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Music Business Journal
Volume 6, Issue 2 5th Anniversary 	 November 2010
Berklee College of Music
Inside This Issue
Mission Statement
The Music Business Journal, published
at the Berklee College of Music, is a stu-
dent publication that serves as a forum for
intellectual discussion and research into the
various aspects of the music business. The
goal is to inform and educate aspiring music
professionals, connect them with the indus-
try, and raise the academic level and interest
inside and outside the Berklee Community.
(Continued on Page 3)
	 The digital age of music has intro-
duced new legal forms of music consumption
that do not correlate clearly with the previous
licensing laws. These old laws were created
at a time when the recorded music industry
revolved around physical sales and traditional
radio play. They do not address, however, ser-
vices like Rhapsody, where streaming audio is
not public performance, nor is it a transaction
of ownership. In some cases, these gray ar-
eas have allowed royalties to slip through the
cracks, never reaching the hands of the rightful
copyright owner.
Music Collections Redefined
	 Over the last five years, the Copyright
Royalty Board has attempted to set rates and
regulations to clarify the dispute over how new
media royalties and licensing should be han-
dled. In 2006, after a lengthy debate between
webcasters and copyright owners, the board
ruled that non-interactive webcasts would pay
royalties on a per listener basis, while ringtones
would have a hefty statutory rate of 24 cents.
A decision on royalty compensation regarding
interactive streaming was issued in 2008, which
paid royalties on a per-play percentage of a
blanket royalty rate. These steps were integral
in the birth of the independent, non-profit per-
formance rights organization, SoundExchange.
The organization is responsible for collecting
digital royalties from non-interactive streaming,
internet radio, cable TV and music channels and
distributing these royalties to artists and master
recording owners. In addition, the digital age
has created changes in the ways that artists go
about obtaining mechanical licenses. Organiza-
tions like the Harry Fox Agency have begun
to enter the online forum with services like
Songfile, which radically eases the process of
obtaining mechanical licenses. With Song-
file, an artist can shop through HFA’s entire
database of publishers, select a song, and ob-
tain the license in minutes from the comfort
of their own home.
Enter RightsFlow
	
	 On the other hand, since Songfile
is a Harry Fox service, its possible mechani-
cal licenses are limited to HFA catalogues.
Fortunately, a company called RightsFlow is
rapidly gaining momentum, offering a similar
service that boasts a much larger catalogue.
Founded in October of 2007 by intellectual
property and copyright specialist Patrick Sul-
livan and partner Ben Cockerham, the compa-
ny acts as a middleman between those seek-
ing licenses and those that do the licensing.
	 In addition to mechanical licenses
for physical and digital distribution, Rights-
Flow also does the licensing for ringtones,
online subscription services, and limited
download services. The company clears the
licenses and assures that the royalties accrued
from copyright use are accurately accounted
for and paid to the proper recipients. The
RightsFlow service is segmented into four
separate branches: Limelight, Limelight Pro-
fessional, RightsFlow Enterprise, and Rights-
Flow Music Service. Each one provides the
same basic licensing service, but tailors the
approach to fit the needs of its varying clien-
tele.
Archiving Sound
Page 8
The Promise of India
Page 12
Microfunding Music
Page 6
Carbon Footprints
Page 10
An Affordable Pro Tools
Page 14
Mechanical Dues & RightsFlow
By Trish Hosein
Table of Contents
Business Articles
RightsFlow & Limelight........................1
Old Formats Die Hard...........................4
Polyphonic.............................................5
Finding Funding....................................6
EMI........................................................9
Green Music.........................................10
Sony & FIFA........................................11
India’s Evolving Music Market...........12
Branding & Blogs................................13
Pro Tools Goes Native.........................14
Law Section
Saving Sounds.......................................8
MBJ Editorial
Mission Statement...................................1
Editor’s Note...........................................2
Upcoming Topics...................................16
Sponsorship
Berklee Media....................................... 15
Editor’s Note
Volume 6, Issue 2	 Music Business Journal
	 With vibrant colors of the fall season enhancing the beauty of the Boston skyline, this latest re-
lease of the Music Business Journal arrives just in time to beat the winter cold. A new season is here,
along with a fresh batch of hot-off-the press industry news.
	 Technology continues to reshape the changing landscape of the business. Trish Hosein kicks
things off with an informative piece on RightsFlow and its innovative approach to online mechanical
licensing. Luiz Silva also shares a well-researched look at US Copyright Law as it relates to digital
music. The diminished use of physical distribution mediums is causing lawmakers to reassess laws
originally written to protect tangible product. Recording technology also continues to bud with the
recent release of the highly anticipated, Pro Tools Native. Hunt Hearin provides us with a timely
report on the new software and its significance to the home studio market.
	 As technology moves forward, the window of possibility for independent labels and artists is
steadily opening. Dean Miller reports on the growing number of indie labels that are distributing their
product on formats thought to be extinct; cassettes, vinyl, etc. Nick Susi has also provided us with a
thoughtful analysis of new indie label, Polyphonic. No advances and no copyright ownership- this
label is striving to reinvent the wheel.
	 Artist Branding is quickly becoming an essential factor to surviving in the digital world. Kerry
Fee discusses the ways in which artists are beginning to harness this concept’s power. In addition,
Mike King –marketing director at the Berklee College of Music- has provided a very revealing piece
about the fan-funding site, Kickstarter.com. Studying the details of successful funding campaigns,
King has compiled a set of information that is guaranteed to change the way you think about fan-
funding.
	 Reporting abroad, Sahil Mehrotra offers a detailed piece on the developing music industry in In-
dia and the ways in which international factors aid its expansion. Mia Verdoorn also shares a detailed
account of her summer internship at Sony South Africa during the FIFA World Cup.
	 As environmental awareness spreads, an increasing number of companies and organizations are
“going green.” This month, Minden Jones brings a telling article on the numerous advantages of a
green music industry. Lastly, I’ve provided a detailed report on the court case that will decide the fate
of the EMI record label. Equity investor, Terra Firma challenges its lender, Citibank, in federal court
on alleged claims of fraud.
	 It gives me great pleasure to introduce this latest issue of the Music Business Journal. My hope
is that you will find it both timely and informative. Be sure to check us out on thembj.org and our
Facebook group page.
Thanks so much for reading,
Evan Kramer
	 Contributors
	 Editor’s Note.....................................................................................................................................................................Evan Kramer
	 Business Articles...................................................................................................Kerry Fee, Hunt Hearin, Minden Jones, Mike King
	 Business Articles (cont)............................................................Evan Kramer, Sahil Mehrotra, Dean Miller, Nick Susi, Mia Verdoorn
	 Law Section...............................................................................................................................................................Luiz Augusto Buff
	 Staff.............................................................................................................Witt Godden, Ben Hong, Trish Hosein, Gabriella Howard
	 Staff (cont)........................................................................................Dean Millser, Silvina Moreno, Dahyun Ed Jeong, Mia Verdoorn
2 www.thembj.org	 November 2010
	
	 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
November 2010	 www.thembj.org 3
Business Articles
	 As of right now, Limelight claims to
be able to clear licenses for any previously
recorded song. RightsFlow works with the
Harry Fox Agency and an assortment of
smaller independent agencies and publishers
to obtain mechanical licenses for the major-
ity of songs requested. With some of these
companies, a blanket license is negotiated for
Limelight users, while others have agreed to
a rolling schedule license, where additional
compositions can be added to the license
with publisher’s approval. If the publisher
cannot be reached, compulsory mechanical
licensing is utilized and RightsFlow takes on
the arduous accounting and legal tasks that
go along with that.
	 It is important to note that while
copyright law only requires mechanical
royalties to be paid once a physical album
is printed (or a digital/ringtone download is
purchased), Limelight demands all royalties
to be paid upfront. What is interesting about
this upfront payment process is that it is
completely up to the user to honestly report
the number of intended copies, as Limelight
has no real way of tracking how many cop-
ies are actually printed and sold. Tradition-
ally, when obtaining a mechanical license,
whether negotiated or compulsory, detailed
royalty statements had to be presented to the
publisher. With Limelight, it is assumed on
good faith that the artist will notify Limelight
if they wish to sell any more copies of the
covered song than originally expected.
	
	 This may seem to be a rather open
ended policy, leaving many concerned that
adequate mechanical royalties will not get
paid to the writer. It is reasonable to con-
clude, however, that the average Limelight
customer utilizes the service because they
actually want to pay the right mechanical
royalties to the respective artist. It is also
worth noting that services like Limelight are
actually bringing in royalties on copyright
use that would have otherwise been pirated
by making the process so much more ac-
cessible. As recording technology becomes
less expensive and more available, an un-
precedented number of independent artists
are recording and distributing music – thus,
expanding the market for services like Lime-
light.
More Limelight Services
	 RightsFlow aims to ease the me-
chanical licensing process on all levels of
the music industry. Limelight Professional,
which caters to independent record labels,
and RightsFlow Enterprise, intended for ma-
jor labels and distributer’s, both operate on
the same basic concept as Limelight, but on a
larger scale. Contrary to Limelight however,
Professional and Enterprise both provide
accurate and detailed royalty reports and
earnings statements for their clients to ac-
curately track the use of licensed copyrights.
RightsFlow’s fourth branch, RightsFlow
Music Service, delves even further into data
tracking by supplying licensing reports for
major online music services like Rhapsody.
This program determines to whom, and how
much the employing company owes royalties
whilst supplying monthly, quarterly and an-
nual royalty statements. So far, after only 5
years in business, RightsFlow has accumu-
lated a sizable list of well-known partners
including companies like EMI, CdBaby and
Muzak.
Market Potential and Risks
	 With the largest catalogue of me-
chanical licenses available, and a well-tai-
lored service for users of all kinds, Rights-
Flow has certainly created a very lucrative
market for itself. Having handled over 1 mil-
lion licensing transactions in its short history,
the company is well on its way to establish-
ing itself as an industry standard. Yet, when
one is in the business of dealing with such
complex legalities, there is enormous op-
portunity for problems to arise. For instance,
an issue could stem from copyright law’s re-
quirement that a song covered by a compul-
sory mechanical license cannot change the
“fundamental character of the work”. With a
bulk licensing system, there is no way to en-
sure a writer that their music’s “fundamental
character” will remain in tact, perhaps lead-
ing a string convoluted legal complications.
These are just a few of the countless poten-
tial “honorary slipups” that could arise in a
licensee’s copy report. Nonetheless, Rights-
Flow’s innovations in mechanical licensing
are still moving the industry in a very posi-
tive forward direction.
RightsFlow’s Limelight
	 Limelight is currently RightsFlow’s
fastest growing brand, providing indepen-
dent musicians with unlimited accessibility
to affordable mechanical licenses on a user-
friendly platform. The service is available
to anyone who can cough up the meager $15
service fee plus the statutory reproduction
costs. It also provides complete assurance
that 100% of the behind-the-scenes paper
work regarding legalities and royalties will
be handled.
	
	 In years past, independent artists
had to endure a far less accommodating pro-
cess in order to obtain a mechanical license.
Until Limelight, an artist’s only option started
with acquiring a compulsory mechanical li-
cense directly through the US Copyright
Office. However, the regulations and re-
quirements involved with obtaining (not to
mention maintaining) this license were excru-
ciatingly time consuming and, at times, rather
expensive. Monthly audits by an accountant
and royalty due dates on or before the 20th
of every month were required or the license
would be revoked. The only other option was
to negotiate a license with the publisher di-
rectly, yet this was a complex legal process
that many small artists would not have been
privy to.
	 The barricades that prevented an
unknown artist from receiving the proper li-
cense not only discouraged them from further
pursuing the issue, but in many cases also
meant that covers were recorded and dis-
tributed without mechanical licenses at all.
More often than not, this was not a question
of whether or not an artist wanted to pay; it
came as a result of not knowing how.
	 With Limelight, the process of
clearing a license through the online website
-songclearance.com- is simple. The service
takes the information on the song intended for
use, such as the title, songwriter and publish-
er, as well as information on how the client
intends to use it. Then, the number of intend-
ed copies (or digital downloads/ringtones) as
well as the length of the song is used to calcu-
late the statutory rate applicable and total the
sum of royalties owed to the publisher. Once
the projected royalties are computed, a $15
dollar fee is tacked on for service. For fre-
quent users, the fee is incrementally reduced
with each purchase.
		 RightsFlow & Limelight (cont.)
Volume 6, Issue 2	 Music Business Journal
Volume 6, Issue 2	 Music Business Journal
Business Articles
By Dean Miller
4 www.thembj.org	 November 2010
analog format. They also feel as though they
are doing their part in supporting the artist.
A Special Listening Experience
	 Given their attachment to the prod-
uct they trade, sellers of this niche market
view piracy with mixed emotions. For some,
like Matt Halverson of Lefse Records, a four-
person business that releases music on vinyl
and CD (while managing bands and doing
PR for other labels), piracy still gets people
to a show, and the promotion can be good for
sales.
	 However, Cody Watson of Bathetic
Records’ Cody disagrees:
	 “[When] people feel that they can
get the mp3 version on the net, there is no
reason to buy the cassette or vinyl. It is under-
standable to a point, especially when you’re
doing runs of only 100 copies of a tape. At the
same time, we put out physical releases for a
reason. There’s something special about hold-
ing that little chunk of plastic with that insert.
We’re not [completely] against the mp3 boot-
leg; it’s just that Jon and I do have to put
a lot of work into each and every release,
so it’s nice to see a reward…Once a re-
lease is sold out, though, we usually have
no problem with supplying the mp3s for
the people that missed out or just want it
on their iPod. [Sometimes], we’ve even
given away entire releases in digital for-
mat on which we had our won physi-
cal stocks. Why? Because, the most
important thing, ultimately, is that the
music gets heard. That’s why we’re
doing this in the first place.”
	 Greenspon of Bridgetown Re-
cords maintains that customers that
download do not experience the full
effect of the music. “The problem
with downloads is [that] in the long
run, most of the people that like the
music don’t end up picking up a
physical copy--and bedroom labels
are very dependent on people that
support physical releases in order to
continue putting them out.”
Baby Steps
	 Revenues for these labels are
still very small. In October, analog
sales of cassettes at Bathetic totaled
about $1,000, for a net profit of $400.
This earning was reinvested, and
the company seems to do more than
break even; its owners believe that
profits will continue to be healthy.
	 It is important to note as well
that retail outlets are aware of a
growing interest in vinyl and cassettes.
Urban Outfitters, for example, cater to
a demographic of young adults aged 18
to 30 who follow this DIY culture, and
now sell vinyl music alongside clothing
and other merchandise. The growing ap-
peal of lo-fi rock bands has helped. Griz-
zly Bear’s 2009 album Veckatimest sold
33,000 units in 2009, and apparently
helped make vinyl DIY releases popular.
	 Labels like, Bridgetown, Ba-
thetic, and Lefse are in the meantime
keeping these analog formats alive. In so
doing, they are tapping a market that is
becoming far less standardized, not just
by genre but by recording medium.
	 An increasing number of small in-
dependent record labels are surviving based
on a new alternative Do-It-Yourself culture,
which has a genuine love for old analog for-
mats. Traditionally, these labels are under-
dogs, thriving in areas that the over-manned
and over-funded major labels ignore. They
tend to specialize in locally played musi-
cal genres, even though self-produced
bedroom-pop seems to be the flavor of
choice.
