Monday, July 27, 2015

Music Industry Cheats...

Well, Taylor Swift may be a lot of things, but we’re not really sure “underdog” is one of them. Let’s back up a little bit.
Like a lot of country singers – that’s how she first broke in – Taylor Swift grew up on a farm. It wasn’t a subsistence farm in the rough part of Kentucky but a Christmas-tree farm in Pennsylvania. “Her mother worked in finance,” a New Yorker story says, “and her father, a descendant of three generations of bank presidents, is a stockbroker for Merrill Lynch. (He bought the tree farm from a client.)” In Swift’s hometown, she told the magazine’s Lizzie Widdicombe, “it mattered what kind of designer handbag you brought to school.”
So let’s acknowledge that she began life with a slight leg up on the privilege escalator. But the playing field is about a get a lot less level: “When she was ten, her mother began driving her around on weekends to sing at karaoke competitions,” the New Yorker tells us. “Then she persuaded her mother to take her to Nashville during spring break to drop off her karaoke demo tapes around Music Row, in search of a record deal; they didn’t succeed, but the experience convinced Swift that she needed a way to stand out.”
When Swift was 14, her father relocated to Merrill Lynch’s Nashville office as a way to help dear Taylor break into country music. As a sophomore in high school, she got a convertible Lexus. Around the same time, her dad bought a piece of Big Machine, the label to which Swift signed.
It is said that the company Big Machine Records was formed in 2005, Mr. Scott Swift bought ownership in that company when she was 14.  IF she was born in 1989, that means he bought ownership in that company in 2003.

"Since 2007, the Swifts have been in litigation with Dan Dymtrow, a former manager of Britney Spears, who claimed that they had violated a 2004 contract with him before Taylor signed with Borchetta. In papers filed in a New York court, Dymtrow challenged Swift’s origins story: “How does an eighteen-year-old singer from a small town in Pennsylvania make it to the cover of Rolling Stones ‘Best of Rock 2008’? If you believe the version of the story being told to the world, Taylor Swift knocked on record-company doors when she was just thirteen years old.” Dymtrow argued that, instead, he had launched her career by bringing in branding consultants, setting up performances (one, he noted, was a venue known as Rudy Giuliani’s Camp), and securing marketing deals with companies like Abercrombie & Fitch. The case is being settled out of court; a judge threw out all of Dymtrow’s claims except one, for unjust enrichment. While the litigation didn’t derail Swift’s career, it did provide glimpses into the adult negotiations inevitably at work behind a teen-age success story. "
Per Business Insider (Nov. 3, 2014)
Earlier today, Spotify announced that Taylor Swift had pulled all of her albums off its music-on-demand service.
Since then, we spoke to an industry source familiar with firsthand knowledge of why and how this happened, and who is most responsible.
This source blamed one person: Scott Borchetta.
Borchetta is the president and CEO of Taylor Swift's record label, the Big Machine Label Group.
Our source notes Borchetta is trying to sell Big Machine. Reports say he wants $200 million.
This source says Borchetta believes the only metric that will matter to potential buyers is the number of albums the label is able to sell. Our source says Borchetta doesn't think the number of plays Swift's songs have on Spotify will move the needle.
The source says Borchetta believes that pulling Swift's music off Spotify will create "scarcity" online, and drive CD sales and paid downloads.
Our source believes this is poor thinking on Borchetta's part. "[Spotify's] user base is 18-to-24. They’ve never seen a CD before."
That might be true, but Swift's new record is on pace to sell 1.3 million copies during its opening weekend, which would be the biggest opening weekend album sales since 2002, a year before the iTunes music store even existed. At $10 a pop, that's $13 million in revenue in one week.
Our source says, "You don’t create any scarcity if you take [Swift's albums] off Spotify. If you type 'Taylor Swift MP3' into Google you can get her entire catalogue."
This source says that Universal Music Group, which distributes Swift's music for Big Machine, tried very hard to convince Borchetta that his thinking is very old-fashioned and that pulling Swift's music off Spotify is a shortsighted move.
"They did everything they could," says our source.
This seems plausible to us.
At the WSJ tech conference in Southern California last week, UMG CEO Lucian Grange was adamant that streaming is the future of the music business. He talked about how great it is that, in a streaming paradigm, artists will get paid for their songs throughout their long lives — not just once, when their albums are first published.
Our industry source says Spotify was blindsided by the news last week. The source says Spotify never expected to get Swift's latest album, "1989," on its service. It was happy to have — and to heavily promote — the first single only, called "Shake It Off."
Swift is very popular on Spotify: 25% of Spotify listeners have streamed her songs. Her songs were on 20 million playlists.
This source said that most artists are not able to do what Swift did today and simply pull their music off Spotify. The only reason this happened was that Big Machine has a special deal with Universal Music Group.
One reason Borchetta maybe be bent on selling now: 1989 is the second to last Taylor Swift album under her current contract with the label.
Our source did not say where Swift herself stood on the Spotify issue. Her family is a part-owner of Big Machine, so she's probably happy to help increase its value.
Spotify declined to comment on this story. Big Machine did not respond to an email or several tweets.
Read more: 

