Hello Mr. Brightside

Jul 25 2011

I’ve been waiting about 5 years to write this particular blog. I can’t say that it’s done with total confidence. Like a person in the desert finding a fresh pool of water just ahead, I’m a little afraid that what I’m seeing is just one more mirage. It’s not written with much joy either. There are far too many talented music people, on both the creative and business sides of the industry, who are still out of work to unabashedly celebrate the moment. But with all the caveats and caution, I still think it’s time to go on record:

There’s light at the end of this deep, dark tunnel that we’ve been in.

After almost a decade of what has seemed like irreversible decline in the music industry, with each year bringing declining sales, more consolidation, less creative growth, and a growing irrelevance in pop culture, we might finally be turning things around. Over the past several months, there’s been not just random bits of good news, but an emerging pattern that would seem to indicate, dare I say it, positive momentum for a recovery that can reinvigorate the record labels, publishers, artists, songwriters, producers, live industry and all the thousands of other music-related businesses that have been suffering through this long slog through the wilderness.
Here’s a few of the things that have weasels smiling these days:

• The emergence of new technologies that are legal, licensable, and viable – and fun to use!

The appearance of Spotify, Turntable.fm, and iCloud, along with the continued growth of services like Pandora are showing that it is possible to make music available in a way that’s attractive and profitable. Of course, there will continue to be winners and losers in what seems to be an ongoing story of overnight sensations and quick, brutal endings (say goodnight, MySpace). But the convergence of streaming services and social networks, and the cooperation between labels, publishers and technology services in making the music available legally, is a model for a more promising future.

• A growing government concern about piracy and illegal file sharing.

I’ve been predicting it for years: once the technology of file-sharing reached the point of endangering the movie and television industry, we’d start to see a change in the US government’s willingness to step in and get involved. The truth is, politicians couldn’t care less about the music industry. It’s too small, too controversial, too disorganized, and too youth-oriented to matter, and as a result the industry has lost virtually every battle it’s entered, whether it with the broadcasters, restaurant and bar owners, or internet service providers (ISPs).

The movie business is a whole different animal. It is the big dog of American entertainment, and the companies that are built on movies, like Disney, Viacom, and Universal Pictures are among the crown jewels of the American corporate world. Now that they’re being threatened by illegal file-sharing around the world, the US government is sending signals to internet service providers both here and abroad that they will be held responsible for copyright violations occurring on their networks. In return, ISPs are showing a willingness to consider some type of punitive action toward consistent copyright violators, as well as a surcharge that would compensate rights holders. Thanks to Hollywood, what was deemed utterly impossible when the music industry asked for it five years ago is starting to look like a reasonable compromise.

• The revitalization of the CD catalog business.

Again, I’ve been at this one for awhile now—in “Living In the Past Beats Dying In the Present” I used the example of the German music market to argue that the short-term future of music was “selling old product to old people”. With its new $5 CD program, Walmart is taking that formula to the bank, selling CDs of classic music to older, mainstream consumers. Not surprisingly, it’s revitalized the catalog business, which especially for major record labels, is absolutely essential for a return to profitability.

• The opening of China.

This week brought more good tidings from abroad, where it appears that a consortium of the major US labels, called One-Stop China, and Baidu, China’s primary online Google-equivalent, have reached a deal that will allow Baidu to provide users with free ad-supported music streams. In turn, Baidu will pay the labels and creators of the music, as well as crack down on illegal sites that infringe copyrights. While it’s unlikely to generate any significant income for 5-8 years, this first crack in the Chinese fortune cookie could be a massive long-term step toward breaking into a potentially massive market of consumers. The prospect of monetizing markets like China, India, Eastern Europe, and Southeast Asia has been one of the primary factors fueling the hedge fund interest in purchasing publishers and music catalogs. It now seems that may have been right.

• The success of Adele.

Doesn’t seem right to discuss a resurgence of the music industry without even mentioning music itself. Given the divergence in tastes among any random group of listeners, as well as the constant creative rise and fall in each different musical genre, it’s possible at any time to make an argument for the proliferation or the imminent demise of “good music”, whatever that means. Still, one has to take note of the fact that just this year, Adele has sold more than 5 million copies of her album and set the record for the longest stretch at #1 of any female artist. Those kinds of numbers weren’t supposed to happen anymore in our post-album, singles-dominated, market-fractured, ADD-addled music world.