The Trend
	 In fact, for many young listen-
ers, vintage synths, fuzzy guitars, and
large amounts of reverb are becoming
synonymous with the word ‘indie’. In
this context, names like Bridgetown Re-
cords, Bathetic Records, and Lefse Re-
cords mean a lot.
	
	 Bridgetown Records, for in-
stance, was created in 2008. This small
DIY label out of La Puenta, California
has since had forty releases. Surpris-
ingly, most of these were done on High
Bias Type II chrome cassette tapes. This
vintage sound and format is exactly
what attracts fans of bands like Cloud
Nothings. Their Turning On album sold
out three editions since its December
2009 release.
	 By April 2010, Cloud Noth-
ings’ album had inspired a beautiful
blue cloud-themed vinyl re-press from
another such indie, Spearkertree Re-
cords. Each song’s twisting guitar lines
and undeniably catchy melodies are washed
in reverb but are not something that DIY fans
want to hear on hi-fi studio monitors; rather,
they would prefer tape and vinyl played on
cheap old speakers from a past era.
	 Amy Spencer’s book, DIY: The
Rise of Lo-Fi Culture, points out that “the
DIY movement is about using anything you
can get your hands on to shape your own cul-
tural entity, i.e. your own version of whatever
you think is missing in mainstream culture.
You can produce your own zine, record an
album, or publish your own book. The endur-
ing appeal of this movement is that anyone
can be an artist or creator. The point is to get
involved.” Customers, it seems, feel connect-
ed with that particular culture when buying in
Indie Labels Tap Old Formats
November 2010	 www.thembj.org 5
Volume 6, Issue 2	 Music Business Journal
Business Articles
increases. The immediate opportunity to earn
money is appealing to artists, since under a
traditional label deal, an artist is instantly in-
debted to the label through the requirement of
recouping their advance.
	 Polyphonic uses its connections to
help artists build a team for publicity, mer-
chandise, and touring by contracting from
outside sources. Taking a transparent ap-
proach, Polyphonic encourages direct-to-fan
relationships without a visible buffer of a
go-between label. Finally, Polyphonic leaves
all recording and publishing copyrights, and
master recording ownership in the hands of
the artist. This is an incredible new opportu-
nity for artists, since before Polyphonic labels
controlled the rights to the master recordings,
leaving artists with only a fraction of earned
royalties. With Polyphonic, artists are given
total control over every aspect of their cre-
ative compositions and are allowed to share a
more reasonable percentage of the profits.
	 This new service certainly seems to
fit artists’ demand for flexibility and freedom.
The abolishment of recouping advances and
the right to full royalties are the most enticing
factors by far. Even from the fan’s perspec-
tive, this may be a preferred transaction mod-
el. The money paid for albums makes its way
to the artist in a less roundabout way. “We are
all witnessing major labels starting to shed
artists that are hitting only 80,000 or 100,000
unit sales,” says Driscoll. “Do a quick calcu-
lation on those sales, with an artist who can
tour in multiple cities, and that is a good busi-
ness. You can take that as a foundation and
build on it.”
The Questions
	 Others, however, are much more
skeptical. Polyphonic has high promises for
the artist, but does create a sustainable busi-
ness model? If Polyphonic does not require
its initial investment in the artist to be repaid,
where does that leave the business if the artist
fails? If Polyphonic grants full royalty own-
ership to the artist, how will Polyphonic con-
tinue to make money once that artist severs
its connection with them? Even in the major
labels’ current financial state, they still con-
tinue to make money on the their exclusive
recording and publishing catalogues, which
Polyphonic does not have.
	 Despite numerous attempts,
Polyphonic has been unsuccessful in ob-
taining venture capital investments. Yet
the company remains undeterred, still
working to prove to investors that their
new model has potential. But since the
company’s creation in the summer of
2009, Polyphonic has received little pub-
licity and there are no artists signed yet to
their roster.
	 With able management backing
the company, and a business model that
meets the needs of artists, Polyphonic
is still not getting the support it needs at
a time when its major rivals are failing.
From April 2010 to August 2010, War-
ner’s stocks fell nearly 40%, from $8 to
$4.64 per share. In August 2010, EMI’s
annual financial report stated a 512 mil-
lion pound loss. Even now, EMI is tan-
gled in a massive legal battle between
Terra Firma and Citibank, which is cer-
tain to be draining the label’s coffers.
	 Polyphonic could still prove to
be an answer to the industry’s problems.
If so, it would keep company with other
like-minded businesses that allow artists
more freedom and flexibility in the mar-
keting, distribution, and financing of mu-
sic. Topspin, TuneCore, and Artist Share
are in that category.
BIBLIOGRAPHY
“Polyphonic: Music Label That Promises Fairness to Artists.”
P2p File-sharing &
Torrent News, Top P2p Sites, Facts, Guides and Reviews. Web.
26 Oct. 2010. <http://www.p2pon.com/2009/07/12/polyphonic-
music-label-that-promises-fairness-to-artists/>.
“Resnikoff’s Parting Shot: Less Ownership, Less Long-Term
Value... - Digital Music
News.” Home - Digital Music News. Web. 25 Oct. 2010. <http://
www.digitalmusicnews.com/stories/072609polyphonic>.
Stone, Brad. “Artists Find Backers as Labels Wane.” The New
York Times - Internet.
Web. 26 Oct. 2010. <http://www.nytimes.com/2009/07/22/tech-
nology/internet/22music.html>.
“Terra Firma and Citi to Begin EMI Talks - NYTimes.com.”
Mergers, Acquisitions,
Venture Capital, Hedge Funds - DealBook Blog - NYTimes.
com. Web. 26 Oct. 2010. <http://dealbook.blogs.nytimes.
com/2010/08/19/terra-firma-and-citi-to-begin-emi-settlement-
talks/>.
	 It would seem that artists, both es-
tablished and aspiring, are searching for more
flexibility and freedom in their careers. There
is a surging demand for alternative options to
traditional label deals, and therefore, industry
executives are being forced to reexamine and
adapt their business models to meet this de-
mand. The question is, are these alternative
business models sustainable?
	 The major labels – Sony, EMI,
Warner, and Universal – have made a clear
attempt at adapting to the ever-changing in-
dustry through the use of 360 deals. Control-
ling every facet of an artist’s revenue streams,
however, does not seem to fit this demand for
flexibility and freedom. Granted, 360 deals
do appeal to some artists who are entirely ca-
pable of becoming extremely wealthy writing
hit singles under this type of deal. Yet is also
fair to say that the business model for 360
deals does not attract all artists.
	 Thus, bold and new business mod-
els have begun to surface that show signifi-
cant promise. A good example here is the
alternative label Polyphonic, whose pedigree
is impeccable. The company was founded by
Brian Message, the manager of Radiohead
and one of the minds behind the name-your-
own-price release of the band’s latest album,
“In Rainbows” (from that album release, Ra-
diohead kept all of its profits and utilized the
Internet for cheap distribution and instant ac-
cess to fans). But behind Polyphonic there
is also Adam Driscoll, the chief executive of
the British media company MAMA group,
and Terry McBride, the creator of the Cana-
dian management firm, Nettwerk Music, who
manages Sarah McLaughlin and the pop/rock
group Barenaked Ladies (the latter run their
own label in order to keep a greater cut of
their revenues).
The Promise
	 Polyphonic will be based in London
with offices in New York and Los Angeles.
Unlike a traditional record label, Polyphonic
does not grant a new artist an advance. In-
stead, they treat an unsigned artist like a
small business start-up, investing $300,000
in each new signee. In turn, Polyphonic splits
the artist’s revenue, from touring, recordings,
merchandise, and other, 50/50. As the artist’s
success grows, her percentage of the revenue
Polyphonic : An Artist-Friendly Label in the Making
By Nick Susi
Lately, it seems that phrases like
“direct-to-fan” and “fan funding” have been
echoing off the walls. In the last few years,
artists like Trent Reznor and Radiohead have
pioneered a new kind of marketing using the
Internet’s vast power of communication to
make more personal connections with their
fans. In many cases, this has yielded some
overwhelmingly positive results --Reznor
scored an in-pocket $750,000 in just a few
days selling a limited-edition box set to fans
in 2008.
	 However, at this point, most in-
dependent artists would complain that the
luxury of these types of revenues is only
available to those that have a pre-established
fan base. On the other hand, authors Craig
Mod and Ashley Rawlings, would beg to dif-
fer. In funding their latest book, Art Space
Tokyo, the duo meticulously researched
kickstarter.com’s greatest success stories and
formulated a plan that generated an impres-
sive $24,000 in just 30 days. Their findings
provide some very enlightening information
that could apply to creators in all mediums.
Musicians and Variable Pricing
	 Kickstarter is the definition of
fan funding. Independent musicians, writ-
ers, entrepreneurs, etc. can use the service
to present their idea to a world wide web of
potential investors. The site allows anyone
who feels so inclined to contribute money to
a given project by selecting one of the many
price tiers available --ranging from $1 up
into the thousands. Contributors’ pledges
are only used when the project has reached
its funding goal, thus reassuring investors
that their money is constructively going to a
go-project. These various price tiers are very
important (especially for musicians) because
the amount a fan contributes is directly re-
lated to their level of commitment to the art-
ist, and the goods or services being offered in
return.
	 In selecting price tiers for the fund-
ing of their book, Mod and Rawlings looked
at the top 30 grossing Kickstarter campaigns
to determine which tiers would be the most
effective. This provided Craig with data that
he could use --in his words-- to “look for
a balance between number of pledges and
overall percentage contribution of funds.”
TABLE I illustrates his findings.
	 In a blog post from his Official
Website, craigmod.com, Mod shares his in-
sights on the data:
	 “This data is, of course, hardly per-
fect (for example, not every project I looked
at used the same tiers). But it’s good enough
to give us a sense of what price ranges people
are comfortable with. The $50 tier domi-
nates, bringing in almost 25% of all earning.
Surprisingly, $100 is a not too distant second
at 16%. $25 brings in a healthy chunk too,
but the overwhelming conclusion from this
data is that people don’t mind paying $50 or
more for a project they love. It’s also worth
contemplating going well beyond $100 into
the $250 and $500 tiers: they scored rela-
tively high pledging rates compared to other
expensive tiers. The lower tiers — less than
$25 — are so statistically insignificant (bare-
ly bringing in a combined 5% of all pledges)
that I recommend avoiding them. Of course
this depends on your project — perhaps
there’s a very good reason for a $5 tier. More
importantly, this data shows that people like
paying $25. Having too many tiers is very
likely to put off supporters. I’ve seen proj-
ects with dozens of tiers. Please don’t do this.
People want to give you money. Don’t place
them in a paradox of choice scenario! Keep
it simple. I’d say that anything more than five
realistic tiers is too many.”
	 In the case of musicians, Mod’s
findings seem to correspond well with the
multi-tiered product offerings that are gain-
ing popularity on most artists’ websites. $1
downloads, $25 CD/ Poster sets, all the way
up to the $250 box sets; these price tiers cater
to the varying level of a fan’s commitment
to an artist. It is worth noting that, for musi-
cians, the $25 tier might be a bit more use-
ful than Mod and Rawlings found it to be in
their book campaign. Nonetheless, Mod’s
data illustrates the fact that lower price tiers
are far less effective (accounting for only 5%
of total earnings). In addition, giving inves-
tors too many options to contribute small
sums of money, in a way, encourages them to
give less instead of more –which to a degree,
Using Kickstarter To Raise Money
By Mike King
(Edited by Evan Kramer; see http://mikeking.berkleemusicblogs.com)
defeats the overall purpose of the campaign.
By limiting a contributor’s options to a hand-
ful of specifically defined ranges with cor-
responding rewards attached, supporters are
forced to think bigger in terms of their dona-
tions.
	 Based on the data collected, Mod
and Rawlings put together the price tiers
found in TABLE II, with corresponding re-
wards for each. TABLE II shows that the
lowest price tier offered ($25) only generated
3% of the total earnings. A paltry 28 people
(11% of total contributors) opted for this tier
while 155 (59%) went for the $65 tier. Also,
the $100 tier got more than double the dona-
tions than the $25 tier (64 compared with 28).
Lastly, as the amount of each tier climbed, the
number of contributions proportionally dwin-
dled, yet the $850 tier still pulled in a higher
percentage of total earnings than the $250 tier
with only 4 supporters.
Promotional Considerations
	 To spread word of the campaign,
Mod and Rawlings engaged in an online pro-
motional plan that focused on their permis-
sion-based social medial touch points, as well
as key design blogs and magazine sites that
were completely in target with their psycho-
graphics and demographics. They focused
their messaging campaign using Twitter and
Facebook (their messaging was relevant and
minimal, too), as well as their own mailing
list. Mod and Rawlings had built up an ex-
tensive mailing list of design and art world
contacts over the past 6 years, which they lev-
eraged nicely. Examples of the spreadsheet
with the timing and results of their targeted
email campaign, are found in TABLES III.
	 Perhaps the most impressive part
of the whole campaign was Mod’s outreach
strategy to the blogs that he felt were in line
with what he was doing with his project, and
his method of communication to them. He
was not focused on the quantity of external
outreach; rather, he was more interested in the
quality of the blogs he gave focus to. This is
a marketing strategy that creators of all kinds
would do well to consider. As Mod describes
it:
Business Articles
6 www.thembj.org	 November 2010
Volume 6, Issue 2		 Music Business Journal
(Continued on Page 7)
November 2010	 www.thembj.org 7
Volume 6, Issue 2	 Music Business Journal
Business Articles
	 “I’m writing to blogs that I’ve
been reading for years, so for me, referenc-
ing older posts of theirs and personalizing
these emails is trivial, and fun. Whatever you
do, don’t send scattershot emails to media
outlets. Be thoughtful. The goal is to appeal
to editors and public voices of communities
that may have an interest in your work, not
spam every big-name blog. A single post
from the right blog is 1000% more useful
than ten posts from high-traffic but off-topic
blogs. You want engaged users, not just eye-
balls!”
Points To Keep In Mind
	 Rawlings and Mod’s book may be
only a starting point to think about fan fund-
ing strategies for musicians. But there is a lot
to learn from them. First of all, Rawlings and
Mod had a clearly defined plan. While they
did not have anywhere near the clout that a
Trent Reznor-type would have, they knew
exactly how much money they needed and
who they were going to target to generate the
funds. They were also very strategic in how
they approached their campaign. They knew
their demographic, and they knew what sort
of incentives would be appealing at the vari-
ous price points that they presented. If musi-
cians approached fan funding with this level
of organization and preparation, the result
could be just as effective.
TABLE I
TABLE II
TABLE III
Volume 6, Issue 2	 Music Business Journal
Law Section
8 www.thembj.org	 November 2010
		 With the advent of
sound recording at the end of the nineteenth
century, many different kinds of sounds –
from musical performances and important
government speeches to animal sounds and
baby laughs – were captured and registered
for future listening. In order to commercial-
ize those recordings, early entrepreneurs
established an industry around these re-
cordings that grew vertiginously, becom-
ing a fundamental part of our contemporary
cultural history. For years, it had been a
solid, profitable structure. Lately, however,
it is undergoing drastic transformations.
The transition to a digital age is causing
a huge impact on the way sound record-
ings – especially music – are commer-
cialized, consumed and distributed. The
creation and consumption of recordings
are now occurring at a much faster rate
than the efforts involved in preserving
this cultural heritage for posterity.