So much for a kid who only knows 3 chords on the guitar.  ZZZZzzzzZZZZzzzZZZzzzz...........

And about Spotify.
Several sources say that Goldman Sachs raised $500 million for Spotify.

It goes on to say:

People with knowledge of the matter say that the funding round would value the company at over $7 billion. Goldman Sachs previously invested in Spotify during a 2012 round of funding.
The Stockholm-based company had a $200 million-finding round in March 2014, that gave it a valuation of $4 billion. The event raised many eyebrows on the Street and gave birth to speculations that the company would soon host its IPO in the US. Spotify, however, has refused to comment on any news surrounding its public debut. The private funding round is widely thought to have pushed a prospective debut to the next year.Research analysts at Manhattan Ventures Partners predict that the music streaming service’s sales in 2014 amounted to $1.3 billion, over 50% higher than the year before. According to their fair market valuation of Spotify stock at $5.7 billion, the company is valued at 4.3 times its revenues. This is slightly higher than the 4x multiple for Pandora Media Inc (NYSE:P).The team of analysts at Manhattan Ventures believe that with Spotify’s stronger presence in social media and its wider app-integration, the company “is in a better position than Pandora to be able to monetize advertising over the long-term.” Major Labels Are Trying to Sell Spotify for $10 Billion, Sources SayIn the wake of the highly-successful acquisition of Beats by Apple, major labels Warner Music Group, Sony Music Entertainment, and Universal Music Group are now focusing on the next prize: a massive Spotify acquisition or liquidity event.  According to several sources inside and outside of the major label system who have agreed to speak with Digital Music News, the Beats sale is ‘simply small potatoes’ compared to the juicy prize that Spotify could represent, and labels are pulling as many strings as possible to make a ‘giant liquidation event’ happen.A major factor in this push is equity, a lot of equity.
According to multiple sources, the major labels now carry a collective ownership share in Spotify of roughy 20%, a multiple of the percentage held in Beats.
The shift is a result of some re-engineering by the major labels on how they profit from streaming services.  In the older model, labels focused more on large, upfront guarantees in exchange for the rights to use their valuable catalogs.  Rhapsody, for example, has bitterly complained about that approach in the past, but according to a pair of sources close to those deals, that has shifted considerably over the past few years.  “[The big recording labels] decided they want equity more than payments, because there’s a market [for acquisition] now,” one source relayed.
“You’re talking about the difference between making millions right now, or billions in a few years.”
On that note, one source pointed to Spotify as a very, very juicy prize, with one target sale price pushing past $10 billion (you know, WhatsApp money).
One label attorney, who spoke on the condition of anonymity, pointed to massive telecommunications and mobile companies as targeted buyers.  “The Verizons, the NTT DoCoMos, the Oranges, that group,” the source noted.  “Spotify is a nice package for customers.”
Separately, sources also noted that Spotify’s investors are also getting more antsy for a sale, and pushing the agenda towards and initial public offering (IPO), acquisition, or other ‘liquidity event’.  But an IPO could represent a difficult bet: just recently, VC superstar Fred Wilson questioned whether the prodigious Wall Street wellspring has already ended, and whether companies like Pandora were the last to cash in.  “The combination of sky high valuations, equally high burn rates, and a disappearing IPO market is not a pleasant one,” Wilson blogged last month.
That may be better judged by Goldman Sachs, a massive Spotify investor and a shrewd Wall Street manipulator.  It’s unclear exactly how much Goldman has sunk into Spotify, though overall investment in the streaming service is roughly $540 million.
1. The music recording is failing.  Across the board, artists are experiencing serious problems monetizing their audio releases.
2. Recording revenues have been declining for more than 10 years, and they continue to decline precipitously year-over-year.  This has dismantled the label system, once the most reliable form of artist financing.
3. Digital formats continue to grow, but not enough to overcome broader declines in physical CDs.
4. Even worse, the evolution of formats keeps pushing the value of the recording downward.  Streaming pays less than downloads; downloads paid less than CDs.  And the next thing after streaming will probably be even worse.
5. There is little evidence to suggest that this downfall is being made up by touring, merchandising, or other non-recording activities.
6. Streaming is rapidly becoming the dominant form of music consumption.  It also pays artists the worst of any formats before it.7. Post-album, artists and labels have failed to establish a lucrative, reliable bundle to monetize their recordings.

