Category: Music Revenues

Tracking Music Revenues: What’s the Next Challenge?

Tracking Music Revenues: What’s the Next Challenge?

Music streaming has turned the music industry on its head. It’s not only challenging the way we consume music, but how artists and business measure sales and market their products. Not only that, but it’s challenging the way music revenues are captures. But what if I told you things are only going to get more challenging? “Napster and iTunes ungrouped albums into individual tracks for sale and exchange [while] streaming platforms like Spotify… regrouped these ‘unbundled’ tracks into the newly-ordered format of a playlist.” She then goes on to explain how “the next natural step… is unbundling an individual song itself into isolated vocal and stem parts. (Hu, 2018).” I think this is a brilliant observation that will most certainly be realized. It has already taken place, as Hu points out, with many popular producers creating drum kits that other producers can purchase in order to make beats (Hu, 2018). In this case of unbundling songs, Digital Rights Management can be a tool that helps track content (music stems) and establish IP ownership. DRM will be necessary to make this next step of music evolution become a reality.

The content holder will want to implement DRM in this case for many reasons. First and foremost, all of the content might be centralized in one platform (Example: millions of songs on Apple Music). A consumer will then visit the platform, and purchase the stems he/she desires.  In order to ensure the proper copyright/IP owner receives credit for the purchase, a system that can identify where the money should go needs to be in place. This is where DRM comes into play. It will allow the customer’s money to go to the rightful seller. Furthermore, the business models for “stem selling” discussed in this article are subscription based This means the customer doesn’t necessarily “own” the sample/stem. Customers are merely buying a copyright. But what if they choose to resale it, as a completely new product with small stem “samples?”

If any revenues are generated from a track that is produced using stems/samples, DRM will be able to track the royalties and send the “appropriate” percentage to the copyright owners. DRM, in this case, allows the content owner to capture money upfront (through the purchase of the content they are distributing) and in the backend (through royalties that are created using the content they still own). But how will the royalty rate be established?

Although the consumer will be allowed to lawfully use the stem/samples, create an entirely new piece of content, and even sell it on the market, the new content will not be 100% theirs. Thanks to DRM, each sample/stem that is used in the new piece will become a “piece of the pie.” For example, let’s say I purchase three stems on Sounds.com (one of the platforms the article discusses). The three stems are: 1 Rick Ross grunt, a 2Pac line from I Ain’t Mad at Cha, and the electric guitar melody from Sade’s Cherish the Day. I then use these three stems/samples to create an entire new song, with another artist rapping on the verses. I put it out online and make over $100,000 in streaming and download revenue. That revenue would not all be mine. Because of DRM, the owner of each sample I purchased will be entitled to a percentage of the earnings. They will receive royalties from the song as well.

DRM will enable artists to make additional money from recorded music, besides streaming revenue. This will more than likely convince them to jump on board with the idea of “stem selling.” In turn, ordinary music fans will have access to new tools that will spark innovation and creativity. But for artists, DJ’s, and producers, DRM will most likely be bittersweet. While it gives them access to millions of sounds, they will come at a cost; a huge one at that. Not only will the original copyright owners earn royalties, but they will more than likely own a percentage of the master, and that’s not good for any artist.

I personally think DRM does attempt to further the goals of copyright, but it just makes things even more complicated. If a person creates something new using something old (in this case, a sample), who does it belong to? Are they joint owners, or does the new content belong to the “original” owner? I would think the new piece would be a derivative of the original work, but what if the new piece is completely unrecognizable? I like the fact that DRM can be used in music to establish a royalty rate for samples, but the whole issue of ownership will hurt this idea. I think establishing who will own the new content needs to be addressed before this unbundling of songs can come to fruition.

Resources

Hu, C. (2018, May 13). Unbundling the song: Inside the next wave of recorded music’s disruption. Retrieved from https://www.forbes.com/sites/cheriehu/2018/05/13/unbundling-the-song-inside-the-next-wave-of-recorded-musics-disruption/#386a38829cae

The Future of A&R

The Future of A&R

A&R’s find and discover talent that can be commercially successful in the music industry. According to Music Clout, they used to “serve as the middleman between the artist and record label and work very closely with the artist,” but now “the power of an A&R rep [has been] diminished” due to the advancements of technology (n.d.). The internet creates a direct path from artist to audience. It also creates a transparent ceiling where music companies can gaze down on musicians and see which ones are making traction. Once they have identified artists that have an established following and show the potential to be commercially successful, they can come down and swoop them up from the indie scene (or at least try). I believe the role of an A&R rep has shifted from seeking talent to seeking people with a paying audience, but there’s nothing wrong with that. According to McCready, “A&R’s primary business function is to… reduce the likelihood of failure in the marketplace (2011).” If that’s the case, then seeking a paying audience rather than talent is fulfilling the primary business function of an A&R. Talent doesn’t pay the bills, but in the world of music streaming, an audience that listen does.

I believe A&R is necessary for small and major labels. Many acts in the music industry are short-lived, but “good A&R’s can… push artists further. (Lindvall, 2011).” A large audience will not always translate to large revenues. Music is basically free now thanks to streaming, so even though an artist can have many listeners, it is not guaranteed that they will turn into paying customers. A good A&R will be able to identify and exploit revenue generating opportunities using an artist’s brand and character. A good A&R can also work closely with the artist to further develop their brand and convince their audience that he/she is worth seeing in a live setting. There are many things an A&R Rep can provide, but that doesn’t mean this support will necessarily come from an A&R rep.

The role of A&R has changed when compared to ten years ago, and will continue to change. The publishing side of the music industry is now more like the A&R Department. They sign artists and catalogues and work with them to get the most money out of the music, whether it be song placement in movies, TV shows, sports, or even video games. They also work with song writers too, which many labels fail to do. I think the role of A&R will eventually be provided by streaming companies, such as Spotify, Apple Music, and Amazon Music. That is where most of the listeners are at, so what better way to develop as an artist and get your music heard than by getting plugged into a popular playlist by a major streaming company like Spotify?

“Big data” is a major factor in the music industry. For people like myself that enjoy numbers, data, and statistics, we thrive on it. It is easy for an artist to download an Excel file from YouTube or Spotify with all of their sales, statistics, and streams. In fact, these reports can easily be acquired from the artist’s digital distributor (TuneCore, CDBaby, etc.). This data has information on the listener and their activity, revealing gender, geographical location, age, and even the device they are using for listening. Many artists are not aware of the importance of this data so it is not vastly used, but for people who want to be involved in the business of music and want to create songs that will captivate their audience, this data is extremely important. Record labels and A&R’s use this data to determine what kind of records are worth investment/attention. As time passes and the value of “big data” is realized, I believe it will be utilized by everyone in the music industry, including A&R’s, artist managers, and even songwriters. The data is extremely valuable.

Resources

Lindvall, H. (2011, January 27). Behind the music: Is the A&R era over? Retrieved from https://www.theguardian.com/music/musicblog/2011/jan/27/behind-music-industry-a-r

McCready, M. (October, 2011). Why the traditional A&R process is failing the industry and musicians alike. Retrieved from http://www.mikemccready.com/wp-content/uploads/2011/10/AR-Position-Paper1.pdf

Music Clout. (n.d.). The ugly truth about today’s A&R. Retrieved from https://www.musicclout.com/contents/article-110-the-ugly-truth-about-todays-ar.aspx

 

From Boy Band to Business Baron: Justin Timberlake’s Enterprise

From Boy Band to Business Baron: Justin Timberlake’s Enterprise

Justin Timberlake is one of the most successful entertainers of our time. While most people may know him for his musical genius, he’s an extremely bright businessman. In order to help us understand and appreciate his longevous career, we’re going to analyze his artist business model and break down each component.

