Berklee College of Music Music Business Journal
Volume 8, Issue 1 www.thembj.org October 2012 Mission Statement Apple Plans for Internet Radio By Emilie Bogrand The Music Business Journal, published at Berklee College of Music, is a student From 2011 to the latest quarter, publication that serves as a forum for intel- Pandora’s revenues rose from $67 million to $101.3 million. The revenues can be bro- lectual discussion and research into the var- ken down into three main sources: advertis- ious aspects of the music business. The goal ing, mobile and subscription. Advertising is up from $58 million to $89 million, and is to inform and educate aspiring music pro- accounts for the majority of the overall rev- fessionals, connect them with the industry, enue. Mobile revenue is the second largest and raise the academic level and interest in- contributor and is increasing quickly, rising 86% year-on-year in 2012. Subscription rev- side and outside the Berklee Community. enue is the least significant source. Pandora is projecting total revenues around $430 mil- lion for this full year and has reported steady When Pandora Internet radio entered Inside This Issue growth in active users since 2008 as well as the market with a strong initial public offering an 80% increase in total listener hours since in 2011, a reporter from Bloomberg TV asked 2011.3 Despite these promising figures, the the Chairman and CEO, Joseph Kennedy, about company has yet to turn a profit. As of now, how his company compared to Apple. He said over sixty percent of Pandora’s total revenue that, out of all the people who listen to music, ends up going to music licensing fees. eighty percent listen in a radio format in which someone else plays DJ. “We’ve focused on Licensing Strategies that eighty percent,” said Kennedy, “Apple and Artists and Online Pledges others do a great job with the twenty percent Page 8 Pandora’s failure to find a profitable where you’re playing your own DJ.”1 Now business model is cause for concern regard- it seems that Apple is preparing to move into ing Apple’s future plans. Initial rumors in the the broadcasting space to expand their twenty press suggested that Apple was in talks with percent. The Wall Street Journal and the New record labels and content holders to negotiate York Times issued the first reports in early Sep- direct licensing deals. Now, Billboard Maga- The Gangnam Crossover tember that Apple was in talks to create its own zine reports that Apple plans to use the more Page 4 version of Internet radio. traditional framework of a compulsory li- The news sunk Pandora’s stock and cense and work backwards from there. It will spawned rumors about a potential buyout. request waivers from record labels so that its Moreover, several questions derived from the service can be exempt from certain regula- announcement. Could Pandora compete against tions. Record labels have granted waivers in A Dwindling Pool of Majors Apple? Would Google, Amazon or Clear Chan- the past to work out custom agreements. For nel purchase Pandora in order to stay in the race? Page 10 example, Big Machine recently crafted a deal Would Apple buy it? Even if Apple chooses to directly with Clear Channel, which enabled build rather than buy, Pandora still seems like a viable target for Apple’s competitors. Given its rapid growth rate, the Internet radio company is arguably a cheap buy at the moment, at 1.7 bil- Music Intelligence for Sale lion U.S. dollars.2 With a better revenue model, Page 11 or perhaps if it can get a break on royalty fees, Pandora is showing potential to be a smart in- vestment.
Pandora’s Finances The Zumba Craze Pandora is experiencing large losses Page 13 and large gains simultaneously. Its losses con- tinue to grow due to music licensing costs as well as unaggressive monetizing strategies. Nevertheless, the company’s revenues and lis- tener numbers have recently shown tremendous growth. (Continued on Page 3) Volume 8, Issue 1 Music Business Journal
Editor’s Note Table of Contents In this issue, we explore several different facets of the present music landscape. We cover big corporations as they merge and expand, smaller start-ups, music trends, copyright law in the modern digital context, and crowdfunding. Business Articles First, we check in on some of the industry’s major players. Apple is rumored to be preparing to enter the broadcast space via Internet radio. Universal and EMI have finally merged, leaving only Apple and Pandora...... 1 three major record labels. Gangnam Style...... 6 Second, we consider the business from the side of start-up entrepreneurs. EchoNest is a field Crowdfunding Music...... 8 leader in gathering music intelligence. This data is becoming a commodity essential to understanding Finance for Game Developers...... 9 online music consumption. With regards to start-ups, we point to lessons learned from Eric Ries’s EMI and Universal...... 10 bestseller, The Lean Startup: musicians and their teams sometimes fail to think like entrepreneurs. Dance Music...... 12 Next, we examine three popular music consumer trends, each of which has strong ties to dance. The Echo Nest...... 13 Korean pop artist, Psy, had recent success with the hit, “Gangnam Style”. His story prompts investiga- Lessons for Entrepreneurs...... 14 tion into the K-Pop movement and how it fits within the U.S. and international markets. Electronic dance music is making waves in the U.S. Top 40 and steadily becoming pop’s new signature sound. Law Section The fitness routine, Zumba, fuses aerobics, Latin dance and music, and North American pop music. It has grown into an impressive international community, which provides several opportunities for Two Views on Technology...... 6 today’s musicians. For our law section, we debate the relevance of the current U.S. copyright law: its shortcomings, Music and Society alternatives, and technological advances. One writer argues that the law’s current system restricts Fitness...... 13 creativity, especially in the digital age. Another contributor, on the other hand, points out that the digital age might be technologically helping copyright law evolve to support a trade that is dependent MBJ Editorial on creative rights. Last, online crowdfunding has become an alternative to more traditional investment deals, which Mission Statement...... 1 often trade in equity. Artists, in essence, are beginning to barter their artistic services for, sometimes Editor’s Note...... 2 anonymous, online donations. We profile three of the top crowdfunding websites and predict how the Upcoming Topics...... 16 JOBS Act will influence the model when it goes into effect early next year. Like music, video games are also popular on crowdfunding sites, making up fifty percent of the top ten most-funded Kickstarter projects. The medium is moving into online and mobile spaces and we argue why this shift is in the Sponsorship best interest of musicians. Berklee Media...... 15 Thanks to all our writers. From all of us at the MBJ, we hope you enjoy this issue.
Emilie Bogrand, Editor-in-Chief
Management Editor-in-Chief...... Emilie Bogrand Content Editor...... Mariana Migliore Webmaster...... Haven Belke, Itay Shahar Rahat Faculty Advisor and Finance...... Dr. Peter Alhadeff Layout Editor...... Haven Belke
Contributors Editor’s Note...... Emilie Bogrand Business Articles...... Emilie Bogrand, Troy Church, Megan Dervin-Ackerman, Danny Feinstein, George Howard, Mical Klip, Mariana Migliore, Colin Ramsay, Kenny Rosenberg, Ben Scudder Law Section...... Luiz Augusto Buff, Phillip Richard .Music and Society...... Alberto Azout, Salomon Sterental Staff...... Haven Belke, John Ioannidis, Lau Meng Wai, Dylan Wolff
2 www.thembj.org October 2012 Volume 8, Issue 1 Music Business Journal Business Articles Apple iRadio (cont.)
