessity in the legal system to guarantee the functioning of the creative process. The fight against piracy continues but hopefully a new business mod- el that takes advantage of the “feels like free” system will drive people to a legal form of consumption that not only will attend the de- mand for lower prices, but will help elevate the value of music back to a sustainable level. In 2003, with the intention to pro- vide legal content for their successful iPod, Apple developed the iTunes Store. The iPod had become the worldwide standard media player but the lack of legal content was the main issue that the company had to face. After forming agreements with all the major record labels, the digital retailer store was a booming success and is now responsible for more than 70% of the digital sales and the biggest retailer store in the overall mu- sic market, accounting for 25% of the mar- ket share, accordingly to IFPI (International Federation of the Phonographic Industry). Before the online-based sales of music products, in order to get access to one specific song the listener had to buy an entire album. That meant that to buy one song, one had to pay for the ten (or more) other songs that came with it. One of the major changes that happened with the iTunes Store was the commercialization of single tracks- making it cheaper for listeners to buy their favorite songs. The number of units sold increased significantly but the sales performance of the recorded music products dropped radically. When the iTunes Store first opened, prices were fixed at $0.99 for a single-track The Music Industry in 2011 (Continued on Page 5)
  • 5. February 2011 www.thembj.org 5 Volume 6, Issue 4 Music Business Journal Business Articles With the decreasing power of record labels, artists will start to organize themselves as small businesses, benefitting from the so- cial media networking tools that allow a di- rect and two-way relationship between artists and fans. Inspired by that direct relationship, companies like Artist Share are now offering artists the opportunity to raise money for proj- ects through fan funding. The idea is to build a sustainable environment that remunerates art- ists in their creative process. With this model, fans can contribute with all sorts of monetary values in exchange for access to the artist’s creative process—at audio sessions for album credits, in the production of videos, sheet mu- sic, and other. It is a sustainable system that affirms that the true value of music lies on the artist’s creativity. In past years, artists got similar type of investment through record label advances. The old model was based in a recoupment sys- tem that often made it very difficult for artists to start generating revenues from the sale of their products. In the fan-funding model, 85% of all generated income goes directly to the artist. Maria Schneider – one of the most im- portant contemporary jazz composers – won a Grammy for best large jazz ensemble album with a fan funding based project via the Artist Share website. Probably the most important growth trend of the music industry is streaming. The model is based on acquiring access to a large database of songs that can be played directly into users devices without file transferring. Free subscriptions are sustained by advertise- ments, while paid subscriptions allow users access to improved content such as higher quality audio files, expanded database, mobile capacity and offline usage, all commercial free. Non-interactive streaming offers pre-made playlists that are configured to try match listener’s interests and tastes. It is a passive service that is authorized by blanket licenses for the use of the compositions from performance rights organizations (ASCAP, BMI, etc.) and a compulsory license for the use of sound recording issued by Sound Ex- change. To keep the service legal, there are certain restrictions that companies like Pando- ra have to follow in order to avoid interactive streaming. Allowing users to manage the da- tabase, choose songs and create playlists to share with friends requires a totally different form of licensing. In addition to the blanket licenses issued by PRO’s for the use of com- positions, interactive streaming requires me- chanical licenses and a license for the digital performance of the sound recording negotiated with each appropriate rights owner. These re- quirements make interactive streaming much more expensive to the service providers and it can be impractical to license all the content. In Europe, the Spotify model has been expe- riencing high levels of success. The company made an agreement with a Swedish Internet Service Provider that allowed the user to pay the premium subscription on their broadband bill. Recently they declared that two thirds of their income was used to pay licensing agree- ments and other rights to keep the service le- gal. Currently, Spotify is trying to arrange li- cense agreements in order to make the service available in the US. With the company plan- ning global expansion, they are aiming to turn illegal file-shares into users of their services. Expanding the opportunities for the music industry even further, mobile phones are becoming the easiest interface between us- ers and the online world. These small portable devices are consistently getting cheaper and reaching all different social classes. Ringtones and ringbacks are helping artists to develop their marketing strategies as well as making revenue. A recent study made by Myxer -a broadband service provider- pointed out that almost three quarters of mobile phone us- ers listen to music on their phone, via MP3, streaming or through the use of apps. Despite this, Nokia recently shut down its unlimited download service, Ovi Music Unlimited (formerly “Comes With Music”) in more than thirty countries, leaving it available only in China, India, Brazil and South Africa. However, they are still explor- ing the Ovi brand, with applications and music stores as well as other services. Nokia also just announced a strategic alliance with Microsoft, in order to develop a new mobile ecosystem. Vodafone, the largest mobile phone telecom- munications company of the world also has a music service called 360 Music, offering un- limited downloads for subscribers. There’s no denying that the changes brought with the digital era have had a nega- tive effect on record sales, but fortunately, the live music sector is still in constant growth. Concert ticket sales almost tripled in value in the last ten years and that only accounts for the public sector. Private sector events like weddings and corporate banquets make up a much more substantial industry and have been experiencing similar rates of growth. Consoli- dating both of these values would make the real figure for live music much bigger than it is being reported. Live music in the past was used as a marketing tool to sell recorded music, now it is becoming a vital source of income for artists. The live experience is enhanced with sophisticated venues and breath-taking produc- tions that are driving price increases of tickets and also encouraging people spend more money in merchandising. Digital advances are providing a better structure for the publishing sector of the music business as well. Sophisticated mechanisms of tracking song performances bring more evenly distributed royalties as well as increased revenue from collection. Issuing mechanical licenses is getting easier with new services RightsFlow, which handles all procedures involved with li- cense acquisition online. Before the development of these tools, the process to obtain a license was very difficult and many times, independent art- ists didn’t get licenses because they didn’t know how. It is evident that the digital era has brought new forms of business to the music in- dustry. New models will most likely survive best on the mantra that music is everywhere and that it should be free (or at least feel like it). The in- dustry may be in somewhat of a slump, but value at the consumer level is increasing quicker than ever- in essence rebuilding a foundation for the business for the sake of sustainability and lon- gevity. Never before have people had the un- limited access to music that they do now. Direct relationships with artists and fans will create a more democratic environment, as more artists will have opportunity to reach their listeners. Sources 1) Alhadeff, Peter. “US Music Industry Statistics: A Reapprais- al.” MEIEA Journal, 2008. 