January 2004 NEWSLETTER A n E n t e r t a i n m e n t I n d u s t r y O r g a n i z a t i o n

The Music Biz in 2003: Desperate But Not Serious 50th Anniversary by Dan Butler

For the first three quarters of have both vowed to continue the The President’s 2003, the music business con- fight on appeal. Corner tinued its three-year slide. Sales Not all news was bad, however. were down and axes were falling at A strong fourth-quarter slowed the Teri Nelson Carpenter record companies everywhere. decline in CD sales to only 2% for Young people continued to illegally the year, well below the 10% that November's meeting and Decem- download music with piratical was expected. The second half of ber's holiday party were each a huge abandon. An entire generation of the year saw consumers actually success. Our November panelists pay money for almost 20 million and moderator, Darryl Franklin, kept music fans was firm in its belief the discussion rolling along at a fast that music should be free because downloaded tracks. Internet album pace with many questions being artists are rich and record com- sales, while still a small percentage fielded from the audience. Thank you panies charge too much for CDs. of total sales, were up 20% from to all of our panelists for talking so Artists voiced their complaints last year. Apple’s iTunes became openly about issues of concern to so about unfair record company prac- the first download service to not many copyright holders. tices to legislators. The RIAA and only be legal, but cool. Answering Our December holiday party was a Studios saw their winning streak in many consumers’ complaints that great time for all. The food, venue legal actions against illegal down- CD prices were too high, Universal and goodie bags were perfect. A load services end with two contro- Music Group took a bold step by special thank you to Judi Pulver, Ilene Goldberg and David Hirshland versial decisions that encouraged dropping prices by 25% and elimi- for all of their hard work. Rosemary the continued operation of those nating co-op ad money to major re- also deserves a high five for keeping services. In Grokster, a federal tailers. Responding to artist law- tabs on all the reservations, waiting district court held that the Grokster suits and legislative probes into list, etc. Everyone who attended can service could not be held liable for alleged unfair record royalty attest to the fact that this was "The vicarious or contributory infringe- accounting practices, UMG, Warner Holiday Party of the Season". While it ment for the unlawful actions of its Music Group and BMG all took steps was a cozy venue, we had a great users. In Verizon , a federal appell- to simplify and streamline the way time and sold out to the tune of 110 ate court ruled that the RIAA could they account to artists. The RIAA people. This month's meeting is quite not use provisions of the Digital took the bold step of suing indi- special. Our very own past president, Millennium Copyright Act to expe- vidual downloaders, dramatically in- Susan Slamer along with current dite subpoenas to force Verizon to creasing public awareness that kids board member Marrsha Sill, have put turn over the names of some of its and their parents may be held together an impressive group of pro- subscribers who were suspected of liable for copyright infringement. fessionals to discuss the impact of large-scale illegal file sharing, but music on TV today. We look forward instead must use the traditional The Labels to the lively discussion and Q & A route of getting a judge to issue The Big Five record labels period that will surely follow. the subpoenas. Both decisions danced about in merger mania. employ questionable legal interpre- First it was WMG’s tango with BMG, tations, and the RIAA and MPAA followed by WMG’s rumba with EMI. Then Sony cut in to pair up with “Fever,” “The Twist” and “What a continue to administer a beating to BMG, thinking it would beat Wonderful World.” (The sale did smaller chains by undercutting WMG/EMI in a race for regulatory not include those compositions their prices. Virgin Mega Stores are approval. UMG waltzed in and written by Leiber & Stoller hanging on, but once-mighty Tower bought DreamWorks Records for themselves.) While Sony and BMG Records is looking for a buyer, the $100 million. Time-Warner then left agreed to merge their record labels, Wherehouse and Musicland chains the floor entirely when it sold WMG music publishing was not included have been sold, with many loca- to an investor group led by Edgar in the deal. Apparently, both Sony tions closed and not coming back. Bronfman, Jr., for $2.6 billion, a and BMG felt their publishing busi- It is too early to tell if UMG’s 25% move designed to lessen its corpor- nesses were healthy enough to not reduction in wholesale CD prices ate debt in a hurry by eliminating need