What The Tech Industry Needs To Learn About The Music Biz: Sympathy For The Devil (Part 3)

 This is the third part in a trilogy of articles exploring the misconceptions between the music and tech industries. It first appeared in Music Business Worldwide.

Part 1 questioned the manner in which rights owners contract with tech start-ups, Part 2 noted both YouTube and the music industry frequently appear to speak at crossed purposes. What about the tech industry? Should it not question its own misconceptions about the music business?


Challenging one another en famille is a good thing, but sometimes one also has to stand up for one’s own.

If the music industry is a family, to paraphrase author Chimamanda Ngozi Adichie, perhaps that makes the tech industry the “very rich uncle who doesn’t really know who (we) are”?

The tech industry is not some homogeneous mass of people: software engineers think differently to UX people, who in turn think differently to VCs who are not the same as corporate MBA-type people.

Yet there are some commonalities in how this broad constituency views the music industry – and not all of them are fair…


napster1) THE IDEA THAT THE MUSIC INDUSTRY DOESN’T “GET” TECHNOLOGY

This was true in the 90’s and early 2000s. One former colleague said to me “I don’t give a fuck about the Internet” six months after Napster launched.

There were plenty of executives who did not even know how to switch on their PC.

The next generation of music executives, however, comprises digital natives. On the label side, digital marketing and insight people play just as important a role as the traditional product manger. Aspiring managers are as likely to be working in social media or for a start-up as working for a label or promoter.

One of the most interesting facets to DJ Semtex’s 30 Under 30 list was the new school nature of people’s job roles, highlighting a significant shift away from the traditional music industry.


World Map - Spotify2) THE GLOBAL REPERTOIRE DATABASE 

The GRD did not happen, but not for want of trying. Having observed the GRD play out as a PRS major writer representative, I know how much effort went in to trying to make it work.

The PRS, however, should be applauded for bouncing back and striking a deal with STIM and GEMA to create ICE, a joint venture to streamline global digital licensing which is already making great progress.

Perhaps an even greater achievement is the joint venture between PRS and PPL. Not only does this demonstrate a more consumer friendly approach to public performance licensing, it potentially paves the way for a much closer working relationship on a data level. This is also a huge step forward.

There has also been plenty of focus from industry insiders about the potential for Blockchain and almost all the key players are engaging on some level.

There is still a long way to go and all sides need to come together, but the dialogue right now seems more productive than it has ever been.


Kobalt3) THE INDEPENDENTS INNOVATE… AND IT IS NOT JUST ABOUT KOBALT 

Kobalt, rightly, receives many plaudits for being a forward thinking and groundbreaking company. They have raised the game for everyone through applying technology solutions to traditional music industry functions.

Indie labels have always innovated, not just creatively, but also on a business level. Moreover, they have been doing so far longer than many of those in the Silicon Valley start-up ecosystem. Before there were “label services” deals, many indie labels paid artists a 50:50 percentage of net receipts and still do.

The tech sector has often been slow to recognize the importance of the indie sector, very often preferring to strike deals with the majors first. This is a mistake as more often than not independents have proven themselves to be more agile at adapting to new business models, which is reflected by the fact indies significantly over index on digital income streams.

Through the formation of Merlin, it has never been easier for the tech sector to engage with independent labels. Yet even Merlin has to fight continually for fair value on behalf of its independent label constituency.


universal_music4) THE MAJORS … IT’S A PEOPLE BUSINESS

It is easy to knock major labels, yet the commonly held reasons for disliking the majors could be applied to any corporation in any industry sector.

There are far worse examples found elsewhere. Remember United States v. Mircosoft Corp. first prompted by the latter’s behaviour towards Netscape?

One tech executive I met with recently seemed bewildered that any artist would want to sign to a major label. He didn’t get it. The answer is quite simple: artists don’t sign to corporations they sign to people.

If Darcus Beese and his team at Island Records (UK) wants to sign you and their vision meets yours, then, as an artist, you would be crazy not to. Amazing people can do tremendous things to further your career.

That is what record labels do and they come in all shapes and sizes. The trick is to find the label that best fits what you want to achieve. There are more options – majors, indies, label services, DIY – and that is a great thing.


Troy Carter5) MANAGERS AND LAWYERS

Those who represent artists, be they managers or lawyers, increasingly have a foot in both the technology and music worlds.