(From Page 1)
both sides to be innovative in their terms. Based on the commercial webcaster with what Joseph Kennedy told Bloomberg On September 28th, The New license model and Sirius’ current standing this in 2011 about how people consume music. York Post claimed that Apple would have year, satellite radio will pay around eight per- At that time, he also said that “234 million liked to release its streaming service on the cent of its entire revenue in royalties. That people listen to broadcast AM and FM radio new iPhone 5.4 Those plans were allegedly number is still much lower than what Pandora per week.” Pandora has recognized an op- halted by Apple’s inability to reach a licens- pays on the pure-play model. Their per-play, portunity in refining the radio experience and ing agreement with Sony/ATV, which now per listener fee ends up exceeding twenty-five has been successful in offering a strong alter- owns the largest catalog of music publishing percent of their revenue and costs them sixty- native online, in cars and on mobile devices. rights. Sony/ATV is moving away from al- four percent of the company’s total revenue.6 Apple would make Pandora a competitor in- lowing performing rights organizations like directly, in the sense that Apple is more likely ASCAP or BMI to handle their negotiations, The Internet Radio Fairness Act going after AM and FM and positioning itself opting instead to cut deals directly with music in broadcasting’s bigger picture. Pandora services. “This wasn’t us not wanting the ser- These fixed licensing prices are and services like Spotify could end up being vice,” said Martin N. Bandier, the chairman currently under debate. The “Internet Radio casualties of a radio land-grab between com- of Sony/ATV, “We want the service. It’s like Fairness Act” was recently introduced to the panies like Clear Channel, Sirius XM, and, oxygen. We just want to be paid fairly, no dif- U.S. House and Senate in late September. The maybe soon, Apple. ferent than the N.F.L. refs.”5 purpose of the new legislation is to lower the In exchange for waivers, Apple is royalties paid by Internet radio stations so that Endnotes offering the record labels two major incen- they are equal with the rates paid by satellite tives. The first is for the consumer to be radio. Pandora is publicly asking its listen- 1. “Pandora’s Kennedy Interview on IPO, Strategy,” Bloomberg TV, June 15, 2011. http://www.bloomberg. able to easily purchase a song they hear on ers to endorse the Act via self-made messages com/video/blackrock-s-fredericks-on-investment-strategy- the radio service. Apple will need to be cre- that run between songs on its service. If the HQNNer11SJadFDtLVX3DFQ.html ative with how they incorporate this option company can succeed in tailoring a better deal since the feature already exists on Pandora for itself and improving its situation, it could 2. Smith, Ethan and Jessica E. Vascellaro. “Apple Seeks and does not stimulate significant sales. This change the entire landscape. The Act also to Create Pandora Rival,” The Wall Street Journal, Sep 7, concept may be part of an effort by Apple to represents enormous opportunities for Apple 2012. http://online.wsj.com/article/SB1000087239639044 quell fears that a hypothetical “iRadio” could before it introduces its own Internet radio ser- 3589304577636110080423398.html cannibalize iTunes downloads. vice. If it stands behind the Act, Apple can 3. “Pandora’s Revenues and Listener Numbers Rise in The second incentive is more in- argue on behalf of all online radio and may not 2Q12,” Music and Copyright, Sep 5, 2012, issue 465. teresting and something that is not available need to craft quite as unique of a deal. through Pandora. Record labels want to be 4. Atkinson, Claire. “Royalty ruckus scuttled iPhone 5 mu- able to place high-priority songs in front of Customer Approval sic streaming,” The New York Post, Sep 28, 2012. http:// consumers based on their listening history. www.nypost.com/p/news/business/sony_bites_apple_ This concept resembles the terrestrial radio It is not certain that Apple will suc- kKe2i0rFHlCbeFRq5cJeiO format and could compromise the integrity of ceed in this new venture. iTunes’ “Genius” 5. Sisario, Ben. “Apple’s Plans for Internet Radio Run the listening experience. The perk is enticing feature was not very impressive and the Up Against Big Music Publisher,” The New York Times, for record labels, but Apple’s overall service “Ping” social networking extension never Sep 28, 2012. http://mediadecoder.blogs.nytimes. could suffer if it sounds too contrived. gained much traction. It is also important to com/2012/09/28/apples-plans-for-internet-radio-come-up- note that Google’s Internet streaming service against-big-music-publisher/ Compulsory Licenses never took off. Apple might be moving into this space now because it believes it can do 6. Christman, Ed. “Apple’s iRadio Blossoms Into Internet Radio Market,” Billboard Magazine, Sep 14, 2012. http:// Apple can choose between two better than Pandora. But, if Apple corrupts the www.billboard.biz/bbbiz/industry/digital-and-mobile/ types of compulsory licenses. The pure-play integrity of each playlist by prioritizing tracks from-this-week-s-billboard-apple-s-iradio-1007949482. license collects whatever is greater: 0.0011 that record labels want to promote, the theo- story cents per play, per listener (the rate escalates retical iRadio could be less fun to listen to. yearly) or twenty-five percent of all revenue. Yet, Apple has reinvented the mu- If Apple is able to capitalize on its huge reach sic market before with iTunes and it has the and generate sizeable revenue with its online power to reinvent radio. With its cash flow, radio service, twenty five percent sounds like reach and resources, it could revolutionize a lot to give up. the commerce of music again. Whatever it Sirius XM Satellite radio uses a dif- pays in licensing fees and generates in music ferent kind of compulsory license called the downloads could amount to a welcome cash commercial webcaster license. This costs injection into the music industry. If Apple Sirius 0.0021 cents per play, per listener as succeeds in somehow improving the online well as five hundred dollars per station, which radio experience, it would seem unlikely for it is capped at $50,000. This seems like a better to fail. Apple’s four hundred million users far option for Apple. They could however still exceed Pandora’s fifty million and Spotify’s decide to aim for a model based on revenue sixteen million users. percentage, but try to argue a lower percent- Why Apple has decided to move age. into this space now could have a lot to do October 2012 www.thembj.org 3 Volume 8, Issue 1 Music Business Journal Business Articles Psy and Gangnam Style
By Colin Ramsay and Mical Klip
TV personality Ellen Degeneres brought Psy a sub-group of the previously mentioned act, out during her show to teach Spears the dance. was the highest charting K-pop group on the Further appearances at the MTV Video Music Billboard 200 with their E.P., Twinkle, which Awards and on the Today Show, plus attention only reached number 126. from music industry heavyweights have so- lidified the song’s massive impact.3 The arrival of Psy and “Gangnam Style” has brought a new level of main- A U.S. Bet stream success to K-pop, including a number one spot on the iTunes singles chart. There Psy’s future in the U.S. and interna- are several reasons why Psy has been able to tional music scene may well be in the hands overcome the traditional barriers imposed on of music mogul Scooter Braun, the manager Korean artists. responsible for discovering and breaking Jus- tin Bieber and, more recently, Carly Rae Jep- The signature horseback-riding sen. Amidst the “Gangnam Style” hype, Braun dance fed a buzz that pushed the song to the discovered the video and quickly met with the forefront of pop culture relevance. As with Korean rapper to discuss his career outside of the appearance on Ellen, most of the media Korea. In a brief YouTube video, Braun an- attention centers on the song’s dance. At his nounced his intentions to bring K-pop to the VMA appearance, host and comedian Kevin masses and make Psy the “first Korean artist Hart asked Psy, “you’ve got over 100 mil- to break a big record in the United States.”4 lion on YouTube … how does that feel?” Shortly thereafter Psy signed to Braun’s before the duo spontaneously broke into the Schoolboy Records, part of the Universal Mu- trademark dance.7 Parody and tribute videos sic Group, joining Bieber and Jepsen as well abound on YouTube featuring the dance, and Recently boasting over 160 million as rapper Asher Roth.5 Psy himself appeared on the “dance cam” YouTube views, Korean rapper Psy’s “Gang- of a recent LA Dodgers game as “Gangnam nam Style” music video became a viral sensa- Braun’s track record with Bieber and Style” blared over the loudspeakers.8 Indeed tion after it was released in July. The comedic Jepsen lends significant weight to his voice in the eye-catching dance has fueled the video’s song and video refer to the ritzy neighborhood the industry. His endorsement makes Psy, al- viral ascent, but also important is the under- of Gangnam in Seoul, South Korea. Despite the ready firmly in the cultural spotlight, the sub- lying pop sensibility of the song. fact that few people other than Koreans know ject of heated industry debate. Yet even if the what any of the lyrics mean, the video has re- signing announcement underlines Braun’s bet Psy, a graduate of the Berklee