2) Alhadeff, Peter. “The Value of Music and the Trappings of the Market place, 1990-2005.” MEIEA Journal, 2006. 3) Bargfrede, Allen/Mak, Cecily. “Music Law in the Digital Age”. Berklee Press, 2009. 4) Beall, Eric. “Making Music Make Money”. Berklee Press, 2004. 5) Hosein, Trish. “Mechanical Dues and Rightsflow”. The Music Business Journal, 2010. 6) Kusek, David/Leonhard, Gerd. “The Future of Music – Mani- festo for the Digital Music Revolution”. Berklee Press, 2004. 7) Leonard, Gerd. “Music 2.0”. Gerd Leonhard, 2008. 8) Madden, Mary. “The State of Music Online: Ten Years After Napster”. Pew Internet, 2009. 9) Owsinski, Bob. “Music 3.0 – A Survival Guide for Making Music in the Internet Age”. Hal Leonard Books, 2009. 10) Music and Copyright, Issue 415. Informa UK Ltd. 11) IFPI Digital Music Report 2010. 12) “What’s Working in Music – Having a Ball”. The Economist, 2010
  • 6. 6 www.thembj.org February 2011 Volume 6, Issue 4 Music Business Journal Business Articles Gorillaz Do the iPad In November 2010, Damon Albarn, the musician behind the hit animated UK band the Gorillaz, announced that the follow up to their successful release “Plastic Beach” would be recorded on an iPad. In his press release to NME magazine, Albarn said that he “fell in love with the iPad as soon as [he] got it…so [he] made a completely different kind of re- cord.” The Gorillaz strategic use of Apple’s product is certainly a novel one. However, their publicized enthusiasm over the iPad is surprising, since the Gorillaz have an exten- sive partnership with Microsoft to help launch Internet Explorer 9. The 15-track album “The Fall” was released on Christmas as a present to the Go- rillaz fans, and it was available as a free down- load on their website. The Gorillaz previous album releases came at about once every four years, so fans were shocked to receive a new album only one year after “Plastic Beach.” At the time, Albarn was touring extensively, so he wanted to release the “The Fall” during his tour to prove the album was recorded solely with the iPad. He used twenty different appli- cations to craft the album, including SpeakIt!, Mugician, Amplitude and Moog Filatron. The ability to take the studio on the road has completely revolutionized the way Albarn thought about making music. The iPad allowed him to create music that “sounds like an English voice that has been through the vo- By Micah Deterville coder of America.” Overall, the album dem- onstrates both the creative prowess of Albarn and the powerful versatility of the iPad. The iPad was not the first of the Go- rillaz involvement with upcoming technologi- cal advances. In September 2010, Microsoft recruited the Gorillaz to endorse the launch of Internet Explorer 9. Leila Martine, the direc- tor of Windows Consumer Business Group in the UK, said that they wanted to “work with a leading-edge artist that used the web as a critical part of their medium to showcase the possibilities that could be created with Inter- net Explorer 9.” She reported that the Gorillaz creativity was perfect to showcase the new op- portunities of Internet Explorer 9. The Gorillaz design team, Zom- bie Flesh Eaters, used Internet Explorer 9’s HTML5 to revamp the entire layout of the Go- rillaz homepage. Murdoc’s Room, a section of the website named after the fictional bassist Murdoc, was completely dedicated to the new version of Internet Explorer. Murdoc’s Room featured the capability to load multiple videos on the same page, which is made possible by HTML5. The page also featured a 7-minute animated video of Murdoc discussing the abil- ities of the new browser with his new friend “Mike O’Soft.” Microsoft released a down- loadable Gorillaz-themed layout for Windows 7, in which icons become Gorillaz characters. Although Microsoft has not released a state- ment regarding the Gorillaz glorification of the iPad, Microsoft is probably not pleased with the Gorillaz use of an Apple product. In January 2011, after the release of “The Fall,” Microsoft made a presentation that encour- aged Windows 7 Slate resellers to sell directly against the iPad. The PowerPoint from this presentation was leaked onto the web, and it dictates specific comparisons to its tablet com- petitor. Microsoft’s presentation advised busi- nesses to avoid integrating the iPad into their IT infrastructure, stating that Apple’s product lacks adequate business programs and invites security issues. Clearly, Microsoft views the iPad as a threat, and the Gorillaz involvement with the iPad could not have been viewed fa- vorably. Other artists have utilized Apple products to further their career. YouTube showcases videos of DJs mixing with iPads, and bands performing in subways with only iPhones emulating guitars, synths and full rhythm sections. Artists and businesses are recognizing the benefits of creating partner- ships to increase each other’s exposure. The Gorillaz are no exception to these artist-busi- ness relationships. With the support of a brand and new technology, the opportunities for art- ists like the Gorillaz are endless.
  • 7. The new joint venture between An- schutz Entertainment Group and Outbox En- terprises is newsworthy. AEG Live is one of the primary entertainment presenters in the world, owning and operating a total of 105 major venues around the globe, and the new venture will likely give it more clout. With Outbox Enterprises, AEG may now have, in the words of a CNET technology journalist, “the best ticketing interface ever.” AEG Live CEO, Tim Leiweke, made the announcement on February 2nd. The venture didn’t come as much of a sur- prise to Ticketmaster, however. Since the merger between Live Nation and Ticketmas- ter in January 2010, the Department of Jus- tice has pressured AEG to establish its own ticketing business and so promote a healthier competition with Live Nation. Indeed the day after AEG made its announcement, Live Nation’s stock fell 3%. “For the first time in 20 years there will be two serious competitors in the tick- eting marketplace,” says Outbox’s co-CEO and president, Fredric Rosen. And Outbox’s ticketing model is arguably better than Tick- etmaster, as it uses the ‘white label’ model, which offers venues control over their own ticketing. “We believe that the future is all about empowering venues to give consum- ers the best online experience possible,” ex- plains Rosen’s counterpart, Jean-Francoys Brousseau. “Outbox Enterprises is designed to be responsive to the needs of venues and their individual brands in order for them to create deeper and more engaging relation- ships with the consumer.” AEG represented nearly one-tenth of Ticketmaster’s sales last year, bringing in about $55 millions in revenue from services fees. Regardless, Live Nation Entertain- ment’s chairman, Irving Azoff, could shrug off the new development. Azoff does not consider the AEG/Outbox joint venture to be a threat. As a ‘white label’ ticketing compa- ny, Outbox would have to oversee multiple ticketing sites specific to each venue’s needs. “What I don’t understand”, says Azoff in a Billboard interview, “is [that] none of them are talking about how to market and sell tick- ets; they’re just talking about ‘we’re going to give you a site you can run yourself…I think running a bunch of individual sites is inef- ficient from a marketing perspective.” Azoff’s point may be well taken. Conquering the web is all about consolida- tion. Sites such as Apple, Google, Amazon and eBay are successful because of their abil- ity to integrate user