People constantly lament the absence of Beatles tracks online (legally, anyway) but word is out today (read the EMI press release) that Apple Corp, MTV and Harmonix will release "The Beatles: Rock Band" on September 9th.

The software will go for $59.99. The guitars (modeled after instruments played by band members) will go for $99.99. A limited-edition bundle will cost $249.99. Giles Martin, co-producer of The Beatles LOVE album, is this project's music producer.

Non-gamers, sorry. Nothing for you.

Posted by Glenn at 12:48 PM | Link
|EMI|

EMI owner Terra Firma released its annual report today. Click here to download the 115-page PDF (the EMI section of the report starts on page 45) or here for a Reuters article.

EMI's EBITDA was £221 million for the last nine months of 2008. That compares well to the £90 million of EBITDA recorded in the last nine months of 2007. Recorded music gross margin (sales less cost of goods) was £250.4 million, up 30.5% versus last year, and earnings were up £92 million. Recorded music overheads and other costs decreased 13.3% to £216 million .Music publishing revenue was up 0.4% to £307 million.

In a costly admission of both EMI and the economy's outlook, Terra Firma wrote off half its 2.6-billion-Euro investment in EMI. In explaining private equity valuations (page 17), Terra Firma said it is a combination of portfolio financial performance and the application of a multiple or discount rate to comparable listed companies. As the valuation of public companies has declined, said the report, private equity firms' higher amounts of leverage have magnified their declines.

Throughout the report, Terra Firma underlines the value it brings to its firms. Here's a blurb:

Working alongside management, we overhaul the business both strategically and operationally. This often involves introducing new initiatives, processes and procedures in order to change the behaviour and culture of a company. This type of change takes time, but a long-term approach to investment is vital in order to create successful, sustainable businesses.

Cleaning up EMI has certainly improved its current financials. It has a more orderly organizational structure and more sound expenses and oversight. But media companies have problems that go well beyond processes, procedures or management.

As seen in the acquisition activity of Universal Music Group and Warner Music Group, as well as the merger of Front Line and Live Nation, one popular vision of the future music company puts more emphasis on artist services (management, agencies, e-commerce) and less dependence on revenues derived from assets (sound recordings and compositions, although music publishing is universally seen as a safer investment than recorded music). This vision recognizes that even the most well managed media company will have difficulties as technology changes how consumers acquire and enjoy their products.

Terra Firma, on the other hand, has put a great deal of its focus on organizational and structural elements tied to EMI's legacy as a creator, marketer and seller of (hopefully) hit albums. Altering how tasks are carried out will allow EMI to cut 1,500 to 2,000 jobs.

Terra Firma does mention, without detail, a strategy that looks beyond monetizing sound recording and publishing assets. On page 48 it mentions the need to gain "touring, licensing and other revenue streams" (presumably in the context of multi-rights deals, not M&A activity). On page 84, the report outlines some strategic changes being made at EMI. The company's future growth, judging from items highlighted here, are bundled subscriptions plans, mobile, gaming, advertising and sponsorships, and multi-rights artist contracts that peel off ticketing, touring and merchandise revenue.

Companies with less need for operational improvements have been looking beyond recorded music and publishing. Vivendi, parent company of UMG, saw a future in gaming and acquired Activision while UMG acquired Sanctuary. Warner Music Group sees a future in artist services and has moved into management, tour promotion and booking.

EMI's growth segments will be their competitors' growth segments. It will license music to the same stores and services. As the market ebbs and flows, only market share will set apart these companies. Once it achieves its desired operational and organizational efficiencies, then what? Terra Firma has spent time straightening up EMI -- and rightly so -- but has not looked far beyond being a consumer product and licensing company. This new annual report, like the Maltby Report before it, does not give any indication that Terra Firma is seriously looking beyond recorded music and publishing. To properly rebuild EMI, it may need to do just that.

Posted by Glenn at 1:21 PM | Link
|EMI||Earnings Releases|

The EMI restructuring continues and the latest Maltby report (PDF, 566 KB), released by EMI last week, provides many insights into the company's progress and ambitions. Where its competitors or focused on adding parts of the value chain, EMI is slimming down and preparing for an era where corporate marketing, sponsorship dollars and partnerships are its key growth drivers.

The company says it is on track to achieve between £85 and £100 million for the year ending March 31, 2009. This will be attained through sales of property, improved distribution and manufacturing contracts, and the outsourcing of the finance function. Restructuring charges will keep EMI with a net loss until the second half of 2010.

But there's a risk in its strategy. In reshaping the organization and transforming its roster, EMI has given recorded music market share to its competitors. The company believes it can save money -- and use money more wisely -- by putting the "emphasis on artists with genuine potential to come to market in a realistic time frame." Such omnipotence is rare. In the crap-shoot that is the record business, one does not always know which artists will succeed and which will not. If success was so easy to predict, there would be no failures. Alas, failure is a part of the business, and aversion to risk a vice. By creating more stringent standards for signing and developing new artists, EMI risks losing out on some of tomorrow's stars. If that is the case, the value of its catalog -- and all those musical toothbrushes -- will drop relative to its competitors.

One mission of the new EMI may play a part in the quality of its catalog. EMI is setting itself up as a sponsorship-based consumer product company -- more than its competitors in this area. It is unlikely that the needs and preferences of potential corporate sponsors will not play a part in the acts that EMI signs and develops. The traditional model is based upon expected consumer reaction. The new model is based partly upon expected corporate reaction. Whether or not the new model lends itself to long-term success is one of the bigger questions surrounding EMI's strategy.

In spite of these question marks, EMI has made some real progress. In the half-year ended September 20, 2008, EMI revenue was up £60 million -- or 10% -- to £737 million. EMI's net loss improved to £155 from £324 in the second half of 2007. In the previous year, EMI's profit too a £192 million hit from a downward fair value adjustment. The recent finance charges were greater than EBITDA of £130 million. Finance charges totaled £150 million (including a net £25 million loss on exchange fluctuations) in the second half of 2008 versus £130 million in the previous period. As a percent of revenue, that's an increase of less than a point to 20.35%.

Digital revenue rose almost 50% and digital market share for EMI Music rose to 12.6% from 11.0%. CD sales represented 62% of revenue while digital accounts for 21% of total sales.

There were notable examples of improved efficiency as EMI did a bit more with roughly the same expenses. Overhead dropped 1% (I expected more) while cost of sales dropped 4%. With a decent increase in sales, gross margin as a percent of sales rose to 43.9% from 32.2%. A&R costs as a percent of sales dropped five points to 5%, and sales & marketing costs as a percent of sales fell six points to 14%.

In the EMI Music division, physical sales dropped 8%, digital sales rose 38% to £102 million, sync revenue increased 5%, total revenue increased 1% and gross profit jumped 38%.

Posted by Glenn at 2:45 PM | Link
|EMI|

• Finally, somebody has a good take on EMI's recent earnings release. Yes, its second-half of 2008 loss was an improvement, but there are important implications to its strategy. "The cost cuts are helping to reduce the company's losses, but they also appear to be costing EMI market share, which could make it harder to become profitable over time. EMI's share of global CD sales fell to 9.8% from 10.6% in the half, according to the EMI accounts." Isn't it funny that the press loves EMI and tends to loath the two companies that have gained market share in recent years, Universal Music Group and Warner Music Group? Maybe there's a correlation between stubbornness and market share. (Wall Street Journal)

• Slightly good news for music companies: Woolworths will return as an online retailer. (Reuters)

• Along with Jean-Marie Messier, the former Vivendi Universal CEO, former Vivendi Universal vice chairman (and current Warner Music CEO) Edgar Bronfman Jr. was cleared of insider trading by a Paris prosecutor. A magistrate still needs to review the case. (Variety)

• Not a surprise that there is still tension between iTunes and labels. "In interviews, several high-level music executives, who spoke on the condition that they not be named to avoid angering Apple, said they operated in fear of Apple’s removing a label’s products from the iTunes store over a disagreement, even though that has never happened. The labels do not have much leverage in negotiating with Apple." (New York Times)

• Thorsten Koenig, managing director of Universal Music Germany's international division, is leaving the company. (Billboard.biz)

• Music distributor The Orchard has joined the Digital Data Exchange, a group formed in 2006 to develop standards for XML message formats for the exchange of metadata. (Press release)

Posted by Glenn at 10:38 AM | Link
|EMI|

EMI's turnaround has become more troubled. The Telegraph (found via Billboard.biz) reports that several Terra Firma executives with senior level positions at EMI have left the company. Chris Roling (EMI's COO and CFO), Ashley Unwin (COO for UK and North America) and Francois van der Spuy are said to have left. And this:

Sources said that EMI’s new chief executive Elio Leoni-Sceti, who recently joined as chief executive of EMI Music after a 20-year career in marketing, was keen to bring in his own management. Terra Firma has refused to provide any detail on why the senior members of staff were not reinstated into new roles at EMI.

That isn't hard to believe. CEOs tend to bring their own people with them. But I can't help but wonder if cultural differences are behind these departures. Quite a few EMI executives have little or no music industry experience. Outside perspectives will no doubt be valuable to music, but outside experience transfers only so much.

Some background info can be found in the Billboard.biz article. The Financial Times has an article as well.

