Manage for Success: In the News, Newsletter #75, July 2007


"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 2007 by Keith Holzman, Solutions Unlimited. All rights reserved.


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Several disparate events occurred in the least few weeks that require notice.


The first half of 2007 was definitely not one for the record books. U.S. album sales continued their decline -- approximately 230 million units, a 15.1 percent drop from last year according to SoundScan. Digital sales rose to 417 million units, an increase of 48.5 percent, but didn't make up for the loss of physical goods.


CD album sales were just under 58 million units in the U.K. in the first half of the year, a 10 percent drop from the same period last year, per BPI (British Phonographic Industry,) although this was 32 percent more than those of ten years ago. Digital sales averaged more than 100,000 units a week, but didn't cover the CD shortfall. Incidentally, about 90 percent of singles sold in England were by download or for mobile phones.


Domestically, the four major label groups maintained their relative market shares -- Universal in first position with more than 31 percent of the U.S. market, Sony BMG in second place with just over 25 percent, Warner Music in third with just over 20 percent, thanks in part to the success of its indie-distributors, ADA and Ryko. The independent sector as a whole was in fourth place with almost 13 percent, and EMI was in last place with just over 10 percent.


Following up on last month's newsletter, <http://www.holzmansolutions.com/articles/74-june-07.html>, use of covermounts continue to make news. The Sunday Mail (U.K.) gave away Prince's new 10-track album, "Planet Earth" to the dismay of British trade group, Entertainment Retailers Association, representing magazines and newspapers which claim the Mail is hyping its circulation by including the album. The covermount usage led Sony BMG to pull the release of the album in England.


Internet radio has been rocked to an extreme degree by a high increase in fees promulgated a few months ago by the Copyright Royalty Board, a division of the Library of Congress empowered to set rates for use of music copyrights. The new fees were suggested by SoundExchange, the fee collector and disseminator, and were to have gone into effect on July 15th and would have been based on the number of songs played -- with a minimum fee of $6000 per channel. Individual songs would incrementally increase per song per listener each year until 2010.


This is next to impossible for internet stations who broadcast many separate channels or feeds simultaneously. Most stations contested the high rates and many would have gone bankrupt or be forced to cease providing internet feeds. Note that the new fees were to be retroactive to the beginning of 2006.


Digital Music News posted an excellent FAQ on the subject: <
http://digitalmusicnews.com/stories/071507ten/view >


At just about the eleventh hour, a coalition of webcasters may have worked out a tentative deal with the recording industry that could temporarily holds off excessive fees. SoundExchange executive director John Simpson advised small webcasters to temporarily disregard the July 15th deadline so long as they continued to pay under the old license arrangement. Meanwhile, webcaster consortium, SaveNetRadio rallied key House Small Business Committee members around legislation that would extend the deadline.


The industry, SoundExchange, the Royalty Board, and Congress must thoroughly examine this problem and come up with a solution that's fair to all parties -- an unlikely but hoped for event. All have valid arguments. Musicians, songwriters, and publishers need to make money, but consumers want internet radio to survive, so a system needs to be established that’s reasonably fair to all sides.


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I love music and would like to see record labels thrive. Therefore I advise my clients how they can run their companies efficiently and profitably. I've developed many ways for them to increase income while keeping costs under control, always tailored to their specific operating style and function.


Let me help you as I've helped so many other labels "manage for success." Email me at <mailto:keith@holzmansolutions.com> so we can discuss how I can improve your business.


Should you be thinking of starting your own label, I suggest you get my book "The Complete Guide To Starting A Record Company" which can be ordered as a downloadable eBook in PDF form, or as a printed, spiral-bound volume. Download the Introduction and read the complete Table of Contents at <http://www.recordcompanystartup.com/>.


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In the digital music world, Tunecore recently announced that it's making meaningful payouts to its participating artists and labels -- $1.7 million since May of 2006. Tunecore charges just a nominal upfront fee for its service and might attract increased participation from other artists.


Meanwhile The Orchard is merging with Digital Music Group, Inc., a consolidation within the indie online distribution field. The Orchard will be the controlling entity and will use the Orchard name, but will be traded on the NASDAQ exchange as DMGI. The Orchard had unaudited revenues of $14.9 million in 2006 with a gross profit of $4.9 million, while DMGI had a profit of $.8 million on gross revenues of $10.2 million.


Universal Music has been much in the news with their recent announcement that they were not renewing their contract with Apple's iTunes Music Store but would go on a month-to-month basis. Some see this as a game of corporate chicken between the behemoth and Apple's Steve Jobs. Uni wants to negotiate a more favorable contract giving them control over individual track pricing, something Apple's declined to do.


I rather doubt that Universal will get its way, and think it unlikely that they'll pull their music from the iTunes store. It's the third largest distributor of music after Wal-Mart and Best Buy and it continues to grow. iTunes is intimately linked to the iPod and the new iPhone. As Adam C. Engst wrote in TidBITS, "it makes no sense to endager a relationship with a large retailer that stands to become even more powerful." Furthermore, I don't see Steve Jobs giving up on his flat-rate pricing philosophy to any single supplier, no matter how powerful.


In positive news, the AARP is turning into a radio and concert promoter, pitching music to the boomer crowd which is not being properly addressed by commercial stations. They'll be sponsoring a Tony Bennett national tour (does he really needs sponsorship at this point in his illustrious career?) shows with Rod Stewart and Earth, Wind and Fire, and a radio service devoted to the fastest-growing market of people 45 and older. According to the Washington Post, boomers still buy lots of CDs, but mostly online from sources such as Amazon.com. AARP is addressing "the frustration that there's not enough choices on the radio...and is finding that its 39 million members are eager for programming that they can tap into through the latest technologies."


Finally, "the classical recording business is not dead in the water" writes John von Rhein in the Chicago Tribune. 55 out-of-print titles by the Chicago Symphony Orchestra have been reissued by the online classical music store ArkivMusic. Many of Arkiv's releases had been previously deleted or were hard-to-find. CDS are produced "on demand" from a database of nearly 3000 titles, but they also deal in new product, maintaining a list of some 87,000 CD, DVD, DVD-Audio and Super Audio CD titles. They have a network of 20 distribution centers in the U.S. and Canada and achieved 2006 sales over $7 million -- not bad for "niche" music!


Until next month,

Keith Holzman -- Solutions Unlimited

Helping Record Labels Manage for Success.


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Copyright 2007 by Keith Holzman, Solutions Unlimited. All rights reserved.