This goes way beyond headline names such as Troy Carter, Scooter Braun and Guy Oseary or innovative lawyers such as Fred Davis (who is now fully focused on tech).

Pretty much every major music law firm in both Los Angeles and London has a presence in both music and tech, with partners specifically dedicated to serving tech clients. This means, from an artist perspective, your advisors understand the value chain from all sides of the table.

Similarly managers, entrepreneurial by nature, are increasingly as likely to be connected with tech investors and entrepreneurs as they are with label and publishing executives.

A good manager finds common ground, brings people together and makes things happen. That can mean coordinating a tour with an album release or, these days, aligning the differing parties where both the merch company and the record label want to bundle product with the ticket pre-sale that has been agreed by the manager with the promoter.

On a broader level, managers are increasingly influential in the various music/ tech debates. They speak to everyone, they do business with everyone and they don’t take sides with anyone other than with their artist clients.


Beyonce Tidal7) NEVER UNDERESTIMATE THE ARTIST

There are so many misconceptions about artists it is difficult to know where to begin. Life in the public eye is never easy let alone for someone who bares their soul through music.

Accordingly, the stereotype of a fragile soul disinterested in business affairs persists. Very often tech people go along with that and take a somewhat patronizing tone when addressing the artist community.

The reality is an artist in the music business has to master not only their own art, but also the art of asking questions of their own team so they can make informed decisions about their own career. Advisors are there to advise but it is the artist’s career and their final decision.

The other misconception tech people have is all artists write and produce all their own music and then go on tour and sell their own merchandise etc. Alternatively they ridicule Beyonce’s track Girls on social media owing to its multiple writers and producers … how dare she not do it all herself?!

The reality is that songwriters, producers, mixers and session performers all add value to the creative process and must be paid too.

And, no, a songwriter does not make money from merchandise or endorsements, just the song.

Some backroom creators have been amongst the most tech-savvy people in the music business. It is no surprise former producers Kevin Bacon, Jonathan Quarmby (both AWAL) and Benji Rogers (Pledge) have found success as tech entrepreneurs.

It is in everyone’s interests that the tech industry engages directly with artists.

Mark Williamson, who leads Global Artist Services at Spotify, will tell you his toughest audience isn’t label executives or mangers, it is artists.

For all the brickbats that have been thrown at Spotify they are by far the most proactive tech company to engage with the artist community. YouTube and Apple are catching up and that should be encouraged not feared.


SO WHERE DOES THAT LEAVE US?

There has been a meaningful market for digital market for roughly sixteen years, during which time – conveniently for the purposes of rounding off this series of articles – there have been two American presidents.

George W Bush saw the world in binary terms proclaiming, “You’re either with us or against us”. Barack Obama acknowledged the nuances of the modern world but concluded, “Yes We Can”.

Who was the more effective leader?

Searching for common ground is a smart thing to do. Understand the upside for both sides.

All of us in the value chain, irrespective of where we sit, need to ask ourselves a question: do we aspire to be a Bush or an Obama?

Sympathy For The Devil: why do so few music tech start-ups succeed?

This article first appeared in Music Business Worldwide, which you can read here.

 

The digital music market continues to grow, but life remains tough for music tech start-ups. Rdio bit the dust before Christmas and Cür Music, had a fight on its hands to meet payment deadlines to labels, which it has now done. Even some of the bigger players are not without their problems as MBW has alluded to.

Many within the music industry have little sympathy for the tech sector, yet the fact remains hardly any fully licensed music start-ups have achieved either profitability or a successful exit after almost twenty years of trying. It is worth asking, why?

The table below compares the biggest music tech start-ups of recent times against three of the biggest tech start-ups overall during the same period. It compares their launch dates, early fundraising and current valuation.

Screen Shot 2016-05-11 at 07.26.19

The Series A is the key line to focus on.

This is the funding round that enables a start-up to launch its product or to scale to a meaningful level once in the market through hiring a team, product development, marketing, etc.

RdioDeezer and Spotify required a Series A funding round that was more or less double the Series A for three of the most successful start-ups of recent times.

Spotify is by far the most successful music tech start-up in terms of scale and impact. It was founded in 2006, launched in late 2009 with a Series A of $21.6m. On this funding round Spotify concluded deals with all three majors and Merlin. Reports suggest the company burned through $8m prior to the Series A, so Spotify was $30m in the hole pre-launch.