Posted by Glenn at 3:04 PM | Link
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In an article about an upcoming (reportedly on Friday) announcement regarding EMI Music's organizational structure, the Financial Times previewed EMI's financial performance for the first half of its fiscal year ended September 30. EMI Music is said to have an EBITDA of £59m in the six months to September 30. That compared with a loss of £14m last year. Revenues were £482 million and digital revenues increased 37% to £102 million. (The recent increase in digital revenues is a big improvement. Digital rose only 29% during the latest fiscal year.)

EMI will probably tout these results as a sign of its improvements, but the six-month EBITDA was not too far ahead of the mark achieved in EMI's painful fiscal year. As detailed in the brutally frank Maltby report a few weeks ago, EMI Music had EBITDA of £58 million in its fiscal year ended March 31, 2008. The company reported a loss of £757 million due to high restructuring costs, interest expense and "other" financial expenses.

EMI Music may have fewer returns and a more profitable roster, but depreciation and finance charges will knock any positive earnings measure deep into the red. Even so, the reported numbers show signs of improvement in spite of a depressed market share and questions about its ability to sign and/or develop talent.

Posted by Glenn at 10:37 PM | Link
|EMI|

For the year ended March 31, 2008, EMI lost £757 million (US $1.204 billion at today's rate) for private equity firm Terra Firma. Revenues dropped 19% to £1.45 billion for the year ending March 2008. EMI took a hit from £123 million of one-off restructuring costs. Most telling was EMI Music's loss of global market share -- to 9% from 12% a year earlier.

A PDF of the 101-page report can be downloaded here. It's good reading.

EMI Music's gross margin was 34% and EBITDA was £58 million (under 6% of sales). Operating loss restructuring costs were £150 million and total operational loss was £250 million. Interest expense totaled £165 million and "other" financial charges amounted to £258 million.

EMI Music's physical sales were down 28% in fiscal 2008 while digital rose 19% EMI Music revenues dropped 23% while EMI Publishing revenues increased 2%. Revenue from CD sales accounted for less than 40% of publishing revenues in 2008 (the fraction was almost 60% in 1999).

Lord Birt, the chairman of Maltby Capital, the investment vehicle of Terra Firma that acquired EMI, wrote an introduction to the report that laid out the problems and obstacles. Maltby was the firm that prepared the report. Here are the key points outlined by Birt:

The main factor behind the very large loss was continued operational poor performance, but more particularly accounting factors, in particular the revaluation of the balance sheet and the requirement to mark assets and liabilities to fair values.

While interest charges will recur annually and we anticipate a restructuring charge in the next financial year, we do not expect to see other costs and charges recur at the same level. Operating performance for the full year continued to be poor and this reflected long-term weaknesses in EMI Music which we discuss in this report.

EMI’s operational performance has improved significantly during the first seven and a half months of Maltby ownership and we expect the six months results ended 30 September 2008 to show year on year improvement.

EMI now has a stronger balance sheet and team with which to start a new era.

Birt blamed high expenditures, a "traditional way of looking at artists" more in tune with high CD sales, EMI's internal reporting for EMI's poor operating performance. But he insists EMI has "got costs under control" and has introduced more rational compensation policies as well as "business discipline." The brunt of the criticism is aimed at EMI Music. The publishing division is portrayed as being far more well run, progressive and profitable.

Overall, the report is very frank and honest. Sometimes it's too honest and too bright a light is shone on the company's poor management (there are quite a few "you've got to be kidding" moments about the company at the time of its acquisition). There are multiple admissions of problems with internal reporting that disguised the poor performance of EMI's new music sales. The overshipping of CDs was frequently blamed for EMI's ignorance of its eroding sales. Between 2005 and 2007 EMI CD sales fell 45% versus a 19% average market decline (page 18). That sound you just heard was my jaw hitting the ground. I'm amazed nobody knew what was going on and/or did nothing to address it. Incredible.

Later in the report, Maltby covers many of the changes that have taken place: overhauled compensation, the new matrix operational structure, improved internal reporting and analysis, a new corporate governance structure, clearer financial accountability and an effort by Malty to instill within EMI a culture of integrity.

More items from the report worth highlighting:

• As an example of how incentives were out of line with the goals of the company, unpaid advances were regularly written off as extraordinary items even though they were commonplace. "Because these provisions did not affect reported underlying earnings, there was little to discourage the practice of overpaying established artists." (Page 26)
• "A typical marketing and promotion spend on a developing artist in the UK was £98,000 which represented, on average, 81% of sales."
• "For audio assets, the top 250 artists today represent more than 75% of sales, leaving a long tail that is under-utilised." Actually, that looks about right. The hits represent the majority of sales, especially for a company obstensably in the business of making hits.
• "Recent investigation showed EMI Music to be the fourth largest spender on a well known taxi firm in London, with a bill of over £700,000 in the last year. This was only slightly less than the bills of 3 investment banks, with 8-10 times more staff than EMI Music."
• "Business practices that focused EMI Music on short term financial reporting goals are being actively discouraged. In particular, the company has now radically cut over-shipping of CDs, a practice which was distorting sales figures at quarter ends and resulting in substantial returns of CDs later down the line. CD return rates as a percentage of sales have been substantially reduced."

Posted by Glenn at 4:49 PM | Link
|EMI|

EMI, the last holdout of the four major music groups, is now on board Nokia's Comes With Music service (press release). The news comes on the same day the new Nokia Tube touchscreen phone was unveiled and more details about Comes With Music have surfaced.

More on Comes With Music and Nokia's approach to music and media can be found on the virtual page for today's Nokia Remix event in London.

Posted by Glenn at 2:02 PM | Link
|Comes With Music||EMI||Nokia|

A few weeks ago I was thinking to myself, When is a major going to get rid of its physical distribution and outsource most functions or partner with another company? An indication came sooner than I expected. Today it was announced that Warner Music Group will distribution and market physical product for EMI in Southeast Asia. The companies have had a similar arrangement for India, the Middle East and North Africa since 2005. I was wondering about North America, not smaller and developing markets, but I think such partnerships here are inevitable. A permanent reduction in distribution workforce would have considerable cost savings. Since the number of labels and the number of titles released are not growing, physical distribution needs to be rightsized.

It makes perfect sense. First the majors got out of the manufacturing business. There has been some consolidation of sales and marketing for indies and majors (as in the case with EMM and Caroline). As both physical sales and the number of music retail sites drop, the logical step is to partner with another company to reduce the cost of physical distribution. Even the New York Times is doing it.

Posted by Glenn at 10:45 AM | Link
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Pali Research, says this lengthy and worth-reading blog post at the Wall Street Journal's Deal Journal, suggested that EMI purchase Warner Chappel Music Publishing from Warner Music Group. The odds of that happening are slim to none, as Deal Journal explained.

The sale would allow for WMG to pay down its debt, but that's important only if servicing its debt is a problem. Right now, and especially after WMG suspended its dividend, this isn't a burning issue. The Goldman Sachs analyst who downgraded WMG the other day admitted the company appears able to meet its debt obligations.

For EMI to try to integrate Warner Chappel before the smoke clears on Terra Firma's reorganization would bring unnecessary stress to an already stressful turnaround attempt. Why bother?

Financing such a deal would be difficult in today's climate. Pali estimates Warner Chappel could sell for $1.95 billion. Publishing sits in a more favorable light than does recorded music, but if I was a bank I'd sit this one out and let Terra Firma get EMI on the right path.

Would regulators deny such a purchase? EMI has the largest music publishing market share, but publishing is more fragmented than recorded music (read about 2007 market shares here). If regulators could permit Sony BMG to exist, they could live with an EMI purchase of Warner Chappel.

But I don't see it happening. WMG doesn't need to sell right now, and EMI should focus on its own transformation.

Posted by Glenn at 4:04 PM | Link
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Wow. The Times Online posted an article today that says the Rolling Stones will leave EMI and sign with Universal Music Group. No indication was given that EMI's new ownership or organizational structure was a reason for the departure. Instead, the article mentioned a "bidding war" and the Stones' desire to "court rivals in pursuit of a higher price."

This is a huge blow to EMI. It will miss out on both new releases and catalog since the Stones will take their post-ABKCO recordings to Universal.

Posted by Glenn at 9:00 AM | Link
|EMI|

• EMI announced it will shed its UK CD and DVD distribution and will outsource it to European logistics company CEVA, with which EMI works in a handful of countries on the continent. (Music Week)

• Muzu, an ad-supported video site that allows artists and fans to create their own TV channels, has launched in the UK and Ireland. Sony BMG and a number of indies (Ministry of Sound, Eagle Rock, Ninja Tune) are on board. (Irish Times)

• I hadn't heard much about Shockhound until recently. The upcoming -- launching next month -- online store was crated by Hot Topic (the retail chain that caters to emo and metal fans). The store will sell MP3s and merchandise (T-shirts and other items). (Boston Herald)

• People are chipping in to help out Philly's Siren Records and allow it to open in a different location. (Philly.com)

• DRM gets a vote of no confidence from the Library of Congress. (Ars Technica)

Posted by Glenn at 8:12 AM | Link
|EMI|

There is finally some financial news on the great EMI overhaul. Music Week just put up a report that Terra Firma chief Guy Hands sent out an email to employees that described a "dramatic improvement" in EMI's first quarter financials. The recorded music division had an EBITA of £59.2 million and total revenues amounted to £288.1 million. That is an improvement on the loss of £45.1 million recorded music had last year, and a 61% increase in total revenues. (These numbers do not include the costs related to recent layoffs.) There was certainly a good deal of low-hanging fruit for Terra Firma, but those numbers are encouraging.

