Copyright – Use It Or Lose It?

I was browsing in one of the last remaining record stores in Melbourne’s CBD last week, flipping through the secondhand racks for independent vinyl releases of the 70s and 80s. (I was in search of some sounds of the Paisley Underground, if anyone is interested.) The shop owner, who also runs a record label, lamented that there are a whole bunch of out-of-print recordings of that era that he wants to license for reissue in physical format – but in many cases, the rights have since been acquired by major record companies that have no interest in re-releasing this material themselves. Yet, when approached for permission, oftentimes they ask for prohibitive licensing fees, making the venture uneconomic.

The sound of the Paisley Underground (on vinyl, of course) – Image sourced from Discogs.com

The irony is, most times the major labels have no idea what they have in their back catalogues, because the content they own has been scooped up through corporate mergers or is still managed via a series of archaic territorial licensing and distribution deals based on antiquated geo-blocking practices. Plus, understandably, they are usually more interested in flogging their latest product than curating their past.

There’s nothing wrong with content owners wanting to charge licensing fees, but surely they need to be commensurate with the likely rate of return for the licensee (we’re usually talking about a small circulation among enthusiasts, after all). Plus, the original production costs have either been written off, or amortized on the books – so, given there is little to no new cost to the content owner, ANY additional revenue stream would surely be welcome, however modest?

But what about streaming and downloads? Surely all this back catalogue content is available from your nearest digital music platform of choice? Well, actually no. In many cases, “out-of-print” also means “out-of-circulation”. And even if back content is available to stream or download, the aforementioned geo-blocking can mean that rights owners in certain markets may choose not to make the content available in specific countries. (I’ve even had the experience where content I have purchased and downloaded from iTunes Australia is no longer available – probably because the rights have subsequently been acquired by a local distributor who has elected to withdraw it from circulation.)

Of course, copyrights eventually expire or lapse, and unless renewed or otherwise maintained, usually fall into the public domain (but not for many years…..). Again, nothing wrong with affording copyright owners the commercial and financial benefits of their IP. But, should content owners be allowed to sit on their assets, and do nothing with their IP, despite the willingness of potential licensees to generate additional income for them?

In a previous blog, I ventured the idea of a “use it or lose it” concept. This would enable prospective licensees to re-issue content, in return for an appropriate royalty fee or share of revenues, where the copyright owners (and/or their labels, publishers and distributors) no longer make it available – either in certain markets and territories, or in specific formats. To mitigate potential copyright exploitation, copyright owners would be given the opportunity to explain why they have chosen to withhold or withdraw material that had previously been commercially available. There could also be an independent adjudicator to assess these explanations, and to help set an appropriate level of licensing fees and/or royalties.

Meanwhile, on-line sites like Discogs.com provide a welcome marketplace for out-of-print back catalogue!

Next week: Big Data – Panacea or Pandemic?

 

 

 

 

 

 

Will streaming kill the music industry?

The resurgence in vinyl sales is certainly not enough to save the music business. But will streaming finally cook the goose that once laid Gold Discs?

statistic_id273308_music-album-sales-in-the-us-2007-2014

US album sales (in all formats) are in decline. (Source:  Statista)

What can we learn from the music industry based on the apparent rebound of vinyl sales in recent years? Is streaming doing enough to halt the decline in total music revenue? Will CD’s soon disappear altogether? What future for LPs in a world of “Album Equivalent Sales”, “Track Equivalent Albums” and “Streaming Equivalent Albums”?

Are there parallels here with other content, publishing or entertainment sectors?

Back to Black

Last month the 8th annual Record Store Day was launched with a fanfare of upbeat data for vinyl sales. It was a good news story in an otherwise depressing saga of declining album sales, stagnating revenues, and mixed messages about the impact of digital downloads and streaming services on the music industry.

Coming off a very low base (like, near-extinction levels), the extraordinary sales growth of vinyl (especially in Australia) can be attributed to a combination of factors, although it is difficult to see how any single trend is responsible for this growth:

  • The growing popularity of Record Store Day itself (although it’s not without its problems – see below)
  • Baby boomers buying their record collections all over again
  • Hipster interest in analogue technology
  • Record labels mining their back catalogues
  • Niche market interest among audiophiles, collectors and the cool kids
  • New approaches to packaging vinyl with downloads and other bonus content
  • DJ culture
  • Secondary markets via E-bay and Discogs
  • Retailing switching from megastores to specialist shops

Infographic: Vinyl Comes Back From Near-Extinction (Source: Statista)

Where Is The Money Coming From?

