July 2012 - MBJ

Music Business JournalVolume 7, Issue 6 www.thembj.org July 2012

Berklee College of Music

Inside This Issue

Mission Statement

The Music Business Journal, published at Berklee College of Music, is a student publication that serves as a forum for intel-lectual discussion and research into the var-ious aspects of the music business. The goal is to inform and educate aspiring music pro-fessionals, connect them with the industry, and raise the academic level and interest in-side and outside the Berklee Community.

(Continued on Page 3)

One of th e music community’s most popular – and romantic – memes is that tech-nology has leveled the playing field to the point that musicians can “do it all themselves”. Why sign with a record label when it’s cheap and easy to get your music on iTunes? Why hire a publicist when you’ve got Twitter? Who needs a booking agent when you can create a follow-ing on YouTube?

In the past ten years, a vast array of technologies and services have been developed to help musicians create, promote, distribute and sell their music. Many music observers are quick to categorize these technological devel-opments as a good thing for musicians, espe-cially when compared with the music industry of yore, with its bottlenecks and gatekeepers. While it’s fair to say that musicians’ access to the marketplace has greatly improved, there is a question that lingers; how have these changes impacted musicians’ ability to generate revenue based on their creative work?

In 2010, the nonprofit advocacy or-ganization Future of Music Coalition launched the Artist Revenue Streams project to assess whether and how musicians’ revenue streams are changing in this new music landscape.

Over the past two years, we have collected data directly from individual artists through three methods: (1) in-person interviews with over 80 US-based musicians, composers and managers; (2) financial case studies that dive deep into the accounting and bookkeeping of a handful of full-time performers; and (3) a widely distributed online survey completed by over 5,300 musicians. The full study is avail-able at http://money.futureofmusic.org.

The results are compelling. The earned income from music of the 5,300 survey respondents was $34,455 in aggregate. Live performance was the biggest slice of this col-lective revenue pie, accounting for 28 percent of the survey populations’ income in the past year. Other significant revenue streams includ-ed teaching (22% of aggregated income), being a salaried player in an orchestra or ensemble (19%), session work (11%), income from sound recordings (6%), income from compositions (6%) and merchandising/branding (2%).

We have resisted publishing this collective, top-level revenue pie because of something else that we discovered, espe-cially through the interviews and financial case studies – the American music creator community is large, diverse and specialized. Because of this, a single pie to describe US-based musician income would be misleading. How a salaried player in an orchestra is com-pensated is vastly different than how an indie rock band makes money, which is different than how a composer who writes bumpers for film and TV makes money. All are musi-cians, but the revenue streams on which they rely are largely determined by copyright law and business practice, which has historically treated compositions, sound recordings and public performance as distinct streams, even in the cases where one individual plays all three roles simultaneously.

Broadcasting Rights Breakthrough

Page 6

A Dollar for AmandaPage 7

Soda, Music, and Social MediaPage 9

A Chaperon of BrandsPage 8

Mechanicals for the New AgePage 14

The Stand-Alone Musician:

By Kristin Thomson

A Vanishing Breed

Table of Contents

Business Articles

Technology and Musician’s Income.......1Palmer’s Financial Prowess....................7Coke at the Olympics.............................9Pepsi and Coke Need Music.................10A Comeback for Vinyl..........................12An Essay on Branding..........................13

Law Section

Clear Channel and Big Machine............6Expanding Mechanicals.......................14

InterviewEric Sheinkop of Music Dealers............8

MBJ Editorial

Mission Statement...................................1Editor’s Note...........................................2Upcoming Topics...................................16

Sponsorship

Berklee Media....................................... 15

Editor’s Note

Volume 7, Issue 6 Music Business Journal

Our summer issue focuses, above all, on two themes: musicians making a living and how con-sumer brands are partnering with artists and music companies to present alternatives to traditional record-label and publishing deals.

Our cover story examines an important question: does the Internet actually help musicians make money? While technology has opened greater access to the music marketplace, Kristin Thomson, who is co-director of the Future of Music Coalition’s Artist Revenue Streams project, carefully weighs the pros and cons of the DIY model. Teamwork, it turns out, is crucial

Advertisement-generated revenue is gaining momentum. Mariana Celeste Migliore assesses the role of commercial branding at music festivals, while Mical Franklin Klip reports on Coca-Cola’s involvement with music at the 2012 Olympics. My own piece details the recent partnerships between Coke and Spotify, on the one hand, and Pepsi and Twitter, on the other. Finally, Zosia Boczanowski interviews Eric Sheinkop, a broker between music artists and top consumer brands.

We also explore the growing potential of crowdfunding. Megan Dervin-Ackerman analyzes Amanda Palmer’s recent success using Kickstarter. Palmer’s constant interaction with her fans online allowed her to thrive in the medium.

Other topics we cover in the issue are the new precedent set by radio giant Clear Channel for ter-restrial broadcasting rights and the Copyright Royalty Board’s extension of mechanical royalty rates for digital media. To end, Bernard Mantel, from the University of Miami, dusts the old and reports on the surprising and intriguing re-emergence of vinyl.

From all of us at the MBJ, we hope you enjoy this issue.

Emilie Bogrand,

Editor-in-ChiefPS: In the interest of space we have included some articles without footnotes. Please consult www.thembj.org for the footnoted version.

Contributors Editor’s Note..................................................................................................................................................................Emily Bogrand Business Articles...............................................................................Emily Bogrand, Megan Dervin-Ackerman, Mical Franklin Klip Bernard Mantel, Mariana Migliore, Kristin Thomson Law Section..................................................................................................................................Luis Augusto Buff, Nicholas Spanos Interview..................................................................................................................................................................Zosia Boczanowski Staff................................Haven Belke, Troy Church, Megan Dervin-Ackerman, Lau Meng Wai, Jonathan Rodriguez, Yea Jin Youn

2 www.thembj.org July 2012

Management Editor-in-Chief..............................................................................................................................................................Emily Bogrand Content Editor............................................................................................................................................................Mariana Migliore Webmaster...........................................................................................................................................Itay Shahar Rahat, Haven Belke Faculty Advisor and Finance.....................................................................................................................................Dr. Peter Alhadeff Layout Editor..................................................................................................................................................................Lau Meng Wai

In almost all instances, signing a major label contract means that you transfer your sound recording copyrights to the record label for a long, long time.

Second, the label might give you an advance – an upfront payment for signing with them – but it is very difficult to recoup against costs. While you may receive me-chanical royalties if you are also the compos-er, it’s unlikely you will see royalty checks for the sale of your sound recordings in the future. And, history is littered with stories (and legal briefs) about unscrupulous label accounting behavior.

Third, signing a label deal means you are no longer the sole decider about the timing and arc of your career. There’s no “I” in this team.

Self-releasing sound recordings

Can musicians self-release their re-cords? Again, absolutely. It happens all the time and, indeed, services like CD Baby and Tunecore make it easier than ever to enter the digital marketplace.

But the compromise for retaining control is that you have a lot of work to do. Someone is going to have to deal with manu-facturing, promotion, and distribution. This might be a team of folks, or it might be the band itself.

And, someone has to pay for all of this. There are a lot of options – more today than in the past – but each of these also in-volves some work, and some risk; fan fund-ing via sites like Kickstarter or Pledge Mu-sic, profit sharing models with indie labels, sponsorship, personal investment, credit cards, or asking family and friends to support the work.

