MUSIC BIZ INSIGHT #26

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

Please feel free to redistribute with above credit and copyright notice.

IN THIS ISSUE - MBI #26

• NEWS & VIEWS
• FEATURE: THE STATE OF THE INDEPENDENT RECORD INDUSTRY - Interview with KEITH HOLZMAN, Solutions Unlimited
• ILLUMINATING TRIVIA
• BIZ SMARTZ: PUTTING TOGETHER AN ADVISORY BOARD

Watch for the tenth issue of MUSIC CAREER JUICE, coming mid-July to all MUSIC BIZ INSIGHT subscribers!

))) NEWS & VIEWS

SONIC BULLET. A while ago I remember reading that the Army was trying to develop a sound that could kill a man. Well, that day has arrived. In an article called "Friendlier Fire," Wired Magazine reports on the many "non-lethal weapons" being developed by the Defense Department for crowd control. The "Sonic bullet" is a "high-frequency sound beam aimed via parametric array; the beam's interference pattern disrupts a subject's equilibrium. At maximum settings, it can kill....Effect: Disorientation, bowel spasms, loss of balance, and severe kinetic impact (in terms of force, it's like sitting next to a wall of Marshall amps cranked to top volume.) Range: Length of a football field." Wired, July 2001.

THE CENSORSHIP ZONE. The Taiwan IFPI, which stands for International Federation of the Phonograph Industry, represents the major label record cartel much as the RIAA does in Washington. Worldwide, IFPI is currently headed up by Jay Berman, who ran the RIAA before leaving for brief stint in the Clinton administration.

In mid-April, the prosecutor in Taiwan's Tainan district received an anonymous letter reading: "My brother is a student in this university and wastes all his time on the Internet, so please help him..." The prosecutor was so alarmed by this display of fraternal fear (or so well greased by IFPI) that he soon staged a raid on National Chengkung University. He didn't bother asking for a search warrant, but instead showed up in a dorm accompanied by plainclothes cops who went from room to room, asking "Do you have MP3's on your hard drive?"

If the answer was yes, the computer was seized. If the student wasn't home, the computer's directory was investigated without even the pretense of permission and taken if "contraband" was discovered.

IFPI quickly sued 14 students for having too many MP3's. Li Jui-bin, IFPI's spokesman in Taiwan, gloated that this "sent a message" to student pirates and that the industry would accept no settlement of the suits. According to a report in The Register (www.theregister.co.uk): "During the raid and in the few days immediately following, a spectacle could be seen on the NCKU campus: Students going to class with HDDS (hard disk drives) stashed in their backpacks in fear of being caught in another raid."

Ironically, the campus is ringed by carts and tables filled with unauthorized CD's of the hottest local and international music. Such piracy used to be IFPI's major concern, but it has always been too risky to do too much about it, since a wealthy mob runs the business.

What happened next would be inconceivable in the United States, where a special unit of the FBI assigned to combat "piracy" basically operates under the direction of the RIAA. But in Taiwan, the government supported the students. Education Minister Ovid Tzeng sent out an open letter that promised "I will absolutely fight for the rights of students...I will ask attorneys to help the students settle any legal disputes stemming from this incident."

Confronted in this fashion, IFPI backed down. "Only when we know whether the downloaded files are the property of our member record labels will we decide whether we'll take any action," another spokesman said.

What will happen the next time an American campus is invaded, though? It's doubtful that there's an educator, let alone a politician, in this country willing to stand up for the corporations and their delusions of "intellectual property theft."

))) FEATURE (((

THE STATE OF THE INDEPENDENT RECORD INDUSTRY

Interview with KEITH HOLZMAN, Solutions Unlimited

Keith Holzman has worn uncountable hats during his thirty five year tenure in the record business. As a smart business manager, he's exercised his rare skills at record labels such as Elektra, Nonesuch, Discovery (subsequently Warner/Sire) and ROM, and he's been sharing this same expertise to an ever-growing client roster that includes Walt Disney Records, Warner Music Group, Peer Music, and NYNO Records, among others.

From these posts, Holzman oversaw the production of hundreds of records by such artists as Jackson Browne, Carly Simon, Joni Mitchell, Eagles, Doors, Linda Ronstadt, Judy Collins, Queen, Steve Goodman, John Prine, Tom Paxton, Bread, Cars, Tom Waits, and Harry Chapin, and he supervised such soundtrack recordings as "Apocalypse Now," "Diner," "Every Which Way But Loose," "Fast Times at Ridgemont High," "Flash Gordon," "Heavy Metal," "Hurricane," "Pirates of Penzance," "Ragtime," "Thief," "Urban Cowboy" and Mel Brooks' "Greatest Soundtracks".

Today Keith operates his own consulting company, Solutions Unlimited (www.HolzmanSolutions.com), offering workable solutions for the seemingly insurmountable difficulties record labels face today. It's a niche he is well-prepared to fill and I thought some of his hard-won wisdom would be useful to Music Biz Insight readers.

Not one to gloss over problems, the following will be a sobering read for many.

Thanks Keith! Enjoy readers!

