The Decline of Music Download Sites…

The Decline of Legal Music Download Sites

by Jerry Del Colliano

(When it’s 100 degrees plus all summer in the Arizona desert, a man’s thoughts turn to ice hockey).

Nielsen is reporting trouble for the music industry, which has been losing CD sales almost exponentially for a decade and now faces a significant decline in legal digital downloads.

Revenue is flat at the halfway point of this year (+0.3%).

Ringtones are down 24% since they peaked in 2007 according to Business Week.

There are arguments being tossed about that consumers have completed building their digital libraries for iPods and other mobile devices, but how does an active music buyer ever complete adding new music?

The uncertain economy is a factor.

But I’m not sure you can blame this on the economy.

All this and news that total music sales – estimated to be down to $7 billion in 2012 for all kinds of recorded music speaks to a much greater problem.

There are several considerations that come to mind:

1. Pandora and sites like Pandora allow consumers to have their music and eat it too for no fee or a voluntary fee (to exclude commercial interruptions). Keep an eye on this. Apple is. I think Steve Jobs will offer a streaming music service (among other things) using the Lala technology that it recently acquired to do what may constitute as Apple’s version of Pandora (minus the genome) tied into iTunes.

2. YouTube and other sites allow consumers to satisfy their passion for music at no cost – and remember, the recession is a factor not an excuse. Proof? Lady Gaga gives more music away for free than John Scherer’s Video Professor gives free learning CDs for computer programs. Yet, Gaga sells more music and more entire albums than any other artist.

3. Apps are competing for the time consumers used to spend on just iPod-delivered music. Even several years ago my college students told me they were bored with their iPods but didn’t want to give them up. I said, “what about radio?” They laughed. But today’s apps compete for time. Not the entire answer, but a nuance that is worth factoring in. Keep in mind the one thing that never declines – text messaging – and you have another.

4. Filesharing is alive and well and will go on. In spite of what record labels have tried to stop it, illegal filesharing proliferates. Listening to music you don’t own or that nobody ever paid for is still as easy and relatively safe from wrath of the RIAA than ever. I don’t think this explains the decline in legal downloads, but peer-to-peer filesharing certainly has not declined to create a demand for paid music.

5. Record industry solutions like Rhapsody, Vevo, Rdio and other emerging platforms in which the labels make more money are not popular with consumers. Translated that means: no growth factor there.

The labels have cooperated by supplying their music to initiatives with which they feel comfortable and that is a problem. What record execs are comfortable with is a wrongheaded solution. Their solution should pay greater attention to that which the consumer is comfortable. This disconnect has never been patched in the entire 10 plus years that the music industry has been in decline.

The Big Four record labels – or as I like to call them The Last Four Standing – are, believe it or not, still calling for negotiating a voluntary deal with ISPs so that they can charge their customers each month for any use of music.

A recent letter circulated by Universal’s Jim Urie seeking support expressed outrage that “Governments outside the U.S. are legislating, regulating and playing a prominent role in discussions with ISPs (Internet Service Providers)”.

It isn’t going to happen here and the labels seem to be betting the ranch on their call for action that is destined to fail.

The Bloomberg Business Week article said the bottom line is “As digital downloads slow, the music industry is scrambling for a strategy to keep revenues rolling in”.

And therein lies the problem.

The labels don’t know.

Haven’t known.

And have no clue what the consumer is telling them.

To young consumers, filesharing and free plays are their generations replacement for music radio.

Peers have more credibility to Gen Y than corporate radio which has virtually eliminated music experts and music loving live, local djs.

Apple devices and cool cell phones are not a radio – not a “CD” player but a gateway to on-demand entertainment.

A Ford Sync or an iPad should be the template from which to salvage the record industry from its doldrums and yet there is no major game plan in the music industry to understand how powerful these new portals are. And yet the labels are reportedly resisting Apple’s bid to use its Lala technology to offer a music stream available anywhere. They just don’t get it. The labels don’t get to decide. Times have changed.

And, I’ve saved the best for last.

