revenue

Change or Die [Music]

Source: http://gizmodo.com/5481545/record-labels-change-or-die

It’s a lousy time to be a record label. Profits are tanking, bands are angry—OK Go just ditched EMI—and YouTube and BitTorrent changed the game. Still, some labels are transforming themselves to help musicians in the digital age.

“Change or Die” may sound like hyperbole, or an idle threat, but for the music business, the two alternatives have never been more real. EMI may very well go extinct in the coming months, and all of the major labels are fighting losing battles. But all is not lost.

The traditional role of a record label, in the broadest sense, is to bankroll a band until they start making lots of money, at which point the label gets to keep most of it. They own the master recordings a band makes, and by taking on this ownership they put all of their resources behind selling said recordings.

This setup makes sense when bands lacked the wherewithal to produce and record their own albums and when manufacturing and distributing physical copies of albums and marketing said albums costs hundreds of thousands of dollars. It also makes sense when a popular album will sell millions of copies at $15 a pop.

But that’s definitely not the case now. Record stores are dying at an alarming rate, and fewer and fewer people are buying CDs every day. It’s safe to say that the current generation of teenagers has never perused record stores as a normal activity; it’s all downhill from here for physical music sales. And FM radio isn’t doing too hot either. In short, everything that the music industry has known to be true for the last few decades is quickly turning to dust. Big labels can still bank on country, R&B and pop acts, but the bottom has already fallen out on alternative groups and other internet-friendly genres. And that’s just the beginning.

The Old, Dead Way of Doing Business

The way bands operate has changed so much in the last decade that what a label can provide and what bands require of a label has changed drastically, faster than labels have been able to adapt.

Manufacturing and distribution used to be the cornerstone of a label’s business; every major label owned its own plants to make the albums and also dealt with shipping the albums worldwide. Today, only Sony still owns plants that manufacture CDs, with the other three big labels outsourcing manufacturing to them. But they all still have reps who have to go out to record stores and make sure that their albums are getting proper shelf space. They have to deal with defects and returns. There are lots of resources required to deal with the manufacture and distribution of a physical product, but that physical product is quickly headed towards irrelevancy.

The biggest music stores are now virtual, so there’s no need for someone to go gladhand every Sam Goody manager so they give you endcap space for Use Your Illusion II. The iTunes Music Store sells 25% of the music sold in America as of last August, and that number is definitely going up, not down.

According to the IFPI, physical sales of music dropped 15.4% globally between 2007 and 2008. But in that same year, digital sales rose 24.1%. And Nielsen SoundScan numbers show that the number of units sold between 2006 and 2009 rose from 1 billion per year to 1.7 billion per year, with a unit referring to either an album or a song sold. It’s a significant increase, but when someone buying three songs counts the same as someone buying three CDs, you can see why the labels are losing money despite the positive-sounding stat.

But for unsigned bands, companies such as TuneCore and CD Baby act as middlemen between them and digital storefronts like iTunes for very small amounts of money; getting your album up on major stores such as iTunes, Amazon and eMusic will set you back about $47 through TuneCore. And you retain all ownership of your music and keep all royalties, unlike working with a record label.

And TuneCore’s internal numbers show that online sales are growing even faster for independent acts than those already well established. TuneCore CEO Jeff Price told me that between 2007 and 2009, TuneCore artists have gone from earning $7-8 million a year to $31 million, with $60 million in earnings projected for 2010. That’s insane growth, to be sure, but it’s got a long way to go before it represents a sizable proportion of global music sales. To put things in perspective, the IFPI recorded $4.9 billion in sales for 2008.

Furthermore, these days it’s easier than ever for musicians to record music without an expensive studio. Software such as Reason, Pro Tools and Logic can be bought for $300 or less, and run on a mid-range laptop. Cheap mics and gear can be found all over eBay and Craigslist. Tie everything together with a $200 to $500 mic preamp analog-to-digital/digital-to-analog box, and you have a mini-studio in your bedroom.

And music blogs have turned the way artists are discovered on its head. It used to be that high-paid A&R executives would scour clubs to find underground bands to sign, acting as the filter between the millions of mediocre bands and the discriminating public. Today, obsessive music fans scour clubs and the web for free, discovering new acts and writing about them on blogs. Labels then discover bands from these blogs. The A&R system is no longer as relevant.

Marketing and promotion, another cornerstone service that labels provide, has also been transformed by the web. You no longer need radio play and ads in Rolling Stone to get your band noticed. When a band makes a music video, there’s less of a need for a major label with contacts at MTV to push it through official channels to get it noticed. These days, you can just throw it up on YouTube and get it noticed by some music—or gadget—blogs. The fact that it’s a simple click or two from video appreciation to buying actual music is worth more than any paper ad in any dying magazine.