MBSOLUTIONS: Keith, if you could say just three things about the state of today's recording industry, what would they be?

Keith Holzman: It's a mess. It's a mess. It's still a mess.

My responses to many of the following questions will explain why.

MBSOLUTIONS: In your opinion, what are the particular challenges facing independent labels today?

KH: Getting the music to the public so that people can learn about new artists and new releases is probably the greatest single challenge today. People need a chance to listen to and experience new music and new sounds, but it's become harder and harder for small labels to accomplish this because the majors have practically monopolized access to media.

Second, is the problem of achieving essential market penetration, because of the power and weight of the majors who virtually control or commandeer most radio airplay, retail shelf space, and magazine and newsprint space, not only for record reviews, but also articles about artists who are performing locally and nationally.

Third is coping with the advantages and disadvantages of digital distribution. A label must have a comprehensive web-site with brief details of all recordings offered, including compressed graphics of CD covers, artist photos, etc. and brief, 30 second samples of key songs. The site should be simple to navigate and a consumer should be easily able to order product from the site, or be referred to another on-line company such as Amazon.com. The site should be free of gimmickry and slow-to-load images, because if it take a long time to load a page, a user is likely to surf elsewhere.

Also labels need to come up with an uncomplicated method for consumers to legally buy single songs on-line when they're not interested in buying a whole CD, yet not be able to "trade" this song to others without compensation to the label. This is an industry problem which the majors have been tackling in disparate but inconclusive fashion.

MBSOLUTIONS: You say that one of the particular challenges facing indies today is "getting the music to the public." Do you know of any small indies with small budgets who are succeeding at this today? Why, in your opinion, are they succeeding? What are some of the differential advantages (beyond money) that are enabling these labels to succeed?

KH: I know of at least one label who makes clever use of its extensive email list of previous customers. They notify people on the list about all new releases as they're coming out, inviting customers to the label's web site for more information on the artist and the music, and have samples available to be auditioned.

By assiduously obtaining email addresses from their customers they've been able to build a sizable database, including which artists and which titles, etc. have previously been bought. This enables the label to target email announcements regarding specific artists, as well as for the entire catalog.

It's not costly in terms of dollars, but it does take a lot of time and attention to detail.

Additionally a label must expend great effort in getting radio and press interested and involved in the music of its artists, in whichever way it can be persuasive. It, too, takes diligence and long hours.

MBSOLUTIONS: What's the most common problem you discern at independent labels today?

KH: Undercapitalization: a lack of sufficient funding and even moderately deep pockets. Making a recording is just the beginning of spending money for a record. The major costs are usually for marketing: radio promotion, publicity, advertising, retail listening posts, store positioning, artist tour support, etc. It seems endless.

Additionally, distributors pay labels many months after they've received product, or from two months or more after they've sold consignment product. A label needs to be able to deal with these extended payment terms, and have enough money on hand to pay its staff, expenses, and for new recording projects.

MBSOLUTIONS: Besides rich uncles and onerous joint ventures with the majors, what are some other sources for funding you'd recommend? And what strategies can micro-labels employ to secure such funding? Any examples?

KH: There are very few sources of funding for start-up labels.

Well-heeled relatives are still the best source, assuming you've got some. Either that or sell your first-born or mortgage your house!

Seriously, there have been a few cases where corporate funding has come into play, usually because the label head has known someone well-connected at a high level within the investing company. There were a few others who made use of expanding "dot.com" funds, but those labels have already collapsed, along with their partners.

Most start-ups begin with considerably less than $500,000, because they feel that's all the funds they can acquire. And that's true frequently enough. But corporate investors or venture capitalists won't even look at or talk to someone who wants less than five or ten million dollars.

Micro labels would do best to obtain wealthy relatives, and quickly!

MBSOLUTIONS: Late payment by distributors seems to be a chronic problem for the indies. Do you have any advice for how indies can get their distributors to pay sooner? What motivates a distributor to pay more quickly?

KH: The way to get a distributor to pay sooner is to negotiate better payment terms in the contract, although this is very difficult to achieve. A label needs to stay in close contact with its distributors and remind them frequently and regularly when they're late in paying. It's the old "squeaky wheel" syndrome. But the best way is to regularly issue such great music that distributors just have to have it available for sale in order to generate its own business. Frequent issuing of "must have" music provides excellent leverage to get paid quickly.

MBSOLUTIONS: Susan Piver Brown said in an AFIM (Assoc. for Independent Music) article that if she were starting an indie label today it wouldn't be "genre-based," but "lifestyle-based." Your thoughts on this?

KH: I'm not sure I agree with Susan, as I don't see why there isn't room for both or a combination. Putumayo, for example, is extremely strong in the genre of world music, but might also be considered a life-style label. It comes down to a label's zeal to release extraordinary music.

MBSOLUTIONS: What is the most frequent management snafu you encounter at indie labels?

KH: It's a combination of inefficient organization, weak or non-existent administrative systems, improper utilization of staff ability and talent, and poor cash management.