Compare this with Uber, AirBnB and WhatsApp and some interesting points emerge:

  • All three raised much smaller Series A rounds, less than half what Spotify did.
  • AirBnB and WhatsApp launched two years before raising their Series A, valuable product development time in the market prior to scaling properly.
  • These companies are superstars, yet their initial steps were broadly in line with most start-ups. The typical Series A round falls within the $2-10m range,
  • AirBnB launched in 2008 with an initial Seed round of $620k, waiting over two years to secure a Series A of $7.2m.
  • Uber and AirBnB have valuations far in excess of Spotify’s while WhatsAppachieved an exit more than double Spotify’s recent valuation.

Even leaving aside the headline grabbing unicorns (the billion dollar start-ups), a more typical goal for a founder or investor is a $100m+ exit.

Over the past five years, there have been around 100 or so tech start-ups achieve such an exit per year either by IPO or acquisition.

These include SaaS, FinTech, AdTech Social Media start-ups but no music tech start-ups and certainly not ones that are fully licensed.

Asking around amongst well-placed friends, who have held senior global digital music roles, between us we can only think of two successful exits for music services in the past fifteen years or so:

  • MusicMatch selling to Yahoo for $160m in 2004
  • Last.fm selling to CBS for $280m in 2007

Last.fm was not fully licensed but a number of rights owners managed to close deals around the time of the acquisition.

So that means only one fully licensed music start-up has achieved a successful exit and that was in 2004!

What would you do if you were a founder or early stage investor? Go for music and swallow greater dilution of equity with greater financial risk? Or target other sectors that require less dilution with less risk and, potentially, offer a much greater return?

Bootstrapping and lean start-up methodologies have been widely adopted within the tech sector. Yet, applying these methods to music tech start-ups is problematic.

The benefits of the lean start-up model are very simple: eliminate waste and focus on product development. Build, measure, learn and repeat in short iterations until the product is sufficiently developed to scale. Balance the risk and pick more winners.

The business development model that rights owners apply to licensing digital services is well established (equity, advances, minimum rates, etc). Yet this approach places a huge burden on music tech start-ups before they even launch.

In fairness to the music industry the tech mantra of scale first, establish a business model second should be given short shrift. No AirBnB host would want to give free accommodation to strangers just to help out some tech entrepreneurs. Why should rights owners give anyone a free lunch? They should not.

Streaming is fuelling a growth in recorded music revenues but there is still a long way to go to get the market back to where it once was let alone to where it could be.

Moreover, the market is dominated by a handful of major tech players. Yet corporate tech companies cannot always be relied upon to innovate. In the music tech space for every Apple there is a Mircosoft or Nokia that does not quite hit the mark.

Time and again, start-ups innovate and create new markets across a range of industry sectors. The music sector, however, remains problematic.

Leaving aside the actual deal structures for music licensing, the costs associated with negotiating the deals, managing content and reporting usage are substantial whichever side of the table you sit on.

Of course, some would point to Blockchain and GRD as solutions, certainly the tech industry has proved adept at collaborating at an infrastructure level to enable more innovation in the market.

Facebook helped established the Open Compute Project that has signed up just about every major tech giant except Amazon. The reasoning is very simple. Tech giants are not competing on their server capacity, they are competing on the next wave of innovation around VR, AI and so on that sits on top. So collaborate on the back end to enable a higher level of competition where it matters. Brilliant thinking.

In fairness to the music industry, it has picked up the mantle to fight online piracy and address issues such as the value gap and safe harbour. Such work creates a fairer environment for innovative music tech start-ups seeking to launch fully licensed legitimate digital music services. This is something the tech community, as a whole, should recognise.

Coming back to the music tech start-up looking to strike deals with rights owners, how might the business development teams approach these opportunities and back more winners?

For the sake of brevity, let’s consider three key components: cash, equity and debt.

Ask for too much cash upfront and the start-up struggles before it even gets going. To the extent at advances are applied, many observers say advances should be proportionate to the likely earn through especially in the early stages.

Entrepreneurs often complain this does not happen and advances can be too aggressive. But what is the alternative? Cash is less risky and if rights owners are assuming more risk, then the overall compensation should reflect the level of risk.

Equity is well established in licensing deals, usually on the first round of negotiations and that equity dilutes over further funding rounds until a final exit is achieved. But only one such exit has ever been achieved.

How might the equity piece be approached differently? Perhaps there is an argument to take more equity earlier, divest a proportion of that equity on later rounds and retain the remainder until final exit?