Col- ceived a flurry of international attention for on the potential of Korean music, Psy’s best lege of Music, uses thumping electro-pop Psy’s now-signature horseback riding dance. efforts are unlikely, on their own, to champion beats that fit snugly among other current The 34-year-old rapper, born Park Jae-Sang, the crossover of a new genre. chart-topping songs. Other K-pop acts who may seem an unlikely candidate for pop star- have found some U.S. success might repre- dom, but at the end of August he entered his Background sent a cultural shift towards Korean sensibil- fifth week atop the Billboard K-Pop Hot 100, ities but Psy naturally falls closer to the U.S. tying the record for most consecutive weeks K-Pop, short for Korean Pop, has mainstream. LMFAO proved that a current at number one.1 He also spent several weeks long enjoyed niche success in the U.S., but market exists for comedic rap-pop, and Psy leading the Billboard Social 50, and according with little migration into mainstream pop cul- could be poised to follow in their footsteps. to Neilsen SoundScan2, had sold 61,000 U.S. ture. In early 2012, Rolling Stone published downloads as of September 14th. “The 10 K-Pop Groups Most Likely to Break The Music Scene in South Korea in America.”6 The article cites previous failed The success of “Gangnam Style” tes- crossover attempts including BoA and Se7en, The international successes of Psy tifies to the immense power of the social me- “likely due to the fact that they were molded are certainly welcome in the Korean music dia hive-mind. While Psy was already a known by American record labels to be presented in a industry. A recent article in The Economist figure in Korea, social media catapulted him way they saw best to break into [a] notoriously noted the bleak conditions for K-Pop artists into the international spotlight, circulating the difficult market.” in their home country. In a hyper-connected video in a fervent feedback loop across Face- A fresh crop of K-pop stars raised culture, South Korean music services have book, Twitter, Reddit, and the blogosphere. Nu- the question again earlier this year, with many pushed extremely cheap tethered-download merous celebrities including LMFAO, T-Pain, looking to Girls’ Generation who made ap- subscriptions to combat piracy. But for Robbie Williams, Vanessa Hudgens, and Brit- pearances on both The Late Show With David rights holders, “their payout is miserly.” The ney Spears, took to Facebook, Twitter, or their Letterman and Live! With Kelly ahead of their article expands: “Under subscription deals, own website to lend their curatorial voices to debut U.S. E.P. Even the successes of current [rights holders] collect as little as 30 won [or “Gangnam Style.” After Spears tweeted about K-pop groups, however, have highlighted how $0.0269 USD] per track; this must then her desire to learn the horseback-riding dance, far the genre has to go. Girls’ Generation TTS, be split between performers, writers and
4 www.thembj.org October 2012 Volume 8, Issue 1 Music Business Journal Business Articles
(From Page 4)
the label itself.”9 record labels to change their payment poli- 6. Benjamin, Jeff. “The 10 K-Pop Groups Most Likely to Audiences that prefer to purchase cies, the standard business model of K-Pop has Break in America.” Rolling Stone. Rolling Stone, n.d. Web. their music digitally, rather than stream the so far shown few signs of reform. Increased
Not all K-Pop artists bear the brunt 4. Public Announcement - Scooter Braun Regarding PSY. of their debts; record label powerhouses SM YouTube. N.p., 03 Sept. 2012. Web.
October 2012 www.thembj.org 5 Volume 8, Issue 1 Music Business Journal Law Section Copyright Inefficiency
By Phillip Richard
countless covers of the song on YouTube that use about sampling. He compares the act of some aspect from the original music video. The sampling a small piece of music in a new song has been recreated in several genres and song to quoting someone in a new piece of styles, on an array of instruments, with an assort- writing. When a quotation is used, the origi- ment of techniques. Gotye embraced the outpour nal author is typically given credit. Lessig of creativity surrounding his work. He created suggests that this type of thinking should be a video that meshed together several covers and applied to music samples.5 As long as credit made them work together to create “Somebod- is given to the original author of the work, 1 ies: A YouTube Orchestra” . the sampling should be legal and free to use without obtaining permission. Goyte has company. George Clinton, a legend and pioneer in both funk and hip-hop for Yet to own a copyright for a piece over thirty years, says he encourages others to of music means that no one can record, pub- Editor’s Note: In this issue we look sample his music in order to “Save the Funk”. lish, reproduce, distribute, perform, or cre- at copyright law from two different viewpoints. When rap artists like Dr. Dre and Snoop Dogg atively alter it. This monopoly is meant to For Buff, collections for music rights can be sampled George Clinton, his records were al- protect the creator, but especially in the age well served by new technology and promote ready out of production. But because these new of mass communication, it can be restrict- creativity. For Richard, technology is trumping artists used bits of his music, they brought back ing and overly protective. Consumers can intellectual property law and rendering it an an interest and a market for Clinton’s original be artists themselves through the age-old anachronism, especially in the market for song works. Clinton says: “We knew that sampling process of taking an original idea and build- remixes. would keep us alive and we also related it to ing upon it to create something different. cloning: if you take a look at how someone is The technology needed to remix art is easily Allowing others the freedom to sam- cloned, you take a piece of them and make some- accessible and more and more popular. The ple and remix a musician’s work can be a true thing new out of it--sampling is the same thing.”2 positive for everyone involved. In the age of current copyright law also prevents consum- ers from acting as promoters. technology, there are alternatives to copyright User-generated content can also help. laws that are arguably out of sync with the best For instance, a video titled “JK Wedding En- interests of artists, record companies, and pub- The right to freely remix or sam- trance Dance” was uploaded to YouTube in July ple existing music would not destroy the in- lishers. 2009. The video featured people dancing down centive for an artist to create original work. the aisle to a song by Chris Brown called “For- The non-profit organization Creative Furthermore, restructuring copyright law ever”, which was released about one year earlier. Commons, founded in 2001, is playing a large should not need to mean allowing piracy or Within the first week, the video accumulated 1.7 role in giving artists control over their own mass reproduction of someone else’s work million hits and, since then, has been viewed copyright. Artists can choose what rights they for personal profit. But at a time when more over seventy-seven million times.3 The popu- want reserved and what rights they feel they do artists than ever are relying on the Internet larity of “JK Wedding Entrance Dance” caused not need. A Creative Commons license is free as a promotional tool, copyright law needs “Forever” to land in the iTunes top twenty chart.4 and can be issued online. to be rethought if it is to stimulate creativity. If the “JK Wedding” video had been taken down due to copyright infringement, Chris Brown’s The organization has grown steadily record company would have lost a significant over the last few years and Creative Commons amount of potential sales. Endnotes licenses are now available in over fifty-two countries. Several musicians, filmmakers, pho- 1. http://www.youtube.com/watch?v=opg4VGvyi3M It could be argued, that if an artist tographers, pharmaceutical companies, as well 2.http://www.hiphopdx.com/index/interviews/id.1833/ wants to use a sample of someone’s work in their as the Wikipedia web portal, use them. title.george-clinton-aleon-craft-talk-mothership-the-deca- own art, they should just ask for permission. tur-connection-parliament-funkadelics-encouragement- However, this process becomes overwhelmingly of-sampling Many individuals and publicly ori- complicated. It is common for a remixed song to 3. http://www.youtube.com/watch?v=4-94JhLEiN0 ented organizations seem to be recognizing how sample upwards of ten, fifteen, or even hundreds 4.http://music-mix.ew.com/2009/07/24/jill-and-kevin- shared creativity can promote the growth of art of original pieces. Given the current laws, hav- chris-brown-wedding/ and culture, and there are good reasons why the 5. Lessig, Lawrence. “Chapter 4 - RW Revived.” Remix: ing an artist request permission from each copy- sentiment can carry over to the business of en- Making Art and Commerce Thrive in the Hybrid Econo- right holder can cause the creation of a piece of tertainment and, especially, song remixes: if a my. New York City: Penguin, 2008. 52. Print. music to be tremendously slow and expensive. remix becomes popular, listeners may be com- This is true for big name artists as well as inde- pelled to look up the original. pendent musicians. A good example is the tune “Some- Harvard University Law professor body That I Used to Know” by Gotye, which and Creative Commons co-founder, Lawrence became an international sensation. There are Lessig, suggests a change in the way we think
