Sunday, July 29, 2012

Zelnik, Grainge and the damage done to indies

by Emmanuel Legrand 

You have to give it to Lucian Grainge – he's a master strategist. He's managed to destroy the united front of indie labels opposing the acquisition of EMI Recorded Music by Universal Music Group by offering a few tokens. And in the process has left scars within the indie movement that will be tough to heal.  

As soon as Grainge made his intentions public, interested parties started to express interest for bits an pieces of what used to be the EMI empire: Daniel Miller said he wanted to buy back Mute, Laurence Bell at Domino, Ministry of Sound and Kenny Gates at PIAS said they would consider bids, BMG Rights Management wanted Parlophone. But even before Grainge made his move, Patrick Zelnik said mid-July that he wanted Virgin, with a little help from Richard Branson, and that he supported the deal (in his July 16 FT op-ed, he wrote: “I can see that in the right circumstances this merger could create a more competitive industry, while offering stability to EMI’s artists.”)  

No wonder why Helen Smith, executive chair of Impala, said in an internal memo to the members of European indie labels' organisation, revealed by the NY Times, that this had been “one of the most trying weeks of Impala’s life.” In Brussels, Impala re-affirmed its opposition to the merger through a vote of its board (although a majority of its members voted for), but Zelnik's announcement that the deal would not be against the interest of indie labels created confusion. Suddenly, the champion of the cause was backing the wrong horse. To add insult to injury, Zelnik called Impala a "bureaucratic organisation" in an interview with Billboard.

Zelnik combines a deceiving Woody Allen look with an impressive intellect and is very good at winning difficult battles. When he set up Virgin Stores in France, he fought tooth and nail to win the authorisation to open his flagship store on the Champs-Elysées on Sundays. Conversations with him can be a bit disjointed as he jumps from one thought to another but they are always stimulating.

After setting up Virgin in France, he launched Virgin Stores and later created Naive, a independent music company (for the record, he signed Carla Bruni long before she met French president Nicolas Sarkozy). He has been a towering figure at Impala, alongside Beggars' Martin Mills and PIAS' Michel Lambot. In terms of split of duties, Zelnik was the ideologist, Mills the strategist and Lambot the spin doctor.

It is fair to say that his efforts in 2001 and the way he rallied the independent movement behind his opposition to the proposed merger of EMI and Warner was a defining moment for the indie community. It was, he said then, a matter of principle to avoid the creation of a dominant player that would change the balance of the marketplace. During his crusade he was some sort of loner against the armies of lawyers and executives that his opponents would line-up in Brussels – but eventually his views prevailed and the merger was soon off the table.

Zelnik also challenged the Sony/BMG merger, but was not successful in preventing it. Throughout these processes, Zelnik was always a passionate and articulate voice in outlining the dangers of a market concentrated into too few hands. So what happened? Can someone change opinion so radically and trade a bag of principles for a little more than a lentil stew?

A cynical top Warner executive dismissively told me a few years ago that everybody has a price and that he understood too late that if they had negotiated beforehand with Zelnik, Mills and Lambot and agree to sell them bits and pieces of EMI, he would have won their support, and the merger would have been cleared. (And how different would things have been for the music sector...)

In the aforementioned Billboard interview, Zelnik said that "Only fools never change their mind!". A source with good knowledge of Zelnik believes that Zelnik is looking for a way out from a business perspective since Naive is in a shaky financial situation. A joint bid Zelnik/Branson for Virgin (which, it must be noted, does not appear in the list of assets that Universal plans to divest from that EMI CEO Roger Faxon listed in a memo to staff) would allow Zelnik to merge Naive with Virgin and after a few years sail away in the sunset.

Whatever the outcome, damage has been done, and it will take more than a few lentil stews to pacify the sector. 

[Typed while listening to 1969 vintage soul by Barbara Lewis ('The Many Grooves of Barbara Lewis' on Stax) and Marconi Union's 'Different Colours' (Just Music) and keeping an eye on the Olympics]

Who cares what Simon Cowell thinks about search engines?

By Emmanuel Legrand

Last week it was quite amusing to read a letter sent to British Prime Minister David Cameron signed by Elton John, Andrew Lloyd Webber, Tinie Tempah, Robert Plant, Simon Cowell, Pete Townshend and Brian May highlighting the role that search engines can play in giving people access to illegal copies of music files.

I have no idea who is behind this initiative (and I do not want here discuss the relevance of the issue, which is relevant), but hasn't recent times taught lobbying powers that having a bunch of millionaires, no matter how talented they are, take such a stand could be a counter-productive move? And frankly, who wants to side with Simon Cowell? 

A friend who has been active in UK lobbying circles (and thus would like to remain unidentified) wrote to me the following: "Seriously, this letter could have been written in 2001. And even then it would have been a stupid, credibility-bursting idea. It does nothing but confirm prejudices laid out by Ian Hargreaves about the industry ('lobbynomics') and potentially besmirches the name of some good artists (and Simon Cowell, not that anyone cares about him). With the exception of Townshend (who knows his digital onions) imagine if any of those signatories were put on the spot about Google's takedown policy." 

For those who missed it, here's a graf from the Hargreaves Review of IP: "Lobbying is a feature of all political systems and as a way of informing and organising debate it brings many benefits. In the case of IP policy and specifically copyright policy, however, there is no doubt that the persuasive powers of celebrities and important UK creative companies have distorted policy outcomes."

[Typed while listening to The Yellow Dogs' 'Upper Class Complexity' (Neverheard)]

Sunday, July 15, 2012

A manifesto for the new music industry in the digital age

by Emmanuel Legrand

Last week, Universal Music Group chairman/CEO Lucian Grainge said that he would propose a “manifesto for the new music industry” that would define his company's relationship with other stakeholders in the new digital environment.

Since Mr. Grainge is certainly a very busy person, I thought I could give him a hand and help him by drafting the “manifesto” below.

A manifesto for the new music industry in the digital age:
  1. Artists are entitled to equitable and fair contracts reflecting the realities of the digital age.
  2. Artists should not be coerced into giving away their rights (especially their publishing rights) to gain a recording contract.
  3. Recorded music contracts with record labels should only be for a limited period of time, with the full rights to the masters automatically reverted to artists after a period of 15 years.
  4. Music companies that have a domestic or international market share of 5% cannot be involved in artist management services.
  5. So-called 360 deals can be tolerable if, and only if, they are 'real' deals, providing services in all the areas that the artists have handed their rights, and all these services should be offered at acceptable market rates.
  6. Labels, publishers and collective rights management organisations will approach all new digital music service with openness and will provide quick and flexible licensing schemes.
  7. Digital music services, labels, publishers and collective rights management organisations will provide quick, accurate and transparent royalties reporting and payment.
  8. Music companies will not ask for equity in digital music services.
  9. Licensing deals with digital music services should be equitable and fair for all players, should not involve advances paid by the services and the terms should be transparent for all stakeholders, especially artists and their management.
  10. Artists and songwriters should be entitled to a share of the financial transaction if the recorded or publishing company they are signed to is sold. Equally, shareholders of digital services that have benefited from music content to harness the value of their services and then sell then with massive profits should also chip some money back to the creative community without whom they would have not been able to develop their project.

Let's go into the details of the manifesto.

The new Universal-EMI entity will have a greater market share than any other competitor (in the same way that Sony/ATV + EMI is a real powerhouse in publishing), and this is bound to give the new combined entity a tighter grip on the talent market and more clout in its dealings with the rest of the eco-system.

It is therefore important to balance that power by asserting certain rules. The idea with this manifesto is to provide open, transparent and simple principles that should ensure the growth of the digital music market in a equitable way for artists, music companies and digital services. By the way, these principles should not only apply to Universal but to all music companies, majors and independents, and to all digital music services.

Point 1 to 4 are about re-balancing certain contractual aspects of the relationship between music companies and artists in favour of artists. Artists are asked to sign 360 deals or give away their publishing rights if they want to get a recording contract. This should not happen, even though it is understood why music companies would do it, unless there is a trade out, such as better conditions, better services, etc. Too often, artists are not in a position to bargain, and that is the definition of abuse of dominant position.

The reversion of master rights to artists is about fairness. Fifteen years is already a long period of time for labels to recoup their investments. A few years ago, when Jay-Z took an executive position at Universal's Island Def Jam in the US, fellow rapper Chuck D from Public Enemy was asked at Midem if there was anything he wanted to ask Jay-Z. “Give me back my masters,” fired Chuck D. And many artists would probably concur.

The 5% market share limitation to set up artist management services would prevent major operators to also become artists' managers but would allow small operators in genres such as dance, jazz or world music to continue to cover multiple aspects of a creative project (management, production, distribution, touring, etc).

Points 6 to 9 would ensure a level playing field between music companies of different sizes and digital music services. It would also create the conditions for quicker and more transparent dealings.

Both rights holders (from music publishers and record labels to collective rights management organisations) and digital services would benefit from abiding by these principles. Digital services would have quicker deals, allowing to launch and develop more rapidly, while rights holders would see their repertoire offered on a wider scale in a dynamic competitive market. It would also cut through the crap of hearing digital services claiming that they cannot get licenses fast enough. It would not prevent all parties from negotiating terms, nor limit the scope of deals, but it would make it easier to close deals.

As a prerequisite for a new digital music market, labels would end requesting services to pay them advances or music companies taking shares in services (this would also apply to collectives such as Merlin for indies). However, this would not prevent music companies to set up their own platforms like Universal and Sony did with Vevo or Yves Riesel in France, who operates the label Abeille and launched the hi-fi download site Qobuz.

The whole eco-system would benefit from more transparency and this would create a level playing field between majors and indies. Add to that quicker and more transparent royalties processing and payments and you have a digital market truly geared towards the future.

Point 10 will probably be seen as a “communist” clause... There is something normal in the capitalism system to see music publishing assets or record labels being sold with (hopefully) a profit for the shareholders (even though it could be an open question with the Citi/EMI situation). However, it was the creators's works that built the company's value in the first place, so not seeing the artists or the songwriter earning any additional reward from the sale looks unfair.

It seems that a little payback to the creative souls who are the foundation of the value of these companies would be a good and fair gesture. If you look at it from a capitalistic perspective, it certainly does not seem natural, but can labels and publishers pretend to have the interests of the artists at heart and continue to use their works for financial benefits without compensation for creators when these deals take place?

Similarly, when digital services use content like music to create value and then sell for a wide profit (think for example), wouldn't it be normal to have some of this money back to rights holders? Billy Bragg build a case in 2008 in the NY Times after music site Bebo had just been sold by its founder for a huge amount. “The musicians who posted their work on are no different from investors in a start-up enterprise.” wrote Bragg. “Their investment is the content provided for free while the site has no liquid assets. Now that the business has reaped huge benefits, surely they deserve a dividend.”

This still rings true today, and needs to be addressed.

And unfortunately, there is much to bet that this manifesto will remain a work of fiction!

[Typed while listening to France's new electronica/dance sensation Gesaffelstein (his recordings are out on his own label Zone and on Bromance and Turbo) and Beak>'s new album '> >' (Invada Records).]