Music Value Proposition

Justin Timberlake strives to fill the world with joy through entertainment. In a world contaminated with distress and division, JT creates content that brings people together. From full length albums to feature films, he’s committed to making the world a better place through entertainment and music.

Songs like Until the End of Time illustrate a world where love triumphs over chaos. JT also praises the power of love as an actor. In the movie, In Time, he fights against society’s standards and demonstrates how love can overcome social status. His work doesn’t stop as a singer and actor though, he also composes for films. He served as music composer for The Book of Love, a story about two strangers that help each other heal emotional wounds through friendship and understanding. In an interview with the Los Angeles Times, Timberlake states that he would “hear movies more than [he] would watch them [as a kid] (Greiving, 2017).” Timberlake consistently promotes the power of love throughout all of his content, which makes his work incredibly valuable to his fans and supporters.

While Justin Timberlake may align his brand with positivity and love, he isn’t without fault. When criticizing JT, some point to the Super Bowl halftime show from 2004, in which he “pulled off part of [Janet] Jackson’s outfit, briefly exposing her right breast in front of… 140 million viewers (Peter, 2018).” But this act can’t solely be the fault of Timberlake. The fact of the matter is that the halftime show performance is rehearsed to precision. The notion that JT would do something off-the-cuff is unlikely. The entire fiasco had to be prepared, more than likely as a way to increase ratings. Justin Timberlake has apologized for the situation on various occasions. Given his behavior since the event, one can safely assume that he learned his lesson and will not make mistakes of this magnitude again.

Streams of Revenue

In an interview with Kiplinger, Thomas Corley explains the correlation between millionaires and multiple sources of income. He stated that millionaires “calculate risks with their money to create [multiple] revenue streams (Block, 2017).” Justin Timberlake is no different. Despite his cordial demeanor, he’s an adamant businessman. Most artists depend on digital music streams, merchandise sales, and tours to make money, but JT finds other avenues. Not only does he generate revenue from digital song sales and touring, but he also acquires income from his acting career. JT has had an acting role in 18 films, including Alpha DogFriends with Benefits, and Wonder Wheel (Fandango, n.d.). He’s also a sound composer for films, co-founded Sauza 901 liquor, founded the William Rast Clothing Line, and is a minority owner of the Memphis Grizzlies (Kreps, 2014). Below is an illustration highlighting six forms of revenue for Justin Timberlake. He receives income from all of these enterprises.

Partners / Mediators that help generates revenue streams

“The power of one… is formidable, but the power of many working together is better. (Arroyo, n.d.).” One can accomplish many things and get very far on their own, but reaching new echelons will require the help of others. There are various partners that JT must work with in order to generate revenues from his businesses. In terms of music, he must work with his record label (Tennman Records) and Interscope Records to create, distribute, and market recordings. The label does many things on behalf of JT, including securing intellectual property, such as copyrights. Having control over the copyrights allows the label to produce products using JT’s name and likeness. The label is also responsible for establishing licensing deals with music streaming platforms (such as Spotify, Apple Music and Pandora), TV shows, and movies. They must also distribute the recordings to digital and physical retailers. On top all of these duties, the record label is in charge of marketing and promoting the music. Various groups (such as Legal, Finance, Accounting, and Marketing) collaborate from within the organization to generate revenue.

Live Nation is another important partner that helps generate revenues for Justin Timberlake. According to Live Nation, “every 18 minutes,” one of their events is taking place (n.d.). This worldwide company has such a grasp on the live entertainment industry, it’s a no brainer for JT to partner with them for his The Man of The Woods Tour (Live Nation, 2018). Performing at 27 cities in 17 days is no easy feat. He requires an experienced company to handle logistics, secure venues, promote the tour, and sell tickets in order to pull it off. This partnership allows him to rehearse appropriately without worrying about managing the day to day business aspects of a tour.

“Celebrities can make brands appear relevant… and help foster trust” but they can also “destroy the same trust” when the two parties do not complement each other (Schlossberg, 2016). In order for celebrity endorsements to be successful, there must be a clear connection between the two. Not having this connection will raise a red flag to consumers who feel the partnership is fabricated. Justin Timberlake has done a great job developing partnerships with brands that match his persona, one of them being with Sequential Brands Group.

Sequential Brands Group is the parent company of the William Rast clothing line, which JT co-founded with Trace Ayala in 2005 (Chan, 2016). He depends on Sequential Brands Group to manufacture quality clothing, hire models that will showcase the garments, market the apparel to the public through various mediums (including magazines and websites), and distribute the clothing to major retailers (such as Macy’s and Dillard’s). The partnership makes sense because the clothing resembles JT’s brand and appeals to his target audience. The apparel is advertised as premium (just like Justin Timberlake’s persona) yet affordable (for his younger fans aged 18-24).

Another partner JT works with is Sauza Tequila. “As a tequila lover and entrepreneur, [he] wanted to bring the passion and dedication that went into every bottle of his 901 Tequila to his fans (Sauza 901, n.d.).” He has adamantly crowned tequila as his favorite alcoholic beverage, so having his own line is not so farfetched. This partnership makes sense because his influence over the public can increase sales for Sauza, and the increase in sales will add more revenue to his name. He’s also a tequila aficionado and does not shy away from it.

While some may argue that artists should not be endorsing alcohol (especially since there are so many teenage music fans), at the end of the day we all have minds of our own. Martha Lockie from New Life House (an alcohol rehabilitation center in California) published an interesting article on the topic. She agrees that celebrities endorsing alcohol makes a parent’s job more challenging, but she also stated that “vilifying celebrities or alcohol companies” is not the solution (Lockie, n.d.). She goes on to state that “families who demonstrate healthy drinking habits at home, clear boundaries and consistent consequences when family guidelines are ignored [will be more equipped at] handling possible alcohol and drug abuse in their children (n.d.).” Every parent must make it their mission to instill principle and morality within their children. Having these values will allow a person to understand right from wrong, and that includes being influenced down the wrong path. The general public should have no issue with Timberlake’s 901 tequila.

In his role as an actor, he partnered with WME (his talent agency) to acquire roles in movies and TV shows. WME is the first talent agency in the world (Charity Buzz, n.d.), so it makes sense that JT would rely on their expertise for his acting career. The talent agency acquired the business of booking all of his events as an actor and performer in 2013 (Halperin, 2013). That means that WME now manages his tours, books his live events, identifies acting opportunities for him, and even finds endorsements deals for him. They play an integral role in his success as a celebrity, influencer and performer.

His role as a minority owner of the Memphis Grizzlies also creates a partnership between him and the organization. This partnership is less demanding though. Since he is only a minority owner, he does not have the authority or responsibility associated with being a majority owner. Majority owners assign GM’s and are heavily involved in basketball operations. Timberlake on the other hand, just enjoys rooting for his hometown basketball team and watching his investment grow. The organization’s revenues have increased by an annual average of 5.3% over the past decade (Statista, 2018) and is currently valued at $1.025B (Forbes, 2018).