Performers and booking shows

For performers to make money, they need to connect with the right venues and festivals to play. It sounds easy, but if anyone has tried to book a show before – let alone arrange a string of shows into a tour – you know how complicated it can be. So usually, performers and bands hire a book-ing agent, who negotiates all the details and guarantees with the venue or promoter. If the band is going out on tour, agents can arrange

July 2012 www.thembj.org 3

Business Articles


First, a self-published artist will likely never have the same leverage, con-nections or expertise that an experienced publisher can offer. And second, there is an administrative burden. Someone has to be the designated point person for composition-related requests. If a cable TV show wants to use your music, they’ll need to contact you. If you are relaxed dealing with requests and various negotiations, then self-publishing can work. And, if you self-publish, you get to keep 100% of any income earned by your composi-tions.

Recording artists

When musicians go in the studio and record either their own songs, or covers of songs that others have written, they end up with a sound recording; songs affixed to tape or hard drive. Traditionally, it has been the job of a record label to take the sound record-ing and manufacture the commercial product, whether it’s vinyl or 8-tracks or CDs, then distribute it to retailers. For this service, the record label keeps a hefty chunk of wholesale price, and a percentage – usually 50% – of any deals when the sound recording is licensed.

But that’s not all that record labels do. In many instances, labels are also a source of up front cash. They write checks so that artists can go into nice studios and hire good producers. Labels also give recording artists access to producers, to booking agents, and publicists. They also have a staff that can deal with all the boring stuff like accounting, or sending out promotional mailings. The major labels, especially, also have PR muscle. They can get music played on commercial radio. They can get reviews in big magazines. If you’re label-less, getting airplay on commer-cial radio is virtually impossible.

Record labels also give artists some legitimacy. A label deal means that you’ve piqued the interest enough at a label for them to invest in you. This is a green flag for many other things in the music industry. It makes it a lot easier to get a good booking agent, who can then get you bigger show payments or guarantees. It can get you on bigger tours. It can get you more prominent management. So, a record label deal can impact a recording art-ist’s income directly and indirectly.

That said, there are some signifi-cant tradeoffs to signing a record label deal.

The Artist Revenue Streams project was designed to collect data from musicians playing any or all of these roles, because we see all of them as valid and important parts of the music ecosystem. Instead of lumping the aggregated data together into one set of findings, we have isolated certain popula-tions for apples-to-apples assessments. For instance, we’ve released research memos that look at musicians working in specific genres like jazz. We’ve explained musicians’ rela-tionships with technology. We’ve looked at whether radio airplay matters, and to whom. And, we’ve examined the changes in par-ticular revenue streams, such as income from sound recordings. All of these reports are available online.

Back to our original question: has technology leveled the playing field to a point that musicians can do it all themselves? And an even more critical question, should they try to do it themselves? What are the net effects of teammates and partnerships on musicians’ earning capacity? This article examines data collected through the Artist Revenue Streams project to better understand the impact – and tradeoffs – associated with musicians, income and teammates.

Before we get to the data from the survey, we need to review the three most common teammates – publishers, record la-bels and booking agents – and whether musi-cians can take on these roles themselves.

Composers and publishers

Composers and songwriters write music, and they want their compositions to be licensed for use. This means they need to make connections with recording artists, re-cord labels, movie producers, TV shows, and other places that might want to record or li-cense their works. This is frequently done via a publisher, who shops the songs around to performers, record labels and music supervi-sors, and – for certain composers – also pub-lishes physical sheet music. Publishers also deal with license negotiations, paperwork and payment. And for this work, publishing com-panies get a percentage (usually 50%) of any licensing deal.

Can composers self-publish? Ab-solutely. Many songwriters or composers choose to retain control over their publishing. But there are some challenges.

Artist Revenue Streams (cont.)(From Page 1)



Business Articles


that takes care of various tasks. This could include orchestral performers who are on sal-ary, for whom roles like a publisher or a street team are not applicable, or session musicians who are hired to perform in the studio or on the road, for whom a booking agent is unnec-essary. The “not applicable” answers serve as a reminder of the scope of the US-based mu-sic landscape. We were also able to filter the data by a number of criteria to see if the teammates changed for different types of musicians.

Overall, the survey data suggests that certain musician types are more likely to have specific team members. Younger art-ists rely more on volunteer support, as well as connections to income from performances. High earners are twice as likely to have a paid or contracted relationship with an accountant, attorney, booking agent and graphic designers as their musical peers who earn less. Full time musicians are more likely to have an accoun-tant or an attorney. This could be a chicken and egg scenario: does the attorney make it possible for full time musicians to earn more money, or do they hire the attorney because they earn more money? The data cannot tell the difference, but the associations between various musician types and teammates are in-teresting, nonetheless.

Teammates’ impact on earnings

Asking questions about team mem-bers is one thing, but how do these team re-lationships impact musicians’ earning capac-ity? In this final section, we will look at how survey respondents’ income was impacted by publishers, record labels and booking agents. (Detailed results can be found at http://money.futureofmusic.org/teams/4/.)

In the aggregate, income derived from compositions accounted for 6% of our survey respondents’ income in the past twelve months (N=5371). But respondents who said they had a paid/contracted relationship with a publisher, were deriving three times as much income from compositions. The same pattern applied to sound recordings. In the aggregate, income from sound recordings made up about 6% of all respondents’ income (N=5371). But for those with a record label, that percentage more than doubled to 15%.

Artist Revenue Streams (cont.)

a series of shows, hopefully in some reason-able order. And for their work, booking agents get ten to fifteen percent of tour grosses.

Can musicians book their own shows? Again, yes. The two biggest chal-lenges: it takes a lot of time and perseverance, and calls and emails to promoters during their office hours. Plus, very few bands have the same amount of leverage that a good booking agent has. It’s very likely you won’t get paid as much, and you have nobody to defend you or troubleshoot if things get weird. But, book your own shows, keep 100% of the profits.

The front office

So we’ve quickly described three common team members – publishers, record labels and booking agents. But there are other top-level teammates that creators often need or have, whether they are a composer, recording artist or performer:• A manager, who plays traffic cop on ALL of the other elements• An attorney, to review contacts• An account, to deal with compensation and taxes (see graph, below)

If you’re a recording artist or performer, you might also need the services of a publicist to help you promote new releases to radio or re-viewers. You might also turn to a webmaster, a graphic designer, photographer or video per-son, to assist with merchandise design or other visuals.

And if you’re on tour a lot, you might also need a tour manager, sound person and/or road crew. And, if you’re touring reaches a

certain level, you might also need a lighting director, and/or a bus driver.

All of these teammates are optional, and every musician needs to assess the net val-ue of working with them. For some musicians, a manager is crucial. For others, self-managing is the way to go. The important part is under-standing the roles that each play, and assess-ing whether they will improve your situation, whether that means giving you more capacity, making you more money, introducing you to the right people, or doing the tasks that you don’t like to do.

The Team Approach

Among many questions on last fall’s Money from Music survey, we asked musi-cians and composers about who was on their “team”, and about the relationship – whether it was a paid/contracted relationship, a partner-ship or equity deal, or whether the work was pro bono or volunteer. (See http://money.fu-tureofmusic.org/teams/3/ for more details on the chart “Team members: all respondents”, page 5.)

For the 4,062 survey respondents who answered this question, bandmates is at top of list. The list then goes on to accountant, booking agent, and producer. But there are two other things to take away from this chart.

First, there are a lot of possible team-mates and, second, there are a great number of working musicians for whom most teammates are simply not applicable, either because they are not a necessary part of their career struc-ture, or that there is a bigger institutional body

(From Page 3)



Business Articles


And, finally, we looked at income from live performance. In the aggregate, this was the biggest slice, accounting for 28% of income for all respondents. But for those who had a booking agent, income from live performances jumped to 43% – an enormous increase.

