Hopefully these articles will give any aspiring artists out there some insights so they don't get burned.



http://www.musicandfilmne...witzc1.htm

Commentary:

The End of the Biz as We Know It (And I Feel Fine)

By Hank Borodowitz hank@bordowitz.com

I teach the Introduction to the Music Business Course at Baruch College in New York, and these days I consider myself irresponsible if I don’t scare the shit out of my students about the state of the music business.

See, this course is full of aspiring Master Ps and Puffys (along with a few aspiring artists who don’t want to get burned). Most of these people want to figure out how to buy into the music business fairy tale of wealth, drugs and sex.

Now, anyone who has actually toiled in this particular field knows that this has always been a myth and it’s more likely that you’ll win the lottery. In fact, entering the music business for these reasons is a lot like playing the lottery.

These students buy into a lot of myths about the music business, and I’d imagine a lot of other people do as well. One of the biggest canards involves the major labels as the Holy Grail for performers. The "just let me get signed to a major label and I’ll have it made" attitude. The truth of this is especially painful.

The conventional industry wisdom is only 5-10% of all albums released ever "earn out" or recoup their advance. This does not necessarily mean that the record companies don’t make money off of them. Artists on majors recoup at a rate that generally falls between 10 and 20% (their gross royalty rate) of 90% (the breakage allowance that goes back to when records were made of glass and lacquer played with steel needles at 78 RPM), minus everything the record company can possibly write off against the artist’s account. As Hank Shocklee once noted, "These kids ride around in limos, forgetting that they are paying for it. Even after they sell a half a million records, they wonder why their checks are bouncing."

Despite anything artists can do, in this environment the deck is stacked against them. During my brief tenure as a major label recording artist (Ze, through PolyGram at the time), I took a very small advance (enough to cover studio costs) in order to do a nice back end. It was only a singles deal, but I discovered that by doing the deal this way, I became less of a priority than the acts to whom the company paid large advances. The single never came out, I lost money and came out of the experience older, wiser and determined to find another way in the music business.

The big, bad biz is not solely responsible for the artists’ woes, however. Much of this grief the artists’ bring on themselves with a wrong attitude – not a bad attitude, just an erroneous one based on a major misconception. To most young artists, the recording contract is the be all and end all, the brass ring, the Holy Grail.

I like to think of it more in terms of Karate. Depending on the style, you take years to rise through the colors. Then, your sensei comes up to you with that black belt, removes your brown belt, ties the new one on tight. Just as you begin to feel the culmination of all your hard work, and your sensei says, "Okay, now you can start to learn Karate."

If a major label is your aspiration as an artist, think of the days of clubbing, finding management, writing, woodshedding and demoing as your rise through the colors. As an aspiring music business person, consider the internships, all the time fetching coffee and answering the phone as yours. The contract or the title mean your work has really just begun.

Of course, as an artist, doing the math might keep you from considering the major label route at all. These are new days with new opportunities, and with those new opportunities come new rules. As b’rer Shocklee further points out, stating the conventional wisdom of the music business today, the best way to attract attention from a major label is to SoundScan 20,000 records on your own. But if you are doing that well at SoundScan, why would you want to deal with a major label in the first place? Consider:

Let’s imagine a generous 90% of 17% royalty (practically no first time signees get this rate)
For this, the record company owns your masters in perpetuity and generally administers your publishing company for 50% of your publishing royalties.
You get a $150,000 advance
All but $20,000 goes to making the record, paying legal costs, your manager, etc.
You sell 250,000 records at a gross wholesale price of $7.00 each
250,000 x $7 = 1,750,000
Your royalty from this is 267,500
Minus your 150,000 advance = 117,500
Minus whatever charges the record company puts against your account and it’s a good thing you saved those $20,000 from your advance.
Which is not bad, but consider this:

You own your record company in conjunction with your manager, a 50-50 split.
You record and press up the 20,000 CDs you need to attract the attention of the record companies, via SoundScan.
You sell those 20,000 records at an average of $12 each.
Each CD costs a dollar to manufacture.
You spend 20,000 on studio costs
That comes to $100,000 profit.
And you own all your intellectual property – masters, publishing, all of it.
This is a very simplified version of what goes on. For a more in depth view of the upper part of this – where the money goes with a record contract – find Steve Albini’s eye-opening essay "The Trouble With Music." It appears on many web sites.