Hands credited the revamped organizational structure and reduced waste for the improvement. Returns of physical product was singled out as an improvement. Returns in Q1 2008 were less than 16% of gross sales, said Hands, compared to 42% in Q1 2007. He downplayed the impact the recent Coldplay release had on the quarter's results.

We have come a long way this year but, of course, there is still much to do. The problems facing the music industry cannot be solved in a few months.

However, it is already clear to me that what is emerging at EMI is not only a far leaner organisation, but a more focussed and effective one as well, and better aligned with the interests of our artists. An organisation that is becoming much better placed to serve artists and customers alike, and to give our talented people the opportunity and the tools to produce their best work.

Q1 2007 revenues were 5.1% lower than in 2006. EMI Music revenues dropped 13.4% and were blamed in part on a light release schedule.

Posted by Glenn at 7:34 AM | Link
|EMI|

• In an effort to improve margins, Universal Music Group will bring back deluxe editions of CD releases for the fourth quarter (at least in the UK). Standard versions will also be available. (Music Week)

• EMI has appointed Elio Leoni-Sceti as its new music unit chief executive. On Leoni-Sceti's resume are stints at consumer product companies Reckitt Benckiser and Proctor & Gamble. (AP)

• More executive changes at EMI. Billy Mann, EMI Music’s Chief Creative Officer is in for departing President, A&R Labels - International and President - EMEA, JF Cecillon. (Alley Insider)

• The Orchard "substantially completes" its acquisition of TVT Records' assets (which includes masters, artist contract and office lease but not publishing). (Press release)

• A campaign by McCann-Erickson for Universal Music Group will give MasterCard users free downloads at www.priceless.com. After giving away the first 100,000, each track will cost $0.80. Being a Mastercard user I went to the site to test it out. After jumping through too many hoops, I ended up an an Amplified.com page and just gave up after being asked to register again. The prize packages are cool, but the free download aspect is pretty weak. (Billboard.biz)

• In Australia, brick-and-mortar sales of #1 albums dropped 30% and #1 singles dropped 40% in the first half of 2008. Those figures are not for all albums or singles, just the #1 singles. (Herald Sun)

• I haven't posted an article about vinyl's popularity in a few weeks, so here's another one. The article says vinyl sales in Ireland were up 20% in the first half of 2008. That's puny compared to the 77% increase in the U.S. in the first half of the year. (Times Online)

• Live Nation has purchased a controlling interest in France's Main Square Festival. (AP)

• A profile of Soundtrax, which makes music download cards. (Duluth News Tribune)

Posted by Glenn at 9:20 AM | Link
|EMI||Universal Music Group|

The Financial Times has reported that Terra Firma is considering Elio Leoni Sceti, whose tenure with consumer products company Reckitt Benckiser was preceded by a stint at Proctor & Gamble, to run EMI's recorded music division. Mr. Sceti's appointment would mean Terra Firma would place chiefs at both the recorded music and publishing divisions. One could interpret that move as a facilitator to merging EMI's recorded music division with that of Warner Music Group.

If there was any doubt Terra Firma has little faith in the culture of the music industry to lead EMI to profitable territory, look no further than the executive ranks that are filling up with industry outsiders. The implication is Terra Firma believes music executives as well as larger shifts in technology and listening habits are responsible for EMI's position. The company's org structure has been radically overhauled and a third of its employees are being dismissed this year. This strategy of large shocks to the system contrasts with that of EMI's competitors, who are this far hoping to ride out this period of uncertainty with smaller layoffs, fewer organizational changes, slight changes in licensing of product and the occasional acquisition that adds diversification.

Posted by Glenn at 1:26 AM | Link
|EMI|

As I mentioned yesterday, Terra Firma's plan to change EMI's organizational structure, what Guy Hands has called a "global functional matrix organization," strikes me as an oddly timed experiment. And yes, it really is an experiment.

The Wall Street Journal's Ethan Smith confirmed an earlier report by Fox News' Roger Friedman that Capitol Music Group chairman and CEO, Jason Flom, would not be replaced.

Traditionally, the corporations that own the major labels have organized their operations geographically, with label heads for the U.S., the U.K., Europe and other regions operating with a fair degree of autonomy, overseeing A&R, marketing, promotion and other functions in their territories.

Since taking over last year, Mr. Hands has stated his desire to centralize such functions within the company. For instance, A&R executives in North America will now report to (head of A&R for the US and UK Nick) Gatfield, while marketing executives would report to a marketing czar, which EMI is currently looking to hire. Previously, both sets of executives reported to Mr. Flom, whose position wouldn't be filled.

Trink, who announced his resignation, told the WSJ's Smith he was leaving because of differences over Terra Firma's org chart.

In a telephone interview, Mr. Trink said the decision to step down was his, based on a "philosophical difference" with changes EMI's new owners were making.

"Their view is that there is no local management," Mr. Trink said. "There is no such thing as a president of Capitol Records going forward. I believe that's a mistake -- and not just because I happen to be the president of Capitol."

Some EMI hires have made sense. Former Google exec Douglas Merrill and Second Life co-founder Cory Ondrejka are no doubt tasked with finding new markets and new manners of music consumption and experience. They represent the future music business.

A shift toward technology and away from A&R fits with earlier statements by Terra Firma chief Guy Hands. "What we are doing is taking the power away from the A&R guys and putting it with the suits - the guys who have to work out how to sell music," he said in February '08.

How does the market feel about the strategy? If there is such thing as a score card on EMI's A&R outlook, it is EMI's loss of Radiohead and the Rolling Stones, public bickering of artist managers and Coldplay's sit-on-the-sidelines-and-wait delay in putting out its new album.

But getting rid of label presidents is a far riskier move. It implies one of two things: EMI's struggles are due to organization structure, not specific leadership, or label presidents' value to the company do not justify their salaries. With its new structure, EMI is betting that its "global functional matrix organization" is the best way to greet the future.

The thing about multi-national music companies -- just like other large, diverse corporate entities -- is within the larger company reside many unique company cultures. Each unique business unit may need its own unique leadership. Furthermore, different territories have different music markets -- especially the US and UK -- and managing two large and geographically separated divisions will be a challenge. At the very least, the new structure can run afoul of music industry executives' historical reluctance to work with people they did not hire themselves.

This is not to say the new organizational structure will not work. Hands may very well have on board the people who will buy into his vision -- there cannot be dissent if EMI is to meet its goals. But the timing of the changes adds greater risk to an already risky venture.

Posted by Glenn at 3:50 PM | Link
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A report this morning by Fox News' Roger Friedman claims Capitol Music Group head Jason Flom and Capitol Records president Lee Trink will exit their roles at EMI and will not be replaced. The folks at Terra Firma, Friedman wrote, do not believe in label presidents...which means Coldplay will soon release the most important album of the Terra Firma/EMI era without anybody helming the ship. (Friedman is told all EMI labels will have "president of A&R" roles and heads of marketing, but no label presidents.)

Terra Firma has made some bold moves -- hiring Second Life co-founder Cory Ondrejka to its digital strategy team was an unconventional decision -- but this one is flat out suspect. The desired executive structure is not really the problem, it's the handling and timing of it. Not only is Hands & Co. toying with EMI's ability to sign and retain artists, it is revamping its organization chart at a precarious time. The company needs leadership at every level. This hardly seems like a time to experiment. But such is life on a private equity firm's accelerated timetable.

Posted by Glenn at 8:07 AM | Link
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• SpiralFrog, provider of free, ad-supported P2P, has inked a deal to offer EMI Music's recorded music. The company has deals in place with a number of music publishers and Universal Music Group on the recorded music side. With EMI and UMG in place, SpiralFrog has about half of the major label market share for recorded music. Chairman and founder Joe Mohen told the AP that SpiralFrog is about a year away from turning a profit. (AP)

• Sony BMG's International's president of continental Europe, Maarten Steinkamp, will step down. (Music Week)

• Live Nation is increasing its advertising spending (a precursor to selling its own concert tickets?) in the UK. The concert promoter is looking for an agency to handle £10 million of media planning and buying, a figure that is up from its current £4 million annual account. (Brand Republic)

• EMI Music Publishing has signed a worldwide deal with Ben Harper. (Press release)

• imeem is now inserting short audio advertisements between some songs. (Ad-Supported Music Central)

• New York record store Jammyland closed last weekend. (Crimes Against Music)

• Universal Music Group spent $180,000 on lobbying the federal government in Q1 2008. It spent $700,000 in all of 2007. Q1 money went for anti-piracy efforts as well as for appropriations relating to intellectual property theft enforcement, Internet and satellite radio issues and performance rights. (AP)

• A resolution that calls for the protection of terrestrial radio from royalties for the public performance of sound recordings has picked up the support of an eighth senator. The House version has the support of some 200 representatives. (Press release)

Posted by Glenn at 10:09 AM | Link
|EMI||Publishing|

On Wednesday, Terra Firma chief Guy Hands released his quarterly letter to investors. He wrote about EMI's difficulties and the current credit climate.

