Subject: Manage for Success: Some Observations, Newsletter #25, May 2003

"Manage for Success" is a free monthly newsletter for record label executives who want to operate their companies efficiently and successfully.

It's published by Keith Holzman of Solutions Unlimited, a management consultant, troubleshooter, and trusted advisor, and is based on his many years as a senior executive in the music industry.

Copyright 2003 by Keith Holzman, Solutions Unlimited. All rights reserved.

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There's a lot to write about as I begin this third year of Manage for Success newsletters.

First, the RIAA sent Instant Messages to about 200,00 users of peer-to-peer services KaZaA and Grokster on April 29th warning them that trading copyrighted material is illegal. Here's an excerpt of the message that was sent:

COPYRIGHT INFRINGEMENT WARNING: It appears that you are offering copyrighted music to others from your computer. Distributing or downloading copyrighted music on the Internet without permission from the copyright owner is ILLEGAL. It hurts songwriters who create and musicians who perform the music you love, and all the other people who bring you music.

When you break the law, you risk legal penalties. There is a simple way to avoid that risk: DON'T STEAL MUSIC, either by offering it to others to copy or downloading it on a "file-sharing" system like this.

When you offer music on these systems, you are not anonymous and you can easily be identified also may have unlocked and exposed your computer and your private files to anyone on the Internet. Don't take these chances. Disable the share feature or uninstall your "file-sharing" software.

Whether this message will actually dissuade traders of illegal music files is in some question, but it's one of the first attempts on the part of the industry to try to put a stop to such activity.

Of course it would have been better if the majors had set up user-friendly purchase services of their own three years ago. What they eventually came up with, legal services such as Pressplay, MusicNet, and Rhapsody, have not been successful. They require a monthly subscription fee, are primarily for streaming of music, and downloads that are permitted are not always burnable onto CDs. But better late than never, I suppose.

Second, and seemingly as a response to the above (although it's been widely anticipated for many weeks and was announced the previous day -- April 28th) was Apple Computer's announcement and launch of the iTunes Music Store, its own on-line music service. It’s currently available only to users of Apple's Mac OS X, and is thus limited to a relatively small segment of the public. However, it's expected that Apple will open the service to Wintel PC users later in the year, after adventurous music lovers help Apple remove any bugs that might exist. It’s also rumored that Apple will make the service available via AOL, adding another potentially large group of customers.

About 200,000 titles are currently available from the five major label groups and Apple is adding songs on a regular basis -- as quickly as they can be processed. The iTunes service is beautifully designed, is extremely easy to use, and requires no monthly subscription. The software allows you to select by artist, song title, genre, etc. Album covers are displayed and you can preview at no cost an unlimited quantity of 30-second excerpts. Individual songs can be purchased for 99 cents each and they may be stored permanently on your hard drive and up to three other computers, to an iPod music player, and burned to a CD or DVD. Your rights to each purchase never expire. Complete albums can be bought from about $8.00 to $11.00. It’s estimated that Apple is paying the labels about 65 cents for each track sold.

You have a choice of formats: the new AAC (Advanced Audio Codec -- Dolby technology that's incorporated in the MPEG-4 standard,) MP3, AIFF, and WAV. AAC uses a much better sounding form of compression than MP3, takes up less space, and makes downloading quicker.

It's possible that Apple may set up an affiliate program for their music store to enable independent labels and artists to make their music available on the service. Interested parties should mail their company materials including a CD, to Apple, Procurement Business Office, 2511 Laguna Blvd., Mail Stop 204-D1, Elk Grove, CA 95758.

That would be a win-win situation for both music lovers and indie labels.

I hope that Apple is successful with this venture and that it reduces illegal file swapping.

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Paying attention to how you operate your company, the artists you sign, and how you go about marketing their music is a key to financial success and longevity as a label. Most small labels don't have a big staff, and their owners frequently don't have anyone to bounce ideas off or to ask advise from.

That's where I come in. With almost forty years of record industry experience there are few problems I haven't met or had to solve at one time or another.

So when you come up against a wall of problems, and need some managerial advice, call me to see how I can improve your particular situation.

And if you have a topic you'd like me to address in future newsletters, please call or email me keith@holzmansolutions.com.

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Item Three relates to deep catalog as discussed in last month's message (http://www.holzmansolutions.com/articles/24-apr03.html). Sometimes it just doesn't make economic sense to press an additional quantity of 500 pieces of a slow-moving title when anywhere from ten to one hundred may represent a year's sales. However, for whatever reason you decide to keep a title available -- it's still great music, a slow but reasonable trickle of customer demand, etc. -- consider burning your own CDs in-house on a one-to-one basis. You can do this on almost any computer, and can print one-color (or multi-color labels if you want to be fancy and have a color printer.) If you run out of print materials you can always print the graphics on a color printer on an as-needed basis.

One label, the newly revived Nimbus, has done this on a rather grand scale in the U.K. They have an extensive catalog going back 20 years and have set up an on-demand CD-R operation that runs 24/7 unattended. And all for back catalog!

And now I'll get on my soapbox for the Fourth item. As aggregate industry sales continue to decline, it appears that the major labels increased their quantity of new releases last year by over 13 percent, while at their same time their sales volume decreased! The average major label new release title sold less than 8000 units. And we all know that most of those titles were probably not worth the plastic and paper used on them.

On the other hand, indies shipped 3 percent more titles than in the previous year -- still too many. And worse, the average sale of a new release title from indie labels slipped to only 1324 units.

Therefore I caution all label owners to reconsider their artist signings and to think seriously as to whether or not they can get a reasonable return on investment for each and every new title issued.

Release fewer records, and work them harder. That's a great way to manage for success.

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Copyright 2003 by Keith Holzman, Solutions Unlimited. All rights reserved.