	
	 In that regard, the US Con-
gress assigned the responsibility to
“maintain and preserve sound record-
ings that are culturally, historically, or
aesthetically significant” to the National
Recording Preservation Board of the
Library of Congress (NRPB). This was
done through the National Recording
Preservation Act of 2000 (Public Law
106-474), that also required them to “...
undertake studies and investigations of
sound recording preservation activities
as needed, including the efficacy of new
technologies, and recommend solutions
to improve these practices.” As a result,
NRPB published ”The State of Recorded
Sound Preservation in the United States:
A National Legacy at Risk in the Digital
Age.” – a comprehensive study that delin-
eates the web of issues that endanger the
sound recording history.
	 There are several organizations,
both in private and public spheres, which
are committed to preserve the audio legacy
for future generations. More and more they
are benefitting from the digital technology
to store files and manage their collections.
Digital storage helps overcome problems
such as physical space – since long halls
with countless shelves are being substituted
for hard-drives – and provides enhanced
search engines. On the other hand, the pro-
tection and maintenance of digital audio re-
cordings is not at all simple. Problems like
server crashes and incompatibility of file for-
mats due to the successive releases of new
software are an everyday struggle. There
are many more positive and negative issues
to consider, but it is clear that digital storing
must be the preferred format to achieve the
objectives of recorded sound preservation.
Hence, the archives require the development
of totally new preservation techniques.
	 To overcome this transitional
phase, NRPB envisions that a collective ef-
fort must be made. Different archives and
collectors should work together to avoid un-
necessary costs caused by redundant efforts
of reformatting, cataloguing, and archiving.
That would help develop a new system in
which both old and new works are available
and preserved for posterity in a single digital
format. According to the report, this would
only be possible with a change in copyright
law, allowing the creation of a file-sharing
network of credentialed institutions. They
would acquire licenses to share digital files
By Luiz Augusto Buff
of preserved commercial recordings for ar-
chival purposes. The whole idea of preserv-
ing audio content is very positive and impor-
tant to our cultural heritage; however, it is
crucial that any changes made in the existing
system do not harm the copyright owners in
any way.
	 The study further emphasizes that
digital development does not ensure preser-
vation for present and future creations. As
time progresses, newborn digital recordings
are in similar danger of being lost, like old
78-rpm recordings. The dissemination
of sound recordings is happening exclu-
sively in digital format, via downloading
and streaming. Inexpensive tools for pro-
duction and recording, matched with ef-
ficient marketing tools, allow new artists
to offer their productions directly to their
costumers. Therefore, the institutions re-
sponsible for sound recording preserva-
tion will have to face challenges like the
diversity of file formats, possible virus-
contaminated files, digital rights manage-
ment and legal issues related to the cap-
ture and maintenance of these files.
	 Another arduous task will be the
discovery and selection of the record-
ings to be preserved, due to the immense
quantity of potentially important mate-
rial, extensively spread on the Internet.
Meanwhile, much information is being
lost. For instance, a podcast that could
have great content for scholars may not
be available the following month. It could
be due to the closure of the web site, or
an inability or refusal to pay royalties. As
a possible solution, the Library of Con-
gress considered capturing the entire au-
dio material produced online. Although the
modern industry has all of the technology re-
quired to complete such a task, under the cur-
rent law and license agreements, it is illegal
to copy this born-digital content to public ac-
cess servers and to provide access to it in an
institutional setting. Dark archives – where
data has restricted access until the content
falls into public domain – are suggested in-
stead, but funding for an archive that has
such limited use may be very difficult.
	 It could be said, as a student did
at an NRPB public hearing in 2006, that
Copyright Law Compromises The
Preservation of Recorded Sound
(Continued on Page 9)
November 2010	 www.thembj.org 9
“the preservation of music is meaningless if
this music is not accessible”. Indeed, from a
business perspective, access is fundamental
to the viability of investment in the area. The
costs of preservation are tied to the possi-
bility of exploring and exploiting the audio
material. An increase in funding for sound
recording preservation will only occur with
enhanced models of licensing agreements
that grant access to a vast variety of works,
including unpublished and out-of-print re-
cordings. Sony Music Entertainment took
one step in this direction. They licensed their
repertoire of recordings from the acousti-
cal era (before the advent of microphones
and electrical recording) to the Library of
Congress Jukebox, a tool that soon will be
streaming approximately 10,000 recordings
to the public.
	 NRPB gave special attention for
old materials in their study. They observed
that the works made before 1972 are protect-
ed by a confusing set of different state, civil,
criminal and common laws. It was only that
date that federal laws started to look after the
copyright of sound recordings. The actual
law keeps these works under state regulation
until 2067. According to NRPB’s analysis,
this provision should be repealed and all re-
cordings produced should be placed under
a single, understandable and more coher-
ent national law. As for the material that no
owner could be located – orphan works – the
proposal is to legalize their usage by means
of preservation. The report also suggests a
compulsory license for abandoned or out-of-
print recordings, so third parties can reissue
those works with an appropriate compensa-
tion to the rights owners.
	
	 It is clear that the interests of copy-
right owners and of those responsible for pre-
serving the nation’s recorded sound heritage
are in conflict. The recorded sound preserva-
tion is critically affected by restrictions and
limitations fixed in the US copyright law. It
is important to find a perfect balance so that
copyright owners can be compensated and
organizations can achieve their fair goals of
preservation. The complete study from the
Library of Congress is available for pur-
chase and as a free download at http://www.
clir.org/pubs/abstract/pub146abst.html.
Volume 6, Issue 2	 Music Business Journal
Business Articles
	 Since its inception in 1931, EMI’s
illustrious history has made it an industry leg-
end. However, even with a controlling market
share in publishing, an artist roster that formi-
dably holds its own on the charts, and a steady
increase in revenue streams over the past few
years, its future is anything but stable. Guy
Hands is the Chairman of EMI’s parent com-
pany, the British equity firm Terra Firma. Af-
ter acquiring the label in 2007 on loan from
Citibank, Hands is now pursuing his lender in
US federal court on alleged claims of fraudu-
lence concerning the EMI purchase. Sched-
uled to last three to four weeks, the trial’s out-
come could be the sole determinant of EMI’s
future.
	 Monday, October 18th saw the be-
ginning of the Terra Firma vs. Citibank court
case in which Guy Hands sought a total of
$11.1 billion in damages from Citibank. His
demands began with a $2.77 billion compen-
sation for losses, plus a sum three times that
amount for punitive damages.
	 The controversy was ignited from
a series of phone conversations that occurred
between Guy Hands, and Citigroup Banker/
Advisor, David Wormsely regarding the EMI
acquisition in 2007. Hands, who had long
coveted ownership of the label, claims that he
was told three times by Wormsley (who acted
as an advisor on the deal) that Terra Firma
could lose EMI to US private equity group,
Cerberus, if it did not top their alleged bid
of $4.11 per share. After submitting a bid of
$4.16 per share ($6.7 billion), Hands discov-
ered that Cerberus had never submitted their
bid, leading Hands to believe that Wormsley
–a long trusted friend- was milking the deal.
	 Citigroup and Wormsley denounce
all of these accusations saying that, “the evi-
dence in this case is overwhelming that Citi
has done nothing wrong and we firmly believe
that Citi will prevail in this case.” In actuality,
the case lacks substantial evidence from both
sides, relying heavily on the recollections of
Hands and Wormsley’s phone conversations.
	 The acquisition couldn’t have come
at a worse time for Terra Firma. On the eve
of the 2007 credit crunch, collapsing markets
and plummeting physical CD sales added to
reduce EMI’s value to an estimated $2.8 bil-
lion. This is a far stretch from the $3 billion
that the company currently owes Citigroup,
not to mention the $6.7 billion that was ini-
tially paid out in the first place. This suggests
that over 60% of Hands’ original investment,
along with most of the equity of Terra Firma
has already been lost, leaving a crippled and
indebted EMI dangling helplessly above the
ravenous jaws of lawyers and jurors.
	 The case, currently called the trial
of the century in Britain, will impact the repu-
tation of both Hands and Wormsley, two of
Wall Street’s best know investors. While ru-
mors have surfaced that Citigroup could opt
for a debt-for-equity swap that could grant
it a stake in the EMI label, Hands has made
it clear that he has no intention of letting the
lender get a say in the company’s operations.
Still, an unfavorable outcome for Hands could
result in full EMI ownership by Citibank.
	 Despite numerous attempts to settle
outside of court, Hands is convinced that Ci-
tibank provided fraudulent financial advice.
He is clearly willing to take the accusation
as far as it needs to go. “If you accuse some-
one of fraud, it’s really game over in terms
of [refinancing] conversations,” he said in a
recent interview. “It’s like putting a stick into
a dragon.”
	 The court’s decision –scheduled for
early November- will almost certainly have
serious financial repercussions. An unfavor-
able decision for Citigroup could lead to loss-
es, estimated upwards of $11 billion. For
Terra Firma, losing would be catastrophic; it
will likely declare bankruptcy after defaulting
on its loans and EMI would then be at the
mercy of Citigroup.
The Fate of EMI Lies in Court
By Evan Kramer
(From Page 8)
10 www.thembj.org	 November 2010
Volume 6, Issue 2	 Music Business Journal
Business Articles
	 Currently, environmental issues
concerning greenhouse gases and CO2 emis-
sions have become increasingly significant.
In the summer of 2009, the Major Economic
Forum addressed these matters proposing
that, by 2050, CO2 emissions should be re-
duced by at least 50% from what they were
in 1990. Regardless of whether or not that
bold idea is feasible, it is important to be-
come aware of one’s own carbon footprint,
and the music industry is certainly no excep-
tion. Distribution, live music, and transpor-
tation in the business contribute to energy
consumption and the production of green-
house gases.
	 For example, a study entitled The
Energy and Climate Change Impacts of Dif-
ferent Music Delivery Methods prepared in
August 2009 by professors Christopher L.
Weber, Jonathan G. Koomey, and H. Scott
Matthews for Microsoft Corp. and Intel
Corp. to evaluate energy and CO2 output in
the distribution of music in physical versus
digital form. Its executive summary says:
	 “We find that despite the increased
energy and emissions associated with Inter-
net data flows, purchasing music digitally re-
duces the energy and carbon dioxide (CO2)
emissions associated with delivering music
to customers by between 40 and 80% from
the best-case physical CD delivery, depend-
ing on whether a customer then burns the
files to CD or not. This reduction is due to
the elimination of CDs, CD packaging, and
the physical delivery of CDs to the house-
hold. Based on our assumptions, online de-
livery is clearly superior from an energy and
CO2 perspective when compared to tradi-
tional CD distribution”; p.3
	 Prior to the digital distribution
model, a long, complicated process of physi-
cal delivery was used to bring music to the
hands of consumers. The CD itself, the re-
cording process, and the packaging (leaflet,
jewel case, shrink-wrap), all produced en-
ergy consumption and waste. Furthermore,
shipping the product from the warehouses, to
the retailer, and finally to the consumer also
contributed to an estimated per album CO2
emission of 3200g of CO2.
	 For the consumers that absolutely
must get their hands on a physical copy of
their favorite band’s latest album, CDs can
be ordered and delivered directly to the buy-
er’s home. Transportation accounts for 50%
of the greenhouse gases emitted. By cutting
out customer transportation to the retail out-
let, CO2 emissions are greatly decreased. In
this scenario, removing the retailer from the
physical distribution equation produces 1/3
less greenhouse gases.
	 Clearly, digital media offers the
simplest, most direct means of distribution,
thereby conserving the most energy in the
process. The music is still produced in stu-
dios, but afterwards, it is transferred to digital
format and stored in an electronic data hub
until being purchased and downloaded by the
consumer. In this scenario, only 400g of CO2
per album are produced, compared with the
latter example’s 3200g. Carbon emissions are
aggravated, however, if the consumer decides
to burn their digital downloads to CDs, and
even further, if that CD is stored in a pur-
chased jewel case. Overall, digital music
delivery can make a significant difference in
reducing greenhouse gases.
	 Environmental activist group, Ju-
lie’s Bicycle, commissioned the Environ-
mental Change Institute at Oxford University
to conduct a study that would evaluate the
greenhouse gases emitted by the UK music
industry. In their findings, they report:
	 “We estimate the greenhouse gas
emissions of the sale of music products and
live music performances to UK consumers at
least 540 000 t CO2e per annum. Approxi-
mately three-quarters of the industry’s GHG
emissions are attributable to the live music
performance sector and approximately one-
quarter to the music recording and publishing
sector. The major GHG producing activities
are audience travel (43%), live venue mu-
sic events (23%), and music recording and
publishing (26%), with smaller contributions
from music festivals (5% excluding audience
travel) and music organizations (1%).”
	
	 The UK operates over 2000 live
music venues and over 500 annual festivals.
Considering the 540,000 tons of CO2 emit-
ted by the entire UK music industry per year,
live performance venues and festivals alone
cause at least 400,000 tons of annual CO2
emissions, not to mention the amount of en-
ergy consumed. 175,000 of the 400,000 tons
of annual CO2 emissions are derived from
audience transportation to the shows. More-
over, the use of diesel generators, trucking,
and tour busses all increase these CO2 emis-
sions. Keep in mind, these statistics only
reference the UK, and do not factor the ad-
ditional emissions of all other countries.
	 These findings led to the creation of
a comprehensive guide on building a sustain-
able and responsible music industry, called
the Green Music Guide. Julie’s Bicycle car-
ries the mission of reducing the UK music
industry’s carbon emissions by 60% from
2008 to 2025. They enforce recommenda-
tions regarding how offices, venues, studios,
festivals, touring, transportation, distribu-
tion, and merchandise can reduce their car-
bon footprint. Their four major guidelines
are: 1) assess how much greenhouse gas your
business produces each year, 2) reduce en-
ergy consumption in buildings, 3) influence
your business’s supply chain to decrease
their emissions, and 4) support electric sup-
pliers who output low carbon emissions.
	 From the touring side, these rec-
ommendations include keeping the lighting
turned off when the rig or performing hall is
not being used. Also, turning off the exterior
lights can help save CO2 emissions while
saving money for the venue. Creating differ-
ent heating and cooling zones is free and it is
estimated to see savings within six months.
If every venue implemented these recom-
CO2 Emissions in the Music Industry
By Minden Jones
(Continued on Page 11)
November 2010	 www.thembj.org 11
mendations, it would prevent nearly 10,000
tons of CO2 emissions annually. At festivals,
generators can be powered by vegetable oil
or a sustainably sourced bio-diesel. Staff and
audience can get involved in being “green.”
Lastly, offering incentives for carpool-
ers – easy in and easy out parking – would
encourage and educate the audience. Also,
discounted ticket prices can be offered to au-
dience members who ride their bikes or use
public transportation. Artists can create links
on their website to help plan the trip and car-
pooling options. The options for musicians to
help the environment are limitless.
	 Upon examining these studies, the
facts on distribution, live music, and trans-
portation further suggest that the current way
of doing business in the music industry is not
sustainable. There is definitely a Green move-
ment occurring, but it does not seem to be
happening swiftly enough, especially in the
US as compared to the UK. Musicians have
the ability to touch their fans deeply with their
music, as well as influence the behavior of the
fans. It is crucial that we act with the visions
and actions of sustainability and responsibil-
ity.
Sources:
[1] Christopher L. Weber†, Jonathan G. Koomey*, and
H. Scott Matthews; “The Energy And Climate Change
Impacts Of Different Music Delivery Methods”, Final
report to Microsoft Corporation and Intel Corporation,
available online at <download.intel.com/pressroom/pdf/
cdsvsdownlo>adsrelease.pdf
[2] “About JB.” Julie’s Bicycle. Web. 14 Aug. 2010. <http://
www.juliesbicycle.com/about-jb>.
