Category: money

The Spotify Conundrum

Update:  Check out what Coldplay’s Manager has to say about the Spotify Conundrum:  CLICK HERE FOR DIGITAL MUSIC NEWS ARTICLE

To stream or not to stream?  That is the .0007 cents per stream question.

Recently top name bands like Coldplay, The Black Keys and Arcade Fire have spoken out against streaming.  Citing the “gross underpayment” to artists per stream, bands are pulling their music from sites like Spotify or simply prohibiting the placement of their songs altogether.

Let’s look at some projected numbers from streaming on Spotify (courtesy of Digital Audio Insider):

Spotify Per-Stream Payouts August 2009 to March 2011

Smallest: 0.02056 cents
Largest: 1.1456 cents
Average: 0.2865 cents

These numbers are strictly estimates and we have heard that some of the deals that major labels have entered into with Spotify have the per stream at a MUCH lower number then those above.  Regardless, to make some actual money through Spotify, an artist will need millions of streams.  No problem for Justin Beiber and Lady Gaga, but what about the little guy?  Apparently, it’s not just the little guy that is worried/pissed.  As mentioned above, Coldplay and The Black Keys have been very vocal about their overall disdain of streaming providers.  In a recent VH1 interview, The Keys drummer said the following:

“We decided for this album, to not allow streaming services to stream the entire album,” Keys drummer Patrick Carney said.  “It’s becoming more popular, but it still isn’t at a point where you can replace royalties from record sales with royalties from streams.  So it felt unfair to those that purchased the album to allow people to go on a website and stream the album for free whenever they want it.”

Independent labels and artists are outraged with the seemingly enormous underpayment to artists and there are consistent stories of indies pulling their music and catalog from the site.  The question remains however, will their protest pay off or are they really missing out on a new untapped method of reaching millions of fans?

The founders of Spotify continuously hammer home the message that their’s is a music discovery tool.  By having all the published music in one spot, fans will be able to discover deeper cuts or new artists or even new genres of music that they didn’t already appreciate.  Following their logic, once you discover these things your are more apt to actually go out and purchase your new discoveries or better yet, go to a show the next time the “new” band is in town.

From personal experience, I actually tend to side with Spotify (probably not the most popular opinion on this site).  You can stream virtually every song known to man somewhere on the Internet.  Whether it is on YouTube (the new radio for kids), Pandora, blogs, hacker/torrent sites or on artists’ websites, you can typically find a song if you really work Google over for a while.  Spotify puts it all in one handy dandy place for you.  Then it takes it a step further.  In its recently updated version the artists’ radio stations suggest similar music to that of the artist, album or track you originally searched.   I have found this to be a great way (much better than Pandora) to discover new music that I like and then support.

This is not the first time that the music industry has had to deal with a game changer (not even close to the first time).  As we have mentioned ad nauseum on this site, the Internet fundamentally changed the music industry.  Moving at a painfully slow pace, the label infrastructure was not ready for the shift.  Look what happened to them.  Now that the Internet is out of its infancy and new and creative ways to bring music to fans are being created on a daily basis, will the existing labels and, more significantly, the independent artists be ready to play ball?  Or will they stamp their feet and and cry “UNFAIR, DO OVER!”?

Rather than complaining about the system in place and the uber small price per stream (which we agree is way to small and should be changed a bit), we suggest that bands get creative with streaming networks.  Give fans extras and incentives to stream.  Be discovered and it should lead to better results for your music.

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How to Make Money as a Musician (Volume 3: Creative Merch)

Those Guys

Those Guys

Most people don’t want to be that guy.  You know the guy that rocks the Iron Maiden t-shirt to the Iron Maiden concert.  However, that guy, has helped musicians generate additional revenue for decades.

Today there are many more outlets and many more products that an artist may peddle.  While t-shirts and posters still rule the merch tent, new (and cooler) band merchandise is being developed seemingly every day. Recently one of my clients put out an entire mix tape on a  bracelet.  The LiveStrong looking bracelet ingeniously connects via a USB drive (see below).  This allows a band to sell something that looks cool, is unique and includes the band’s name, logo, design AND their music.  It’s brilliant.  There is even software available that would allow the band to continuously update the USB drive so the fan who purchased it will have updated music and band information and the ability to purchase new music every time the fan plugs the device into her computer.  (contact Vadim at http://www.customusb.com for more info.)

face usb

Picture Your Band's Name and Logo on a bracelet/album!