So, what does all this mean for the music business. Is it the "end of days" like so many people predict? Well, everything changes every minute of every day.

We know the mainstream music business (with the possible exception of music publishing) is in trouble. Big trouble. The Vivendi board, for example, just staged a purge because there was not enough return on investment and the stock took a dive.

Understand, since the mid 70s, most of the majors have had to answer to stockholders every three months. This means that they have to show some growth every three months or the stockholders are going to wanna know why. So artists that make major label albums that sell under half a million copies, artists that don’t hit a homer first time up from the minors don’t get a chance to develop. Consider: this means that Bruce Springsteen would have been cut off just after The Wild, The Innocent and the E-Street Shuffle, which sold maybe 100,000 copies in the years before Born to Run was released. Artist development has become the manager’s job and financial responsibility. This has made management a job only for those with deep pockets or OPM.

Dave Seitz, Owner of Prime CD a small record company that has taken to signing bands like Poppa Chubby, who sold 125,000 copies of his Sony album, and releasing them independently, has an interesting metaphor. He says that the majors are like elephants and indies are like rabbits. Elephants are very large, very willful and difficult to turn once they’re headed in a particular direction. Rabbits can respond quickly to change and run circles around elephants. Of course, they also have to take care that they stay away from the elephant’s feet.

This is an idea Richard Branson of Virgin (and now V2) subscribes to. When any company he develops gets too large, he breaks it into smaller companies. This has been his MO for decades.

What does it mean in real world terms? It means that Seitz’ artists often make four times as much as they made with a major while selling fewer records.

I see this as a model for the new, emerging music business. More people will make a living, but less will make a killing. The opportunities are out there to those who keep their eyes and options open.

Great name for this particular aspect of the thread -- Nothing ever comes easy. And what I failed to point out, and probably should have, is that in anything like this, there's a great deal of risk involved.

Playing out in general takes a great deal of self-confidence -- you really have to believe that people want to hear what you are doing. Once you've developed an audience, though, there are ways.

Dean Friedman, a one hit wonder by chart standards, now runs his own label and had his fans finance his new record by taking advanced orders on an album HE HADN'T EVEN MADE YET.

Of course, Dean did have that one hit to build from and had a 20 year core of fans. Most people starting out don't have that luxury (sounds kinda like Yogi Berra, doesn't it?).

My favorite example of this is Hootie and the Blowfish, pre-Cracked Rear View. They ran the band like a business (it helped that there was at least one MBA in the group), each person drawing a salary, the money from the shows and the merch going into the group corporation to fund the next project as well as their operating expenses.

Yanno one of the biggest factors in them getting signed? Thier T-shirt sales. The guy who signed them (I forget who it was) noted that any band that sold 50,000 T-shirts a year could probably sell a million properly marketed albums. One of the sagest A&R thoughts of the past decade.

Special thanks to The Velvet Rope and Indie Biz for great places to find info on the business.


Follow the Money: Who's Really Making the Dough?
By Eric Leach and Bill Henslee
Electronic Musician, Nov 1, 2001

Money gets a bad rap. You've heard the clichés: money is the root of all evil, money can't buy happiness, and so on. Money itself can't be bad — it's just a thing, like a rock, a chair, or a blender. It's the pursuit of money that gets people into trouble. People who enjoy making money are often labeled as superficial, shallow, and greedy. That's why you never see “money” on the Playmate of the Month's list of favorite things. That's why professional athletes embroiled in contract disputes always claim, “It's not about the money.”

Record companies are often characterized as the ultimate embodiment of money-grubbing evil. Unfortunately for them, the Napster unpleasantness has merely exacerbated that characterization. In fact, many people think record companies are just plain bad. Why is that? Certainly, record companies exist to make a profit, but so do most companies. Perhaps it's because of the way record companies make their money: they make it from our heroes, the musical artists.

All notions of musical parasitism aside, record companies perform the critical functions that allow artists to reach the masses. That's fine, you say. The problem with the record companies is that they're too greedy. You see them selling millions of albums at $15 to $18 a pop. Where do the truckloads of cash go if not into some big-shot executive's pocket? What about artist advances and money for marketing and promotional budgets? Where does all that money come from? Who gets what along the way? In this column, we will look at how record companies work and how the money finds its way from the consumers to the artists and everyone else who works to get the music to the public.
LABELS 101

In their most basic form, record companies are like music venture capitalists with production, marketing, and distribution arms. They locate, finance, and develop new talent; oversee music production; market the music through promotion and advertising and by securing airplay; and distribute the finished product through retail outlets and online services. That is expensive stuff, and risky too: only about 5 percent of new artists even sell enough records for the record company to break even, and as few as 5 to 10 percent of a label's artists pay for all of the music released by the company.