products. Ticketmaster does just that, making them the number one player in the ticketing market, as well as the third largest e-commerce site in the world. Being paired with Live Nation, the worlds’ largest concert promoter, gives Ticketmaster much power. AEG will be moving 10-12 mil- lion tickets per year to Outbox Enterprises. Outbox has major clients, such as Cirque du Soleil, the Bell Centre in Montreal and the Kodak Theatre in Los Angeles. Furthermore, certain venues are expected to switch their services from Ticketmaster to Outbox as soon as their current contracts expire. More and more venues want the ability to execute their own ticket transactions. This would drive more traffic through a venue’s web- site, giving the site greater value and more use for the operators. In addition, venues would finally control exclusive ticketing da- tabases that include information on inven- tory, pricing, and consumer data and profiles. Although venues have always had access to this information, this was previously con- trolled by third parties rather than the venues themselves. AEG is trying to maintain their current relationship with Ticketmaster, as it is understood that the ultimatum given by the Department of Justice made the separation inevitable. “We are going to have an existing relationship with Ticketmaster and Live Na- tion,” says Leiweke. “And we want to make sure we don’t burn any bridges here, we take our time, and we take a little bit of pressure off them and us on the transition.” Conse- quently, AEG is making the move to Outbox gradually. They plan to sell multiple venues’ tickets with them within the next six months, and expect to have Outbox Technology fully integrated by 2013. Competition in the ticketing indus- try comes as a relief. Ever since the merger with Live Nation, Ticketmaster’s monopoly in the market has been undeniable. It is re- A New Standard for Concert Tickets By Athena Frost freshing to see multiple ticketing options on the horizon and venues that seek more control will have more choice with the ‘white label’ concept. Still, Ticketmaster is successful because their methods truly work and it will probably remain the number one ticketing site. Ultimately, competition will determine the most successful industry practices. In the meantime, representatives from Ticketmaster, TicketsForce, and TicketFly claim they are happy with Outbox as AEG’s business part- ner. It sounds endearing. But these archrivals may not be as accommodating of each other’s interests in the long-run. Sources 1)http://www.fortherechord.com/aeg-enters-the-concert- ticket-marketplace-with-a-new-joint-venture/ 2 ) h t t p : / / w w w. p o l l s t a r. c o m / b l o g s / n e w s / a r - chive/2011/02/03/755251.aspx 3)http://www.ticketnews.com/news/Live-Nations-Irving- Azoff-relishes-competition-with-AEG-Outbox021109825 4)http://www.ticketnews.com/news/Live-Nation-stock- price-drops-three-percent-following-AEG-Outbox- news021103713 5)http://www.billboard.biz/bbbiz/industry/touring/aeg-s- leiweke-and-outbox-s-rosen-talk-to-1005022192.story 6)http://www.billboard.biz/bbbiz/industry/record-la- bels/exclusive-irving-azoff-on-ticketmaster-compet- ing-1005025552.story 7)http://classic.cnbc.com/id/41404609 8)http://www.prnewswire.com/news-releases/aeg-cirque- du-soleil-and-jean-francoys-brousseau-owned-outbox-tech- nology-and-fredric-d-rosen-to-form-joint-venture-to-pro- vide-electronic-ticketing-solutions-115176099.html Business Articles February 2011 www.thembj.org 7 Volume 6, Issue 4 Music Business Journal
  • 8. Volume 6, Issue 4 Music Business Journal Business Articles 8 www.thembj.org February 2011 Venture Capitalists: Paying for the Muse By Kiefer Wells The rebirth of venture capital, origi- nally fueled by the equity related collapses of the early 2000s, is in the air. Publications like Fortune and the Wall Street Journal seem fix- ated on the notion that large-scale venture in- vestments are poised for a major take-off. But interest in independent music-related startup companies is not altogether evident yet. According to the National Venture Capital Association, major venture capital is directly responsible for over a fifth of Gross Domestic Product. Moreover, every year, more than two million companies apply for VC funding, representing about a-tenth of businesses nationwide. Less than a thousand of them actually receive funding, and less than fifteen are in the business of music. It is es- timated that about one out of every hundred dollars invested in music comes from venture capitalists—which is probably higher than the proportion of music-related revenues in US GDP. This, as well as a dearth of traditional funding for music, suggests there is much po- tential for VC activity. The majority of companies that re- ceive venture funding are technology-based businesses that have introduced new products that revolutionize the technological world. Skype, for example, received funding from Draper Fisher Jurvetson, a VC powerhouse out of Menlo Park, CA. Skype was started in 2003 by the same entrepreneurs behind Ka- zaaa and with the support of DFJ, grew to its partial sale in 2009 for $2.75 billion. Skype serves as a perfect model of what VC busi- nesses typically chose to invest in. Skype was an Internet based business that was trendy, had a lot of consumer appeal, and did some- thing that had never done before. Skype was a successful VC investment that proved to be well worth the risk. In fact, most music startups are web-based businesses attempting, like Skype, to turn a traditional industry on its head. Aderra, Eventric, Bandzoogle, Mozes and many other recent innovators tend to in- tegrate technology and open more markets for smart phones, tablets and other devices. The presence of constantly chang- ing charts, plummeting album sales and the decline of the major labels do little to help the stability of the music market. Often, non- traditional approaches to business discourage traditional investment practices. Despite the great opportunity for profit that comes with inherent risk, only small boutique-like firms and angel investors may be willing to en- ter the market. Major investment firms and VC companies are yet absent, but there are examples of smaller investors. Harmonix, a company out of Cambridge, MA notable for creating Guitar Hero received $100,000 in funding from small-scale investors inter- ested in their development. Harmonix has created innovative music video games, of- ten using trial and error methods to deter- mine what the consumer wants. After pre- vious unsuccessful attempts to break into the video game market, they were swiftly bought out by Viacom on behalf of MTV for $175 million in 2006, and created Gui- tar Hero. Recently, Viacom put Harmonix up for sale after weaker than expected sales of the Rock Band 3, but the company, ap- parently, was able to engineer its own in- dependent repurchase. Overall, Harmonix’s success can be accredited to the company’s experimental development methods and the unwavering help of small-scale investors. The same could be said of Grooveshark, an ever-growing web-based popular music streaming service, originally made possible by small scale seed funding. Perhaps the best example of a startup that defies old notions of doing busi- ness is Topspin, a private venture financed by ex Pro Tools founder Peter Gotcher and managed by Ian Rogers. Topspin gives art- ists the tool to record, and release record- ing product and other merchandise directly to fans. It empowers creators by making them less dependant on the traditional cash advance, for money can be made sooner through the website, whose platform is optimized to pinpoint targets rather than blanket fans. Brian Eno, among others, has become a user. Topsin’s model caters espe- cially for young aspiring independent artists and, though still not fully proven, seems to point the way forward. Gotcher and Rogers, incidentally, are a marriage between an in- dustry pro and angel investor (Gotcher) and a Young Turk (Rogers).
