Pandora recently announced that it has passed 200 Million Users on its streaming music platform. This reportedly includes over 100,000 artists that compile the Pandora catalog of music.
Pandora which went public back in June 2011. Its stock has fluctuated after an inflated IPO. However, the recent news made public by the SEC, shows that its founders are cashing out as if they were dependent on streaming revenue to pay their bills (sarcasm intended). The SEC Form 4 report show that Pandora’s top brass has cashed out approximately $87.6 million dollars of their own stock all within less than 2 years of going public.
So what does this mean? Well, it means several things: 1. the executives are now rich (assuming they weren’t before they sold their own Pandora stock), 2. the stock will likely slide in value as the market watches the top executives’ behavior as an indication of the health of a company, 3. the streaming music model is not working well.
Point 3 should be the most alarming and obvious to artists. We’ve reported numerous times of the apparent inadequacies of streaming revenues (e.g. 1,000,000 streams equal some insanely low amount of money). With this new information it is clear that the streaming financial model in place with Pandora, while inadequate for most artists seems to be inadequate for Pandora itself. It appears that the royalty rates that Pandora agreed to pay the labels set the bar at too high of a rate to be a sustainable or scalable model.
For the artists out there, how much have you seen in terms of streaming revenue to date? Are you sound exchange numbers increasing in a proportional manner? Curious minds want to know.
Please write in with your comments. Stay tuned for more.
The current hot topic debate in the music industry involves the Internet Radio Fairness Act (“IRFA”). Recently, the debate is getting louder as the top artists in the music world and successful Internet radio companies clash over the bill. Supporters of IRFA say it is vital to the survival and success of all digital music streaming companies to end a flawed royalty system, but opponents claim it represents a disproportional cut in pay that musicians have come to and may eventually rely upon. It’s no surprise this debate revolves around money, but let’s not mute what’s more important: the long-term health of the digital music business itself.
How are the current Internet Radio and Streaming royalty rates set? Music rights owners (publishers, labels and independent musicians) and the digital radio companies do not negotiate the price of a license for streaming digital music. Instead, Congress’ Copyright Royalty Board (“CRB”), a three-judge panel, directly sets the price once every five years after SoundExchange (remember SE represents both master owners and performers which can include labels as well as independent musicians) and the digital radio services (online, satellite and cable radio companies) present evidence about the value of recorded music and the technology for delivering it to music listeners. Then, the CRB determines the royalties each kind of music service will have to pay out for the next five years. SoundExchange is then charged with distributing out those royalties to its members. The Performing Rights Organizations have their own equally confusing method for collecting and distributing royalties from internet broadcasts.
The debate or heavy complaining which led to the introduction of IRFA is coming from streaming services like Pandora. CRB has decided on dramatically different royalty rates: Internet radio companies like Pandora, the IRFA’s most vocal supporter, purportedly pay more than 50% of their revenue in performance royalties; satellite radio companies like Sirius XM pay about 7.5%; cable radio companies like Muzak pay about 15%, and AM/FM radio pays nothing. The result of these high royalty rates have forced most online streaming services out of the music business; most notably some giants such as AOL, Yahoo, and Microsoft.
With the rise of services like Pandora and Spotify, the labels and publishers went to extraordinary lengths to ensure that they would be paid a “fair” amount and the artists lobbied hard as well. Any change, however minimal, will be met with angry voices screaming (or singing) on the other side.
IRFA is designed to give Internet radio stations a fairer calculation process for setting the price of their music and lower this difference. The goal is to put services like Pandora, Spotify, Muzak, SIriusXM, on the same or similar footing. But 125 major label artists including Rhianna, Ne-Yo, Billy Joel, Maroon 5, and Missy Elliot penned a letter opposing IRFA. Their unified voice argues that IRFA will cut deeply into current Internet radio royalty earnings by an estimated 85%.