Before looking at the math behind record deals, a brief disclaimer is in order: the following numbers are generalizations based on a mainstream artist at a major record label. Every negotiated record deal contains different terms and conditions of payment.
IT TAKES MONEY …

When a label signs an artist, the record company advances the recording budget to the artist at no risk. If the album fails to sell, the artist is not personally responsible for paying the money back. The record company recoups its investment in the album only if the public buys it. However, the artist does not see any money from the album sales until the label makes back its investment.

A typical recording budget for an artist's first album is between $250,000 and $1 million. The record company will also spend approximately $250,000 to $500,000 to market a new artist to the public. Pressing the album and shipping it to retail outlets costs from $1 to $2.25 per unit, depending on the size of the pressing (more units cost less per unit). A new artist typically receives between 12 and 16 percent of the album's suggested retail price as a royalty. In addition to those costs, the record company must pay royalties (called mechanical royalties) to the music-publishing company for every unit sold. The record company usually caps its mechanical royalty costs at $0.755 per album (10 songs at $0.0755 per song). To recoup those expenses, the record company receives a wholesale price for each unit sold by the distributor from $7.50 to $11.50 per album, depending on the genre and artist. (For a look at where the money from a single CD sale goes, see Fig. 1).

With those numbers in mind, we can make some assumptions and show why every record an artist releases is a risky investment for the record company. If the artist receives a $250,000 advance and the record company spends $250,000 on marketing, the record company has spent $500,000 dollars before one album has been sold. If the record company receives $10 per unit from the distributor and has to pay $1.25 for pressing and shipping and $0.75 for mechanical royalties, the record company ends up with $8 per album ($10 income minus $2 pressing, distribution, and mechanical royalties) before deducting the artist's royalties. Assuming a suggested retail price of $14.99 and an artist royalty rate of 15 percent, the record company owes the artist approximately $2.25 per unit sold. After deducting the artist's royalty, the record company's net income from the sale of the record is approximately $5.75 per unit sold. The record company must then pay for its overhead and all of the albums that don't sell well enough to pay for themselves, $5.75 at a time. For that hypothetical album, the record company must sell 86,957 units to cover its out-of-pocket costs, which do not include the everyday costs of running an international business. Although 86,957 units may not sound like many units to sell, only about 16 percent of all record releases reach that sales figure.
TO MAKE MONEY

So what about the artists? They're really raking it in, aren't they? Well, yes and no. Huge stars make lots of money, but most artists, even if moderately successful, generally struggle to make a buck. First of all, the artist won't see any royalty money until the record company recoups its advance production budget. To further complicate the math, the artist usually must pay 3 percent of the royalty to the record producer. Deduct the 3 percent from the royalty rate, and the record company recoups its $500,000 advance at $1.80 per unit sold. Therefore, the artist won't begin seeing money from sales until 277,778 units are sold, and only about 3 percent of records ever reach that sales figure.

At least he or she will have fun with the advance money, right? You've heard about the parties artists throw when their big advances come in. Actually, that $250,000 represents a relatively small cost-of-living budget, even if the album sells relatively well. Assuming that no management, attorney, or other professional fees were paid from the recording budget, which would never happen, the artist will probably spend $200,000 of the $250,000 advance on actual recording costs. That leaves $50,000 to split among the band members. If the band has five members, each member receives $10,000 to live on until the album recoups its budget, as calculated above. That time period is generally about a year to 18 months if the album sells well.

Furthermore, those calculations don't include the money that the band must pay to its legal team or management for the deal. Lawyers typically charge an hourly rate (from $175 to $350) or a percentage of the artist's total gross income (between 3 and 10 percent). Managers typically charge between 15 and 25 percent of their client's gross income. Accordingly, the manager and the lawyer could easily end up with $75,000 of the $250,000.
OTHER MEANS

Before you run out to loan Metallica some money, keep in mind that other streams of income are available for reasonably successful artists. For example, artists can earn money from touring, though most bands tour primarily to support album sales and airplay. Also, some artists can make money through endorsements and other marketing strategies. However, the best opportunity for artists to make serious money is to write their own songs. I'll never forget seeing the lead singer of a moderately successful band flying first class while the rest of the band was condemned to coach. You can guess why: he was the songwriter.