Latest industry data suggests that digital sales (downloads and streaming) are now on a par with physical sales (CD, vinyl and the rest). Overall revenue has stabilised, having fallen from a peak in 1999. And streaming services are enjoying huge growth.

But the true picture is harder to establish:

First, while the IFPI provides global aggregated data, each local industry body (RIAA, BPI, ARIA etc.) likes to tell a different story from its national perspective. So it’s difficult to compare like with like. (For example, while Taylor Swift is supposed to be a worldwide phenomenon, she does not figure at all in the BPI data for 2014…..) One brave soul has tried to compile data for the past 20 years.

Second, because of the changes in distribution and consumption, music sales have to be counted in different ways:

  • Wholesale revenue vs retail sales
  • Physical sales vs digital sales
  • Per unit download sales vs streaming equivalents
  • Product revenues (e.g., album sales) vs licensing revenues (e.g., soundtracks)
  • Subscription fees (e.g., Spotify) vs per download revenue (e.g., iTunes)
  • Advertising income from video streaming vs royalties from broadcasting and soundtracks

Third, when more and more music is accessed via video platforms like YouTube, Vimeo, and Vevo, streaming platforms like Spotify, Pandora and Omny, or apps such as Bandcamp, Soundcloud, Mixcloud and Shazam, “sales” data starts to become less and less relevant. (And some people are still hanging on to the ailing MySpace platform….).

The bottom line is that despite the growth in streaming services, digital sales (in whatever format or media) are not yet enough to compensate for the continued decline in album sales in particular, and music overall:

The peak era of CD sales is over. (Source: Talking New Media)

Record Store Day Woes

The success of Record Store Day has divided opinion as to whether it is actually a “good thing” for the industry. It started as a campaign by independent record labels, distributors and retailers to revive the habit of buying records in-store. Labels produce limited edition and often highly collectible items for the occasion, and there are rules as to how, when and where these releases can be made available to the public.

At first, it really was driven by the independent labels, many of whom brought out interesting product that otherwise wasn’t available, such as label samplers, unreleased material and one-off artist collaborations.

Now, the major labels have jumped on board, meaning the market is flooded with unnecessary re-releases (do we really need Bruce Springsteen‘s ’70s and ’80s albums reissued on vinyl?) drawn from their extensive back catalogues (no need to pay for recording costs or new artwork!).

This means that smaller labels who release new vinyl records on a regular basis (not just once a year) get bumped from the production line, as the major labels exert their purchasing power over the pressing plants.

In addition, some Record Store Day releases are so badly distributed that stores are unlikely to take delivery of the items in time for the event. Or bad decisions lead to over-supply of certain items, which end up in the bargain bins (major labels again especially guilty of this offence).

Some store owners appear reluctant to participate because they feel embarrassed about the prices they may have to charge for many of the limited releases, which get bought by speculative customers, rather than collectors, fans and enthusiasts – a fact borne out by the immediate listings and inflated prices on E-Bay and Discogs….

As one store owner I talked to commented: “Every day should be record store day…”

What Else Does The Data Reveal?

For all the new young pop stars that the industry keeps churning out, there’s nothing like longevity and back catalogue to prop up the sales numbers. For example, Barbara Streisand was in the Top 10 for US album sales (and with new material!), and the likes of Pink Floyd, Led Zeppelin, Miles Davis, Bob Marley and Oasis feature in the top-selling vinyl records. Will Record Store Day 2025 herald the vinyl release of Justin Bieber’s pre-pubescent “demos”?

The decline of album sales has been particularly steep in the genres of Hip-Hop and R&B, while rock and pop continue to dominate the market. Some industry commentators have suggested that music sales are merely “in transition” as consumers switch from buying CD’s and downloading music to subscribing to streaming services. Meanwhile, in the US, country music’s #4 position by overall consumption reflects substantial album sales, as streaming is still a small component for the genre.

And those vinyl sales numbers? They’re simply a blip on the chart and largely driven by avid fans willing to shell out for deluxe editions….

The future is streaming?

Apple and others certainly believe (or hope) that streaming will save the music industry. Having demolished the market for CDs, iTunes is in a battle for its own survival among competing streaming services, where Apple itself is about to lead the charge having acquired the Beats platform.

But others are not so sure, predicting that streaming is already in decline, along with download sales:

First, the streaming platforms are yet to make a profit. Part of this is due to the cost of content that has to be licensed from the record labels and artists. Part is also due to the cost of acquiring customers, even if this can be done via social media, because the decline in music buying has been so abrupt, so the industry may be permanently damaged that streaming cannot bring back paying customers.