Who is right? Who is wrong? Who knows? What we are sure about is that, without a doubt, Internet radio is good for consumers. It allows for more music choices with more control for the listener, pushes songs from both major record labels and the nation’s rising independent musicians, and enables greater exposure and potential compensation for thousands of artists who would otherwise never be heard. Rights owners see this medium as a meaningful revenue stream that is only going to grow overtime. And the more listeners and the more plays mean Internet radio companies must pay more in overall licensing and rights fees to stream the music. Supporters of IRFA say that not only will these lower rates drive more innovation in legal music distribution, but also ensure more artists are fairly compensated for the performance of their recordings.
It is hard for us at L4M to pick sides in this fight. We have been writing about the changing music industry for almost five years now. We spotted Spotify as a potential solution and also a potential problem prior to its US launch. It comes as no surprise to us or our readers that there is a fight over how much streaming radio plays should pay out to artists. Obviously, we want to see a fair resolution, but that gets us into the existential debate over what is fair and how much is art worth. We’re not getting into that debate in this entry (save that for a night filled with several glasses of scotch and smoking jackets).
What do you think? Comment, email or discuss over Thanksgiving dinner (please don’t).
This article was penned in part by aspiring L4Mer Jessica Rzotkiewicz
Perusing the local trade magazines or attending a music based conference can lead a musician (or someone who works with musicians) to believe that Armageddon is truly here. If we hear one more speech or read one more article about the end of the music industry as we know it, we will certainly collectively go nutso.
The truth is the entire economy is in the crapper. We don’t know one industry that hasn’t been touched (well, maybe crime, if that is an industry). Music has certainly not been immune. However, we here at L4M are here to say that Debbie Downer needs to turn her frown upside down. While the days of multi-multi platinum records and huge advances are certainly on death’s doorstep, the savvy musician can do more than just eek out a living. Here are some things we think musicians should be happy about:
1. The Internet. Long hailed as the assassin of the music industry, the world-wide web offers more opportunities than it does problems if you know how to ride the waves. Not only has the internet introduced the fan to new (and mostly legitimate) ways of finding new music, collaborative websites now allow musicians a means to create, promote and distribute their music. Sites like TopSpin, BeatPort, BandCentral, SoundCloud and Facebook have become essential and typically inexpensive methods for sharing talent, ideas and product. If utilized properly, the internet’s social media platforms can completely replace a label based pr system. Access, affordability and a global reach are definitely something that the Internet provides to the musician willing to navigate it.
2. Music Festivals. Music festivals breath new life and huge opportunities to major label talent as well as emerging bands. Bringing great music to enormous crowds coupled with innovative festival organizers oftentimes bring great results. Not only are festivals bringing tremendous revenues to musicians and the organizers, they offer great opportunities to buzz bands to play in front of huge crowds and important taste makers. On top of that, every festival brings with it industry parties, opening slots for after shows, and tons of press. Emerging bands who strategically plan ahead for a visiting festival can really cash in (maybe not as much as Perry Farrell, but still…).
3. Music Licensing. It used to be that in order to get your music licensed your label or publisher would have to cozy up to a music supervisor. With the amount of media content around the world growing at a record pace (think tv, radio, satellite radio, internet programming, commercials, film etc.) there is a matching need for quality music. Jingles are a thing of the past. Ad agencies with unlimited budgets for music is also rare at best. Quality music that may originate from lesser known musicians but do not carry with it the rigors of publisher and label demands has become imperative. Musicians who work to get their music to savvy music libraries can make money on both up front music licensing sync fees as well as the oftentimes lucrative performance royalties.
4. The Remix. Want to resurrect an old single? Want to make some money as a producer by resurrecting that old singer? Never before has the remix been more important. DJ’s like Skrillex and Guetta have become über rich by making a name for themselves as talented remixers as well as great djs. For popular musicians, remixes by producers or other bands can lead to revitalized sales of a falling single. The remix is a handy promotional tool as well (Lady Gaga will be ever-present again for a while as she announces the release of an entire remix album). Another means of collaboration, oftentimes between artists who would not otherwise work together is definitely a trend that we can all be thankful for in 2011.
5. Vinyl. The LP appears to be back for good. Collectors as well as a new generation of music purchasers appear to be favoring holding something cool in their hands and not just in an electronic file living in an Ipod. While still expensive to manufacture, vinyl sales in 2011 continue to defy the rest of the industry. A positive trend that began several years ago, there does not seem to be a slow down to the sale of the old school vinyl record.
