Flash - EMI Sold!

SOLD: Citigroup Unloads Both EMI Units; $4.1 Billion…

It could be a very busy Friday. Early this morning, word ‘leaked’ that EMI seller Citigroup has picked a pair of winners. 

On the recording side, Universal Music Group owner Vivendi has agreed to purchase EMI for $1.9 billion (1.2 billion pounds).  That is a substantial premium over the estimated price tag of between $1.2 and $1.5 billion, and enough to outdo Warner Music Group owner Access Industries. 

On the publishing side, the buyer will be Sony/ATV, with a somewhat-similar price tag of $2.2 billion.  That brings the total to $4.1 billion, considered far loftier than earlier estimations and potentially the result of some great salesmanship. 

The information is now being reported by most major outlets, including the Wall Street Journal, New York Times, Guardian, and others.  Citigroup, which seized EMI Group and is executing the sale, is expected to also announce the sale of both units later today.  These deals look fairly cooked, barring some late-stage development.

Universal Music Group is the largest of the majors, and the absorption of EMI’s recording collection only makes it bigger.  The question now is whether regulators take notice, and indie consortium Impala has already announced its intentions to fight the combination.  The situation in the US seems far friendlier, and will probably involve a light review at most.

More ahead…

I Run a Digital Distributor. And Several of My Labels Are Requesting Spotify Take-Downs…

The following guest post comes from Martijn Tjho, CEO of Amsterdam-based digital distribution platform FUGA.  The platform has a number of big clients, including Ultra, Armada, and Black Hole Recordings.  Tijho has candidly pointed us to a growing problem for Spotify: growing attrition among member labels, many of whom are quietly (and confidentially) leaving.
 

“While participating in a Panel Discussion during ADE [Amsterdam Dance Event] this year, seated next to Stuart Knight from Toolroom Records (a customer of FUGA).  We discussed services like Spotify and praised them for their growth.  Anticipating the ‘label’ business would grow at the same pace.  However, over the last couple of weeks, I’ve seen a shift indicating it could be more complicated, causing me to re-evaluate my position on the subject or at least do more research.

The reason for my doubt is directly related to several requests from our labels to perform a ‘Take Down’ in FUGA.  We use this feature in FUGA to remove our customer’s entire catalog or parts thereof from Digital Service Providers.  The label executives (who shall remain nameless), mentioned that the reason for their take down directly corresponded to the lowering of revenues through iTunes and other a la carte services.

A couple of months ago, while in London I met with a former major label CEO and he told me that he thought “subscription services” are a bit like what book/music clubs were in the past, serving a particular niche.  He believed that these services would eventually end up having a small, but important market share.  At the time of our meeting, I told him I thought he was wrong and a bit old-fashioned in his thinking with regards to the digital music space. Most people who know me, know that I cannot hide my passion for digital music nor my frustration with Major record label executives.  However, those people also know that when I’m wrong, I have no problem admitting it and in this instance, I may have been wrong in my judgment towards my ex-Major label exec friend.  Actually glad that I paid for the coffee that day!

I still think it’s a bit too early to know for sure what is to come with regards to current developments, but definitely worthwhile to monitor closely.  I’ll know better if I start to see other FUGA customers experiencing the same difficulties.  Is more than just a growing pain?  I don’t know yet, but I do know that either way, labels must begin to develop a product life-cycle strategy that is built around the release of a digital product, IMHO I think it should look something like this:

1. New Release Introduction

A new album, EP, track, bundle or whatever product configuration based on the artistic efforts of the musicians is introduced in the Marketplace, on a very exclusive basis in partnership with one or more Digital Music Services. In return the product is featured, advertised and a “buzz” is created for the right target audiences. This period is not aimed at profit and may even cause losses, but fully aimed at getting the right people to “hear” and “like” what is being released. From this point the “buzz” is created, with no guarantees of whether or not it will work, just the possibility that it may and if it does will generate a huge profit.

2. Sales Growth

The product distribution is ramped up, but still not available everywhere.  Advertising/promotion efforts start to pay off and the products gain traction. As a result sales increase, the margins are still high (exclusive product) and the product becomes more and more popular as the demand grows.

3. Maturity

This is the time when you can broaden distribution even more, ramp up promotion to the max and your product becomes fully established. At this stage competition of other products will become more fierce and pricing becomes an issue, margins get smaller, but volumes are higher, so there still is a good business.

4. Decline

Sales start to decline, as other products become more popular and saturation has taken place. This is the time to release the product on subscription based music services/clubs. Revenue and profits drop as a result of the low ARPL (Average Revenue Per Listener) advertising is only done on these services and the product becomes a true back catalog item. (This will be true if these streaming services actually cannibalize a la carte revenues).

5. Back Catalog Usage

Now it’s time to license your product or the individual tracks to compilation creators and other businesses aimed at (inexpensive) mass usage of your music.  This is where the “long-tail” promise may materialize.

Unlike any other products, the music product life-cycle never really ends.  Changes may occur as the urge to listen to a particular product or song slowly fades away, eventually being replaced by new music.

When people are in a certain mood or want to (re)create a mood, they usually want to listen to the same music again.  By having a subscription to Rdio, Spotify or any other streaming service provider with the “we have everything” concept will allow that customer the ability to play that song over and over again in order to recreate that mood, earning money for the song owner(s) every time they do.