Essential Activities to Generate Revenue

There are various activities that must happen in order to generate the revenues I have identified. JT has to write songs and rehearse his performances in order to provide his services as an artist and actor. Marketing, selling, licensing and music distribution is also required for him to generate revenue from his talents. Other important activities include social media management, personal brand development, legal overview, accounting and financial analysis. Below is an illustration listing the key activities.

In order to get a better understanding of how these essential activities generate revenue, we will examine them individually.

  • Songwriting – This activity is essential for any artist. Although Timberlake is highly regarded for writing his own songs, many people have no idea that he has written hits for other artists. He wrote Blow and Rocket for Beyoncé in 2013, Rehab for Rihanna in 2007, and Miles Away for Madonna in 2008 (Stephens, 2017). His writing skills bring in the loot, but more importantly, they allow him to maintain his celebrity. Fresh material is required create momentum for a tour, place JT on the music charts, and sustain his relevance in a fast-paced industry.
  • Music composition – Not only does JT produce music for his own works, but he also composes for films. This requires him to be in the studio experimenting with sounds until he can match melodies with movies. One example of a song he composed for film is Can’t Stop the Feeling!, which was featured in the film Trolls. Timberlake went on to win a Grammy for “best song written for visual media” with Can’t Stop the Feeling!(Brown, 2017). The recording had “2.4 million downloads in 2016 [and was] streamed nearly 700 million times,” making it the top-selling track in 2016 (Newman, 2016). I think it’s wise to say that composing music is an essential activity for JT’s business model.
  • Marketing – This activity is extremely important. Timberlake can make the greatest music compositions for film and release the ultimate sound recordings, but without effective marketing many will never know. Marketing requires money, but a person with Timberlake’s celebrity can pay with other resources. This activity is imperative to maximizing ticket sales and making tours profitable. Social media is a big tool for marketing, which is the next activity we’ll discuss.
  • Social Media Management – Social media is everything right now. In order for JT to reach his core audience, he must be active on social media. His busy schedule makes that challenging though. To solve this problem, JT has to hire somebody to manage, oversee, and analyze his social media accounts. Traditional business professionals might not see the value in social media, but JT’s team sure does. “90% of Instagram users are younger than 35 (Pennsylvania State University, 2015),” making it the ideal place for Timberlake to reach his core audience. Posting pictures, uploading videos, and sharing glimpses of his private life allow Timberlake to speak with his fans and monetize an emotional connection.
  • Personal Brand Development – Even though Justin Timberlake has seen an extremely high level of success, he must continue to grow and cultivate his brand. Working with a brand strategist will allow him to continue growing as a celebrity and will help him identify areas of weakness, as well as strengths.
  • Performance Rehearsals – Practice makes perfect. In order to put on the best performances, JT must rehearse. According to Willis, Timberlake rehearsed eight to ten hours per day as he prepared for his Super Bowl Halftime Show (2018). One can only imagine how much time he is dedicating to his nationwide tour.
  • Selling – A dedicated sales team is needed to generate revenue. Sales people “establish relationships with retail stores, rack jobbers, and online outlets to set up channels of distribution for album sales (Get in Media, n.d.).” This group of people communicates with merchants and provides JT’S record label with all the information required to maximize sales, including: quantity of merchandise required, market area demographics, and monthly sales reports.
  • Licensing – This activity allows Timberlake to make money by having his music featured in films, commercials, TV shows, and even online music streaming sites. Licensing allows third-party entities “the right to use the music in a visual space (McDonald, 2018).” For a fee, Timberlake will allow a third-party entity, such a film company, to use one of his songs in their movie.
  • Music Distribution – How can Timberlake make money from selling his music and merchandise if it’s not available to consume? In order to get revenue from songs streams and digital downloads (as well as vinyl and physical cd sales) the music must be accessible to his fans. This is why music distribution is an essential task. His record label (and more specifically his sales team) will ensure that the music is sent to all the appropriate retailers so fans can listen and buy his products.
  • Legal Overview – A legal team is extremely important in any business sector, especially one as highly scrutinized as the music industry. I labeled legal overview as an essential activity because JT must abide by all copyright and federal laws in order to continue doing business in the U.S. The legal team will also steer JT away from unlawful activities that might implicate his celebrity in a negative manner.
  • Accounting – Justin Timberlake may have millions of dollars, but who’s counting? His accounting team tracks costs and expenditures, puts money aside for taxes, classifies revenue and expenses, and balance the checkbook. Accountants are essential to any business. During fast-paced times, such as touring, they are even more important. These individuals allow JT’s to see where the money is going to and coming from, which will identify trends and allow them to maximize profitability.
  • Financial Analysis – The Finance Team is also an integral part of JT’s business model. They manage investments, analyze revenues, forecast finances, create budgets, identify the most profitable projects, and develop plans for upcoming endeavors. Without their support, it would be very difficult to know the risk and reward associated with a project (like a tour) or an investment (like the Memphis Grizzlies).

Expenses

There are various expenses related to the revenue streams that have been identified, including music production costs (studio time, mixing and mastering, production rates, etc.) advertising expenditures, salaries (accountants, financial analysts, legal team, sales team, etc.), copyright registration costs and music distribution fees. Costs associated with touring also create heavy expenses.

Record labels tend to invest anywhere from $150,000 – $500,00 in an artist’s recording and up to $300,000 in video production (IFPI, n.d.). This is the price an artist must pay in order to compete in the music industry. Utilizing state of the art equipment, collaborating in other famous artists, and hiring the most experienced music professionals to work on your projects comes with a substantial price tag, but as you can see from the graph below, it’s not such a bad idea.

According to Statista, in 2016, over 190 billion dollars were dedicated to marketing in the United States (2017). This figure is staggering and illustrates how great of an expense advertising truly is. However, it is essential to any business. You have to invest money to make money. JT knows that Tequila 901 commercials, William Rast magazine articles, and online commercials for his tour will create dividends for him and his businesses. Often times, it’s the difference between being seen/heard or being invisible/mute.

Salaries are another big expense. Accounts/Financial Analysts and Attorneys may not have a lot of things in common, but one thing they both love is money. In 2017, accountants earned $50K, financial analysts earned $56K, and attorneys earned $91K on average (Salary.com, 2018). Let’s say JT has three accountants, two financial analysts and three attorneys on his team. According to the figures provided by Salaries.com, that would result in $588K in annual salaries (just for his finance and legal team). Keep in mind that these particular professionals are more than likely to get paid above average, especially if they’re hired by a celebrity and expected to work on the tour. Other important salaries to consider include the marketing team, personal brand strategist and social media manager.

Touring also incurs expenditures. Rental equipment, booking venues, lodging and meals, gas, airfare, insurance, salaries, promotion, and commissions for the booking agency all add up pretty quickly. This is why having a finance and accounting team is extremely important, as well as teaming up with an established live events company like Live Nation. With the help of these professionals an artist will end up generating money and not losing it.

Future Opportunities to Create Revenue

Justin Timberlake has a diverse business portfolio. His personal brand allows him to venture off into territory that many artists cannot. After reviewing his current business model, I believe I have identified two future opportunities for him to create even more revenue. One capitalizes on his festive personality and the other revolves around his involvement in the entertainment industry.

