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MUSIC BIZ INSIGHT #24 Power Reading for Busy Music Professionals Hope you're hungry! MUSIC BIZ INSIGHT is published for musicians, songwriters, managers, label reps, booking agents, entertainment attorneys, studio owners, music publishers, and all others involved in the music business. Its purpose is to help boost your business, find new markets, make the right connections, develop professionally, work smarter and improve your bottom line. "As a general rule, the most successful people in life are those who have the best information." Benjamin Disraeli Written and published bimonthly by Peter Spellman, Director of MUSIC BUSINESS SOLUTIONS: Turning Music Business Data into Useful Knowledge. Career-building books, articles, training, consulting and more. P.O. Box 230266, Astor Station, Boston, MA 02123-0266, USA Phone: 888-655-8335 Email: success@mbsolutions.com Web site: http://www.mbsolutions.com © 1997 - 2003, Peter Spellman, MBS Business Media, www.mbsolutions.com Please feel free to redistribute with above credit and copyright notice. IN THIS ISSUE
))) NEWS & VIEWS STEPPEN' ON A TRADEMARK. Once a Steppenwolf, always a Steppenwolf. So says the U.S. Ninth Circuit Court of Appeals, which ruled that ex-Steppenwolf member Nick St. Nicholas has the right to identify himself as a former member of the band in promotional materials for his current band, World Class Rockers. St. Nicholas, whose real name is Nicholas Kassbaum, was a member of Steppenwolf from 1968 until 1971. Since 1975, St. Nicholas and his former bandmates, operating as Steppenwolf Productions Inc. and Steppenwolf Inc., have engaged in various lawsuits and made various agreements over the trademark for the band name. A 1980 agreement was at the heart of this recent litigation. St. Nicholas has performed with World Class Rockers, a band made up of former members of various musical groups including Wings and The Knack, since 1996. The World Class Rockers refer to themselves as former members of this band or that on promotional materials, and, in response, Steppenwolf sent St. Nicholas a cease-and-desist letter for his advertising himself as a "former member of Steppenwolf." Steppenwolf claimed that, per the 1980 agreement, it owned all rights to the name Steppenwolf and St. Nicholas was infringing on that agreement and the rights. St. Nicholas filed a federal suit arguing that the agreement only precludes him from performing as Steppenwolf, not from stating a fact about his past. A federal judge dismissed the suit in Steppenwolf's favor, and St. Nicholas appealed. The appellate court reversed the dismissal and sent it back to U.S. District Court in an opinion released Friday. Whew, this stuff can get messy, so set things up clearly from the get-go, okay? STRAW BLOWIN' IN THE WIND. As the major record labels land blow after humiliating blow on a woozy online music sector, you might think the young ruffians still itching to take on the big dumb dolt would've learned by now. But along comes insta-billionaire Mark Cuban, and suddenly it's 1998 again. The founder of Broadcast.com (sold to Yahoo in 1999) and owner of the Dallas Mavericks has bankrolled live-music mogul Robert Sillerman (the guy who bought up all the best venues and radio conglomerates under the name SFX) in a daring new talent-management roll-up firm called FXM. And that's only the beginning. He talks with Trumpian lip, of starting a superstars-only label with a built-in pipeline to a major radio conglomerate; of showing record-biz dinosaurs how to make $$$ off the Net; of handing the big boys a serious smackdown. Pay close attention; this is a brewing thunderclap. MORE STRAWS. Madonna streams (dribbles?) a concert to millions via MSN. 'N Synch makes bank with its own branded Microsoft ISP channel. Why exactly do we need major record labels? COME IN DICK TRACY. While the rest of the world talks about high-speed Internet access through cable and asymmetric digital subscriber line (ADSL), another alternative is making inroads into the high-bandwidth game &endash; satellites. In the near future we can look forward to wireless internet access. By 2004, 2.5 million businesses and 13.5 million households will receive their broadband service via satellite, according to Pioneer Consulting. As reported in Webnoize, current wireless telephones are "bringing Internet functionality to shirt pockets...and it's only a matter of time before mobile phones are ready to receive and play digital music." Within three years, the next generation of satellites will be launched. These satellites use a higher frequency portion of the electromagnetic spectrum, called Ka-. For comparisons: the data transfer rates for a cable modem is up to 1.5Mbps (megabytes per second), for ADSL about the same. The rate for these future satellites will be up to 226Mbps! Whoa.