6 www.thembj.org October 2012 Volume 8, Issue 1 Music Business Journal Law Section Copyright Efficiency
By Luiz Augusto Buff
It is true that in recent years technology and data sampling, which leads to human error has been challenging the entertainment industry, and inaccuracy. not only allowing a widely unauthorized circula- tion of copyrighted works, but also empowering Today, companies like Tunesat are individuals with tools to easily produce new con- introducing more efficiency in collections. tent based upon previous works. Though not new, Tunesat uses fingerprinting technology that the concept of “borrowing” has certainly gained identifies the unique audio characteristic of larger dimensions in the so-called Remix Culture each musical recording. The system monitors that we presently live in. It is easy to argue that satellite and cable TV signals, as well as mu- the centuries-old copyright model does not fit in sic streamed on the Web, and matches audio the new way of consuming and producing cul- signals with its own library of audio records. ture. It generates a report that it sends to the copy- right owner. That report can be used both to However, the evolutions of technology claim more royalties from performance rights strive to reduce their costs. Recently, YouTube should not only be viewed as disrupting the in- organizations and scour the usage data across reached a promising agreement with the Na- dustry, but also as a provider of more efficiency different platforms. tional Music Publishers’ Association (NMPA) to a trade that is dependent on the exclusive rights and the Harry Fox Agency (HFA). Indepen- that are reserved to content creators. Moreover, one of the biggest chal- dent music publishers will collect royalties for lenges in copyright administration is the so- synchronization rights from YouTube videos In the music-publishing realm, due in called Black Box problem. Rights societies that earn advertising revenue worldwide. part to technological advancements, songwriters around the world collect monies for the usage and composers are leveraging copyrights of their of all songs, but those monies are distributed In addition, scholars from the Berk- works arguably better than ever. Strong com- only to those works that are registered. How- man Center for Internet & Society at Harvard munication networks permit the exploitation of ever, due to many different factors, such as the University, as well as others, have proposed music through direct licenses, and placement op- absence of representation of a publisher in a alternative compensation schemes to deal portunities for songs are found all over the world. given territory, there are a larger number of with file sharing and sampling. Such schemes Songwriters and composers have been establish- unclaimed works that are entitled to receive would utilize collective management systems, ing themselves as their own publishing company royalties but do not get that consideration. This similar to rights societies. A small copyright too, just signing administration deals with larger large pool of money is divided among major fee would be levied from Internet users and companies that, without requiring the ownership publishers according to the market share after distributed to the rights owners, enabling a le- of rights, can provide easier and faster royalty a set period of time. gal and compensated settlement. computations more accurately. In order to streamline the royalty Hence, if from one perspective tech- Moreover, technology has reshaped distribution process there are now ambitious nology brings challenges to the music indus- how media companies find music for their pro- global initiatives to create a comprehensive try, from another perspective, technological ductions. Radio broadcasters, TV companies, database of music copyright ownership. One is resources are forging new scenarios in which film directors and producers are increasingly re- the International Music Registry (IMR), led by authors, songwriters and artists are able to lying on production music libraries to find songs the World Intellectual Property Organization profit from their creations. and underscores that fit perfectly for their pur- (WIPO), an agency of the UN, and the other poses, whether it is for an auto ad campaign or is the European initiative known as the Global for a blockbuster movie. License transactions are Repertoire Database (GRD). Both entities are all fulfilled online, and thanks to strong search studying ways of working together, and the engines and a bandwidth that permits sending idea is that once deployed, such databases will large audio files, the process of picking the track bring benefits for all stakeholders involved in and delivering it is extremely reliable and fast. the exploitation of music rights. Costs incurred duplicating data will be saved, more attention Roughly a hundred years ago, when will be given to proper registration, and, gen- technological improvements denied writers and erally, administrative barriers to businesses composers collections from the public perfor- seeking to distribute content online will be mance of their works, they rose to the challenge lowered--ensuring that creators of music are and created, in 1914, the first performance rights quickly and efficiently compensated for their organization. The American Society for Compos- work. ers, Authors, and Publishers (ASCAP) was meant to deal as one and collect license fees. The model Gradually the music industry is re- was consolidated over time and performance shaping and adapting to a new order of mu- rights societies are now responsible for collecting sic consumption. Illegal file sharing is being more than $9 billion a year worldwide. However, gradually substituted by legal alternatives. Yet since then, the process of tracking music usage Spotify and YouTube still need to demonstrate has not changed much. It has relied on cue sheets effective royalty payments for artists as they October 2012 www.thembj.org 7 Volume 8, Issue 1 Music Business Journal Business Articles Crowdfunding’s Logic
By Troy Church
Crowdfunding is quickly becoming for the numerous music ventures is tricky. Re- in the project will exist among core fans and a useful alternative for musicians looking to cently, the website updated its browsing capa- all initial marketing objectives will have been pay for the production and distribution of their bilities by keyword, category, city, and neigh- largely accomplished. albums and concert tours. As will be shown, borhood (‘near me’). But the sheer variety of crowdfunding is a quantum leap from tradi- non-musical projects and the unevenness of its The fan base may have to be there, tional record label financing. Furthermore, US musical offerings are not conducive to Indi- because an unknown artist will not be able to sites have so far only accepted pledges, i.e. do- eGoGo becoming a standout platform for mu- raise funds effectively. Friends and family nations against some form of merchandise or sic financing. Some artists, though, will argue might help. But the point of crowdfunding is service return, when the project is completed. that it is the only site that allows them to keep to broadcast the project to a wider audience, However, the medium will become much more all the pledges, regardless of whether or not a and relatives and acquaintances need not go complex when the JOBS Act goes into effect funding goal has been met (www.indiegogo. to, say, Kickstarter to give financial assis- early next year and regulations are relaxed for com). tance. In that case, record deals, if available, small businesses seeking to raise equity capi- are more practical, because a label is willing tal (JOBS stands for Jumpstart Our Business to take a risk and fund a project in the early Startups). stages of an artist’s career. There is no guar- antee of recoupment, but the album will get Artists seek financial support and produced and a tour will likely follow. fans provide it. But there are upsides and downsides. We start by exploring three of Yet, if an artist can take a more the best-known music crowdfunding sites: organic path and grow his fan base slowly, Kickstarter, IndieGoGo, and PledgeMusic. All crowdfunding may eventually be the better three feature common elements: the project option for a long-lasting career. This was in an ad-hoc self-contained webpage, a video Amanda Palmer’s path, and her decision is presentation, an outline of the fundraising ultimately explained by the high cost of tradi- goals, and, finally, the list of rewards offered tional record-label financing. to contributors. Kickstarter is the best run website In a traditional record deal, a record Pledge Music is the most musician- of the three, and has an effective search en- label has to break even with an artist before it centric website: it is only for musical projects gine. Its analytics underline the value of mu- pays out artist royalties of between ten to fif- and serves musicians to the exclusion of other sic, which makes up more than one-fifth of its teen percent of the retail price of a track or al- creative professionals, like filmmakers or projects and pushes the activity into a top $1 bum. If that does not happen, the label recoups fashion designers. A team of industry experts million + earner (with video games, design, its earlier advance and the artist is not paid her reviews the