What about you? What are you thankful for as a musician or a music fan in 2011? Please comment below. Let’s stay positive and bring in the joy during this holiday season. Having trouble doing so, slap on the collector’s edition of Justin Bieber’s Christmas album. We have no doubt that you will soon be smiling!
Last week the world economic situation claimed another victim in the music world. Pinnacle Distribution, one of the biggest British independent music distributors, declared bankruptcy (known as administration in the UK). The ramifications of another large physical (CD’s and vinyl) distributor going out of business will have a wide reaching effect.
Distributors work with independent labels to distribute hard copies of a label’s catalog out to the stores and the public. The labels wait for delivery of payment from the distributors based on the number of units sold. If a distributor goes under, the labels, and the musicians who are signed to labels, stand in line with every other client/creditor of the distributor waiting to get paid. Usually the result is not enough money to go around. A label may end up taking pennies on the dollar for what is owed rather than taking nothing at all.
It’s a true domino effect. Simplified example: Jimmy usually buys $100 bucks per year in cd’s for holiday gifts. This year Jimmy got laid off and is no longer buying cd’s for his buddies. The store (Best Buy/Target or the last remaining record shop) where Jimmy used to buy cd’s notices that a lot of its customers are like Jimmy and does not order as many cd’s as it did in the past. The distributor who distributes Jimmy’s favorite bands’ music orders the same number of cd’s as it did last year from the manufacturer, but cannot sell as many units. The distributor cannot pay the manufacturer nor can it pay the labels who provide the distributor with its product. The label cannot sell as many of its artists’ cd’s nor can it distribute its cd’s worldwide. The label who is chiefly dependent on record sales to make cash, cannot continue to market or advertise its artists. And finally, you, the artist who survives on royalties from record sales does not get paid.
Major downer. Sorry. At first glance it appears that the sole reason for the chain reaction which is not-so-eloquently described above is the crumbling world economy. However, if you have been paying attention to the music industry and reading this blog, you already know that is not the only reason. The underlying reason for the crumbling music industry is rise of digital music as a true industry standard for music sales. The cd doesn’t make sense any more. It is a “loss leader” for most bands and distributors alike. The overhead involved in manufacturing, shipping, returns and fees make it almost impossible for an independent label or the artists on that label to make any real money from physical cd sales.
Yes the economy is scary. Yes music sales as a whole are not great. But, today there is no reason for a creative independent label or artist to be shackled to the dying distribution system. Using digital distribution companies, releasing digital only albums, striking exclusive deals with non-music websites or stores are just some of the out-of-the-box methods for musicians to make money. New and unique methods for delivery are popping up everyday. Bands can provide fans with exclusive content on its website or through a fan portal or by selling thumb drives with its music preloaded on it.
As the old industry infrastructure continues to crumble, independent labels and artist must move quickly to avoid being swept under by the collapsing giant. It is truly time to think independently, meet with other creative people and think of methods on your own to get your music to the masses. Most musicians are creative. Successful musicians realize that their non-musical-team which they choose to work with must be creative as well.
SHAMELESS SELF PROMOTION OF THE WEEK: The State of Illinois (?)
My adopted state government of Illinois finally got something right. Recently it passed Senate Bill 1981 which increased the state film tax incentive in Illinois from 20% to 30% and also includes a tax credit of 15% for the using labor on a film production from poverty stricken areas. The prvious bill was set to disappear on January 1, 2009 is now extended for an undetermined amount of time. Independent film makers in the music, movie and television industry should all be happy. Now the trick is trying to explain the tax incentives to a potential investor.
DISCLAIMER: THIS BLOG WAS ORIGINALLY POSTED ON DECEMBER 8, 2008. HOT ROD DID NOT GET ARRESTED UNTIL DECEMBER 9, 2008. THE AUTHOR HEREBY RECANTS ANY AND ALL APPLAUSE OR PRAISE DIRECTED AT THE SOON TO BE “FORMER” GOVERNOR OF ILLINOIS.