As Voyno from the musicians-as-entrepreneurs blog New Rockstar Philosophy told me, it’s very possible for a band to use the internet to replace much of what a label provides:

There are artists on YouTube who use creative on-the-cheap strategies to garner millions of views that direct traffic to their main site, iTunes pages, Facebook page and bandcamp.com profile. They then build an e-mail/text subscription from their new fans, which allows them to offer new merchandise, tickets for shows and other related info directly to fans. The web traffic analytics from all their sites can help them plan successful tours, target Facebook ads, and make better decisions on how to move forward.

These changes have shaken the foundation of the industry, and the biggest labels have borne the brunt of the losses that these changes wrought.

Tough Times for Major Labels

EMI is bleeding money. Earlier this month, it reported a whopping $2.4 billion loss, which, when added to its prior debts, puts it $4.5 billion in debt to CitiGroup. It owes Citi $160 million this month, and it’s facing a restructuring plan that’ll require an additional investment from its parent company.

EMI is owned by Terra Firma Capital Partners, a British private equity firm that also owns waste management companies, gas stations, residential home builders and movie theaters. To them, the art EMI is releasing is about as important as the trash that Waste Recycling Group collects. If it doesn’t make them money, it isn’t worth keeping around, 80 years of history or not.

Billboard’s Senior Editorial Analyst Glenn Peoples told me that it’s not for lack of trying that EMI finds itself in this position. “Labels have cut as many costs as they possibly can, they’ve taken fewer risks, they’ve signed fewer artists and tried to make safer bets,” he says. “They’re doing what they can, but the revenue might not be there to support the way they do business. So it’s very possible that the recorded music division of EMI will be sold off and will go elsewhere. An acquisition by Warner Music Group is a possibility, and that would take it down to three majors in recorded music, and that’d be pretty drastic and a lot of concentration between three companies.”

An EMI Music spokesperson told me, “EMI Music is doing well. We’ve reported revenue growth, despite a declining market, and strong operating profit and margin improvement, both in the last financial year and in the current year.” But if they can’t convince Terra Firma that they have a way out of the quagmire they’re in, the possibility of the number of major labels to dropping to three is very real.

And if that happens, what of those remaining three? Universal Music Group is owned by French media conglomerate Vivendi, a company with stakes in the Universal and Canal movie studios and the video game publisher Activision Blizzard amongst other holdings. Sony Music Entertainment is obviously a division of Sony, and we all know Sony has had problems of its own lately. Warner Music Group is the only major without a parent company to answer to, as it spun off from Time Warner in 2004, and its revenue dropped about $3.5 billion last year.

The Upside of Signing on the Dotted Line

But all is not lost, and the death of the record label at a business is not a foregone conclusion. Labels from EMI down to the smallest indie labels are racing to change the way they do business. And they still have quite a bit to offer.

Ra Ra Riot is a band from Syracuse, NY who’s currently prepping their second album from indie label Barsuk Records. Barsuk is a true indie based out of Seattle, featuring bands such as Death Cab for Cutie, Mates of State, Nada Surf and They Might Be Giants in addition to Ra Ra Riot.

I talked to Josh Roth, Ra Ra Riot’s manager, about the reasons bands still have for signing with a label. One big positive that signing to a label provides a band, he told me, is giving them legitimacy. “I think right now with the internet, there are just so many bands out there that it’s easy to go unnoticed,” he told me. “There’s still is a certain charm to having a label saying ‘We like this band and we’re going to sign them and you should take a listen.’ With the amount of bands that are out there, it’s hard to filter what is actually good now.”

Furthermore, as outlets such as radio and MTV have become less relevant, new venues for being heard and getting paid have opened up. “Commercials are becoming much more relevant,” Ra Ra Riot guitarist Milo Bonacci told me.

“That’s how a lot of bands get paid or get their music out there. That’s how a lot of people hear a song for the first time. I feel like commercials are taking the place of commercial radio.” And to get on a commercial, it sure helps to be signed to a label with a nice licensing department.

Of course, there are different types of record labels. A major label, such as EMI, has a lot more money to throw around and can make more promises, but contracts with majors can end up with artists further in the hole due to these deep pockets. As Bonacci told me, “There’s more risk. There’s more fuel to propel you forward up front, but that’s no guarantee.” That same fuel could blow up in your face. We’ve seen how bands who don’t hit it big can end up “owing” their major label hundreds of thousands of dollars, after all.

Indie labels (true indie labels, not boutiques under the umbrella of a major) have less resources and therefore will give bands less to recoup. Indies also will often offer the artist a chance to interact with top brass, something that is almost never done at a major. Indies are presumably owned by passionate music fans rather than gigantic multinational holding companies, which is important when a band needs to know that a label is 100% behind them, according to RRR’s Bonacci.