It’s important that we read this data as correlation, not causation. The data sug-gests that certain teammates have an impact on musicians’ earning capacity, but they are

unlikely to be the sole reason for the differ-ences. Conclusions

The Artist Revenue Streams project was designed to get a snapshot of musicians’ revenue streams in 2010 and 2011. At the most basic level, we have learned that the majority of US-based musicians and composers rely on a small array of revenue streams, the mix of which is highly dependent on the roles that they play and the genres in which they work.

We’ve also learned that technology and the music-related services act as a double-edged sword. Today’s music creators have easy and affordable access to the marketplace and their music fans. But this lowering of barriers has also made the music field more competitive than ever.

Can musicians do it themselves? Probably. There are dozens of technologies and services out there to facilitate it. But the self-made musician’s job title might also in-clude booking agent, publisher, label, graphic designer, merchandiser, accountant, and so-cial media maven.

What about the opposite scenario: should musicians simply farm out all of the non-creative work so they can focus on the music? The data above suggests that some teammates make a difference, either in giv-ing you capacity to do more, or increasing your earnings. But take these findings with a dose of reality — there have been many in-stances where musicians have been deceived by potential partners, or signed terrible deals. Choosing the right teammates takes research and a full understanding of the risks and ben-efits. And, even then, there’s no guarantee that good partners will make you successful.

Today’s musicians and compos-ers face new challenges in a landscape with diminishing structural resources and ever-in-creasing competition. Choosing the appropri-ate teammates – and designing partnerships that provide a net benefit – is part of this new calculation. The equation will be unique to each musician, but understanding if and how various teammates could have an impact on creative capacity and earnings is an important part of building a successful, sustainable ca-reer.

Kristin Thomson is co-director of Future of Music Coalition’s Artist Revenue Streams project. She is also a musician and co-owner of the indie label Simple Machines Records.

Artist Revenue Streams (cont.)(From Page 4)

Law Section



By Luiz Buff and Nicholas Spanos


The deal bypasses the existing royalty structures for sound recordings, leaving SoundExchange outside of the col-lection process, with the broadcaster paying monies to Big Machine directly. Big Ma-chine will then allegedly split the payments equally with their artists. Again, and as was mentioned earlier on, it is important to note that in the rest of the world the concept of paying sound recording performance roy-alties already exists, so Clear Channel and Big Machine are not inventing the wheel. Rather, they are pioneering the concept in the US.

The Future

The conflict between artists and broadcasters goes back, in the end, to the early days of radio. Yet it is possible that at long last radio can do more for talent than simply argue for their preeminent role in artists’ discovery and later success. Cer-tainly, the parties involved in this bilateral and historical entendre see it as a forward-looking agreement. Above all, this is be-cause the principle of a percentage take out of revenue is easy to work with. As Clear Channel’s CEO, Bob Pittmann, has said, “I can’t build a business space paying money for every song I play, but I can [taking a] percentage of [the] revenue I bring in.” Ditto for Scott Borchetta, CEO of Big Machine Label Group: “Now, we can align our inter-est with radio in a predictable model based on ad revenue so that we can drive digital growth.”

It remains to be seen if other labels or artists will adopt their own agreements with broadcasters. Skeptics hypothesize that if this happened, indie labels and artists that were left behind could be cut out of ra-dio playlists: if their content did not drive enough ad revenue, there would be no com-mercial advantage for Clear Channel or oth-ers to sign with them—clearly not the case with Taylor Swift’s Big Machine.

If the value of indie repertoire suf-fered, it is suggested too that smaller radio stations might endure forced acquisitions. This, however, has not happened in Europe, although the broadcast sound recording right there is not negotiated on a piecemeal basis.

the new model of digital transmissions, the record companies were able to receive royalties for their sound recordings through a pay-per-play basis model, collected and then distributed by the collec-tive management society SoundExchange, (which was created specifically for that purpose). This was agreed upon when streaming music was a very small portion of the music trade. And however much legisla-tors were bowing to new developments, they also

recognized that the ruling applied only to that incipient market. In fact, they had no intention to transfer their exception on the treatment of music streams to the much larger market for terrestrial radio.

As Clear Channel’s terrestrial listen-ers are still 98% of the total (though there has been much growth in streaming music, both in-teractive and non- interactive), the conclusion must be that the pay-per-play basis for royalty payments on digital transmissions acted as a disincentive for Clear Channel to develop new online businesses.

The Deal

The deal that Clear Channel signed with Big Machine is in fact a beta test for a new standard of royalty payments that will allow the company to promote and advance its online services at lower costs; under the existing rules, the broadcasting giant cannot scale them down as it expands. The surprise over the deal is Clear Channel’s willingness to take a loss early on. The hope is that the rapid changes in this industry will save money in the long term, and help the company expand with new media.

The terms of the deal, and its novelty, are best appraised by comparison with the ex-isting arrangement. Instead of paying the legis-lative mandated fixed rate of $0.0021 per song played on digital transmissions, Clear Channel has decided to share an undisclosed percentage of their advertising revenue – generated both from terrestrial and digital transmissions – with Big Machine Records. This gives them use of Big Machine’s music catalog in different radio platforms.

Clear Channel’s Giant Step

The largest broadcasting group for radio in the US is Clear Channel Communica-tions, and much of its holdings are in terrestrial radio. It recently struck a special deal with Big Machine, the country music label whose artist roster includes, among others, Taylor Swift and Rascal Flatts. In a move that is a first in the US, Clear Channel will pay sound recording royal-ties on terrestrial performances to Big Machine.

Radio had always paid blanket broad-cast performance licenses to ASCAP, BMI, and SESAC, and they in turn distributed the collect-ed income to songwriters and publishers. How-ever, US law does not so far consider any pay-ment by broadcasters on the sound recording right of a performance. This is unlike Europe and the rest of the world, where broadcasters do pay costs for sound recording rights and collec-tion societies distribute such funds regularly to songwriters, publishers--and even sidemen in a recording.

In the US, broadcasters have justified not paying the sound recording right by arguing that radio airplay affords labels and perform-ers much promotional value. They have so far won, preserving the status quo despite continu-ous lobbying by the recording industry. Now, a free market solution that does not yet involve the drafting of new laws and regulations may be the seed of a new standard for royalty payments on broadcast radio.

Background

When streaming and listening to mu-sic over the Internet became a reality in the early 1990’s, laws were put forth to ensure proper pay-ment of royalties on digital transmissions. For


Business Articles


Amanda Palmer’s Crowdfunding Triumph

Amanda Palmer, a punk cabaret singer and one of the most productive users of social media to-day, has set a new record for the highest amount of money that a single musician has raised from Kickstarter. On May 31st, she exceeded her tar-get of one hundred thousand dollars ten times. Nearly twenty five thousand fans pledged to-wards her new record, the accompanying tour, and an art book. It took as little as thirty days to raise $1.2 million.

Following the completion of Palmer’s Kickstarter’s campaign, questions arose about how the funds would be put to work. Palmer posted a rendition of sorts online, both to her fans and the public at large --she called it “salty but detailed” . The money, Palmer says, will be used mostly to offset costs of recording and printing (CDs, vinyl records, and a book), to create customized turntables, to fund a six-city tour and an art show, and to pay visual artists on stage. She suggests her net take will be less than one tenth of the funds received, for she has to deduct five percent of the pledges for a Kickstarter’s commission and another five percent for Amazon’s credit card processing. Palmer also points out that the amount collected is treated as taxable income (fans can write-off their donations).

Expert User

Palmer’s strategy relied heavily on the way that she typically interacted with social media and her fan base. From there, she was able to build her “army of fans” for the project by connecting with them “day after day”. Her engaging directness and creative flair worked to her advantage, and in the process, confounded the notion that new generations are unwilling to pay for music.