The primary source of income for artists who write their own songs is mechanical royalties. Typically, a performing songwriter owns his or her own publishing company. That company enters into a copublishing agreement with a larger publishing company whereby the two companies co-own the copyrights to the songs. Of the mechanical royalty income, the songwriter receives 50 percent, the songwriter's publishing company receives 25 percent, and the larger publishing company receives 25 percent.

Assume that all of the songs on the hypothetical album are administered by a single publishing company (in a copublishing deal with the songwriter's publishing company), and that, according to the mechanical royalty projections laid out previously, $0.755 total mechanical royalty income is generated per album sold. Of that amount, the songwriter is paid 50 percent($0.3775). Of the remaining publisher's share, the songwriter's publishing company and the larger publishing company each receive $0.18875 per album sold. In the end, the songwriter receives a total of $0.56625 per album sold ($0.3775 plus $0.18875), and the publishing company receives $0.18875 per album sold.

Furthermore, the publishing company and the songwriter make money from any public performances (for example, airplay and live cover performances) of the album's songs. Although public-performance income is difficult to hypothetically quantify, approximately $0.013 to $0.014 is generated per public performance. That money is divided among the publishing companies and the songwriters. Public performance income is generally not as significant as mechanical royalty income, but think about how many times you hear a popular song on a single radio station in a single day and multiply that by the number of similar format stations around the world.

Songwriting money can add up fast. For the songwriter, an album that sells a million copies generates $566,250 in mechanical royalties alone and added income from airplay, which is above and beyond what the band members in coach are making.

That's where the money goes. Hopefully, those figures will help you realistically assess your risks as an artist or songwriter and maybe go a little easier on the record companies. For better or worse, selling music is and always will be a business. Caveat emptor!

---

Eric Leach is an intellectual property and business law attorney at the firm of Goodman and Leach. He can be contacted at eleach@goodmanleach.com.

Bill Henslee is a professor at Pepperdine University School of Law, where he teaches copyright and entertainment law. Contact him at william.henslee@pepperdine.edu.




©2002, PRIMEDIA Business Magazines & Media Inc. All rights reserved.

thank you so much! please post any article that discusses the current music biz, the artist's rights, the pros and cons,etc.

Good information!

The REALITIES of getting a song on the radio
By Natalie Brown
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I'm pasting a letter I wrote to one of my Street Team members. She asked about how to get a song on the radio. I thought this might be of interest to some of you out there.
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Getting a song on the radio is actually a lot harder than the general public is led to believe and it involves much more than a great song and a great artist.

Let me break it down for you. There are Independent artists (like me) and then there are major label artists (like Christina Aguilera). I'm going to explain to you how it works for both kinds of artists.

First Step for any artist with a budget, and something that happens with every single major label release is what they call "Song Testing" otherwise known as "auditorium testing". It's pretty much is mandatory for any song to be tested to even be considered for radio airplay.

This service runs about $3,000 to $7,000 per song the label or artist wants to have tested (and sometimes they test up to 30 songs for an artist). It's very expensive and to be honest it's been greatly debated as to whether or not it is really effective. Most of these testing agencies just want the money, so the control environment, demographic and method of testing varies and there is a lot of room for error.

However, it is common practice in all industry, including the entertainment industry, that a product, and the marketing campaign associated with said product, is tested before release to the general consumer. This is the way that record labels and radio can get a good indicator of if the songs are 'likable' by a broad demographic before release. Auditorium testing is primarily conducted on the broadcast-end of the business; radio stations have been auditorium testing songs for YEARS to determine which tracks do or don't belong in their libraries. They do it for old tracks, new tracks, you name it. 90% of Infinity and ClearChannels' (these are the two main companies that control all the radio stations in North America and across the world) play lists and libraries are tested in this fashion. After the testing of the songs, the high-scoring songs are the ones demographics both "identify" and are "familiar" with, and "like." This is one reason we often hear a lot of the 'same sounding' songs on the radio. Labels want people to feel 'familiar' with the songs, so they use the formulas of songs that 'work'. Pre-market testing would lean more towards what people "like" more and what gets a better reaction. Of course, a demography study is usually conducted beforehand just to see which people should even participate in such a test. Some companies are better than others at this. If a song tests badly it will either be dropped from the final selection of songs for an artist album or it will not be released as a single. It's pretty similar to what 'Pick The Hits' and 'Promo Squad' do with their jukebox testing. There is room for error, but most stations require this and it is mandatory for servicing a single to Commercial radio.

