Now that Midem has faded into a blizzard of press releases and Carlton bar tabs, we can safely say that the quote of the week belonged to Ianl Hogarth, of Songkick, who called Midem 2011 “a year of transition.” Indeed.

Songkick

This is a little like describing a person who has fallen off a bridge, but has not yet hit the water, as being in “transition”. It might also be described as plummeting to one’s demise.

In his rather amusing description of Midem’s first official “Hack Day”, an attempt at acknowledging the music business’s new, technology-based innovators, he recounts the challenges of presenting his company’s new developments, along with those of other young music/tech firms, in a final presentation at the Majestic Hotel. Despite being one of the three primary hotels around which Midem is centered, the Majestic was apparently unable to provide WiFi. For a technology demonstration, mind you. On the other hand, if you’d like a $25 glass of orange juice, they’ve got that covered.

I think Midem may be just about done.

Attendance this year at the conference plunged once again, and especially in America, Midem felt almost non-existent. The annual pilgrimage of lawyers and label execs to Cannes has slowed to a trickle—fewer deals are being done there, and the ones that are done there don’t justify three nights at the Majestic. It’s hard to imagine one or two European albums from last year that generated enough money to cover the costs of sending four or five A&R people to Midem. The whole event has become overblown, needlessly expensive, and woefully out of date (coming next year: WiFi!)

It is, I fear, a perfect symbol of the music industry itself. It too is in a state of “transition”, and it looks like 2011 is the year where it may take the final plunge and hit bottom. Sales in 2010 fell by more than 15% for yet another year, and even digital sales have started to flatten out. This can’t go on forever. Here are a couple of predictions that are not exactly going out on a limb:

1. There will not be four major music corporations at the end of this year.

Of course, EMI is the most obvious choice for the chopping block, but now it appears that Warner may be sold as well. Or they may buy EMI. Unless EMI goes bankrupt. Or maybe KKR will buy all of them. Who knows? Someone is going bye-bye and it will mean a major upheaval in terms of A&R staff, artist rosters, new signings, and (I dare to predict) royalty payments. Have you ever watched two elephants mating on one of those television wildlife programs? These mergers are never pretty.

Meanwhile, we can also probably expect to see many of the major label imprints fall by the wayside. Def Jam/Island looks likely to either disappear or to be split apart, Epic is an Amanda ghost of it’s former self, and Virgin may have already shut down (and someone forgot to send the memo).

2. The major label “A&R” executive will officially go on the endangered species list. If you see one, be gentle and if you can, give them a job.

There was a rather ominous letter that came out along with this month’s edition of the A&R Registry that outlined the real scope of the blood-letting in the A&R community over the past several years. Rich Esra at Music Registry has been tracking the massacre for some time now—check out the article below from TJ Chapman which quotes some of Rich’s numbers.

http://www.tjchapman.com/aandr-star-makers-the-vanishing-gatekeepers

These are not the kind of statistics that you want to trot out for the kids at Career Day.

It’s clear that most of the large companies have realized that the discovery and nurturing of talent is better done in a much more hospitable and economical setting than 550 Madison Avenue or Rockefeller Center. Managers, producers, and “consultants” have become the talent scouts and the record makers. The old-school A&R “star-maker” now exists only on television talent contests.

3. The collection crew for music publishers and songwriters is next on the downsizing list. If you’ve got money in the pipeline, be prepared for some leaks.

Across Europe, the various local societies responsible for collecting income in their respective countries have reached a crisis point. Year after year of drastic income drops, new pressure from the European Union to compete with each other for top writers and catalogs, and the ever-escalating paperwork demands have made it a foregone conclusion that GEMA, SACEM, BUMA/STEMRA, SIAE and the like cannot all survive. Consolidation is inevitable. If you thought it was hard to put two major music corporations together, try a marriage between mechanical rights societies across international borders—with all their language, cultural and copyright differences.

The even scarier thing is that Harry Fox Agency, the primary mechanical rights collection organization in the US, is only slightly more stable than its counterparts across the ocean. If HFA is forced to raise its commission significantly, and it’s hard to see how it can avoid it, sooner or later, one of the major companies is bound to pull out. If that happens, the whole collective enterprise could quickly come tumbling down.

Transitions are a tricky business. With so much tough news, it would be easy to toss in the towel. But the point of a transition is that we are going somewhere—even if the ultimate destination is not yet clear. It’s always easier to predict the impending disasters than pinpoint the new opportunities.