EMI is certainly not highly correlated to the economy. The issues and challenges facing the recorded new music side of the company are not due to the economic cycle, but to more fundamental shifts in consumer behaviour that are affecting the whole music industry. We are addressing these challenges, and working to develop a robust business model for the future. Meanwhile, and importantly, our investment has strong downside protection in the publishing and catalogue assets of the business, where revenues are on an upward trend. ...

From a financing perspective, unfortunately, the crisis has been so deep that the debt package has had to remain on the balance sheet of the bank which provided it. Clearly, this is a time when all banks are under tremendous pressure, but this is not ideal for EMI. In all leveraged buyouts, your bank is your partner, and we have worked hard, and continue to work hard, to see if there are ways to help Citigroup syndicate or sell down this loan.

The New York Post hopped on the story. "EMI's debt has been viewed inside Citi as largely unsellable, sources said," wrote Brian Garrity.

The Daily Swarm has the text of an article at The Evening Standard that says "the private-equity magnate is open to offers to split the business, and is considering selling off the recorded music arm." EMI would retain the publishing arm of the company ("where revenues are on an upward trend" Hands wrote in the letter). In addition, Hands mentioned considering moving EMI's U.S. headquarters to Los Angeles, according to the article.

Such a sale would result in three major music companies that would account for about 80% of all recorded music sales in the U.S. Economic efficiencies, yes, but this has got to be close to the point at which regulators become too uncomfortable with the concentration of market share. It would be bad for sales, too. Labels merge, bands dropped from contracts, fewer acts developed, fewer titles released, fewer units sold. Good for catalog sales, but at that rate the majors would be in jeopardy of becoming archivists rather than creators.

There may be whispers and musings about a company like Apple or Nokia buying EMI's recorded music division. Nothing seems like a good fit right now. Apple doesn't need to buy EMI Music just to make another $0.30 per track, and Nokia needs to prove its sales model and technology before considering an investment in music assets. Besides, history is filled with examples of parent companies failing to realize synergies with a media subsidiary. It looks good on paper, but it doesn't always work in reality.

Posted by Glenn at 11:46 AM | Link
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The Telegraph reported today that Terra Firma has bought itself a bit of time with Citigroup. EMI reportedly now has an extra three months to reach certain financial targets. (To what degree these goals are tied to Citigroup financing is a bit unclear. A December 2007 article at the Telegraph said the recorded music earnings goal was not tied to loan covenants.) The recorded music division has a goal of £180 million in EBITDA by September. About £100 million is expected to be saved from a restructuring that reduced the staff by over 2,000 employees.

The report said internal sources claim the original June goal of £150 million EBITDA will be missed. The recorded music division is on pace for £133 million, which means label bosses will not receive bonuses. Instead, the entire workforce is being offered a back-end bonus. When Terra Firma realizes the value of its investment (through sale of refinancing) the entire recorded music workforce will receive 15% of the division's equity. Publishing employees get a similar deal.

The article ends with a tidbit about an EMI strategy to merge its recorded music division with that of Warner Music Group.

Terra Firma is also understood to be sitting on a secret long-term plan, code-named Project Poker, to tie-up with listed US major Warner Music Group, merging their struggling recorded music divisions. No approach has been made to Warner, but the strategy would be to sell on some music publishing assets in order to avoid regulatory constraints.

The two companies have danced around one another for a number of years and have not been able to either merge or acquire the other. The two planned on merging in 2000, when Warner Music was still a part of Time Warner, but pulled out later in the year due to regulatory concerns. More recently the two companies made offers and counteroffers before EMI was eventually acquired by private equity group Terra Firma in May of 2007.

Posted by Glenn at 10:38 PM | Link
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Update: EMI has denied The Telegraph's report that it will cut an additional 1,000 jobs. The company said it plans to have 2,700 employees by the end of 2008 and that "the new EMI" will be up and running by the end of June.

The Telegraph just reported that EMI will cut another 1,000 jobs. Those cuts are on top of previously announced plans to cut between 1,500 and 2,000 jobs. About 2,000 jobs -- down from 4,5000 when EMI was purchased -- will remain after the next round of cuts are made.

People familiar with the situation said Mr Hands was looking to cut more jobs at the company because, even after the round of redundancies announced in January, the business will still have more employees generating less revenues than its competitors at Warner Music and Universal.

Insiders speculated that the next job cuts will come in waves throughout the year.

From where I sit, it appears Terra Firma head Guy Hands is content to starve the beast rather than gain strength. For all its talk of improving A&R, which would impact its top line in the coming years, EMI seems to want the same bottom line simply through lower spending. It would have to be a far more efficient operation than currently exists. Cut just enough and EMI should be able to properly develop its artists. Cut too much and it will be undermanned and unable to realize its artists' potential. The wild card is EMI's future organizational structure and creative vision for monetizing its recordings. Just how the company will do more with less is quite a big question mark.

Posted by Glenn at 7:56 PM | Link
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Terra Firma is finally making substantive changes to EMI's organization. FMBQ has some information on changes to Capitol Music Group's organizational structure. In addition to the promo group changes mentioned below, some staffers were laid off.

What transpired today is the assemblage of one central promotion team by which (EVP of Promotion Greg) Thompson will continue to oversee. Again, the composition of this central group, which includes a national executive team for every radio format and a field staff, has yet to be officially unveiled by the company. The function of this central promo team will be to service the following labels: the Capitol Music Group including Capitol and Virgin; all the imprints in the Bluenote Label Group including Bluenote, Angel, Manhattan, MetroBlue and Back Porch; the Caroline Music Group and Astralwerks. The team will also work in conjunction with the Nashville office for country crossovers and the EMI Christian Music Group for crossover artists as well. The U.S. Latin label is not part of this initiative.

Greg Thompson will continue to report to President Lee Trink, and he and his team will support and service all of the promotion efforts for the aforementioned label groups.

Billboard.biz named names:

Among those let go were Virgin Records VP of promotion Dave Reynolds, Virgin director of promotion operations Jordan Rosenblatt, Virgin Boston regional James MacDonald, Capitol Chicago regional Amy Kaplan and Capitol Florida regional Ric Austin. Additionally, several assistants have been let go from the Los Angeles office, including Jen Kelly.

Posted by Glenn at 9:08 PM | Link
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From the New York Post:

Three high-level industry sources familiar with the situation claim EMI needs more money to cover the restructuring costs, which are running higher than anticipated.

Once source said Terra Firma is looking to possibly raise another $60 million for EMI to help pay for the cuts. Multiple sources said raising the money was not going to be a problem for the firm. ...

Terra Firma insiders are attributing the holdup to European labor laws, which require a lengthy review process before pink slips can be handed out.

The cuts are now expected by June, a source said.

Darn red tape.

Posted by Glenn at 6:00 PM | Link
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Citigroup has canceled plans to sell its EMI debt. The bank had lent about $4.9 billion to finance Terra Firma's acquisition of EMI and was planning to sell the debt to third parties. Risky debt is hardly popular these days. Citigroup will keep EMI's debt and sell off $12 billion of loans to the buyout firms.

From the Wall Street Journal: "Citigroup worried that such uncertainty would add to the squeamishness of the already-jittery debt investors it is trying to lure."

Posted by Glenn at 2:10 PM | Link
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EMI incoming head of digital Douglas Merrill did a Q&A with Billboard.

There's actually academic data that suggests file sharing is good for some artists. That's very much against the common prevailing wisdom, but the minute you look at the data on it you find some fascinating things. I think part of what I'm excited about doing at EMI is doing a bunch of experimenting to see what works and what doesn't. How do we add value to artists? How do we help fans find and experience artists? How do we find the right value to add? I'm really looking forward to see what happens in the next 12 months.

If you sum all the papers on P2P, the overall opinion is that it neither helps nor hurts recorded music sales. Merrill is right to say file sharing helps some artists. Unfortunately for EMI, file sharing tends to hurts the big earners (this is supported by some research) and helps the most the sort of albums that don't recoup. If Merrill's presence can help turn mid-hits into profitable albums, EMI will have won half the battle. I don't doubt Hands believes a restructured, re-imagined EMI can be sustained with lower expenses. The other half of the battle is continuing to create big hits (which, again, are exposed to file sharing).

Hits also have the greatest exposure to format substitution. Hits are usually driven my singles, and customers are free to cherry pick the single and forgo the purchase of an album. I think one of Merrill's top goals should be to figure out ways to maximize the percentage of all purchases that are albums or bundles. When consumers embrace digital music, they tend to get more into a singles mindset. This is ruinous for record labels that can't recoup on sales of single tracks. You can argue that labels need to change so projects are less dependent on album sales and are more likely to break even, but most of that is out of Merrill's control.

Merrill also spoke with the Los Angeles Times and brought up the P2P topic.

As a sign of his willingness to consider bold moves, Merrill held open the possibility that people sharing music online -- an illegal practice that the music industry has fought to stop through lawsuits -- might help some artists during certain parts of their career. "Maybe a lot of the things we assume are not actually correct," he said.

I'm not sure where he's going with this. Can one harness file sharing at one point in an artist's career and minimize its damages at another point in the artist's career?