Palmer started her career as part of the Boston-based cabaret duo, The Dresden Dolls. They were picked up by Roadrunner Records

and enjoyed some success. However, after a bitter fight with the record company, Palmer pleaded to end her contract early and shortly after became a poster child for independent artists.

The fans that Palmer has acquired over the years are not a passive audience; in fact, they consider themselves to be a part of the so-called “Amanda Team ”, a large fam-ily. If Palmer is consistently seen as much more than a performing artist on stage, it is in part because she signs autographs and chats after every show, blogs continuously, tweets to over 500,000 followers, and responds to e-mail. For instance, using Tweeter, Palmer will search for “a good vegan joint for dinner [and] get 200 responses”--and still find time to thank her followers. Famously, she has changed the spelling of a word in the title of her new al-bum because her fans asked her to, which cost her three thousand pre-produced watermarked CDs. Palmer likes to be herself, i.e. “an authentic human being with needs and a life, instead of a picture of a pop star on a bill-board.” In social media, attributes like this can take one far. Familiarity there does not seem to breed contempt, unlike the traditional artist-fan relationship. For instance, when her Kickstarter campaign closed, Palmer invited fans to a complimentary celebration in NYC. Her followers inundated twitter with celebra-tory tweets of the sort “She/We did it!” One writer penned that as Amanda succeeds so do her fans.

Moreover, Palmer’s online strategy fits well with the novel notion of permission marketing, where intimate knowledge of one’s target audience, including activities in com-mon, enables success in sales. For Palmer, this may be nothing more than an extension of her ebullient persona, but Seth Godin, the Ameri-can entrepreneur, author, and public speaker that popularized the concept, would concur that her intense artist-to-fan connection is key to her success.

Kickstarter

Palmer seems to show that “[going outside] the label system to fund one’s work” can work well. However, it took Kickstarter to make this happen for her.

Since launching in April 2009, Kickstarter has assisted in funding 20,000 projects. The popular crowd-funding site has arguably become “one of the most dis-ruptive and innovative platforms to emerge for the creative community.” Many types of creators have used and continue to use it, including musicians, filmmakers, visual artists, novelists, writers, developers, inno-vators, and even small start ups. It is based on a good-better-best marketing strategy: the more you pay as a backer, the better gift or experience you receive in return. Every per-son that pledges a certain amount of money to the project receives a gift such as a digital download, limited edition product, or an ex-perience, like a private party.

In general, Kickstarter offers “pre-orders” of a product or service. Buyers be-come investors placing a bet on a project that they believe has a future. These “backers”, however, are not buying business equity; rather, they pledge money against a return in kind. Ultimately, they pay for a product or experience and support a limited goal that they understand well.

One of the most notable examples of a Kickstarter product is the Pebble watch. Pebble is a wrist controller for a smartphone. It displays information such as speed and distance for bikers and runners, as well as text messages and caller-IDs—and it plays music in mobile devices, communicating with iPhone and Android via Bluetooth 4.0. The Pebble watch reached the all time record for Kickstarter last week: a whopping $10 million that easily compares to a typical first round of venture capital financing. Adventures in Crowdfunding

Like the Pebble watch founders, Palmer was able to raise the amount that she did for music because fans understood her vision, got something in exchange, and be-lieved they were part of a larger ‘tribe’ with a similar outlook (Pebble supporters may have the common identifier of being technology nerds). As Slava Rubin, the founder of Indi-egogo, another crowdfunding platform, has said: “caring about the person or company; wanting the product; or being part of a com-munity ” are the three big reasons underlying fan pledges.

By Megan Dervin-Ackerman




Interview

Eric Sheinkop: Industry Matchmaker

Eric Sheinkop, who is in his twenties, is the Co-Founder and CEO of Music Dealers. Af-ter a brief career in the recorded music busi-ness, following studies at the University of Wisconsin and Full Sail, he began work with Fortune 500 companies, including McDon-alds, PMI, and Kellogg. He launched Music Dealers in 2008 and now licenses music of independent artists around the world to top consumer brands. A year ago his company partnered with Coca-Cola, and Sheinkop be-came a music kingmaker for unsigned musi-cians worldwide (for additional coverage on the topic, see The MBJ, “Music’s Fizzy Log-ic”, cover article, March 2012).

MBJ: Why do you think Music Dealers was a match for Coca-Cola?

ES: It’s always a struggle for brands to find new and independent music and have the se-curity to know that they can use that music across all media, globally and for the length of terms they are looking for. Coca-Cola was interested in our database with musicians around the world. We could supply custom content and help them discover independent artists.

MBJ: How does this compare to a tradi-tional record label?

ES: We are definitely not like a traditional re-cord company. We find the right partnership for a brand. Also, the me-chanics of signing artists and the money flow are quite different. As an up-coming artist, you would hope to sign with a tradi-tional music label for the sole purpose of market-ing and distribution. You hope your single will be-come a household name. But the million-dollar advance that goes with it has to be recouped from your income.

If you work with the right consumer brand, ad spends are going to be between five and five hundred million dollars. So if you get one of your songs featured, you’re

getting five hundred times what a record label would put towards your marketing--and that comes with a ton of exposure. Moreover, it is not a loan. You can invest that money back into your career.

Our most successful artists have started record labels, publishing companies, and funded their tours. The Swedish group You Say France And I Whistle did very well with the initial Coca-Cola ad. They invested in themselves and started touring Europe. We were able to bring them to the US for festivals such as SXSW. They were smart, of course, and catapulted their career. We have also placed another Swedish band, The Majority Says, in a major European ad campaign and the band self-invested in a European tour and a new album to be released shortly. Now, there are many more band manag-ers wishing to take advantage of this new way of doing things.

MBJ: How do you discover songs?

ES: We have an A&R team whose only job is to discover the best independent emerging tal-ent around the world. They will screen blogs and social conversations, getting geographi-cal analytics and metrics on fan discussions. We monitor ‘heat maps’ of new artists as they spread to different territories. That helps us put

them in front of the right brand and show them the partnership is right. For every festival in the world like Coachella and Lollapalooza, we focus on getting the opening acts for the big-ger shows. Meanwhile, we accept three to five thousand submissions a month but turn away ten times as many.

MBJ: Can you tell us more about your in-ternational reach?

ES: We now represent the best emerging indie talent in about eighty countries, in all genres and styles of music. We have about eight of-fices in five countries. Recently, we have been working quite a bit with China. Our current fo-cus is Brazil, where we are opening an office as we speak. Asia will be our next market.

When Coca-Cola was looking for artists to write a song for the 2012 Olympics “Future Flames” campaign, we crowd-sourced the A&R throughout our global community. You Say France And I Whistle won, and although the band was from Sweden it might have been some other group or artist from around the world.

Talent that just didn’t know how to access the music industry and just couldn’t get their mu-sic to the right people is now uploading into our system from all over the world. In addi-tion, we take existing songs and produce local-ized versions for territories on demand.

As I said earlier, our technology platform al-lows us to identify the world’s best trending artists and leverage them with brands. Getting talent paid well for marquis live performances is the natural evolution of our model. We are in charge of eighteen parties organized for Coca-Cola during the London Olympics this sum-mer, for which we will be bringing in artists from all over the world. During our event this year at MIDEM, we had one of our UK artist’s, one from Spain, and YSFAIW from Sweden.

MBJ: What are some of the difficulties of doing business abroad?

ES: It is a challenge to understand the per-forming rights societies in different territories. Every country is different. The regulations that exist in France for mechanicals or sync li-censes, for instance, are specific. But whether it is SACEM in France, GEMA in Germany, JASRAC in Japan, or BUMA STEMRA in


By Zosia Boczanowski

Interview/Business Articles



By Mical Klip

MBJ: What is your perspective as a young professional?