And signing to an indie instantly connects you to that labels fans, Bonacci says. “Nobody really cares about Sony records or Universal. You don’t seek out stuff that’s being released on Universal as a fan. Independent labels, be it Domino or SubPop or whatever, those labels have fans.”

Indie labels seem to have a better chance of adapting and surviving in tumultuous times. Since for the most part they’re private companies with few employees, they’re able to make drastic changes in their business models much more quickly than major labels. But that doesn’t mean they’ll all survive; famed indie label Touch and Go closed down last year, and in addition to repping bands such as TV on the Radio, Ted Leo and the Pharmacists, !!! and Blonde Redhead, they also handled distribution for other venerable indies such as Drag City, Kill Rock Stars, Jade Tree and Merge. It was a huge blow to the indie label scene.

Getting a Cut of Everything

The way labels are moving to stay alive is by becoming involved in the places that bands still make money, such as touring and merchandising. Traditionally, labels only made money off records sold, while any profits made from t-shirts or posters sold on the road went to the band. After all, if the label just owns the master recordings, it can only make money off the sale of said recordings, not any ancillary profits that come from things like touring.

But now some labels are pushing what are called 360 deals, which involve them in virtually everything an artist does. One of the most famous 360 deals was EMI’s 2002 deal with Robbie Williams, which was worth a whopping £80 million, giving EMI a piece of basically everything that Williams touched. That didn’t go so well, with Williams threatening to withhold albums from the label and trying to get out of his contract. But last week, according to UK trade paper Music Week, Williams’ manager Tim Clark publicly came out in support of the embattled label, saying, “My own view is Citigroup would be mad at this stage not to keep EMI on as a going concern. It just would be bonkers.”

In any case, 360 deals and general diversification are what big labels such as EMI are looking to move into, according to Billboard’s Glenn Peoples. “They’re definitely diversifying and they’re actually getting into agencies, artist management, concert promotion. There’s really no area that the four majors are not pursuing right now.”

These deals make the most sense for huge acts with lots of opportunities for branding and licensing. You’ve seen it in action here on Giz, in fact, with Dr. Dre’s Beats headphones and Lady Gaga’s new Creative Director “job” at Polaroid. Both those acts are signed to Interscope, a sub-label of Universal that’s clearly pushing artists towards these new revenue streams. But many smaller acts are still reluctant to give a label a slice of the entire pie with such a wide-reaching deal.

The fact of the matter is that bands do still need someone working for them, 360 deal or not. For some bands, just having a small team of a dedicated manager, publicist and lawyer who can handle the nitty-gritty of online sales, tour organization, merchandising and marketing will be enough for them. But many can still benefit from the huge networks that labels have with their contacts in every facet of the industry. Sure, you can print your own t-shirts, but a label with contacts with clothing manufacturers, stores and distributors can make that process a lot easier. And just how much of this work do you want to do yourself?

360 deals don’t make sense for all bands; Ra Ra Riot manager Roth isn’t sold on them. “A lot of labels are also now branching into management because the manager is involved with everything going on with a band. Labels will try to be like a full-service company to a band, but I don’t think it’ll be very popular.” He worries that bands will be setting themselves up to be taken advantage of even more by labels if they give up merchandising and touring profits to them. Having an independent team working for a band and playing middleman between them in the label makes sure there’s someone deeply involved in “business stuff” that still has their best interests at heart.

And it makes sense that a manager would be wary of labels moving into their territory, but there’s still a distinction between label and manager with these deals. “For example, a new artist signed to a multi-rights deal may use the major label’s merchandise company and e-commerce division in addition to its publishing and recorded music companies,” Peoples says. “In the past, a manager could pick and choose which merch, e-commerce, publishing and record companies it wanted to work with. Now they’re more likely to be under the same umbrella.”

Sometimes, a band’s management team can replace what a label does entirely. Just yesterday, OK Go announced it was splitting with EMI, whom they didn’t have the greatest relationship with, to strike out on their own with a new company called Paracadute. Paracadute is basically OK Go’s own team to handle management, promotion and distribution of their records. “The things that a major has to offer above and beyond anybody else are the things that OK Go really didn’t need so much,” Peoples says. “And that’s radio promotion and access to brick and mortar retail. If you’re going to create nearly all of your consumer awareness through cheaply made YouTube videos, you don’t need this big promotional and distribution system behind you.”

But not all bands can do what OK Go has done. The digital world looks a lot more accessible when only viewed through the lens of rock acts. “If you’re an R&B act, if you’re a straight up pop act, a country act, you’re going to need radio and you’re going to need brick and mortar retail, and that’s not going to change anytime soon. Things are changing definitely for alternative rock, rock and indie, but some genres sell a lot better in digital than other genres.”