  • 9. February 2011 www.thembj.org 9 Since the early evolution of the music industry, there has been a struggle to find a way to accurately measure suc- cess among artists. From this need, music charts emerged to provide the most up to date analysis. Charts direct consumers to the hottest albums to buy, and help record labels prioritize which artists are best to invest in. For instance, the Billboard 200 analyzes re- cord sales and airplay statistics gathered by Nielsen SoundScan and the Recording In- dustry Association of America (RIAA), and a list of rankings is produced. Yet it seems the process of mea- suring an artist’s success by record sales and airplay is becoming irrelevant. The current industry is facing problems like the decline of physical and digital music sales and the rampant growth of piracy. This illegal music consumption cannot be adequately tracked, so the chart rankings have become skewed and inaccurate in terms of overall artist pop- ularity amongst the mass audience. BigChampagne, a media track- ing company, recognized the need to reas- sess how to measure an artist’s success. It released the Ultimate Chart, which debuted at the New Music Seminar (NMS) in July 2010. In addition to tracking traditional sales and airplay, The Ultimate Chart con- siders a vast array of online statistics includ- ing streaming plays and social media activ- ity on Facebook, MySpace, Twitter, Last. fm, and YouTube. The chart also recognizes other ways that fans access music by means of companies like Pandora, AOL, Yahoo, Amazon, and Clear Channel. Through the Ultimate Chart, Big- Champagne has attempted to exploit the importance of an artist’s online presence and fan base. However, even with these additional online statistics factored in, the same mega stars that top the Billboard 200 are also topping the Ultimate Chart. Artists like Pink, Katy Perry, Bruno Mars and the Black Eyed Peas sweep the rankings on both charts. If the artists who have the best on- line presence are the same artists who have plenty of success in physical sales, what is the point of having both charts? Fortunately, the New Year has brought new charts that stray from house- hold names and focus on emerging artists that have yet to hit the mainstream. Earlier this month, the NMS debuted The Artists on the Verge Top 100 Chart which showcased artists that are “on the verge” of breaking into the industry. To determine the rankings, the chart analyzes music sales (physical and digital), ticket sales, frequency of gigs, tour- ing history, merchandise sales, media (both online and print), social media activity, and online buzz. The NMS aggregates this data from its partners, which include BigCham- pagne, Next Big Sound, ReverbNation, and OurStage. Like the Ultimate Chart, the Verge Chart recognizes more than just tradi- tional sales and airplay and accommodates the new business model. The Verge Chart makes a sincere effort to truly expose the artists that need the exposure to launch their careers. Artists who have sold over 10,000 albums are not consid- ered for the chart. Any artist that is signed to a major label or a significant indie label is disqualified. The current list of the best 100 emerging artists includes Kurt Rosenwinkel, Lady Lamb Beekeeper, and The Pains of Be- ing Pure at Heart. The Verge Chart not only offers these artists online exposure, but also grants them other valuable opportunities. Since the chart is in association with the NMS, the top ranked artists are offered prime performance slots at the bi-annual conferenc- es. At the New Music Seminar LA 2011, the Daylights received the title of the Artist on the Verge and received $50,000 in consulta- tion, promotion and gear. In January, Billboard also released a new chart dedicated to emerging artists, called Uncharted. The chart features artists that have not appeared on major Billboard charts, like the Hot 100 or the Billboard 200. Like the Ultimate Chart and the Verge Chart, Uncharted examines traditional sales and air- play, as well as streamed plays, page views, and fans on social networks. Billboard Editorial Director Bill Werde suggests that “record labels, publish- ers, and other music companies are always looking for ways to make smarter bets on emerging talent.” He describes Uncharted as a platform with the intention of “launching careers…[and serving] as a conduit for artists to step onto a broader stage, ultimately top- ping one of the major Billboard charts.” By Nick Susi DJ GirlTalk was recently ranked on Uncharted due to his direct-to-fan model for distribution, in which he made the al- bum downloadable for free. Girl Talk is a relatively well-known name, but since free downloads are not tracked by Nielsen Sound- Scan and do not receive airplay, Girl Talk had no means of getting onto the Hot 100 or Billboard 200. Therefore, Uncharted offers a legitimate opportunity to be ranked based on an artist’s reach and access to fans, not only by conventional standards. In another example, rap artist Trap- hik earned more than one million YouTube page views, 14,000 new channel subscribers, 2,600 Facebook fans, and 1,900 new Twit- ter followers – all in one week. With these astounding numbers, Traphik easily topped Uncharted at number one. However, Trap- hik has been ranked number one every week since Uncharted’s debut. His high rankings have increased his online exposure even fur- ther, ramping up his already massive play counts and following. With this constant cy- cle of exposure, it seems that Traphik could hold his spot on Uncharted for a very long time. Might this defeat the original purpose of Uncharted’s mission to grant many emerg- ing artists with exposure? Uncharted may fall into the same problem as its big brother charts- with the same artists cycling through every week. Another obstacle that these new charts face is the artificial inflation of an art- ist’s online statistics. Online bot programs can be bought which artificially increase play counts and friend counts. Factors other than music can also play a role in an artist’s rank- ing based on web data. Famous actors and actresses that have made albums as side proj- ects have begun finding their way onto Un- charted. Their popularity in television and film has indirectly given their albums mass online exposure, inflating their stats. These celebrities with albums include Taylor Mom- sen (Gossip Girls), Hayden Panettiere (He- roes), and Steven Seagal (martial arts/action star). Their positions on Uncharted are ex- cluding many artists who would benefit from this well needed exposure. In the modern music business, the general listener has found new ways to Toppling the Old Music Rankings Volume 6, Issue 4 Music Business Journal Business Articles (Continued on Page 16)
  • 10. 10 www.thembj.org February 2011 Volume 6, Issue 4 Music Business Journal Law Section Imagine Joe Smith as the head of a small chain of radio stations somewhere in the US’s mid-west region. Despite the down- sizing of his staff, dwindling ad revenue, and the growing uniformity of the station’s playlists, Joe could at least end the year on a positive note. He survived running a small terrestrial broadcast operation, which in and of itself, was quite an accomplishment. Later in the day, however, a stern record industry lawyer of the Recording Industry Associa- tion of America walks into his office and tells him that he would like to collect a first-time- ever royalty on the use of his playlists. The amount asked, Joe estimates, is about one- tenth of his existing revenues—and he barely broke even! Joe becomes depressed. While the lawyer meticulously walks him through the legality of the request, Joe can only think about being solvent. In fact, Joe Smith’s plight may not be unlike that of a thousand other small broadcasters who, on February 4th 2009, learnt that a revision of the Per- formance Rights Act was being proposed to Congress and the new law asked for such royalties. History of the Performance Rights Act When it comes to musical works, there are two classes of expression that are governed by copyright law. The first, the rights to a composition, refers to the actual musical work (lyrics and melody; the sec- ond, the sound recording right, addresses the use of master recordings (the recorded product). Composition rights are typically held by the original composer or the work’s publisher, while sound recording rights are generally controlled by the performing artist or the record label that distributes the record- ing. Since the dawn of the terrestrial radio industry, broadcasters have paid royalties to composers and publishers for the use of their copyrighted compositions. In the US, these royalties have been collected and dis- tributed to composers and publishers through three performance rights organizations: Broadcast Music Inc. (BMI); the American Society of Composers, Authors, and Publish- ers (ASCAP); and the Society for European Stage Authors and Composers (SESAC)—a misnomer that dates