Posted by Glenn at 1:42 PM | Link
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The fact that this news arrived on April Fool's Day gave me pause, but it appears to be legit. (Although All Things D confirmed this news twice, VentureBeat confirmed through a source Merrill's departure from Google, and News.com's Elinor Mills confirmed the Google and EMI angles, I hereby reserve the right to update this post with conflicting or correcting information.)

The news: EMI has hired away Google VP Engineering Douglas Merrill to be its new head of digital.

This is the kind of culture clash that will be written about for years to come. I hope somebody is going to do a Harvard Business School case study on Merrill's attempt to overhaul EMI's digital department and help transform the company into the next-generation media company imagined by Guy Hands.

Reading on Merrill:

• February 14, 2008 interview with InformationWeek. "The CIO of tomorrow is not a business service person; the CIO of tomorrow is a technologist who understands business in a different way. The job I get to have, and I think is increasing prevalent in industry, is I get to find new ways to enable people to be more effective. I get a job which says, 'What are the business problems we have to solve and how can we transform them?' and that's a fundamentally different skill set."
• March 18, 2008 interview with the Wall Street Journal.
• Merrill's bio at the Google website

Side note: Someone at TechCrunch left the comment, "Roger federer is now the president of EMI? That has to be an april fools joke." Yeah, he does look like Federer!

Posted by Glenn at 8:39 PM | Link
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Coincidentally, EMI came out in favor of Nokia's Comes With Music plan on the same day news broke about Apple's early-stages talks about a similar device-plus-subscription bundle for its iPod and iPhone devices. Reuters has a very brief article. Nokia is set to roll out the service in the second half of the year.

"We want to be part of it. I believe strongly that when it launches we will be there, with a full offering," Wemppa Koivumaki, head of EMI Finland, said at a press conference.

How could Guy Hands, with a vision for a new kind of entertainment company, not be part of Comes With Music?

Both bits of news comes as worries mount that iPod sales are slowing and Nokia's stock took a hit over fears about the U.S. credit crunch and a slowing U.S. economy.

Posted by Glenn at 4:20 PM | Link
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Billboard.biz reported today that EMI will remain a member of the IFPI (press release here). The company's new ownership had threatened to drop out. On January 8, Billboard.biz reported that EMI had sent a conditional resignation letter which said EMI would drop out at the end of this month unless "discussions with the other major labels over the future structure and funding of the IFPI and the national industry bodies...lead to a solution that we are able to support."

EMI was said to have wanted a more cost-efficient, global trade group rather than pay dues to separate groups such as the RIAA and IFPI. The company's stance has resulted in some changes at the IFPI, though nothing but cost savings were mentioned. Said EMI Music international labels president Jean-Francois Cecillon,

We undertook to work with our colleagues in the other major labels and with [IFPI chairman/chief executive] John Kennedy on a cost saving plan for the IFPI and together we have been able to find solutions which we believe are achievable whilst maintaining what the IFPI does best in representing our industry.

Update: The Financial Times article has information from a source that said the IFPI receives half its funding from national trade groups "but EMI had been able to make a substantial cut to its direct contribution."

Posted by Glenn at 2:59 PM | Link
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There are a couple of ways to look at EMI's deal with the Daily News that will offer free downloads from the News' website to purchasers of the print version.

This deal marks the beginning of a new EMI and a fresh approach to generating revenue from its catalog. This one deal isn't going to change the company's fortunes, but it is important for symbolic reasons.

On the other hand, one has to wonder why this type of partnership had to be born from a private equity acquisition and management overhaul. What is preventing companies from marketing their catalogs in radically different ways that generate adequate returns? That's what this deal points to: A lack of creativity by the other three majors and a good portion of the indies. Different ideas aren't going to be enough. Radically different ideas are needed. Everybody's throwing things against the wall to see what sticks...but most often they're all aiming for the same part of the wall.

There have been few new ideas that represent this sort of shift in thinking. Here are the ones that stand out.:

One is Nokia's Comes With Music, a great combination of hardware and service. Sony BMG's MP3 cards, although universally scoffed at, shows a new way of thinking about non-traditional formats at non-traditional retail. Matador's "Buy Early Get Now" is a jump forward in approaching the timing and packaging of music. Selling downloads of original songs for use in video games (such as Guitar Hero) allows users to enjoy music in a totally new setting. And, of course, Radiohead's tip jar album release that preceded the standard CD and digital launch, which showed how simple distribution can be.

Posted by Glenn at 4:28 PM | Link
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As a follow up to my post on silos (and how EMI can't and shouldn't do too much to bring some of the down), here's a quote from New Improved Plan Resonate Blog that comments on a Wall Street Journal article on EMI's restructuring. I couldn't agree more with this post:

Jim Fusili at WSJ makes a pivotal error by assuming that EMI’s stated commitment to A&R will benefit "music lovers." Fusili asserts that EMI’s "silo mentality" leads to the unnecessary segmentation of consumers.

This would be true if EMI were in the business of directly interacting with consumers. They’re not. The music industry relies heavily on distribution partners and, most importantly, retailers. ...

Retailers use segmentation and classification to help customers find what they’re looking for. Distributors, ad agencies, publicists, booking agents, old media outlets, and new ones alike use segmentation to deliver an attractive product. Segmentation is useful and desirable in a world where so many different dialects are spoken.

Many hip hop fans love classical music, and vice versa, yet they don’t want to have to dig through the Lil Mama to find their Liszt.

Label execs generally won’t pretend to have the same talents of a successful local record shop manager. Similarly, financiers shouldn’t pretend to have the same talents of an A&R rep."

Posted by Glenn at 1:15 PM | Link
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If you're following Terra Firma's transformation of EMI, this Telegraph article on Guy Hands makes for good reading. The Telegraph actually spoke with Hands for the article. While it's not a tell-all in the vein of a Barbara Walters interview, it is a nice break from the usual ways we hear about EMI: prepared statements and anonymous sources.

Posted by Glenn at 10:42 PM | Link
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• There are rumors that EMI has made an offer for Chrysalis, one of the few remaining independent music publishers in the UK. (BBC News)

• Reuters just reported that Warner Music Group has also bid on Chrysalis. (Reuters)

• FCC commissioner Michael Copps cautions against media companies being taken over by private equity groups and has urged the FCC to launch an investigation. His main complaint is the structure of these companies, which he argues may render the FCC unable to take action in the event something goes wrong. (Dow Jones)

• Alltell Wireless and mSpot have announced a new service called Music powered by Celltop, which allows users to access the DRM-free music collection on their PCs over the Alltell network. The service costs $3.99 per month of $9.99 for three months. (Press release)

• Spotted in a post about how MySpace is still killing Facebook in terms of traffic: "I spent some time on MySpace last night, exploring the profile pages of family and friends and was shocked to see that all the music players on the site are now sponsored by Zune. It was news to me but I'm told it's been that way for weeks. I haven't been able to find a single shred of coverage of that deal on any of the top tech blogs - but I would assume it's helping sell more Zunes than ever." I've looked at a dozen or so mainstream pop artists' MySpace pages and haven't seen anything sponsored by Zune. (ReadWriteWeb, via Techmeme)

• Physical music sales in France fell 17.1% in 2007. (Billboard.biz)

• An article about Indiedrive, an online music store that offers music only on 1GB USB flash drives. The flash drives, which cost on average $20 apiece, contain MP3 files, videos, pictures, artwork and anything else the artist wants to include. (Shakopee Valley News)

Posted by Glenn at 11:11 AM | Link
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From The Guardian:

"EMI, bought by Guy Hands' Terra Firma group last year, confirmed today that worldwide headcount will be cut by between 1,500 and 2,000 as it slashes costs.

Confirming EMI insiders' fears, the company said ahead of staff briefings this morning that it was launching 'a series of wide-ranging initiatives within its recorded music division to enable the group to become the world's most innovative, artist friendly and consumer-focused music company."

Posted by Glenn at 8:09 AM | Link
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More reports about the coming changes at EMI, which will be announced to its staff tomorrow.

Wall Street Journal: "The private equity firm, which bought EMI last year for £3.2 billion, plans to strip EMI's individual record labels such as Capitol, Virgin and Parlophone of many of their responsibilities. Most or all of the labels' sales and marketing staff will become part of a new global structure reporting to EMI's headquarters in London, according to the person. That should leave the labels to focus on signing up musicians and helping them create music, known in the industry as artists and repertoire or A&R."

Times Online: "The cutbacks will focus on recorded music, which is less profitable than publishing. Mr Hands wants to exploit further the back catalogue at EMI, the label behind Kylie, Norah Jones and the Beatles, by digitising more recordings."

Posted by Glenn at 6:17 PM | Link
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The Times Online has an article today on the restructuring plan EMI will announce tomorrow. About 2,000 jobs are expected to be cut in an effort to reduce marketing expenses. Other highlights from the article: the company will be split into two groups (creative and back office) and a new incentive scheme will be based on profits. Take a look at the article for the details.

I'm practically in awe that EMI is taking the step to base incentives on sales and profits rather than shipments. It makes so much sense and would have been standard in any other industry in the world, but somehow music companies put the focus on shipments. In the digital era, shipments equal sales, so there's no issue. But on the physical side, basing goals on shipments too often puts the focus on the wrong part of the supply chain. Sometimes sell-through takes a back seat to loading up retailers and distributors. From my years in sales, I learned that goals based on shipments too often lead to excess product sent to accounts only to be returned after it gathered dust. The only winner is UPS.

