Manage for Success: Dismal Days, Newsletter #96, April 2009


"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 2009 by Keith Holzman, Solutions Unlimited. All rights reserved.


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It appears that 2009 has started with anything but a bang, as music industry sales for the First Quarter were dismal. This emulates what's happening elsewhere in the U.S. economy and in the world at large.


According to an April 11th article in Billboard, "During the three months ended March 29, combined U.S. sales of albums and track-equivalent albums (or TEA, where 10 digital tracks equal an album), totaled 123.4 million units, down 7% from 132.7 million in the corresponding period last year, according to Nielsen SoundScan. While digital album sales jumped 23% to 19.3 million units and TEA sales rose 17% to 32.9 million, CD sales plunged 20.3% to 70.5 million. That compares to a 16% fall in CD sales in the year-earlier quarter and a 25.2% drop in fourth-quarter 2008."


One positive sign was that digital tracks were up 17 percent in the first quarter, with hits growing at a faster pace than non-hits.


As for where music is sold, chain stores were the top channel, with sales at mass merchants declining. And with the liquidation of rack-jobber Handelman last year, the announced closing of Virgin Megastores by this summer, as well as the loss of Circuit City and Borders and many small retailers during the course of the year, consumers have fewer places where they can buy CDs -- assuming they're motivated to do so. Maybe this will be good for Amazon.com, but certainly not for the industry as a whole.


The market shares of the four majors changed very little from last year's first quarter, but independent labels as a group were off slightly. Further, not a single release during the quarter reached platinum status, and only 39 titles sold more than 25,000 units in their first week of release.


So what can you as an owner or manager of an Indie record company do?


First, tighten your belt by carefully husbanding your available capital. Be sure you've developed comprehensive budgets for all aspects of your operation, but particularly for marketing which is an area that traditionally bleeds money. Then follow your budgets closely, spend wisely, and don't chase that elusive hit. You might also look carefully at your release schedule and consider deferring, or even not releasing, one or two titles as you might prefer. In short, batten down the hatches in order to ride out the economic storm.


You should also do your best to keep your artists working in front of paying audiences, and allow them to sell CDs at their venues.


Make maximum use of the Internet in your marketing, using social media networks such as Facebook, MySpace, etc. to get word out to the public about your artists and their music. Assign street teams to work those artists who can benefit most from such efforts.


Use sheer hard work and sweat equity to replace what you might do if you had lots of cash available.


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As you can see from these newsletters, I endeavor to keep current on all matters affecting our industry. So if you need advice on how to make your label successful, let me help you as I've helped so many others "manage for success." Email me at <mailto:keith@holzmansolutions.com> so we can discuss how I can improve your business.


If you're considering forming your own label, I recommend my book "The Complete Guide To Starting A Record Company," The Second Edition can be ordered as a downloadable eBook in PDF form, or as a printed, spiral-bound volume. Read the complete Table of Contents and download the Introduction at <http://www.recordcompanystartup.com/>.


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Last week Apple's iTunes instituted a system of variable pricing, giving the majors the higher prices that they've wanted for a long while. There are now three price points -- $1.29 which is primarily for hits and other top-ranked songs, 99 cents for most of the catalog, and 69 cents -- presumably for  deep catalog or slow-moving titles. All these tracks are free of digital rights management.


Almost immediately AmazonMP3, whose download market share has been rapidly increasing, followed suit with a similar pricing structure, which was then emulated by Lala, Rhapsody, and Wal-Mart. However, eMusic, a major supplier of tracks from Indie labels, announced that they planned to keep their prices no higher than 99 cents.


It's too soon to gauge consumer reaction, but just a few days after prices were raised, Billboard reported that the higher sales price may have affected chart rankings of some titles. I suspect that those who are actually willing to pay for their music won't mind some higher prices for the tracks they really want to own, and iTunes makes the purchase and download process extremely easy. Other people may complain that Apple is gouging the public, but then these are likely to be the people who pay nothing for the downloads they've stolen off the web.


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The Copyright Office has submitted to Congress a proposed new fee schedule that will go into effect on August first, unless Congress rejects the schedule. The fee for electronic registration will remain $35. Filing on a Form CO, which is filled out online, printed with 2D barcodes that contain the information from the application, and mailed to the Office, will increase to $50. Filing on traditional paper forms without barcodes will be $65 to reflect the higher cost to the Office of processing these forms.


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In a surprising move the French National Assembly, in a sparsely attended session, rejected a proposed "Creation and Internet" law that contained a highly controversial three-strikes scheme allowing an independent administrative authority to gather copyright infringers' data from ISPs in a move to cut off internet access after two warnings. The bill had been strongly supported by President Sarkozy and the French Senate and Assembly.


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Spotify, a new application and service available in the U.K. but not yet in the U.S., is "a new way to enjoy music" according to their website, which carries this statement: "Because music is social, Spotify allows you to share songs and playlists with friends, and even work together on collaborative playlists....We want to connect millions of people with their favorite songs by creating a product that people love to use. We respect creativity and believe in fairly compensating artists for their work. We’ve cleared the rights to use the music you’ll listen to in Spotify." Spotify uses an advertisement-based model and is something to keep an eye on as they plan to make music available not just to your computer but also to your iPhone.


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Finally, on another International note, Google announced that they will be offering free music to anyone inside China. The tracks are derived from the four major label groups -- Uni, WMG, Sony, and EMI. According to The New York Times "Google, which has no plans to offer the service elsewhere, hopes to build traffic and win new advertisers by allowing the Chinese to search for free music on its site.

Record labels say that instead of earning money from each download, they will share advertising revenue with Google’s partner in the deal, a Chinese company called Top100.cn."


Until next month,

Keith Holzman -- Solutions Unlimited

Helping Record Labels Manage for Success.

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Copyright 2009 by Keith Holzman, Solutions Unlimited. All rights reserved.