Some links regarding testing are:
www.musictec.com/why.html
www.bankrate.com/brm/news...odtype=grn

Ok, so now you have the songs tested and you have a good idea which ones to put on an album release as singles. Then comes the next step.

Step Two is to hire a radio promoter. Now, if you are an indie artist like me there is usually no budget for radio promoters. They are called Independent Radio Promoters because they do not work directly for labels. Instead they are hired by Indie and Major labels and cover certain territories in the USA and abroad and basically any artist has to PAY money for them to TRY to get the song added to a radio station. It sounds pretty straight forward and easy, but it is not. Politics and something called PAYOLA play a great role in all of this and it make it very hard to get a song on the radio unless you have a very large budget. So to begin with, say you take an act like myself. Basically I am a typical Commercial Radio, CHR, Top 40, R&B/Pop act. It costs ON average $200,000 just to promote ONE single across just the USA. You see, in order to get a song added to a radio station you have to pay each promoter in each region/territory a sum of money to get your song on each station in that area. With an independent act like me, you basically pay each promoter a lump sum to get on the stations in that area and it is VERY expensive. For a major label act with a good budget it can sometimes run up to 2 Million dollars OR MORE to get their single song into rotation on major radio stations across the USA (its more if you add all the other countries in the world that have radio!). Like for example, a case where the radio promotion would be in the millions, is an artist like Christina, Alicia or Usher. Radio stations do not play music for free. Other ways that major labels have advantages is that they can offer trips, cash money, prizes etc., to sway the Program and Music Directors of the radio stations to play the songs. Like the major label will say, "OK if you can get Alicia's single to play 15 times per day on XX number of stations, we will give you $XX per add (that means per song added, per station) you can offer "such and such"... like cars, trips, or free product for radio station contests and you can also have $XX dollars to do an inter-station competition for the staff members". This gives the staff members incentives to play the song, hype it up and generally spread the word and get fans involved in the hype. The labels work out deals with these Indie promoters, who in turn work out deals with the stations in their territories. Of course the "highest bidder" always wins and the song that the bidder wants added to the play list gets added. Basically, it's a nice way of saying "bribe". Back in the old days they used to bribe the DJ's and station owners with drugs, money, cars, trips, hookers and all that kind of stuff, outright. But in the late 70's the Federal Government investigated this, and of course because this type of behavior is illegal, a lot of people were caught. So what happened is that the practice still continues to this day, but now they have found another way to sort of make it 'legit'. It still is PAYOLA and it's still illegal, but now labels know how to work the 'legal loopholes' and a lot of people get very rich off of this practice. Believe it or not, EVEN if you pay the Independent promoter the money, the chances are high that the song will STILL NOT GET PLAYED or added into rotation. Remember that radio play lists are getting smaller and smaller. Some stations only have play lists of up to 40 songs and usually there is only one song dropped from the list each week, which means ONLY 1 new song can be added. Now if you just think of all that for a second and realize HOW many new songs and artists are out there fighting to get one spot per week, you quickly realize just how hard it is to get a song on the radio.

So lets say the major label pays all this money and gets the song added, it still might not take off and a lot of times they waste payola and promotion money on songs that rarely get any play and are not added to stations nationwide. Now, for an indie artist it is even harder. First you have to have the budget to even begin to approach the indie promoters and test the songs and second, you have to be able to compete with all the "incentive" prizes etc., that the majors give these stations. Usually most Indie artists and labels can't compete with the Majors. If you are a Rock/Alternative/Folk act who is independent, you can sometimes go thru college radio. They have the same payola and indie promoter system, but you can usually get play for cheaper (like $30,000 to $100,000 for one single promoted to College stations only throughout the US). But forget about it if you are a commercial independent artist (like me). Another thing that can happen is what actually happened to my single. Remember when my song "Run Away" got on the Promo Only CD in July? That it itself was a miracle. It's virtually unheard of that an indie artist in my genre gets on those things. Anyway, we started to get some radio airplay esp. in the East Coast for that single. But guess what... only a week after it was added to some stations we got calls from the Independent Promoters in those areas demanding their "fee". If we did not pay them the amount they asked for, they told us the song would get pulled from the play lists. We did not have the money to pay these people, so the song disappeared from rotation. It's basically blackmail. But that's the way the game is played I'm afraid. Pretty sad huh!

