MUSIC BIZ INSIGHT #34

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.

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IN THIS ISSUE - MBI #34

• NEWS & VIEWS
• STRANGE BUT TRUE MUSICAL HAPPENINGS
• FEATURE: FINDING 'ANGEL INVESTORS'
• ILLUMINATING TRIVIA: FORMER OCCUPATIONS OF FAMOUS MUSICIANS
• THE BOTTOM LINE: $$$-SAVERS FOR THE SMALL BUSINESS

))) NEWS & VIEWS

NATALIE MERCHANT Her last name is taking on a whole new meaning, as the megastar and former 10,000 Maniacs lead singer politely tells her record label, Elektra, to take a hike and sets out to make and market her next CD on her very own label, as reported by Jon Pareles in The New York Times. "I'm in a privileged position," explains Ms. Merchant. "I'm beyond financially independent. I had a lot of success, and I gathered together a very large audience. And I was in a rare position because my material was unorthodox as the pop-hit mold went, but I was able to sell multiplatinum albums and have relatively large hits."

And so her next record, "The House Carpenter's Daughter", will be released on her own label, American Myth Records. It will seek sales among existing fans, primarily through a Web site http://nataliemerchant.com, while eschewing radio airplay, large-scale concert tours and the rest of the million-dollar marketing hoopla normally associated with a major CD release. Instead, Ms. Merchant will issue the songs she prefers, in a package she likes, and keep all the rights to everything (unlike before). She says she will break even with sales of just 50,000 copies, and will consider moving 200,000 units a major success. Her comment: "If we released this record with these kinds of goals on a major label, we would look like a failure. At Elektra, if you just sell 1.5 million, everyone goes around with their heads down." Her last record, Motherland, last year sold 398,000 copies; her best-seller Tiger Lily, sold about 3.6 million, in 1995.

It's expected that more artists will follow the Merchant path, as record labels are poised to slash their rosters because of lackluster profits. Elektra apparently did offer Ms. Merchant a new contract when hers expired, but her interest in traditional folk songs was no match for the label. For example, songs on her new CD will include the labor movement song, "Which Side Are You On?" as well as an 18th Century hymnal called "Weeping Pilgrim." She says she has "researched books of folk songs and listened to field recordings by Alan Lomax; she also took courses in the history of American folk music at Bard College." She explains: "I really appreciate the songs as social documents." The House Carpenter's Daughter is set for a June 1st release.

MYTH MARKETS That's the market in which brands compete to become icons, and it resides outside the realm of focus groups, ethnography studies and product marketing and most of us know and love it, according to a Harvard Business Review article by Douglas B. Holt (March '03). Icons, says Holt, "are built on principles entirely different from those of conventional marketing." Unlike mere brands, icons "forge a deep connection with culture," competing not just for market share, but "for culture share." Iconic brands, says Holt, enable people to experience powerful myths "that attempt to resolve acute tensions people feel between their own lives and society's prevailing ideology."

Yes, he's talking about the Harley Davidson myth of the "outlaw biker," the Volkswagen myth of the "bohemian artist" and the Apple myth of the "cyberpunk." However, the best example, according to Holt, is Mountain Dew, which has built its $5 billion iconic status on a "rebel myth" that it has reinvented several times -- maintaining its relevance by remaining sensitive to what it means to be a "wild man" in the modern world. In the 1950s and '60s, Mountain Dew represented rebellion against the rise of corporate culture -- the so-called "organization man." In the 1980s, the brand played against the yuppies, and today, it plays into the "slacker" ethos. Throughout, Mountain Dew perpetuated the myth "that virile guys live to play dangerously, not to sweat it out at the office," as the champion of "the wild man against the emasculation of corporate work."

Holt wraps up his case with a series of "how-to" steps for prospective icons. "Icons," he writes, "don't target consumer segments or psychographic types. They go after veins of intense anxieties and desires running through society...Unlike conventional branding, icons don't mimic pop culture; they lead it" by making "sense of confusing societal changes." They "repair the culture when it's particularly in need of mending." Unlike plain old brands, "they speak as rebels" and draw upon a certain "political authority." In Mountain Dew's case, that meant "championing the id over the ego for young men who felt excluded from manhood as defined by the nation's ideology." It understands "the angst of low-wage earners looking up at the new heroes of the marketplace." Creating icons, Holt concludes, is not so much about "getting close to the consumer" as it is "a cultural historian's understanding of ideology as it waxes and wanes, a sociologist's charting of the topography of contradictions the ideology produces, and a literary critic's expedition into the culture that engages these contradictions." In other words, it's not so easy as it would seem.