consolidating. The biggest and elimination of co-op ad dollars an expected slow dance to regula- publishing news of the year, how- to the box stores will equalize the tory approval. Now it appears there ever, was the sale of War- playing field for the smaller record will be two big labels: UMG, with ner/Chappell. While much attention retailers. So far none of the other 28% of combined new release and was paid by the media to the pur- major labels have followed suit, and catalog sales in 2003; and the new chase of the WMG record labels by consumers have not seen much of combination of Sony/BMG (which Bronfman’s investor group, little a reduction in price at the retail also includes BMG’s recent acquisi- mention was made of the fact that level. It appears retailers may not tion of Zomba), totaling about the sale included the world’s sec- be passing on the lower price to 29%. The lesser two labels will be ond largest publishing catalog, consumers and are taking advan- Bronfman’s new WMG, with about Warner/Chappell. Many in the tage of the opportunity to improve 16% of total sales, and EMI with music industry were surprised that their profit margins. about 10%. While several parties a content company like Time-War- Internet retailers (e.g. made overtures, by year’s end, EMI ner would sell such a valuable Amazon.com), while still a small remained without a partner. asset. The failed merger with EMI percentage of the overall market, Of course, the biz always was not to have included War- are thriving by catering to those features surprising executive ner/Chappell (partly because of who wish to browse for music on- shuffles. The biggest of the year, of concerns that the regulators would line, with total sales up 20% to al- course, was the forced exit of not approve a union of EMI, the lar- most 22 million albums. Apple’s Tommy Motola from his 14-year gest music publisher with the sec- iTunes is a big hit, with over half a reign atop the throne of Sony ond largest), but Bronfman’s offer million songs available for legal Music. His successor from outside was for both records and publish- downloading. Apple already controls the music world, Andrew Lack, ing, which gave TW more cash to 31% of the portable download presided over the merger with BMG pay down its corporate debt. device market, and the new card- as well as the layoff of 1,000 jobs. Bronfman is gambling that the re- sized Mini iPod , which is only a half Epic President Polly Anthony left cord business is ready for an up- inch thick, holds up to a thousand the Sony fold for that of UMG’s new turn. He hedged that bet with the songs and retails for $249, should acquisition, DreamWorks Records. acquisition of the solid cash flow of help keep them competitive as oth- Former Warner Bros. veteran Phil Warner/Chappell’s one million er companies introduce similar Quartararo took over at EMI/Virgin copyrights, which can be held or devices. and it looked briefly as if he would easily sold. Warner/Chappell is Lucky for those of us who live be rejoining WMG via the WMG/EMI looking ahead to increase publish- in Los Angeles, Amoeba Records is merger - until Bronfman entered ing revenue streams from ring one of the few ongoing success the winning bid. Island Def-Jam tones and other new media sources stories at brick and mortar retail, Chairman Lyor Cohen weathered a in addition to performance and continuing to offer an old-fashioned whacking by the courts, losing a licensing income. TW’s manage- record store experience. The con- multi-million dollar fraud lawsuit ment, on the other had, bet that tinuing carnage wrought by the box brought by TVT Records. the music business will continue its stores and inroads from internet- downward trend, and decided to based services will likely ensure Music Publishers get out of the game. TW’s that the traditional record store be- On the music publishing front, management did, however, build a comes an endangered species. the general business climate re- provision into the deal allowing a mained much healthier than on the buyback of a small stake of WMG at Film and TV record side. There were few large a good price in case of an industry 2003 was a very good year for catalog acquisitions. In May, Wind- recovery in the near future. the movie business. Domestic box swept announced the acquisition of office fell 1% in 2003 to $9.4 the Trio/Quartet catalogs from Retail billion, following 2002’s all-time re- Leiber & Stoller, comprised of At retail, the box stores like cord year of $9.5 billion. This de- classic 60’s rock and R&B songs like Wal-Mart, Target and Best Buy cline, although slight, was the first drop in twelve years. Actual ticket being released. for video games uses, and prices sales, however, totaled more than One big success story in TV are going up as game companies 1.5 billion, the second-best figure music has been Fox’s “American get used to the idea of paying for since 1957. Many big-budget studio Idol,” which generated not only real music, fueled by consumer releases saw huge drop-offs in their good ratings, but launched several demand. The video gaming industry second week of release, continuing performers’ recording artist ca- is growing at an annual rate of a trend from 2002. One explanation reers. Three contestants receiving 20%, which should guarantee a is that word of mouth has become record company label contracts lucrative source of future sync almost instantaneous. Nothing can with BMG debuted with number one licensing income. kill a movie faster than bad buzz albums last year, Clay Aiken, The landscape of the music spread by cell phones and Internet Ruben Studdard and Kelly Clarkson. business at the end of 2002 looked instant messaging. Some industry Other new musical shows include a bleak indeed. While many problems observers worry that the second revised version of “Star Search” remained at the close of 2003, par- week drop-off phenomenon may be and the dramatic series “American ticularly the ongoing crisis of illegal an early sign that internet file- Dreams,” set in the 1960s and fea- file sharing, the vista ahead seems sharing and movie piracy is be- turing American Bandstand appear- a bit brighter for 2004. ginning to affect box office sales ances by classic performers por- the way internet file-sharing has trayed in the show by contemp- UPCOMING MEETINGS affected CD sales. Studio block- orary stars like Vanessa Carlton busters regularly show up for sale and India.Arie. Feb 17 Sync licensing for film and as DVDs on the streets and over "An Evening With...(A Special the Internet prior to initial release. television continues to be a big Guest)” Digital camcorders smuggled into source of revenue for publishers Mar 23 theaters account for many bootleg and record labels alike. Unfor- Part 1 of our Publisher Series: copies. In response, the MPAA is tunately for studios and production "Return of the Foreign Sub- encouraging exhibitors to crack companies, prices have seen an in- Publishers" down on this practice and legis- creasingly upward trend, as big la- Apr 20: lators are passing new laws to bel and publishing licensing depart- Part 2: "U.S. Indie Publishers" make such actions a felony. Studios ments are under greater pressure May 25 are now featuring cards at the be- to meet higher numbers to offset 50th Anniversary Celebration ginning of the film warning against falling CD sales. unlawful copying and encouraging audience members to report to Video Games MEMBERSHIPS management individuals attempt- In 2002, Americans spent $12 The price of an individual mem- ing to camcorder the film. billion on video games, more than bership is only $55 annually. En- was spent on either movies or Although the last two years at joy each dinner seminar at the music, and they spent an average the box office were the best ever, special member rate of $28 (the 2002 was a terrible year for sound- of 75 hours playing video games, non-member rate is $35). We tracks and 2003 was no better. more time than was spent watching also offer Corporate Member- Fewer soundtrack albums were rented videos and DVDs. This trend ships for $250 annually. Corpor- released in 2003, and most of has been seen as bad for labels and ate Sponsors can send up to 10 those were less costly than in years studios, because the multiplicity of people to each dinner seminar at past, as studios and record com- choices for consumers may trans- the member dinner price. In panies became increasingly risk- late to less interest in, and money addition, each member can bring averse in the down market. Only spent on, music and movies. How- a guest at the discounted mem- four soundtracks sold a million ever, this trend may increasingly ber rate. A Corporate Sponsor units all year: “Chicago,” “The be good for music in general, as can save $60 per meeting, with Lizzie McGuire Movie,” “8 Mile” and video gaming companies have a potential savings of $480 for “Bad Boys II”. Only six other graduated from cheesy repetitive the year. soundtracks exceeded 500,000 synth scores to licensed tracks California Copyright units: “Tupac Resurrection,” “2 Fast from successful recording artists Conference 2 Furious,” “Daredevil,” “American and even real composers, orches- tras and union musicians. Studios Idol Season 2,” “The Matrix Re- P.O. Box 57962 loaded,” and “Cradle 2 the Grave”. are also turning hit films into hit Sherman Oaks CA 91413 The soundtrack business shows video games, under both licensing 818-379-3312 little sign of improving in the near and joint venture arrangements term, although increasing numbers with video game companies. Pub- www.theccc.org of soundtracks derived from tele- lishers and labels are licensing vision shows and video games are more compositions and recordings