T-Shirts are not what they used to be anymore either.  If you remember this post:  Mos(definitely A Great Idea, you know that I am a big fan of including music on non-traditional media.  Computer codes and affordable USB drives can be included with all sorts of merchandise that fans are more apt to buy.  Mos Def included a code on a designer tee which enabled the purchaser to download his entire new album.  Magazines have used this idea for years; purchase the an issue of Spin and you can download the new single from Jack White’s new band, The Dead Weather.  Even beer purchases include mp3 downloads.  Obviously, indie artists do not brew their own beer, publish their own magazine or manufacture their own t-shirts.  However, with a little bit of research and some creative marketing, partnerships with content starved companies can be forged.

Not only are there new products, but with band websites, myspace, facebook, sonicbids, amazon and other e-stores, there are countless new ways to sell the products.  The back of the tour van will always be the primary way that a true indie rocker sells his burned cd’s, but for a couple bucks more, that indie rocker could sell you an mp3 from his couch.  Internet partnerships work just as well, if not better, as partnerships to manufacture and sell physical products.  If you align yourself with a like minded or themed website that has an on-line store, than you can offer exclusive gear to that site.  You take a chunk of the sales and share the rest (and all of your users that visit the site) with the partner website.   Everyone is a winner.

Music is quickly becoming a “value add” to products that people already purchase.  In the battle to grab a consumers attention, companies will pay a bit more to make their product stand out.   “Free” music is a great way of doing that.  And for musicians, the deals that can be struck with these type of forward thinking companies can be fairly lucrative; or at the very least serve as a great way to get music out to a whole new audience.

Creativity has to continue after the music is recorded.  In today’s era, where the only type of music sale that is increasing is vinyl, artists have to think creatively in order to make a profit.  If the public will only pay for select albums and download the rest of their music for free, new income streams must be forged by bands.  Selling your music in a non-traditional way may increase a band’s merchandise sales as well as “album” sales all at the same time.

Mos Def(initely) a Great Idea

Buy and Wear Mos Def's new product

Buy and Wear Mos Def's new product

Some of us who work with businesses that are on the periphery of the music industry (clothing manufacturers, software and computer companies etc.) have been babbling about the trend of coupling music with another consumer product for some time now.  Finally the idea of bundling or packaging new music with other merchandise appears to be taking off.  Artists like Mars Volta, ACDC, Mos Def and, oh yeah, the Beatles, are getting into the game providing major steam to the indirect music sales category.

Most of the readers of this page are not signed to major labels (at least I don’t think so).  So the idea of getting your next single on Guitar Hero IV is not very realistic.  However, in the past we have discussed creative ways of getting your music out to the masses.  Mos Def, a true indie hip hop legend, has taken this approach with his latest release: The Ecstatic.  As Pitchfork, Digital Music News and NME have reported, Mos Def’s newest release will be presented to the public via a “Music T-Shirt”.  Each t-shirt will have a unique code that will allow the buyer to download the album (not to mention rock a new sweet t at the same time).

This cross marketing and cross selling idea is clearly the wave of the future for music sales.  With continuous drops in physical cd sales, limited and dwindling numbers of stores selling cd’s and the tight economy, musicians and their labels have to think of new and creative methods for getting the new music to the people.  The majors may be too slow and too entrenched to re-invent their sales method in time, but creative indies and mid-size labels can definitely get on board.

The t-shirt idea is brilliant, but how about including music with the purchase of a particular sneaker.  If Converse knows that their shoes sell particularly well to the hipster community, why not include download codes for music from Passion Pit, Santigold or MGMT?   If you are a band that has identified your target audience, approach a company whose products are popular amongst your fans.  For young bands, their fans probably only buy music digitally.  Why not get custom usb drives made with music embedded on it and sell those at your concert instead of cds?  The cost is about the same (check out CustomUSB and Molotalk ) and the chances of a fan buying a wicked cool usb drive far outweigh a crappy cd with a handwritten label.

Musicians are creative by nature so the possibility for this secondary revenue stream for the sale of new music is seemingly endless.  As with all licensing and merchandise deals, the same “lawyerly” warnings apply.  As this trend grows and more non-music companies approach musicians to ask for music, more shady deals will be presented.  As always, be careful before you agree to sell, license or give your music to anyone.  That sweet t-shirt compilation idea may wind up as a not so awesome singing laxative container.

SHAMELESS SELF PROMOTION OF THE WEEK

I already plugged (no pun intended) them in this article, but check out Custom USB.  They have already worked with many big named musicians on really  cool USB drives that can come in any shape, size or quality.  They can embed software that not only includes music, but also creates a fan based intranet site that pops up once the device is plugged into your computer.  Awesome stuff.

another custom usb, picture courtesy of Molotalk.com

another custom usb, picture courtesy of Molotalk.comged into your fan's computer. Awesome stuff.