Such arrangements are not that common but do happen. There are all sorts of permutations.

Debt finance is often overlooked, but it has been brought into prominence on account of Spotify’s latest funding round. The debt piece can be structured in all sorts of ways, interest can be applied and it can be converted to equity on pre-agreed terms. For a start-up low on cash, it is an alternative, but it is still risky for the rights owner.

These thoughts just skim the surface of a complex problem, but a problem exists and it affects all of us in the digital music value chain. There are no easy answers.

Provided the start-up is on the hook one way or another for the music rights they use from day one, are there more creative way to strike these deals to enable more innovation and growth in the digital music market?

If Spotify does achieve a successful exit, then it will only be the second fully licensed music start-up to do so. We need more.

Open Compute Project – Collaborative Competition

Major corporations whether their business is content, media, tech or finance are often, rightly, targeted by regulators who seek to limit anything that may be perceived as anti-competitive behaviour.

The presumption is that market dominance is bad, that collusion is bad and that any collaboration between huge corporations is a bad thing.

This is not always the case and in an increasingly changing world, while dominant market players should be subjected to close scrutiny collective action does not necessarily warrant intervention, regulation or restriction.

A case in point is the Open Compute Project (OCP). It came about because the major tech giants had grown so huge that they needed to look beyond typical hardware solutions for their data centres and design their own hardware from scratch. Data centre racks need to evolve, requiring more and more power to propel graphics processing, VR and AI, etc to their full potential.

Facebook was the first to recognise the benefits of open source hardware and founded the OCP in 2011. Not only would this help reduce hardware costs, but by creating standards accelerates and expands the potential for AI as it is these underlying technologies that will drive neural networks.

This was a bold move by Facebook and it has taken five years to persuade the majority of major tech players and other major institutions to come on board.

The Open Compute Project Foundation was incorporated as a non-profit organisation whose members now include Microsoft, Intel, Rackspace, Ericsson, Cisco, Juniper Networks, AT&T Goldman Sachs, Fidelity and the famously secretive Apple who joined in 2015.

Last week it was announced that Google has joined OCP, leaving Amazon as one of the last remaining tech companies not to join the project.

The conclusion is pretty clear: data centres power all of these businesses but they are not the basis on which these businesses compete. By collaborating on the foundations, the tech giants are laying the field for a higher-level game where the real competition between them will play out, i.e. who has the best solutions.

@andyedwardsbiz

Kendrick Lamar, Bowie, Iman and the Art of Conversation

My social media feed over the past few days has been dominated by Kendrick Lamar and his “untitled unmastered” EP, which was also unannounced.

Releasing unfinished demos is nothing new, but what made this collection stand out was the manner in which it provided a glimpse into the creative process of Kendrick Lamar. The New Yorker went as far as saying it “reads as evidence of a Post-­Impressionist sort of self-awareness”.

Perhaps untitled unmastered goes some way to help redefine what makes great art in the modern world. It draws his audience closer to the creative process and becomes a part of the conversation with his audience and amongst his audience and that conversation is an art form itself.

Kendrick2Kendrick1

This is something the post-YouTube generation have recognised intuitively. They are not about three or four promo videos uploaded in sync with an album cycle every eighteen months or so. They are about a constant steam of moments and experiences some polished, some not but all part of an ongoing dialogue with their audience.

This is in stark contrast to the way in which commercial music has become over the past twenty years or so. Through the 1990s and early 2000s it was about co-writing, remixing, polishing, positioning, scheduling and media training. Even as social media has achieved unstoppable momentum, many artists found it hard to grasp the concept of spontaneous imperfection.  So too have managers and label executives, as everyone tries to balance existing conventions with new possibilities.

For too long they have lived in a world where their art is defined by sporadic releases and performances rather than an ongoing conversation with their audience. Conversations are imperfect, there are umms and ahhhs, but through that dialogue comes a closer connection between those conversing.

Ironically, it was an artist from a previous generation, David Bowie, who best exemplified this notion of art through conversation. Bowie always had a truly holistic way of expressing himself, even his own death formed part of his art.

Not only that but the manner in which his widow, Iman, picked up that conversation through social media was especially poignant. She continued the dialogue with such honesty and integrity. It was real. It was heartfelt. It resonated so very profoundly.