8. Most consumers now attribute very little value to the recording itself, and most consumption (through YouTube, ad-supported piracy, or BitTorrent) happens at little-to-zero cost to the listener.
9. A generally uncertain economic climate only adds to consumer resistance against paying for music.
10. A massive, decades-long shift towards free (or near-free) music means that entire generations have never paid anything for recordings.  And will continue to resist any requirements to pay for music.

11. Streaming has largely failed artists and independent labels.
12. The leading streaming music companies — YouTube/Google, Spotify, and Soundcloud — are also the most duplicitous and damaging towards artists.
13. Streaming services like Spotify offer very little transparency on their payout structures, which makes it a low-trust partner for artists.
14. Even worse, Spotify is suspected of completely misrepresenting its per-stream payout structure, based on discrepancies with extremely low rates publicly published by actual artists (usually on Digital Music News, herehere, and here.)
15. Indies and smaller artists also complain that their rates are lower than bigger, major labels.  Some have pointed to different tiers of compensation, though few have a concrete idea on exactly how payouts are structured (see #13).
16. Payouts to artists are not only hard to figure out, they are almost universally low and cannibalistic towards other, more lucrative formats.  Which is why artists like Rihanna and Taylor Swift have opted not to license Spotify.  And why Taylor Swift’s label, Big Machine Records, has indicated that no future, frontline releases will be licensed to Spotify.
17. Spotify actually pays the labels, often with huge, multi-million dollar advances and/or equity positions attached.  But labels frequently don’t pay their artists, either for legitimate (ie, the artist is unrecouped) or illegitimate (ie, they’re screwing the artist) reasons.
18. The priorities of streaming services like Spotify skew towards acquisitions, IPOs, and other liquidation events, not towards the interests of content holders and artists.  And if you doubt that, just ask Goldman Sachs (a $50 million-plus Spotify investor). Which means artist payout issues may improve somewhat, but probably not dramatically.
19. Even worse, the interests of the major labels are very similar, which explains the massive percentage shares awarded to major labels by streaming services.  These percentages are awarded in exchange for content licensing (just recently, Universal Music Group received $404 million from the sale of Beats).
(And why major labels are pushing for a Spotify sale north of $10 billion…)
20.  Even worse than than, labels pay nothing from these cash-out windfalls to their artists, based on artist contract terms that have now been published (on Digital Music News).
+Here’s Another Way That Artists Get Screwed Out of Their Streaming Royalties…21. Google, the most influential company in the music industry, is actively resisting any efforts to reduce piracy across its key platforms, Search and YouTube.
22.  Google is also working against the interests of indie labels, and has recently used its market power to force unfavorable licensing terms upon them.
+F*&K It: Here’s the Entire YouTube Contract for Indies…23. Streaming has caused piracy to wane, though free MP3 and torrent sites remain a serious problem for many rights owners.
24. The number of people actually paying for streaming services remains relatively low, especially when compared to the broader population of music fans.  Part of the problem is that music fans are often extremely reluctant to upgrade from free, ad-supported, or carrier-bundled services.
+Exclusive: Spotify Crosses 11 Million Paying Subscribers…25. Downloads remain a more lucrative purchase for artists (and labels), despite rhetoric indicating otherwise.  Sorry, most fans aren’t streaming songs thousands of times, even on their favorite tracks.