But clearly, the money that’s to be made in music is no longer just in album sales. And bands seem to be presented with a choice: they can either allow labels to become more involved in everything that they do, and give up money that used to go exclusively to them in the process, or strike out on their own. Either way, they’ll entering a landscape where getting their song on Gossip Girl for 40 seconds is more important than any amount of FM radio play, where getting a music video posted to Stereogum is more important than getting it on MTV and where you make more money touring behind an album than selling that same album.

And in order to prove to artists that signing with a label is a better idea than going out on your own, they’ll need to make big changes; bigger than they’ve made so far. “It might be how an addict ends up turning his life around,” Peoples says. “He’s gotta hit rock bottom. And I dunno if the record industry has hit rock bottom yet, but maybe that’s what’ll need to happen for there to be really big change.”

But at the end of the day, the saving grace of record labels might be a lot more basic than who gets what percentage of merchandise or who deals with distribution. The big question is this: do bands really want to try to make it completely on their own? As Bonacci says, “I don’t necessarily want to have all that nitty-gritty stuff to worry about. I’d rather just worry about making music. I don’t want to worry about numbers or distribution or marketing or publicity or anything like that. That sounds like a desk job. I used to have a desk job, that’s why I’m playing music. Now look at me. I sleep on couches.”

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Friday, March 12th, 2010 Uncategorized No Comments

Apple vs Microsoft vs Sony [Graphs]

Source: http://feeds.gawker.com/~r/gizmodo/full/~3/fCC_TUnak8c/research-and-development-apple-vs-microsoft-vs-sony

The core of any long-standing technology company is research and development. Here’s how Apple, Microsoft and Sony’s last decade of spending stack up.

Note that the first graph shows research and development as a percentage of revenue (to scale the spending by company, since revenues differ so greatly). This next graphic can help you conceptualize the revenue and R&D gap:

A Few Interesting Notes:

• Now, Microsoft spends about 17% of their revenue on R&D. Sony spends about 8%. Apple spends less than 4%.

• If you were to break down the amount of R&D that goes purely to physical (non-software) products sold by Apple and Sony, Sony would spend about $11.5 million per product while Apple would spend about $78.5 million per product. (Of course, that’s rolling the cost OS X and iPhone OS development into Macs and the iPhone, which could be seen as inflating their per product spending.)

• Microsoft just spends a lot of money in R&D, period—about $9 billion last year in generalized research (that often doesn’t lead to specific products). In terms of percentage growth over the last decade, Apple’s R&D has grown the most (nearly quadrupled) while Sony’s has grown the least (not quite doubled).

In light of these bare numbers, is it any surprise that Sony is struggling the most to capture the hearts and minds of a public hungry for gadgets?

Sources:

Apple
Apple Public Relations
Apple Investor Relations
Apple Insider 2004
Apple Insider 2005
Apple Insider 2006
Apple Insider 2008
Mac Observer
Microsoft
Microsoft Investor Relations
Sony
Sony Investor Relations

Research by David Chaid

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Monday, March 8th, 2010 Uncategorized No Comments

the American phone subsidy model is a RAZR way of thinking in an iPhone world

Source: http://www.engadget.com/2010/02/23/editorial-the-american-phone-subsidy-model-is-a-razr-way-of-thi/

The concept is simple enough — pay more, get more. So it has gone (historically, anyway) with phone subsidies in this part of the world, a system that has served us admirably for well over a decade. It made sense, and although it was never spelled out at the customer service counter quite as clearly as any of us would’ve liked, it was fairly straightforward to understand: you bought a phone on a multi-dimensional sliding scale of attractiveness, functionality, and novelty. By and large, there was a pricing scale that matched up with it one-to-one. You understood that if you wanted a color external display, a megapixel camera, or MP3 playback, you’d pay a few more dollars, and you also understood that you could knock a couple hundred dollars off of that number by signing up to a two-year contract. In exchange for a guaranteed revenue stream, your carrier’s willing to throw you a few bucks off a handset — a square deal, all things considered. So why’s the FCC in a tizzy, and how can we make it better?

Continue reading Editorial: the American phone subsidy model is a RAZR way of thinking in an iPhone world

Editorial: the American phone subsidy model is a RAZR way of thinking in an iPhone world originally appeared on Engadget on Tue, 23 Feb 2010 20:00:00 EST. Please see our terms for use of feeds.

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Wednesday, February 24th, 2010 Uncategorized No Comments

Source: http://feeds.gawker.com/~r/gizmodo/full/~3/9IJFaADoLr0/apple-the-iphone-company

Apple watchers can now see how truly huge the company’s iPhone business has become, thanks to a new accounting method the company started using this past quarter.