Forgive me if you think it’s naïve but if the labels spent more time, money and effort to discover new artists and genres, they might be helping themselves a whole lot more than trying to cram a relative handful of existing artists into the devices of their choosing on their terms rather than the consumers.

Just sayin’.

written  By Jerry Del Colliano

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Limewire Loses Major Case to the RIAA-But Will that make a Difference in Record Sales?

A couple of articles to peep around the issue of  file sharing…The first talks about the recent court ruling against Limewire where the RIAA is happy as heck as it validates their long held complaints about how file sharing is ruinning the music biz..

  The second story is the exact opposite. It talks about how yet another study been published that shows there is no correlation between illegal downloading and record sales..  This is a hard pill to swallow for many in the industry. The thought of having to find another cause to explain low album sales is daunting for those who are still yearning for the old glory days of the industry where money and album sales was plentiful. Them days will not be returning anytime soon..

There are far too many cats in this biz who have totally forgotten about handling the basics which centers around relationships.  They refuse to go out and create a solid community. Instead of seeing fans as friends and allies, they see them as mindless consumers  who they accuse of morphing into despical theives when they don’t sucumb to the charms of a cheesy marketing plan. Too many executives and artists forget that a good relationship will be rewarding, not punitive.

There’s a very vocal segment of the music industry that reminds me of the proverbial loud mouth artist  who is barely known on his block but will be the first to complain that his lack of success is due to downloading… He’s the first to show  up and say “no’ to technology, but the last to show up and put in the hard work of shaking hands, kissing babies and leaving a lasting impression.

Everytime I hear this type of charcter whine, I feel like holding up a sign that says;

‘Son fallback..Nobody knows or cares  who you are..Ain’t nobody on Limewire looking for your joints..’

Sadly in an industry full of insecurities and egos, my line of thinking will rub some the wrong way.. no matter how true the assessment.

The reality is far too many artist refuse to really put in work and sincerely reflect the realities of the people they want to purchase their music. They wanna stand around and talk big like they’re entitled to the next fat check when they never really put in work. These types of folks need to go the way of the dinosaur.

Fortunately there’s a growing segement that has learned to embrace change. These are the types that consistently take every challenging situation and turn them into a fertile opportunity.

For example, I recall LA Hip Hop pioneer Egyptian Lover talking how his peers were moaning about getting bootlegged. He said he understood early on the bootleggers were there to stay and the best thing he could do was create a situation where it could work to his advantage.  Instead of woofing he said basically saw the bootleggers as a street team. They become promoters. He figured he was gonna need one earlier, might as well let the bootlegger do the work..  Egypt  put on his creative thinking cap and did what so many The record labels execs and artists have forgotten to do because they’ve become too comfortable. He  figure out how to ‘flip the script’.

Something to ponder

-Davey D-

LOS ANGELES — File-sharing software company LimeWire has lost a long-running court battle to the major recording companies.

A judge with the U.S. District Court in New York ruled this week that the company and its chairman, Mark Gorton, were liable for inducing copyright infringement.

The decision in the case, which began in 2006, doesn’t mean the site will shut down right away. The record labels and LimeWire are to meet with Judge Kimba Wood on June 1 to determine the next steps, such as a possible deal to work together going forward and a potential award for damages.

Recording Industry Association of America Chairman Mitch Bainwol said in a statement Wednesday that the ruling was “an extraordinary victory” against one of the largest remaining file-sharing services in the United States.

The RIAA said more than 200 million copies of LimeWire’s file-sharing software have been downloaded so far, including 340,000 in the last week alone.

The ruling could pave the way for a deal, similar to the way Napster was sued out of existence in 2000 but was reborn and is now under the ownership of Best Buy Inc. with licensing deals with all the major recording companies.

“This isn’t about getting something shut down, it’s about getting something licensed and legal,” said Steve Marks, general counsel for the RIAA.

LimeWire CEO George Searle said in a statement that while it “strongly opposes” the court’s decision, the company held out hope for a deal. The company sells an “Extended Pro” version of its free software for $34.95 a year, leaving open the possibility that a new business model could emerge in cooperation with the music industry.