HIT SONG SCIENCE A Barcelona company says it has "developed an artificial intelligence application that could analyze a song and determine its potential to become a hit," reports Neil Strauss in The New York Times. Really. Executives of the company, called Polyphonic HMI say that when they "loaded every song in the Billboard Top 30 over the last five years into the program, they found that "lo and behold, they all had something in common."

Of course. They all sucked. They need a computer to determine this? Polyphonic sees things a bit differently, naturally. They think their killer app, which they call Hit Song Science, will help "raise the bar for music," as suggested by Tracie Reed, vp of Polyphonic's North American office. "We empathize with the people who buy a CD and only like two songs. Let's get better music on more CD's," she says. Originally, the company thought their software could be used to "offer CD shoppers recommendations based on their favorite songs." Now, however, they are promoting its use among record companies as a way to determine whether or not a song should be released. Several major labels, including Sony Music, RCA and Universal UK, "are either using it or considering the option."

Jordan Berliant of Tenth Street Entertainment says he doubts a machine could measure the emotional content of a song, "in particular the lyrics." Jaron Lanier, a computer scientist and musician, meanwhile dismissed "the science side of the application" as "sloppy." He added: "As for the music side of things, I doubt pop music could get any worse, so using even a meaningless tool like this might result in some improvement."

HIP KID HOP "My goal is to become the modern-day Dr. Seuss," says Doug E. Fresh, in a New York Times article by Lynette Holloway. Scholastic, the book publisher, likes that idea, and is set to publish Hip Kid Hop, a series of hip-hop books for 4-10 year-olds. One of the books is penned by Fresh, a hip-hop artist "otherwise known as the human beat box." LL Cool J is also getting in on the idea, with a Scholastic title called "And The Winner Is... , a story about a basketball player who learns the importance of both winning and losing gracefully."

"We're using hip-hop as a positive force," says Fresh, adding: "It's a powerful force in a lot of kid's lives, and it can definitely help kids learn to read." His book is called 'Think Again,' and centers on two boys, one white and the other black, "who are forced to confront their bigoted attitudes toward each other after a disagreement at school The boys settle their differences by talking and eventually become friends."

Liza Baker, a Scholastic senior editor comments: "Hip-hop has the best way of turning language on its head. We think kids will respond. This is the music kids are listening to." LL Cool J concurs: "Hip-hop's always reached out to kids...when I look at the history of this music it's always had a lot of positivity." The two books will be released in September, and will be packaged "with read-along CD's that play catchy hip-hop music and rhymes." Acool.

HOT-SPOT NETWORKS A group of companies "you have probably never heard of...is creating networks of thousands of 'hot spots' in restaurants, in airports, even on commuter trains and airlines...and creating value where it did not exist before," writes columnist Robert X. Cringley in Inc. magazine (Mar '03). Hot spots are wireless Internet connections -- a.k.a. WiFi -- that enable folks to check their email or otherwise access the Internet on the fly, without plugging in. WiFi actually comes courtesy of Apple Computer, which a few years back persuaded the FCC "that certain radio frequencies in the 2.4 to 5.8 gigahertz range be allocated for unlicensed data communication." Apple needed the frequency for its AirPort product line and the FCC went along because it didn't seem like these low-range, 100-meter networks could possibly threaten the communications establishment.

Ha! Already we have these companies -- Boingo, Joltage and hereUare Communications (to name but a few) -- in the business of aggregating hot-spots and building WiFi communications networks. Not to be outdone, Intel, IBM, AT&T, Apax Partners and 3i, have formed a joint-venture called Cometa Networks, with plans "to 'install' (or 'acquire') 20,000 hot spots in the top 50 U.S. metro areas." By the time these aggregators finish aggregating themselves (and each other) it should be possible for just about anyone to log on from just about anywhere.