[3] “Carbon Soundings: Greenhouse Gas Emissions of the
UK Music Industry.” IOPscience::.. Welcome! Web. 14Aug.
2010. <http://iopscience.iop.org/1748-9326/5/1/014019/
fulltext>.
[4] Http://www.dynamicdrive.com/style/, Dynamic Drive:.
“CDs vs. Music Downloads: Carbon Footprint Compared ·
Environmental Leader · Green Business, Sustainable Busi-
ness, and Green Strategy News for Corporate Sustainability
Executives.” Environmental Leader · Green Business, Sus-
tainable Business, and Green Strategy News for Corporate
Sustainability Executives. Web. 14 Aug. 2010. <http://
www.environmentalleader.com/2009/08/19/cds-vs-music-
downloads-carbon-footprint-compared/>.
[5] “Green Music Guide.” Julie’s Bicycle. Web. 14 Aug.
2010. <http://www.juliesbicycle.com/green-music-guide>.
Business Articles
Our Correspondent in South
By Mia Verdoorn
Africa Takes FIFA to Task
	 This past summer, I had the privi-
lege of doing an internship at Sony Music in
my home country, South Africa. It was dur-
ing the 2010 FIFA World Cup, and Sony was
one of FIFA’s main partners for the World
Cup. My experience in the office was there-
fore colored with all of the organization and
preparation that was required for the event.
	 During the World Cup, there was an
assortment of products deemed “official” for
the tournament. For music, there was an offi-
cial song, an official mascot song, the official
team song and the list goes on and on. Each
track, however, was produced and marketed
by a different record company, which created
confusion in the marketplace. Technically,
Sony Music was the only company permit-
ted to have any connection with World Cup
merchandise due to their licensing contract
with FIFA. In other words, the phrases and
acronyms “FIFA”, “World Cup”, “South Af-
rica”, “2010” and even “Soccer” could not
be used on a product unless it was released
from Sony. With the persistent competition
from other record companies like Univer-
sal and Warner (despite their absent license
agreements), customers experienced great
bewilderment about what product to buy as a
memento of the special occasion.
	 Interestingly, these FIFA World
Cup compilation records were not available
in downloadable format from a computer;
South Africa’s digital market was simply
not yet developed enough to support it. Con-
versely, the “hits” from Sony’s album , i.e.
Waka Waka sung by Shakira and the local
band Freshlyground and Sign of Victory
by R. Kelly, were readily available as mo-
bile downloads, which is remarkably a very
developed technology in South Africa. Yet,
with the market so diluted with “official”
releases from each major label, it was tough
for Sony’s album (for which the rights were
acquired) to stand out. Unless a consumer
really did their homework, there would have
been no way to distinguish unofficial albums
from official ones. With every major label
competing for the FIFA market, the oversup-
ply created an influx of World Cup-themed
disks.
	 Unfortunately for Sony, the entire
effort of promoting “Listen Up! The Official
2010 FIFA World Cup Album” wound up
losing the company a substantial amount of
money. All proceeds were initially donated
to FIFA’s “20 Centers for 2010” initiative⎯
an organization that instills positive social
change through soccer. The overwhelming
disparity in sales, caused by an unforeseen
competition, virtually eliminated what was
thought to cover promotional costs. But on
the bright side, “20 Centers for 2010” did
accomplished its mission of building twenty
“Football for Hope” centers for public health,
education, and soccer in South Africa and
other African charities.
	 The question that comes to mind is
whether or not it is practical to grant exclusive
rights for the World Cup to just one company.
It’s not to say that Sony Corporation should
no longer be a FIFA partner, but rather, Sony
Music should share FIFA’s responsibility in
the matter. Had FIFA given the rights of the
“official” album to other record companies
as well, probably less confusion would have
been created for consumers. Had this been
the case, a more positive atmosphere among
South African record companies could have
existed for the betterment of the event as a
whole. The official album and featured artists
could have been marketed globally, since dif-
ferent record companies have different niche
markets for their products. If FIFA had given
the responsibility of handling the recording
and the release of the official album to the big
five companies of that country (Sony Music,
Warner Music Gallo Africa (WMGA), Uni-
versal, Select and EMI), soccer music fever
would have been better exploited. Everyone,
including the soccer hooligans, would have
likely spent more on music.
Volume 6, Issue 2	 Music Business Journal
(From Page 10)
Volume 6, Issue 2	 Music Business Journal
Business Articles
12 www.thembj.org	 November 2010
	 Bringing a new style of music
into a market of over a billion people, and
finding the right distribution channels for
such a style, is anything but a simple task.
Atul Churamani, a music producer con-
sidered to be one of the principal innova-
tors of popular music in India, managed to
achieve such a feat when he brought west-
ern popular music into the market. In 1988,
Churamani joined Magnasound India, a
production company that had just acquired
the exclusive license for Warner Music in
India.
A History
	 At the time, the music market-
place was suffering from two major prob-
lems, according to Churamani. The first
was that music was only distributed on
poor quality cassette tapes. The other prob-
lem was that India only received interna-
tional albums months after they’d been re-
leased in their respective countries (mainly
the United States and Britain). By the time
the albums reached India, the market was
already flooded with pirated copies, mak-
ing it very difficult for international releas-
es to sell successfully.
	 In order to fix these problems,
Churamani took advantage of being the ex-
clusive Indian licensee for Warner Music
and began releasing international albums
in attractive packaging, on higher quality
cassettes, and at highly competitive prices.
This in turn resulted in a substantial rise in
the legitimate international music market.
The demand for legitimate international
music was quickly growing and in 1991,
Star Network facilitated the launch of MTV
into the marketplace. At the time though,
MTV was only playing music videos from
artists within the United States and Britain.
However, according to Churamani, ap-
proximately 70% of the local music within
India was coming from Bollywood, so he
jumped at the opportunity to incorporate
the local Bollywood music into MTV.
	 In 1992, Magnasound India pro-
duced two music videos by local artists,
an English-singing female vocalist by the
name of Jasmine Bharucha, and a Hindi
rapper by the name of Baba Sehgal. Baba’s
music videos became so popular that his al-
bum reached sales numbers unprecedented
by any local pop artist before him. In es-
sence, the Indian pop music market had been
created thanks to Churamani’s way of distrib-
uting international music and the introduction
of MTV into the marketplace. Star Network
even went on to create their own version of
MTV called Channel V.
The Future
	 Distribution for music in India has
drastically changed since the turn of the 21st
century. CD’s, and even more so MP3s, have
replaced the cassette tape, and offer higher
audio quality amongst other benefits. In
particular, the format has proven extremely
popular because of its ease of distribution via
cell phones. There are 670 million wireless
subscribers in India, out of which ringtones,
and music already pre-loaded onto phones,
account for 30% of the Indian music indus-
try’s 7.5 billion rupees—or a revenue of $168
million. Only 7% of the population (81 mil-
lion) uses the Internet on personal computers.
It is clear that the emerging cellular market
has a huge potential to bring all sorts of con-
tent, particularly music, to people all across
the nation, including rural areas that would
otherwise have no access to digital media.
Although some people do use internet café’s
for their internet browsing, rural folk, which
account for around 73% of the population, do
not access them. However, cell phones have
become increasingly popular in the country-
side. An additional benefit to the distribution
of digital music via mobile phone networks
is the fact that mobile phones are less vulner-
able to digital piracy because wireless carriers
have much more control over what content is
available.
Mobile Music Is It
	 Bharti Airtel, the largest wireless
carrier in India, reported in 2009 that their us-
ers completed over 200 million downloads of
music content. Although the pricing for mu-
sic is much lower in India than in the Unit-
ed States, approximately 33 cents for a ring
tone, the market is still growing. Analysys
Mason, a telecom and media-consulting firm,
believes that the true potential of the music
market, measured by mobile music penetra-
tion, has yet to be tapped. India is currently
at around 30% penetration for mobile music
services where China is currently over 80%.
Once a faster 3G wireless network becomes
available it can be speculated that the new
network will also boost downloads of digital
By Sahil Mehrotra
music in direct correlation with faster down-
load speeds.
	 It is unclear how much the music
industry is benefiting from the distribution of
music via wireless mobile networks because
telecom carriers don’t provide any informa-
tion on what percentage of music sales they
keep for themselves. However, professionals
in the music industry have noted it is upwards
of four-fifths. Regardless of the low cut given
to labels, the distribution of music through
telecom companies has definitely boosted the
market for the music industry in India. Again,
it definitely benefits the music industry that
almost all the musical content provided
through cell phone networks is legitimate and
not pirated.
	 With a population of over a billion
people--of which not even half have access
to the Internet or mobile phones—there is a
lot of optimism that the Indian music industry
will grow. With the right distribution chan-
nel bringing an end to pirated music, one can
hope that the record labels within India will
begin receiving larger percentages of music
sales from the cellular network providers, and
continue providing music for the nation as
digital content continues to spread.
Sources:
[1] The Wall Street Journal Online - http://blogs.wsj.com/
indiarealtime/2010/10/22/mobile-not-net-drives-indian-
music-sales/ (Oct 2010)
[2]http://www.wipo.int/wipo_magazine/en/2010/05/ar-
ticle_0003.html (Sept 2010)
[3] Physorg.com – Mobile music a cell-out in India (2006)
[4] India Technology Investments – “Magnasound India
Ltd.” (2000)
[5] Mobile internet in emerging markets – “How the mobile
internet will transform the BRICI countries” (Sept 2010)
[6]http://en.wikipedia.org/wiki/Demographics_of_
India#CIA_World_Factbook_demographic_statistics
India’s Music Market: Open For Business
November 2010	 www.thembj.org 13
Volume 6, Issue 2	 Music Business Journal
Business Articles
	 Recently, non-music related busi-
nesses have been seeking brand equity re-
lationships, i.e. using an artist to deliver
themselves to a specific audience they want
to connect with. Music is a part of the con-
sumer’s daily life and conversation. The key
is to portray an honest image and to be aware
of credibility and consistency issues.
	 Many major campaigns have arisen
within the past few months, including Nata-
sha Bedingfield’s partnership with boutique
hotel chains, Keith Urban with Target, John
Legend & The Roots with American Express,
Zak Brown Band with Dodge, and Drake, Pit-
bull and Trey Songz with Kodak. Finally, a
promising partnership is Converse’s yearlong
campaign centered on British talent, such as
Hot Chip, Bitman & Roban, Hot City, and
New Order.
	 Converse has identified its market,
and created an agreement that is beneficial for
them and their clients. Bands are promoted to
clients and fans through Converse’s website
and other means, and the company narrows its
marketing by learning from each band’s loyal
fan base. Over the summer, the company also
paired up with Kid Cudi, Vampire Weekend,
and Bethany Cosentino of Best Coast for the
single “All Summer,” as part of their “Three
Artists, One Song” collaboration campaign.
	 Although many wide reaching
mass media deals are only seen with artists
of a superstar level, the model is beginning to
change. To many companies, a debut group
Branding, Sponsorships, & Artist Imaging
that has a strong image is a prime target for
such deals. Companies are getting comfort-
able connecting with these new artists be-
cause fans adore them, and blogs passionate-
ly cover them. “Indie artists have audiences
that believe what they say, and partnering
with that kind of credibility means more to a
consumer than connecting with an artist who
just has mass popularity,” says Jeff Tammes,
senior VP of strategic marketing at Corner-
stone. “Some brands are willing to grow with
an artist, and use these lanes to connect with
a demographic honestly and thoughtfully, be-
cause all in all, it is about building a commu-
nity with an artist, protecting it, and finding
a new audience. This in turn, will generate a
large amount of revenue for the indie artists.”
	 Brands and sponsorships are be-
coming the new labels for many artists --able
to generate substantial revenue and combine
marketing, advertising and PR all in one. The
Economist magazine recently placed the val-
ue of sponsorships in the USA at about $1.8
billion dollars , a figure that is equivalent to
roughly a half of annual concert ticket sales.
Clearly, this part of the business, which used
to be unaccounted for, is expanding. Quest-
love, percussionist for The Roots, summa-
rized the current sentiment at a recent press
conference. “There is no more selling out”,
he said, “just selling.
Sources
[1] The Economist, “What’s Working In Music”, Oct. 9,
2010; 101-103; 102.
	 In the current music market, personal
branding, sponsorships, innovative distribution,
and public image have all become key aspects
for an artist’s success. These concepts are valu-
able tools that artists are using to their advantage
to differentiate themselves in a market of clear
over saturation. In each case, an artist’s utiliza-
tion of branding needs to be considered, and
most importantly, its effectiveness on consumer
behavior must be examined as well. There are
recent developments within the industry that are
creating trends and testing new angles of pro-
motional branding and image establishment.
	 Essentially, every artist is a product,
and the current industry demands that an artist
to be able to market themselves on a variety of
levels. Artists also owe it to themselves to look
at their art as a commodity, following a similar
progression as a company would with releasing
a product. Market research, target demographic,
and consumer demand for what you are trying
to do must be carefully examined in order to
hurdle over the clutter. Branding has become a
new way to connect with fans, reaching out and
pulling two communities together.
	 The ultimate decision is how to craft
the brand to compliment your art. In order for
any personal brand or partnership to be success-
ful, an artist or company must determine what
they do well. Everything starts with authentic-
ity. Artists should not attempt to sell themselves
to everyone, but should take time to evaluate
their demographic, and be sure the brand is the
right match before moving forward.
By Kerry Fee
Business Articles
Volume 6, Issue 2	 Music Business Journal
14 www.thembj.org	 November 2010
	 An HD Native Core Card, essen-
tial for every Pro Tools HD Native system,
brings the user 64 channels of I/O, 192 avail-
able tracks, as well as 128 mix busses. This
is a tremendous improvement over the previ-
ous step down, Pro Tools LE system, which
only offered 18 channels of I/O, 48 available
tracks, and 32 mix busses. Pro Tools HD
Native also brings powerful features like
Automatic Delay Compensation and Input
Monitoring to the semi-professional produc-
tion arena. By allowing the user’s computer
to power plug-ins and mixing functions, the
Pro Tools HD Native Core Card handles I/O.
	 Paired with the Avid HD Omni,
Avid’s newest entry-level HD interface,
semi-professional and professional studios
can have complete access to Pro Tools HD
at an affordable price of just over $5,000
The core card can also be interfaced with
converters from Apogee Electronics or Lynx
Studio Technology, allowing for easy inte-
gration with systems that users may already
own. Additionally, Native processing power
allows the engineer to employ third-party
DAW software such as Apple Logic or Cu-
base for use with the Avid hardware. This
provides a tremendous opportunity for engi-
neers who have outgrown and are looking to
upgrade their limited Pro Tools LE systems,
allowing them to unlock the capabilities and
sheer power of the Pro Tools HD platform.
A Home Studio Milestone:
	 In October of 2010, Avid (formerly
Digidesign) announced Pro Tools HD Native.
The latest in a recent string of product roll-
outs, Pro Tools HD Native bridges the gap
between consumer grade and professional
grade Pro Tools workstations. Pro Tools HD
Native allows access to the full capabilities
and power of the Pro Tools HD platform, but
at a fraction of the cost. Once accessible only
by professional studios, the entry-level price
point for a Pro Tools HD system was set at
$10,000 dollars. Pro Tools HD Native allows
access to comparable power for as little as
$6,000, appealing largely to the semi-profes-
sional production market.
	 To fully understand the benefits of
Pro Tools HD, both Native and DSP, one must
gain insight on how these products function.