Bowie1Bowie2

Perhaps not all artists are comfortable with exposing their feelings to that extent. Perhaps this was a singularly unique occurrence where an artist’s grieving widow is also a public figure in her own right. Nevertheless, it beautifully illustrates the concept of conversation as art.

Some may say both were contrived to some degree. Kendrick Lamar certainly curated which unfinished tracks he wanted to release. Iman was certainly controlled and dignified in how she expressed herself and there were limits. There was privacy, especially surrounding Bowie’s funeral.

Artists can still set their own boundaries even if their creative expression becomes more fluid and exposed to scrutiny. Cynics may fear a constant stream of noise, but for the true artist it is a chance to redefine themselves through honesty, integrity, consistency and the art of conversation.

@andyedwardsbiz

Talking Blockchain at The Great Escape Convention

Taken from The Great Escape website:

More details have been announced today about CMU Insights @ The Great Escape 2016, the conference that sits at the heart of the TGE Convention. Taking place at Dukes @ Komedia on the Thursday and Friday of the festival, this is a totally different kind of music conference, putting the spotlight on four key themes: data + transparency; CDs + merch; YouTube + video; and diversity + health.

Each strand is packed with timely talks and conversations, with training elements, original research, case studies and lively debate. Today we reveal details about some of the speakers set to appear in two of our CMU Insights strands: ‘Transparency! Data! Blockchain! Let’s make buzzwords happen!‘ and ‘What if YouTube actually is the future?’

Making buzzwords happen
‘Transparency’ has been the big buzzword in the music community this year, while another buzzy term – the ‘blockchain’ – has been increasingly held up as the technology that could make digital music more transparent and more efficient. Leading the debate around the blockchain has been PledgeMusic founder Benji Rogers, who will keynote at The Great Escape this May to outline his vision of how new technologies could power a prolific music database that could in turn make digital payments quicker and fairer.

He will be joined by digital music experts Sammy Andrews and Andy Edwards, both also vocal proponents of the need for more transparency and the role technology can play. They will map out what needs to happen to fix the issues around music data and digital royalties, and then debate the issues with a panel of managers, lawyers, publishers and label chiefs, who will discuss the role different stakeholders must play, and why they should bother.

Ensuring everyone is fully up to speed with the jargon, CMU’s Chris Cooke will provide a Beginners Guide To The Blockchain, while earlier in the day he will be joined by music lawyer Nigel Dewar-Gibb of Lewis Silkin to explain how digital data and revenue currently works its way through the system, identifying where the blockages lie, and identifying what questions need to be asked of digital services, labels, publishers and the collecting societies.

The power of music video online
Hosted by digital entrepreneur and Tracks2 co-founder Brittney Bean, our video-focused strand will explore both the licensing challenges and the commercial potential of YouTube, explain why music video is now about more than the ‘music video’, and identify what kinds of video content really work online, on YouTube and well beyond.

Vevo’s Tom Connaughton will delve into how artists, labels and promoters can create video content that really engages and excites fans, whilst Rebecca Lammers of Laika Network, Claire Mas of Communion Music Group, and Chloé Julien of BandSquare will demonstrate how the music industry can really maximise the value of video online.

Who Will Build The Music Industry’s Global Rights Database?

AE

The following MBW blog comes from Andy Edwards (pictured), Board Director of the UK’s Music Managers Forum (MMF).

The failure of the Global Repertoire Database (GRD) has left many people scratching their heads, wondering how such a huge problem can ever be solved.

Optimists such as Benji Rogers and the Berklee College of Music team point to Blockchain technology as the way forward.

Blockchain has huge potential, but there is still the question of how such a solution is organized, financed and administered.

The original GRD working group was put together by the EU and involved a wide variety of participants including Apple, Amazon, Google, various Collective Management Organizations (CMOs) and music publishers.

Given the GRD had the potential to benefit so many, it was disappointing that the cost of developing the GRD was ultimately met by so few: a handful of CMOs.

With an insufficient number of CMOs willing to back the project the GRD stalled, by which time costs had reached £8 million, with no tangible outcome.

“WITH AN INSUFFICIENT NUMBER OF CMOS WILLING TO BACK THE PROJECT, THE GRD STALLED – BY WHICH TIME COSTS HAD REACHED £8M.”

The recent lawsuits against Spotify highlight the responsibility tech companies face. The onus is on digital service providers to clear all the necessary music rights. The fact Spotify is planning to build its own publishing administration system is welcome but raises the question: if all DSP’s licensing music – Apple and Google included – face the same problem, why silo the solution(s)?