But if you’re starting your career in music now, or trying to continue it, you don’t have the luxury of waiting until things are more settled. We’re all living our lives in the here and now. So what can you do to manage the change, and maybe even make it work in your favor? If the old order is passing away, what are the new realities to build around? Here’s four pillars to get you started:

1. Small-time is the new big-time. This is now a business of entrepreneurs.

It’s not just that things have down-sized, and big companies have become small. It’s a change in the kind of people that will become the power-brokers of the industry over the next decade. They will not be corporate executives, lawyers or people who worked themselves up through the ranks of the labels’ marketing or radio promotion departments. They will be talent-finders and developers, creators, and start-up guys—producers, managers, songwriters, indie label owners, app and game designers, and others who are willing to invest in their own big idea and sell it to others.

Not good news for those looking for a steady salary and benefits. But it will be a hell of a lot more fun than working in the Alice-in-Wonderland world of the modern major music corporation. To plot a career in the music business of tomorrow (and I’m talking the near-future), you’ll need to be willing to get entrepreneurial.

2. If you’re not entrepreneurial, go work for the phone company.

No, literally. If all things considered, you’d happily opt for the safety of a large company, but still want to be in the business of music, you’d probably be better off at Nokia than at Sony. Because of the growth in mobile entertainment via the phone networks, particularly in difficult to monetize markets like Asia and Eastern Europe, the telephone networks are poised to become some of the most important big players in the music world.

Look at Verizon’s recent purchase of Terremark, a technology company focused on cloud-based services. In many ways, companies like Verizon, Nokia, T-Mobile and others are the new gatekeepers—as alternatives like Pandora and Sirius reduce the power of commercial radio, access to a young, taste-making audience will increasingly flow through the mobile networks. The communications business will be a key breeding ground for the next generation of entertainment executives.

3. There’s a lot of people lolling around in the talent pool. Use ‘em.

With so much consolidation in the industry, there is a wealth of good, experienced, savvy people floating around out there. While no one wants to take advantage of people when they’re down, many extremely talented A&R people, radio promoters, music publishers, lawyers and others would be eager to come in as a consultant or part-time help for an exciting young company that they believed in—at least until they can put the next pieces of their life together. If you’re starting your own company and you’re running into challenges, you can be sure that there are people out there who have seen those problems before. There’s never been a time when expert advice was as plentiful and affordable as it is right now. Take advantage of it.

In the same way, the emergence of the D-I-Y model in the music world has led to thousands of start-up companies offering alternatives for everything from tipsheets to radio promotion to video production. Many of these companies will never turn a profit and will be gone within a few years. But while they’re here, why not use them as much as you can? Watch my Twitter posts at:

twitter.com/ericbeall

I regularly try to highlight new companies that I come across. There should be a couple coming up just this week…

4. When it comes to money, consider an enforcer.

As much of a proponent as I am of the “independent” model, some of the problems on the horizon for collecting and distributing royalties are going to cause real pain to small, songwriter-owned publishing companies. The merging of societies in Europe, and the possible disintegration of HFA could leave money in limbo all over the world, and that’s not an easy challenge for any new start-up venture to surmount.

If you have money being generated by your music now, or if there is going to be money in the “pipeline” in the next 12 months, I might suggest that you explore the possibilities of finding a larger company with whom to partner, at least on an administration or collection basis. It doesn’t need to be a major company (in fact, it probably shouldn’t be). You just need someone who is sufficiently stable and established to be able to fight for your money, and to be part of any settlements or class-action lawsuits that may arise. Happily, there is a reasonably good selection of small and mid-size publishers, some who specialize in administration or collection. Provided you can show that there is significant income out there to be collected, someone will be happy to partner with you and help you get your money. In times like these, it’s sometimes good to have a bigger, stronger friend in your corner.

I had lunch last week with an old friend who reminded me that this is not the first time in our careers that we’ve seen the music business “in transition”. Back in the early 1980’s, when I was first entering the industry, the business was in a shambles— with falling sales, lay-offs, and dire predictions for the end of the world as we know it. All was saved by the advent of the CD, “Thriller” and MTV.

The point of a transition is to pass through it—and that means adapting, and re-adapting as fast as you can. As frightening as they are, even the current challenges can be surmounted. You just have to think strategically. Don’t fall off that bridge. Dive.

The Tears of a Clown

Dec 12 2010

If the record business were a movie, the ad line would read:

Laugh till you cry. Cry till you laugh.