Now more than ever being independent in the music business is important. Its importance may be your band’s goal or, conversely, your independence is thrust unwillingly thrust upon you. The key is making that independence work for you in every possible way.
The typical music recording agreements today include a multiple album commitment from the artist with an option for additional albums. Unless you have clout, the form agreements coming out of New York, Memphis and Los Angeles will give ownership of all of your master recordings (your songs) to the label. Ownership transfers even in most 360 deals (the topic of my next post). The real whopper is that even though your band complies with the agreement and the label owns your music, the normal recording agreement will not include what is known as a release commitment.
A release commitment is something that every band should try to get from a label. It gives a date certain for the release of the music that you have turned in for your album. There are horror stories of artists that have turned in music to a label only to see the label sit on the album for months or even years. I believe the rapper Saigon waited over 5 years to release his debut album. Not much of a buzz left after waiting that long. Having language in your agreement which puts the burden on the label to actually release your language or forfeit their rights under the recording agreement is the best way to make sure this doesn’t happen to your band.
Just like every other industry in the U.S. right now, the music business is running on fumes. The Recession is hurting record sales (physical and digital), merchandise and concert tickets. So even if you have signed with a label, there is no guarantee that your label will (a) be able to fulfill its obligations under the agreement or (b) exist next month. What happens if you sign with a label and that label’s distribution company goes belly up? Unless you asked for a release and/or distribution commitment in your agreement, you may be stuck waiting for your label to work out a new deal with another distributor. Either way your music is delayed in getting out (if it does) or you are back to square one: a great album with no means to get a physical copy out to your fans.
So should you just give up? Like our friends from Galaxy Quest: Never Give up! Never Surrender
Do not despair. Remember the title of this post. Don’t rely on anyone else. Especially in these tough economic times, bands have to get creative to make a buck. If you are a band who has a buzz, can pack a 300 person venue, sells out of its merch at its show, etc., traditionally you would look to a label to swoop in and sign, wine and dine you. Like I said, those days are over and even if they, do you really want to sign a recording agreement?
It’s time to get creative. Do everything you can yourself first. Register your copyrights under your own band name. Register your band’s name and logo as a trademark yourself. Use every single contact you can to get your music to the next level . Look to sponsors (RED BULL LOVES TO MUSIC), like minded third party companies (Apple), concert promoters, party planners, management companies, anyone who has the ability to do what you cannot do yourself. Go strictly digital. Contact digital distribution companies (read below) to get your music to websites in other countries. Do what it takes to get your music out and build your band’s brand.
Its not an easy road. You definitely have to treat your band like a business. But just like other small business owners you will directly benefit from your hard work because you, not a label, own your band. You will be able to negotiate your own deals, collect 100% of the royalties, spend money when you think its appropriate and distribute income when you want to rather than waiting for someone else to pay you.
So whether you choose to go the independent route or you went with a label that dropped you or dropped off the face of the earth, you are in a pretty good position. Not easy, but definitely doable.
SHAMELESS SELF-PROMOTION OF THE WEEK
Seed is an awesome digital distribution company that works with labels and artists to get their music out to the public via websites and digital outlets all over the world. They work to license your music to places you definitely have heard of and others you didn’t even knew existed. Check them out: www.seed-ny.com and www.myspace.com/seedny. Tell them lawyer4musician sent you (but only if your music is good ;))
As a musician Identifying your niche is not always an easy thing to do. Sometimes you pick your own niche. Sometimes a niche picks you. One thing that was a clear consensus in yesterday’s Future of Music (www.futureofmusic.org) seminar was that you need to (1) Identify your niche as an artist and then (2) sell your music to that niche. Great advice. But what’s a niche and how can your band identify its niche?
A niche is often defined as “a position exactly suitable for the person occupying it”. But in music, its a little different. In music, a band’s niche’s may be in the genre of music that it generally is grouped into by Itunes or Best Buy or by the type of radio station that plays its music. Oftentimes, the best way to find your niche as a musician is to identify where your fans are coming from.