Collective problems are never simple or easy to solve and any solution won’t please everyone. The challenge is not dissimilar to those faced more broadly within the tech community.

The World Wide Web Consortium (W3C) and the Internet Corporation for Assigned Names and Numbers (ICANN) are two examples. Both organizations are far from perfect, but they managed to move reasonably quickly and establish an ecosystem.

The common standards set by the tech industry helped enable the greatest accumulation of knowledge and wealth in the history of mankind.  That is some feat and well worth closer inspection. Here are a few key take-outs:

  1. They did something. W3C was founded by Tim Berners-Lee in 1994, only five years after he first invented the world wide web. ICANN was conceived and founded in 1998, a green paper was issued in February that year and ICANN was incorporated by September that year.
  2. Neither organisation had everyone on board initially, nor were they completely global or democratic, but they were non-for profit and intended to be independent with some level of governance and oversight from the outset.
  3. Governments played a key role in their inception: the European Commission with W3C, the US Department of Commerce with ICANN.
  4. Academic institutions also played a part: MIT in W3C and Information Sciences Institute at USC in launching ICANN.
  5. Both organisations scaled over time. W3C members now include businesses, non-profit, universities and individuals. ICANN has a number of advisory committees and observers as varied as the European Space Agency, the League of Arab States and the World Bank.
  6. Both have faced criticism. In the case of ICANN, the role of the US government has come in for continued scrutiny and whichever path is followed no one will be completely satisfied. But at least ICANN exists and continues its important role that has evolved over time.
  7. Finally, there was something pioneering and entrepreneurial about both institutions. While the GRD is not a profit-making exercise in itself, perhaps some entrepreneurial spirit to kick-start its existence is needed.

Continuing with the start-up analogy:

  • Who will be the GRD’s co-founders?
  • Who will provide the seed capital?
  • How will it develop its offering?
  • How will it scale?
  • What will the roadmap look like for participants and for funding rounds?
  • What are the rules, governance and oversight?

Fundamentally this is about solving problems and setting common standards. It is not about power and control, which obsesses too many stakeholders and ultimately constrains everyone.

Establish common standards through a GRD and creativity and wealth will scale new heights for the benefit of everyone.

This article also appears on Music Business Worldwide

Why Sharing Equity Is A Big Deal

The announcement last week that Warner Music will share the proceeds of its equity stakes in digital music services with its artists, quickly followed by a similar announcement from Sony Music is hugely significant. The artist community has been in the dark about these equity positions for years and it has taken a great deal of persistence to reach this point. Universal Music is the only major not to formally state its position on equity but one would hope it is only a matter of time before it does so.

A number of commentators most notably Mark Mulligan and Tim Ingham have made the point that the net value of these equity stakes to the artist may not be that significant and that the real battle lies elsewhere. Mark suggests that streaming is not a license or a sale and that the correct remuneration for artists’ lies somewhere between the 50% rate for a license and the (roughly) 15% an artist might receive for a sale. The midway point between those two figures is roughly double what most artists currently get paid on streaming income. His point is this argument is worth more than the fight over equity.

 

EQUITY – THE BACKSTORY

Coming back to equity, it is worth remembering the reason major labels took equity in start-up music services in the first place. During the first dot.com boom, founders were exiting at huge valuations either by sale or IPO, very often without generating any revenue. It made sense to grab as much equity as possible as part of the music licensing negotiation and Jay Samit and other label digital executives at the time quickly set a precedent that has continued to this day.

In the case of Spotify, it was reported at the time by Techcrunch that the majors and Merlin collectively received a 17.3% shareholding on the Series A funding round and paid an aggregate €8,808 for that shareholding. It is worth pointing out that Techcrunch questioned this number at the time believing the amount paid was ten times that amount had the music companies matched what other Series A investors actually paid for their shareholdings. Clearly the majors did not do that and these were peppercorn payments as part of a broader licensing negotiation.

What also needs to be understood is the extent to which those original shareholdings have been diluted through subsequent funding rounds, of which there have been eleven. Further clarity is needed on this.

Where equity is a more valuable element for artists are companies such as Soundcloud in its present circumstances. Soundcloud is striking deals with music companies, but it has a long way to go to generate the sort of revenue numbers Spotify is already achieving. Accordingly, if Soundcloud is acquired, which is a strong possibility, then equity will form a greater part of the total value accounted back to the artist relative to advances and earnings.