))) FEATURE ((( INDUSTRY Q&A by Peter Spellman I've been participating in an industry Q&A for several months at a site called hitquarters.com (check it out if you haven't already). I felt some of the questions and answers would be of interest to MusicBizInsight readers. So in the interest of giving these thoughts larger distribution, here are four Q&As for your reading pleasure. All were answered by your's truly. QUESTION #1 Q: I have heard that an artist usually gets 7% from the record company, this seems little to me, what happens with the rest of the money? A: Retailers pay a record company $7-$11 and more for the CDs they sell for $11-$17. Who gets that money depends on contracts and market forces: Big-name artists may get 20% or more royalties. When a CD goes gold (500,000 copies) or platinum (1 million), marketing costs drop and the record company's profits rise. Here's how the take on a typical $15 CD, one that's gone gold, is split:
Remember, most major record companies' expenses/profits include self-owned distribution, CD packaging and CD pressing facilities, bringing the actual record company total to 45% ($6.90) of the $15 pie. Depending on an artist's contract, the total artist royalty will often be somewhere in the neighborhood of 6% ($0.90) on a $15 CD.
QUESTION #2 Q : Do you think the music industry is worth trying to get into when failure is so great and rewards are very hard to gain? After Major Labels have taken their share, average salaries for many new bands work out at around $4000 a year. A: $4000 may be optimistic. It is safe to say that MOST signed acts are in perpetual debt to their label partners. Most will not even earn a single penny from recorded music sales during their contracted term with the label. This is due to many factors: a very low royalty rate which begins at 12% and, through a number of onerous "deductions", ends up being closer to 6%; the fact that all recording expenses (from studio time to the pizzas the A&R guy "bought" for the band during recording sessions) must be paid back ("recoupables"); the fact that some marketing and promotion costs (video production, for example) must also be paid back; etc., etc. The main problem is all of the above is recouped from the short end of the stick (your 6%). So if your record company sells 100,000 copies of your CD to distributors for a wholesale price of, say, $10, the overall take is $1,000,000. 6% of $1,000,000 is $60,000. If your advance for recording and living expenses was $150,000 (typical), you're still in debt to the record company for $90,000. AND YOU'VE SOLD 100,000 COPIES OF YOUR DISC! See how a record deal becomes a money pit? Perhaps 5% of recording artists make ANY money from their record deals. Most see recording as a "promotional expense" and leave it up to touring, sponsorships and merchandising (and, hopefully, publishing if they're also writers) to generate revenue that they can actually put in their pocket. My feeling is that artists should seriously consider creating their OWN success, and stop depending on labels. The entire fabric of the recording industry is undergoing a transformation right now. The thing that differentiated the industry from artists in the past was that the industry controlled the distribution channel; it knew how to get music to people's ears and it owned the means to do it. Now, with digital tools, from desktop recorders to the World Wide Web, artists have the distribution power in their own corner. They are now able to galvanize a global audience over time and create successful support networks for their own music careers. I believe we are witnessing the decline of the "music business" and the rise of the "musician business" (to borrow a phrase from John Perry Barlow). We may not see a lot of millionaire artists in this new picture, but we'll be seeing more and more "middle class" musicians making a sufficient living while still having full ownership rights to their creations. Today's musicians need to think outside the box of the traditional approaches and creatively engage with the new possibilities. The power belongs to you and it's an awesome responsibility.
QUESTION #3 Q: How important is the corporate identity of a record company i.e. the image portrayed to the public, and do you think record buyers take this into account. Do they expect a certain product from a record company, regardless of who the artist is? A: From the consumer's viewpoint, "corporate identity" has little or no affect on musical purchases. In fact, this is a big problem for corporate record labels.Consumer loyalty is to the artist "brand" (say, R.E.M.), not the company brand (Warner Bros. Records). When a popular artist's contract is up they can switch record companies and fans will follow immediately, without a single thought of the former company. This is because the fans' loyalty is to the artist not the company. But we're looking at this from the corporate level. If we move to the "indie" level company identities often play a larger role in consumer choice. Indies become more closely identified with their artists because they usually specialize in a particular music genre that has a large following behind it. The indie label itself becomes a "brand" and consumers feel confident that whatever the label puts out will share a certain quality which that label has grown to represent. This can be seen in labels like Blue Note, Windham Hill, Rhino Records, Green Linnett, Razor & Tie, Putymayo, Instinct and Triloka. Those who appreciate the genres these companies represent, feel confident they can expect consistently high-quality recordings from their offerings. Very often, in these cases, it is the label's brand that supersedes the artist's as the primary stimulator of a musical purchase.