project submissions and chooses technology products, and comics). Moreover, royalty. As there is a lack of transparency in the most likely to succeed. The selection re- the site has shown the most potential to tap how exactly the record label is determining an duces clutter and guarantees minimum stan- record-breaking amounts for music. Before artist’s break-even point (for instance, record dards, driving contributions up by simplify- May 2012, music led pledges in the $1,000 labels might want to collect on earlier unsold ing searches by genre and other fields. Pledge to $9,999 range, but after Amanda Palmer’s releases by that artist or more dubious pack- Music also offers third-party integration with spectacular debut in June, music made Kick- aging deductions), there is a fair amount of iTunes and gives artists the opportunity to give starter’s top ten activity list. Palmer surpassed conflict between the label and the artist. The a portion of the proceeds they make to a char- her goal of $100,000 early and sold high-ticket presumption is that the label has the power ity of their choice (nine-tenths of all the proj- rewards easily—34 backers gave $5,000 each and will err on the side of caution, hurting the ects fit this category). If the project does not and another two gave over $10,000. She col- artist. reach its estimated fundraising goal, there are lected $1.2 million from fans, many of whom four options: contributors can ask for a refund, donated as groups for the consideration of This budgeting resembles a top- send the remainder of their monies to the char- special private parties at her home. The suc- down approach, where the label’s loan repay- ity listed under the project, pledge cash toward cess rate of music projects is just above fifty ment schedule is determined by forecasts and another project, or pay the project originator percent, even though the site is curated (www. comparisons that may or may not have valid- anyway. Pledge Music likes to point out that kickstarter.com). ity for a specific project. Instead, artists who not once has a project failed to be funded in its use crowdfunding will likely be using some three-years of existence (www.pledgemusic. The Argument form of a bottom-up budgeting approach. com). They, not the record label, will determine how The crowdfunding goal that an art- much it will cost to produce an album, pay for IndieGoGo’s model is based instead ist sets can help her make a profit if the cam- the perks they give contributors, fund the tour, on a laissez-faire philosophy. Creative proj- paign is successful. This is because if she and buy the merchandise ahead of time. ects, personal petitions, and charity campaigns budgets well for the costs of recording, tour- are all game here. There is no filtering process ing, merchandise supplies, and the delivery of The break-even point of crowdfund- and little effort is required to get a webpage the rewards to fans, extra revenue from album ing, in short, is defined in the artist’s own fun- up and running. As projects compete for con- or ticket sales becomes pure profit after the draising goal, and to her it is both personally tributors across multiple categories, browsing goal money is collected. By then, an interest manageable and far less fuzzy than it might 8 www.thembj.org October 2012 Volume 8, Issue 1 Music Business Journal Business Articles Video Game Cowboys
(From Page 8) By Kenny Rosenberg appear in her dealings with a label. Moreover, The NPD Group, a market research could achieve Angry Birds-like success, and the selling price of her album or track is no firm, recently released monthly figures detail- getting into the world of apps development longer as critical of a revenue piece as it was ing declining sales on consoles, accessories could be a great pathway into the video game in the traditional break-even approach. Finally, and video games compared to years past. Their industry and a livelihood in music. Services crowdfunding tends to steer clear of the new research shows a consistent industry drop- could be rendered free to begin with, but a “360 degree” deals that give the record label off of about $1.7 billion a year through 2011. music graduate can expand his portfolio and much more leverage over all types of artists’ Game developers and their teams may have demonstrate his ability to take a project to income. reason to worry. So might musicians and audio fruition. engineers. Crowdfunding also has an impor- Jobs for musicians, of course, fol- tant non-economic value when compared to Video game publishers have avoided low closely developments in new technolo- more traditional record label financing. It al- risk and pumped out sequels of their already gies. One of the features of the economy lows fans to become involved in the process popular and ever more costly games. For ex- today is that large corporations no longer of creating the very product and service that ample, there are already nine iterations of the hold sway to creative talent as they have in their artist provides. Fans can take an active Call of Duty series, not including handheld the past. There are many points of access for role making sure the artist they admire is able titles. A gamer might spend $100 for Call of entertainment and new opportunities to use to make more of the music they have come to Duty: Modern Warfare 3 only to discover music. The video gaming industry seems to love. Musicians can give fans a way to con- that the next version will be released within be duplicating the music industry in terms of nect with others through music. This ecology the year. In fact, as The Economist explains, the micro-transactions that are changing the of common bonds deepens the connection of disgruntled gamers are now supporting DIY an artist to his fan base, gives it more integrity, financing of the trade, the rise of the DIY de- teams of their choice and looking to fund them and builds loyalty. veloper, and the productive unit of reference through crowd sourcing. Of the top ten most- (a small startup versus a large company). There is, no doubt, a darker side to funded Kickstarter projects, five are video crowdfunding. Amanda Palmer had to justify games: instead of buying, gamers are pledging In its recent artist revenue survey, how she would spend the pledges she received their money. the Future of Music Coalition showed that, because fans could not be certain that she had for the most part, teamwork rather than au- not asked for more than she needed in order to Dissatisfaction among consumers tonomy was a likelier predictor of musicians’ put out her next record and run her tour. There is slowing the industry. But it may also be success and higher income earnings. Indeed, is, really, no guarantee that crowdfunding will the case that industry statistics are not telling the idea of the self-sufficient musician, like diminish suspicion about the uses of the money the whole story. They don’t include ‘uncon- a self-sufficient game developer, is perhaps tendered. The burden of proof will now shift ventional’ methods of purchase, such as used a myth. Today, empowered by technology, to the artist, who will have to account for any games, online download services like Steam, individual groups of sellers are actually join- perceived lack of transparency. Moreover, be- and, most troublesome of all, apps. The Enter- ing forces and meeting the needs of the mar- cause there is still little government oversight, tainment Software Association’s 2011 Annual ketplace head on—but not alone. the success of crowdfunding campaigns could Report shows that when these alternative de- be tainted if even a small subset of artists livery formats are added, the value of the video showed little integrity or desire to be account- game business goes up by $7.3 billion, a rise of able to the public. Of course, it would be not nearly one half. be in their best interest to do so, for they could hardly expect to raise more money that way. For musicians interested in working for the video game industry opportunities lie The same could be said if there are in app development. Smartphones and crowd- abuses under the umbrella of the new JOBS funding have become the new drivers of a trade Act. If regulatory procedures are relaxed to that is increasingly becoming atomized into encourage online investments in startup busi- small teams, where the sound and music expert nesses, more savings will be tapped. The dan- is essential. Moreover, it appears video gamers ger, again, is that the threshold for transpar- are trying to take used games out of the pic- ency and accountability will be less than, for ture, which would reinforce the strength of the instance, in an existing initial public offering growing mobile game market and apps. Sev- of stocks (IPO). The comparison may appear eral used games require an additional payment farfetched because there is far more money be- to enable online play and, in the view of many, ing invested in a typical IPO than in a crowd- downloads will likely prevail over a used prod- funding project. Yet, there will be many such uct. smaller ventures than IPOs. Moreover, like the New York Stock Exchange or NASDAQ, un- An all-digital and online video game less the public feels safe pledging money, a few market is in the best interest of musicians. serious mishaps could eventually taint percep- Less funding is required to make an app that tions and deter pledges. October 2012 www.thembj.org 9 Volume 8, Issue 1 Music Business Journal Business Articles The Merger of Universal and EMI