 

ALIGNMENT OF INTERESTS – is what it is about

Equity is still hugely important for artists. Start-ups will come and go and each takes their own path. In certain circumstances, the equity piece will derive the greatest value, in other cases not. What is most important – and which Stephen Cooper of Warner Music stresses – is that the interests of the label and the artist are aligned whatever the outcome. This is an important step in the right direction and is greatly welcomed.

@andyedwardsbiz

Transparently Obvious

TRANSPARENTLY OBVIOUS: THE MUSIC BUSINESS HAS TO CHANGE

AE

The following MBW blog comes from Andy Edwards (pictured), Board Director of the UK’s Music Managers Forum (MMF)

Rethink Music, the report published by the Berklee College of Music and which puts the spotlight on transparency, has provoked a great deal of comment over the past few weeks.

I contributed to the report and have observed it all with interest.

Much attention surrounded the major label artist who only received their royalty statement in paper form. The example is a little extreme, but not uncommon.

One major label told me I could not have an Excel version of a PDF statement “as a matter of policy” and that I had to buy converter software and do it myself: not so simple as the PDF was not formatted correctly and it took forever.

In contrast, another major label emailed me an Excel within twenty minutes. It is a small thing, but some organizations seem to go out of their way to be unhelpful.

Responding to Rethink Music, the IFPI makes some valid points about investment and return.

Yes, many artists make a better margin on digital compared to physical, but so do labels.

One quibble: the IFPI’s “artist payments” figure includes advances (which are now also recouped against a share of ancillary income), but the IFPI compares it to “sales revenue” which according to their own figures does not include ancillaries; only digital, physical, performance rights and sync.

If this is so, I would question whether this is a like-for-like comparison?

“THE MUSIC INDUSTRY’S BUSINESS PRACTICES ARE OUTDATED, DISJOINTED AND UNALIGNED.”

The IFPI response completely avoids the matter of transparency, the most crucial matter of all and one that we must resolve.

We must have full transparency on all deals and calculations. Of course confidentiality is to be respected; but managers, lawyers and accountants also have an additional fiduciary duty of care to their artists, so they must act properly and that includes confidentiality.

Rights owners have no such responsibility and perhaps they should. Bottom line: there are no excuses for non-disclosure.

No matter what happens in the UK and Europe however, the balance of power within major labels and publishers lies in the USA.

It was, therefore, disappointing to read in the New York Post that: “Some music label executives [said] they are now questioning their support for Berklee’s internship program”.

Old school threats and bullying instead of addressing the matter at hand, this is not a good look. If anyone feels left out or disagrees, they should engage openly with the Berklee team.

Those interviewed by The Post also attempted to rubbish Rethink Music as a ‘“long advertisement for music publisher Kobalt,” which recently took in Google Ventures as a shareholder’, but the Berklee team clearly discloses Kobalt’s support.

As for Google Ventures, well it makes for a good story but anyone with any sophistication will understand the VCs who invested in Kobalt will have little, if any, regard for the position of YouTube, etc.

They just want to make good investments that create value for their fund. It is worth noting the comments of Bill Maris, who led the investment:

I discovered how messed up the music business is. Is it even a business? In what other industry can you provide a product, get no information on who bought it, how many times it sold, and then a year later get a cheque with no explanation?”

Maris has invested $2 billion into 300 companies from tech to life sciences.

“WE MUST HAVE FULL TRANSPARENCY ON ALL DEALS AND CALCULATIONS.”

This is not about bashing major labels for the hell of it.

On a day-to-day level, many of us in the management world like and respect the individual label executives with whom we work; but a substantial overhaul of business practices at a corporate level is essential and not just in labels; PROs and publishers also need to change.

The music business is no longer a self-contained cottage industry; it is deeply intertwined in a much bigger and more complex world where the consumer is the real power player.

Yet the music business is failing to achieve its full potential because it is tied up in knots: its business practices are outdated, disjointed and unaligned.

The Taylor Swift/ indie label/ Apple Music showdown illustrates what can be achieved when we unite as an industry with the artist front and centre.

If we continue to dodge transparency then the lack of trust between creators, their representatives and the major music corporations will continue to erode the opportunity that digital technology provides us.

It is that simple.

 

This article first appeared on Music Business Worldwide.