Traditionally, Pro Tools HD has made use
of DSP (Digital Signal Processing) through
the use of Core PCI (Peripheral Component
Interconnect) cards. Essentially, these cards
act as a secondary motherboard, entirely
dedicated to processing audio. The Core PCI
cards can work alone as an HD 1 system, or
in various combinations, branded HD 2 and
HD 3, provide additional amounts of input/
output (I/O) and track count. The dedicated
processing power that these systems provide
makes it possible for audio engineers to re-
cord and edit large sessions on an extremely
reliable platform. Native processing, on the
other hand, relies on the use of your comput-
er’s internal processing power to handle these
tasks.
	 The advantages of a traditional Pro
Tools HD system do not come without a price
tag. In addition to requiring a Pro Tools HD
Core Card, a studio would need to purchase
a Mac Pro (or Windows equivalent,) and a
compatible Analog to Digital/Digital to Ana-
log converter. Without factoring the cost of
the recording console or outboard gear, this
system closely reaches a $15,000 price tag,
which is not typically accessible to the home
studio user. Newly released Pro Tools HD
Native, paired with the new interfaces from
Avid, brings a turnkey system to the con-
sumer for slightly over a third of the previous
cost.
By Hunt Hearin 	
Find
us
on
Facebook
and
www.
thembj.
	 org
Pro Tools Cost Is Almost Halved
Volume 6, Issue 2	 Music Business Journal
Music Business Journal
c/o Dr. Peter Alhadeff
1140 Boylston St. FB-359
Boston, MA 02215
_______________________________________
_______________________________________
_______________________________________
_______________________________________
MBJ
	 Some of the topics we will tackle in
next month’s issue of the Music Business
Journal:
Ten Years of Hip Hop
Billboard’s Live Music Bash
Google TV & VEVO
	
The Music Business Journal will be released
three times in the Fall, three times in the Spring,
and once in the Summer.
	 For more info, please contact any core
member of the editorial board. The journal’s
e-mail address is thembj@gmail.com. Also,
our website is www.thembj.org, where we have
not only our current issue (as well as all back
issues) available, but also, much more.
Volume 6, Issue 2	 November 2010www.thembj.org
Visit the MBJ online!
www.thembj.org
To subscribe, please contact us
theMBJ@gmail.com
Berklee College of Music
Music Business Journal
Berklee College of Music
Upcoming Topics

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November 2010 - MBJ

  • 1. Music Business Journal Volume 6, Issue 2 5th Anniversary November 2010 Berklee College of Music Inside This Issue Mission Statement The Music Business Journal, published at the Berklee College of Music, is a stu- dent publication that serves as a forum for intellectual discussion and research into the various aspects of the music business. The goal is to inform and educate aspiring music professionals, connect them with the indus- try, and raise the academic level and interest inside and outside the Berklee Community. (Continued on Page 3) The digital age of music has intro- duced new legal forms of music consumption that do not correlate clearly with the previous licensing laws. These old laws were created at a time when the recorded music industry revolved around physical sales and traditional radio play. They do not address, however, ser- vices like Rhapsody, where streaming audio is not public performance, nor is it a transaction of ownership. In some cases, these gray ar- eas have allowed royalties to slip through the cracks, never reaching the hands of the rightful copyright owner. Music Collections Redefined Over the last five years, the Copyright Royalty Board has attempted to set rates and regulations to clarify the dispute over how new media royalties and licensing should be han- dled. In 2006, after a lengthy debate between webcasters and copyright owners, the board ruled that non-interactive webcasts would pay royalties on a per listener basis, while ringtones would have a hefty statutory rate of 24 cents. A decision on royalty compensation regarding interactive streaming was issued in 2008, which paid royalties on a per-play percentage of a blanket royalty rate. These steps were integral in the birth of the independent, non-profit per- formance rights organization, SoundExchange. The organization is responsible for collecting digital royalties from non-interactive streaming, internet radio, cable TV and music channels and distributing these royalties to artists and master recording owners. In addition, the digital age has created changes in the ways that artists go about obtaining mechanical licenses. Organiza- tions like the Harry Fox Agency have begun to enter the online forum with services like Songfile, which radically eases the process of obtaining mechanical licenses. With Song- file, an artist can shop through HFA’s entire database of publishers, select a song, and ob- tain the license in minutes from the comfort of their own home. Enter RightsFlow On the other hand, since Songfile is a Harry Fox service, its possible mechani- cal licenses are limited to HFA catalogues. Fortunately, a company called RightsFlow is rapidly gaining momentum, offering a similar service that boasts a much larger catalogue. Founded in October of 2007 by intellectual property and copyright specialist Patrick Sul- livan and partner Ben Cockerham, the compa- ny acts as a middleman between those seek- ing licenses and those that do the licensing. In addition to mechanical licenses for physical and digital distribution, Rights- Flow also does the licensing for ringtones, online subscription services, and limited download services. The company clears the licenses and assures that the royalties accrued from copyright use are accurately accounted for and paid to the proper recipients. The RightsFlow service is segmented into four separate branches: Limelight, Limelight Pro- fessional, RightsFlow Enterprise, and Rights- Flow Music Service. Each one provides the same basic licensing service, but tailors the approach to fit the needs of its varying clien- tele. Archiving Sound Page 8 The Promise of India Page 12 Microfunding Music Page 6 Carbon Footprints Page 10 An Affordable Pro Tools Page 14 Mechanical Dues & RightsFlow By Trish Hosein
  • 2. Table of Contents Business Articles RightsFlow & Limelight........................1 Old Formats Die Hard...........................4 Polyphonic.............................................5 Finding Funding....................................6 EMI........................................................9 Green Music.........................................10 Sony & FIFA........................................11 India’s Evolving Music Market...........12 Branding & Blogs................................13 Pro Tools Goes Native.........................14 Law Section Saving Sounds.......................................8 MBJ Editorial Mission Statement...................................1 Editor’s Note...........................................2 Upcoming Topics...................................16 Sponsorship Berklee Media....................................... 15 Editor’s Note Volume 6, Issue 2 Music Business Journal With vibrant colors of the fall season enhancing the beauty of the Boston skyline, this latest re- lease of the Music Business Journal arrives just in time to beat the winter cold. A new season is here, along with a fresh batch of hot-off-the press industry news. Technology continues to reshape the changing landscape of the business. Trish Hosein kicks things off with an informative piece on RightsFlow and its innovative approach to online mechanical licensing. Luiz Silva also shares a well-researched look at US Copyright Law as it relates to digital music. The diminished use of physical distribution mediums is causing lawmakers to reassess laws originally written to protect tangible product. Recording technology also continues to bud with the recent release of the highly anticipated, Pro Tools Native. Hunt Hearin provides us with a timely report on the new software and its significance to the home studio market. As technology moves forward, the window of possibility for independent labels and artists is steadily opening. Dean Miller reports on the growing number of indie labels that are distributing their product on formats thought to be extinct; cassettes, vinyl, etc. Nick Susi has also provided us with a thoughtful analysis of new indie label, Polyphonic. No advances and no copyright ownership- this label is striving to reinvent the wheel. Artist Branding is quickly becoming an essential factor to surviving in the digital world. Kerry Fee discusses the ways in which artists are beginning to harness this concept’s power. In addition, Mike King –marketing director at the Berklee College of Music- has provided a very revealing piece about the fan-funding site, Kickstarter.com. Studying the details of successful funding campaigns, King has compiled a set of information that is guaranteed to change the way you think about fan- funding. Reporting abroad, Sahil Mehrotra offers a detailed piece on the developing music industry in In- dia and the ways in which international factors aid its expansion. Mia Verdoorn also shares a detailed account of her summer internship at Sony South Africa during the FIFA World Cup. As environmental awareness spreads, an increasing number of companies and organizations are “going green.” This month, Minden Jones brings a telling article on the numerous advantages of a green music industry. Lastly, I’ve provided a detailed report on the court case that will decide the fate of the EMI record label. Equity investor, Terra Firma challenges its lender, Citibank, in federal court on alleged claims of fraud. It gives me great pleasure to introduce this latest issue of the Music Business Journal. My hope is that you will find it both timely and informative. Be sure to check us out on thembj.org and our Facebook group page. Thanks so much for reading, Evan Kramer Contributors Editor’s Note.....................................................................................................................................................................Evan Kramer Business Articles...................................................................................................Kerry Fee, Hunt Hearin, Minden Jones, Mike King Business Articles (cont)............................................................Evan Kramer, Sahil Mehrotra, Dean Miller, Nick Susi, Mia Verdoorn Law Section...............................................................................................................................................................Luiz Augusto Buff Staff.............................................................................................................Witt Godden, Ben Hong, Trish Hosein, Gabriella Howard Staff (cont)........................................................................................Dean Millser, Silvina Moreno, Dahyun Ed Jeong, Mia Verdoorn 2 www.thembj.org November 2010 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. November 2010 www.thembj.org 3 Business Articles As of right now, Limelight claims to be able to clear licenses for any previously recorded song. RightsFlow works with the Harry Fox Agency and an assortment of smaller independent agencies and publishers to obtain mechanical licenses for the major- ity of songs requested. With some of these companies, a blanket license is negotiated for Limelight users, while others have agreed to a rolling schedule license, where additional compositions can be added to the license with publisher’s approval. If the publisher cannot be reached, compulsory mechanical licensing is utilized and RightsFlow takes on the arduous accounting and legal tasks that go along with that. It is important to note that while copyright law only requires mechanical royalties to be paid once a physical album is printed (or a digital/ringtone download is purchased), Limelight demands all royalties to be paid upfront. What is interesting about this upfront payment process is that it is completely up to the user to honestly report the number of intended copies, as Limelight has no real way of tracking how many cop- ies are actually printed and sold. Tradition- ally, when obtaining a mechanical license, whether negotiated or compulsory, detailed royalty statements had to be presented to the publisher. With Limelight, it is assumed on good faith that the artist will notify Limelight if they wish to sell any more copies of the covered song than originally expected. This may seem to be a rather open ended policy, leaving many concerned that adequate mechanical royalties will not get paid to the writer. It is reasonable to con- clude, however, that the average Limelight customer utilizes the service because they actually want to pay the right mechanical royalties to the respective artist. It is also worth noting that services like Limelight are actually bringing in royalties on copyright use that would have otherwise been pirated by making the process so much more ac- cessible. As recording technology becomes less expensive and more available, an un- precedented number of independent artists are recording and distributing music – thus, expanding the market for services like Lime- light. More Limelight Services RightsFlow aims to ease the me- chanical licensing process on all levels of the music industry. Limelight Professional, which caters to independent record labels, and RightsFlow Enterprise, intended for ma- jor labels and distributer’s, both operate on the same basic concept as Limelight, but on a larger scale. Contrary to Limelight however, Professional and Enterprise both provide accurate and detailed royalty reports and earnings statements for their clients to ac- curately track the use of licensed copyrights. RightsFlow’s fourth branch, RightsFlow Music Service, delves even further into data tracking by supplying licensing reports for major online music services like Rhapsody. This program determines to whom, and how much the employing company owes royalties whilst supplying monthly, quarterly and an- nual royalty statements. So far, after only 5 years in business, RightsFlow has accumu- lated a sizable list of well-known partners including companies like EMI, CdBaby and Muzak. Market Potential and Risks With the largest catalogue of me- chanical licenses available, and a well-tai- lored service for users of all kinds, Rights- Flow has certainly created a very lucrative market for itself. Having handled over 1 mil- lion licensing transactions in its short history, the company is well on its way to establish- ing itself as an industry standard. Yet, when one is in the business of dealing with such complex legalities, there is enormous op- portunity for problems to arise. For instance, an issue could stem from copyright law’s re- quirement that a song covered by a compul- sory mechanical license cannot change the “fundamental character of the work”. With a bulk licensing system, there is no way to en- sure a writer that their music’s “fundamental character” will remain in tact, perhaps lead- ing a string convoluted legal complications. These are just a few of the countless poten- tial “honorary slipups” that could arise in a licensee’s copy report. Nonetheless, Rights- Flow’s innovations in mechanical licensing are still moving the industry in a very posi- tive forward direction. RightsFlow’s Limelight Limelight is currently RightsFlow’s fastest growing brand, providing indepen- dent musicians with unlimited accessibility to affordable mechanical licenses on a user- friendly platform. The service is available to anyone who can cough up the meager $15 service fee plus the statutory reproduction costs. It also provides complete assurance that 100% of the behind-the-scenes paper work regarding legalities and royalties will be handled. In years past, independent artists had to endure a far less accommodating pro- cess in order to obtain a mechanical license. Until Limelight, an artist’s only option started with acquiring a compulsory mechanical li- cense directly through the US Copyright Office. However, the regulations and re- quirements involved with obtaining (not to mention maintaining) this license were excru- ciatingly time consuming and, at times, rather expensive. Monthly audits by an accountant and royalty due dates on or before the 20th of every month were required or the license would be revoked. The only other option was to negotiate a license with the publisher di- rectly, yet this was a complex legal process that many small artists would not have been privy to. The barricades that prevented an unknown artist from receiving the proper li- cense not only discouraged them from further pursuing the issue, but in many cases also meant that covers were recorded and dis- tributed without mechanical licenses at all. More often than not, this was not a question of whether or not an artist wanted to pay; it came as a result of not knowing how. With Limelight, the process of clearing a license through the online website -songclearance.com- is simple. The service takes the information on the song intended for use, such as the title, songwriter and publish- er, as well as information on how the client intends to use it. Then, the number of intend- ed copies (or digital downloads/ringtones) as well as the length of the song is used to calcu- late the statutory rate applicable and total the sum of royalties owed to the publisher. Once the projected royalties are computed, a $15 dollar fee is tacked on for service. For fre- quent users, the fee is incrementally reduced with each purchase. RightsFlow & Limelight (cont.) Volume 6, Issue 2 Music Business Journal