In less than three years, the iPhone has grown to become Apple’s biggest business—up from zero.

Specifically, during Apple’s December quarter, the company reported $5.6 billion of iPhone-related revenue, up 90% year-over-year. That edged out the Mac business ($4.5 billion) and iPod business ($3.4 billion) for the second quarter in a row and the third time ever. It was the first time the iPhone has beat the Mac and iPod businesses by more than $1 billion each.

And this despite Apple missing Wall Street’s expectations for iPhone sales, thanks to increased competition from Google Android and other smartphones.

Why the new visibility? During the quarter, Apple started taking advantage of new accounting rules that lets it report the vast majority of revenue from iPhones and Apple TV devices immediately. Previously, it had to spread the revenue over 24 months to account for free software updates it would offer those customers.

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Tuesday, January 26th, 2010 Uncategorized No Comments

Source: http://feeds.gawker.com/~r/gizmodo/full/~3/xZHNT92BICw/bing-could-catch-yahoo-by-the-end-of-the-year

Since Microsoft’s Bing search engine launched last summer, it has gained market share at the expense of Yahoo. If the trends stay consistent, Bing could pass Yahoo in the U.S. by the end of November.

To be sure, some (most?) of Microsoft’s gains have come with an expense: The company is buying up toolbar deals to become the default search engine for more users — less-valuable, paid traffic that Yahoo seems happy to give up. And Microsoft has spent a lot of money advertising Bing.

But there’s no doubt that Yahoo’s declining search business, long term, is bad news for the company. Especially because its deal to farm out its search technology to Bing will only generate revenue for searches conducted through Yahoo, not through Bing, even though Yahoo is selling the ads on Bing.


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Friday, January 15th, 2010 search No Comments

How Major Labels Cook the Books with Digital Downloads [Digital Downloads]

Source: http://feeds.gawker.com/~r/gizmodo/full/~3/jl5xTTh-ZxM/my-6247-royalty-statement-how-major-labels-cook-the-books-with-digital-downloads

Tim Quirk was the singer of punk-pop outfit Too Much Joy, signed by Warner Bros. in 1990. Now he’s an executive at an online music service, giving him insight on digital sales data and just how labels fudge their numbers.

I got something in the mail last week I’d been wanting for years: a Too Much Joy royalty statement from Warner Brothers that finally included our digital earnings. Though our catalog has been out of print physically since the late-1990s, the three albums we released on Giant/WB have been available digitally for about five years. Yet the royalty statements I received every six months kept insisting we had zero income, and our unrecouped balance ($395,277.18!)* stubbornly remained the same.

Now, I don’t ever expect that unrecouped balance to turn into a positive number, but since the band had been seeing thousands of dollars in digital royalties each year from IODA for the four indie albums we control ourselves, I figured five years’ worth of digital income from our far more popular major label albums would at least make a small dent in the figure. Our IODA royalties during that time had totaled about $12,000 – not a princely sum, but enough to suggest that the total haul over the same period from our major label material should be at least that much, if not two to five times more. Even with the band receiving only a percentage of the major label take, getting our unrecouped balance below $375,000 seemed reasonable, and knocking it closer to -$350,000 wasn’t out of the question.

So I was naively excited when I opened the envelope. And my answer was right there on the first page. In five years, our three albums earned us a grand total of… $62.47.

What the fuck?

I mean, w! e all kn ow that major labels are supposed to be venal masters of hiding money from artists, but they’re also supposed to be good at it, right? This figure wasn’t insulting because it was so small, it was insulting because it was so stupid.

Why It Was So Stupid

Here’s the thing: I work at Rhapsody. I know what we pay Warner Bros. for every stream and download, and I can look up exactly how many plays and downloads we’ve paid them for each TMJ tune that Warner controls. Moreover, Warner Bros. knows this, as my gig at Rhapsody is the only reason I was able to get them to add my digital royalties to my statement in the first place. For years I’d been pestering the label, but I hadn’t gotten anywhere till I was on a panel with a reasonably big wig in Warner Music Group’s business affairs team about a year ago

The panel took place at a legal conference, and focused on digital music and the crisis facing the record industry**. As you do at these things, the other panelists and I gathered for breakfast a couple hours before our session began, to discuss what topics we should address. Peter Jenner, who manages Billy Bragg and has been a needed gadfly for many years at events like these, wanted to discuss the little-understood fact that digital music services frequently pay labels advances in the tens of millions of dollars for access to their catalogs, and it’s unclear how (or if) that money is ever shared with artists.