Links about Radio Promoters and Payola
www.npgmusicclub.com/npgm...radio.html
www.salon.com/ent/feature...ny_payola/
www.futureofmusic.org/news/casenate.cfm
www.mbstia.com/mbs_articles2.htm
www.village-buzz.com/Arti...Article=82
www.latimes.com/business/...ness-enter
www.slavesnomore.bigstep...html?pid=0
www.salon.com/ent/feature...14/payola/
www.post-gazette.com/tv/2...10fnp4.asp
www.canoe.ca/CNEWSMediaNe...la-ap.html
www.kcmetro.cc.mo.us/penn...lboard.htm

Another thing to keep in mind is that two major broadcasting companies own virtually ALL the radio stations in North America and they own a good chunk of them overseas and in South America as well. The biggest are ClearChannel Broadcasting and Infinity Broadcasting. Also realize that ClearChannel also owns a concert promotion company (the biggest in the world), tons of magazines, TV stations and just about every other media outlet you can think of. They are quickly becoming a monopoly and basically if you don't get on their good side or have the money to buy your way into their 'system', you can forget about getting any radio play, press and you can't book venues to do your shows in. It's very hard to do anything without big bucks when it comes to radio, playing shows and promoting your music these days I'm afraid.

ClearChannel Links
www.clearchannel.com/main.html
rocknerd.org/rocknerd/100...index_html
radoran.dca.net/crss/news.cfm
www.salon.com/ent/clear_c...index.html
Infinity Links
www.infinityradio.com/
www.usdoj.gov/opa/pr/1999.../587at.htm


It is absolutely pointless to try to even get radio airplay unless you have other mechanisms in place. On top of all that I just discussed with you regarding getting radio play, it is almost impossible to get radio play if you don't have distribution (basically the system that gets the CD's out to retail stores like Sam Goody, Tower, FYE etc.) through a major (Sony, BMG, Universal, EMI, Time Warner) or enough money to pay for videos, retail programs, publicists, station promotions, tour support, etc. They just won't add your song to radio AT ALL if you do not have these things in place. Ok- so even if you luck out and get a song on the radio by some miracle it will do absolutely nothing for you. You need to have a CD to sell, distribution for that CD through a major distributor as well as other press and promotional activities going on. Getting distribution as an independent artist is very, very hard. Again, you have to pay to get the distribution. Even if you can do that, if you don't meet the distribution companies minimums and you sell less than what you shipped to them, they CHARGE YOU at least $10 per CD you don't sell. Distribution is a whole other thing, that I won't go into, but it can be devastating for an artist to get distribution if they don't have other things in place. This is where most artists go broke, from what they call "charge back costs" and "recoupables". Remember, that all the promotion money, prizes, video budget, charge backs- EVERYTHING is charged back to the artist on a major label, it comes OUT OF THE ARTISTS POCKETS. And you wonder r why most of them go bankrupt!! LOL
Check out these links
www.musicindustrylaw.com/recordk2.htm
www.dmamusic.org/dma/denv...rdlaw.html
www.mbsolutions.com/biz/Info24.html
citys-tone.com/mspence~may01.html

I guess to put it simply. It is very hard to get a station to play a song, especially if the artist is new and most definitely it is hard if you are an independent artist. It's not like the old days where if you called in to request a song enough the song would get played. It doesn't work like that anymore. If the artist you are talking about is on a major label and the label is really behind the project, then there will be a budget in place for that artist to get radio play. But if the artist isn't on a major label or not a 'priority artist' on a major label, then the best thing you can do is spread the news to your friends by word of mouth and on the internet. If an independent artist can sell enough records on their own, then a major label might pay attention and sign them on for a recording contract or a distribution deal and they might have a shot at getting some radio play. The best thing to do is tell people about the song and expose the artist and spread their name. That's really the only thing you can do.

Very interesting thread!

How to beat the record labels on the Web

By Robert von Goeben
June 5, 2002, 4:00 AM PT


As a venture capitalist who has done time in the music industry, I'm surprised by the number of entrepreneurs who want to talk about digital music. A week doesn't go by that some smart entrepreneur doesn't call me up to discuss an idea.