Adele

But the fact that it was done by a real singer who is neither a fashion model, television star or an ongoing gossip-column soap opera; who is not a winner of any TV talent contest; who doesn’t rent her music to advertising campaigns; who doesn’t Twitter; whose music is not aimed at Top 40 radio trends—these are signs that can’t be ignored. Add in other new artists like Mumford & Sons and Florence & The Machine, and one begins to sense a shift. This is not to demean Katy Perry, Kei$ha, or Rihanna, all of whom make great pop music for a demographic that loves and lives that kind of music. But it means that there are alternatives, and that there is more than one audience and one road to building a very substantial, and lucrative business around your music.

Of course, it would be foolish to ignore the equal number of warning signs flashing in the distance, or any of the huge potential pitfalls that could easily derail the resurgence of the music business:

• The major labels continued reliance on over-age, tired, and narrow-minded chief executives

• The brewing meltdown of many of the world’s performing rights and mechanical collection organizations

• Our continued inability to update and streamline copyright law to keep pace with technology and globalization

• The inescapable reality that music is no longer a primary pillar of youth culture, but rather shares that role with social networking, gaming, fashion, and a million other diversions

Yet even some of the worst news in the business, like the mass layoffs at Universal Records, or the continued consolidation of the major labels, has a positive aspect. At least it shows people making changes that in many cases were either inescapable or long overdue. Restructuring an industry is never pretty, and much that’s good is inevitably lost in the slash and burn of clearing the way toward the future. Nevertheless, it has to be done.

There is a time for criticism, and this blog has often pointed out the looming problems, mis-direction, or just plain dumb decisions throughout the music industry. But there is also a time for letting positive energy feed upon positive energy, re-establishing a sense of optimism and untapped potential. This business was never easy, nor was it meant to be. As I said in last week’s blog: the only thing that can truly kill you in show business is cynicism. Once that deadly element sets in, it’s over.

As we head into the 4th Quarter of 2011, this blog is going to try to focus on the good news, and what we can do to take advantage of the positive developments in the music business. With the help of my standout Berklee intern, Jorge Oliveres, I’m also looking forward to highlighting some of the people who are making new things happen, or who have a particular expertise that can help music publishers and songwriters exploit the new opportunities we’re seeing.

I think we’ve finally turned a corner in the music business. Now, it’s time to step on the gas and head toward that light at the end of the tunnel.

Follow me on twitter @EricBeall

Tomorrow's Forecast

Jun 22 2011

Today was a strange day in NYC —not quite sunny, but not giving in to rain either. The skies were in constant motion, drifting from lightly overcast to grey and ominous to hazy and hopeful in a constant cycle that never seemed to reach a culmination.

It’s not unlike the music business these days. No doubt there are some dark and weighty issues hanging over us, including the massive restructuring (or lack thereof) of the major music corporations, the budding crisis at the PROs and HFA, and our continuing inability to sell music, except when we essentially give it away at 80% off. Still, the mood among the weasels is noticeably brighter these days, and it’s not only due to the promise of a summer weekend with Lyor in the Hamptons. It’s as if those dark grey clouds have lifted a bit, and have been replaced by clouds of the whiter, puffier sort. Clouds that look a lot like an iCloud.

Negotiating season is over, and for once a new music technology is being brought to consumers with the blessing of the music industry—we’ve not been blindsided, ignored, or misled. Or at least we don’t know it yet. In fact, for the first time in decades, the music industry and the publishing business in particular acquitted themselves quite nicely at the bargaining table, not sticking in the fork to gouge a promising innovation but not settling for table scraps either. Maybe ten years of trouble has taught us something. No one wants to mess up what might be the last great hope for the music business.

Of course, at the moment, it is indeed a matter of hope. On the positive side, a partner like Apple certainly instills some confidence. Since the inception of iTunes, they’ve managed to consistently comprehend the way the modern consumer wants to listen to music, and to provide the best, most stylish, and most iconic technology to meet that need, in a way that music companies, including technology giants like Sony, have not.

At the same time, it remains to be seen how much of that genius stemmed directly from Steve Jobs, and how much will endure now that he is no longer an active presence in the company. I’m sure I’m not the only one to at least ponder why someone who refuses to pay even 99 cents for a legal download will pay $25 a year for a music locker, in which to store the contraband. But like the rest of the publishers, labels, artists and songwriters that have suffered through a decade of downloading and file-sharing, I sure hope they do.

