Selling Sound

An economic overview of the recorded music industry Where and What do we Listen to?

People’s Polls 2016

SoundCloud, Bandcamp 2007

Pandora 2005

Napster late 90s iTunes store 2003 We’re buying less music ...... and more of it is digital

Spotify

Amazon Apple

Subscriber growth rate Check out this growth between Spotify 43% June 2017 and June 2018 Apple 54% Amazon 74% % total US revenues from recorded music sales

KPI = key performance indicator MAU = monthly active users 94% of streamers don’t subscribe, but 76% of streaming revenue comes from those 6% who do subscribe 300 songs are streamed for every one that is downloaded But 60% of revenue comes from the 0.3% of music that is downloaded In 2017 the music industry generated $17.2 bil in sales

Top Selling Singles of All Time

Song Artist Released Units sold (mil)* White Christmas Bing Crosby 1942 50

Candle in the Wind Elton John 1997 33 (This is the Princess Diana version, not the 1973 original honoring Marilyn Monroe) Silent NightOver 130 million viewsBing Crosby 1935 30

In the Summertime Mungo Jerry 1970 30 * worldwide sales as certified by RIAA What’s in the future? • Virtual reality: VRTIFY • Biometric – music that responds to the body and moods – Pietr-Jan Pietr's Sound on Intuition project, which transforms body movement into music. Music Income Flow

ONLINE

American Broadcast Society of American Music Federation of Composers Incorporated Authors and Musicians Publishers The Recording Contract

• Royalties with advance – Most common type in U.S. • Standard for new act is 10% of wholesale • Established star will get 20% of retail sales

Recording a New Act • Typical Contract

– an advance Lee Dewyze American Idol winner 2010 – 10% of the wholesale price in each channel after recoupable expenses • The typical first album will not generate any royalties if it doesn’t go gold (500,000) or even platinum (1,000,000) • Less than 5% of albums will reach gold Retail channels

• Record clubs • Discount stores (Sam’s Club, Costco) • Foreign sales • Retail stores (Best Buy) markup may be 80% • Each channel has a different wholesale price Recoupable expenses

• Packaging charges and free promo copies – May account for 25% of royalties • Recording • Promotion • Music video production • Touring Other expenses

• Manager/agent fees – Paid after recoupable expense deduction – Typical fee is 20% • Cross-collateralization – If the first album does well enough to warrant picking up the option but does not cover all recoupable expenses, these must be covered by the second album before royalties are paid What the producer provides

• Recording studio • Creation of a master recording • Produce the “album” • Sell/distribute/promote What the producer gets

• Exclusivity – Music, name, band members, images, and likeness for the duration of the contract • Merchandising rights – Tee shirts, key chains, action figures, etc. • Interviews/publicity • Creative control of music • Limit outside work of artist • Band personnel • options Options • Each option is a contract period for producing an album – First contract may include as many as seven • Enforceable at discretion of producer • Recording is property of producer in perpetuity • Lock-out clause prevents artist from re-recording the material for 5-10 years beyond the end of the contract • Producer may reject an album, requiring artist to produce another, but retains rights to the music and lock-out still applies • “live” albums usually do not count toward album requirements Breaking Down the Price of a CD

musicians' unions = Share going to producer packaging/mfg distribution publishing royalites artis royalties marketing/promo label overhead label profit retail overhead retail profit The record and the royalties Item quantity income expense Total sales 500,000 @ $15 $7,500,000 Sales outlet Record club 50,000 @ $6 $300,000 Retail outlet 250,000 @ $8.33 $2,082,500 Discount outlet 50,000 @ $7 $350,000 Foreign 150,000 @ $6 $900,000 Total royalties (10% of wholesale) $363,250 Packaging (25%) $90,812 Recording, promo, video, tour $250,000 net $22,437 Mgr fee (20%) $4487 Advance $25,000 Royalty base -$7050 Simulated accounting for Ruben Studdard: I Need An Angel 2004 (2d album) The Impact of Technology The Impact of Technology • Drastic reduction in cost of recording • Digital recording bypasses need for expensive pressing of albums or CDs • Internet allows for cheap, easy, global distribution • However, the landscape has become very crowded – Approximately 3000 songs are released every week – In May 2014 itunes sold its 35 billionth download. The first was sold on April 28, 2003 – Average 100 per second • The piracy problem Napster • Launched June 1999 • Shut down July 2001 • Peer-to-peer file sharing service specializing in MP3 music files • Metallica filed first lawsuit charging copyright infringement in 2000 • Also in 2000 A&M Records joined by several other recording companies in suit vs. Napster • Parker’s current net worth $2b The Solution to Piracy? • Online streaming • Credited with dramatic reduction in piracy • But how does it help the artist?

Remember Rebecca Black?

• The 1.3 million views of her video on YouTube • At $0.00074 per view • Have netted her a grand total of $962 • Since its debut in September of 2011 • That’s $10.69 per month File Sharing: Good or bad?

• Copyright infringement • Free publicity – English rock band Radiohead’s first album to hit the top 20 in the U.S. due to it being leaked on Napster before its release – The indie band Dispatch gained fame and tour bookings as a result of its music’s popularity on Napster All time top selling digital songs Artist Title Release Sales date units (mils) Ed Sheeran Thinking out loud 2014 12 Eminem Love the way you lie 2011 12 Justin Bieber Baby 2010 12 Florida Georgia Cruise 2012 11 Line Katy Perry Dark Horse 2013 11 Katy Perry Firework 2010 11 Lady Gaga Bad romance 2009 11 RIAA certified

The Fate of the Album Summary

• The recording industry favors the producer * • Until you become a star and escape your first contract • Technology has changed how and where we buy our music • The shift from albums to singles • And from physical to digital • More units are sold, but revenue is falling

* Worldwide sales You got all that?