By Mariana Migliore and Megan Dervin-Ackerman
Both European and American regu- Nevertheless, the merger has caused Lucian Grainge, UMG’s CEO, may lators have approved the $1.9 billion pur- concern for many consumers, organizations, claim that the merger will help UMG widen chase of EMI by Universal. The deal was and trade groups in the US and Europe. the music industry by, for example, doubling closed after months of heated debate about A&R and marketing investment. The hope whether or not the merger would yield too The American Association of Inde- may be there, but it is difficult to excite mu- much of a competitive advantage. In Europe, pendent Music (A2IM) has rallied against the sic retailers and artists with that sentiment.8 To the European Commission (EC) approved it presumed monopoly power of Universal Music. revitalize the market, recorded music still has under certain conditions. In the US, the Fed- Indeed, Universal Music will now control about to sell in an economy that has many more en- eral Trade Commission decided that Univer- two fifths of the global recorded music mar- tertainment alternatives than in the 1990s and sal and EMI had different product portfolios ket and the master recordings of The Beatles, where the typical transaction is not an album and that both companies could complement Jay-Z, Katy Perry, Robbie Williams, and Pink but a single song. each other. Floyd.4,5 The organization is worried that the merger can impact consumer pricing as well as The deal is not expected to clear One of the duties of the EC is to as- access to music. for another few months, and the purchase of sess mergers and acquisitions for anti- com- EMI’s remaining third is still up in the air. In petitive practices. Universal’s acquisition of Public Knowledge, a US organization the meantime, UMG’s newfound power will EMI was announced in November 20111, and that fights for digital rights and the openness of be exercised in layoffs. There is speculation the EC’s results were released this September. the Internet, warned about Universal amassing that the company will attempt to save around a dominant collection of copyright holdings. $163 million per year in redundant employ- A specific concern was that the UMG, it argued, would use this collection not ees.9 merger could give UMG/EMI a privileged just to raise prices for consumers, but also to position in controlling prices and licenses, create a new tax on innovation among digital Endnotes and that this would harm digital music retail- music services.6 1. Belke, Haven. “R.I.P. EMI.” Music Business Journal. ers like iTunes and Spotify. To prevent this, Berklee College of Music, Dec. 2011. Web. Sept. 2012. the EC required Universal to sell a third of The Future of Music Coalition, a
10 www.thembj.org October 2012 Volume 8, Issue 1 Music Business Journal Business Articles The Value of Pure Research
By Ben Scudder
moving into new territory. If the premise is that music listening is, above all, a social experience, there must also be a wealth of cultural markers embed- ded in the music. Music is consumed a lot over the Web, and that is where users demonstrate many of their preferences. The Echo Nest claims that its computers can crawl and search qualitative data in blogs or other sites and can detect fan tweets on their favorite band in the hour.4 More interactive radio programing and listening could follow as playlists become more current.5
Hardware technology, the Internet, Moreover, it should be apparent Music, one of the most recognized and new software applications are determining that correlating dates, and other data, with the commodities of the digital domain and one of the future of music. The acquisition and dis- charts, is useful. For instance, a recent app the first to be traded openly, is perceived dif- tribution of recorded sound, and the increased asks users to enter their birthday and tells them ferently today than it was ten years ago. It has interaction between artists and their fans, have what music their parents would have been lis- experienced a metamorphosis in value. Its changed the fortunes of the business. It is less tening to nine months before, at conception. power of engagement, however, has always well known that a new generation of entrepre- New technology also breeds new thinking! been steady. Businesses would do well to take neurial talent, often stealthy in its approach, is notice and exploit its compelling allure. Echo colonizing a new music space, a place where There is no question that developers Nest is trying and mapping out uncharted ter- the set of skills necessary to succeed seem far are being empowered to create new apps with rain. removed from a musician’s traditional bag of Echo Nest’s platform. Commercial use re- tricks. These entrepreneurs work behind a com- quires proper licensing, but free non-commer- puter screen, collect and store all kinds of music cial early access gives developers a chance to Endnotes stats for app developers, and propose algorithms get to know the product well before acquiring that map the music mind of a neighborhood or, a license. For instance, the company sponsors 1. http://the.echonest.com/company/ really, any bird of the same musical feather. ‘music hack days’ for hundreds of develop- 2. http://the.echonest.com/solutions/#playlisting ers to come together and create apps using the 3.http://blog.developer.echonest.com/post/1321580224/ Gathering intelligence about music is Echo Nest’s proprietary API programing inter- danceability-and-energy-introducing-echo-nest indeed becoming a big business, and the market face. 4. http://www.fastcompany.com/1734773/echo-nest-makes- pandora-look-transistor-radio is putting a premium on early starters. This MBJ 5. http://the.echonest.com/solutions/ correspondent interned over the summer with History and Potential 6.http://www.boston.com/business/ticker/2010/10/the_ Echo Nest, a standout new business that in July echo_nest_s.html received a new round of $17.5 million in ven- The origins of the Echo nest are cu- 7. http://www.boston.com/business/technology/2012/07/12/ ture financing. The market is talking and likes rious. It is a case of pure research begetting the-echo-nest-raises-over-million/W8fLiIFWE0bN- what it sees. a music business application. The company jGtxGAL17I/story.html was the brainchild of co-founders Brian Whit- The Company man and Tristan Jehan, two PhD students who worked in the media lab at MIT. They started The heart of the Echo Nest is a “mu- the business with three grants from the Small sical brain”, a platform containing an array of Business Innovations Research agency (itself valuable data points organized in a database. supported, in this particular case, by the Na- For instance, they include objective informa- tional Science Foundation). Public money was tion about a song, including metronomic tem- in fact there well before venture capital moved po, time signature, and key center.1 This seems in. trivial, until it is realized that aggregating songs under these parameters might not be neutral as Echo Nest has likely surpassed the new services emerge that use music in unfore- hopes of its original grant makers. It has since seen ways. Moreover, attributes like these are opened up a huge repository of dynamic mu- important for powering many of the platform’s sic data for every stakeholder in online music features, such as advanced playlists.2 Other lay- - from independent developers to the largest ers of information for app developers include media companies in the world.6 A measure of the subjective appreciation of a song, for ex- its success is that its clients now include the ample when ratings are given for ‘energy’ or BBC, Spotify, Clear Channel’s iHeartRadio, dancing potential.3 Here again, the Echo Nest is MOG, eMusic, VEVO, and Nokia.7 October 2012 www.thembj.org 11 Volume 8, Issue 1 Music Business Journal Business Articles The Rise of EDM By Danny Feinstein and Colin Ramsay EDM is the fastest growing mainstream genre Social Media and Technology in the United States.2 It is also important to note the role of Festivals and Live Shows social media in catalyzing the growth of EDM. For a genre so inherently tied to technology, For the electro-elite, live shows are the Internet is a natural marketing platform. the most lucrative source of income. Unen- Tech-savvy producers and DJs unsurprisingly cumbered by most “traditional” band equip- flourish in the online space. Danny Whittle, ment, the cost of touring for DJs is extremely brand director of dance club Pacha notes, “Our low. Meanwhile, the demand is skyrocketing. musical genre embraced the Internet, all other Promoters are capitalizing on the live experi- genres fought it.”6 As the digital music space ence with wildly successful EDM festivals continues to expand, EDM arguably harnesses including the Electric Daisy Carnival, Hard, the Internet’s potential more effectively than Tomorrowland, and Electric Zoo, the first of other genres. which drew 320,000 people over three days this year in Las Vegas.3 At the most recent DJs were early adopters of the free Electric Daisy Carnival, attendees were will- music model, recognizing that their low cost of ing to pay $215 per ticket. touring made live appearances the more lucra- tive revenue stream. As a result they won the Joining standard rock, rap, and pop hearts of legions of fans that most likely would acts, DJs are also steadily streaming into ma- have pirated their music anyways. The strength jor slots in broader, mainstream