“LimeWire remains committed to developing innovative products and services for the end-user and to working with the entire music industry, including the major labels, to achieve this mission,” Searle said.

original source: http://www.huffingtonpost.com/2010/05/12/limewire-loses-riaa-case-_n_574338.html

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Another Study Vindicates Filesharing

By Jerry Del Colliano

http://insidemusicmedia.blogspot.com/2010/05/another-study-vindicates-filesharing.html

Steve Meyer, who as I have often said is the smartest observer of the record industry, knocked my eyes out in a recent issue of his publication Disc & DAT (Digital Audio Technology).

Yet another study that exonerates filesharing as the culprit in today’s music industry.

It’s a lack of innovation — not filesharing – that’s the conclusion.

I’m sure that doesn’t come as a surprise to you, but it may be to the record labels who are acting like it is 1999.

Professor Nico van Eijk of the University of Amsterdam conducted the latest study and his conclusion speaks volumes:

“The entertainment industry will have to work actively towards innovation on all fronts. New models worth developing, for example, are those that seek to achieve commercial diversification or that match supply and end-user needs more closely. In such a context, criminalizing large parts of the population makes no sense. Enforcement should focus on large scale and/or commercial upload activities. . . Introducing new protective measures does not seem the right way to go…”

In other words, filesharers are consuming all media especially concerts, films and games – not just copyrighted music.

I’ve linked to the 55-page report here.

Let me comment on a few of the findings my friend Steve Meyer highlighted:

“The study concludes (among other things) there “isn’t a clear relationship” between the decline in sales and file sharing, while also finding that fear of evolution prevented the recording industry from adequately adapting their business models to the broadband age. While the recording industry is having problems, argues van Eijk, it has less to do with file sharing, and more to do with the fact they’ve been “abstaining from innovation” — as the study phrases it”.

Think about it.

The labels could have bought Napster, not annihilated it, thus avoiding creation of the Napster vacuum that was promptly filled by bit torrent sites, etc.

The labels could have innovated along with Steve Jobs when the Apple CEO caught them off guard with his offer to help stop piracy. That offer was the iPod and iTunes store. He played to their fears. They allowed him to become the de facto Big Kahuna of the Record Industry.

They could have laid off streamers and come up with an easy to swallow royalty payment schedule that would have grown music consumption instead of dampened it.

Could have launched its own cloud.

Could have done Pandora itself as an industry consortium – that is, if they could have gotten along together for a minute. Bet Steve Jobs would have loved to own Pandora. Bet he still does.

More from the report:

“Turnover in the recorded music industry is in decline, but only part of this decline can be attributed to file sharing. Conversely, only a small fraction of the content exchanged through file sharing networks comes at the expense of industry turnover. This renders the overall welfare effects of file sharing robustly positive.”

Innovation scares the record industry.

God forbid, they had a new idea other than CDs.

If record labels had to run the space program, they would find themselves doing a soft landing in Camden, New Jersey instead of the moon because they cannot figure out which way is up.

Now, record labels really need to know which way is out.

Because Steve Jobs is running their show.

Setting the rates, making the new age “record players” if you will. For all practical purposes, he’s eliminated the album (although you wouldn’t know that by Lady Gaga).

Apple is about ready to launch cloud-based instant access to iPods, iPads and iPhones – while record labels can brag about instant access to – well, suing people. And, by the way, the labels are opposing Apple’s iTunes “cloud”, too as witnessed by this recent article in The Wall Street Journal.

So expect the RIAA to raise a commotion and argue the latest study that looks at filesharing as the lesser of evils.

The worst being – a lack of music industry innovation.

As Meyer pointed out in his piece, Steve Jobs says “Sometimes when you innovate, you make mistakes. It is best to admit them quickly, and get on with improving your other innovations.”

That’s a great quote — not that Jobs ever admits a mistake (like in the current version of Apple TV).

Still wisdom of the quote is right on.

And Steve Meyer wrote this in 2003 when he launched his newsletter:

“Any software programmer will tell you the hard core (ugly) truth is this: anything that can be encoded digitally can be decoded and replicated with a little work. It’s time the labels recognize this fact, accept it, and now spend time brainstorming on how new revenue streams can be created within the framework of all the technology at hand.”