26. It’s harder than ever for a newer artist to get noticed.
27. The artist has greater and more direct access to fans than ever before in history.  Unfortunately,so do millions of other artists.
28. Indeed, the typical music fan is flooded with music, not to mention videos, games, ebooks, and porn, all of which makes it extremely difficult to win and retain the attention of future fans.
29. This also puts pressure on the artist to shorten the release cycle, and pump out content at a quick pace.
30. The artist currently lacks a centralized hub online that is a default for music fans, thanks to the erosion of MySpace Music.  Facebook was once viewed as a replacement for MySpace Music, until the major shift to Timeline.
31. Even worse, Facebook is now charging artists to reach their own fans, a move it defends as necessary given massive increases in Facebook posts that are overwhelming users.
+An Artist Asks Facebook: “Why Do I Have to Pay to Reach My Fans?”32. All of which sort of makes the Facebook ‘Like’ a necessary win, but a difficult victory to celebrate.
33. 99.9% of all artists cannot make a living wage off of their music, based on stats gleaned from TuneCore.
34. In fact, David Lowery, a top thinker in the space and an artist himself, feels that artists are worse off now than they were in the analog era.  And, he points to lower payments, less control, a shift in revenue towards tech companies, and less secure copyright protections to prove his case.
35. Most artists are overwhelmed with tasks that go far beyond making music.  That includes everything from Tweeting fans, updating Facebook pages, managing metadata, uploading content, interpreting data, managing Kickstarter campaigns, and figuring out online sales strategies.
36. The average musician is underemployed.  According to a musician survey conducted by the Future of Music Coalition (FMC), just 42 percent of musicians are working full-time in music.   The rest are complementing their music with day jobs that have little or nothing to do with music.
37. Musician salaries are low.  Also according to the FMC survey, the average musician makes $34,455 a year from music-specific gigs, with overall incomes (music+non-music) averaging $55,561.
38. Musicians are increasingly playing free shows, in the hopes of getting paid work down the line.  According to a recently-released report from the UK-based Musicians’ Union, more than 60 percent of artists have played at least one free gig in the last year.
39. Even monstrously-large video superstars like OK Go can have trouble generating significant revenue (based on their own admission).  And, big sponsors like State Farm can only attach themselves to so many videos.
40. Artists live under the constant threat of leaks, especially popular artists.  And the worst result is the leak of an unreleased, half-baked recording, an issue recently experienced by both Skrillex and Ryan Leslie.
41. Information overload and massive media fragmentation have made it very difficult for music fans to even notice releases exist — even if they are dedicated fans.

42. Crowdsourcing worked for Amanda Palmer, though there are serious questions about whether it can work systematically for smaller artists who have never been signed to a major label or experienced significant financial support in the past.

43. Vinyl LPs are surging year-over-year, but still represent a tiny fraction of recordings purchased.
44. The production infrastructure around vinyl continues to ramp up slowly, and producing vinyl can be incredibly difficult.  Some facilities are expanding, though production delays are often the norm and hurting this market’s growth.
45. Vinyl is bad for the environment.  That also goes for other revenue-generators like t-shirts and merchandise.
46. Actually, so is digital: some environmentalists theorize that the digital transition may actually be more damaging to our Earth than physical.  Part of the reason is that cloud-hosting requires massive server facilities while consuming massive amounts of energy and pumping out lots of waste.
47. On top of that, digital formats only coexist alongside physical devices like iPads, iPhones, laptops, and sophisticated headphones, all of which gets thrown away and replaced after a few years (or shorter).