This comic tragedy reached a new peak this past week with a particularly unusual bit of December madness– the move by Barry Weiss, the chairman and chief excecutive of Jive/RCA Records within the Sony Music family to Universal Music, and even crazier, the rumors of Doug Morris, the aging and soon to be departing king of Universal, taking over the leadership of Sony Music.

http://mediadecoder.blogs.nytimes.com/2010/12/07/barry-weiss-joins-universal-music-group/

As if it weren’t enough to lose the one genuine record guy in the entire company, and the only executive who has been able to consistently deliver profits year after year even through the downturn, Sony is now contemplating elevating Rob Stringer, who has been the author of several disastrous decisions, and entrusting the whole enterprise to a 72 year old man who as far back as 2007 was happily revealing himself to Wired magazine as a complete technological Luddite. If it weren’t so sad, it would be funny, and vice versa.

The truth is, while the travails of EMI have been grabbing all the headlines over the past two years, Sony Music has actually been delivering an equally poor, or maybe even worse, performance of its own. Obviously, Guy Hands made an extremely imprudent purchase– paid way too much, took on far too much debt, and bought a company in worse shape than he ever anticipated. Clearly his management decisions have been ill-fated, with more turn-over than a washing machine, and a decision-making structure that makes the European Union look streamlined. But to his credit, EMI has created a few genuine stars, like Katy Perry, revitalized a few older ones, like Kylie Minogue, and is making a pretty impressive show on the UK charts at the moment.

Sony on the other hand has reeled from debacle to debacle– including the hiring and firing of Amanda Ghost as Epic’s president and the installation of uber-producer Rick Rubin as co-head of Columbia– while achieving next to nothing on an artist development level. When Amanda Ghost left the company, the list of her signings during the two years she was at the company was dumbfounding. “During her time at Epic, she (Amanda Ghost) signed artist’s like Denmark’s Oh Land, British born Thai artist Hugo Chakra, and the German and Nigerian artist known as Nneka” the press release stated. Rob Stringer called her “an important creative force”. Wow. Meanwhile, Rick Rubin’s biggest success at Columbia has been an album for Neil Diamond– not exactly a ground-breaking new discovery.

At this point, Sony survives on product with which they have almost no actual involvement, like “Glee” soundtracks, Susan Boyle records and American Idol releases. Labels like Phonogenic have supplied them with The Script and Natasha Bedingfield. But the only real artist broken out of 550 Madison has been Keisha, which was Barry Weiss’s project. Now he’s leaving. Hope he turns the lights out when he goes.

If you want to know more about how a disaster like this is perpetrated, check out a very insightful blog posting by Wayne Rosso:

http://www.waynerosso.com/2010/12/08/rob-stringer-rick-rubin-and-the-real-story-at-columbia-records/

With EMI awaiting its day on the chopping block and Sony’s future cloudier than the haze of pot smoke in Amanda Ghost’s office, that leaves Warner and Universal as the two islands of stability in the churning major label seas. Unfortunately, things haven’t been too rosy at The Bunny either. Warner recently threw out its under-performing A&R leader Tom Whalley and went back to the drawing board with Rob Cavallo, as Edgar Bronfman Jr. continues his on-the-job training program, about a decade in the making now, in how to lead a major music company. Certainly, it would have been cheaper to send Junior to Clive Davis’s school at New York University. But not nearly as entertaining. For an inside look at Bronfman’s already heartbreakingly funny career, check out the aptly titled “Fortune’s Fool” by Fred Goodman.

So that leaves one. While it’s been common knowledge that the record industry was almost inevitably going to consolidate down to 3 major labels by the end of 2011, it’s starting to look like we might be going down to a lot fewer than that. At this point, Universal has an A&R line-up that dwarfs the other major companies, with the undisputed king, Jimmy Iovine leading Interscope, David Massey rising at Mercury/Def Jam and now Barry Weiss moving over in the spring, and a batting order of artists that includes most of the heavy hitters in the industry. As virtually everyone in the industry acknowledges, Universal is the preferred home for any artist, and the first call for every manager, lawyer, and talent scout.

Given the players in question, there’s not much interest in how the ongoing horror story that is the record industry in the Internet Age is going to turn out. The real mystery here is why the larger corporations that own these music companies continue to indulge the madness. As the triumph of competent managers like Barry Weiss prove– this isn’t rocket science. You just have to do sensible things in sensible ways and execute effectively. Sure, it’s not as much fun, but it might actually keep everyone in a job. When it comes to turning the major label music business around, here’s a couple of obvious suggestions worth trying:

1. Make the Chairman someone with a technology background.
I don’t like it, and neither do most other old music guys, but the reality is that music and technology are now inextricably linked. We don’t just need someone running the show who knows where technology is at now. We need someone who understands where it’s going, and has his or her own network within the tech community.

2. Make the label president someone who understands the nature of a hit song.
The labels that consistently win are those with a “song guy” at the top: Syco with Simon Cowell, Phonogenic with Steve Kipner, and Interscope with Jimmy Iovine. Today, it’s all about hit singles. We need A&R leaders who can recognize a hit song.