USB/Bracelets for Wathzisface's SXSW performance, pic courtesy of Molotalk.com

USB/Bracelets for Wathzisface's SXSW performance, pic courtesy of Molotalk.com

Section 181: Why Don’t You Use it Already?

I have written about Section 181 and the tax benefits it gives to film makers and music video producers in the past.  Well, I did it again.  It continues to amaze me that more people in the entertainment industry are simply not aware of this tax break.  It is an amazing way to save money and give your investors some peace of mind.  Here is an article that is going to published this month by firm.


American film makers and savvy investors received a bailout of their own recently. H.R. 6049, the Renewable Energy and Job Creation Tax Act of 2008 (“Act”) recently passed the House of Representatives and then became law by passing the Senate with a 93-2 vote. Buried deep within the Act is an extension of Subsection (f) of Internal Revenue Code Section 181 (“Section 181”). The Act calls for the one year extension of Section 181 from December 31, 2008 to December 31, 2009. For the select few that were already aware of the benefits of Section 181, this is good news (great news if it passes the Senate). However, for most Americans, they have no idea what Section 181 is and how they could potentially benefit from it.


Section 181 was Congress’ reaction to what had come to be known as Runaway Productions. A Runaway Production was a movie or television show that was typically produced by Americans and filmed in the United States which left the to be produced and filmed on foreign soil. Hollywood, like many American industries, had grown tired of the high cost of labor and taxes in the United States. Canada and other countries, identifying the potential financial benefit, took advantage and successfully lured American film and television production to their soil.


The government’s reaction was to include Section 181 within the American Jobs Creation Act of 2004. Section 181 offers tax incentives for investors in independent film and television productions. An investor may deduct the money which is invested in a film or television production and actually spent or utilized by the production from his or her passive income earned in the same year. If the investor is also actively involved in the operation or direction of the production, he or she may deduct the amount of his or her investment from all income earned in the same year. Productions with budgets between o $1 and $15,000,000 (up to $20,000,000 if produced in a defined low-income location) which have at least seventy-five percent 75% of its production completed within the United States qualify under Section 181.

Investors can be either individuals or businesses. In order to comply with Section 181, an investor will need to complete the required IRS filings along with their normal tax forms. A qualified accountant and attorney are always a good idea when trying to decipher and utilize the benefits of Section 181.


Not wanting to be left out, several states got in on the tax incentive game. States such as Michigan, New Mexico and even Illinois appreciated the value of attracting Hollywood productions to their state and the boom to their local economies. State film offices are great resources for investors and film makers alike in determining what incentives are available.


Tax rebates and incentives for money spent on film or television production within a particular state combined with the benefits of Section 181 allow an investor to greatly minimize his or her risk on what would ordinarily be a somewhat risky investment. For example, if a tax payer is in the thirty-five percent (35%) tax bracket and a qualifying film is shot in Michigan which has a tax credit of up to forty-two percent (42%), an investor will be eligible to recapture seventy seven percent (77%) of her investment in a qualifying production. This recapture is realized before the film is even released and/or makes its first dollar. In today’s economy this type of investment assurance is hard to come by.


We will continue to monitor the Act and issue additional updates as they become available. For any questions related to Section 181 or private equity placements for film or television production please contact us at jkaplan@stahlcowen.com.

Oliver knows all about Section 181, do you?

Oliver knows all about Section 181, do you?

2009: Who is the Next Soulja Boy? (yikes)

One and done?  Hopefully

One and done? Hopefully

 

What can we expect in the world of music in 2009?  As I am a lawyer for musicians and not a music critic for musician, I cannot predict which band is going to make it big nor can I even wager a guess as to who is 2009’s Soulja Boy (please don’t let there be another one).  What I can do, however, is perhaps offer a sneak peek as to what the hot button legal and business issues will be this year. 

This year we are bound to see more lost jobs, closed doors and consolidations in the music business than what we saw last year.  Depressing as it may sound, its better to be honest then to live in denial.  The industry is in shambles and was headed that way even before the global economic meltdown.  However, all is not lost my friends.  The advantage that music and entertainment have over banking and auto makers, is that there are truly talented and creative people in the entertainment world.  You cannot teach talent.  In addition to talented individuals, the entertainment industry has another key advantage:  a hungry public.  When you combine talented and innovative people with a public who craves new, creative and unique ways of being entertained, you have a great market for sales and growth.

Here is some hard evidence for you:  According to Soundsacn, 2008 saw a drop of 14% from 2007 for album sales with the real anchor being physical cd sales plummeting by 18.2%.  The upside: digital downloads.  Digital albums skyrocketed to a gain 32% over sales in 2007.   As if we didn’t already know, these stats offer further proof that even though the CD is a dinosaur, the industry is not extinct. 