  • 4. Volume 6, Issue 2 Music Business Journal Business Articles By Dean Miller 4 www.thembj.org November 2010 analog format. They also feel as though they are doing their part in supporting the artist. A Special Listening Experience Given their attachment to the prod- uct they trade, sellers of this niche market view piracy with mixed emotions. For some, like Matt Halverson of Lefse Records, a four- person business that releases music on vinyl and CD (while managing bands and doing PR for other labels), piracy still gets people to a show, and the promotion can be good for sales. However, Cody Watson of Bathetic Records’ Cody disagrees: “[When] people feel that they can get the mp3 version on the net, there is no reason to buy the cassette or vinyl. It is under- standable to a point, especially when you’re doing runs of only 100 copies of a tape. At the same time, we put out physical releases for a reason. There’s something special about hold- ing that little chunk of plastic with that insert. We’re not [completely] against the mp3 boot- leg; it’s just that Jon and I do have to put a lot of work into each and every release, so it’s nice to see a reward…Once a re- lease is sold out, though, we usually have no problem with supplying the mp3s for the people that missed out or just want it on their iPod. [Sometimes], we’ve even given away entire releases in digital for- mat on which we had our won physi- cal stocks. Why? Because, the most important thing, ultimately, is that the music gets heard. That’s why we’re doing this in the first place.” Greenspon of Bridgetown Re- cords maintains that customers that download do not experience the full effect of the music. “The problem with downloads is [that] in the long run, most of the people that like the music don’t end up picking up a physical copy--and bedroom labels are very dependent on people that support physical releases in order to continue putting them out.” Baby Steps Revenues for these labels are still very small. In October, analog sales of cassettes at Bathetic totaled about $1,000, for a net profit of $400. This earning was reinvested, and the company seems to do more than break even; its owners believe that profits will continue to be healthy. It is important to note as well that retail outlets are aware of a growing interest in vinyl and cassettes. Urban Outfitters, for example, cater to a demographic of young adults aged 18 to 30 who follow this DIY culture, and now sell vinyl music alongside clothing and other merchandise. The growing ap- peal of lo-fi rock bands has helped. Griz- zly Bear’s 2009 album Veckatimest sold 33,000 units in 2009, and apparently helped make vinyl DIY releases popular. Labels like, Bridgetown, Ba- thetic, and Lefse are in the meantime keeping these analog formats alive. In so doing, they are tapping a market that is becoming far less standardized, not just by genre but by recording medium. An increasing number of small in- dependent record labels are surviving based on a new alternative Do-It-Yourself culture, which has a genuine love for old analog for- mats. Traditionally, these labels are under- dogs, thriving in areas that the over-manned and over-funded major labels ignore. They tend to specialize in locally played musi- cal genres, even though self-produced bedroom-pop seems to be the flavor of choice. The Trend In fact, for many young listen- ers, vintage synths, fuzzy guitars, and large amounts of reverb are becoming synonymous with the word ‘indie’. In this context, names like Bridgetown Re- cords, Bathetic Records, and Lefse Re- cords mean a lot. Bridgetown Records, for in- stance, was created in 2008. This small DIY label out of La Puenta, California has since had forty releases. Surpris- ingly, most of these were done on High Bias Type II chrome cassette tapes. This vintage sound and format is exactly what attracts fans of bands like Cloud Nothings. Their Turning On album sold out three editions since its December 2009 release. By April 2010, Cloud Noth- ings’ album had inspired a beautiful blue cloud-themed vinyl re-press from another such indie, Spearkertree Re- cords. Each song’s twisting guitar lines and undeniably catchy melodies are washed in reverb but are not something that DIY fans want to hear on hi-fi studio monitors; rather, they would prefer tape and vinyl played on cheap old speakers from a past era. Amy Spencer’s book, DIY: The Rise of Lo-Fi Culture, points out that “the DIY movement is about using anything you can get your hands on to shape your own cul- tural entity, i.e. your own version of whatever you think is missing in mainstream culture. You can produce your own zine, record an album, or publish your own book. The endur- ing appeal of this movement is that anyone can be an artist or creator. The point is to get involved.” Customers, it seems, feel connect- ed with that particular culture when buying in Indie Labels Tap Old Formats
  • 5. November 2010 www.thembj.org 5 Volume 6, Issue 2 Music Business Journal Business Articles increases. The immediate opportunity to earn money is appealing to artists, since under a traditional label deal, an artist is instantly in- debted to the label through the requirement of recouping their advance. Polyphonic uses its connections to help artists build a team for publicity, mer- chandise, and touring by contracting from outside sources. Taking a transparent ap- proach, Polyphonic encourages direct-to-fan relationships without a visible buffer of a go-between label. Finally, Polyphonic leaves all recording and publishing copyrights, and master recording ownership in the hands of the artist. This is an incredible new opportu- nity for artists, since before Polyphonic labels controlled the rights to the master recordings, leaving artists with only a fraction of earned royalties. With Polyphonic, artists are given total control over every aspect of their cre- ative compositions and are allowed to share a more reasonable percentage of the profits. This new service certainly seems to fit artists’ demand for flexibility and freedom. The abolishment of recouping advances and the right to full royalties are the most enticing factors by far. Even from the fan’s perspec- tive, this may be a preferred transaction mod- el. The money paid for albums makes its way to the artist in a less roundabout way. “We are all witnessing major labels starting to shed artists that are hitting only 80,000 or 100,000 unit sales,” says Driscoll. “Do a quick calcu- lation on those sales, with an artist who can tour in multiple cities, and that is a good busi- ness. You can take that as a foundation and build on it.” The Questions Others, however, are much more skeptical. Polyphonic has high promises for the artist, but does create a sustainable busi- ness model? If Polyphonic does not require its initial investment in the artist to be repaid, where does that leave the business if the artist fails? If Polyphonic grants full royalty own- ership to the artist, how will Polyphonic con- tinue to make money once that artist severs its connection with them? Even in the major labels’ current financial state, they still con- tinue to make money on the their exclusive recording and publishing catalogues, which Polyphonic does not have. Despite numerous attempts, Polyphonic has been unsuccessful in ob- taining venture capital investments. Yet the company remains undeterred, still working to prove to investors that their new model has potential. But since the company’s creation in the summer of 2009, Polyphonic has received little pub- licity and there are no artists signed yet to their roster. With able management backing the company, and a business model that meets the needs of artists, Polyphonic is still not getting the support it needs at a time when its major rivals are failing. From April 2010 to August 2010, War- ner’s stocks fell nearly 40%, from $8 to $4.64 per share. In August 2010, EMI’s annual financial report stated a 512 mil- lion pound loss. Even now, EMI is tan- gled in a massive legal battle between Terra Firma and Citibank, which is cer- tain to be draining the label’s coffers. Polyphonic could still prove to be an answer to the industry’s problems. If so, it would keep company with other like-minded businesses that allow artists more freedom and flexibility in the mar- keting, distribution, and financing of mu- sic. Topspin, TuneCore, and Artist Share are in that category. BIBLIOGRAPHY “Polyphonic: Music Label That Promises Fairness to Artists.” P2p File-sharing & Torrent News, Top P2p Sites, Facts, Guides and Reviews. Web. 26 Oct. 2010. <http://www.p2pon.com/2009/07/12/polyphonic- music-label-that-promises-fairness-to-artists/>. “Resnikoff’s Parting Shot: Less Ownership, Less Long-Term Value... - Digital Music News.” Home - Digital Music News. Web. 25 Oct. 2010. <http:// www.digitalmusicnews.com/stories/072609polyphonic>. Stone, Brad. “Artists Find Backers as Labels Wane.” The New York Times - Internet. Web. 26 Oct. 2010. <http://www.nytimes.com/2009/07/22/tech- nology/internet/22music.html>. “Terra Firma and Citi to Begin EMI Talks - NYTimes.com.” Mergers, Acquisitions, Venture Capital, Hedge Funds - DealBook Blog - NYTimes. com. Web. 26 Oct. 2010. <http://dealbook.blogs.nytimes. com/2010/08/19/terra-firma-and-citi-to-begin-emi-settlement- talks/>. It would seem that artists, both es- tablished and aspiring, are searching for more flexibility and freedom in their careers. There is a surging demand for alternative options to traditional label deals, and therefore, industry executives are being forced to reexamine and adapt their business models to meet this de- mand. The question is, are these alternative business models sustainable? The major labels – Sony, EMI, Warner, and Universal – have made a clear attempt at adapting to the ever-changing in- dustry through the use of 360 deals. Control- ling every facet of an artist’s revenue streams, however, does not seem to fit this demand for flexibility and freedom. Granted, 360 deals do appeal to some artists who are entirely ca- pable of becoming extremely wealthy writing hit singles under this type of deal. Yet is also fair to say that the business model for 360 deals does not attract all artists. Thus, bold and new business mod- els have begun to surface that show signifi- cant promise. A good example here is the alternative label Polyphonic, whose pedigree is impeccable. The company was founded by Brian Message, the manager of Radiohead and one of the minds behind the name-your- own-price release of the band’s latest album, “In Rainbows” (from that album release, Ra- diohead kept all of its profits and utilized the Internet for cheap distribution and instant ac- cess to fans). But behind Polyphonic there is also Adam Driscoll, the chief executive of the British media company MAMA group, and Terry McBride, the creator of the Cana- dian management firm, Nettwerk Music, who manages Sarah McLaughlin and the pop/rock group Barenaked Ladies (the latter run their own label in order to keep a greater cut of their revenues). The Promise Polyphonic will be based in London with offices in New York and Los Angeles. Unlike a traditional record label, Polyphonic does not grant a new artist an advance. In- stead, they treat an unsigned artist like a small business start-up, investing $300,000 in each new signee. In turn, Polyphonic splits the artist’s revenue, from touring, recordings, merchandise, and other, 50/50. As the artist’s success grows, her percentage of the revenue Polyphonic : An Artist-Friendly Label in the Making By Nick Susi
  • 6. Lately, it seems that phrases like “direct-to-fan” and “fan funding” have been echoing off the walls. In the last few years, artists like Trent Reznor and Radiohead have pioneered a new kind of marketing using the Internet’s vast power of communication to make more personal connections with their fans. In many cases, this has yielded some overwhelmingly positive results --Reznor scored an in-pocket $750,000 in just a few days selling a limited-edition box set to fans in 2008. However, at this point, most in- dependent artists would complain that the luxury of these types of revenues is only available to those that have a pre-established fan base. On the other hand, authors Craig Mod and Ashley Rawlings, would beg to dif- fer. In funding their latest book, Art Space Tokyo, the duo meticulously researched kickstarter.com’s greatest success stories and formulated a plan that generated an impres- sive $24,000 in just 30 days. Their findings provide some very enlightening information that could apply to creators in all mediums. Musicians and Variable Pricing Kickstarter is the definition of fan funding. Independent musicians, writ- ers, entrepreneurs, etc. can use the service to present their idea to a world wide web of potential investors. The site allows anyone who feels so inclined to contribute money to a given project by selecting one of the many price tiers available --ranging from $1 up into the thousands. Contributors’ pledges are only used when the project has reached its funding goal, thus reassuring investors that their money is constructively going to a go-project. These various price tiers are very important (especially for musicians) because the amount a fan contributes is directly re- lated to their level of commitment to the art- ist, and the goods or services being offered in return. In selecting price tiers for the fund- ing of their book, Mod and Rawlings looked at the top 30 grossing Kickstarter campaigns to determine which tiers would be the most effective. This provided Craig with data that he could use --in his words-- to “look for a balance between number of pledges and overall percentage contribution of funds.” TABLE I illustrates his findings. In a blog post from his Official Website, craigmod.com, Mod shares his in- sights on the data: “This data is, of course, hardly per- fect (for example, not every project I looked at used the same tiers). But it’s good enough to give us a sense of what price ranges people are comfortable with. The $50 tier domi- nates, bringing in almost 25% of all earning. Surprisingly, $100 is a not too distant second at 16%. $25 brings in a healthy chunk too, but the overwhelming conclusion from this data is that people don’t mind paying $50 or more for a project they love. It’s also worth contemplating going well beyond $100 into the $250 and $500 tiers: they scored rela- tively high pledging rates compared to other expensive tiers. The lower tiers — less than $25 — are so statistically insignificant (bare- ly bringing in a combined 5% of all pledges) that I recommend avoiding them. Of course this depends on your project — perhaps there’s a very good reason for a $5 tier. More importantly, this data shows that people like paying $25. Having too many tiers is very likely to put off supporters. I’ve seen proj- ects with dozens of tiers. Please don’t do this. People want to give you money. Don’t place them in a paradox of choice scenario! Keep it simple. I’d say that anything more than five realistic tiers is too many.” In the case of musicians, Mod’s findings seem to correspond well with the multi-tiered product offerings that are gain- ing popularity on most artists’ websites. $1 downloads, $25 CD/ Poster sets, all the way up to the $250 box sets; these price tiers cater to the varying level of a fan’s commitment to an artist. It is worth noting that, for musi- cians, the $25 tier might be a bit more use- ful than Mod and Rawlings found it to be in their book campaign. Nonetheless, Mod’s data illustrates the fact that lower price tiers are far less effective (accounting for only 5% of total earnings). In addition, giving inves- tors too many options to contribute small sums of money, in a way, encourages them to give less instead of more –which to a degree, Using Kickstarter To Raise Money By Mike King (Edited by Evan Kramer; see http://mikeking.berkleemusicblogs.com) defeats the overall purpose of the campaign. By limiting a contributor’s options to a hand- ful of specifically defined ranges with cor- responding rewards attached, supporters are forced to think bigger in terms of their dona- tions. Based on the data collected, Mod and Rawlings put together the price tiers found in TABLE II, with corresponding re- wards for each. TABLE II shows that the lowest price tier offered ($25) only generated 3% of the total earnings. A paltry 28 people (11% of total contributors) opted for this tier while 155 (59%) went for the $65 tier. Also, the $100 tier got more than double the dona- tions than the $25 tier (64 compared with 28). Lastly, as the amount of each tier climbed, the number of contributions proportionally dwin- dled, yet the $850 tier still pulled in a higher percentage of total earnings than the $250 tier with only 4 supporters. Promotional Considerations To spread word of the campaign, Mod and Rawlings engaged in an online pro- motional plan that focused on their permis- sion-based social medial touch points, as well as key design blogs and magazine sites that were completely in target with their psycho- graphics and demographics. They focused their messaging campaign using Twitter and Facebook (their messaging was relevant and minimal, too), as well as their own mailing list. Mod and Rawlings had built up an ex- tensive mailing list of design and art world contacts over the past 6 years, which they lev- eraged nicely. Examples of the spreadsheet with the timing and results of their targeted email campaign, are found in TABLES III. Perhaps the most impressive part of the whole campaign was Mod’s outreach strategy to the blogs that he felt were in line with what he was doing with his project, and his method of communication to them. He was not focused on the quantity of external outreach; rather, he was more interested in the quality of the blogs he gave focus to. This is a marketing strategy that creators of all kinds would do well to consider. As Mod describes it: Business Articles 6 www.thembj.org November 2010 Volume 6, Issue 2 Music Business Journal (Continued on Page 7)
  • 7. November 2010 www.thembj.org 7 Volume 6, Issue 2 Music Business Journal Business Articles “I’m writing to blogs that I’ve been reading for years, so for me, referenc- ing older posts of theirs and personalizing these emails is trivial, and fun. Whatever you do, don’t send scattershot emails to media outlets. Be thoughtful. The goal is to appeal to editors and public voices of communities that may have an interest in your work, not spam every big-name blog. A single post from the right blog is 1000% more useful than ten posts from high-traffic but off-topic blogs. You want engaged users, not just eye- balls!” Points To Keep In Mind Rawlings and Mod’s book may be only a starting point to think about fan fund- ing strategies for musicians. But there is a lot to learn from them. First of all, Rawlings and Mod had a clearly defined plan. While they did not have anywhere near the clout that a Trent Reznor-type would have, they knew exactly how much money they needed and who they were going to target to generate the funds. They were also very strategic in how they approached their campaign. They knew their demographic, and they knew what sort of incentives would be appealing at the vari- ous price points that they presented. If musi- cians approached fan funding with this level of organization and preparation, the result could be just as effective. TABLE I TABLE II TABLE III