Owning a nightclub would be a great business endeavor for Justin Timberlake. He is an extremely popular celebrity that many other stars are drawn to. His music and personality have the power to drawn in the female demographic, which will in turn attract the males into the nightclub as well. This would be a great opportunity to promote and sell his Sauza 901 liquor brand as well. He can create specialized drinks and an entire menu completely off the beverage, while playing many of his hits throughout the night. I think this would be a great chance for him to generate more income and stay true to his brands.

Another business venture I believe can serve him well is establishing a Film Production Company. He has proven his love for film and music, so why not take it up a notch and create a full-fledged movie production company. If writing scripts isn’t his forte, he can source it out to various talented directors in the industry, which will allow him to focus on the soundtrack and music composition for the film. I certainly feel like this move would be natural and make a lot of sense. He could be a brilliant director or producer, with the right partnership of course.

JT is a brilliant artist and businessman. He’s had his moments away from the spotlight, but if one examines closely they’ll discover he’s always been involved; somewhere behind the scenes composing for films or writing songs for other artists. He’s on a career high right now and has found his second wind. In the era of social media, I see JT’s personal brand skyrocketing. There’s no limit to what he can accomplish and how much he can earn.

References

Arroyo, G.M. (n.d.). Working together quotes. Retrieved from https://www.brainyquote.com/topics/working_together

Block, S. (2017, September). Learn from the daily habits of wealthy individuals. Retrieved from https://www.kiplinger.com/article/saving/T064-C000-S002-thomas-corley-on-the-rich-habits-of-the-wealthy.html

Brown, A. (2017, February 12). Justin Timberlake’s ‘Can’t stop the feeling!’ wins for visual media. Next stop, Oscars? Retrieved from http://www.latimes.com/entertainment/la-et-grammys-live-updates-justin-timberlake-wins-for-best-song-1486934428-htmlstory.html

Charity Buzz. (n.d.). 6-8 week internship at William Morris Endeavor in Beverly Hills, CA! Retrieved from https://www.charitybuzz.com/catalog_items/6-8-week-internship-at-william-morris-endeavor-in-318465

Chan, S. (2016, November 18). Justin Timberlake’s clothing line William Rast is back. Retrieved from https://www.billboard.com/articles/news/7581289/justin-timberlake-clothing-line-william-rast-returns

Forbes. (2018, February). Memphis Grizzlies team value. Retrieved from https://www.forbes.com/teams/memphis-grizzlies/

Get in Media. (n.d.). Record label salesperson. Retrieved from http://getinmedia.com/careers/record-label-salesperson

Greiving, T. (2017, January 14). Meet Justin Timberlake, film composer of ‘The book of love.’ Retrieved from http://www.latimes.com/entertainment/movies/la-et-mn-justin-timberlake-composer-20170111-story.html

Halperin, S. (2013, May 7). Justin Timberlake’s acting agency, WME, locked down all of the star’s future business. Retrieved from https://www.billboard.com/biz/articles/news/legal-and-management/1560784/justin-timberlakes-acting-agency-wme-locks-down-all

Hanlon, G. (2015, April 9). The perks and perils of owning a small share of a sports team. Retrieved from http://observer.com/2015/04/the-perks-and-perils-of-owning-a-small-share-of-a-sports-team/

IFPI. (n.d.) Record companies discover, nurture and promote artistic talent. They are by far the largest investors in artists’ careers. Retrieved from http://www.ifpi.org/how-record-labels-invest.php

Kreps, D. (2014, September 15). 15 musicians who run business empires. Retrieved from https://www.rollingstone.com/music/pictures/15-musicians-who-run-business-empires-20140915/justin-timberlake-20140915

Live Nation Entertainment. (n.d.). Retrieved from http://www.livenationentertainment.com/

Live Nation Entertainment. (2018, January 8). Justin Timberlake announces “The Man of the Woods Tour.” Retrieved from http://investors.livenationentertainment.com/news-center/news-center-details/2018/Justin-Timberlake-Announces-The-Man-Of-The-Woods-Tour/default.aspx

Lockie, M. (n.d.). Celebrity endorsements make parents jobs harder. Retrieved from https://newlifehouse.com/celebrities-endorse-liquor-advertisements-make-parents-jobs-harder/

Salary.com. (2018, March 2). Accountant I Salaries. Retrieved from https://www1.salary.com/Accountant-I-Salaries.html

Salary.com. (2018, March 2). Attorney I Salaries. Retrieved from https://www1.salary.com/Attorney-I-salaries.html

Salary.com. (2018, March 2). Financial Analyst I Salaries. Retrieved from https://www1.salary.com/Financial-Analyst-I-salary.html

Sauza 901. (n.d.). Retrieved from https://www.sauza901.com/#/home

Schlossberg, M. (2016, August 27). Brands are playing a ‘deadly game of Russian roulette’ with celebrities that’s costing them millions. Retrieved from http://www.businessinsider.com/celebrity-endorsements-can-be-dangerous-2016-8

Spotify. (2006). FutureSex/LoveSounds Deluxe Edition. Retrieved from https://open.spotify.com/album/0tcExuDWMQdBbwSpqN8Ku2

Statista. (2018). Revenue of the Memphis Grizzlies from 2001/02 to 2016/17 (in million U.S. dollars). Retrieved from https://www.statista.com/statistics/196722/revenue-of-the-memphis-grizzlies-since-2006/

Statista. (2017). Statistics & facts on the U.S. Advertising Industry. Retrieved from https://www.statista.com/topics/979/advertising-in-the-us/

Stephens, B. (2017, January 31). 9 songs you didn’t know were written by Justin Timberlake. Retrieved from https://www.popsugar.com/entertainment/Songs-Written-Justin-Timberlake-38816787?stream_view=1#photo-38816813

Pennsylvania State University, College of Information Sciences and Technology. (2015, June 16). Instagram behavior for teens different than adults. ScienceDaily. Retrieved from www.sciencedaily.com/releases/2015/06/150616155028.htm

Peter, J. (2018, February 31). ‘Nipplegate’ revisited: What really happened between Janet Jackson and Justin Timberlake? Retrieved from https://www.usatoday.com/story/sports/nfl/2018/01/31/nipplegate-revisited-what-really-happened-between-janet-jackson-and-justin-timberlake/1083557001/

Willis, J. (2018, January 31). Justin Timberlake is rehearsing 8 to 10 hours a day for Super Bowl Halftime Show (exclusive). Retrieved from http://www.etonline.com/justin-timberlake-rehearsing-8-10-hours-day-super-bowl-halftime-show-exclusive-95492

What Facebook’s Licensing Deals mean for YouTube

What Facebook’s Licensing Deals mean for YouTube

Earlier in the year, Facebook secured licensing deals with Sacem, Socan, and Wix Publishing. The social media company had previously secured licensing deals with Universal Music Group, Sony Music, and Warner Music (Welch, 2018). These licensing deals illustrate Facebook’s desire to attract more users to its platform through music, but more importantly, it show’s the company’s commitment to work with the music community as we try to turn streaming into a sustainable source of income. In order to show their consideration for music creators and rights holders, Facebook hired Tamara Hrivnak. Hrivnak was the Director of Music Partnerships at YouTube for six years, and prior to that position she was the VP of Digital Strategy & Business Affairs for Warner/Chappel Music Publishing (Levine, 2017). Her experience will be extremely valuable to Facebook’s efforts and could give them a favorable advantage as they prepare to battle against YouTube for music video consumers.