48. Traditional record stores have largely imploded, with holdouts like Amoeba now relics of an earlier era.
49. Record Store Day has helped stem the decline among smaller record stores, though many complain that major labels are now flooding RSD stores with crappy products.  Others regard RSD as a mere band-aid against the inevitable.
50. Either way, the biggest releases always go to the biggest brick-n-mortar stores: Target, Best Buy, or Wal-Mart.
51. Yet these larger, ‘big box’ retailers are accelerating the downward spiral in CD sales, both bydramatically reducing shelf space and by pushing pricing aggressively downwards (often to $5 or less).  This is happening even though older demographics are often still receptive to the format.

52. Major labels, once the most reliable form of financing for new and established artists, are now a fraction of their former selves.
53. And thanks to heavy financial pressures, the creative process at major labels has become increasingly formulaic, overly refined, and often unsatisfying to the artists involved.
54. A large number of legacy artists are now suing their major labels, arguing that downloads should be classified as ‘licenses’ instead of ‘sales’.  And, thanks to a monumental victory by F.B.T. Productions, this shift will create a massive financial obligation for labels.
55. Most people who work at major labels have very low job security.  Which makes it difficult for them to develop longer-term artist careers, not to mention those of the artists they represent.
56. Younger people are not generally not interested in working at labels anymore, which makes it harder for those companies to innovate.
57. Instead of enjoying some theoretical resurgence, indie labels are mostly getting squeezed by devalued and declining recordings, piracy, and far greater leverage from artists themselves.
58. A once-promising shift towards 360-degree models never quite generated enough money for major labels, even though major labels generally insist on broader rights deals with all new artists.
59. Established music companies often overpay their executives by a wild margin, despite massive and ongoing losses.  That may have the effect of skewing the executive focus towards personal enrichment, while sending red flags to investors.  Glaring examples of this include Warner Music Group, Live Nation, and Pandora, among others.  The RIAA also suffers from this convoluted compensation problem.

60. Very little innovation now comes from inside the industry.  Instead, it is now dictated by non-industry players like Facebook, YouTube, Twitter, and Instagram.
61.  A broader ‘brain drain’ in the music industry, across both traditional and technology sides, has dampened innovation in the space.

62. A large percentage of live music fans are frustrated with high ticket prices at concerts, and gouging on in-venue items like beer.
63. All of which means that fans now regard live concerts as a one-off, infrequent ‘event,’ instead of a regular outing.  In fact, the average consumer goes to just 1.5 shows a year (per Live Nation Entertainment).
64. Despite rhetoric to the contrary, touring is actually extremely difficult and expensive for most artists.  Even for more established artists like Imogen Heap, who stopped touring despite solid crowds.
65. And, the secondary ticketing market is often fed before the actual market, thanks to bots, aggressive scalpers, or the artists and ticketing providers themselves.
66. Fans frequently miss shows from their favorite artists, even when these artists roll into their hometowns.
67. But wait: despite an on-rush of apps and services like Songkick and Bandsintown, attendance at shows hasn’t really increased that much.
68. And, attempts to monetize live streams (or previously-recorded gigs) remains a speculative bet that has yet to pay off.
69. Meanwhile, service fees continue to outrage fans, even though artist guarantees and advances are often a culprit (but it’s complicated…)
70. Classical orchestras and ensembles continue to struggle, thanks to a continuing problem invigorating younger audiences.   That has forced lots of smaller-market orchestras to downsize or discontinue, while applying plenty of pressure to bigger-city orchestras as well.
71. Merch table CDs, once a very solid source of on-the-road revenue for developing bands, has now evaporated.