3. Put someone in power who can do arithmetic.
Despite the ever-dwindling sales of the past five years, the spending levels at the major labels remain in the stratosphere. The obvious problems, like the midtown Manhattan office spaces and the contractual payouts to departed execs, are only the tip of the iceberg. The perks that go into the care and feeding of executive “talent” (dubious as that moniker may be) are even more problematic for being less visible. Here’s a reasonable observation: if a record label president needs to relocate the company offices, completely re-decorate the interiors, maintain a private jet or fly his or her colleagues out to LA or New York simply to have a meeting, he or she is probably not the leader we need for the music business in the 21st century. It’s not that business anymore.

A week ago, I had lunch with a great young A&R guy, who had recently been hired by one of the major labels to head up a new imprint. This kid was exactly what record label presidents look for: ambitious, personable, aggressive, and clearly possessing a great ear for new talent. Over our lunch he recounted to me how he arrived at the major label for his new position, worked his butt off…and then promptly left, less than six months later– giving up in frustration, without having signed or released a single thing. As he explained, not only could he not manage to get the Business Affairs department to finish any of the deals he put forward, he couldn’t even manage to track down the lawyer who was supposed to be doing the work. The system was so dysfunctional that he couldn’t even manage to put out reissues of product the company already owned. Expressing his frustration to the label president on the way out, he was promptly rehired– as a consultant.

Funny? Kind of. Sad? Only because the careers of artists, songwriters, producers, engineers and yes, talented A&R people, are involved. In the words of songwriter/artist Duncan Sheik, who wisely left the record world to strike it big in the theater business:

Who needs to join the circus
C’mon just look around
We are surrounded
By a bunch of f… clowns.

*”Good Morning” (Duncan Sheik)

Living On The Edge

Oct 09 2009

EXT. A MOUNTAIN CLIFF DAY

OUR HERO hangs on the precipice, clutching at the rocky ground.

PULL BACK TO REVEAL:

It’s worse than we thought. OUR HERO is dangling from the edge of a cliff—
—- twisting in the air, arms extended, hands clawing at the ground to keep his grip. HE looks down to see:

A RUSHING RIVER, hundreds of feet below…

CLOSE ON:

OUR HERO’S HANDS, covered with dust. His fingers are slipping off the rocky edge, as his hold starts to give way…

HIS RIGHT HAND pulls off as the rocks and ground begin to crumble. Now it’s only the LEFT HAND still hanging on… but his strength is fading… one finger slips off the ledge… then another…

CUT TO:

EXT. THE MUSIC BUSINESS TODAY

We’ve all seen that scene in the movie– now we get to live it in real life. You know, the inevitable scene where the action hero is hanging on the ledge, fighting for his life. Unfortunately, there are no stunt-men to call in this time around, as we prepare to take a very big plunge. These next several months in the music biz look to be a moment of reckoning, when the illusion of business as usual can no longer be sustained.

What’s got everyone in the industry on the edge of their seats, quite literally, is the imploding debt situation with EMI Music, one of the four major multi-national corporations in the business. EMI, which was purchased (inexplicably) by the investment firm Terra Firma for $4.7 billion dollars two years ago, is in a genuine and highly publicized liquidity crisis, from which it might not escape. And it’s primary creditor, Citibank, which financed much of the Terra Firma takeover, is in no position or mood to renegotiate the financing terms.

With a debt load of nearly $5 billion dollars, EMI has found itself repeatedly unable to make the required loan payments to Citibank, and in grave danger of defaulting. With severe cash problems of its own, Citibank has shown itself to be very unwilling these days to take the usual measures of re-negotiating the terms of such loans. Insiders are speculating that Citibank’s willingness to force Escada, the German fashion house, into bankruptcy last month, as well as its current hard line with Valentino, the Italian fashion company, indicates that Citibank may likely opt to force EMI Music into bankruptcy if the British music company can’t meet the debt payments it has missed, and the new ones looming ahead.

That’s scary stuff. In more than twenty years in the music industry, I’ve seen plenty of bankruptcies– over-extended indie labels, individual musicians or writers with life-savings that went up their nose or into the pocket of their business manager, indie record distributors who left dozens of labels and artists with no payment for records already pressed, shipped and sold. But I’ve never seen a major multi-national music company go bankrupt, or ever really contemplated it. Nor have most people in this industry. This is genuinely unchartered territory. In the worst case scenario, what happens?