I remember when bootlegging was extremely prevalent in the early 2000’s. There was one artist here in my hometown, Houston, that would literally find bootleggers and fight them during that time. But for every bootlegger he battered, two more appeared. Although he was upset about missing out on sales due to the bootlegged copies of his music, he did notice that his fan base was growing. Eventually he set up a meeting with all of the bootleggers in town with the intent of making them authorized sellers. The meeting did not go well. The bootleggers said they could only afford to pay him .05% of his asking price; an asking price he felt was already extremely low. Needless to say, he was outraged. He continued to battle with them for months, but they just wouldn’t go away. After hundreds of brawls, his stamina and resolve were finally depleted. He gave in and allowed the bootleggers to legally sell his product on their payment terms, and he’s been stuck with this awful deal ever since. The bootleggers in this story represent YouTube, and the artist represents music companies and publishers.

YouTube has been a thorn in the Music Industry’s side for quite some time, particularly due to what is known as the value gap. According to IFPI, the value gap illustrates the “growing mismatch between the value that user upload services, such as YouTube, extract from music and the revenue returned to the music community (2017).” In other words, the value gap explains the variance between the benefits YouTube receives from uploading music on their platforms and the money that labels and artists obtain from those activities. As you can see from the chart below, the difference is blatant.

Does FB’s licensing deals prove that the music industry is regaining authority in a tech-driven world? If Facebook is able to take some video consumption away from YouTube, it could give labels, publishing companies, and artists more power in terms of negotiation. YouTube has grown tremendously over the years. One can argue that this growth is primarily due to how YouTube has been able to integrate music into their platform. According to the 2016 IFPI Music Consumer Insight Report, 93% of YouTube users aged 16-24 utilize the platform to access music, while 82% of total users utilize it for music listening (IFPI, 2017). With over 1 billion users, YouTube is the most popular platform for music streaming. YouTube is able to attract a large number of consumers and advertisers due to their music catalogue, however, they fail to pass on suitable revenues to the copyright owners of that music (primarily because the service is free). One may argue that the copyright owners should prohibit YouTube from showcasing their music until a fair price can be agreed upon, but it’s not that simple. With over 1 billion users (82% being music consumers), YouTube has all of the bargaining power. Michael Weston once said, “To win a negotiation you have to show you’re willing to walk away. And the best way to show you’re willing to walk away is to walk away (Wise Old Sayings, n.d.). It’s difficult to walk away from 1 billion customers though. Even if they are not paying for the digital version of the music, artists and music companies can recoup the losses through revenues from live shows and merchandise. Labels and publishers certainly do not want to leave 1 billion potential customers at the table. But if they have the opportunity to serve those same customers on a different platform (like Facebook) then they may not be hesitant to leave. That’s what makes this development so dynamic and noteworthy.

YouTube and Facebook could soon be in a bitter war to see who can reign supreme over the video streaming market. All the while, music labels and publishers will be standing idly by, waiting to see which platform wants their songs the most. As demand for digital music increases, the price will have to increase as well. I believe recorded music is extremely devalued and that people have acquired a false sense of entitlement when it comes to accessing music. Facebook’s willingness to negotiate with labels and publishers shows that they have an appreciation for music and want to create a partnership with our industry. I commend them for that and applaud them for producing a new revenue stream for creators and right holders.

I believe the music industry is taking initiative by engaging with social media companies. This endeavor creates various opportunities for music industry professionals. Facebook hiring Tamara Hrivnak (a former music business expert) is a perfect example of this. Tech companies understand how important it is to have an industry insider on their side, especially when it comes to negotiating deals.

Technology and music have always had an unsanctioned marriage. In order for the music industry to remain relevant, we have to find ways to stay ahead of the curve. Music streaming has proven to be a profitable source of income for labels and publishers for two years in a row, so it’s only right to ride the wave and widen the stream of revenues. As new social media companies enter the market, they will also be required to do what Facebook is doing if they want to incorporate music into their platform. This deal sets the standard for the future of music in the social media era. I just hope we can stay ahead of the next technological curve so we never have to accept terms from a position of weakness again.

References

IFPI (2017). Music consumer insight report 2016. IFPI. Retrieved from http://www.ifpi.org/downloads/Music-Consumer-Insight-Report-2016.pdf

IFPI (2017). Rewarding creativity – fixing the value gap. IFPI. Retrieved from http://www.ifpi.org/value_gap.php

Levine, R. (2017, January 1). Facebook hires YouTube’s Tamara Hrivnak to lead global music strategy. Billboard. Retrieved March from https://www.billboard.com/articles/business/7669971/facebook-hires-youtubes-tamara-hrivnak-to-lead-global-music-strategy

Nicolaou, A. (2018, March 18). Facebook strikes new music licensing deals. Financial Times. Retrieved from https://www.ft.com/content/7b7e71d6-2964-11e8-b27e-cc62a39d57a0

Welch, C. (2018, March 9). Facebook now has music licensing dealsw tih all three major labels. The Verge. Retrieved from https://www.theverge.com/2018/3/9/17100454/facebook-warner-music-deal-songs-user-videos-instagram

Wise Old Sayings (n.d.). Negotiation Sayings and Quotes. Wise Old Sayings.

Nipsey’s Hustle

Nipsey’s Hustle

Over the years, Nipsey Hussle has never conformed to the undeclared rules of the music industry. In 2013, he received critical acclaim for his mixtape “Crenshaw,” and the marketing tactics he used to communicate its value. During a time when most artists were releasing free mixtapes on DatPiff.com, he decided to do something different. He made 1,000 physical mixtape copies and put a $100 price tag on each one. In an interview with Rap Radar’s B.Dot, Nipsey stated the $100 “isn’t the price of the plastic case and polyurethane disc… it’s the price of revolution! The price of rebellion against an industry that has tricked us all into making products that have no soul for fear of not being heard (2013, October).” He labeled the campaign “Proud 2 Pay” and sold every copy he pressed “in under 24 hours… even though the mixtape would be available for free download the next morning (Hunte, 2013).” This move sparked conversation in the Hip-Hop community and gave his core fans the opportunity to show appreciation for his work. Jay-Z bought the first 100 copies (Markman, 2013).

Hussle was recently in the public eye for teaming up with DJ Khaled to “purchase a historic Los Angeles hotel” in Santa Monica, California (India, 2018). He has a history of investing and thinking outside of the Hip-Hop world. In 2013, he invested in Bitcoin and is now a frontrunner in the emerging technology (Kennedy, 2018). He’s very business savvy and diversifies his business portfolio by exploring opportunities outside of music.

During a time when artists are releasing 3-minute singles to capture the diminishing time span of people, Hussle released a full-length album, Victory Lap, that demands attention. He has features from prominent artists, such as Kendrick Lamar, CeeLo Green, Marsha Ambrosius, YG and Puff Daddy, making his project noteworthy. He also has an underdog feel to him, which is why I believe people resonate with his music. He’s inspiration to any entrepreneur, and illustrates how going against the grain can be beneficial in establishing your brand and differentiating yourself from the competition. It’s all a part of the hustle.