72. Traditional radio tends to play the same 14 songs in heavy rotation, with mind-numbing regularity and lots of commercials.
73. And, this repetitive playlist is often cloned throughout the United States, thanks to formatting homogeneity and heavy ownership consolidation.
74. Even worse, a lot of listeners don’t seem to mind.  Which means very little music actually gets into rotation and discovery becomes harder.
75. Traditional radio doesn’t pay for the performance of recordings.  And, if they’re ever forced to, they’ll probably play fewer songs, or sign more direct deals with labels like Big Machine Records.

76. Internet radio has failed artists and publishers.
77. Songwriters are increasingly getting screwed by digital formats, including internet radio.  In one disclosure, songwriter Desmond Child reported more than 6 million plays on Pandora for “Livin’ On a Prayer,” only to receive a check for $110.  Ellen Shipley, a songwriter whose biggest hit was “Heaven Is a Place on Earth,” received $39 for more than 3.1 million plays.
78. Yet Pandora, the largest internet radio provider, still can’t make a consistent profit.
79. But that hasn’t stopped Pandora executives like Tim Westergren from cashing in tens of millions in stock.
80. Meanwhile, Pandora has burned the IPO prospects of companies like Spotify, thanks to endless profitability problems and massive executive cashouts.
81. And, Pandora still can’t effectively license in most countries outside of the US.  Most notably, that includes the UK (though the company recently found a way to enter Australia and New Zealand).
82. But this isn’t just Pandora’s problem., for example, was forced to severely curtail their internet radio services based on licensing costs.
83. All of which is why in the US, Pandora is asking Congress to lower the royalties it pays to labels (via SoundExchange).  But artists already feel like they’re getting screwed, which is why theynow hate Pandora.
84.  Meanwhile, the royalties that are being paid to SoundExchange often end up in massive, unpaid piles.  That is, hundreds-of-millions-large piles of unpaid collections.  Which of course, SoundExchange doesn’t like to talk about but collects interest on.
85. A good music education is now a difficult, risky investment.
86. And the costs are becoming exorbitant: conservatories and music schools now charge exorbitant amounts for their programs, though post-graduation job and income prospects are generally dim.
87. Music fans have access to more music than ever, but are often completely overwhelmed.  This often results is less interest in music that isn’t heavily promoted, already established, or somehow ‘viral’.
88. The Long Tail was mostly a fantasy, and so is the concept that great music naturally finds its audience.  Buried gems remain buried in the digital era, while the most successful artists still seem to be those with the best backing and money.
89. Music conferences are often expensive, both in terms of time and money.
90. There are also too many of them.  Which is why music conferences frequently repeat the same information, over and over again.
91. Music conferences are sometimes held in far away, difficult-to-reach places, and last for days.  Which also means that music conferences can be giant distractions from work that needs to get done back at your office.

92. Non-stop, on-the-go music listening could be killing the ears of an entire generation.
93. The world has progressed past the white earbud.  The only problem is that lots of users are blasting headphones non-stop, with little regard for near-certain ear damage ahead.  Which is why numerous reports continue to ring the alarm on future hearing loss.

94. Piracy didn’t go away.  It merely wears a new disguise.
95. The DMCA, once considered a reasonable method for flagging and removing infringing content while protecting online companies from liability, has now become an unmanageable and dysfunctional process for most content owners.
96. Even worse, the DMCA has become a highly-profitable, aggressive, and artist-unfriendly loophole for companies like Grooveshark.
97. Yet Google also remains a huge part of the problem.  Searching for torrents and pirated material is not only easy, it’s frequently auto-completed for the user in Google’s searchbox.  Or, worse, delivered in email as part of a Google Alert.
98. The RIAA, a group with only limited success fighting piracy and more powerful tech, radio, and other lobbies, remains a questionable luxury for major labels.  In fact, top RIAA executives like CEO Cary Sherman are still somehow pulling multi-million dollar salaries from their major label constituents, despite questionable effectiveness.
99. The RIAA has also burned endless amounts of money chasing defendants like Jammie Thomas, who was initially fined millions for downloading 24 songs to the Supreme Court.  That case lasted for more than 7 years after endless challenges, with a near-zero impact on file-sharing and piracy levels.  In fact, a lot of that stuff simply doesn’t matter anymore.

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