ES: This is the best time ever in the music in-dustry. There are incredible opportunities for artists, brands, and entrepreneurs to get in and change things. Anybody who comes up with a good idea to fill a void in the market, of which there are tons, is going to have success. There are income streams to support talent other than earnings from physical music, which is going nowhere.

Also, there is no apparent road map for success in the music industry. If you look at the people who have done well, they come from all type of backgrounds, from the formally uneducated to those with experiences in the tech sector and business, including MBAs. So one of the most important skill sets for today is, I believe, am-bition and follow-through.

Beyond that, I think artists should start think-ing about themselves as a brand, both in terms of how they would like to be represented by one and how the brand itself might like to part-ner with them. But the new music economy is providing ways of doing business that are valuable even if a game-changing partnership with a brand does not materialize. Each of our offices is licensing about forty tracks a day in television shows around the world. It may not be big money upfront, but over years and years of playing the checks for our clients add-up.

Holland, we have to tread with care about mu-sic rights. For example, knowing when we can do a direct license with an artist, as well as the details pertaining to all her royalty collections, is always a consideration when we move into a new territory.

MBJ: This must be expensive to manage, and we understand Coca-Cola’s financial commitment to you has been strong.

ES: Coca-Cola will have spent about two hun-dred million dollars using music in different campaigns around the world in 2012. Our part-nership with them draws on this, but it is not our company’s policy to disclose the terms of the agreement. Of course, we have become Coca-Cola’s main source for music around the world.

MBJ: What are the types of deals that Music Dealers signs with artists?

ES: There are two ways of working with us.

The first is uploading your existing music. What we really like is to get an album a couple of months or six weeks before it hits the iTunes stores or retail, so that we can find the right brand to partner with and prepare the marketing.

Second, we request custom creations. A lot of talented musicians don’t have aspirations to be performers or put out albums, but they are com-posers and take orders from us. We do a lot of film, television shows, and video games. They all need the right music fit.

By the way, the deals are standard and involve a 50/50 split. We receive fifty percent of the pub-lishing share of royalties but we don’t touch the writer’s share. So its really 25% of residual roy-alties. The final fee really depends on the use of the music, whether the commercial plays on global, national, regional, or local TV, or other. The length of play is an important consideration. MBJ: Does Music Dealers take on the func-tions of a traditional publisher?

ES: It’s a different model because we are not locking the artist into an exclusive deal--wheth-er they do something for you or not. So, no mat-ter what, we do not own the publishing.

We come from an artist background and are very artist focused. We’d never want to limit talent in any way. If we place a song in a television show and the artist places the same song in another television show, we’re only going to share rev-enue on our joint work. If they want to pull out at any time and go sign with a major, they can do that. We want to be a tool artists can use to help further their careers.

(From Page 8)

The Coca-Cola Company has been associated with the Olympic Games for over eighty years and the partnership is build-ing momentum. The company unveiled this year’s Olympic theme song: an atmospheric pop anthem called “Anywhere in the World,” produced by Mark Ronson and sung by Katy B - both UK artists. Coca-Cola has released a video series chronicling Ronson’s interna-tional voyage as he built the track using sam-pled sounds from Olympic sports and athletes. This video is only one of hundreds of “pieces of content” to be released by Coca-Cola as part of their Move To The Beat campaign for the Games—a massive step up from their in-volvement in the 2008 Beijing Olympics, which consisted of just ten pieces of content, of which the most extensive were two sixty-second campaign videos.

and the OlympicsA Note on Coke

Coca-Cola’s participation in the Olympics is emblematic of the company’s new marketing strategy towards young people. The strategy is focused on social media and narrative advertising that functions indepen-dently of the brand while strengthening its im-age. Because music can be placed in differ-ent media and is easily transmitted via social networks, it has become an advertising Trojan horse.

The inherent risk, acknowledged by Coke’s Global Advertising Manager Jonathan Mildenhall, is that there is less control over the campaign’s final results. As he says, “[the company has to be]…comfortable with the random nature of creative communication.”

Indeed, the current juncture seems more volatile and unpredictable. Top con-sumer brands are relying less on focus groups than before and this helps the music industry. Coke’s new partnerships with Spotify and Music Dealers are a case in point (see MBJ, May 2012). Coca-Cola benefits from exposure to Spotify’s ten million Facebook-linked ac-counts, and saves outsourcing costs with Mu-sic Dealers.

Moreover, Coca-Cola can help drive customers to each company with a mobile ad campaign worldwide. That campaign, accord-ing to one of its executives, is “the heart and foundation for London 2012, amplifying [our connection] with music”.

Fifteen years ago, this trio would have been an unlikely alliance. A top music distributor would have been proudly self-suf-ficient and marked its independence from any other commercial enterprise. Neither would an indie label and publisher come close to get-ting a sizeable investment for outsourcing vast quantities of music to the world’s best-known brand. But, as is suggested above, times are changing for Coke too—which helps the music citadel move along.



Business Articles

Soda Brands Tap Music WellBy Emilie Bogrand

Music has become the cen-terpiece for global marketing cam-paigns involving Coca-Cola and Pep-si, two of the most valuable brands in the world today . Both companies work to protect their image and seek to recruit new and younger custom-ers. Music is their go-between.

Indeed, on April 18th, a few months after Spotify signed its deal with Facebook (MBJ, Oct. 2011), the streaming service an-nounced an international partnership with Coca-Cola. A month later, Pepsi announced its “Live for Now Music” campaign and a yearlong deal with Twitter.

Spotify and Twitter wish to grow their user base and benefit from the connection with music. But there is an added sense of urgency in the soft drinks market.

Many consumers seem concerned about soda-related health risks. For instance, in the latest anti-obesity campaign ef-fort targeting sugary drinks, New York City’s Mayor, Michael Bloomberg, proposed a ban on sales of large-size sweetened beverages in many of NYC’s venues, including theaters, bodegas and restaurants. Coca-Cola and Pepsi are pushing new advertising alliances at a time when young music fans at Madison Square Garden might be unable to purchase a large Pepsi at a Pepsi-sponsored concert.

Pepsi - Twitter

Brands, online services, and music professionals are reacting to shifting consumer habits, and finding ways to work together. The Pepsi-Twitter partnership makes use of several mutual promotion strategies including a con-cert series, weekly music-news videos, and free music downloads.

The Pepsi pop-up concert series will stream between three and twelve shows live on Twitter spontaneously throughout the summer and fall. Shows will be announced no earlier than two weeks in advance and subsequently be available “on demand.” Twitter’s @Pepsi followers will be invited to post song requests and influence artists’ set lists for each concert. Pepsi has not yet revealed which artists it plans

to collaborate with, citing value in the element of surprise.

Pepsi and Twitter will also post a short music-news video every Wednesday, an-alyzing and re-capping that week’s top trend-ing music-related tweets by American users. The video commentary is scheduled to last fifty-two weeks and has already covered Katy Perry’s Fleet Week concert as well as perfor-mances by Jay-Z, Kanye West, and a special appearance by Johnny Depp. @Pepsi will also tweet weekly about new music that aligns with the company’s “Live For Now” campaign.

Furthermore, Pepsi and Twitter have also teamed up with the Amazon.com MP3 Store to offer free music downloads to Twitter users who use hashtags related to #PepsiMu-sicNOW in their tweets. Pepsi also struck a partnership with Viacom in order to implement a program using the Twitter handles of Com-edy Central, MTV, VH1 and CMT.

Twitter users who post images with “Live For Now Music” related hashtags enter to win a variety of music-related prizes. For example, users who tweet images with the hashtag, #playnow could be featured on VH1’s morning show, “Top 20 Countdown”. Users who tweet images with the hashtag, #mtvnow enter for a chance to become a “Pepsi Now”

correspondent at the MTV Video Music Awards in September. Win-ners of the Comedy Central hashtag challenge (#comedynow) will be featured on the Colbert Report and attend the filming of the Colbert Summer Music series in August.