References

B.Dot. (2013, October 4). Nipsey Hussle on releasing $100 album. Retrieved from http://rapradar.com/2013/10/04/nipsey-hussle-on-releasing-100-album/

Hunte, J. (2013, October 18). Proud to pay: Nipsey Hussle’s new rule on grassroots marketing. Retrieved from https://hiphopdx.com/editorials/id.2200/title.proud-to-pay-nipsey-hussles-new-rule-on-grassroots-marketing#

India, L. (2018, March 6). Nipssey Hussle and DJ Khaled invest in bid to purchase historic Los Angeles hotel. Retrieved from http://www.xxlmag.com/news/2018/03/nipsey-hussle-dj-khaled-invest-bid-historic-los-angeles-hotel/

Kennedy, J. (2018, January 16). A beginner’s guide to bitcoin and cryptocurrency, according to Nipsey Hussle. Retrieved from http://www.xxlmag.com/lifestyle/tech/2018/01/nipsey-hussle-guide-bitcoin-cryptocurrency/

Markman, R. (2013, October 9). Jay Z spent how much on Nipsey Hussle’s Crenshaw cd? Retrieved from http://www.mtv.com/news/1715301/jay-z-nipsey-hussle-crenshaw-100-cd/

Evaluating the Strengths and Weaknesses of Music Companies

Evaluating the Strengths and Weaknesses of Music Companies

Interscope Records is a staple in the Music Industry. It is important to assess the major companies in your designated industry in order to learn how to conduct business and be efficient.

One strength for Interscope Records is their roster and portfolio. They have very established artists that can generate buzz, produce revenues for the company and draw talent. Some of the bigger acts include: Dr. Dre, Eminem, Gwen Stefani, Kendrick Lamar, Madonna and Selena Gomez. Below are some figures that show how popular and wealthy these artists are.

Interscope Artists – Networth and IG Followers
Artist Net Worth IG Followers
Dr. Dre $830m 2.9m
Madonna $800m 10.2m
Eminem $190m 14.5m
Gwen Stefani $100m 7.1m
Selena Gomez $60m 128m
Kendrick Lamar $35m 7.7m

These music figures are brands with extreme influence over the entertainment industry. Having these assets gives Interscope strength because these artists are brands that can persuade the general population to support Interscope, which will lead to greater brand awareness and revenues for the company.

A weakness of Interscope is their inability to devote valuable resources equally among artists. According to an article published on The Balance, “as a new signing… [artists are] likely to find [themselves] fighting for attention from the label” (McDonald, 2017). Having huge acts under Interscope’s umbrella creates challenges for the company. A new artist may sign with the company in hopes of accelerating their music career, but will likely find themselves struggling to gain the support from the label. Capital is often allocated to projects that have the highest rate of return. It will be difficult for a new artist to gain funding for their project if Kendrick Lamar requires those same resources. This weakness is the side-effect of having a star-studded roster, but it’s still a weakness nevertheless.

The departments that would be responsible for Interscope’s strengths and weaknesses include the A&R Department, the Finance group and the Marketing team. The A&R Department is responsible for finding and developing talent. This team works with artists to keep them happy and grow their career, while ensuring the talent creates revenue for Interscope. They played a major role in establishing the acts I have listed above (strength) but they are also relied upon to cater to new artists. When they cannot get new acts the resources they need to elevate their career, they are creating internal weaknesses for the company. Finance has a role in the strengths and weaknesses as well because they must properly present projects in a way that upper manage finds appealing and noteworthy. When they present the projects effectively, they get the capital needed to pursue them. However, if they cannot show the benefits of the projects they can be put on hold. The effectiveness (or lack thereof) of the Finance group affects new and established artists, which can either magnify the strength or weakness I have listed. Lastly, the marketing team must promote artists and bring appealing products to the general public’s attention. They are strengthening the company when they successfully promote a new album by Kendrick Lamar, but weakening it when new acts feel ignored or overlooked, which will eventually lead to broken ties. These three departments must function at the highest level in order to fortify strengths and diminish weaknesses.

One great opportunity for Interscope Records is music streaming. Striking deals with home speakers like Google Home or Echo are opportunities that Interscope should invest time and resources on. Perhaps there can be some sort of agreement that Interscope’s artists stream out of the speakers when a person feels like casually listening to music while cooking or cleaning. Music companies must be creative in order to get the most out of music streaming while it’s trending.

A threat for Interscope Records is the rise of independent artists. Technology and social media has given artists the tools to build their brands without the help of conventional record labels. As stated in an article published on Forbes, “streaming services like Apple Music are stepping in to oversee traditional label responsibilities…, making the future of artist development even more cryptic.” (Hu, 2016). Technological and social companies are able to support artists in the same ways a music company can, with a little bit more flexibility. Artists no longer need to rely on music companies like Interscope to launch their career. There are more options on the market now, which will continue to threaten Interscope’s ability to attract the talent they need to remain relevant.

Trends that have impacted Interscope Records is the rise of social media and the way technology has been successfully interwoven with music. Music streaming is a perfect example of this notion. This is a both an opportunity and a threat. The opportunities involve embracing this new innovative music listening experience. Music streaming allows artists and companies to gain revenues every time a fan plays their music. On the flip side, the payouts offered by music streaming platforms are minimal. This creates a threat because artists want to make the most money out of their craft. It’s a slippery slope that record companies must approach very carefully. They want artists to embrace this new music listening experience, but in order to do so they must offer other incentives. I think the record labels that can convey the benefits of music streaming, while still offering artists creative ways to earn more money from recorded music, will flourish under this current environment. I trust that Interscope, under the guidance of UMG, will be able to do just that.

 

Resources

Hu, C. (2016, October 15). The Record Labels Of The Future Are Already Here. Forbes. Retrieved on October 4, 2017 from: https://www.forbes.com/sites/cheriehu/2016/10/15/the-record-labels-of-the-future-are-already-here/#7e308fd7872a

Celebrity Networth. (n.d.). Selena Gomez’s Net Worth. Retrieved on October 4, 2017 from:  https://www.celebritynetworth.com/richest-celebrities/singers/selena-gomez-net-worth/

Strohm, M. (2017, February 8). Dr. Dre Net Worth. Bankrate. Retrieved on October 4, 2017 from: http://www.bankrate.com/lifestyle/celebrity-money/how-music-mogul-dr-dre-grew-his-net-worth/

Terry, L. (2017, June 23). Eminem’s net Worth is $190 million. Bankrate. Retrieved on October 4, 2017 from: http://www.bankrate.com/lifestyle/celebrity-money/eminem-net-worth/

Zelinsky-Syarto, M. (2017, April 10). Gwen Stefani’s Net Worth is $100 million. Bankrate. Retrieved on October 4, 2017 from: http://www.bankrate.com/lifestyle/celebrity-money/gwen-stefani-net-worth/

Dabholkar, S. (2017, April 12). “King of West Coast Rap” Worth? Earn the Necklace. Retrieved on October 4, 2017 from: https://www.earnthenecklace.com/new-2016-album-kendrick-lamar-net-worth-will-rise-even/

Lynch, J. (2014, December 2). Madonna Bests Paul McCartney as World’s Richest Recording Artist. Billboard. Retrieved on October 4, 2017 from: http://www.billboard.com/articles/news/6334796/madonna-paul-mccartney-worlds-richest-list

McDonald, H. (2017, March 6). Understanding the Pros and Cons of Label Record Deals. The Balance. Retrieved on October 4, 2017 from: https://www.thebalance.com/major-label-record-deals-understanding-the-pros-and-cons-2460377

2016 Digital Music Revenues

2016 Digital Music Revenues

The upsurge in digital music revenue has created immense opportunities for the music industry to expand and finally grow. However, there are still challenges ahead. As artist begin to realize the power they have in generating profit, it will become imperative for business professionals to reaffirm their importance to the musician’s career. My experience as an independent artist accompanied with my analytical skills allows me to communicate with both sides and enhance business relationships.