It gets even better. It is possible, legally, to put "high-gain antennas on wireless access points, greatly extending their range." According to Cringley, the original 300-foot WiFi range has been extended to as much as 72 miles. A company called Gatespeed Broadband is busy installing the requisite big antennas on San Jose rooftops and pointing them at the restaurants and shops down below. "Since there is no way a business can legally exclude radio waves from its premises," writes Cringley, Gatespeed's hot spots are much less expensive to build...When the super-aggregators come calling, Gatespeed won't have just a few restaurants to offer, it will have most of downtown San Diego." Topping it all off is a product called HomePlug , which "effectively puts a network connection at every electrical outlet." It's a technology, says Cringley, that could not only be used to WiFi homes, but entire apartment buildings and even neighborhoods. " Now that," says Cringley, "is disruptive technology."

BIOMETRIC MARKETING When Steven Spielberg "convened a think tank to pick the brains of 23 futurists," they didn't agree on everything, reports Gary Gentile in an Associated Press dispatch. However, Spielberg notes, "one of the several things they did unanimously agree on was that the entire advertising industry is going to recognize us as individuals, and they're gong to spot-sell to us."

Spielberg developed that prediction into a key scene in his latest film, 'Minority Report,' where "detective John Anderton, played by Tom Cruise, is fleeing agents of the Pre-Crime police unit, chasing him for a murder he is foretold to commit. As he runs down a street, electronic billboards scan his retinas and hurl personalized pitches his way...'John Anderton, you could use a Guinness about now! one billboard shouts.'"

And you thought pop-up ads were bad. "In another scene, Cruise enters a Gap, where his eyes are again scanned, triggering a holographic version of the Gap's greeter who asks if he was satisfied with his last purchase." Cruise's character also munches cereal from a box featuring animated characters that sing the brand's theme song (didn't those futurists tell Spielberg that theme songs are passe?). Actually, it is not so far fetched as it sounds: "The ability to have billboards-size displays, newspapers that are updating themselves, packaging able to animate -- these are all quite possible within 10 to 15 years," says Russ Wilcox of E Ink http://www.eink.com, a company that's developing "digital paper." Hmmm...I'll be thinking of some music applications for this.

RECORDING INDUSTRY, WEBCASTERS SET MUSIC ROYALTIES Internet music broadcasters and the recording industry have agreed on fees that major Webcasters must pay to broadcast songs over the Internet during 2003 and 2004. The deal, if approved by the U.S. Copyright Office, will avoid a lengthy arbitration process to set the royalty rates. The agreement proposes a per-song rate but allows four percent of a Webcaster's songs to be royalty-free and gives Webcasters the option of paying royalties either as a percentage of their revenue or at an hourly rate, depending on which is most cost-effective. The new proposal does not apply to over-the-air radio Internet simulcasts or to noncommercial Webcasters. Small Webcasters, who typically can't afford the fees, pay less under the current legislation (Washington Post, 4 April 2003).

STRANGE BUT TRUE:

IS IT LIVE, OR IS IT COPYMAX?

Admit it: Ten pages into photocopying a stack of papers, you find yourself bobbing to the beat of the machine's 60-sheet-per-minute cycle. You're not alone. Stefan Helmreich has dedicated an entire album, "Xerophonics: Copying Machine Music", to the office drone's rhythms. Armed with a cheap recorder, the anthropologist captured the sounds of a dozen copiers - from the Canon NP 6545 to the Xerox 5828 - at NYC libraries, drugstores, and copy shops. He then arranged the hums into 13 tracks of motorized cacophony using a decade - old Ensoniq sampler. "There's a sonic landscape we live in that's changing quickly," Helmreich says. "This is partly an attempt to document it." (Wired, March 2003)

))) FEATURE: FINDING "ANGEL" INVESTORS

(excerpted from INDIE POWER: A BUSINESS BUILDING GUIDE FOR RECORD LABELS, MUSIC PRODUCTION HOUSES, AND MERCHANT MUSICIANS by Peter Spellman)

If your company is too new, too risky and unproven, or too offbeat to qualify for traditional bank financing and attract venture capitalists, you may want to look for an "angel". An angel is a private investor, often a successful entrepreneur, who invests in small businesses close to home for a variety of economic and personal reasons. Usually, angels are friends, relatives, or colleagues. Successful entrepreneurs, especially retired ones, are especially likely to become angels.