This is not the first time that Twitter has looked towards music to widen their user base. The “Live for Now Music” cam-paign is the second partnership to be secured by Joel Lunenfeld, who runs the company’s brand-strategy group and joined the Twitter glob-al marketing team in July, 2011. Lunenfeld was previously CEO of Moxi Interactive, an Atlanta-based digital agency whose clients in-clude Coca-Cola, L’Oreal and Veri-zon. His first campaign for Twitter was with American Express during the SXSW festival in March 2012. AmEx created a buzz by sponsor-ing a Jay-Z concert and streamed

a free Jay-Z “Amex Sync Show” online for cardholders as an effort to entice members to connect their accounts to Twitter.

Coke-Spotify

Music will be at the center of Coca-Cola’s marketing campaign, “Year Of Music” – an effort to reach out to teenagers, beginning in 2013. Joe Belliotti, Coca-Cola’s director of global entertainment marketing, told reporters that reaching younger audiences is important because the teenage demographic is “project-ed to represent one-third of the global popula-tion by 2020. The U.S., China, India, Indone-sia, Nigeria and Pakistan are expected to have half of the teen-age population by then.” The beverage company has identified music as a vehicle powerful enough to reach potential fu-ture customers and has partnered directly with Spotify.

Spotify can help Coca-Cola connect to a younger generation but can also help in other ways. Coca-Cola is leveraging Spotify’s API (Application Programing Interface) to create various, new applications. In April, the companies co-hosted a “hack den” event in New York City where independent developers competed to create apps. The winning team, named “London Calling,” is reported to be


Business Articles



Europe and the US

Many have argued that expediency has trumped politics, for US legislators could not be expected to move fast and find a general market solution for the treatment of perfor-mance sound recording royalties. Europe has made progress on a country-by country basis, because each nation is a smaller market onto itself and speaks its own language. This brings affected parties to the negotiating table more easily, in part, because the broadcasting indus-try there does not have the weight that mass media can attain in the Anglo-speaking US. As a result, there are powerful stakeholders in the US that make this legislation difficult. Plus, the role of the state in Europe is generally more defensive of authors’ societies, and tends to in-tervene on their behalf and accelerate reform more than can be expected of the US govern-ment.

Conclusion

Musicians can be happy that Amer-ica’s largest radio company seems to be tak-ing the lead in finding a practical solution to its growth and recognizing a new right for music in terrestrial radio. It is possible that other labels will want to cut similar deals. If so, this will be the first step to a more sustain-able industry wide solution that recognizes a fairer compensation for the use of artistic copyrighted materials created by performers and producers.

Resources:

Christman, Ed, “Exclusive: Clear Channel, Big Machine Strike Deal to Pay Sound-Recording Performance Royalties To Label, Artists”; Billboard, May 5 2012Sisario, Ben, “Radio Royalty Deal Offers Hope for Industry-wide Pact”, New York Times, June 10 2012“Clear Channel and Big Machine Make Royalty Deal”, Roll-ing Stone, June 11 2012“Come Stream With Me”, The Economist, June 16 2012“Performance royalties for terrestrial radio broadcasters back on the US music-industry agenda”, Music & Copyright, June 13 2012

(From Page 6)

working on a customized version of the “Spo-tify Play Button” for Coca-Cola’s Facebook page, which has over forty million fans. The Spotify Play Button launched on April 11th and is a music player that can easily be em-bedded into blogs and websites. It is notewor-thy because the player draws from the Spotify catalogue legally and compensates copyright holders for each play, regardless of where it is located.

London Calling is also said to be building apps for to the upcoming Olympics. Coca-Cola recently hired Mark Ronson, a British music producer and DJ who is famous for his work with singer Amy Winehouse, to compose this year’s official Olympic anthem, “Anywhere In The World.” The dance track, featuring singer Katy B., is constructed using audio samples gathered from various Olympic athletes’ training sessions. The sound of an archer’s arrow hitting a target acts as a bass drum. A gymnast landing on a springboard sounds like a snare drum. Coca-Cola launched an interactive website and app called, Move To The Beat, which allows users to follow Ron-son’s musical journey and also remix the song by mixing and matching two categories: a mu-sic genre, such as hip-hop and a sport, such as table tennis. From a mobile device, the user can use physical movements and gestures to further refine the musical mix.

Coca-Cola is not the only entity that stands to gain from the partnership. The deal is equally as valuable to Spotify for a several reasons. Securing sizeable ad-generated rev-enue from Coca-Cola could push Spotify one step closer to finding a fiscally stable busi-ness model as the company negotiates expen-sive music licenses within different countries’ disparate music systems. Spotify, along with many online businesses such as Pandora or even Facebook have fallen short in convinc-ing the public that they can generate stable and self-sustaining income.

Large-scale brand partnerships, like this one, present one type of solution. In ad-dition to needing money, Spotify needs help expanding internationally. Its footprint is currently limited to only the U.S. and parts of Europe. So in return for providing Coca-Cola with access to young music fans, Spotify will use Coca-Cola’s global presence to expand worldwide in 2013. Promotional strategies

might include TV and billboard placements, the printing of Spotify access codes on Coca-Cola bottles and cans, or advertising in Mc-Donald’s restaurants. Spotify will also benefit from the non-exclusive terms of the agreement and has already accepted advertising from competing corporations.

Overview

The partnerships between Pepsi, Twitter, Coca-Cola and Spotify place these companies in powerful curating positions amidst the music industry with the authority to choose which artists make headlines. Online businesses like Spotify and Twitter are acting as the new filters for upcoming musicians. Brands are looking to them to find out what, or who, the public likes; the brands then have the power to make artists into stars. In this re-spect, such services replace traditional record labels as the middlemen between musicians and brands.

These partnerships also confirm the tremendous value of music as content around which moneymaking business models are con-structed. Twitter’s vice president for global brand strategy, Joel Lunenfeld, said that forty-nine percent of Twitter’s users follow at least one musician on the website. “We’re looking for those big content areas that people are talk-ing about and retweeting,” explained Lunen-feld.

Brands are recognizing and embrac-ing the new ways in which listeners access mu-sic and are finding ways to capitalize. In turn, musicians want exposure for their music. As Daniel Ek, the CEO of Spotify, famously said: “We want music to be like water, everywhere; but when you think about it, we want music to be like Coke, which really is everywhere.” The music industry can indeed learn a market-ing lesson or two from Coke and jump on its bandwagon—and not least because that com-pany has protected the returned value of its product so much more effectively.

Giant Step (cont.)(From Page 10)


Business Articles


Holding Out for Vinyl

The U.S. Copyright Act requires that in order for a work to be entitled to copy-right protection, it must be “fixed in a tangible medium of expression.” With the rise of the digital age, one might argue that the majority of musical works that are consumed today are not quite “tangible” in the general sense of the word because they are embodied in computer files or streamed via websites. Today’s most popular form of music cannot be held, flipped through, opened, or closed. A digital down-load cannot be visually admired or showcased in a collection on a bookcase. Recent statistics reflect that a group of unique consumers are gravitating towards purchasing music, in what some might call, an antiquated and primitive medium – vinyl records.