QUESTION #4 Q: What is your professional opinion of the new surge in online "middlemen", who claim to be able to find labels looking for a new artist for a specific genre or project, of course never giving any guarantees, and charging exorbitant fees. Are these guys LEGIT??? A: The "middleman" gig you're describing is reflective of an A&R function in the music biz. A&R (Artist & Repertoire, or Assault & Robbery, depending on your experience) reps are mandated by record labels to sniff out fresh talent, woo it to the label and secure its allegiance via a signed contract. Label A&R staffers depend on many layers of deployed "scouts" (music magazine editors, college radio DJs, etc.) to be their connection to local scenes. The Internet has de-centralized many things (the insurance industry, car sales, real estate, stock buying, etc.), including A&R. Many of these local scouts are using the Net to solicit talent in hopes of getting a finder's fee or to raise their stock with the mother company. Some are legit, some aren't. The bottom line is: The proof is in the pudding. ALWAYS ask the solicitor for solid evidence of their track record: who have they helped get signed or even listened to? Music is a relationship-driven business. A middleman's (or woman's) worth is measured by who they know will take their phone calls or their referrals. Ask for real names of real bands they've helped and then talk to the bands themselves. This is a guideline you should use whenever you're considering using an industry service like the one you described (it applies equally to anyone offering to "shop" your demo, including music attorneys). People can say anything they want but the evidence speaks for itself.
Any feedback, dialog, disagreement, etc. is welcomed! feedback@mbsolutions.com
25 ARTISTS WHO WERE ON APPLE RECORDS (lots of Beatles trivia 'round lately...) Badfinger, The Beatles, The Black Dyke Blues Band, Brute Force, The Elastic Oz Band, Elephant's Memory, George Harrison, Chris Hodge, Mary Hopkin, Hot Chocolate, John Lennon, Jackie Lomax, Paul McCartney, The Modern Jazz Quartet, David Peel, Billy Preston, Rada Krishna Temple, Ronnie Spector, Ringo Starr, The Sundown Playboys, John Travenor, James Taylor, Trash, Doris Troy, and Lon and Derek Van Eaton. ))) MUSIC MARKETING MOXIE LESSONS FROM THE MARKETING OF CREED'S "HUMAN CLAY" RELEASE Wind-Up Entertainment, a small independent record label with only a few dozen employees, annihilated the competition a few months ago, snatching the top spot on the pop chart away from superstar Garth Brooks and teaching the music industry establishment a lesson about the power of the Internet in the process. The scrappy, New York-based company sold about 316,000 copies of "Human Clay," a surprise hit by a fledgling rock act from Tallahassee, Florida., named Creed. That's 50,000 more copies than Brooks, the nation's top-selling album artist who banked on an elaborately orchestrated, multimillion-dollar promotional campaign that included a prime-time television special to hype his latest release. Wind-Up took a much less expensive approach to drive consumers into record stores. The 2-year-old label, which is distributed by BMG, sparked sales for Creed through an intense, micro-marketing effort on the Internet, encouraging fans to preview every song on the album in advance and download the first single from the collection for free - a practice opposed by most of the major companies. Wind-Up came up with an unconventional promotion costing less than $50,000 that involved Web sites at eight major retail chains and about 100 radio stations, where fans could download the song for free. Retailers were also given an additional exclusive track from the album available for streaming at their Web sites. The idea was to help retailers and radio stations drive traffic to their sites by previewing the new music to avid Creed fans. In exchange, the retailers who participated, including Best Buy and Musicland, prominently displayed Creed posters. Wind-Up also promised a free Creed concert to the radio station that registered the highest percentage of listeners in their market to download "Higher," which encouraged stations to get behind the record. The song is already in heavy rotation on radio and MTV. Fans were also able to download "Higher" for free at http://www.creednet.com, a Web site that Wind-Up created and runs for the band. During the month long promotion, the company says about 250,000 individuals downloaded the album's first single, many of whom Wind-Up believes bought the album during its first week in stores. "What we did was take some of the most basic elements of consumer marketing and applied them to the Internet," said Wind-Up President Steven Lerner, a 35-year-old marketing expert with no previous record-label experience. "This is not some secret McDonald's recipe here. We're just doing traditional marketing stuff in a new place." Chairman Meltzer, a 55-year-old former CD wholesaler and record retailer, said the company spends as little money as possible on traditional promotion techniques such as trade and tip sheet advertising, believing most of those publications are never read by consumers. Wind-Up/Creed: Summary