Jose Arroyo

UMG’s Management Approach

UMG’s Management Approach

As an active music artist with a long-term goal of managing my own music company, I admire UMG’s success and influence in the music industry. They have a wide array of artists on their roster, such as Drake, The Weekend, Adele, Nicki Minaj, Rihanna, and Taylor Swift. They also own the rights to many popular albums and songs from music legends, such as John Lennon, the Beatles, James Brown, Stevie Wonder, Kiss, and even Eazy-E. Through asset acquisitions (like album copyrights and publishing rights), artist development, market adaptability, innovative leadership, and customer focus, UMG has been able to provide high quality products while putting themselves in a profitable position.
UMG is currently under the leadership of Sir Lucian Grainge. He has been the CEO and Chairman of the Management Board since 2010. Grainge has over 25 years of experience in the music industry and has an extensive background in music publishing. According to an article published by Variety, Universal Music Group’s value has tripled in value since Grainge became the Chairman and CEO of the company.
The music industry has fought hard to break out of the depressive downturn it’s been in for the past 10 years plus. Pirating and digital music sales are some of the factors that contributed to the despair. Music streaming, however, has created an upsurge in revenues for the past two years, and large music corporations love it. UMG is demonstrating effective management because they are showing adaptability to the new music environment. Instead of fighting the changes and complaining about the marginal payouts streaming platforms distribute, UMG has embraced the changing landscape while increasing their revenue. They are also displaying their customer focus by taking initiative and become engaged in the new market.
According to statistics compiled by midiaresearch.com, UMG has the largest music industry market share when compared to all other music companies, accounting for 29%. Sony and Warner Music make up 22% and 17%, respectively. The other 31% belongs to all independent music companies not named UMG, Sony, or Warner Music. UMG’s grasp on the music industry can be attributed to their diverse catalogue of music, adaptable marketing strategies, and innovative leadership.

I believe the company demonstrates effective management because they are adapting their business approach and using their current assets to maximize profitability, while making further acquisitions that will increase revenue and grow their footprint in the music industry. They are also providing products in a way that satisfies consumer needs. As they say in business, you have to ride the wave. That wave right now in the music industry is streaming.

Last month, UMG struck a licensing deal with Spotify, the biggest music streaming company at the moment. By making this move, Universal is demonstrating it’s market adaptability by investing in the new music market landscape. According to a publication released by Statista, streaming subscription services accounted for 38% of total music consumption in 2016. This upsurge translated to increased revenues in a market that has seen downturns year after year.

Although UMG is allowing Spotify access to their catalogue, they still included some contingencies to that will be advantageous to the company’s long-term goal of making music streaming profits a sustainable source of income. In order to come to terms, UMG required Spotify to “window” certain albums, where only paid subscribers to the will be allowed access to the music for two weeks. This move was made as an attempt to incentivize going from a free Spotify plan to a monthly subscription. Spotify has also agreed to give UMG access to their massive database, which will give Universal insight into current and future trends listening trends. In an article published through Full Sail’s library, Robert Levine quotes an industry analyst saying, “Universal is the one that can call the shots,” and I couldn’t agree more. UMG is the first of the Big 3 to strike a licensing deal with Spotify. Their market flexibility and ability to position themselves for sustainable growth (while catering to the average music consumer) shows effective management and great leadership skills.

Resources:

http://variety.com/2017/music/news/universal-music-group-valuation-lucian-grainge-1202400328/

http://www.ifpi.org/news/IFPI-GLOBAL-MUSIC-REPORT-2017

http://www.digitalmusicnews.com/2017/02/24/umg-streaming-revenue/

https://musicindustryblog.wordpress.com/2017/02/26/global-recorded-market-music-market-shares-2016/

https://www.statista.com/statistics/502908/music-consumption-genre-format-usa/

http://web.b.ebscohost.com.oclc.fullsail.edu:81/ehost/detail/detail?sid=47cf5b1b-36f9-4cc3-bcd6-f1560e14166d%40sessionmgr103&vid=6&hid=125&bdata=JnNpdGU9ZWhvc3QtbGl2ZQ%3d%3d#AN=122384889&db=bth

BMG’s Perspective on Digital Music Revenues

BMG’s Perspective on Digital Music Revenues

With Nielsen and The Recording Industry Association of America (RIAA) releasing their Music Industry Revenues Report for 2016, it has been revealed that many record labels are raking in the profits. For the past decade (thanks to piracy and a drop off in physical CD sales) the music industry has been constantly diminishing in value. Last year, however, music streaming earnings allowed the industry to see an increase in revenue, and music companies love it. Technological breakthroughs have given fans the ability to easily discover new music. It has also allowed artists to showcase their musical talents to the world. However, it has created over saturation in the market. Online music streaming has manifested itself into a new wave of revenue, and record labels are riding it all the way to the bank. However, artists have long expressed their discontent with the marginal pay outs that streaming platforms distribute. Digital Music News published an article illustrating how discouraging music streaming royalties are to the average artist. In the article, they exhibited the royalties an independent band received from having over 1 million streams. The results: $4,955.90, an average of $0.004891 per stream. I believe it’s only a matter of time before artists demand higher cuts in royalties from music streaming.

The Financial Times published another article this month discussing this topic. They sat with Hartwig Masuch, CEO of BMG (Bertelsmann Music Group), and asked for his opinion on music streaming and how it will affect the future of the industry. According to Masuch, there will soon be “wake-up calls” for many record labels who believe they are living the dream. “A return to growth triggered by the upswing in streaming is potentially under threat, as artists start to demand a much greater cut of royalty revenues generated.” Streaming and the inevitable demand for higher royalty rates among artists is impacting all of the major labels, but BMG is sheltering itself from the upcoming storm by paying their artists 75% of streaming royalties. According to Masuch, “big music companies spent an average of 19% of their revenues on artists royalties.” That’s a wide gap compared to what BMG pays its artists. Masuch also stated that major record labels use the “complicated” structure of the music streaming market to minimize royalties paid to artists, but even that explanation will soon fall on deaf ears.

I believe BMG is handling the situation very well and is blazing a trail towards future success. Bertelsmann was a media giant in the music industry before, but Sony acquired the company in 2008 for $1.2 Billion. Masuch then reassembled the company with a new vision, “to help artists and songwriters make the very most of their songs and recordings in the digital age.” Masuch created a new company tailored specifically for a digital market, distancing themselves from traditional label business models and adopting a digital infrastructure that allows for songwriters and artists to gain larger royalty revenues. They’re new business model will certainly attract emerging acts. Most artists choose to stay independent, not because they want to do it all by themselves, but because they want freedom to create and higher profitability. By establishing their stance on music streaming and publically advertising their 75% streaming royalty pay outs to artists, they are positioning themselves favorably among musicians seeking the influential power of a music company.