I agreed that was a big issue, but said I had more immediate and mundane concerns, such as the fact that Warner wouldn’t even report my band’s iTunes sales to me.

The business affairs guy (who I am calling “the business affairs guy” rather than naming because he did me a favor by finally getting the digital royalties added to my statement, and I am grateful for that and don’t want this to sound like I’m attacking him personally, even though it’s abo! ut to se em like I am) said that it was complicated connecting Warner’s digital royalty payments to their existing accounting mechanisms, and that since my band was unrecouped they had “to take care of R.E.M. and the Red Hot Chili Peppers first.”

That kind of pissed me off. On the one hand, yeah, my band’s unrecouped and is unlikely ever to reach the point where Warner actually has to cut us a royalty check. On the other hand, though, they are contractually obligated to report what revenue they receive in our name, and, having helped build a database that tracks how much Rhapsody owes whom for what music gets played, I’m well aware of what is and isn’t complicated about doing so. It’s not something you have to build over and over again for each artist. It’s something you build once. It takes a while, and it can be expensive, and sometimes you make honest mistakes, but it’s not rocket science. Hell, it’s not even algebra! It’s just simple math.

I knew that each online service was reporting every download, and every play, for every track, to thousands of labels (more labels, I’m guessing, than Warner has artists to report to). And I also knew that IODA was able to tell me exactly how much money my band earned the previous month from Amazon ($11.05), Verizon (74 cents), Nokia (11 cents), MySpace (4 sad cents) and many more. I didn’t understand why Warner wasn’t reporting similar information back to my band – and if they weren’t doing it for Too Much Joy, I assumed they weren’t doing it for other artists.

To his credit, the business affairs guy told me he understood my point, and promised he’d pursue the matter internally on my behalf – which he did. It just took 13 months to get the results, which were (predictably, perhaps) ridiculous.

The sad thing is I don’t even think Warner is deliberately trying to screw TMJ and the hundreds of other also-rans and almost-weres they’ve signed over the years. The reality is more boring, but also more depressing. Like I said, they don’t actually ow! e us any money. But that’s what’s so weird about this, to me: they have the ability to tell the truth, and doing so won’t cost them anything.

They just can’t be bothered. They don’t care, because they don’t have to.

“$10,000 Is Nothing”

An interlude, here. Back in 1992, when TMJ was still a going concern and even the label thought maybe we’d join the hallowed company of recouped bands one day, Warner made a $10,000 accounting error on our statement (in their favor, naturally). When I caught this mistake, and brought it to the attention of someone with the power to correct it, he wasn’t just befuddled by my anger – he laughed at it. “$10,000 is nothing!” he chuckled.

If you’re like most people – especially people in unrecouped bands – “nothing” is not a word you ever use in conjunction with a figure like “$10,000,” but he seemed oblivious to that. “It’s a rounding error. It happens all the time. Why are you so worked up?”

These days I work for a reasonably large corporation myself, and, sadly, I understand exactly what the guy meant. When your revenues (and your expenses) are in the hundreds of millions of dollars, $10,000 mistakes are common, if undesirable.

I still think he was a jackass, though, and that sentence continues to haunt me. Because $10,000 might have been nothing to him, but it was clearly something to me. And his inability to take it seriously – to put himself in my place, just for the length of our phone call – suggested that people who care about $10,000 mistakes, and the principles of things, like, say, honoring contracts even when you don’t have to, are the real idiots.

As you may have divined by this point, I am conflicted about whether I am actually being a petty jerk by pursuing this, or whether labels just thrive on making fools like me feel like petty jerks. People in the record industry are very good at making bands believe they deserve the hundreds of thousands (or sometimes millions) of dollars labels advance th! e musici ans when they’re first signed, and even better at convincing those same musicians it’s the bands’ fault when those advances aren’t recouped (the last thing $10,000-Is-Nothing-Man yelled at me before he hung up was, “Too Much Joy never earned us shit!”*** as though that fact somehow negated their obligation to account honestly).

I don’t want to live in $10,000-Is-Nothing-Man’s world. But I do. We all do. We have no choice.

The Boring Reality

Back to my ridiculous Warner Bros. statement. As I flipped through its ten pages (seriously, it took ten pages to detail the $62.47 of income), I realized that Warner wasn’t being evil, just careless and unconcerned – an impression I confirmed a few days later when I spoke to a guy in their Royalties and Licensing department I am going to call Danny.****

I asked Danny why there were no royalties at all listed from iTunes, and he said, “Huh. There are no domestic downloads on here at all. Only streams. And it has international downloads, but no international streams. I have no idea why.” I asked Danny why the statement only seemed to list tracks from two of the three albums Warner had released – an entire album was missing. He said they could only report back what the digital services had provided to them, and the services must not have reported any activity for those other songs. When I suggested that seemed unlikely – that having every track from two albums listed by over a dozen different services, but zero tracks from a third album listed by any seemed more like an error on Warner’s side, he said he’d look into it. As I asked more questions (Why do we get paid 50% of the income from all the tracks on one album, but only 35.7143% of the income from all the tracks on another? Why did 29 plays of a track on the late, lamented MusicMatch earn a total of 63 cents when 1,016 plays of the exact same track on MySpace earned only 23 cents?) he eventually got to the heart of the matter: “We don’t normally do this for unrecouped bands,” he ! said. “B ut, I was told you’d asked.”