  • 8. Volume 6, Issue 2 Music Business Journal Law Section 8 www.thembj.org November 2010 With the advent of sound recording at the end of the nineteenth century, many different kinds of sounds – from musical performances and important government speeches to animal sounds and baby laughs – were captured and registered for future listening. In order to commercial- ize those recordings, early entrepreneurs established an industry around these re- cordings that grew vertiginously, becom- ing a fundamental part of our contemporary cultural history. For years, it had been a solid, profitable structure. Lately, however, it is undergoing drastic transformations. The transition to a digital age is causing a huge impact on the way sound record- ings – especially music – are commer- cialized, consumed and distributed. The creation and consumption of recordings are now occurring at a much faster rate than the efforts involved in preserving this cultural heritage for posterity. In that regard, the US Con- gress assigned the responsibility to “maintain and preserve sound record- ings that are culturally, historically, or aesthetically significant” to the National Recording Preservation Board of the Library of Congress (NRPB). This was done through the National Recording Preservation Act of 2000 (Public Law 106-474), that also required them to “... undertake studies and investigations of sound recording preservation activities as needed, including the efficacy of new technologies, and recommend solutions to improve these practices.” As a result, NRPB published ”The State of Recorded Sound Preservation in the United States: A National Legacy at Risk in the Digital Age.” – a comprehensive study that delin- eates the web of issues that endanger the sound recording history. There are several organizations, both in private and public spheres, which are committed to preserve the audio legacy for future generations. More and more they are benefitting from the digital technology to store files and manage their collections. Digital storage helps overcome problems such as physical space – since long halls with countless shelves are being substituted for hard-drives – and provides enhanced search engines. On the other hand, the pro- tection and maintenance of digital audio re- cordings is not at all simple. Problems like server crashes and incompatibility of file for- mats due to the successive releases of new software are an everyday struggle. There are many more positive and negative issues to consider, but it is clear that digital storing must be the preferred format to achieve the objectives of recorded sound preservation. Hence, the archives require the development of totally new preservation techniques. To overcome this transitional phase, NRPB envisions that a collective ef- fort must be made. Different archives and collectors should work together to avoid un- necessary costs caused by redundant efforts of reformatting, cataloguing, and archiving. That would help develop a new system in which both old and new works are available and preserved for posterity in a single digital format. According to the report, this would only be possible with a change in copyright law, allowing the creation of a file-sharing network of credentialed institutions. They would acquire licenses to share digital files By Luiz Augusto Buff of preserved commercial recordings for ar- chival purposes. The whole idea of preserv- ing audio content is very positive and impor- tant to our cultural heritage; however, it is crucial that any changes made in the existing system do not harm the copyright owners in any way. The study further emphasizes that digital development does not ensure preser- vation for present and future creations. As time progresses, newborn digital recordings are in similar danger of being lost, like old 78-rpm recordings. The dissemination of sound recordings is happening exclu- sively in digital format, via downloading and streaming. Inexpensive tools for pro- duction and recording, matched with ef- ficient marketing tools, allow new artists to offer their productions directly to their costumers. Therefore, the institutions re- sponsible for sound recording preserva- tion will have to face challenges like the diversity of file formats, possible virus- contaminated files, digital rights manage- ment and legal issues related to the cap- ture and maintenance of these files. Another arduous task will be the discovery and selection of the record- ings to be preserved, due to the immense quantity of potentially important mate- rial, extensively spread on the Internet. Meanwhile, much information is being lost. For instance, a podcast that could have great content for scholars may not be available the following month. It could be due to the closure of the web site, or an inability or refusal to pay royalties. As a possible solution, the Library of Con- gress considered capturing the entire au- dio material produced online. Although the modern industry has all of the technology re- quired to complete such a task, under the cur- rent law and license agreements, it is illegal to copy this born-digital content to public ac- cess servers and to provide access to it in an institutional setting. Dark archives – where data has restricted access until the content falls into public domain – are suggested in- stead, but funding for an archive that has such limited use may be very difficult. It could be said, as a student did at an NRPB public hearing in 2006, that Copyright Law Compromises The Preservation of Recorded Sound (Continued on Page 9)
  • 9. November 2010 www.thembj.org 9 “the preservation of music is meaningless if this music is not accessible”. Indeed, from a business perspective, access is fundamental to the viability of investment in the area. The costs of preservation are tied to the possi- bility of exploring and exploiting the audio material. An increase in funding for sound recording preservation will only occur with enhanced models of licensing agreements that grant access to a vast variety of works, including unpublished and out-of-print re- cordings. Sony Music Entertainment took one step in this direction. They licensed their repertoire of recordings from the acousti- cal era (before the advent of microphones and electrical recording) to the Library of Congress Jukebox, a tool that soon will be streaming approximately 10,000 recordings to the public. NRPB gave special attention for old materials in their study. They observed that the works made before 1972 are protect- ed by a confusing set of different state, civil, criminal and common laws. It was only that date that federal laws started to look after the copyright of sound recordings. The actual law keeps these works under state regulation until 2067. According to NRPB’s analysis, this provision should be repealed and all re- cordings produced should be placed under a single, understandable and more coher- ent national law. As for the material that no owner could be located – orphan works – the proposal is to legalize their usage by means of preservation. The report also suggests a compulsory license for abandoned or out-of- print recordings, so third parties can reissue those works with an appropriate compensa- tion to the rights owners. It is clear that the interests of copy- right owners and of those responsible for pre- serving the nation’s recorded sound heritage are in conflict. The recorded sound preserva- tion is critically affected by restrictions and limitations fixed in the US copyright law. It is important to find a perfect balance so that copyright owners can be compensated and organizations can achieve their fair goals of preservation. The complete study from the Library of Congress is available for pur- chase and as a free download at http://www. clir.org/pubs/abstract/pub146abst.html. Volume 6, Issue 2 Music Business Journal Business Articles Since its inception in 1931, EMI’s illustrious history has made it an industry leg- end. However, even with a controlling market share in publishing, an artist roster that formi- dably holds its own on the charts, and a steady increase in revenue streams over the past few years, its future is anything but stable. Guy Hands is the Chairman of EMI’s parent com- pany, the British equity firm Terra Firma. Af- ter acquiring the label in 2007 on loan from Citibank, Hands is now pursuing his lender in US federal court on alleged claims of fraudu- lence concerning the EMI purchase. Sched- uled to last three to four weeks, the trial’s out- come could be the sole determinant of EMI’s future. Monday, October 18th saw the be- ginning of the Terra Firma vs. Citibank court case in which Guy Hands sought a total of $11.1 billion in damages from Citibank. His demands began with a $2.77 billion compen- sation for losses, plus a sum three times that amount for punitive damages. The controversy was ignited from a series of phone conversations that occurred between Guy Hands, and Citigroup Banker/ Advisor, David Wormsely regarding the EMI acquisition in 2007. Hands, who had long coveted ownership of the label, claims that he was told three times by Wormsley (who acted as an advisor on the deal) that Terra Firma could lose EMI to US private equity group, Cerberus, if it did not top their alleged bid of $4.11 per share. After submitting a bid of $4.16 per share ($6.7 billion), Hands discov- ered that Cerberus had never submitted their bid, leading Hands to believe that Wormsley –a long trusted friend- was milking the deal. Citigroup and Wormsley denounce all of these accusations saying that, “the evi- dence in this case is overwhelming that Citi has done nothing wrong and we firmly believe that Citi will prevail in this case.” In actuality, the case lacks substantial evidence from both sides, relying heavily on the recollections of Hands and Wormsley’s phone conversations. The acquisition couldn’t have come at a worse time for Terra Firma. On the eve of the 2007 credit crunch, collapsing markets and plummeting physical CD sales added to reduce EMI’s value to an estimated $2.8 bil- lion. This is a far stretch from the $3 billion that the company currently owes Citigroup, not to mention the $6.7 billion that was ini- tially paid out in the first place. This suggests that over 60% of Hands’ original investment, along with most of the equity of Terra Firma has already been lost, leaving a crippled and indebted EMI dangling helplessly above the ravenous jaws of lawyers and jurors. The case, currently called the trial of the century in Britain, will impact the repu- tation of both Hands and Wormsley, two of Wall Street’s best know investors. While ru- mors have surfaced that Citigroup could opt for a debt-for-equity swap that could grant it a stake in the EMI label, Hands has made it clear that he has no intention of letting the lender get a say in the company’s operations. Still, an unfavorable outcome for Hands could result in full EMI ownership by Citibank. Despite numerous attempts to settle outside of court, Hands is convinced that Ci- tibank provided fraudulent financial advice. He is clearly willing to take the accusation as far as it needs to go. “If you accuse some- one of fraud, it’s really game over in terms of [refinancing] conversations,” he said in a recent interview. “It’s like putting a stick into a dragon.” The court’s decision –scheduled for early November- will almost certainly have serious financial repercussions. An unfavor- able decision for Citigroup could lead to loss- es, estimated upwards of $11 billion. For Terra Firma, losing would be catastrophic; it will likely declare bankruptcy after defaulting on its loans and EMI would then be at the mercy of Citigroup. The Fate of EMI Lies in Court By Evan Kramer (From Page 8)
  • 10. 10 www.thembj.org November 2010 Volume 6, Issue 2 Music Business Journal Business Articles Currently, environmental issues concerning greenhouse gases and CO2 emis- sions have become increasingly significant. In the summer of 2009, the Major Economic Forum addressed these matters proposing that, by 2050, CO2 emissions should be re- duced by at least 50% from what they were in 1990. Regardless of whether or not that bold idea is feasible, it is important to be- come aware of one’s own carbon footprint, and the music industry is certainly no excep- tion. Distribution, live music, and transpor- tation in the business contribute to energy consumption and the production of green- house gases. For example, a study entitled The Energy and Climate Change Impacts of Dif- ferent Music Delivery Methods prepared in August 2009 by professors Christopher L. Weber, Jonathan G. Koomey, and H. Scott Matthews for Microsoft Corp. and Intel Corp. to evaluate energy and CO2 output in the distribution of music in physical versus digital form. Its executive summary says: “We find that despite the increased energy and emissions associated with Inter- net data flows, purchasing music digitally re- duces the energy and carbon dioxide (CO2) emissions associated with delivering music to customers by between 40 and 80% from the best-case physical CD delivery, depend- ing on whether a customer then burns the files to CD or not. This reduction is due to the elimination of CDs, CD packaging, and the physical delivery of CDs to the house- hold. Based on our assumptions, online de- livery is clearly superior from an energy and CO2 perspective when compared to tradi- tional CD distribution”; p.3 Prior to the digital distribution model, a long, complicated process of physi- cal delivery was used to bring music to the hands of consumers. The CD itself, the re- cording process, and the packaging (leaflet, jewel case, shrink-wrap), all produced en- ergy consumption and waste. Furthermore, shipping the product from the warehouses, to the retailer, and finally to the consumer also contributed to an estimated per album CO2 emission of 3200g of CO2. For the consumers that absolutely must get their hands on a physical copy of their favorite band’s latest album, CDs can be ordered and delivered directly to the buy- er’s home. Transportation accounts for 50% of the greenhouse gases emitted. By cutting out customer transportation to the retail out- let, CO2 emissions are greatly decreased. In this scenario, removing the retailer from the physical distribution equation produces 1/3 less greenhouse gases. Clearly, digital media offers the simplest, most direct means of distribution, thereby conserving the most energy in the process. The music is still produced in stu- dios, but afterwards, it is transferred to digital format and stored in an electronic data hub until being purchased and downloaded by the consumer. In this scenario, only 400g of CO2 per album are produced, compared with the latter example’s 3200g. Carbon emissions are aggravated, however, if the consumer decides to burn their digital downloads to CDs, and even further, if that CD is stored in a pur- chased jewel case. Overall, digital music delivery can make a significant difference in reducing greenhouse gases. Environmental activist group, Ju- lie’s Bicycle, commissioned the Environ- mental Change Institute at Oxford University to conduct a study that would evaluate the greenhouse gases emitted by the UK music industry. In their findings, they report: “We estimate the greenhouse gas emissions of the sale of music products and live music performances to UK consumers at least 540 000 t CO2e per annum. Approxi- mately three-quarters of the industry’s GHG emissions are attributable to the live music performance sector and approximately one- quarter to the music recording and publishing sector. The major GHG producing activities are audience travel (43%), live venue mu- sic events (23%), and music recording and publishing (26%), with smaller contributions from music festivals (5% excluding audience travel) and music organizations (1%).” The UK operates over 2000 live music venues and over 500 annual festivals. Considering the 540,000 tons of CO2 emit- ted by the entire UK music industry per year, live performance venues and festivals alone cause at least 400,000 tons of annual CO2 emissions, not to mention the amount of en- ergy consumed. 175,000 of the 400,000 tons of annual CO2 emissions are derived from audience transportation to the shows. More- over, the use of diesel generators, trucking, and tour busses all increase these CO2 emis- sions. Keep in mind, these statistics only reference the UK, and do not factor the ad- ditional emissions of all other countries. These findings led to the creation of a comprehensive guide on building a sustain- able and responsible music industry, called the Green Music Guide. Julie’s Bicycle car- ries the mission of reducing the UK music industry’s carbon emissions by 60% from 2008 to 2025. They enforce recommenda- tions regarding how offices, venues, studios, festivals, touring, transportation, distribu- tion, and merchandise can reduce their car- bon footprint. Their four major guidelines are: 1) assess how much greenhouse gas your business produces each year, 2) reduce en- ergy consumption in buildings, 3) influence your business’s supply chain to decrease their emissions, and 4) support electric sup- pliers who output low carbon emissions. From the touring side, these rec- ommendations include keeping the lighting turned off when the rig or performing hall is not being used. Also, turning off the exterior lights can help save CO2 emissions while saving money for the venue. Creating differ- ent heating and cooling zones is free and it is estimated to see savings within six months. If every venue implemented these recom- CO2 Emissions in the Music Industry By Minden Jones (Continued on Page 11)