Creative artists and management offering unique digital downloads can still make quite a bit of money.  The best thing about the death of the CD is that it also means the death of sneaky “manufacturing expenses” and “hold back” clauses in recording agreements.  Labels cannot (although they may still try to) charge an artist huge manufacturing costs and hold back’s or reserves for returned or damaged CDs when the artist is releasing a strictly digital album.  Lowered expenses and increased downloads at fair prices equals more revenue.  Artists who follow the digital revolution will continue to make money in the rocky economy.

Along the same line of thought, without the need for CD manufacturing and distribution, the need for a label further diminishes.  An artist and a capable management team can hire the appropriate digital distribution company, marketing company and PR company and achieve the same gains as a label without the cost of losing ownership of the artist’s music and a lousy royalty split. 

Energy plus New Beyonce Single...Sweet.

Energy and New Beyonce Single...Sweet

  

So my predictions for 2009 are that we will see even more innovative and creative ways to get music to the public.  CD sales will decline even more and digital downloads (singles, albums, ringtones, videos) will continue to increase.  Music will come in packaged deals for other products people are still buying:  dvd movies, beverage sales (think energy drinks), computer and video games, sneakers, bikes, and more will include exclusive tracks of musicians who are truly on top of their game.  Labels will continue to die or at least slip further into a darkening coma.  The independent do-it-yourself artist will continue to make great strides getting her music to more people.  Bottom line, more music will be available to more people via new and exciting mechanisms.  Should be fun.

Bad News for GNR, Worse News for Best Buy

Follow up post to Are you Exclusive (like a Chinese Democracy)?

The preliminary sales results are in for Chinese Democracy and they are not pretty.  It looks like Axl and the crew made out like bandits while Best Buy are left holding the bag (the bag of a million unsold copies of the CD).  Again, cd’s are dying, if they are not already dead. 

Read more about it here:  At Best Buy, an Album Sounds a Sour Sales Note.

Massively Confusing, Part Deux. Phat Advance?

I actually got some good feedback from my last attempt to simplify a business which has intentionally been designed to confuse people. I’m not sure which is more shocking, the fact that I got actual feedback or the fact that people understood my writing. Anyway, here’s round two.
Advances may be the most commonly misunderstood and misused term in the music business. Musicians work hard to try to get that one phat advance from the label; the big payday that will finally allow them to live like the rap stars on MTV Cribs (minus Redman, his crib was disgusting). The problem is, much like a one hit wonder’s fame, an advance can be fleeting.

www.celeb.wohoo.co.uk

Rather than thinking of an advance as a huge payday, think of it as a loan made to you by a music label. In a typical (old school) deal an advance will be paid out to 1. buy your band’s exclusive services for a period of time and 2. be used to pay for the recording of you album. Oh, minor detail, a typical recording agreement which pays a large advance to the artist usually means that the label paying the advance has just bought the rights to the band’s masters. The advance is not really your money. Its yours to use to make your album (or albums) and possibly live off of while you are recording your album so you can quit your job at Wal Mart. Nice right? Not so fast.

That advance/loan has to be paid back to the label one way or the other. The typical way a label recoups the amount it advances is by taking any profit your record makes first before you get paid a dime. In 360 deals, an advance is recouped not only from your record sales but from your live performances, merchandise and anything else your band sells.

Here’s a depressing example: Atlantic gives your band $100,000 bucks as an advance in exchange for a 3 record deal. Depending on the wording of the recording agreement, that advance is paid to cover the production of your first album with a potential second advance to make your second and third. You have to hire a producer ($30,000), rent studio time ($10,000), pay a mixer and post production house ($10,000), pay some studio musicians ($10,000), pay for clearance of a sample you need for one track ($10,000) and feed and house four band members while making the album ($30,000). Just like that you have spent your advance. Hopefully you got your record made. If not, its back to the label to ask for more money.
Now your album is done and the label spends another $100,000 to market and promote it. Right off the bat your band is $200,000 in the whole. Your record has to sell a lot of copies at the going Best Buy price of 9.99 (which is split amongst Best Buy, the distributor, the wholesaler, and the label and finally you, probably at about $1.00 (if you are lucky) per cd) before the label has gotten its $200,000 loan back. We can save the mystery of royalties for another day.

Here’s another little nugget of bad news: Labels don’t have any money to pay big advances any more. Advances have shrunk right along with the number of physical cd sales.

What does this mean to you? It means you shouldn’t 1. wait for a big advance cause it ain’t coming and 2. try to be as self-sufficient as possible. Bring a finished or nearly finished product to the distributor or label and ink a license deal rather than a recording deal. Rather than take a huge advance, try to work out a better split on royalties. That way you won’t be paying back your advance for the rest of your music career.