It’s possible I’m projecting my own insecurities onto calm, patient Danny, but I’m pretty sure the subtext of that comment was the same thing I’d heard from $10,000-Is-Nothing-Man: all these figures were pointless, and I was kind of being a jerk by wasting their time asking about them. After all, they have the Red Hot Chili Peppers to deal with, and the label actually owes those guys money.

Danny may even be right. But there’s another possibility – one I don’t necessarily subscribe to, but one that could be avoided entirely by humoring pests like me. There’s a theory that labels and publishers deliberately avoid creating the transparent accounting systems today’s technology enables. Because accurately accounting to my silly little band would mean accurately accounting to the less silly bands that are recouped, and paying them more money as a result.

If that’s true (and I emphasize the if, because it’s equally possible that people everywhere, including major label accounting departments, are just dumb and lazy)*****, then there’s more than my pride and principles on the line when I ask Danny in Royalties and Licensing to answer my many questions. I don’t feel a burning need to make the Red Hot Chili Peppers any more money, but I wouldn’t mind doing my small part to get us all out of the sad world $10,000-Is-Nothing-Man inhabits.

So I will keep asking, even though I sometimes feel like a petty jerk for doing so.


* A word here about that unrecouped balance, for those uninitiated in the complex mechanics of major label accounting. While our royalty statement shows Too Much Joy in the red with Warner Bros. (now by only $395,214.71 after that $62.47 digital windfall), this doesn’t mean Warner “lost” nearly $400,000 on the band. That’s how much they spent on us, and we don’t see any royalty checks until it’s paid back, but it doesn’t get paid back out of the full price of every album sold. It gets paid back out of the band’s share of every albu! m sold, which is roughly 10% of the retail price. So, using round numbers to make the math as easy as possible to understand, let’s say Warner Bros. spent something like $450,000 total on TMJ. If Warner sold 15,000 copies of each of the three TMJ records they released at a wholesale price of $10 each, they would have earned back the $450,000. But if those records were retailing for $15, TMJ would have only paid back $67,500, and our statement would show an unrecouped balance of $382,500.

I do not share this information out of a Steve Albini-esque desire to rail against the major label system (he already wrote the definitive rant, which you can find here if you want even more figures, and enjoy having those figures bracketed with cursing and insults). I’m simply explaining why I’m not embarrassed that I “owe” Warner Bros. almost $400,000. They didn’t make a lot of money off of Too Much Joy. But they didn’t lose any, either. So whenever you hear some label flak claiming 98% of the bands they sign lose money for the company, substitute the phrase “just don’t earn enough” for the word “lose.”

** The whole conference took place at a semi-swank hotel on the island of St. Thomas, which is a funny place to gather to talk about how to save the music business, but that would be a whole different diatribe.

*** This same dynamic works in reverse – I interviewed the Butthole Surfers for Raygun magazine back in the 1990s, and Gibby Haynes described the odd feeling of visiting Capitol records’ offices and hearing, “a bunch of people go, ‘Hey, man, be cool to these guys, they’re a recouped band.’ I heard that a bunch of times.”

**** Again, I am avoiding using his real name because he returned my call promptly, and patiently answered my many questions, which is behavior I want to encourage, so I have no desire to lambaste him publicly.

***** Of course, these two possibilities are not mutually exclusive – it is also possible that labels are ! evil and avaricious AND dumb and lazy, at the same time.

Reprinted with permission from Too Much Joy.


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Wednesday, December 2nd, 2009 Uncategorized No Comments

Map of IP addresses around the world used to commit Click-Fraud

Source: http://feeds.gawker.com/~r/gizmodo/full/~3/QE1Gthuy4_k/3-million-in-click-fraud-over-two-weeks-just-the-beginning

A recently disbanded click fraud ring in China racked up $3 million worth of clicks in two weeks. $3 million that we’re aware of. Just how detectable is this whole business of racking up fraudulent ad revenue clicks?

