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