back to the 1930s. If you’re wondering why record la- bels and performing artists, and their sound recordings, have been left out of the money pool, it is for good reason. The relationship that labels and artists have had with terres- trial radio has been immensely beneficial for both parties over time, despite the fact that no money ever changes hands. On the one hand, broadcasters enjoy the free, unlimited use of sound recordings, which draws in listen- ers and attracts advertisement revenue. But on the other hand, labels and artists reap the intangible benefit of free promotion to the mass consumer audience--a crucial element in popularizing new releases. A recent study for the National Association of Broadcasters, reveals that free radio airplay generates some- where between $1.5 billion to $2.4 billion in annual music sales for the major record la- bels. In fact, labels have held radio to be so valuable over the years that, before they were penalized, they likely spent millions of dol- lars bribing disc jockeys to move their cata- logues to the top of their playlists in a practice known as ‘payola’. Over the past forty years, Congress has viewed this symbiotic relationship to be “mutually beneficial” and refused numer- ous attempts to impose royalty payments on sound recordings--first in 1971,when it grant- ed copyright protection for sound recordings, and then in 1976 when revisions were made to the Copyright Act. The Digital Millenium Act of 1998 recognized a Sound Recording royalty for subscription and non-subscription services over the Internet, but no reference was made about payment from broadcasts via traditional airwaves. The RIAA now argues that technological change requires that a new exception to encompass terrestrial radio be written into the Performance Rights Act. Consequences Enactment of the Performance Rights Act could stand to drastically upset the balance that’s been established between labels and broadcasters. The proposal would create a compulsory license that would re- quire radio stations to pay set royalties to la- bels for the use of each sound recording that’s broadcasted. This would create an entirely new set of expenses (in addition to royalties currently being paid for compositions) on an already beleaguered terrestrial radio industry. With the new legislation, small- range independent radio stations would be forced to pay a flat fee that would vary in size depending on situational factors, but would be capped at a maximum of $5,000.00 per year. While this may seem manageable, larg- er stations will not be getting off as easily: stations above a specified annual revenue mark will be required to pay a percentage of their total earnings as royalty compensation for the use of the sound recordings. Rates have not yet been determined, but royalty fees for satellite radio are currently hovering around 7.5% with the expectation of an 8% rise by next year. Considering the current state of the economy, and the multitude of digital, streaming, and satellite competitors that are beginning to absorb market share, the Perfor- mance Act really could not be coming at a worse time for terrestrial radio. On average, local stations have watched their ad revenues slip between 10% to 50%, depending on the market. Moreover, the radio industry as a whole has experienced an 18% decline since 2009. This tightening of receipts has already forced well over three-hundred radio stations nation-wide off the airwaves. While the growing loss of these stations is certainly a concern, broadcasters also argue that the diversity of their program- ming will be compromised. Fewer will fight for the same pool of listeners, and indie, ex- perimental, and locally produced music will be sacrificed. It is possible too that many sta- tions might abandon music all together in fa- vor of the popular talk-radio format. Stations who could afford the levy would re-stream popular radio shows that have proven ratings and the tried-and-true top 40 would be the most rotated material. Terrestrial Radio Today Nevertheless, the radio business generally appeared to be doing quite well in the last quarter of 2010. With industry giants like Clear Channel and CBS venturing fur- ther into digital territory, listenership seems to currently on the rise for the first time in years. This is music to the ears of the record- ing industry. Yet, the devil may lie elsewhere. According to Arbitron & Edison research, an estimated 43 million Americans (one in six) listen to Internet radio on a weekly ba- sis. Broadcasters now say that streaming The Pressure Mounts On Terrestrial Radio By Evan Kramer (Continued on Page 11)
  • 11. February 2011 www.thembj.org 11 Law Section (From Page 10) Find us on Facebook and www. thembj. org Volume 6, Issue 4 Music Business Journal accounts for 10%-15% of total listening for some stations with 10%-25% of that occur- ring on mobile devices. Given these trends, CBS Radio relaunched its radio.com service in July of last year. In partnership with last. fm, the platform creates a Pandora-esque experience for listeners, allowing them to program their own non-interactive channels based solely on their own individual musical preferences. Clear Channel also added some additional web-only channels to its platform last year, including artist branded pages for groups like Linkin Park and Nikki Sixx. Many of these new channels are offered com- mercial-free with a paid subscription service. Riding on advancements like these, digital radio has seen a year-on-year ad rev- enue spike of 22% according to the Radio Advertising Bureau. In an estimate made by SNL Kagan, receipts are projected to double by 2015 from $552m to $1 billion. These uplifting figures aren’t just limited to digital radio either; terrestrial radio enjoyed a 25% gain last September compared with the same month period in the year prior. Yet it is remarkable that Pandora still outperforms much of the current radio market. In the past year, its listenership ex- panded a staggering 140% thanks to its user friendly, total programmability model. More- over, the technological disparity between streaming and terrestrial radio is made ap- parent in the same Arbitron & Edison sur- vey quoted already. Out of the core music age bracket (12-34), Pandora out performed terrestrial radio listenership by more than double (13% compared with 6%) and 8 out of 10 (78%) respondents said that terrestrial radio was simply too difficult to personalize (they must have assumed they could!). Fi- nally, Pandora has signed a number of very lucrative deals with Ford Motor Company and Mercedes-Benz to include its service as an added feature in their new lines of automo- biles. With such a formidable foe on the rise, terrestrial radio and digital streaming services alike must compete to hold market share. The Future of Radio On the whole, it’s interesting to note that since its debut in the early 1900’s, ter- restrial radio has gone relatively unchanged from its original format. More than hundred years later, live or recorded programming is still being transmitted, and the listener hears what is chosen for her. Instead, the last twenty years have witnessed much change. Consumers have been conditioned to expect instant access and total programmability with zero interruption all the time. To illus- trate, XM Radio can ensure crystal clear and commercial free reception across all States. Terrestrial radio is finding it harder to com- pete. Satellite Radio and Pandora are slowly phasing terrestrial radio out of cars, offices spaces and shopping centers. last.fm and other services like MOG are now offer- ing streaming radio channels that are fully customizable--down to the individual artist and the percentage of deviation from that particular style. And as with almost every- thing else on the Internet, social networking is fully integrated and has opened the new paradigm of musical discovery and online radio listening. But the concept of terrestrial radio will be alive for a while. The need for hands-free, playlist-oriented programming is still very real, but terrestrial radio must compete with many other options and the medium has to be perceived as more flexible. In the meantime, the dispute about the new terms of the Performance Rights Act con- tinues into its second year, with little move- ment since the latter part of 2010 and no clear outcome. If the fortunes of terrestrial radio improve, the broadcast industry will likely come under more pressure. After all, the Digital Millenium Act of 1998 brought the US in line with European legislation that recognized that record labels could exercise their sound recording right and collect from broadcasters. Back then, however, the US recognized the sound recording right more narrowly and allowed the labels only to col- lect from webcasters (i.e. internet radio and others). Record labels, no doubt, have more of a chance to win a more fundamental revi- sion of the Performance Rights Act with a better economy.
