The US music industry works to expand the digital pie

by Emmanuel Legrand

The US music business is enjoying some sort of renaissance. Amid the merger process that has seen the market reaching new levels of concentration, the digital market is growing and the the eco-system is getting each day more complex, driven by technology and consumers' behaviour. 

These trends were in evidence at the recent DMW Music, which took place in New York Feb 20-21. Here's a bullet point version of things seen and heard in New York – a kind of State of the Nation address. (All the quotes in this piece are from executives who spoke at the conference.)

1 – Rejoice, rejoice! The pot is growing!

Digital sales are up n the US, slowly taking over physical, digital revenues at rights society SoundExchange have reached $460 million, brands are getting increasingly involved with artists and digital platforms, and music is reaching consumers in many more forms than before, mostly thanks to the rise and rise of streaming platforms. For lawyer Ken Hertz, a senior Partner at Goldring Hertz & Lichtenstein, 2012 was the year when the music industry stopped being a cottage industry and “finally became part of the convergence process” – which integrates films, music, advertising, games – and is now part of “a much bigger business”. As an example, Hertz said the fragrances backed/created by celebrities such as J-Lo, Lady Gaga, Beyonce, Celine Dion, J-Lo and Katy Perry represent $2bn worth of business for these six artists alone. “We're seeing the next music business as much larger than the one we're lamenting the demise of,” concurred Michael Simon, CEO of HFA, the society providing mechanical licenses. Added David Israelite, president & CEO of the National Music Publishers’ Association: “We've left the 'theft period' where the music industry was focusing on stopping theft of music and now we are into how to monetise music.”

2 – Social media is driving the change

The role and function of social media has also changed, according to Hertz, who quipped that social media “was about a kid telling you that an act was great. Now everybody is into creating content and jumping into the media stream and make money.”

“If I am an artist I want a sincere relationship and as broad as possible with my audience,” added Hertz, who warned that there was “a tyranny about transparency: You cannot lie about anything, this is the nature of connectivity. People don't care about privacy. So the key is to become more transparent. To be more honest, less contrived.”

The new element in the mix has been Twitter. An unknown entity a couple of years ago, the 140-character message platform has not only become a way to connect with fans, but also a tool to discover music. “There has never been a better platform for music engagement than Twitter,” said Jamie Sampson of Schematic Labs.

3 – The next playgrounds? Cars and living rooms...

Be warned: A revolution is coming near you. This time it will affect living rooms and cars. “In the next few months, the living room will be a big focus for us. We see tremendous growth on mobile and extended platforms. We expect to be far more active in the living room through over-the-top boxes, consoles or any other ways,” explained Alex Kisch, SVP business development & business affairs for Vevo, the three-year-old platform co-owned by Universal Music and Sony Music. Vevo's primary business of to deliver music video – now in ten territories – and monetising them. “Mobile tablet is by far the most important platform to focus on.”

Meanwhile, John Quain, The New York Times technology contributor said that the “automotive industry is going through one of its biggest upheaval, and it is happening extremely fast. With a lot of these connected cars come connected services.” There is already some serious players in the field, from satellite platform Sirius/XM to Pandora. And Spotify recently announce an agreement with Ford. But it does not come easy. Jake Sigal, founder & CEO of Livio, it is “a huge undertaking to get music into the car”. There are as many systems as there are services and devices. “The iPhone 5 does not have a video connection, so imagine if a car manufacturer has build all its system around video,” said Sigal.

“It is going to get more difficult and crazier with the multiplication of options,” confirmed George Lynch, VP Automotive BD at Pandora. “There are too many platforms.There is not going to be one standard.” The greatest danger with cars is that the level of entertainment can become a source of distraction for drivers. “We are working really hard with the car companies to minimise driver distraction,” said Lynch, who admitted his fear of seeing people and watching video at the same time. Quite rightly so!

4 – Technology empowers artists

With so many options for entertainment, there are more ways than ever “to reach the fans” according to Marty Diamond, who runs the Paradigm Talent Agency's East Coast Music Division.“The barriers of entry have been eroded,” he explained. But to get fans “engage beyond one song and start spending money” is the real challenge for the industry. “They do not have to leave their couch and my job is to get them to leave their couch,” said Diamond.

The next frontier for artists is to figure out what to do with the cloud. "Innovation happens when creative people bring their insights to technology,” said Paul Campbell, CEO/founder of The Amazing Media Group, who believes that artists using the cloud will eventually find a way to create new usages for the cloud.

5 – Artists are entrepreneurs

It was refreshing and enlightening to hear two young artists-turned-entrepreneurs: J Sider, CEO/founder of Bandpage, and Evan Lowenstein, founder & CEO of Stageit. Sider had the idea of a platform that would connect bands, and after moving to Silicon Valley, raised $19m, and built a service that is now used by half a million musicians. “What I do, I trust my gut. If I feel like I can trust you, I will talk to you about my idea,” said Sider, whose relentless drive got him to meet thousands of people in San Francisco and built a team of aces for his project. “What I did was I said yes to everyone for four months. It sounds crazy but that's how I met my engineer,” he explained.

Lowenstein created Stageit when, being a musician, he was constantly being frustrated by the lack of venues available, and by the way concerts were monetised. “Artist by the very nature are entrepreneurs, we create things and we sell them every evening,” he said. “I have been driven from the start. My drive as an artist has left me being an entrepreneur.”

Lowenstein added that his platform is “very transparent” and that he took pride in having create “entire new revenue stream, and did not cannibalize any other streams”. Very much an artist of the 21^st Century, Lowenstein constantly balances between the two sides of copyright protection. “As an artist, I support record label rights to protect copyright; and I also need to side with my fans,” he explained, while adding that he wanted to be “a bridge between the music industry and Silicon Valley”. He finished by urging all artists to let their entrepreneurial spirit blossom, and not be afraid of entering areas which could be very crowded: “Of course there's a lot of competition, but competition should never stop you from creating your company.”

6 – Artists are brands and brands love artists!

In the 60s, artists would do anything to stay away from big brands, the epitome of the capitalistic world that they were ideologically trying to stay away from. So who would have thought that 30 years down the line, rock, pop, and even hip-hop acts would entertain such a close, almost incestuous relationship with brands. It is now natural to see will.i.am batting for Intel, Justin Timberlake for Bud, while Alicia Keys is a Blackberry ambassador. Matt Ringel, managing partner at New Era Media & Marketing and Red Light Management, was extremely open and honest about the type of relationship that artists and brands could build. “Brands are focused on creating programmes that are authentic with artists, and artists want to work deeply with brands,” he explained. “One of the trends is seeing these relationship getting closer.” Brands, he added, want to interact with artists “on multiple touch points” with a range of integrated marketing activities, involving content, social media, and cooperative development. “There are artists whop are marketing machines, will is, pitbull is,” he said.

But it has to be a good match, not one that consumers can perceived as constructed and fake. “Alicia [Keys] was looking for close technology partnerships,” said Ringel. “She's tech savvy. So the question was of finding the right partner. Blackberry not done much in smart phone market and was coming with the new phones. Alicia fits the bill. It's a real role. She has business cards, she is in contact on daily basis, talking to developers and developing interesting programmes. How does this become authentic is the key issue.”

So what are the risks for both sides? Obviously a credibility factor. A wrong association brand-artist can damage both an artist and a brand. “There is a risk to the artist,” admitted Ringel. “But we have to be realistic in setting the roles. Some categories are easier to control, some are not. Most deals will have very specific restrictions. There has to be an alignment and it has to be good for both or don't do it. If it's the right relationship, no need to look elsewhere.”

7 - Artists are also...er...artists!

When so many people are trying to take artists for a commodity – monetised as well as dependable (hello Simon Cowell) – a few voices at DMW had a fresh and almost old school approach to artistic endeavours. John Rubey, the president of AEG Network Live talked about “respect” for the artist, which also meant that sometimes you had to know when not to ask or force artists to do something.

“My artist’s integrity is what I’m hired to protect,” added Marty Diamond, who runs the Paradigm Talent Agency's East Coast Music Division. He added that his responsibility as an agent is risk management, and find “what bands are comfortable with.”

Diamond explained that he's seen the rise of a new generation of clients who have new skills and who are totally in synch with the digital environment. For him, these artists will navigate through the new eco-system and will be far more self-sufficient.” He added, “The grace for me is that some of these bands get to hone their craft..and that's when you really got something. They learn their craft and move from being a good band to being a great band.”

8 – But is copyright broken?

That was the key question asked more than once during DMW. There even was a panel dedicated to this issue that did not fully meet its promises but kind of circled around the issue. “I don't think it is broken and there is always room for improvement,” noted
Sandra Aistars, executive director at the Copyright Alliance. “We do not agree on what copyright is. Some believe it is a property other a human right,” added Jay Rosenthal, general counsel for the National Music Publishers’ Association. BMI executive director for business development, new media and strategic development Michael Drexler argued that there were “some cracks and some disconnects” and that in these “radical times” maybe it was time “to re-think regulatory restraints” applied to rights management societies like BMI. Colin Rushing, general counsel for performance rights society SoundExchange said that there were “some important parts of the law that need to be changed, but there are also all the aspects of metadata that needed to be fixed.”

Meanwhile, Michael Petricone, SVP of government affairs for the Consumer Electronics Association (CEA)
refered to the US Constitution, in which copyright is tasked to promote progress and the arts. “By that measure things are OK,” he said. But in the same breadth, he said two contradictory things: a) that the CEA wants is “to make sure creators are compensated,” and b) that they want “a healthy eco-system especially for the streaming services”, which is interesting since certain streaming services like Pandora are doing whatever they can to lower the rates set to compensate creators for the use of their works. Which prompted the following reaction from NMPA's Rosenthal, “There are some who think that maybe Pandora has to figure out a business model that will bring in revenues, rather than say that 50% goes in fees. We want Pandora to survive as a good business model.”

9 – Seriously, isn't copyright broken?

Well, if it's not broken, it needs to be fixed (at least in the US). BMI's Drexler noted that rights societies in the US operate in a regulated market that needs to be revisited. He said, “We operate under consent decree. We can't say no if somebody comes to us for license. If we disagree on rate we have to go to court and it can be a very long and expensive system.” This situation has led some major publishers like Sony/ATV, EMI Music Publishing or Universal Music Publishing withdrawing their digital rights from societies like ASCAP and BMI. This “experimentation” leads to increasing fragmentation of rights but seems to be the only way for publishers to enter into negotiations with digital platforms and negotiate better rates than the ones applied to societies.

For NMPA's president and CEO David Israelite, the key issue is not that copyright is broken but rather that “licensing is completely broken”. Why? Because the two sets of copyright – the one on recordings and the other on the compositions – that are regulated differently. Record labels are operating within the realms of a free market, while music publishers have been regulated since 1909. “We are regulated by three judges,” said Israelite. “ASCAP and BMI are under consent decree. This makes licensing scheme impossible for platforms.”

He also offered a solution: “DiMA [the trade body representing digital platforms] and NMPA have largely agreed on what to do. We have a solution. In performance, there are three PROs. ASCAP and BMI control a large part of the market. What if you had four [PROs] and each with a 25% of market share, then maybe the government would leave them alone. And for platforms, it is not too difficult to go to four people. If a PRO can't say no, then that is a broken system for the songwriter.”

Another imbalance noted by Israelite concerns the split of royalties between the two sets of rights. “We need to address the re-balancing of the value of the two copyrights,” he said. He pointed out that if Pandora paid 54% of its revenues to music rights holders, that 54% is divided 96% for labels and 4% for publishing. “The only way to fix the copyright issue is rebalancing of the two copyrights,” concluded Israelite.

10 – Leave an impression...

The award for best off-the-cuff reply went to litigation lawyer Barry Slotnick, partner at Loeb & Loeb, who bluntly replied “I certainly hope not” to moderator Ted Cohen's question “Are we reaching a consensus [in the industry]?”... He also added, “We apply market correction: We identify people who are not doing things properly and we take action.” Ah, lawyers!

The award for funniest quote went to aforementioned Cohen of TAG Strategic, who introduced a discussion on copyright by stating, “It's the bar mitzvah of broken copyright, time for copyright to be a man.”

The award for the most unexpected quote went to George Lynch, VP Automotive BD at Pandora, who said, “Voice recognition still has a long way to go. It is hard to say 'Chaka Khan' in the car and get the voice recognition to actually play 'Chaka Khan'.”

The award for stating the obvious but it was good to hear it anyway went to Andrew Kippen, VP marketing at Boxee, who said, “There's a mentality in the tech world that you get the audience first and then you think of ways you can make money.”

The award for best quote of the conference went to Ken Hertz, of Goldring Hertz & Lichtenstein, who said, “Like my dad would say, 'If you try to make an impression that's the impression that you make'.” One to meditate...

[Typed while listening to Nick Cave And The Bad Seeds' 'Push the Sky Away' (Bad Seeds) and Veronica Falls' 'Waiting For Something To Happen']