  • 11. November 2010 www.thembj.org 11 mendations, it would prevent nearly 10,000 tons of CO2 emissions annually. At festivals, generators can be powered by vegetable oil or a sustainably sourced bio-diesel. Staff and audience can get involved in being “green.” Lastly, offering incentives for carpool- ers – easy in and easy out parking – would encourage and educate the audience. Also, discounted ticket prices can be offered to au- dience members who ride their bikes or use public transportation. Artists can create links on their website to help plan the trip and car- pooling options. The options for musicians to help the environment are limitless. Upon examining these studies, the facts on distribution, live music, and trans- portation further suggest that the current way of doing business in the music industry is not sustainable. There is definitely a Green move- ment occurring, but it does not seem to be happening swiftly enough, especially in the US as compared to the UK. Musicians have the ability to touch their fans deeply with their music, as well as influence the behavior of the fans. It is crucial that we act with the visions and actions of sustainability and responsibil- ity. Sources: [1] Christopher L. Weber†, Jonathan G. Koomey*, and H. Scott Matthews; “The Energy And Climate Change Impacts Of Different Music Delivery Methods”, Final report to Microsoft Corporation and Intel Corporation, available online at <download.intel.com/pressroom/pdf/ cdsvsdownlo>adsrelease.pdf [2] “About JB.” Julie’s Bicycle. Web. 14 Aug. 2010. <http:// www.juliesbicycle.com/about-jb>. [3] “Carbon Soundings: Greenhouse Gas Emissions of the UK Music Industry.” IOPscience::.. Welcome! Web. 14Aug. 2010. <http://iopscience.iop.org/1748-9326/5/1/014019/ fulltext>. [4] Http://www.dynamicdrive.com/style/, Dynamic Drive:. “CDs vs. Music Downloads: Carbon Footprint Compared · Environmental Leader · Green Business, Sustainable Busi- ness, and Green Strategy News for Corporate Sustainability Executives.” Environmental Leader · Green Business, Sus- tainable Business, and Green Strategy News for Corporate Sustainability Executives. Web. 14 Aug. 2010. <http:// www.environmentalleader.com/2009/08/19/cds-vs-music- downloads-carbon-footprint-compared/>. [5] “Green Music Guide.” Julie’s Bicycle. Web. 14 Aug. 2010. <http://www.juliesbicycle.com/green-music-guide>. Business Articles Our Correspondent in South By Mia Verdoorn Africa Takes FIFA to Task This past summer, I had the privi- lege of doing an internship at Sony Music in my home country, South Africa. It was dur- ing the 2010 FIFA World Cup, and Sony was one of FIFA’s main partners for the World Cup. My experience in the office was there- fore colored with all of the organization and preparation that was required for the event. During the World Cup, there was an assortment of products deemed “official” for the tournament. For music, there was an offi- cial song, an official mascot song, the official team song and the list goes on and on. Each track, however, was produced and marketed by a different record company, which created confusion in the marketplace. Technically, Sony Music was the only company permit- ted to have any connection with World Cup merchandise due to their licensing contract with FIFA. In other words, the phrases and acronyms “FIFA”, “World Cup”, “South Af- rica”, “2010” and even “Soccer” could not be used on a product unless it was released from Sony. With the persistent competition from other record companies like Univer- sal and Warner (despite their absent license agreements), customers experienced great bewilderment about what product to buy as a memento of the special occasion. Interestingly, these FIFA World Cup compilation records were not available in downloadable format from a computer; South Africa’s digital market was simply not yet developed enough to support it. Con- versely, the “hits” from Sony’s album , i.e. Waka Waka sung by Shakira and the local band Freshlyground and Sign of Victory by R. Kelly, were readily available as mo- bile downloads, which is remarkably a very developed technology in South Africa. Yet, with the market so diluted with “official” releases from each major label, it was tough for Sony’s album (for which the rights were acquired) to stand out. Unless a consumer really did their homework, there would have been no way to distinguish unofficial albums from official ones. With every major label competing for the FIFA market, the oversup- ply created an influx of World Cup-themed disks. Unfortunately for Sony, the entire effort of promoting “Listen Up! The Official 2010 FIFA World Cup Album” wound up losing the company a substantial amount of money. All proceeds were initially donated to FIFA’s “20 Centers for 2010” initiative⎯ an organization that instills positive social change through soccer. The overwhelming disparity in sales, caused by an unforeseen competition, virtually eliminated what was thought to cover promotional costs. But on the bright side, “20 Centers for 2010” did accomplished its mission of building twenty “Football for Hope” centers for public health, education, and soccer in South Africa and other African charities. The question that comes to mind is whether or not it is practical to grant exclusive rights for the World Cup to just one company. It’s not to say that Sony Corporation should no longer be a FIFA partner, but rather, Sony Music should share FIFA’s responsibility in the matter. Had FIFA given the rights of the “official” album to other record companies as well, probably less confusion would have been created for consumers. Had this been the case, a more positive atmosphere among South African record companies could have existed for the betterment of the event as a whole. The official album and featured artists could have been marketed globally, since dif- ferent record companies have different niche markets for their products. If FIFA had given the responsibility of handling the recording and the release of the official album to the big five companies of that country (Sony Music, Warner Music Gallo Africa (WMGA), Uni- versal, Select and EMI), soccer music fever would have been better exploited. Everyone, including the soccer hooligans, would have likely spent more on music. Volume 6, Issue 2 Music Business Journal (From Page 10)
  • 12. Volume 6, Issue 2 Music Business Journal Business Articles 12 www.thembj.org November 2010 Bringing a new style of music into a market of over a billion people, and finding the right distribution channels for such a style, is anything but a simple task. Atul Churamani, a music producer con- sidered to be one of the principal innova- tors of popular music in India, managed to achieve such a feat when he brought west- ern popular music into the market. In 1988, Churamani joined Magnasound India, a production company that had just acquired the exclusive license for Warner Music in India. A History At the time, the music market- place was suffering from two major prob- lems, according to Churamani. The first was that music was only distributed on poor quality cassette tapes. The other prob- lem was that India only received interna- tional albums months after they’d been re- leased in their respective countries (mainly the United States and Britain). By the time the albums reached India, the market was already flooded with pirated copies, mak- ing it very difficult for international releas- es to sell successfully. In order to fix these problems, Churamani took advantage of being the ex- clusive Indian licensee for Warner Music and began releasing international albums in attractive packaging, on higher quality cassettes, and at highly competitive prices. This in turn resulted in a substantial rise in the legitimate international music market. The demand for legitimate international music was quickly growing and in 1991, Star Network facilitated the launch of MTV into the marketplace. At the time though, MTV was only playing music videos from artists within the United States and Britain. However, according to Churamani, ap- proximately 70% of the local music within India was coming from Bollywood, so he jumped at the opportunity to incorporate the local Bollywood music into MTV. In 1992, Magnasound India pro- duced two music videos by local artists, an English-singing female vocalist by the name of Jasmine Bharucha, and a Hindi rapper by the name of Baba Sehgal. Baba’s music videos became so popular that his al- bum reached sales numbers unprecedented by any local pop artist before him. In es- sence, the Indian pop music market had been created thanks to Churamani’s way of distrib- uting international music and the introduction of MTV into the marketplace. Star Network even went on to create their own version of MTV called Channel V. The Future Distribution for music in India has drastically changed since the turn of the 21st century. CD’s, and even more so MP3s, have replaced the cassette tape, and offer higher audio quality amongst other benefits. In particular, the format has proven extremely popular because of its ease of distribution via cell phones. There are 670 million wireless subscribers in India, out of which ringtones, and music already pre-loaded onto phones, account for 30% of the Indian music indus- try’s 7.5 billion rupees—or a revenue of $168 million. Only 7% of the population (81 mil- lion) uses the Internet on personal computers. It is clear that the emerging cellular market has a huge potential to bring all sorts of con- tent, particularly music, to people all across the nation, including rural areas that would otherwise have no access to digital media. Although some people do use internet café’s for their internet browsing, rural folk, which account for around 73% of the population, do not access them. However, cell phones have become increasingly popular in the country- side. An additional benefit to the distribution of digital music via mobile phone networks is the fact that mobile phones are less vulner- able to digital piracy because wireless carriers have much more control over what content is available. Mobile Music Is It Bharti Airtel, the largest wireless carrier in India, reported in 2009 that their us- ers completed over 200 million downloads of music content. Although the pricing for mu- sic is much lower in India than in the Unit- ed States, approximately 33 cents for a ring tone, the market is still growing. Analysys Mason, a telecom and media-consulting firm, believes that the true potential of the music market, measured by mobile music penetra- tion, has yet to be tapped. India is currently at around 30% penetration for mobile music services where China is currently over 80%. Once a faster 3G wireless network becomes available it can be speculated that the new network will also boost downloads of digital By Sahil Mehrotra music in direct correlation with faster down- load speeds. It is unclear how much the music industry is benefiting from the distribution of music via wireless mobile networks because telecom carriers don’t provide any informa- tion on what percentage of music sales they keep for themselves. However, professionals in the music industry have noted it is upwards of four-fifths. Regardless of the low cut given to labels, the distribution of music through telecom companies has definitely boosted the market for the music industry in India. Again, it definitely benefits the music industry that almost all the musical content provided through cell phone networks is legitimate and not pirated. With a population of over a billion people--of which not even half have access to the Internet or mobile phones—there is a lot of optimism that the Indian music industry will grow. With the right distribution chan- nel bringing an end to pirated music, one can hope that the record labels within India will begin receiving larger percentages of music sales from the cellular network providers, and continue providing music for the nation as digital content continues to spread. Sources: [1] The Wall Street Journal Online - http://blogs.wsj.com/ indiarealtime/2010/10/22/mobile-not-net-drives-indian- music-sales/ (Oct 2010) [2]http://www.wipo.int/wipo_magazine/en/2010/05/ar- ticle_0003.html (Sept 2010) [3] Physorg.com – Mobile music a cell-out in India (2006) [4] India Technology Investments – “Magnasound India Ltd.” (2000) [5] Mobile internet in emerging markets – “How the mobile internet will transform the BRICI countries” (Sept 2010) [6]http://en.wikipedia.org/wiki/Demographics_of_ India#CIA_World_Factbook_demographic_statistics India’s Music Market: Open For Business
  • 13. November 2010 www.thembj.org 13 Volume 6, Issue 2 Music Business Journal Business Articles Recently, non-music related busi- nesses have been seeking brand equity re- lationships, i.e. using an artist to deliver themselves to a specific audience they want to connect with. Music is a part of the con- sumer’s daily life and conversation. The key is to portray an honest image and to be aware of credibility and consistency issues. Many major campaigns have arisen within the past few months, including Nata- sha Bedingfield’s partnership with boutique hotel chains, Keith Urban with Target, John Legend & The Roots with American Express, Zak Brown Band with Dodge, and Drake, Pit- bull and Trey Songz with Kodak. Finally, a promising partnership is Converse’s yearlong campaign centered on British talent, such as Hot Chip, Bitman & Roban, Hot City, and New Order. Converse has identified its market, and created an agreement that is beneficial for them and their clients. Bands are promoted to clients and fans through Converse’s website and other means, and the company narrows its marketing by learning from each band’s loyal fan base. Over the summer, the company also paired up with Kid Cudi, Vampire Weekend, and Bethany Cosentino of Best Coast for the single “All Summer,” as part of their “Three Artists, One Song” collaboration campaign. Although many wide reaching mass media deals are only seen with artists of a superstar level, the model is beginning to change. To many companies, a debut group Branding, Sponsorships, & Artist Imaging that has a strong image is a prime target for such deals. Companies are getting comfort- able connecting with these new artists be- cause fans adore them, and blogs passionate- ly cover them. “Indie artists have audiences that believe what they say, and partnering with that kind of credibility means more to a consumer than connecting with an artist who just has mass popularity,” says Jeff Tammes, senior VP of strategic marketing at Corner- stone. “Some brands are willing to grow with an artist, and use these lanes to connect with a demographic honestly and thoughtfully, be- cause all in all, it is about building a commu- nity with an artist, protecting it, and finding a new audience. This in turn, will generate a large amount of revenue for the indie artists.” Brands and sponsorships are be- coming the new labels for many artists --able to generate substantial revenue and combine marketing, advertising and PR all in one. The Economist magazine recently placed the val- ue of sponsorships in the USA at about $1.8 billion dollars , a figure that is equivalent to roughly a half of annual concert ticket sales. Clearly, this part of the business, which used to be unaccounted for, is expanding. Quest- love, percussionist for The Roots, summa- rized the current sentiment at a recent press conference. “There is no more selling out”, he said, “just selling. Sources [1] The Economist, “What’s Working In Music”, Oct. 9, 2010; 101-103; 102. In the current music market, personal branding, sponsorships, innovative distribution, and public image have all become key aspects for an artist’s success. These concepts are valu- able tools that artists are using to their advantage to differentiate themselves in a market of clear over saturation. In each case, an artist’s utiliza- tion of branding needs to be considered, and most importantly, its effectiveness on consumer behavior must be examined as well. There are recent developments within the industry that are creating trends and testing new angles of pro- motional branding and image establishment. Essentially, every artist is a product, and the current industry demands that an artist to be able to market themselves on a variety of levels. Artists also owe it to themselves to look at their art as a commodity, following a similar progression as a company would with releasing a product. Market research, target demographic, and consumer demand for what you are trying to do must be carefully examined in order to hurdle over the clutter. Branding has become a new way to connect with fans, reaching out and pulling two communities together. The ultimate decision is how to craft the brand to compliment your art. In order for any personal brand or partnership to be success- ful, an artist or company must determine what they do well. Everything starts with authentic- ity. Artists should not attempt to sell themselves to everyone, but should take time to evaluate their demographic, and be sure the brand is the right match before moving forward. By Kerry Fee
  • 14. Business Articles Volume 6, Issue 2 Music Business Journal 14 www.thembj.org November 2010 An HD Native Core Card, essen- tial for every Pro Tools HD Native system, brings the user 64 channels of I/O, 192 avail- able tracks, as well as 128 mix busses. This is a tremendous improvement over the previ- ous step down, Pro Tools LE system, which only offered 18 channels of I/O, 48 available tracks, and 32 mix busses. Pro Tools HD Native also brings powerful features like Automatic Delay Compensation and Input Monitoring to the semi-professional produc- tion arena. By allowing the user’s computer to power plug-ins and mixing functions, the Pro Tools HD Native Core Card handles I/O. Paired with the Avid HD Omni, Avid’s newest entry-level HD interface, semi-professional and professional studios can have complete access to Pro Tools HD at an affordable price of just over $5,000 The core card can also be interfaced with converters from Apogee Electronics or Lynx Studio Technology, allowing for easy inte- gration with systems that users may already own. Additionally, Native processing power allows the engineer to employ third-party DAW software such as Apple Logic or Cu- base for use with the Avid hardware. This provides a tremendous opportunity for engi- neers who have outgrown and are looking to upgrade their limited Pro Tools LE systems, allowing them to unlock the capabilities and sheer power of the Pro Tools HD platform. A Home Studio Milestone: In October of 2010, Avid (formerly Digidesign) announced Pro Tools HD Native. The latest in a recent string of product roll- outs, Pro Tools HD Native bridges the gap between consumer grade and professional grade Pro Tools workstations. Pro Tools HD Native allows access to the full capabilities and power of the Pro Tools HD platform, but at a fraction of the cost. Once accessible only by professional studios, the entry-level price point for a Pro Tools HD system was set at $10,000 dollars. Pro Tools HD Native allows access to comparable power for as little as $6,000, appealing largely to the semi-profes- sional production market. To fully understand the benefits of Pro Tools HD, both Native and DSP, one must gain insight on how these products function. Traditionally, Pro Tools HD has made use of DSP (Digital Signal Processing) through the use of Core PCI (Peripheral Component Interconnect) cards. Essentially, these cards act as a secondary motherboard, entirely dedicated to processing audio. The Core PCI cards can work alone as an HD 1 system, or in various combinations, branded HD 2 and HD 3, provide additional amounts of input/ output (I/O) and track count. The dedicated processing power that these systems provide makes it possible for audio engineers to re- cord and edit large sessions on an extremely reliable platform. Native processing, on the other hand, relies on the use of your comput- er’s internal processing power to handle these tasks. The advantages of a traditional Pro Tools HD system do not come without a price tag. In addition to requiring a Pro Tools HD Core Card, a studio would need to purchase a Mac Pro (or Windows equivalent,) and a compatible Analog to Digital/Digital to Ana- log converter. Without factoring the cost of the recording console or outboard gear, this system closely reaches a $15,000 price tag, which is not typically accessible to the home studio user. Newly released Pro Tools HD Native, paired with the new interfaces from Avid, brings a turnkey system to the con- sumer for slightly over a third of the previous cost. By Hunt Hearin Find us on Facebook and www. thembj. org Pro Tools Cost Is Almost Halved
  • 15. Volume 6, Issue 2 Music Business Journal
  • 16. Music Business Journal c/o Dr. Peter Alhadeff 1140 Boylston St. FB-359 Boston, MA 02215 _______________________________________ _______________________________________ _______________________________________ _______________________________________ MBJ Some of the topics we will tackle in next month’s issue of the Music Business Journal: Ten Years of Hip Hop Billboard’s Live Music Bash Google TV & VEVO The Music Business Journal will be released three times in the Fall, three times in the Spring, and once in the Summer. For more info, please contact any core member of the editorial board. The journal’s e-mail address is thembj@gmail.com. Also, our website is www.thembj.org, where we have not only our current issue (as well as all back issues) available, but also, much more. Volume 6, Issue 2 November 2010www.thembj.org Visit the MBJ online! www.thembj.org To subscribe, please contact us theMBJ@gmail.com Berklee College of Music Music Business Journal Berklee College of Music Upcoming Topics