festivals. This of the EDM online culture has even led to one year’s Coachella Valley Music Festival boast- of the very few successful alternatives, albeit Electronic Dance Music (EDM) is ed EDM heavyweights, Justice, Porter Robin- genre-specific, to iTunes: Beatport. surging to the forefront of mainstream tastes. son, and Swedish House Mafia, alongside acts Beatport is a popular music store specifically If you have turned on the radio, watched TV, like Radiohead, Bon Iver, Dr. Dre and Snoop for DJs that provides digital music formats and or attended a music festival in the last several Dogg.4 Other major festivals followed a simi- music discovery tools. years you have likely noticed DJs and produc- lar trend. Lollapalooza, Bonnaroo, and Outside ers flooding the market. Acts like Skrillex, Lands all booked major electronic acts such as The Business of EDM Deadmau5, and David Guetta have emerged Skrillex and Major Lazer. from the EDM movement and achieved inter- The flurry of attention surrounding national popularity on an unprecedented level. EDM in Pop Music the business of EDM demonstrates the current power of the genre and the direction in which EDM has only recently stepped into The rise of EDM has influenced pop key voices are betting it will go. The trend the spotlight. The genre, however, is hardly music itself and an increasing number of stars has attracted the attention of entertainment young. It began as an underground movement are turning towards electro beats to fuel their moguls and entrepreneurs across the world. in the 1980s. Similarly to how hip-hop crossed hits. Producer David Guetta, a pioneer in the One company to jump aboard is the ticketing over into the mainstream in the late 1990s and practice of marrying EDM to pop, cultivated agency, Eventbrite. Filling a gap in the mar- 2000s, EDM is now coming of age, and in a mainstream success by collaborating with ket, Eventbrite services much of the live EDM big way. A generation of music fans are shift- stars including Nicki Minaj, Akon, Kid Cudi, scene. Grossing more than $1 billion since its ing their musical gaze from the hip-hop driven and Fergie. Beyonce’s 2011 “Run the World inception in 2006, the company provides an popular music that dominated the 2000s, to (Girls)” samples heavily both from the Diplo alternative to giants like Ticketmaster. “EDM the polished sounds of house, trance, dubstep, project and Major Lazer’s “Pon De Floor” and is really an international movement, so we’ve glitch, breaks, and the dozens of other sub- features writing by Diplo and Afrojack. Other got a localized site, localized payments that genres that fall under the umbrella of EDM. examples include the dub step breakdown of expand throughout the globe, and we’re seeing Britney Spear’s “Hold It Against Me” and the great traction,” says Kevin Hartz, co-founder A quick look at Forbes’s first annual Avicii “Levels” sample in Flo Rida’s “Good of Eventbrite.7 “Electronic Cash Kings” list of top earning DJs Feeling.” confirms the arrival of EDM as a mainstream Media mogul, Robert Sillerman, genre.1 Topping the list is Dutch producer/DJ According to Forbes magazine, placed his bet squarely behind EDM several Tiesto, earning a staggering $22 million over “dance music’s convergence with pop music months ago, announcing his intention to spend the last year and averaging $250,000 gross has made it more accepted as well as opened $1 billion buying electronic concert promot- per show. The list continues through a hand- up the genre to a host of new listeners.”5 Pop ers.8 Sillerman initially made his mark on the ful of now-household names including Skril- fans are, in effect, easing into EDM through a industry by amassing the consortium of pro- lex, Swedish House Mafia, and Deadmau5. genre they are already familiar and comfort- moters that would ultimately become Live Na- Even Avicii, who closes the list at number ten, able with. A symbiotic relationship has devel- tion. His foray into electronic music marks a earned an impressive $7 million. As a whole, oped such that EDM artists gain access to a significant milestone for the mass populariza- the EDM industry is worth approximately $4 wider fan base while pop artists feed off the tion of the genre. His acquisitions already in- billion per year. According to the International fresh hype surrounding EDM. clude Dayglow and Donnie Disco Presents. In Music Summer (IMS) Consumer Report 2012, (Continued on Page 16) 12 www.thembj.org October 2012 Volume 8, Issue 1 Music Business Journal Music and Society Zumba and Music
By Salomon Sterental and Alberto Azout Zumba is the remarkable story of a Magazine. Merchandise sales will be managed ba has since pursued similar deals with Wyclef business that has made music the handmaiden through Zumba’s own clothing store, “Zum- Jean and Vanilla Ice and remixed the latter’s of health and wellness worldwide. It has cre- bawear”. hit, ‘Ice Ice Baby’. ated a growing ecosystem for musicians in which producers get paid for original tracks, The idea for Zumba (originally A sub-platform has developed for publishers get paid for licensing fees, and big- called ‘Rumba’) came from Alberto (‘Beto’) smaller artists where musicians can exchange ger artists get contracted for live performances Perez, an aerobics instructor from Colombia. so-called ‘free use’ rights for promotion. A as well as for exclusive song deals. This is be- Perez had just lost his music tapes and pro- few of these artists became so popular within cause its fitness routine uses a Latin American ceeded to teach his class with merengue and the ZIN crowd that they were invited to per- dance-based workout, reaches a total of twelve salsa beats. It worked so well that he built on form at Fitness Concerts, and in some cases, million customers every week in 125 coun- the idea and choreographed his routine anew. produce an exclusive song/video. Colombian tries, and trains about one hundred and twenty He developed a strong following at a local gym artist Mara originally granted the company thousand certified instructors who pay $30 a in Miami, and was then introduced to current free use to four of her songs. ZIN members month for the privilege. CEO, Alberto Perlman, the son of class-goer. and exercise goers around the world loved her Perlman then contacted his longtime business music and Zumba commissioned Mara’s new Given current lifestyle choices and partner, Alberto Aghion, and the three agreed single ‘Crazy Love’. It also produced a choreo- higher population growth rates in devel- graphed video version. The video gener- oping markets, CEO Alberto Perlman ated over one million YouTube views in believes that Zumba will soon become less than three months. the ‘radio station of the future’. He may be off the mark. But at its heyday, just be- It seems that Zumba’s promotional fore Napster, data from the International power is working both for established Federation of the Phonographic Industry acts and upstart talent. Media attention is put global annual sales of recorded mu- not just coming from Men’s Health and sic at $30 billion. This equates to about Shape Magazine: Billboard rates it as a fifty million album transactions a week novel music platform that engages new and Zumba could eventually process as audiences. This is likely what Grammy many members. award winning artists Daddy Yankee and Vanilla Ice were thinking of at a recent A forty-five-year-old Danish Zumbathon press conference in Orlando, female can be introduced to Don Omar, Florida. For Daddy Yankee, the energy of a Reggaeton singer from Puerto Rico, the fitness floor projected his music (“it’s and become a fan; perhaps Colombian a great mix”), while Rob Van Winkle was artist Carlos Vives can develop a follow- impressed by Zumba’s global reach (“it’s ing in Kansas.1 This is because fitness a global phenomenon”).3 goals are so ensconced in a modern life- style that Zumba’s dance routine has the Clearly, Zumba is not for everyone. potential to cut across musical tastes and na- to start a marketing plan through infomercials But because recorded music sales cannot be tionalities (it plays much more than just Latin and DVD sales. It worked, and the singular depended upon to support an artist’s entire music). Moreover, by bringing music into the mix of choreography and music engaged more career, platforms like it become a logical and lives of ordinary people without the trappings clients and attracted many individuals that welcome outlet. and expenses of mass media it is adding value wished to become certified instructors. Today, to the market for recorded songs at a fraction Zumba’s Instructor Network (ZIN) is an im- of the cost. portant source of global demand for the more Endnotes than ten million fitness DVDs sold so far. The Raine Group, a banking con- 1. Cobo, Leila. “Body Rock.” Billboard 30 June 2012: 16- glomerate, is teaming up with the iconic Wil- 17. Billboard.biz. 30 June 2012. Web. https://s3.amazonaws. Zumba’s first major deal with a top com/zumba/www-zumba-com/en-us/press/pdf/USBilboard- liam Morris Endeavor talent agency, and in- music artist was with hip-hop star Pitbull. mag.pdf vesting $500 million—a huge sum. The Raine Pitbull was looking to release a new album, 2. Rusli, Evelyn M. “Giving Some Muscle To A Growing Group plans to use its extensive contacts in “Planet Pit”, and make an international splash Fitness Trend.” New York Times. Dealbook, 08 Mar. 2012. Asia and the Middle East to expand the Zumba (he dubs himself ‘Mr. Worldwide’ and the title Web.