BIZ SMARTZ: ENTREPRENEURS FIND SUITE LIFE: THE INSTANT OFFICE In today's business climate, entrepreneurs and corporations alike are looking to cut costs without impacting service and image. There is an alternative to conventional office space which can drastically (and positively) impact your bottom line. The executive suite industry has seen tremendous growth both nationally and internationally because it offers businesses of all types and sizes the opportunity to open an office and operate at maximum efficiency while controlling overhead expenses. Executive suites, or business centers, provide individual private offices and suites, meeting rooms complete with visual equipment, corporately appointed reception area, phones answered in your company name, copiers, video conferencing and facsimile equipment, coffee service, and kitchen facilities. Administrative and secretarial support services are available on an as-needed basis. Businesses of all types, from start-up ventures and independent professionals working at home that need occasional office and secretarial support, to Fortune 500 companies needing satellite offices in multiple locations can benefit from a shared office environment for sound business reasons. Flexible lease terms, sometimes as short as 30 days, are available, reducing the uncertainty and expense of the traditional three-to-five year lease. If you're looking to expand into new markets, executive suites are a cost effective way to "test the waters" in new territories without long term commitment or capital outlay. Support services, which are available as needed and typically billed in 10 minute increments, eliminate the salaries and benefits associated with hiring and managing permanent and often under utilized administrative personnel. With office equipment such as telephone systems, copiers and fax machines provided, clients are free from binding equipment leases and/or the cost of purchasing and maintaining such equipment. Executive suites offer immediate occupancy, with furniture selection customized to best suit your needs, or you may bring in your own office furniture. Most business centers work with real estate brokers to provide temporary offices while waiting for traditional space to be built out, allowing businesses to continue operating while in transition from one location to another. It is easy to see that the executive office suite industry has created a very sought after service for businesses of all types. The lure of this unique concept has seen the industry grow from just a few scattered office suites to hundreds of operations, with each one being different. Whether you're looking for the best address in Center City with all the amenities, or would rather be out in the suburbs, it's best to compare services before making a move. Resources Don't forget that MBS offers both music career and business consulting as well as career-building publications. Discover powerful tools and leads to help you grow your music career and business! TO SUBSCRIBE to MUSIC BIZ INSIGHT: send email with the message in the body, "subscribe" to success@mbsolutions.com It's not an autoresponder so feel free to include any other comments, ideas, suggestions, etc. you may have. About the Publisher PETER SPELLMAN is Director of MUSIC BUSINESS SOLUTIONS, a business and marketing consultancy to the music industry, and Director of Career Development at Berklee College of Music, Boston. He is the author of several books for music entrepreneurs and teaches music industry courses at Northeastern University (Boston) and the University of Massachusetts (Lowell). A musician since he was ten, Peter continues to spin riddims in the improvisational collective, Friend Planet and sing Cat Stevens' songs to his kids every night before bed. BLOOM WHERE YOU'RE PLANTED! Quote of the Month-- "There is more in us than we know. If we can be made to see it, perhaps, for the rest of our lives, we will be unwilling to settle for less." --Kurt Hahn (1886-1974) Founder, Outward Bound Dig it. Written and published bimonthly by Peter Spellman, Director of MUSIC BUSINESS SOLUTIONS: Turning Music Business Data into Useful Knowledge. Career-building books, articles, training, consulting and more. P.O. Box 230266, Astor Station, Boston, MA 02123-0266, USA Phone: 888-655-8335 Email: success@mbsolutions.com Web site: http://www.mbsolutions.com © 1997 - 2003, Peter Spellman, MBS Business Media, www.mbsolutions.com Please feel free to redistribute with above credit and copyright notice.
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