Second, even though streaming may overtake downloads by next year, there’s still nothing certain that teen pop fans (the target audience) will pay $7.99 – $9.99 per month to listen to music via so-called “freemium” services. Evidence suggests that consumers are happy with the free services, even if they have to put up with ads.

Third, while I agree that the freemium model is a fixture in the digital economy, the problem with Spotify et al is that they are not growing the market for music, but simply cannibalising it by displacing existing platforms (commercial radio, digital downloads, physical sales), while being tied to third-party distribution channels (the internet) and devices (smart phones, tablets and computers).

Anyway, subscription-based music streaming is nothing new, and was first launched over 100 years ago (and thanks to Mark Brend’s “The Sound of Tomorrow”, I learned that Mark Twain was the first subscriber).

If the “old” record companies are charging streaming services too much to license their content, then the streaming services should just find other sources – there’s plenty out there – but then, just like the major record labels, they are not really interested in music, only in shifting product and promoting “artists” (even if they are still figuring out how to make digital pay). The record labels don’t help themselves with their reliance on back catalogue, and their archaic territorial licensing practices either – forcing customers to circumvent geo-blocking barriers (legally or otherwise…).

Unfortunately, file sharing, illegal downloads and “free” streaming have meant customers don’t feel compelled to pay for digital music content. Personally, I prefer to curate my own listening, and not let someone else dictate what I hear, even if the service “knows” my preferences…

And the moral of the story is…?

More distribution platforms, more formats and more content may not be enough to save ailing industries, whether it’s music or television, newspapers or movies. These businesses will have to learn to live with lower margins and/or smaller market shares. The quality of a home-made movie uploaded onto YouTube may not be anywhere near that of a Hollywood blockbuster, but if cat videos are what grab punters’ attention (and by default, pull in the advertisers), the studios may have to find alternative strategies. And if music fans prefer to use free streaming services, the industry has to do a better job of producing content that consumers may be willing to pay for.

Ironically, in publishing, one sector that has been written off ever since the arrival of CD-ROM’s and the internet, teen consumers are still happily buying and reading print editions, alongside e-books. More so than other content industries, publishing has rapidly adapted to the new user-defined model: aspiring authors find it easier to self-publish (e.g., via Tablo and dedicated crowdfunding platforms such as Pubslush and Unbound); they can easily connect with an audience (especially in the realm of fan fiction); and a platform like Wattpad allows writers to test material before they commit to formal publication, and lets readers vote for what they’d like to read more of.

Next week: Making connections between founders and investors

 

 

 

Has digital killed the music industry?

Or, more specifically, has disintermediation broken the business model?

Image

Ever since the invention of compact cassettes in the 1960s and the arrival of the Walkman in the 1970s, pundits have been predicting the end of the music business (remember those “Home Taping Is Killing Music” campaign logos of the 1980s?) – a theory that look set to come true in the 1990s with the launch of mp3 players and peer-to-peer file sharing. Yet, rather like Mark Twain, the death of the record industry appears to be greatly exaggerated.

Most debate about the demise of the music industry is predicated on the impact of technology that facilitates music piracy, whereas in reality the business model has been broken as a consequence of digital disintermediation.

For most of its history, the recording industry was a model of vertical integration. The major record labels owned the content, the means of production (recording and manufacture), the publishing and licensing activities, the distribution channels – and in some cases, they even manufactured the hardware, owned the retail stores and promoted live concerts.

The 1970s began a rapid process of horizontal integration, as the major record labels merged with one another at such a rate that by the late 1990s there were really only four global companiesSony, Warner, Universal and EMI. At various times, each of these companies has also been affiliated to substantial film, electronics and publishing interests – further proof of the vertical and horizontal integration.

The “Big Four” have now been reduced to just three with the sale of EMI to Universal. European Union Competition rules resulted in parts of the EMI group of labels being divested to Warner, and the music publishing division being sold to Sony/ATV Music Publishing.

EMI was probably the epitome of vertical integration – but over the years, it was forced to sell or close assets like its UK manufacturing plant and the HMV retail chain, and came close to selling off London’s Abbey Road Studios (a decision that was reversed following public outcry and reinforced by a heritage listing). Some observers blame poor business decisions and weak digital strategies for EMI’s demise, but I would argue that the highly integrated model has been found wanting, and EMI was a dinosaur that could no longer survive in its current form. For example, despite some errors of judgement (such as putting “Copy Control” software on their CD’s which affected their ability to play on personal computers), in many ways EMI was something of a pioneer in digital music – being one of the first major labels to remove DRM from its downloads, and licensing its content for streaming services.