Okay, so don’t admit to past mistakes. We understand.

But, wake up and look around.

My USC students used to be split about whether filesharing was stealing. They had many excuses – some good (“I use it to preview what to buy”) and some bad (“the money never gets to the artists anyway”). I’ve often wondered about these rationalizations.

But there is no denying that one could also look at filesharing as today’s radio.

A source of music discovery.

And now we have yet another carefully considered report that explains the phenomenon if not the unfortunate response of the record industry.

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An Important Article About the Problem of Radio Consolidation

The Four Seasons of Media Consolidation

By Jerry Del Colliano

http://insidemusicmedia.blogspot.com/2010/04/dead-nationticketmaster-merger.html

Some of my readers have suggested workarounds to the Ticketmaster/Live Nation monopoly that I wrote about yesterday.

You know, the one that promises higher prices for concert ticket buyers.

The Grateful Dead concept of selling directly to fans.

The growth of entrepreneurial businesses that barter tickets in a fair marketplace like Brown Paper Tickets.

Others suggested Amazon or even iTunes as alternatives to Ticketmaster someday.

There is no shortage of good ideas when those ideas come from people who actually know what they are talking about, but the way our entertainment business model works right now — the CEOs and their bankers get to play with the monopoly money.

Take what happened yesterday when Emmis CEO Jeff Smulyan put together a $90 million buyout to take the company private. Alden Global Capital will buy all the outstanding Emmis shares for what amounts to $2.40 a share and Smulyan gets his company back.

You may remember that Jeff Smulyan was among the first to read the winds of change when he tried unsuccessfully several times to take Emmis private. The shareholders were always the problem. Emmis just never worked as a public venture.

But then again Emmis went public to get in on the Wall Street lending giveaway that enabled the other big consolidators to acquire stations once consolidation was approved. Unfortunately, Emmis never got big enough nor was it willing to be acquired and you saw how that turned out.

Radio is becoming a two-model business.

Consolidator vs. operator.

On one side the Clear Channels, Citadels and Cumulus-type consolidators who run on pure loan money and that must either grow or sell to have a reason for being. They are not interested in being broadcasters. By now everyone knows that what goes on-the-air is the least important component for these types of operators.

We know consolidators fire local personalities no matter how successful or profitable and keep only the “brands” that they can pipe to other stations in different cities to allow for more firings and lower costs.

They reward success by giving surviving managers even more responsibility guaranteeing that they cannot continue to produce excellence. Apple’s Steve Jobs would not take the executive in charge of his computer division and say, here take my iPod and iTunes initiatives, too. And then if somehow that person succeeded, could you imagine Jobs giving that same person a third responsibility — say, to oversee their retail stores.

Radio does this all the time.

Piling on work because the end result doesn’t matter.

Program directors are a thing of the past with consolidators. Content manager is the new name that at least admits to the change in job description — to channel national programs to various local destinations.

Bain Capital, one of the major investors (along with Thomas H. Lee Partners) that overpaid $20 billion for Clear Channel shows us how they are hell bent to operate as recently as this past weekend.

News Blues, a paid subscriber site, reports:

“The Weather Channel was in full balls-to-the-wall storm coverage mode Saturday as the nation’s Southeast lit up with severe weather. But Friday night, when nearly a half-dozen tornado watches were in effect, and parts of Mississippi were being ravaged by storms, TWC aired a movie: “The Avengers.”

Sound a bit like consolidated radio? You know, the kind owned by Lee and Bain and other “vulture” capitalists.

As was pointed out in News Blues, “The Weather Channel partners Bain Capital and Blackstone Group will never justify the enormous $3.5 billion price tag they paid for TWC in July 2008 at the height of acquisition market”.

They are all about profits.

Mobile apps, inter-connectivity and Internet distribution models.

Profit first.

Forget the tornadoes.

The model is right there — Clear Channel’s co-owner is doing the same thing at The Weather Channel.

Fresh off of $1.3 billion in refinanced debt.

This is getting too easy for us to understand, isn’t it?