If I had to guess, I would predict a marriage– of the shotgun variety. EMI Music has long been the target of Warner Music, who may finally have the old girl right where they want her– tied to the railroad tracks with the train bearing down. The question is whether another major music company, most likely Warner or Universal, would have the means to buy EMI– given that none of the music powerhouses are looking very powerful these days. It’s questionable whether someone in the industry, already struggling with their own business, seeing clearly the structural problems that will continue to drag down earnings, and being of somewhat sound mind, would want to acquire another record company. Almost certainly, anyone who did buy the company would shutter the label, save the valuable catalog of masters, and focus on the music publishing division, which is the only thing still making money.

More frightening than that, it is possible that EMI could simply go bankrupt. If that were to happen, it would not only spell the end of one of the most important historical legacies in the music industry (particularly for the United Kingdom), but it would drag the lives and finances of hundreds of artists, producers, publishers, independent labels, recording studios, and songwriters right off the cliff. Anyone who was owed royalties or production fees, anyone who had distribution arrangements with Caroline, anyone who had outstanding invoices could find themselves in a very long line, somewhere behind the Beatles, Coldplay, Robbie Williams and of course, good old Citibank. In such a situation, it’s hard to know if the small players, like songwriters, producers and publishers, would ever get paid. It certainly would be a disaster that would take years to resolve.

This is not a situation for which I can offer up much brilliant advice. It’s not something for which there’s much precedent, nor are there any sure-fire solutions. But given that this is the way our world looks in the music business of 2009, with once-invincible companies sliding quickly into oblivion, I will offer up a few lessons that can be learned from our predicament:

1. Patience is not always a virtue. This is not a time to let things linger. If you are owed money by any label, distribution company, publisher, production company, etc., go out and get it. Fast. A bankruptcy by a company like EMI will have massive repercussions for everyone in the music industry, from Harry Fox Agency to small independent labels to individual session musicians. If you’ve ever tried to collect a debt in the music business, even if it was only a simple studio invoice, you know that it can mean months of collection efforts. You’ve also probably learned that whoever screams loudest (particularly if the words being screamed include “lawyer”, “lawsuit”, or “Suge Knight”), usually gets paid first. Make sure your paperwork (song registrations, billing info, payment addresses, etc.) is in order, then start calling and don’t let up until you get a check. Don’t let anyone hold onto your money for any longer than a contract allows.

2. Don’t talk to strangers. Make sure you know who you’re doing business with. If you’ve got a contract on the table, or a distribution offer, or any kind of long-term agreement in front of you, you need to do your homework–not only on the individuals with whom you’ll be working, but on the company that will be paying the bill. EMI’s problems have been well-publicized since the Terra Firma purchase, as were BMG’s, prior to their exit of the music industry a year ago. Ignorance is not bliss in times like these. You need to be reading Billboard, Variety, and watching the financial pages of the newspaper, and thinking through the implications of today’s news on those with whom you’re doing business.

3. When cash is king, sometimes it makes cents to take the money and run. It’s always been a maxim of the major players in the music business that you don’t sell copyrights. Publishers and labels have always resisted the idea of selling catalogs, even in the toughest economic situations, believing that the business was built on acquisition and ownership of more and more copyrights. For many years it’s proved a profitable philosophy, as the value of most hit songs or master recordings continued to climb. Until now.

The lesson of the past five years is that there is a time for buying, and also a time for taking your profits. The songwriters and publishers (and there were many of them) who sold their catalogs three years ago, at the height of the flood of investment money into the music publishing industry, made a killing.Those prices would be far lower today, and probably will remain so for at least the next five years. If corporations like Sony or EMI had sold off their recorded music divisions five or six years ago, they could have still received a reasonably favorable price. Today, they would have a hard time finding any takers at all.

As Kenny Rogers put it, you have to know when to hold ‘em, and know when to fold ‘em. If you think your songs, recordings, studio, music publishing business, or independent label is at the top of its value in the market, that’s usually a good time to make an exit, smiling all the way.

4. Don’t mistake size for security. It’s always easy to feel safer when you’re dealing with a company that everyone knows, with a big office building and a CEO who shows up on the front page of Billboard. It’s all a sham. These days, there are small, lean, smart independent labels who are far more secure than any of the Big Four. In fact, if you’ve set up an effective business model for yourself, you may be better off putting out your own recordings, managing your own publishing and booking a steady calendar of live dates than being signed to a major label. Better to collect your own money and manage your own affairs than to find yourself a pawn in a game that is out of your control.

Don’t be fooled by music industry glitz. If the EMI death-watch teaches us anything, it should be that the bigger they are, the harder they fall, and the more people they take with them. Clearly, Terra Firma, despite the reassuring name, is on very shaky ground. Don’t stand too close to the edge…