Despite the rampant corporate contraction, the growth of digital download platforms and the expansion of music streaming services, it’s clear that record labels still have a role to play in developing and distributing new content. Independent labels, distributors and retailers continue to wax and wane according to the fortunes of the wider industry, and technology makes it even easier for artists to self-release their recordings direct to the customer – but record labels provide the financial and marketing support that are critical to commercial success, and other intermediaries (publishers, distributors, licensees, retailers, promoters, etc.) continue to add value to the supply chain.

In fact, just this week, Billboard has been running a poll on whether Universal and Sony should break away from their parent entertainment conglomerates – the theory being that the music labels represent greater value on their own, especially when unencumbered by ailing electronics and movie businesses. Results so far suggest that ownership does not matter so much as having the best strategies for, and access to, the means of content creation and distribution.

At the same time, the music industry is going through another round of vertical and horizontal integration and disintermediation, driven by new technology, new distribution platforms and new business models linked to the way we access and consume content. So, while Apple’s iTunes platform has been accused of anti-competitive practices in its dealings with content owners, it also faces competition from music streaming services like Spotify, Rdio and Pandora, and new content platforms like Twitter’s #music and Vine. And if sales of new CD’s (and even mp3 downloads) are reportedly declining, there is still healthy demand for live music events especially those linked to the marketing of established back catalogue titles, which is where record labels come into their own as curators of re-released and re-packaged content.

In conclusion, here are some random reasons why I think the music industry is actually in good health:

Music retailing loses its voice…

"HMV" by Margaret Manchee (courtesy of the artist)

“HMV” by Margaret Manchee (courtesy of the artist)

The decision last month by HMV (UK) to go into administration is further indication of how traditional bricks and mortar music retailing has not managed to keep up with trends. A combination of new technology, different purchasing habits and industry fragmentation has seen the retail model come unstuck – in a similar fashion to chain store book retailing.

Few mainstream or high-street music retailers have managed to survive unscathed in recent years – Tower Records and Virgin Megastores have disappeared from all major markets, and Sam Goody has been re-branded in the USA – although HMV retains stores in Hong Kong and Singapore, and both Tower and HMV stores operate in Japan under local licenses to private equity investors; Virgin retail still has a presence in France, where it competes with the domestic chain of FNAC. Otherwise, it’s mostly local independent and specialist stores that manage to keep going, although in Australia the national chain stores JB HiFi and Sanity appear to buck the trend.

One reason why the major music retailers have not survived is that in order to grow and diversify their sales turnover they started stocking books, DVD’s, games, merchandise, concert tickets and audio accessories. This meant that they reduced the amount of rack space given over to music, and as a result they lost their retailing focus.

Another factor for their demise is that like their counterparts in book retailing, they become over-reliant on high volume sales of best-selling product put out by the major music labels, overlooking the fact that the average sales for best-selling albums have been declining since the 1980’s. They ended up selling fewer copies of each title, and compounded their sales decline by reducing the number of artists/products/genres that they stocked. At the same time, the 6 major global record labels that dominated in the 1980’s have been whittled down to just 3 – Universal Music Group, Sony Music Entertainment and Warner Music Group. (It’s virtually the reverse of the long tail theory, which has been a contributing factor to the success of Amazon in book and music retailing.)

In contrast, local independent and specialist music stores have kept innovating, and kept abreast of market trends. For example, international Record Store Day each April sees music fans queuing at dawn around the block at their local record store to get their hands on exclusive and limited releases, releases that are often produced in analogue formats of vinyl and cassette.

Relying on the trio of global record labels to supply major new product and maintain bestselling legacy back catalogue meant that the music megastores became totally removed from the development of new artists, new product and new genres. Whereas, the independent and specialist stores have a vested interest in spotting and supporting new local talent, and in building stronger relationships with their customers – both on-line and in-person – via special promotions, in-store performances, and limited one-off releases. The megastores simply lacked the wit, wisdom, flexibility and credibility to deploy creative sales tactics or develop personalised customer experiences.