Is the industry still too fixated on unit sales and fear the shift to a model based on access?  Are the streaming services indeed not more then a subscription club and should they be treated as such?

After speaking to a few of my other clients over the last couple of days on this subject, we all agree there is still a lot to learn. For instance, in the territories where Spotify has matured a bit more (like Sweden, for example), the revenue derived from Spotify is becoming extremely significant.

So on the one hand I have clients who believe Spotify is cannibalizing their iTunes and a la carte revenue; yet, on the other hand clients who also admit experiencing no downfall whatsoever in their iTunes sales.  In some cases arguing that Spotify has actually boosted their iTunes sales substantially.

I guess in the end what is truly important when entering into unknown territory like the digital music space is that we share our experiences good or bad with each other. The beauty of the internet is that we can share information on a global scale and by doing so drive growth based on facts, instead of blocking growth based on fear.”

Pandora CTO: Majority of Americans Pay $0 for Music…

How many people are actually reaching for their wallets to enjoy music - at least once in a given year? The answer could be depressingly slim, according to talking points jotted down by TechCrunch.  “Over half of the US doesn’t pay anything for music each year,” estimated Pandora CTO Tom Conrad at GigaOm’s Roadmap Conference.  On top of that, another 40 percent fork over about $15 a year, perhaps the cost of an album with a few a-la-carte downloads tossed in.

Which means  less than 10 percent of US-based consumers shell out more than $15 for music in a typical year, according to Conrad’s estimation.  And, we’ve actually heard far worse: the running number from the IFPI, for example, is that 19 out of 20 downloads are pirated, for example.  And, research surveys have shown that typical iPod owners have just a handful of paid downloads in their devices - at most.  

Sounds like Pandora is helping that situation, especially since every streamed song has a royalty payment attached to it.  That makes Pandora one of the good guys, though Universal Music Group head of digital Rob Wells recently broiled the company by pointing to a cannibalizing effect.  “I don’t think they’re doing the music or recording industry any favors,” Wells attacked, while somehow contrasting that against a “great” Spotify.

Wells further advised Pandora to “bolt on” a premium service, though earlier, founder Tim Westergren candidly noted that consumer appetite for paid add-ons is weak.

Grandpa, What’s a Non-Interactive, Pre-Configured Album?

Think the album is dead? Not so fast. Maybe we just need to update the concept and move it into a new hardware set.  That’s the core idea behind eVinyl, an LA-based garage focused on building a new format for music. In one elevator pitch or less, eVinyl is a cross between an ebook and a traditional record.

It might sound like a format Frankenstein, but try to imagine a future where artists aren’t selling collections, but complex virtual experiences that contain those collections.  In this model, fans would listen to the music while exploring highly interactive musical and visual content, one that develops a story around the music.  And, artists would create a one-stop shop for all that’s monetized.   

The idea - launching in a few weeks - would also preserve everything that’s right with the traditional LP.  And eVinyl wants to bring back all the elements that made albums a collectible object in the first place: liner notes, cover art, and lyrics, while adding everything that new powerful devices like the iPad allow.  That includes social sharing, and exclusive and expandable content like interviews, video, even concert tickets.  Artists could conduct Skype chats with the fans directly through eVinyl, or even serve live concert streams or afterparty cams.

The idea is to be more than just a mobile app on steroids.  Technologically, eVinyls are built in the ‘EPUB3′ format, which enables cross-format compatibility across Kindles, Nooks, and iPads.  eVinyl wants to create a more universal format, a more structured and permanent presence in fan devices.  And, artists would also be able to make changes and instantly add content into their customized eVinyl releases.

There’s also the issue of all that wasted time, especially when disconnected.  Ever observed people with their mobile devices on trains or planes, just killing time scrolling their library obsessively?  These are disconnected moments, and potentially a fresh opportunity to talk to fans.  Instead of scrolling, they could be spending time with the lyrics, the pictures, and the story around a song.  And, all the while becoming less of a casual listener and more of that oft-mythologized ‘engaged fan’.

Roundup

• There’s been an aftershock or two at Warner Music Group.  Just moments after Lyor Cohen triggered a number of changes across the global organization, Warner/Chappell CFO Brian Roberts has been elevated to EVP/CFO at the broader WMG.  Roberts replaces Steve Macri, effective January 1st.
• SoundCloud has just released its Android 2.0 app, a move that updates and aligns with the iOS feature set. 
• The British Treasury has sealed a longtime loophole that allowed retailers based in the Channel Islands to avoid a costly VAT charge.  The break was long protested by mainland music retailers, and will end April 1st.
• Throwing a partay?  Then you might want to check out Spartify, an online app that allows attendees to collectively build a Spotify playlist.  The concept is powered by the Spotify API, and conceptualized at the latest Music Hack Day Boston.
• Pandora, Rhapsody, and Twitter are just some of the Android apps available on the Kindle Fire, according to an Amazon announcement on Thursday.  Early buyers will be ‘opening their boxes’ starting next week.
• Rumblefish has just scored a licensing deal with APM Music, the largest production library and a joint venture between EMI Music Publishing and Universal Music Publishing.  The deal positions the substantial body of work into the consumer arena.

Source: Digital Music News

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