That intricate mess of lines above represents a portion of DormRing1, the click fraud bunch that was caught in China. The lines show the relationship of some of the IP addresses involved in the fraud and how they are connected to some fraudulent ad clicks. The whole network actually “involved 200,000 different IP addresses and racked up more than $3 million worth of fraudulent clicks across 2,000 advertisers in a two-week period.” Impressive and scary at the same time.

The trouble is that no one really knows how much ad revenue DormRing1 collected before they were caught. Click-fraud monitoring services such as Anchor Intelligence, the ones behind this catch, are evolving to keep up with the scale on which these rings are operating. It’s still difficult to judge just how well they’re doing as they’re having to infiltrate forums and gain the trust of the perpetrators in a manner reminiscent of drug busts. But as the criminals are getting more elaborate, the investigations are too.

That good news aside, do me a favor: after you read this post, comment, and all that jazz, refresh the page a few times and—Ah…I mean, heh…just kidding. [Tech Crunch]


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Friday, October 9th, 2009 Uncategorized No Comments

This is what happens when 99% of the inefficiencies are cut out of a system (advertising industry)

Update: Including Q3 09 numbers

Source: http://adage.com/agencynews/article?article_id=140125

While no holding company’s results are pretty these days, Interpublic Group of Cos. last week posted particularly poor numbers, swinging to a net loss of over $35 million for the first nine months of 2009 from almost $60 million in profit during the same period in 2008. IPG’s third-quarter revenue fell 18% compared to declines of 14.4% at rival Omnicom Group, 8.7% at WPP (factoring out the effect of acquisitions and currency shifts) and 5.3% at Publicis Groupe. WPP’s reported revenue, including revenue from its big Taylor Nelson Sofres acquisition, rose 16.7%. In the same quarter, net income attributable to IPG tumbled 47.3%, more than double the drop of Omnicom (down 22.5%).

wasted-ad-dollars

Google changed the game by changing the business model from paying for impressions to paying only when the advertiser gets the click.  This helped to cut out the 99% of waste and inefficiency which existed in the industry.


WPP Profit Dropped 47% in Second Quarter More Than Half of Company’s Revenue Came From Nontraditional Advertising

NEW YORK (AdAge.com) — Using words such as “severe” and “surprise” to describe the recession’s impact on its business, WPP, the world’s largest advertising conglomerate, today said its profit was down 47% for the second quarter. And WPP Chief Executive Martin Sorrell said it will be a while before marketing executives begin to spend and take chances the way they did just a few years back.

FULL ARTICLE – Source: http://adage.com/article?article_id=138673

______________________________________________________________________

In a first half earnings statement released this morning, WPP Group announced that digital and direct marketing-related services now comprise 25% of its body.

WPP Group owns labels like 24/7 Real Media, Mediaedge:cia, MediaCom, Mindshare, GroupM and Outrider.

Digital and direct garnered $1.7 billion in revenues in the first half of ‘09, with a projected annual run rate of nearly $3.5 billion total. But it is digital media and advertising that appear to be dominating the segment.

Overall, first half revenues fell 2.9% to $6.4 billion in the first half on a reported basis, MediaPost reports. Like-for-like, however, total revenues slid 8.3% against the first half of 2008.

According to WPP, traditional advertising and “media investment management” have been the hardest-hit amidst the economic downturn.

“On a constant currency basis, advertising and media investment management revenues fell by 7.5%, with like-for-like revenues down 7.8%,” it stated.

Branding and identity, healthcare and specialist communications — which includes direct, internet and interactive — were least affected.

The media conglomerate committed to prioritizing the growth of digital communications, customer insights and strong geographic markets.

Related topics: Online Advertisers, Data Updates,

Sourcehttp://www.marketingcharts.com/updates/digitaldirect-marketing-now-25-of-wpp-group-10211/?utm_campaign=rssfeed&utm_source=mc&utm_medium=textlink

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Thursday, August 27th, 2009 Uncategorized 1 Comment

the overall advertising pie will shrink

the greater efficiencies of “digital” mean that the same amount of “advertising” can be achieved with fewer dollars because more waste can be eliminated. The decreases in ad spending in traditional media channels like newspapers will only be partially replaced by ad spending online.

For example, the dollars that used to fund newspaper classified advertising has been replaced by free online classifieds through Craigslist. While newspapers had incremental costs due to materials, printing, labor, and distribution, online classifieds have virtually no incremental cost.

Similarly print advertising, which was based on targeting ads to specific demographics of readerships are being replaced by online ads which can be more finely targeted to even more niche readerships — e.g. contextual advertising. And the revenue models based around cost per click are inherently more efficient (and thus lower cost) than the impression-based revenue models of magazines. Again for every dollar taken out of print advertising, only a few cents are needed to replace it in “digital.”

100544-ad-spending-by-media

Agree with me or tell me I’m stupid @acfou

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