  • 12. Business Articles Volume 6, Issue 4 Music Business Journal 12 www.thembj.org February 2011 The natives are usually forced to comply since they live in isolated forests with few job opportunities. Plus, the government owns the land, so the Tanzanian villagers have lit- tle control to prevent loggers from harvesting the trees. With the trees becoming scarce, the economic opportunities for the villagers are little to none. Sound and Fair avowedly strives to create a communal management of the for- ests with the guidance of the Forest Steward- ship Council (FSC). This is an independent, non-governmental, not-for-profit organiza- tion established to promote the responsible management of the world’s forests. It is na- tionally represented in more than 50 coun- tries around the world. In particular, an FSC certification ensures that the chain of wood supplied for instrument manufacturing has been harvested responsibly from verifiable sources. In fact, many villages in southeast Tanzania have helped the MCP. In Decem- ber 2009, the Kikole village in the Kilwa District of Tanzania oversaw the first harvest of mpingo under the guidance of the FSC. Better harvesting translated into higher prof- its. As the supply of the African blackwood is dwindling, its higher price helped lift the Kikole village out of its poverty and make it proud. The FSC carefully tracks that the manufacturing process of the mpingo up- holds their certification standards. For in- stance, after the harvest, the timber was dried for nearly a year. The wood was then shipped See the Tree, How Big It’s Grown from the Kikole village to the FSC-certi- fied Sandali Wood Industries sawmill, lo- cated in the port city Tanga in Tanzania. The sawmill then processes the timber that is converted into woodwind instrument billets. The billets are manufactured and exported by FSC-certified Klicksi Ltd into the UK, where they are delivered to Han- son Clarinets, the biggest manufacturer of clarinets there. Both European and American re- tailers will be able to buy high quality instruments that have been FSC-certified in 2011, when Hanson clarinets launches its new production line. Whereas illegally felled trees cannot be traced, Hanson’s clarinets can be linked back to a source that is sustainable. Other instrument manufacturers are also taking similar steps. For example, small business owner and handcrafted snare-drum maker Greg Gaylor gets his timber from a local lumber supplier with sustainable busi- ness practices. Furthermore, the Les Paul Ex- otics by Gibson Guitar Corporation is a line of six guitars made from certified wood, and a portion of their proceeds is donated to the Rainforest Alliance. Mariner Guitars has de- veloped a guitar made from Paulownia wood, which grows back quickly after being harvest- ed. Paulownia wood only takes seven years to mature, wheres mahogany takes over forty years. In time, it is likely that music play- ers and businesses will become much more aware of the environment. Guitar players, the most numerous breed of playing musicians anywhere, could especially learn from wood- wind players. Sources: 1) Sound and Fair http://soundandfair.org/worlds-first-sustainably-harvested- african-blackwood-generates-new-income-for-tanzanian- forest-communities 2) Mpingo Conservation Project http://www.mpingoconservation.org/reports/MCP%20Prin- cipal%20Report%20on%20BPCP%20Consolidation%20 Award.pdf 3) Forest Stewardship Council http://www.fsc.org/about-fsc.html 4) http://www.emagazine.com/view/?508 5) http://www.globaltrees.org/soundwood.htm Music instrument manufactur- ers are a source pleasure for players and non-players alike. Without them, sound would not be as heavenly or music as good. Yet some hurt the environment. Wood that used to be plentiful, for in- stance, can become over-harvested in the process of creating such wondrous tools. Fortunately, conservation efforts are be- ing made within the music industry. The African blackwood tree, also known as mpingo in Swahili, is an in- ternationally valued source of hardwood that grows in twenty sixAfrican countries. The natives make carvings from the wood, which contribute to the local economy of these remote villages. Mpingo trees take seventy to one-hundred years to fully ma- ture, at which point the wood is primarily harvested to manufacture clarinets, oboes, and bagpipes. Mpingo is excellent for woodwinds because of its ability to cope with the mois- ture created by the musician, and its capac- ity to be carved without chipping. The wood contributes to the unique tone and resonance of these instruments. Unfortunately, the high demand for the wood has caused mpingo to disappear at an alarming rate, which is en- vironmentally and economically devastating for the surrounding villages. In an attempt to counter this defor- estation, a new initiative has emerged that is bound to help everyone in the music chain, including the musicians that play the instru- ments made with mpingo, the manufacturers that produce them, and, ultimately, the pub- lic that hears them. It is appropriately called Sound and Fair. Sound and Fair was established “to realize a sustainable trade in African black- wood through a fully-certified chain of cus- tody linking village communities in Tanzania to woodwind instrument musicians in the West.” It also collaborates with the Mpingo Conservation Project (MCP) to increase awareness about sound environmental prac- tices. In the regions where African black- wood trees grow, particularly in Tanzania, the natives are vulnerable to exploitation. Log- gers enter the forest and hire the locals under unfair wages. They prompt the locals to cut down the trees without any regard to the land. By Minden Jones
  • 13. February 2011 www.thembj.org 13 With the music industry in a fren- zy to coax users back to a paid-based model of for media, cloud based subscription ser- vices and mobile devices seem to be the way of the future. In the UK, Spotify has seen growing success with its cloud-based music service, allowing users to pay a low month- ly fee that enables them to download and stream music to their computer from a vast library of music. In the United States, Rhap- sody has emerged as the largest cloud-based music service available. Similar to Spotify, Rhapsody allows users to stream music from their online libraries, as well as download a certain amount of gigabytes to their mo- bile devices. The arrival of 2011 brought the Consumer Electronics Show (CES) held in Las Vegas, along with new models of cloud- based technology. The most exciting new service introduced at CES this year is called “Uni- fi”, and is produced and controlled by the RealNetworks family. RealNetwork sis noteworthy for their media players, which are mostly PC-compatible. Their free me- dia player can be downloaded to PCs, and they can play any musical content avail- able in the library in a customized, easy to use interface. Unifi hopes to bring together people’s need for media on the go, including music, photos and videos. Unifi, which was warded the “Best of CES” prize for software and apps by CNET.com and Engadget.com, will merge all the media from a consumer’s computer and mobile devices into one online database. This database will automatically organize and filter one’s pictures, music and videos, and allow easy access to said data from anywhere with an Internet connection. This means consumers can not only access their iTunes libraries from anywhere, but also have one place to store all their photos and videos, which they will easily be able to send directly to Facebook, YouTube, Twit- ter, Flickr and Tumblr. In order to stream media from Unifi’s database, one must be connected to the Internet. Typically, uploading pictures to various websites and downloading content to a mobile device requires a fairly strong Internet connection. However, for commut- ers and people who are not within range of a wireless network all the time, this service is still very appealing. Unifi has incorporated a way to download media to one’s mobile de- vice when connected to a wireless network, enabling them to have the media with them on the go. People who take the subway to school and work would be able to download music to their iPhones or iPods while connected to the In- ternet, but still have access to the content when their connection fades. Unifi will release its public beta within the next month. They have announced that this service will be a “freemium” service - meaning that the