In fact, one of the best aspects of the new licensing agreements between labels, publishers, and Apple is the chance to actually monetize, in retrospect, much of the music that has been pilfered in the past. With iCloud, Apple is charging $25 a year to scan and match a user’s existing music collection for songs not purchased from iTunes against the iTunes library—users will then be able to redownload up to 25,000 tracks to those same devices. With labels and pubs actually getting significant share of that $25 fee, this is a chance to recover at least part of what we missed the first time around. Life does not offer many such second chances.

Even better, the technology of the cloud allows true, verifiable accountings of what is being purchased, using iTunes Match to monitor what each individual consumer is putting into their locker. Unlike radio monitoring at the PROs, which is an error-ridden exercise inevitably weighted toward the mainstream pop playlists and the major publishers who represent the bulk of those writers, or the questionable system of divvying up the pots of gold netted in settlements with YouTube, Napster and the like, the accounting practices of iCloud should allow for a reasonably transparent system. While Apple has yet to lock in deals with the indie record companies and independent publishers, they have said that they will offer independent publishers the same percentage as is received by the major publishers who have signed on. Happily, the deal structure that’s in place would seem to be capable of getting everyone a piece of the pie.

Most importantly, unlike previous deals with companies like YouTube, we might be getting a share of a pie that’s actually large enough to mean something. Under the current agreement, the revenue from iCloud will be split with 30% going to Apple, 58% to record companies, and 12% to the publishers (and songwriters). For publishers and songwriters, that’s a big raise from the .091 cent per unit statutory mechanical rate—and most of us haven’t been seeing full stat rate on a consistent basis for a long, long time.

David Israelite

On the songwriter and publishing side, much of the credit for wrangling a more equitable split of the money goes to David Israelite, the president and CEO of the National Music Publishers Association. Easily the savviest of those trade group lobbyist/media spokesperson/diplomat/enforcers who’ve become the real champions of the music industry while the label presidents and publishing chiefs have been busy moving offices, schmoozing with hedge fund managers, and judging TV talent shows, Israelite was not directly a part of the iCloud negotiations. But according to Greg Sandoval’s insightful article in CNET News, Israelite was key in encouraging the publishing community to put some steel in their all too flexible spines. It’s a little like telling Charlie Brown, the perpetual loser, to man up and kick the ball. But lo and behold, it seems to have worked.

http://news.cnet.com/8301-31001_3-20071823-261/apple-google-music-clouds-can’t-snub-publishers/

Now, we can only hope that the publishing powers that be will also listen to Israelite’s advice about the essential need to streamline the process of licensing. Tech services have been demanding this for years, and every person that labors in the publishing community on a daily basis knows that the system as it currently exists is entirely dysfunctional. It doesn’t work for the new technology services, it doesn’t work for the old ones, it doesn’t work for the publishers themselves, and it certainly doesn’t work for the songwriters. If you want a peek at how bad it is, check out my blog “Life In The Slow Lane”:

http://ericbeall.berkleemusicblogs.com/2010/08/12/life-in-the-slow-lane/

But with the prospect of clouds on the horizon, publishers are going to have to sacrifice a certain level of independence in order to make sure that this new technology can be successful. The ability to access all music all the time without restrictions is a key factor in winning over the public to a format that could be the miracle cure for our business. We simply can’t afford to cling to our old system of clearing songs writer by co-writer, publisher by co-publisher, territory by territory around the world. No one has been a more outspoken advocate for the rights of publishers and writers than Israelite. But even he realizes that now is the moment to seize the initiative.

For the first time in a very long while, music publishers are in the drivers seat, but we have to keep the motor running. As we’ve already seen with YouTube, technology will move ahead with or without us. If people can’t get what they want legally, they will simply find another way. It’s up to us to create a centralized, global, uniform licensing system. If we can provide that, we are in a position to leave behind a mechanical royalty rate that even at its best was wildly weighted in favor of the record labels.

The current deal with Apple is a good one, and any competing service is going to have to match or better it in order to get in the game. Moreover, no one can win this game unless they have access to all our songs—old, new, hits, misses, and obscure album cuts.

All we have to do is go back to making music that matters to an audience, and figure out a quick way to make it available to them. The opportunity is there. As any kid who’s ever stared into the sky could tell us, clouds are what you make of them. If we make the necessary changes in the licensing process, they could bring an end to the longest drought of our lives. But there has to be something to put inside them. The cloud without our music is just that – an empty, substance-less piece of dead air. It’s up to us to make it rain.

Follow me on Twitter @EricBeall