By George Howard
Eric Ries’s book The Lean Startup In the above case, ‘building’ is the streaming quants or collecting qualitative has taken the business world by storm in the hypothesis: “if X tactic is executed, the num- comments should be enough to break a habit way that only books that sum up complicated ber of people who will come to the show will of ‘random acts of improvement’ — actions ideas in an elegant manner can.1 Sadly, while increase from 200 to 200 + Y”. ‘Measuring’ which, while not bad in and of themselves, do readers from many industries are referencing confirms whether or not more than 200 people not adhere to any type of concerted, measured the book and applying its principles, musi- attended the show. The next step, ‘learning’ is plan. The goal is to move towards a more cians, and in general the music business, are absolutely essential. A post-mortem must be thorough and tested approach. not. The apparent indifference is dishearten- performed in order to assess success or failure ing, especially because the strategies and tac- relative to the initial hypothesis. It is far easier Metrics of Success tics that Ries lays forth are so applicable both to dismiss failure, and move on than it is to to the business of music and its artists. analyze what happened in order to learn from There is a need for a new type of it. And yet, this is the road to success: to strive “report card” for artists. Many analysts agree This article will summarize three key to understand what caused the hypothesis to that sources like SoundScan (for digital and points from Lean Startup that artists, especial- be flawed in execution, and then refine the ap- physical transactions of recorded music) or ly, should understand and apply. proach, based on the findings, and so increase BDS (radio airplay quants) have less rele- the odds of success the next time. Here is the vance to artists today. Ries reminds the reader Products are Experiments lesson for the music industry. that the metrics used to judge startup compa- nies are, indeed, never based on diagnostic re- Harping back to high school chem- Minimum Viable Product (MVP) ports like the income sheet, the balance sheet, istry, it was standard to go to the lab for an or a cash flow analysis. Startup entrepreneurs experiment and test a hypothesis (with safety Of course, testing prompts the ques- produce nothing more than informed guesses goggles!). There was a well-defined procedure tion of what to test. On this point, Ries’s in- about a company’s future and yet investors that we understood as scientific. We can learn sights are perhaps the most important in the bet on a return on investment. from that. Regardless of whether a product book. Business, he says, should adhere to a is released into the marketplace as a tangible market based philosophy of product trial-and- Musicians should take notice, for good or a marketing campaign, results need be error, not just reliance on customer feedback. the old and tested methods of placing music contrasted against a forecast just like our lab He contends, correctly in this writer’s opinion, are now up in the air. In this context, the im- experiment. Improvement is only possible if that most firms spend far too much time and portance of a new metrics “dashboard”, so to there is a definite set of expectations before the money attempting to discern what the market speak, is paramount. The dashboard would product is deployed. Results can then be mea- wants through R&D, focus groups, and other not just include the number of song down- sured and compared. Finally, a new plan can means. Companies should get to market as loads and streams, but the quantity of Twitter refine the approach and increase the chances quickly and efficiently as possible because the followers and website analytics, i.e. traffic, of success of the next iteration. most useful feedback they will get is about the time on site, bounce rate, and other features. product itself (or the business service in ques- Music businesses, and musicians, tion). Measuring such activities will rede- like other industry players, should reduce fine artist success—and help with the devel- risk to be successful. Yet SWAG analysis, the Access to quick market feedback be- opment of appropriate tactics in the market- ‘sophisticated wild a** guess’ kind, tends to gets the idea of the ‘minimum viable product’ place. Statistics about engaging and retaining prevail, and ‘gut’ based decisions, rather than (MVP), a key concept for Ries. A product or fans will likely return value to artists over the careful consideration of the facts, are the norm. service should take the least amount of money long-term more than sales can. Random acts For instance, if a forecast can be made of how and time to develop, but it must be viable, i.e. of improvement do not create a sustainable many people will attend an upcoming live per- at the very least it must be of a quality level career. formance with some degree of accuracy, the that allows for actionable feedback. amount of merchandise needed for the show can be determined. This decreases waste, and For musicians, the idea of an MVP is Endnote increases revenue. refreshing. Today, anyone can create an MVP, i.e. a demo. The days of sub-par MVPs are in 1. Ries, E., The Lean Startup: How Today’s Entrepreneurs Use Continuous Innovation to Create Radically Successful Also, with fact based forecasting, fact long gone. There is less need to spend a Businesses (Crown Business, 2011). tactics can be developed to build success. Say, lot of money on a studio prior to testing the for example, a band played a club gig in Sep- hypothesis that a song will be well received in tember and two hundred people turned up. The the marketplace. band is then asked to play again at the club two months later and they wish to drive more atten- Consider, for example, the ease with dance. The goal would lead them to create an which an artist could create two songs, put experiment — a tactic. The band would know them up on Bandcamp or other website, and if the experiment worked or not soon after the immediately begin the collection of feedback. gig. The dynamic of ‘building, measuring, and An artist, of course, can elect to do whatever learning’ as advocated by Ries, will tell them if they want with the information. However, their experiment worked or not. even the mere act of gathering download and 14 www.thembj.org October 2012 Volume 8, Issue 1 Music Business Journal Berklee College of Music Music Business Journal
Volume 8, Issue 1 www.thembj.org October 2012 Upcoming Topics
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Rise of EDM (cont.)
(From Page 12)
early August, Billboard reported that he was in sillerman-expands-edm-assets-1007735752.story>. “negotiations with up to 50 other companies, Endnotes 9. Ibid. with tentative agreements in place with around 10. Dahud, Hisham. “EDMbiz Invades Las Vegas Next Week 9 1. “Electronic Cash Kings.” Forbes. Forbes Magazine, n.d. & Why EDM Matters More Now Than Ever.” Hypebot.com. 15 of them.” Web.