HMV’s closure in the UK is yet more evidence of how the old world music industry business model has been broken, except for one important area: marketing. The major labels (and an increasing number of independent labels) still have considerable marketing clout. This is a similar story to the book-publishing world, which is likewise dominated by a few global houses. But even with their marketing budgets, the major labels are under threat from viral marketing, social networking and direct-to-consumer distribution.

I would argue that the major labels have always been their own worst enemies. For around 50 years, from the 1940’s to the 1990’s, the majors tired to control all aspects of manufacturing, distribution, publishing, licensing, sales and marketing; the Virgin and HMV (aka His Master’s Voice) stores had their origins in record labels, and at various times the major labels also developed recorded music technology – HMV and gramophones, Phillips and CD’s, Sony and the Walkman etc. Vertical integration is all very well, but unless the content is continuously refreshed, the audience starts to tune out; and the one thing that the majors have never been very good at is identifying and nurturing new talent or spotting /developing new trends in music.

From the 1950’s when Sun Records unleashed rock’n’roll on the world, through to the 1990’s when the Sub Pop label defined the “Seattle sound” of Nirvana and grunge, the majority of interesting new music has been fostered by independent labels – the hey-day being the late ‘70’s and early ‘80’s when punk brought the means of production to the participants themselves, allowing musicians to engage directly with their audience and without having to be intermediated by the majors. I’m thinking of innovative UK labels like Stiff, Chiswick, New Hormones, Rough Trade, 4AD, Step Forward, Factory, Zoo, Mute, Eric’s, Fast and Postcard. The majors only picked up on this new music once it had been developed, tested and cultivated by the small independent labels.

Having survived the post-punk interregnum of the independent upstarts (often through mimicry and imitation via so-called “boutique” labels launched by the majors themselves) the majors regrouped in the 1980’s, only to flounder once more when grass roots music movements like rap, hip-hop, house, electronic and techno emerged in the mid-to-late 1980’s.

More recently, the majors over-looked the potential of the Internet and digital music – they failed to embrace the new technology, and instead they tried to control and suppress it. Witness the majors’ failed attempts to sell direct to consumers via their proprietary on-line platforms, the proliferation of different and incompatible digital formats, and the over-zealous digital rights management systems (some of which even locked content after a fixed number of plays!).

Although Apple’s iTunes platform has transformed and opened up the sales and distribution of digital music, the marketing is still dominated by artists whose major labels are willing to buy shelf space and pay for promotional content. In effect, iTunes is the new music megastore.

The latest frontier in digital music is geo-blocking – which means some content on iTunes is not available in all markets, or it is sold at vastly different prices between markets – a practice that also applies to software, films and other digital content, and an issue that is likely to come under regulatory review in the near future.

Where do I see the future of the music retailing? Although predictions are incredibly difficult when the whole industry is so fragmented, I think there are 3 key (but unrelated) themes emerging:

1. Although total CD sales continue to decline, and illegal downloading threatens commercial sales of digital music, sales of vinyl records (both new and back catalogue) seem to be increasing. Some back catalogue titles previously issued by the majors are being licensed to independent labels that restore and curate this content – suggesting that the majors have little interest in their own legacy. Both newly issued and reissued vinyl records frequently come bundled with a copy of the CD, or with access to digital files, and often feature bonus material. To me, this implies that consumers want the “authenticity” of vinyl, along with the artwork, sleeve notes and tactile/contextual experience of the music, but they also want the convenience of portable music. It  suggests that well-presented content will generally find a market, as long as the music labels and record stores continue to connect with their audience.

2. TV talent programmes like “American Idol” reinforce a very narrow, shallow and ultimately sterile style of music, delivered via a karaoke production line. This says more about the entertainment industry’s need to sell and cross-promote new talent rather than any appetite for investing in original and creative artists or content. Let’s assume that the participation in (and the audience for) these shows is rooted in show biz rather than the music biz, but does anyone really think that any of these latter-day pop idols will ever have a back catalogue to match the likes of David Bowie or Joni Mitchell?

3. Digital music technology means that anyone and everyone with a smart phone or a tablet can make their own music and distribute it via the internet without leaving home, without signing publishing deals, without entering into a recording contract and without paying royalties. A lot of musicians choose to self-release and control all aspects of production, marketing and distribution, by-passing the “traditional” music industry altogether. However, this democratisation of music production introduces a series of paradoxes – the increased quantity of content does not necessarily equate to increased quality; the commoditisation of music reinforces its disposability; and in all this “noise” it’s increasingly hard for new artists to be heard or discovered. Which is why the major media channels will continue to dominate and influence most of what we get to hear, and control the sales and distribution.