first 2 gigabytes of storage will be free, and for anything after that the consumer would pay a monthly fee. Though RealNetworks hasn’t yet announced anything specific yet, they did say that it would cost “roughly the same amount as one cup of coffee per month.” With a price lower than $10 a month, possibly even $5 a month, this service is sure to be a huge attrac- tion to consumers nation-wide. The hope is that it will entice consumers back to a paid-based model for getting media. Also at CES this year, a cloud-based music service by Cricket wireless was unveiled. Cricket is a relatively small wireless service pro- vider that has a small selection of flip phones and smartphones available to consumers. At CES, they announced their own version of a new cloud-based music service availably exclusively to Cricket subscribers. For $55 a month, users will get a cell phone plan that includes unlimited talk, text, web surfing, and music downloads. “Muve music” is the moniker Cricket gave to this music downloading service that will be in- corporated into their monthly plans. Deals with Warner Music Group, EMI and Sony Music were made to offer an extensive and desirable catalogue to their consumers. Muve music differs from other cloud- By Jamie Anderson based music services like Unifi and Rhap- sody. The main difference is that users are only allowed to download music directly to their phones and no other devices. Mean- ing, people with iPods and other mp3 players wouldn’t be able to transfer the music to their existing library. Muve is also not compat- ible with computers or tablets, which again does not allow consumers to transfer their downloaded music from their phones to their iTunes libraries on their computers. The mu- sic files will not be DRM protected, but they will be encrypted with a new type of Dolby PCM code. This encryption allows users to download music to their phones faster than they would be able to from their comput- ers, yet inhibits users from connecting their phones to any other device to transfer music. Jeff Toig, Cricket’s vice president of product marketing released a statement saying, “Our files are not DRM tracks, but the area on the card that the music lives in is protected. If you are a paying customer, the door to that content is open. If you are not a paying customer, the door to that content closes”. Cricket’s phones come equipped with 1 GB of free space, which could hold approximately 3,000 of Muve’s compressed songs. Connection to Cricket’s 3G network allows users access to music in a variety of ar- eas as well as a fast download speed for their media. The music will be stored on a memory card inside the phones. Initially, each phone will only come with a 1 GB card, but more frequent users have the option to upgrade to either a 4 GB or 8 GB card for more music storage at an additional one-time price. The Future of Cloud Technology Volume 6, Issue 4 Music Business Journal Business Articles (Continued on Page 16)
  • 14. Volume 6, Issue 4 Music Business Journal Business Articles 14 www.thembj.org February 2011 Celebrating YouTube’s Influence on Music There has been no other website that has revolutionized the Internet like YouTube. Since its launch in 2005, it quickly became the most talked about and frequented websites in existence. YouTube’s ability to quickly share videos, embed them on other sites and do all its functions at no cost to the consumer have made the company extremely popular. But it became apparent early on that monetizing this success would be a challenge: although You- Tube’s first year was very successful in estab- lishing a strong brand, 100 million hits per day yielded profits of only $15 million. The key, therefore, was to find a way to monetize the service without sacrificing the business’s vision of easy and free access and diffusion. YouTube made its profits from advertisements played on the site and videos. When the company first started, it was diffi- cult to anticipate which videos would go viral and which members would have a following of their own. This made it hard for advertisers. While YouTube’s embedding functions helped launch its popularity, the sheer variety of its video postings were all over the place. In time, the videos became easier to classify and mar- keting became more focused. YouTube and Music Music videos, especially, would make YouTube more desirable for advertis- ers. For a while, music videos made up over half of its content. If an artist had a strong fan base and fared well on the charts, it was very likely that audiences would follow.Advertisers took notice, and You Tube at last became a top- grossing website. Yet major record labels became threatened by the easy accessibility of music videos. Because no proper compensation was paid, they proceeded to use the courts to re- move videos where copyright infringement was noted. Warner, in particular, did not take kindly to YouTube’s earnings and made a point to shutter all unauthorized content. At the time, YouTube had no way of preventing copy- righted materials from being uploaded and, as a result, could not track infringing material. Warner has since made amends with YouTube and now allows content that is not completely in violation of copyright. Instead, Sony, EMI and Universal have chose to share their music videos with Vevo—a service that only displays professional high-quality product. YouTube has also created an environ- ment in which anyone can be creative and be acknowledged for their talents. This environ- ment that nurtures development and provides an equal opportunity for success has been coined “The YouTube Phenomenon.” Artists have been discovered and their careers have flour- ished due to exposure in YouTube. This has led many groups out of obscurity. Pomplamoose, the indie duo from California, gained popular- ity on YouTube by uploading videos of unique, stylized covers of pop and top 40 songs. Their reputation on YouTube earned them features in advertisements from major companies like Toy- ota and Hyundai. The group used a popular way of displaying music on YouTube that has been called “video songs.” Jack Conte, one of the members of Pomplamoose, said that its videos are well liked because “what you see is what you hear.” They offer viewers a new conception of music that give them a completely new expe- rience—for instance, a backstage pass allowing them to see all of the effort and execution that went into every track. Pomplamoose’s success did not go unnoticed by the majors and soon the band was faced with many offers. Pomplamoose refused all of the deals saying that their “goal is not to make hits…[but ] to make a self sustain- ing business.” In reality, the band had achieved that goal already by making low budget videos for YouTube that showcased their creative tal- ents. Many artists share Pomplamoose’s views. Besides, the music business seems to adapt now more to the DIY model, and YouTube gravitates in that direction. In March 2010, You- Tube launched the Musicians Wanted program and made Pomplamoose its first partner. Inde- pendent artists can partner directly with You- Tube and earn a share of the advertising revenue from their videos. This system provides an op- portunity to make revenue without the constrict- ing demands and needs of a record label. Ok Go, a band that got its start on YouTube from a music video choreographed on treadmills, dropped their major label, EMI, after the label refused to let fans embed music videos to share on other sites. Instead, they joined YouTube’s Musicians Wanted program. Since the release of the band’s video “Here it Goes Again,” they have received over 6 million views on YouTube and continue to gain followers, endorsements and success without any help from a major. YouTube has revolutionized the In- ternet and completely changed the face of the music industry. It may be the Cinderella in the By Dean Miller story, as it is often conveniently forgot- ten. But it has eliminated the barrier for musicians to reach greater audiences and now artists no longer need to rely on ma- jor labels to launch their success. Plus, YouTube has lit the way for many other websites to expand how fans consume and enjoy music. The music industry has started to evolve. Arguably, it now recog- nizes better the need to create a new busi- ness model that serves the creative pro- cess more compassionately while giving a better understanding of customer service and fan relationships. You Tube has been there all the way.