Global Internet piracy has changed the recorded music industry. As overall sales continue to decline, most record companies have slowly begun to revise their sales and marketing strategies in an effort to adapt to the rise of freely distributed digital music. De-spite a major plunge in global CD sales, global digital sales increased in 2011 by eight per-cent. This has led to speculation that conven-tional modes of retail are no longer profitable in the music industry. However, recent market statistics have revealed that vinyl record sales have surprisingly surged over the past five years in both the US and the UK. Moreover, this sales boom could only be the tip of the ice-berg, as major distributors such as Best Buy and Wal-Mart have only recently begun to car-ry vinyl. In addition, vinyl’s recent top sell-ers have ranged across a variety of artists from different genres and time periods, including Radiohead, The Beatles, Arcade Fire, Vampire Weekend, Beady Eye, Pink Floyd, Metallica, The National, and Pavement. This suggests that a younger demographic of high school and college students who grew up in the digital age are choosing to buy vinyl records.

By Bernard Mantel

While it is true that vinyl sales rep-resent a small fraction of the overall global marketplace, these puzzling numbers raise an important implication about today’s ever-changing music industry. What is it about vinyl records that appeals to consumers who are now accustomed to spending less time, energy, and money by downloading music? There may still be profit to gain by selling music as a fixed and tangible medium.

A recent study at BYU University re-veals a growing movement among the student body that has gravitated towards vinyl records. In a series of interviews, students revealed that there are some qualities about vinyl records that simply cannot be enjoyed when download-ing music. One student said that listening to a vinyl LP provides a richer listening experience than listening to mp3s: “With the digital me-dium, it’s not so much an experience thing as it is a convenience thing.” Another local musi-cian added that vinyl, “forces someone to sit down and listen rather than have a soundtrack going on while they’re doing other stuff… it creates more value.” Finally, a record store owner simply stated, “everyone knows that vi-nyl sounds better.” While these individuals do not represent all music consumers, many be-lieve that the only redeeming characteristic of the digital market is the convenience and ease with which music can be obtained.

Further, these individuals are still willing to pay for music if doing so will pro-vide them with a superior listening experience. This suggests that if record companies could provide a superior listening experience to that of an mp3 from Amazon, iTunes, or The Pirate Bay, a base of consumers who truly value the experience of listening to music would likely pay for it. The interviews above reflect that selling a product that delivers a higher sound quality and level of interactivity could sway at least some consumers into legally obtaining and paying for their music.

Similarly, an LP’s album artwork might be more enjoyable in a tangible form than in a digital one. Last year, the vinyl edi-tion of Radiohead’s “The King of Limbs” was advertised as the world’s first newspaper al-bum. The package featured two clear plastic 45 records, a series of artistic inserts, a copy of the CD, and a full-length newspaper filled with lyrics, additional artwork, and various writing pieces. Needless to say, the artwork gave consumers an artistic experience that had never before been coupled with the purchase of a record. These additions were only avail-

able to those who purchased a vinyl copy of the album, evoking a sense of exclusivity for those who bought it. Those who paid the extra money for a vinyl copy of the album in the end received a substantial addition that others did not get to experience. Not surprisingly, “The King of Limbs” was the top grossing vinyl re-cord of 2011. This demonstrates how artwork can be used as a powerful marketing tool in luring consumers to pay for music. It also sug-gests that superior and exclusive benefits can be used as a powerful marketing tool to sell hard copies of albums.

One of vinyl’s major shortcomings in the modern era is its lack of portability. Consumers have grown used to having all of their music on the go with portable mp3 play-ers, phones, tablets, and the like. In an effort to work around this inherent deficiency, Uni-versal Records has launched a new initiative called “Back to Black,” which aims to provide consumers with the best of both vinyl and digital music. Universal now inserts a slip of paper with a unique code in every vinyl re-cord that it presses. Consumers who buy the record redeem their code online and receive a free digital copy of the album, allowing them to enjoy the experience of having the album on vinyl without sacrificing the portability of modern music. In addition, Universal has cre-ated a unique brand to promote this effort, ad-vertising the Back to Black campaign with the slogan, “Vinyl is Back.” The success of the campaign, as reflected in the recent surge of vinyl sales, demonstrates that providing con-sumers with this kind of validation and flex-ibility is a successful adaptation to the digital evolution of recorded music without complete-ly abandoning the conventional model of sell-ing it. As a result, combining the convenience of the mp3 with a hard copy of an album could be another step in the right direction in reviv-ing the conventional music market.

While these tweaked marketing methods might not be the quick fix to the mu-sic industry’s declining sales, vinyl’s re-emer-gence suggests that there are ways for record companies to reclaim a portion of their lost market. It appears that many music fans want tangible objects of art, an impression of exclu-sivity and better sound. Even if vinyl’s resur-rection is gradual, it produced positive sales over the past five years. The recent successes of creative marketing strategies that provide consumers with enriched and interactive ex-periences demonstrates that the traditional method of selling music is not quite dead – it just needs a facelift.



Business Articles

Branding: A Summer’s Tale

Linking brands with music through advertisements or sponsorship of artists is hardly new. With Experiential Branding, however, a brand is supposed to become both a player and a participant in a social event, not an agent for a sale. This branding, which has been around for two decades, is now widely practiced in live music shows and other large public performance events, including sports. The concept has been associated in the past with merchandise giveaways and paid spon-sorships and today it ties into social media.

Of course, targeting well-attended public events can cements a brand’s name into a particular lifestyle. In particular, sum-mer music festivals offer an opportunity. This is because consumers are otherwise harder to reach since they tend to be less exposed to city or web advertising.

Branding and Music Consumption

It should be realized that, by and large, consumers remain loyal to a brand if its image is consistent and understood. This applies to festival audiences too. In fact, the product being sold is not crucial as long as at-tendees can connect with it at a social level. A car commercial, for example, can play music with a compelling storyline that uses words like “dream”, “happiness, and “fly”. Emotion-al freedom does not come from owning a car, but a consumer relates to being free by buying that car—here is where the brand adds extra value to the experience of using the vehicle.

That is why it is convenient for a brand to associate itself with an image prop like music and, especially, why festivals are so interesting to brands. For instance, being out-doors, wearing summer clothes, seeing bands on stage, and dancing and meeting people is what many would consider “cool” (in part, this is also because festivals offer the perfect opportunity for music fans to enjoy live shows outdoor, escape from the city, and enjoy a carefree environment).

Moreover, the bigger festivals, like Lollapalooza, Bonnaroo, Coke Live, CMJ, Virgin’s V Music festival, Coachella, and SXSW, mix established acts with upcoming bands. Putting different groups together helps increase other bands’ fan bases because one ticket allows the buyer to watch an act that

By Mariana Migliore

typically plays to large audiences with other opening acts and bands that do not. These smaller audiences can become the new adopt-ers of the brand. As the population of some of these festivals can reach into the tens of thou-sands, the odds are good of finding potential customers.

Branding, Artists, and Society

If festivals are supposed to be about the music, and brands are joining the party for reasons other than music, it is curious that

we do not perceive the brands as outsiders. After all, much of Rock-‘N-Roll, to take an example, is about rebelling against society. So it is disconcerting that fans generally transi-tion gladly into the brand’s world and its alter-native modus operandi, ethics, and, perhaps, politics.

Artists, of course, are the mediators between music fans and the brands. The exposure from the festival is often a suf-ficient reason for performing there because recorded music sales are becoming less valu-able in musicians’ revenues. In this case, a reluctance to be associated with a particular sponsorship may not prevent a band’s perfor-mance. Besides, there is always the proverbial

retort, coming either from the band’s manager or the band’s entourage, “if you don’t do it, someone else will”.

In the end, it is the diminishing role of the record labels in the fortunes of recorded music, and the shift to a single song economy, that is to blame for an increased dependence of bands on alternative patrons, such as the top consumer brands. They do not really function to promote music, something which the early Rock-‘N-Roll stars seemed to know intuitive-ly. Moreover, times have changed much since 1950-2000, when recorded music was the cash cow of the business: Artists reflect culture too, and society seems to feel more comfortable identifying a lifestyle with a consumption pat-tern.