Although the figures vary widely, angels are believed to provide billions of dollars in capital to entrepreneurs every year. Based on demographics, studies characterize angels as follows:

• They are wealthy
• They are usually self-made as opposed to being rich through inheritance
• They are usually in their sixties; almost never below forty
• They prefer to invest in companies they are familiar with. They usually seek out small and growing companies in their own industry.

How do you find an angel for your business? Here are some tips:

1. THE FIRST PLACE TO LOOK FOR IS AMONG YOUR BUSINESS ASSOCIATES. You have a greater chance of securing financing from people who know you. Then ask your business associates to ask their acquaintances. However, the farther the relationship and the lesser the prospective angel knows you, the lesser the chances of securing the investment unless they have a unique understanding of your product.
   
2. NETWORK, NETWORK AND NETWORK. Join a professional organization or trade group for your industry. Begin attending meetings on a regular basis. This is the best way to get acquainted with successful business owners in your field or related fields.
   
3. STAY LOCAL. You don't need to go beyond your geographic area to find investors willing to take their chances with your venture. Be sure to join and participate in your local Chamber of Commerce.
   
4. DISCREETLY INQUIRE about people who appear to be the most successful members of your industry. Pitch the idea to your lawyer or accountant - they may be interested or know someone who could be interested. They may have clients who frequently invest in a new and growing business.
   
5. RESEARCH ON THE INTERNET. Some sites provide listings of angel investors per geographical location, while others provide focused advice on getting investors for your small business. Check out the following sites:
   


1. vFinance Directory of Angel Investors: http://www.vfinance.com
2. International Angel Investors: http://angelinvestors.infopoint.com
3. Venture Vortex: http://www.venturevortex.com
4. Zelnick Media: http://www.zelnickmedia.com
5. Music Business Angels: http://www.musicbusinessangels.com (UK)

However, the rule is always to raise money at the right time. Convincing angels (or anyone else) to part with their cash to support your venture takes a lot of time and hard work. Be sure to dedicate enough time and budget in your search for financing.

Once you find a prospect, send a letter requesting a short meeting to discuss the proposal. A more effective approach is to be personally introduced to the angel investor by a common friend. People are more inclined to be receptive to offers from other people if the request comes from people whom they trust.

In the event that the prospective angel shows interest in your business idea, make sure that you have prepared a well-researched detailed business plan. Your plan should emphasize why you need additional financing and exactly what you plan to do with the money. Write an executive summary for the plan that spells out in one page why someone should invest money in your business. Explain too, how you can repay the money and when. Better yet, have presentation materials ready based on your business plan in order to have a more effective discussion with your prospective investor. You want to appear relaxed, confident and as knowledgeable as possible.

If the investor is interested, bring in your lawyer and accountant to the negotiations. Informal investors usually invest from $10,000 to $100,000 in each venture. While angels may be able to invest considerable money in your venture without requiring the kind of documentation that other investors do, be sure to put your arrangement in writing to reduce any misunderstandings.

Angels may prefer to make straight loans at rates comparable to banks or slightly higher rate. They generally expect to lend their money from three to seven years, with some requiring guaranteed exit provisions such as a mandatory buy-out. Others may want to be repaid in stock if your company eventually goes public. Be sure to tailor the financial arrangements to fit your angel's needs.

Angels can also provide you, not just with money, but guidance, advice and a mentor relationship. Also called "advisory investors," they are generally not interested in controlling the business, but may require you to meet certain business goals or follow certain business practices. If possible, encourage your angel to become a member of your advisory board (more on this in chapter 8, "Pulling Together Your Team").

Many angels like to keep a close eye on their money; plus, they can offer you invaluable advice. If your angel is well connected in the local business community, he or she may help you find additional investors, introduce you to a banker or an attorney, or bring in new customers. An angel may also help you gain membership in a club or professional society that will benefit your business.

Remember that every relationship is different. The key to success is doing everything you can to increase your angel's comfort level so the person's investment and relationship with you and your business will be longstanding and profitable.

))) Excerpted from my new book, INDIE POWER: A BUSINESS-BUILDING GUIDE FOR RECORD LABELS, MUSIC PRODUCTION HOUSES, AND MERCHANT MUSICIANS"

Order your copy of INDIE POWER today at: http://www.mbsolutions.com/books/

))) ILLUMINATING TRIVIA - Did you know?...

Infamous former jobs of currently famous musicians: