MUSIC INDUSTRY OVERVIEW record industry

MUSIC INDUSTRY OVERVIEW record industry

Historical Background 1877 Edison invents the phonograph 1894 First commercial disc recordings in the USA 1930s Low-cost singles appear (78 rpm)

historical background 1948 1958 Introduction of the Long Play (LP) recording (33 rpm) Stereo is introduced

Historical Background 1980 the CD is introduced 1995 the mp3 (mpeg layer3) 2001 ipod & itunes mid 2000s streaming services

Major Record Company

Major Record Companies 2014 Sony Music Entertainment (bought BMG) Universal Music Group (bought EMI) Warner Music Group

Independent Record Label Independent to select and promote artists of their choice However, dependent upon majors for: Initial financing Manufacturing Distribution

In Québec Independent labels (audiogram, GSI, la tribu) Depend upon distributors for: Initial financing Manufacturing Distribution The Québec distributor does not usually sign Artists

Québec Distributors Distribution Sélect (Quebecor/Musicor) DEP (Universal Canada)

Professional Associations Recording Industry Association of America (RIAA) (USA) Gold Record: 500,000 copies sold Platinum Record: 1,000,000 copies sold

Professional Associations Canadian Recording Industry Association (CRIA) Gold Record: 40,000 copies sold Platinum Record: 80,000 copies sold

Professional Associations National Academy of Recording Arts and Sciences (NARAS) (USA) Grammy

Professional Associations Canadian Academy of Recording Arts and Sciences (CARAS) Juno

Professional Associations Association Québécoise de l'industrie du Disque, du Spectacle et de la Vidéo (ADISQ) Félix Canadian Independent Record Production Association (CIRPA)

Hi-Fi Robbery Piracy Sale of the unauthorized duplication of prerecorded product Counterfeiting Unauthorized manufacture and distribution of copies of prerecorded product that are packaged to look like the original product

Hi-Fi Robbery Bootlegging Sale of product created from the unauthorized recording of live or broadcast performances

Main criteria: Age Other criteria: Sex Revenues Place of residence Ethnic background Record Markets

Record Markets Charts Le Palmares (ADISQ BDS/Nielsen Soundscan) The Billboard 200 (Billboard - USA) Radio airplay (Broadcast Data Systems) Record sales (SoundScan)

Recording Contracts Vocabulary: Record label: company financing ($) a recording project Producer: individual bringing artistic and technical direction to a recording project including some administrative responsibilities

Agreements between Recording Contracts record labels and singers: AFTRA (USA) (National) Code of Fair Practice for Phonograph Recordings UDA Entente du Phonogramme

Recording Contracts Agreements between record labels and musicians: AFM (USA - Canada) Phonograph Record Labor Agreement - Trust Fund Agreement (MPTF) - Special Payments Fund

Recording Contracts Agreements between record labels and featured artists: Artist Contract Leasing Contract Distribution Contract ("Production Contract")

Artist Contract known as "royalties" contracts because the featured artist receives a "percentage" of record sales these do not replace union contracts (AFM/UDA) these do not replace mechanical license (SODRAC) Negotiated by the manager

Artist Contract Label pays all costs Master Tape: ~ $ 65,000 Marketing (1:3): ~ $ 195,000 Total: ~ $ 260,000 Artist receives about 65 cents/copy sold Master tape costs are recoupable but non-refundable

Artist Contract So, the Artist gets his first 65 cents at the sale of copy 100,001 cons: Difficult to make significant money pros: Access to a good recording budget Access to major promotional support Access to a professional team

Leasing Contract Artist finances half of the master tape costs: ~ $ 32,500 Label finances the other half plus all other costs: Master tape: ~ $ 32,500 Marketing (1:3): ~ $ 195,000 Artist receives about $ 1.30/copy sold Master tape costs are recoupable but non-refundable

Leasing Contract (licensing deal) So, the Artist gets his first "true" $1.30 at the sale of copy 50,001 cons: Artist invests his own money pros: Retain artistic control Access to master tape ownership Access to a professional team

Distribution Contract The Artist becomes in fact the Label The Artist/Label will need to secure an agreement with a Distributor Artist finances all costs Master tape: ~ $ 65,000 Marketing (1:3): ~ $ 195,000 Total: ~ $ 260,000 Artist/Label receives about $ 9.50/copy sold

Distribution Contract So, the Artist/Label makes an actual profit after having sold about 27,500 copies Cons: Artist must invest a sizeable amount of money Artist must support a knowledgeable team Pros: Financial rewards can be quite impressive

Issues of a Recording Contract Term Number of years Number of albums Number of recordings Exclusivity Regarding recordings Regarding use of name Regarding use of image

Issues of a Recording Contract Royalties (%) Based on suggested retail price ($25.95) Based on dealer price ($13.34) Advances Cash money or others Recoupable or not Refundable or not

Issues of a Recording Contract Production Budget Minimums Québec average: ~ $45,000 International average: ~ $300,000 Creative Control Does the Artist have a say regarding the choice of producers, songs, musicians, studios, artwork, etc.?

Issues of a Recording Contract Commitment to Promote Budget What does it include? What does it exclude? Charge-backs Items the Label can recoup from the Artist's negotiated royalty

Issues of a Recording Contract Ownership of Masters Transfers can be negotiated Important issue in the last few years Publishing Rights The "Controlled Composition" concept Video Rights Who finances the music videos? Who has the rights?

Issues of a Recording Contract Foreign Releases Responsibility Limited rights Royalty discounts Assignment Acquisitions Key person clause

Issues of a Recording Contract Right to Audit Requires the proper provisions Arbitration Requires the proper provisions

Issues of a Recording Contract Royalty Discounts: Packaging discount Free goods Tape discounts Record club sales Merchandising

Effect of Royalty Discounts Contract: 20% of dealer price (10% of suggested retail price) $ 2.60 Discount: 10% for defects $2.60 -.26 = $ 2.34 Discount : 25% for sleeve $2.34 -.59 = $ 1.75 Discount : 15% for free goods $1.75 -.26 = $ 1.49

Free Goods A retailer buys 100 CDs, he pays: $13.34 x 100 = $1334.00 The Label pays the Artist royalties on 100 CDs sold The Label wants to offer the retailer a 15% rebate. The retailer then pays: $13.34 x 100 = $1334.00-15% = $1133.90 The Label pays the Artist royalties on 100 CDs sold 23

Free Goods On the other hand, if the Label sells 85 CDs to a retailer and grants 15 CDs as "free goods", the retailer pays: $13.34 x 85 = $1133.90 (the same amount) The retailer actually receives 100 CDs! The Label pays the Artist royalties on 85 CDs sold

Free Goods So, real free goods = records given away for promotion Phony free goods = sales discount

Effect of Royalty Discounts Discount : 15% for free goods $1.75 -.26 = $ 1.49 Discount : 3% for producer's royalty $1.49 -.40 = $ 1.09 Discount : 30% for possible returns $1.09 -.33 = $ 0.76

Where does the money go? Suggested retail price (CD): $ 25.95 Sub-distributor (One-stop) gets: (~70%) 18.16 Distributor gets: (~50-52%) 13.49 Label gets: (~35-38%) 9.86

Cost of each CD sold Manufacturing (CD): between $1.00 and $1.50 Radio promotion (tracking): between 25 et 35 cents Mechanical license: average 70 cents Artist's royalty: negotiable (8-15%) Producer's royalty: negotiable (2-8%) Leaves an average of $5.00 to cover all other costs

Where does the money go? itunes track: $ 1.29 Distributor gets: (~20%) 0.26 Artist gets: (~10%) 0.13 Label gets: (~33%) 0.43 itunes gets: (~33%) 0.43

Variable costs Cost of the master tape Mastering and manufacturing tools Graphic design Colour separations and printing tools Promotion, advertising and music videos Salaries and other benefits Administrative costs

Promotion Reality: 80% to 90% of all record productions do not cover their cost! Necessity: A good marketing plan To minimize losses - To maximize sales Terms: P.O.P. = Point Of Purchase Reporting Station = Radio station surveyed to make the weekly charts 6

market shares CDs 57% Digital 41% Vinyls 2% Universal 39% SONY 30% Warner 19%

What makes people buy a record 10 music video 9 - Song selection 8 - Word of mouth 7 - Live performance of the Artist 6 - Cost of the record

What makes people buy a record 5 - A particular song 4 - Unique and innovative appeal 3 - Artist reputation 2 - Buying habits 1- Radio!

Distribution

year in review 2013 - singles 1 - thrift shop - Macklemore & Ryan Lewis 2 - Blurred Lines - Robin Thicke 3 - Radioactive - Imagine Dragons 4 - Harlem shake - Baauer 5 - Can t Hold Us - Macklemore & Ryan Lewis 6 - Mirrors - Justin Timberlake 7 - Just give Me a Reason - P!nk 8 - When I was Your Man - Bruno Mars 9 - Cruise - Florida Georgia Line 10 - Roar - Katy Perry

year in review 2013 - albums 1 - the 20/20 experience - Justin Timberlake 2 - Red - Taylor swift 3 - Take me home - One Direction 4 - Unorthodox Jukebox - Bruno Mars 5 - Babel - Mumford & Sons 6 - Night Visions - Imagine Dragons 7 - Here s to the good times - Florida Georgia Line 8 - The truth about love - P!nk 9 - Crash my party - Luke Bryan 10 - Unapologetic - Rihanna

year in review 2013 - tours 1 - Bon Jovi ($205,158,370) 2 - Michael Jackson - The immortal tour - cirque du Soleil ($157,299,100) 3 - P!nk ($147,947,543) 4 - Bruce Springsteen & the E Street band ($147,608,938) 5 - Rihanna ($137,982,530) 6 - The Rolling stones ($126,182,391) 7 - Taylor Swift ($115,379,331) 8 - Beyonce ($104,358,899) 9 - Depeche Mode ($99,972,733) 10 - Keny Chesney ($90,932,957)

how much does it cost to make a single? Rihanna - Man Down (2010) the song was created at a writing camp 40 songwriters, producers, engineers etc,10 studios,1 week cost: 100 000$ cost per song: 10 000$ Producer s fee: 10 000$ Vocal Producer: 1 500$ Studio + engineer: 1 000$ Mixing: 5 000$ Mastering: 500$ subtotal: 28 000$ Promotion and Marketing:? hot 100: #59 hotr&b/hiphop songs: #9

how much does it cost to make a single? Sheryfa Luna - si tu n etais plus la (2008) the song was created at a writing camp 15 songwriters, producers, engineers etc,5 studios,1 week cost: 30 000$ cost per song: 3 000$ Producer s fee: 1 500$ Vocal Producer: 500$ Studio + engineer: 500$ Mixing: 1 000$ Mastering: 500$ subtotal: 7 000$ Promotion and Marketing:? charts in France (SNEP): #3

Impact on humans! In factories: Employees are more productive More enjoyable working environment In offices Less distractions Masks noises Ambiance Music

Hospitals: Patients recover more rapidly Suppliers: Muzak (business) XM radio (planes) Uses popular songs Mechanical licenses required Ambiance Music

Production of new master tapes arranged in a specific musical style AFM contracts required "Package deal" concept Lump sum covering all costs Usually offered to "leader" or producer Ambiance Music