  • 15. Volume 6, Issue 4 Music Business Journal
  • 16. MBJ Visit the MBJ online! www.thembj.org Please write to us at: theMBJ@gmail.com Topics in the next issue: Rethinking Music From SXSW Copyright Economics The Music Business Journal will be released three times in the Fall, three times in the Spring, and once in the Summer. Upcoming Topics Volume 6, Issue 4 February 2011www.thembj.org Music Business Journal Berklee College of Music The Charts (cont.) discover and consume music. Artists have adapted their strategies in order to be suc- cessful in this new model and the music charts need to track this success accordingly. Clearly, these new charts are not perfect, however they are on the right track to grant- ing exposure to emerging artists that would otherwise not be seen on the major charts. The charts recognize the need for innovation and their mission to reevaluate the defini- tion of an artist’s success is certainly taking shape. Sources 1) Alhadeff, Peter. “U.S. Music Industry Statistics: A Re- appraisal.” MEIEA® HOME PAGE. Web. 13 Feb. 2011. http://www.meiea.org/Journal/html_ver/Vol08_No01/Al- hadef-2008-MEIEA-Journal-Vol-8-No-1-p13.htm. 2) “Another Chart? NMS Delivering “Artists On the Verge...” - Digital Music News.” Digital Music News Blog. Web. 13 Feb. 2011. http://www.digitalmusicnews.com/stor ies/020811verge#NhsUjT8RzL6UBj0MWOc8UA. 3) “’Billboard’ Launches Uncharted Chart for Little- known Artists | The Music Mix | EW.com.” Music News, Reviews, Albums, Concerts, and Downloads | The Mu- sic Mix | EW.com. Web. 13 Feb. 2011. http://music-mix. ew.com/2011/01/25/billboard-uncharted/. 4) “Billboard Launches Uncharted, The First-Ever Ranking Of Undiscovered Artists | Billboard.biz.” Music Business | Music Industry | Record Sales | Billboard Charts | Billboard Hot 100. Web. 13 Feb. 2011. http://www.billboard.biz/ bbbiz/industry/indies/billboard-launches-uncharted-the- first-ever-1004139757.story. 5) Mantis, Amy. “Big Champagne: The Meaning of Suc- cess.” Music Business Journal-Berklee College of Music | Music Business Articles | Music Industry News. Web. 13 Feb. 2011. http://www.thembj.org/article.php?article_ id=283. 6) Nagy, Evie. “Uncharted Territory: News and Notes on Bill- board’s New Chart of Emerging Artists | Billboard.biz.” Music Business | Music Industry | Record Sales | Billboard Charts | Billboard Hot 100. Web. 13 Feb. 2011. http://www.billboard. biz/bbbiz/genre/randb-hip-hop/uncharted-territory-news-and- notes-on-billboard-1005015932.story. 7) “NEW MUSIC SEMINAR ANNOUNCES THE DEFINI- TIVE TOP 100 ARTISTS ON THE VERGE CHART | New Music Seminar.” New Music Seminar | . Web. 13 Feb. 2011. http://www.newmusicseminar.com/blog/press-releases/new- music-seminar-announces-the-definitive-top-100-artists-on- the-verge-chart/ 8) “Uncharted Territory: Billboard Debuts New Chart of Emerging Artists | Billboard.com.” Music News, Reviews, Articles, Information, News Online & Free Music | Billboard. com. Web. 13 Feb. 2011. http://www.billboard.com/news/ uncharted-territory-news-and-notes-on-billboard-1004139722. story#/news/uncharted-territory-news-and-notes-on-bill- board-1004139722.story. 9) “Uncharted Territory: Jamie Lynn Noon Jumps to No. 2, Girl Talk Moves In | Billboard.com.” Music News, Reviews, Articles, Information, News Online & Free Music | Billboard. com. Web. 13 Feb. 2011. http://www.billboard.com/news/ uncharted-territory-news-and-notes-on-billboard-1005022862. story#/news/uncharted-territory-news-and-notes-on-bill- board-1005022862.story. Currently, Cricket’s wireless 3G ser- vice is limited to certain areas. High coverage areas include Miami, Dallas, San Francisco, Baltimore and Cleveland. With the launch of Muve, Cricket plans to expand its coverage to 13 new major markets, including Washington D.C, Charlotte, Chigaco, Memphis, Nashville, Pheonix, Milwaukee, Witchita and San Diego. Additionally, the Muve service is only avail- able to Cricket subscribers with a Samsung Suede phone. This phone isn’t a smart phone, however it does come equipped with a touch screen, minimal buttons, and a fast 3G connec- tion where available. According to Jeff Toig, Cricket is adding a new line-up of smartphones to its small collection in the next few months, and they will expand its Muve service to other smartphones operating on other selected wire- less carriers. The explosion of file sharing and the over saturation of bands in the market are two of the main contributors to the loss of rev- enue in the music industry. With cloud-based subscription models emerging and gaining popularity, the announcement of new and im- proved services at CES showcased a promis- ing upturn in the way consumers find and lis- ten to music. RealNetwork’s Unifi software is sure to turn heads for not only the consumers who crave music on the go, but also the mil- lions of Facebook, Youtube and Flickr users nation-wide. Cricket’s Muve service is one to keep an eye on, although the wireless company has numerous features to add and problems to tweak before Muve becomes a household name like Rhapsody or Spotify. These exciting announcements and advancements in cloud- based technology suggest promise for 2011. The Cloud (cont.)