The only climate The Weather Channel cares about is the business climate.

I mention all of this because the radio and music businesses have always operated in their own worlds. If you’ve worked in either (or both), you know that reality never meant anything in these businesses.

Radio set its own rules.

Always dictated what the audience would hear, how advertisers would support them. They don’t like being shoved around by the Internet, Apple, Facebook or a bunch of kids right out of Pirates of the Caribbean.

And, the music industry still doesn’t acknowledge the real world.

Napster was an asterisk in their history.

They can sue fans for stealing.

Lose money.

Watch consumers prefer digital downloads to plastic CDs.

And it remains business as usual.

They, too, are doomed.

That’s right — the CEOs who take their orders from equity owners — are doomed because they are operating in the make believe financial world that they live in and are not capable of acknowledging the real world where it takes innovation to grow revenue.

So, if you’re an innovator or have just a little innovation in you, fired from a media job you did well — the real financial turnaround is going to happen for your career.

Legal monopolies are not a business model in a world that has changed.

Financing and refinancing while content excellence suffers is a short-term and foolish strategic move — not an adequate five-year plan.

There are no viable five-year plans in the entertainment business because these industries are already ten to 15 years behind the consumer and their preferred technologies.

So here’s my take on the economic recovery that is coming.

Keep in mind Citadel, a company in bankruptcy, is bragging about a 4% increase in revenue over the first quarter of 2009. Also keep in mind — that is a pretty low standard to meet. Q1 of 2009 was the absolute bottom of the media economy and these geniuses think a 4% hike a year later is a recovery. Hey, it’s better than losing money, I grant you.

A growth business — never.

So here we go:

1. Equity holders must continue to consolidate or liquidate — collecting fees all along the way — to remain viable.

2. The longer they hold their assets, the more they run into their loan covenants that will require the purchase of more expensive debt. So watch things shake out in the year ahead.

3. For those of you who want to buy radio properties when the prices come down, remember that even Larry Wilson isn’t buying now. And that the properties may still be sound but consolidators kind of ran down the neighborhood if you know what I mean. In other words, they’ve devalued the very radio stations they overpaid for making it hard on competent owners who want to try their hand at good terrestrial radio.

4. Good operators like Bonneville, Cox, Lincoln Financial and others (usually smaller groups) will turn in excellent results because they have not devalued their properties even though they sell in a climate that has. However, these companies are like building Beverly Hills in downtown DC — location, location, location.

5. There can be no growth business for the entertainment industry without an interactive digital strategy separate and apart from traditional broadcasting content. And it must be fully funded. No digital. No growth. No kidding.

6. The brain drain will start showing its effect on media companies that have neglected great over-the-air content and have failed to innovate new media platforms. Sorry, but they just can’t keep firing assets and then declare they are hiring again for new needed media initiatives. The best people are going to stay away from operators like that.

So the reality is that media is just another microcosm of the new American business model.

Buy big.

Overpay.

Over-commit to debt.

Cut assets and costs.

Refinance again and again and hope the economy makes this model look good enough to — resell.

At a profit.

Or at least for more fees.

I’m going to put it in writing — years ahead of general knowledge — that once everything has been bought, sold, and resold, there will be a need for new ventures.

That’s why they call these vultures — venture capitalists.

Sadly, they need more businesses to buy and ruin for fun and profit.

The necessary growth businesses will never rise up from the companies they bought or funded because that’s not what equity owners are about.

For the growth businesses of the future, they will have to turn to the talent that has been shown the door or to the young people who cannot even get in the door.

The four seasons of consolidation are:

Spring — rebirth and growth by entrepreneurs.

Summer — the cornucopia of innovation with its abundant supply of revenues and rewards.

Fall — The final harvest of new business growth.

Winter — The coldest season of all — not friendly to the seeds of new ideas and an atmosphere not conducive to growth.

In radio, television, print and music, we’ve just suffered through the worst media winter ever.

Spring has sprung.

Get planting seeds of innovation. Equity speculators have to eat.

original article: http://insidemusicmedia.blogspot.com/2010/04/four-seasons-of-media-consolidation.html

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