I believe BMG’s response to the growing frustration artists are experiencing due to low royalty rates will bring long term success to the company. In a Financial Times article that was published this month, Masuch stated that “BMG’s ebitda (earnings before interest, tax, depreciation, and amortization) margin of 22.8 percent in 2016 [is] proof that the larger music businesses have cost bases still mired in the physical world.” According to an article published by Music Business Worldwide, “Universal Music Group posted an annual ebitda figure of $712M… representing a 13% [profit] margin.” Sony had a profit margin of 11.5%, and Warner Music Group had a profit margin of 15.9%. BMG, on the other hand, had a profit margin of 22.8%, larger when compared to the Big 3. Although their total revenue was lower than the other companies, when the data is normalized one can see a big difference in the four company’s profit margin.

The article went on to state how BMG has made over 100 acquisitions over the last 8 years and are now focusing on “organic growth.” I believe the company will do just that within the next few years. But there still remains a question to be answered: How are music streaming platforms going to contribute to higher royalty rates for music artists and labels?

Resources:

http://www.digitalmusicnews.com/2016/05/26/band-1-million-spotify-streams-royalties/

https://www.musicbusinessworldwide.com/bmg-revenue-tops-450m-2016-23-profit-margin

https://www.bmg.com/us/about.html

http://www.completemusicupdate.com/article/bmg-boss-says-streaming-boom-will-force-labels-to-offer-artists-better-royalties/

https://www.ft.com/content/e33399ca-1b76-11e7-bcac-6d03d067f81f

Soundcloud’s Future

Soundcloud’s Future

SoundCloud is one of the biggest online music platforms around right now. Boasting approximately 175 million users, it is difficult to see how the giant music streaming company could possible disappear in the next few years. However, they are currently in a problematic situation that will either make or break the company. I believe SoundCloud’s future will consist of rainy days.

After reading the article by KLS.com and understanding some of the warning signs that tell whether a company will ultimately fail, I came to the conclusion that SoundCloud is in jeopardy. Although the music streaming website is popular among musicians and DJ’s because it is a free service, their recent transition into becoming a paid music subscription platform has been anything but seamless. SoundCloud now offers music subscription packages that range from $4.99-$9.99/month (Go and Go+), along with their free package as well. Their free package offers users access to 120M tracks. SoundCloud Go offers access to 120M tracks, offline listening, and removes ads. Their Go+ package offers 150M tracks, offline listening, and no ads. However, there are some flaws in their business model that could ultimately lead to an unsuccessful endeavor.

Ben Stager from MakeUseOf.com published an article in April 2016 titled, “We tried SoundCloud Go so you don’t have to.” In the article, he gives an in-depth look into his musical experience with SoundCloud Go.  One of the major flaws he highlights is SoundCloud’s catalogue. Soundcloud’s musical library is devoid of many well-known artists such as Kanye West, Jay-Z, Rihanna, and Beyonce. This is understandable, seeing as how Jay-Z’s has pulled all of his music from streaming platforms and made them available exclusively on Tidal. Though it is an ongoing battle in regards to whether these big name artists should display their music on Spotify and AppleMusic (seeing as how pay outs are marginal), one thing is for certain: they are not running to SoundCloud for music streaming. While on the website, I did some research of my own as well. I looked up a few of my favorite independent underground artist (such as Papoose and K-Rino) and they had a minimal amount of their enormous catalogue on the website.  I was not surprised.

Although SoundCloud has had a few milestones, for example partnering with Chance the Rapper to make his album, “Coloring Book,” available for free (even though Apple Music struck a deal to stream the album exclusively two weeks prior to SoundCloud), the company has not had many highlighting moments. It was once said that SoundCloud would be the Facebook and YouTube of music streaming, but the fact is that many established artists have not rallied around the platform. In my opinion, it’s becoming the MySpace of music streaming. It is big amongst independent and upcoming artists, but once they establish themselves they tend to move on from the platform. Just look at how Drake abandoned the website a few years ago.

Besides not having the support of many well established artists, examining SoundCloud’s financial forecast will reveal that the money won’t be raining down any time soon. Although the company has been experiencing losses for the past couple of years, they have continued to add employees. According to Digital Music News, SoundCloud expended $28M on wages and salaries for 295 employees in 2015. That means the company spent an average $95,000/employee that year. Their employee wages were less than their total revenues. This does not include any other operational costs, such as rent, utilities, and marketing. The year prior, they spent an average of $80,000 each salary for 236 employees. The costs of acquiring talent and operating in the shark-infested waters of the music subscription sea keeps rising. SoundCloud is basing its future success on the idea that they will be successful. Alexander Ljung (Co-founder of SoundCloud) commented on his company’s business model, “The assumption of a successful launch of the new subscription service is the key element of… financial projections for the next three years… [It] bears financial risks regarding the operating results and cash flows of the group.” According to Ljung, the company might have trouble generating sufficient cash for upcoming expenditures, and may require additional funding from investors, or they could “run out of cash earlier than December 31, 2017.” There is a lot of uncertainty clouding the company’s financial future, and that is an unattractive trait for a business looking to acquire more investors.

Besides reporting losses since 2010, SoundCloud has also explored the possibility of selling the company. According to Hypebot, SoundCloud has been attempting to raise $100M since the summer of 2016 (around the same time they launched their Go+ subscription service). Bloomberg.com also reported that SoundCloud was considering a sale for $1 billion. Business insider made some good points as to why the platform would consider selling. One of the reasons they presented was that SoundCloud might not be able to compete in the rough waters of music streaming, which is dominated by Spotify and Apple Music. Pandora and YouTube also have shares in the market, and consumers are not likely to pay for music subscriptions from multiple platforms. 26% of SoundCloud’s free users are already paid subscribers to other companies.

Spotify initially showed interest in acquiring SoundCloud, however, last year in December those talks came to a mute. Techcrunch.com published an article detailing the unrealized acquisition. With Spotify’s plans of going public on the trading market, they decided not to purchase SoundCloud, as it could negatively affect their preparation. Dealing with the labels is one thing, but SoundCloud caters to independent artists and DJ’s. Acquiring the company would require Spotify to negotiate deals with labels, independent artists, and DJ’s, something they were not up for. It was once approximated that SoundCloud was worth about $1 billion, but an article published by Digitalchew.com reported SoundCloud could sell for as little as $250M, a 75% decrease in former valuation. Complete Music Update also published an article detailing how SoundCloud’s CFO and Finance Director exited the company, causing more concern for a sinking ship. Whether SoundCloud can turn in a profit under different management remains to be revealed, but seeing as how prominent Spotify and Apple music are becoming,  I do not see the music streaming platform being around in the next few years.

Resources:

http://www.makeuseof.com/tag/tried-soundcloud-go/

http://www.news.com.au/technology/home-entertainment/audio/chance-the-rapper-takes-to-twitter-to-defend-649000-streaming-deal-with-apple-music/news-story/47553b67cda08a5f1c01cd4821669bb1

https://soundcloud.com

http://www.digitalmusicnews.com/2017/01/05/google-soundcloud-possible-bankrupt/

http://www.hypebot.com/hypebot/2017/03/as-soundclouds-cash-woes-continue-fire-sale-at-40-of-valuation-seen-as-likely.html

https://www.bloomberg.com/news/articles/2016-07-27/soundcloud-owners-said-to-mull-1-billion-sale-of-music-service

http://www.businessinsider.com/soundcloud-could-sell-for-1-billion-2016-7

https://techcrunch.com/2016/12/08/spotify-soundcloud-deal-dead/

http://digitalchew.com/2017/03/13/soundclod-sale-investment/

http://www.completemusicupdate.com/article/soundcloud-seeks-new-funding-as-key-execs-leave/

Search the Website