For example, Jimmy Buffet has a very particular niche. A follower of his music even has a descriptive name: Parrothead. Parrotheads have a dedicated page on Jimmy’s highly successful (and highly commercialized) web page, Margaritaville.com. Fans can post their pictures from the latest show they attended, keep up to date on Jimmy’s newest business venture and feel a sense of community with other like minded Cheeseburger in Paradise eaters.
A remarkable businessman, Jimmy Buffet has done so well in identifying his niche that he has been able to sell not just his music to his niche fan base, but also beer, hot sauce, a successful restaurant chain, and even numerous Buffet penned novels. He has identified his fan base and has capitalized on his discovery in a big way.
Some bands will have it easier than others. If your band models itself after the Ramones or The Kinks, it is clearly going for the punk niche. If you have two synthesizers and a drummer, you are trying to capitalize on the rising Electro scene (MGMT, Cut Copy). For genre specific bands, your target niche and consequently your target market is easier to identify. You will find it easier to book your band at certain clubs and you will be able to sell your merch at specific stores. Capitalize on that. Post your flyers, whether paper or electronic, at sites where your target fan base frequents. Create a community site profile and invite the friends that you already have as well as the other similar bands, clubs and radio station sites that already exist. Cultivate your niche and watch it grow.
Uber successful artists are able to cross the lines and appeal to fans of different genres. Think about the Beastie Boys, Justin Timberlake, or even Lil Wayne. These artists have been able to go beyond their obvious fan base and “cross over” into new populations thereby increasing the worth of their entire brand. They have become mainstays on the iPods of 13 year old suburban mall rats, college hipsters and even thirty something professional types. Their collective niches seem to have no boundaries.
So what about a new band? How does it identify its niche? What about a band who’s music is not on the radio and who hasn’t uploaded their music to a Itunes, eMusic or Amazon? Your band may think that it is alt-rock, but maybe your fans are coming from the emo/teen angst scene. Community websites (a favorite tool of this writer) is a perfect way of determining where and to whom your band should be marketing. Just look at where your fan base is coming from; what other bands are they into; what type of scene (fashion or otherwise) are they into, etc. Are your fans blogging about websites like Friends or Enemies or are they more likely to spend time following the happenings on Fake Shore Drive? Follow the path that is paved by your fan base and you will have an easier time discovering your target audience and therefore your niche. Once you find it, focus on it and make it your friend.
Giving your music away for free is not a new concept nor is it something that I just came up with on my own. Although the idea has all but crippled the music industry, it has helped hundreds if not thousands of independent artists get their music to the masses. For an up and comer or even for an established artist (i.e. Radiohead), giving your music away for free can be a potentially brilliant maneuver. That is of course, if you do it the right way.
Bands, djs, rappers, and producers have been handing out mix tapes for decades now. The hope is that the music gets in the hands of a label exec or an A&R guy who then throws bags of money at the artist. This theory has worked (see 50 cent)…just not very often. Forget about the odds against a mix tape landing you a record deal, there is a huge lost opportunity by simply throwing your sample cds out to random outstretched arms at your next show.
In the internet age, one of the most valuable assets that anyone or thing can have is information. Companies pay out the “rear” for good info on who is viewing what webpage. who is buying or bidding on what product, who is watching what video, who is downloading what game or song. They can then tailor their own webpage or decide on which website to place their own advertisements. A band should be no different than any other info hungry business.
When you give your music away, make sure you get the recipients info, their name, address, email address at least. If you have your music in a downloadable format on your website, make your fans join a fan club by entering their info before they can download it. You are not only getting a great database for your fans (think fan club) but now have a built in marketing army. When you have something to sell, whether its music or a dvd or a t-shirt you now have a target market with built in projections of who is going to buy your goods. This should turn into real dollars.
It works even better when you look to license your music to a third party. If you have 5,000 fans that have provided their info in order to download your music, compared to someone who thinks they may have simply given away 5,000 cds you have a huge upper hand when a company comes along who is looking for music to go along with their next commercial or video game. For a relatively unknown artist, licensing remains a real way to make big money. The opportunity to license your music increases when you have more to license then just your music.
Moral of the story: Give your music away for free but profit from the info you retain.