MBSOLUTIONS: Overall, do you think the Internet is helping or hurting the indie label scene?

KH: Online access certainly makes it easier to listen to music. Labels should provide short, highly compressed monaural samples, emanating from the label's own web site, or from select sites authorized by the label. If they wish to provide an occasional complete track as a "lagniappe" (a Southern Louisiana word meaning an "extra or unexpected gift") that may be good business, but it should be compressed to less than "CD" standards.

The interested public can then legally purchase the associated music on line with use of a valid credit card on a secure site.

But to enable the public to literally "steal" music, as allowed by Napster, Aimster, and their ilk, does a tremendous disservice to all, but especially small labels and their artists who do this not just for the fame and prestige, but to earn a living.

MBSOLUTIONS: According to Billboard, indie marketshare is hovering around 16.5%. How much of independent music sales are unaccounted for, owing to non-scanned purchases via direct mail, etc.

KH: Most, if not all, independents sell a substantial amount of product to small retail accounts whose sales are not scanned at point of purchase. My guess, although SoundScan might refute this, is that it can be as much as 25% to 30% of a small label's sales. Also, many labels allow their artists to sell their music at performances, and although SoundScan is willing to accept information about these live performance sales using a special procedure, most labels don't know they can do it, or don't avail themselves of this opportunity.

MBSOLUTIONS: We've all heard about the war for executive talent today. What are your recommendations for scouting out executive talent for music companies?

KH: Network, network, network -- at meetings, forums, performances, and other places where music-loving executives hang out.

MBSOLUTIONS: What kinds of potential exists today for big label/small label joint ventures? Any war stories? Recent success examples?

KH: The potential is almost always there, but in many cases it may not be in the best interest of a small label to be distributed by, or seriously affiliated with, a major -- unless it's for the joint release of a particular artist. I've known of quite a few otherwise well-run independent labels with good catalogs, who've been virtually forced out of business because the major's distribution entity did not pay the label monies properly due them for sales.

In fact, this can also happen if a label uses a single national distributor, the current prevailing situation. I much prefer the indy distribution of some years ago, where labels worked with several regional distributors who really knew their local markets. That way the indy didn't place all of it's eggs in a single basket.

MBSOLUTIONS: Looking five years down the pike, what do you see in terms of the recording industry?

KH: I expect the big guys to get even bigger,and the little guys to struggle harder and harder. It's going to be a Darwinian "survival of the fittest" situation, until such time as the behemoths implode of their own weight and clumsiness. Some of the more nimble and well-managed independents may then find an opening in the crowded marketplace and get a chance to succeed.

MBSOLUTIONS: If you could say three things to an indie label start-up today, what would they be?

KH: Just one thing: Don't do it! Don't take the risk.

Seriously, start-ups should be sure they've got the fortitude, the funding, and the will and belief that they can survive in an extremely demanding and difficult business.

Most important: release great music, because great music from extraordinary artists is what it's really all about. Otherwise, why bother?

END

))) ILLUMINATING TRIVIA

7 ROCKERS WHO REALLY WORKED THE ASSEMBLY LINE

1. Chuck Berry

2. Sonny Bono

3. Johnny Cash

4. Berry Gordy Jr.

5. Bob Marley

6. Jack Scott

7. The Spinners (yes, all of 'em)

))) BIZ SMARTZ

NOT READY FOR DIRECTORS? TRY AN ADVISORY BOARD

If you're not ready to take the plunge with a formal board of directors, but need help with a particular problem, an advisory board (generally paid in stock and/or expenses) may be the answer.

Six ways to work efficiently with an advisory board:

Recruit noncompetitive advisers. They'll bring a broader and more objective viewpoint to your group. Seek people outside your business rather than suppliers, customers and others who might have a conflict of interest.

Don't be too informal. Advisers aren't charged with fiduciary or regulatory responsibilities as boards of directors are. But professionalism and mutual respect should still be the hallmark of your interactions.

Schedule regular meetings. Get the entire board together to brainstorm. In between meetings, consult with individual advisers whose areas of expertise can help solve a specific problem.

Prepare for meetings. Plan the agenda carefully. Even when meeting one on one, write down questions or issues. Give advisers a copy of the agenda at least one week in advance.

Be open to coaching. Encourage advisers to ask tough questions and challenge you. Breaking old patterns of thinking and operating will help you develop new strategies for growing your business.

Be honest about your needs. Acknowledge when you're "stuck" and need help negotiating the next phase of growth.

TO SUBSCRIBE to MUSIC BIZ INSIGHT: send email with the message in the body, "subscribe" to success@MBSOULTIONSolutions.com

It's not an autoresponder so feel free to include any other comments, ideas, suggestions, etc. you may have.

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--

"Music executives need to start thinking less like men, and more like women. As men, we tend to believe more in selling someone something for $15, and transferring it to their possession without ever learning their names. Women understand the value of starting a relationship that never ends. There're too many men in our business.'' - Anonymous

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@MBSOULTIONSolutions.com

Web site: http://www.MBSOULTIONSolutions.com

Please feel free to redistribute with above credit and copyright notice.