These conversations got me thinking about the opportunities for start-ups in the emerging digital music arena, and about why all past efforts at revolutionizing the music industry have failed.

Even in the dot-com era, investors made very little money on digital music start-ups (except for the rare frenzy-driven acquisition or quick-flip initial public offering). But besides losing money, most of these start-ups were bound by another common thread: the vast majority focused on distribution technology and services.


The theory may have been that by controlling the pipes, you control the water. But as we've seen from the demise of Napster and the legal woes of Morpheus and Audiogalaxy, record companies and music publishers closely guard the flow of content from the source. This should cause the next crop of digital music entrepreneurs to forgo distribution.

It's easy to see why digital music distribution is a tough game for a start-up. Consider the major-label record companies.

As anyone who has spent any time with a major will tell you, these are immensely profitable businesses that have absolutely no inclination to change anything they are doing--ever. Record companies make obscene amounts of money manufacturing little silver disks, sending them out through distributors that they own, and getting retailers to push them over the counter at $16 a pop (and paying those retailers a pittance in the process). A truly great business.

As anyone who has spent any time with a major will tell you, these are immensely profitable businesses that have absolutely no inclination to change anything they are doing--ever. But for a start-up looking to get on the gravy train, watch out. For many entrepreneurs, business deals with entertainment companies are like a weekend in Las Vegas. It's a lot of fun, you've got great stories, but in the end you fly back home quite a few bucks lighter.

The thing that makes major record labels so powerful is their contractual control over music, and their ability to say where, when and how a recording can be played and shared. As many people have said, the only viable music service that people will pay for is one that has a somewhat complete catalog of music that is accurately tagged and cataloged, and has no restrictions on how music is used for personal use. If you think the industry-sponsored digital music initiatives will ever approach this level of service anytime soon, you're dreaming. It will be years--if ever--before the major labels will ever allow the type of license that would create a service that is anywhere near as compelling as Napster or Kazaa.

Why? Because they don't have to.

You have to give the record labels their due. They have stayed brilliantly focused on controlling the one thing that matters--the recordings themselves. Record companies are continually able to source and sign the best artists, and lock up the contractual rights to their recordings.

In 1994, I was sitting in my boss's office at a record company, making a pitch for the company's further involvement in the Internet. "Look, we're a music company," she said to me at the time, "not a technology company." While that was (and still is) incredibly shortsighted, the essence of the statement is valid. Record companies are in a position of power because they know what side the bread is buttered on.

So where are the opportunities for entrepreneurship in the music industry?

The answer lies in controlling the rights to recordings. It's only after start-ups get into the game of signing artists that they will truly be able to control the destiny of downstream distribution. This is no easy task. Record companies have spent decades building up a sourcing system, and have a huge competitive advantage when it comes to expertise in promotion and marketing.

If you think the industry-sponsored digital music initiatives will ever approach this level of service anytime soon, you're dreaming. But the majors have huge vulnerabilities when it comes to their cost structures, and the amount of units they need to sell to break even on a title. And, as in all instances where sleeping giants get unseated, it will happen first at the fringes.

There is a long history of small labels making inroads into overlooked genres, and while these independent efforts have historically grown up to be fodder for major acquisitions, it won't be long before a burgeoning independent makes better strategic use of distribution technology. Often, one loose brick can bring down the whole wall.

So my advice to the plethora of music start-ups focused on distribution? Give it up.

Distribution technology and services are just ways of helping someone else sell their valuable assets, and are certainly not a basis for entrepreneurship. It's the control over the assets themselves, and not the pipes to deliver them, that will drive shareholder value in new music companies. The online distribution of music is not about technology. More than enough technology exists to produce any consumer music service you could possibly imagine. The game will really get interesting when the very heart of the music industry--the creation and sourcing of music--is challenged.

about the writer:

Robert von Goeben is the founder and managing director of Starter Fluid, a seed-stage venture capital fund in San Francisco. Previously, he was a founding director of Redleaf Group, one of Silicon Valley's first Internet-only venture funds, and he was the head of online and Internet activities at Geffen Records.

Years before that fellow from Encino declared war on Sony and the music industry. Years before that lady who lived through having a hole in her doll parts. Prince tried to make us aware.

http://www.npgmusicclub.c...index.html