Conclusion

As long as music is perceived as an intrinsically attractive value and a force of positive self-expression, the marriage between artists, fans, and their brands might be long-lived. However, the problem is that consumer branding is not as well suited to support re-flective and iconoclastic music. It risks dilut-ing the contributions of a significant part of the music making population whose creativity we have deemed invaluable precisely because they were outside the commercial mainstream.

In the meantime, music fans, as al-ways, drive the business and seem unmoved, suggesting that artists are not out of touch with them. The brands may not be getting in the way, but they would do well to not get too ahead of the music with their marketing cam-paigns.



Law Section

New Five-Year Standards for Mechanical Licenses

Legislators have tried to adapt copy-right law to new inventions since the time of piano rolls. This is because creators beg remu-neration in new media. In the Copyright Act of 1909, the exclusive right of the copyright owner to make mechanical reproductions of music was secured through the provision of a mechanical license, a term that is now used as well for electro-acoustical and digital repro-ductions.

In 1995, bowing to the pressures of the Internet era, Congress passed the Digital Performance Right in Sound Recordings Act. It broadened mechanical licenses to include digital phonorecord deliveries online. Accord-ing to section 115 of the US Copyright Act, publishers and songwriters are obliged to is-sue mechanical licenses to companies that fol-low proper procedure and pay the rates set by law for songs that were previously recorded and released. These royalty rates, commonly known as statutory rates--as well as the terms, and the different categories in which music can be distributed--are defined by the Judges of the Copyright Royalty Board (CRB) every five years. In 2008, the CRB defined new regula-tions effective through 2012.

In April 2012, main music industry stakeholders led by (i) the Recording Industry Association of America (RIAA) representing the record labels, (ii) the National Music Pub-lishers Association (NMPA) for the publishers and songwriters, and (iii) the Digital Media Association (DiMA) for the digital service providers—all reached agreement on rates and terms for the next quinquennium and defined new standards to support five prior unlisted categories of digital distribution. The effort was meant to jump-start potentially novel mu-sic business models.

By Luiz Augusto Buff and Nicholas Spanos

This agreement maintains the eight categories set in the past, extending the same rates through 2017. This means that for physi-cal copies and permanent digital downloads the rates are still 9.1 cents per track or 1.75 cents per minute of playing time per unit dis-tributed; for ringtones, the rate also stays put at 24 cents a track. The complicated formulas and structures for the preexisting subscription and ad-based interactive streaming services like Spotify also remain in place. The parties in the agreement confirmed as well that non-interactive, audio-only, streaming services do not require reproduction or distribution (me-chanical) licenses from copyright owners.

The five new categories are for busi-nesses operating with Mixed Service Bundles, Music Bundles, Limited Offerings, Paid Lock-er Services, and Purchased-Content Lockers. The legislation will bring more clarity to these providers, enabling them to better plan for their intellectual property costs. Moreover, new in-vestors should come forward, for the risk of unforeseen legal developments hurt them too. All the categories above have their rates based on either a percentage of the service revenue or a percentage of the payments made to record companies for sound-recording rights, which-ever is greater. There is at last some basis to exploit the new consumption of music.

On closer look, the agreement de-fines Mixed Service Bundles as the combi-nation of locker services, limited interactive services, downloads and ring tones with other non-musical products such as a mobile phone, a consumer-electronics device, or Internet ac-cess. Music Bundles are defined as a packet of music products such as CDs, ring tones and permanent digital downloads. The third cat-egory, Limited Offerings, are usually subscrip-tion-based and offer access to certain genres of music or specialized playlists at reduced prices, and for that reason have a slightly low-er rate than the other categories. Paid Locker Services, encompasses subscription-based cloud music storage for streaming and down-load, such as those offered by Apple, Amazon, Google and a growing list of technology com-panies. Lastly, Purchased-Content Lockers, are defined as those services that offers free cloud storage for digital music previously bought by the user as a permanent digital download, ring-tone, or CD.

The agreement was sent to the CRB. It then published the proposed regulations to garner public comments and objections until June 18, 2012. Since the CRB encourages parties to agree on terms and rates, the agree-ment will likely turn into federal law, with minor changes after a review of the US Copy-right Office.

Recognition should be given as well to the recording and publishing companies that are clearly taking digital-music providers more seriously—and coming to terms with them. After the dimming of physical music sales, this may not surprise (although sales have been falling for quite some time). This new business represents only a small fraction of the music industry’s income, but its poten-tial is what likely brought all the parties to-gether.

It is important to mention that al-though this new agreement has extensively covered the mechanical licenses issued by publishers and songwriters for the reproduc-tion and distribution of their copyrighted ma-terial, this is only one of the elements of the royalty obligations of digital music services. They still need to factor in their calculations the royalties paid to record companies for the use of their masters, as well as the public per-formance rights that are covered by blanket licenses from ASCAP, BMI and SESAC.

Resources:

Federal Register / Vol. 77, No. 96 / Thursday, May 17, 2012 / Proposed Rules – LIBRARY OF CONGRESS - Copyright Royalty Board 37 CFR Part 385 [Docket No. 2011–3 CRB Phonorecords II] -Adjustment of Determination of Compul-sory License Rates for Mechanical and Digital Phonorecords

“Meeting Of Minds: New U.S. Publishing Rates Deals”, Susan Butler’s Music Confidential, April 13, 2012.

Us Music-Industry Groups Agree On Mechanical Royalty Rates And Standards For New Digital-Music Services. Mu-sic & Copyright, Issue 456. April 18, 2012.


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Amanda Palmer (cont.)(From Page 7)

While Kickstarter can be a helpful tool for some, it is not necessarily for every-one. “First-time users”, Godin writes, “believe that [crowdfunding] will magically help them find new followers, new customers and new friends…Alas, with the rare and celebrated individual exceptions, none of these platforms magically and regularly turn the unknown au-thor into a sensation.” Kickstarter can have ad-vantages for artists and innovators who already have an audience. If backers are familiar with the creator and already like them, they will be more inclined to support their projects. On the other hand, a band or company that is just starting out does not have that base, and, with the possible exception of the Pebble watch, is unlikely to succeed.

Still, Hal Varian, Google’s chief economist said that, “crowd-funding is well suited to industries that create intellectual property.” Small tech startups have histori-cally gathered funding from sources like ven-ture capitalists. But venture capital may not

be the fundraising method of choice for other startups, and even for tech startups there now may be an alternative (although this still seems somewhat far away).

Duncan Niederauer, the boss of NYSE Euronext, claims that properly done, crowdfunding “will become the future of how most small businesses are going to be financed.” Fred Wilson, the prominent New York financier and venture capitalist, said, “if Americans used just 1% of their investable as-sets to crowdfund business they would release a $300 billion surge of capital.” Some Lessons

So be it. But an artist, brand, or com-pany cannot make a product without the sup-port of someone who believes in it or a com-munity that is well informed about the maker’s history. In this regard, the work that Palmer has done to obtain and sustain the community that surrounds her is proof that artists and musi-cians should be interacting and communicat-

ing with their fan base. Palmer has marketed her brand and her persona successfully by building credible and lasting relationships with her consumers. She has proven that fans make success possible.

There is, of course, a question about the time that one can earnestly spend with one’s customers or fans without impairing productivity. Amanda Palmer wisely engaged the services of new media, marketing, and management company Girlie Action to run her Kickstarter campaign. To build a semblance of a genuine human-to-human connection be-tween a producer and a consumer more effort is needed than ever before, and not just in the music industry but also in other trades. A team approach still seems de rigueur.

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