Posted by Glenn at 5:52 PM | Link
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Guy Hands, who is leading the transformation of EMI, is finding out how difficult change can be in the music industry. The head of EMI owner Terra Firma, a private equity firm, is faced with an artist-manager revolt over his plans to remake the troubled music group. Even though the status quo will be their downfall, artists and their managers are obviously far more comfortable with the status quo than the uncertainty that goes with the pending changes.

Today the Financial Times looks at Hands' artist manager problem. Tim Clark, Robbie Williams' manager, told the Times that in two meetings with EMI he saw none of the "fresh thinking" he believes the company needs, and he has urged other mangers of EMI artists to "demand answers to hard questions."

One EMI senior adviser said EMI's changes would make the company more effective. "There will be more people focused on A&R [artist and repertoire] than there are today" and that "A&R and artist support will be a bigger share of the business than it is today." That statement conflicts with earlier reports that EMI will cut its A&R staff and depend more on new technologies to discover and develop new artists. Here's a quote from a November 2007 article at the NY Post:

"The firm also wants to reduce costs in artist-and-repertoire and marketing by $58 million by using social networks and user-generated Web sites like MySpace to discover and promote talent."

Here's the thing: criticism of the old model are far easier to come by than specific examples of badly needed "fresh thinking." Whatever changes EMI eventually makes will alienate some artists and their managers. There is simply no way to make everybody happy. EMI will be faced with a slate of potential models that will result in few to many estranged artists. If Hands shows his mettle, he will do what is best for the company in the long term and ignore the impulse to make a few superstars happy in the short term. With no activist shareholders looking over his shoulder, Hands should be able to make the proper decisions.

Posted by Glenn at 4:59 PM | Link
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The Telegraph reported that Terra Firma is planning to broadcast live music events of EMI artists at movie theaters. An EMI spokesperson confirmed the report. The company owns Odeon and UCI, the largest theater outside of North America, and is looking to use this new format as a part of its transformation.

"Coldplay, the Spice Girls and other performers signed to the EMI label will be given the option of broadcasting a live concert to screens in dozens of cities. The format would be used to launch new albums, with fans, media and music executives invited to the screenings and given the option of picking up the CD or film of the concert on their way out of the cinema."

With most expectations for new revenue coming from mobile, this is an interesting development. And it's a good idea, though whether or not consumers will buy into the final product is far from known. I assume the price of admission will be similar to a movie. That's good, because concert ticket prices are getting ridiculous. And fans in markets not on a tour's route can still experience a live show. Incremental CD sales will be there, in small numbers, but the focus should be on revenue from the screenings.

Posted by Glenn at 11:08 AM | Link
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• Ad-supported download site SpiralFrog has received a much-needed $2 million in additional funding in the form of convertible notes. The notes' interest is a tidy 12% annually, interest is to be paid quarterly and the principle is due on April 19, 2008. Between the company's IPO and these convertible notes, SpiralFrog has taken two of the more costly routes to raising money. (Press release, via paidContent)

• Digital track sales rose 47.7% in Britain in 2007. CD sales dropped 10%, according to the BPI. (Times Online)

• eMusic closed out 2007 with more than 400,000 subscribers (it was at 350,000 in November). The download site doubled its forecast for Christmas Day new customer trials. (Press release)

• An article for California residents or retailers doing business in California: A new California law, which went into effect yesterday, allows gift card holders to redeem for cash a balance of less than $10. (Modesto Bee)

• Antony Bruno has a list of artists that could possibly follow in Radiohead's footsteps. (Billboard)

• EMI artists are worried upcoming marketing budget cuts will hurt their sales. Gee, you think? EMI's problem is the same that William Hesketh Lever had a century ago: Half the money it spends on advertising and marketing is wasted, and the trouble is it doesn't know which half. If Terra Firma can figure out which half is wasted, EMI artists have nothing to worry about. But you know what? EMI artists should be worried. (Financial Times)

• MeeMix, which streams music matched to users' tastes, went live yesterday. (VentureBeat)

Posted by Glenn at 10:33 AM | Link
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• With so much attention being put on Terra Firma's cost-cutting plans for EMI, things are getting a little absurd. Check this quote from an article at The Telegraph: "EMI's new owner, Terra Firma, has told managers at the music company to only ship CDs they expect to sell after discovering millions of pounds were being lost annually because of returns." Maybe Guy Hands is really that green, but somebody should tell him that offering retailers a returns guarantee allows EMI to get titles stocked. Take away that returns allowance and add more risk than a retailer is willing to carry alone. If Hands & Company has a better idea, especially on how one could convince a retailer to • stock a developing artist, please share. (The Telegraph)

• The promo departments of Roadrunner and Atlantic will be merged. Current Lava VP or promo Mike Easterlin will replace Dave Loncao as Roadrunner's SVP or promo. (Billboard.biz)

• More layoffs: Island Def Jam laid off a dozen workers last Friday. (Silicon Alley Insider)

• West Babylon, New York indie store Looney Toons reopened after the owner decided to rebuild and improve the store after a devastating fire. Inventory grew by 30% and an in-store stage was added for performances. (Newsday)

• This article is a good overview of the proposed legislation in France that will punish its citizens who engage in illegal file sharing. One tidbit I did not know: French music legend Johnny Hallyday endorsed Nicolas Sarkozy. (International Herald Tribune)

• The Digital Pricing Conundrum Part IV: The Loss of Resale. "On average, you'd pay $10.19 for one of the top-10 titles in iTunes, as opposed $11.49 for the equivalent CD. But you could, on average, net $6.23 for subsequently selling your CD. So the mean potential 'loss of resale' premium for these iTunes albums was $4.93." Read this Coolfer post about the value in the choice to resell a CD. (Digital Audio Insider)

• Greg Kot interviews Paul McCartney. Kot asks the (sadly) predictable question, Are record labels done? McCartney responds, "No. It's not final. I feel like I made the right decision, because right after I left, EMI got sold, so obviously something was wrong. They are now in new hands and are applying themselves and they're going to bring themselves into the modern world." (Chicago Tribune)

• Coolfer has a Facebook page. Sure, why not? So many people use Facebook these days, it's the best place to keep in contact. Feel free to befriend me. (Coolfer on Facebook)

• Arguments for dropping DRM: Getting rid DRM is bad only for the most risk-averse and pessimistic in the industry. Without DRM, entrepreneurship will flourish and labels can enter a new era of marketing. Whatever increases in piracy result will be overshadowed by the gains from a growing digital market. The bottom line is the bottom line: A net gain. Not a silver bullet, but a net gain. (Big Red Horseshoe)

Posted by Glenn at 10:30 AM | Link
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• The Financial Times continued its critical coverage of EMI owner Terra Firma today with a report that Terra Firma chief executive Guy Hands sent letters to the RIAA and IFPI that threatened to cut off EMI's funding to the trade groups. Hands considers the $25 million per year it gives to both bodies another example of wasteful spending. As the article points out, if EMI stopped paying the IFPI and RIAA, it would have to make do either lobbying for itself and tracking down both physical and digital pirates on its own dime, or do away with all three activities. Some may look at this as a sign that Hands does not approve of the activities the RIAA and IFPI undertake on EMI's behalf, but it could be nothing more the latest result of cost-cutting brainstorming sessions. (Financial Times)

• C3 Presents, the company behind Austin City Limits and Lollapalooza, will partner with UK company Festival Republic (Live Nation) to launch the Vineland Music Festival. The site, in Vineland, New Jersey, is between Philadelphia and Atlantic City. The festival, to be held August 8-10, will be a camping festival like Bonnaroo. (Billboard.biz)

• I learned something in this good post about file-sharing and indie labels: Gold Standard Laboratories shut its doors a few weeks ago. "Part-owner and main man Sonny Kay ran the label either from a dirty office in LA or from internet cafes and phone boots across the world while being on tour with his own screamo punk bands. Addressing in an email what forced him to shut down he said: 'Filesharing was never much of a problem until everyone got the ipod, then the sales disappeared overnight.' And this comes from a label which is, I mean was, looked upon as the Warp of punk rock – releasing extreme punk and experimental music - NOT a label that produce radio hits." (Vegard Waske)

• Mark Piibe, formerly the SVP and head of content at MusicGremlin, has been hired as EMI's SVP of digital business affairs. (Silicon Valley Insider)

• A discussion of breakage at eMusic. "The current payout rate of 30.5 cents a track actually exceeds what I'm paying per track via my $9.99 for 40 downloads subscription (the old rate) and approaches what newer subscribers ($9.99 for 30 downloads) are paying for each track. (And the per-track rate actually goes much lower with booster packs and bigger subscription plans!) Using the 'half the subscription revenue goes to labels' formula (and ignoring any deducted costs), it seems likely that the zero-breakage per-song payout rate would be somewhere around 12 to 17 cents. The fact that it's twice that amount indicates just how much breakage is occurring each month." Said an anonymous commenter, "Average breakage at eMusic is right around 50%." (Digital Audio Insider)

• Warner Music Group formed a partnership with the family of Frank Sinatra to "integrate content, rights management and the preservation of the legendary entertainer's inspirational personality and prodigious body of work under a single entity." Frank Sinatra Enterprises will manage all things Sinatra and handle licensing of his name and likeness. (Press release)

• The Orchard has inked a distribution deal with historic Vee-Jay Records. (Press release)

Posted by Glenn at 9:37 AM | Link
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The Financial Times' Lina Saigol has a piece titled "Legacy of Winning the Wrong Auction" that's worth a read. An excerpt:

"Bankers bored of the credit squeeze are now obsessing over Guy Hands and his £4bn investment in EMI. Word is the chief executive of buy-out group Terra Firma is in a wild panic about his impulsive acquisition and how he'll manage to make a return on the record company he bought on the back of 43 pages of basic due diligence."

Saigol outlines five problems: too much money invested in EMI; too many staffers working only on EMI; cutting costs without hurting performance; securitising music business cash flows in a tough credit market; and Hands' "shape-up-or-ship-out" stance with lazy artists.

If I was going to add something, I'd expand on Hands' cost-cutting plans. For example, Terra Firma's proposal to cut A&R expenses in part by scouring social networking sites for new talent would make for a horrible strategy. If EMI invests money based on often meaningless MySpace (and the like) popularity, it's going to find itself with a roster of Tila Tequilas with little long-term potential.

Another problem with cost-cutting is that it will hamper labels' and distributors' ability to properly work releases. The natural result will be fewer releases to match the lower level of costs. Fewer releases equal lower revenue. This is the nature of an industry that is rather unique in the business world: entertainment companies must constantly launch a high number of new products. Big earners tend to have short shelf lives and must be replaced by new earners.

Success through cost cutting makes far more sense in an industry with more stable revenue and long-living products with a high level of brand equity. Hands should focus more on internal improvements and investments and less on cost cutting.

Posted by Glenn at 10:14 PM | Link
|EMI|

• The New York Post got its hands on a confidential investor presentation in which EMI owner Terra Firma outlines its plans to improve its position in the music company. Highlights: Terra Firma is looking for $223 million in fixed costs savings (mostly in recorded music); it plans to cut $31 million from sales and distribution; it expects to save $58 million in A&R costs by utilizing social networking websites to find and promote artists; and it hopes to improve cash flows by 766% over five years by taking advantage of improved digital and mobile margins. In addition, Terra Firm has set aside $100 million for acquisitions of smaller indie labels. That's quite a wish list. (New York Post)

• The new Microsoft Zune devices officially launch today, but there was a lot of coverage yesterday. Engadget compiles some (positive) reviews of the updated portable media player. As always, most of the fun is in the comments. (Engadget)

• Silicon Valley Insider wonders how low Warner Music Group's stock can drop. Pali Research's Richard Greenfield, who just helped prompt a drop to his target price of $7.50, has now set a target at $5.00. Greenfield is worried about the loss of CD shelf space after Christmas. Is that really the only reason for the lower target price? That should have been built in a while ago since we've known for a while -- and has been speculated for eons -- that labels are going to get less love from the mass merchants and chains after the Christmas selling season. No secret there. (Silicon Valley Insider)

• Music-oriented social networking are the new social networking sites, which were the new coffee houses, which were the new bagel shops, which were the new video arcade/ice cream parlor. Here's an article on Cyloop.com, which has deals with Warner Music Group and The Orchard and plans to wrap up Sony BMG and Universal Music Group by the end of the year. Unlike most social networking site,s Cyloop has a niche: the Hispanic market. (Miami Herald)

• Warner Music Group chief executive, Edgar Bronfman Jr., is warning mobile operators to improve their music offerings or lose ground to the likes of Apple and Google. "With Apple's iPhone innovation and Google coming in, if the mobile phone industry doesn't respond with highly competitive offerings, they're going to watch their share of the opportunity diminish," he said. And as operators' share of the opportunity wanes, so do labels' fortunes. (Financial Times)

• For you lawyer types or those simply interested in RIAA lawsuits: "Examining Hard Drives During Discovery." Here's a sample: "The right to examine the contents of an opponent's computer hard drive has been categorized as unusual relief, yet can prove valuable during the discovery process. Nonetheless, under the federal rules, courts will not, as a matter of course, grant a party's demand routinely. Rather, imaging is generally permitted when there is a finding that an adversary's document production has been inadequate and that a hard drive examination could uncover omitted, relevant materials. In the absence of such a strong showing, courts can be reluctant to allow an examination, particularly given that hard-drive imaging can be a costly procedure that adds to the litigation expenses of all parties." (Law.com)

• Optimal's VinylDisc, one side vinyl and the other side CD, will be chart-eligible in the U.K. (mi2n.com)

Posted by Glenn at 9:03 AM | Link
|EMI||Mobile Music||Warner Music Group|

Over the last few months I've covered EMI's market share to measure the impact of its digital strategy. Links to previous posts are below. It has been five months since EMI dropped DRM on its downloads. In that time, its release schedule has been relatively weak and the overall recorded music market has experienced a slowdown.

Since EMI dropped DRM in late May and got a big launch day boost from iTunes, its digital album market share is up 8.9%. The other three majors have mixed results. Sony BMG has lost market share for both configurations, Warner Music is mixed but fairly even and Universal Music Group is up markedly for both configurations.

EMI's digital share currently stands at 10.1% (though October 28). It was 10% at the end of September, 9.9% at the end of August and 9.7% at the end of July. At the end of May, when iTunes started selling DRM-free EMI tracks, the market share was 9.3%. Those small increments add up -- one tenth of one percent of digital album market share equals almost 40,000 units. Eight percentage points equals about 320,000 units.

The problem here is that EMI's CD market share has dropped 5.5% since late May is even worse for the bottom line. Each tenth of a percent of CD market share equals 330,000 units. A drop in CD market share to 9.3% from 9.8% is a loss of 1.65 million units.

The telling aspect about the above graph is how EMI's CD and digital album market shares have moved in the opposite directions. The company's CD share has dropped while its digital album share has risen. When both move in the same direction, as is the case with two of its three competitors, it indicates the relative popularity (or lack of) of a company's release schedule. But when the two move in opposite directions, it is a sign that other factors are at play. In the case of EMI, the company has improved its competitive position at digital stores. EMI has had a relatively weak release schedule since late May and has seen its CD market share drop since Norah Jones' album was released in late January.

Without the presence of something to jump start its digital position -- dropping DRM, getting prime attention at iTunes -- EMI's change in digital share would be similar to its negative change in CD share. A good estimate is a 15-point difference in digital album share. That equals about a 600,000-unit swing.

Previous posts on EMI's market share since May:

• EMI Math: Graph Of A Digital Sales Increase
• EMI's New Digital Strategy May Have Prevented A Worse June/July Slide
• An Update On EMI's Digital Album Share

To download a PDF of this post, click here.

Posted by Glenn at 1:52 PM | Link
|EMI|

• The New York Post reported this morning that EMI owner Terra Firma has been seeking additional funding in order to lower its position -- and therefore risk -- in the music company. Sources logically wonder how Terra Firma could dilute its equity position so soon if it wasn't disillusioned by EMI's prospects. (The article says Terra Firma performed "limited due diligence" and now has a better understanding of EMI's financial position. I'd be surprised if Terra Firma performed anything but thorough and exhaustive due diligence given the target's precarious position.) In addition, the private equity group is reportedly mulling the sale of EMI's distribution unit as a way to cut costs and raise cash. (New York Post)

• MTV is moving into song lryics. Using Gracenote's technology and database, MTV will incorporate lyrics into its websites and plans to launch a new television series called "Name That Tune." (Crave)

• The New York Times' Janey Morrissey has an article on how rock bands today are minding their money and creating non-album revenue streams. (New York Times)

• Labels are pleased with initial results of album-specific download cards. Sixteen percent of digital downloads of Eddie Vedder's "Into the Wild" -- six percent of all sales -- came from 4.5" by 6.25" iTunes cards. (Billboard)

• Pollstar asks why more artists don't sell CDs of their own performances. Short answer: Some promoters have rights to venue recordings, there are origination fees to pay and the CD-creating hardware isn't cheap. If consumers would be happy with getting files on their own thumb drives, at least part of those costs could be avoided. (Pollstar)

• An interesting comment from The Eagles' Don Henley on this article about the band's upcoming, Wal-Mart-distributed album: "The Internet is a wonderful thing, but as a tool for distributing music, it doesn't matter if you can reach the whole world if your fans can't find you. The Internet has not worked out on a large scale for anyone I know. So some people are going with indie labels, which for the most part are distributed by majors. And some have gone with certain large coffee companies." (Boston Globe)

Posted by Glenn at 8:33 AM | Link
|EMI|

A report at The Guardian says private equity firm Terra Firma has no plans to sell EMI. Said Guy Hands in an address to the Royal Television Society:

"We are determined to keep that part of the business and we are determined to make it viable. ... We look for the worst business we can find in the most challenged sector and we get really happy if it's really, really bad. EMI, our most recent investment, is a classic example. We're just hoping EMI is as bad as we think it is."

Hands indicated he wants EMI to survive less on big hits (a lot easier a task since Radiohead's contract expired) and more on less successful titles. "The vision of EMI is to be big enough to do everything we can for every artist, but small enough to care for every artist." Of course, with hits selling less and the marketplace becoming more fractured, that kind of goal almost goes without saying. There's no way around scaling down one's goals.

Selling less of more is easier said than done. It's an imperative that has been said all decade and nobody at a major has figured out how to do it. The best way to do it, in my opinion, is to sign artists to contracts that bring in other revenue streams such as touring and merchandise. That lowers the risk inherant to every new artist. EMI has not made the acquisitions and joint ventures that its competitors have made to position itself for such contracts.

If Terra Firma plans on succeeding just with music and publishing, and honestly wants to lower the threshold for success, there is one option: Act like an indie. That means operating on a thin and lower-paid staff with fewer resources. It would be a double-edged sword, though, since that kind of operation would be limiting in the end.

As for that thin staff...the Times Online read something in Hands' speech that The Guardian did not. Dan Sabbagh thought Hands' statement about getting away from "the cult of the hit" was a hint "at what are likely to be deep job cuts in EMI’s 5,500-strong workforce."

Posted by Glenn at 5:03 PM | Link
|EMI|

Eric Nicoli is out as the chief executive of EMI. Nicoli, as well as finance director Martin Stewart (read bio here) will depart the company that just weeks ago was acquired by private equity Terra Firma. He will leave with a $5.6 million payout. Chris Rolling, who comes from chemical company ICI, will be the new CEO and COO and will report to Terra Firma boss Guy Hands. Roger Faxon will continue to run EMI's publishing division. Ashley Unwin, formerly with Deloitte Consulting, will be brought on as director of business transformation.

The pieces are in place to radically transform EMI. Given the marketing deals now in place, as well as the company's stated goal of extracting value from the EMI catalog, separating recorded music from publishing seems unlikely -- in the near term. The Times Online on Terra Firma's move to bring in music outsiders:

"His appointment is a deliberate attempt to bring in outsiders to a business. The venture capital group wants managers who 'serve the artists' rather than 'spend their time hanging out in LA,' although they are willing to bring in new executives with music experience if they feel that credibility with talent is important at a senior level. ... The new team's strategy will be determined over the next few months, but Terra Firma said that the 'initial focus will be maximise the value of the significant assets in EMI's publishing business and to realise the digital opportunity in recorded music'. Insiders said a rapid sale of the recorded music business to Warner Music was off the agenda."

Billboard.biz reports of an internal letter to EMI artists sent by Nicoli that offers assurance that Terra Firma is committed to growth and respect toward the artists.

New management after an acquisition is common, but some thought Nicoli would stay on board. Just yesterday, the free London daily City A.M. reported that Eric Nilcoi would run EMI's recorded music division post-buyout, while Roger Faxon will continue to run the publishing unit. (City A.M. PDF, via Silicon Alley Insider)

Posted by Glenn at 8:51 AM | Link
|EMI|

• Rumor is that Apple will release a new iPod on September 5. (Ars Technica, via Listening Post)

• An Arbitron executive talked of the relationship between employment and radio listening. People who are employed listen more than unemployed and part-time workers. Also, men are listening more than women. (Radio Ink)

• EMI band Athlete is the first chart-eligible U.K. single to be bundled with a tutorial video. "Hurricane" comes with the video, guitar tablature and a preview trailer of the band teaching consumers how to play the song. (Billboard.biz)

• HMV Canada is unilaterally dropping prices on its catalog CDs by up to 33%. (Billboard.biz)

• Classical labels' fall schedules are filled with popular works performed by popular artists. (Billboard)

• AllOfMP3.com will be back "in the foreseeable future," according to a post at the site. (AllOfMP3.com, via Tech Crunch)

• The ridiculous exaggeration of the week comes from Erik Himmelsbach's review of the book "Marooned" in the Los Angeles Times: "Satellite and the Internet and such services as iTunes are making the airwaves pretty much obsolete." Must be quite a bubble he's living in. (Los Angeles Times)

Posted by Glenn at 10:42 AM | Link
|Apple||EMI|

• The New York Post's Brian Garrity has an article today on some staffing possibilities at EMI. The company, he reported, is considering a role for Terra Firma managing director Stephen Alexander, and looking for an executive to run day-to-day operations and may look outside of the music industry. (New York Post)

• Social video site Bolt.com has ceased operations. A goodbye letter is at the site. "Please be advised that the operations of Bolt, Inc. and Bolt.com have ceased. Net Revolution, Inc. and Bolt, Inc. have executed an Assignment for the Benefit of Creditors effective as of August 14, 2007." UMG sued Grouper in October 2006 and later settled for $10 million in March 2007. (Bolt.com)

• PassAlong Networks has spun off its Speakerheart platform. PassAlong co-founders Jozef Nuyens and Brad Edmonson will head the new company. Speakerheart allows indie musicians to publish, promote and sell their music online. (Press release)

• Classic. The migration from the majors to indie Koch continues. Foxy Brown has ended her relationship with Def Jam and will move to Koch. The deal includes her own imprint, Black Rose Entertainment. An argument could b made that Brown had worn out her welcome at Def Jam, but the writing is on the wall. If you're not selling many albums, and you're a rapper, why not shoot for a lower breakeven point? (Billboard.biz, which could not be a slower website.)

• A Russian court found the head of allofMP3.com not guilty of copyright infringement. Said the judge, "The prosecution did not succeed in presenting persuasive evidence of his involvement in infringing copyright law." In response to the defense's argument that allofMP3.com had paid part of its income to ROMS, a Russian collection organization, the judge said, "Everybody who uses soundtracks has to pay a certain amount of their income to the rights holders and this company has done that. MediaServices (the owner of allofMP3.com) has paid a certain amount of money to ROMS." (Reuters)

• The Guardian asks, "Can Universal turn the tide against Apple's iTunes?" I put in a "yes" vote, but UMG does not want to hurt iTunes as much as it wants to grow the overall pie. Everybody knows iTunes is going to be the dominant force in digital music retail for many years to come. (The Guardian)

• Clear Channel restated earnings for the period 2002 through 2006. Revenues dropped 9% for each of those years. The basis for the restatement was a reclassification of the company's television business and radio stations to discontinued operations. Clear Channel announced its plans to sell 448 radio stations in November 2006. By June 30, 2007, the company had sold 26 stations and had definitive agreements to sell 374 more stations. (AP and 8-K filing)

• How much would terrestrial radio stations owe to sound recording owners if they had to pay such royalties? MusicFIRST believes about 3% of revenues would be an "equitable" rate. To put some fear into people, the National Association of Broadcasters threw out a far scarier figure of 10-35% of revenues. (Listening Post)

• Here's an interview with Ministry of Sound head of digital sales, Jim Haysom. MOS has a number of ways to push its video content. Notably, it has achieved click-through rates from 5-9% from its pre-roll video ads and banners. The typical European banner ad gets a click-through rate of just 0.19%. (E-Consultancy)

Posted by Glenn at 10:19 AM | Link
|EMI||Online Stores/Services|

About a month ago I posted a graph that showed EMI's year-to-date market shares for digital albums and CDs. The cumulative figures showed EMI's digital market share had increased in the month after the company dropped DRM at iTunes.

Over the last two months, EMI's overall market share dropped 1.7%. An encouraging sign for its digital strategy? For the most part, yes. It appears that EMI would have fared worse over the last two months without gains from its digital strategy.

To properly look at how the strategy is working, it's best to look at EMI's numbers versus the market shares of the other majors. The above graph shows EMI and Sony BMG have lost market share over the last two months while Universal Music Group and Warner Music Group have increased their market shares. The other striking thing here is that the change in digital, CD, total album and digital tracks market shares of all three of EMI's competitors go in the same direction. That is to say that if Sony BMG's CD share dropped, so did its digital album and digital track share, and if UMG's digital share increased, so did its other shares.

Let's look at album market shares. EMI has increased its digital album market share by 5% in the last two months, but its CD share has dropped 2.6%. EMI's total market share -- including all other formats -- has dropped 1.7%. Note that CD and digital are going in the opposite directions. Also note that the end result, the total change, is negative. EMI and iTunes have been able to get people to buy more digital albums, but total market share has dropped. Is this because of a CD-for-digital substitution or because EMI's releases were relatively weak compared to those of its competitors?

EMI's June/July release schedule was not strong. EMI has barely been in the Top 40 over the last two months. New releases by Interpol, Korn, Now 24 have landed in the Top 40. Most of EMI's best-selling albums are holdovers like Corrine Bailey Rae and Norah Jones below #50. The light schedule could explain a good portion of the decline in overall market share, but why didn't EMI's digital track share go up? Even after giving consumers a DRM-free option, EMI's share of digital track sales actually dropped 1.4% in June and July.

The difference in digital album and track market shares can best be explained by the differences in pricing. Album purchasers are more drawn to unprotected downloads than are track purchasers. That is probably because DRM-free tracks' higher price of $1.29. DRM-free albums cost the same as protected albums. Both have the old, standard $9.99 price tag. Consumers may view $9.99 for a DRM-free album as a better value, and so they are buying more. But $1.29 for a DRM-free track? Consumers appear not to see a similar increase in value. Given the weak release schedule, though, it's hard to read too much into the decrease in digital track share. With stronger new releases, EMI's digital track share could easily have increased. Slightly fewer tracks sold at a higher average price could lead to an increase in overall revenue, so a drop isn't all that bad.

Sony BMG has fared even worse and reflects what EMI's market shares would be in the absence of an improved digital album share. Its overall album share dropped 2.8% and its digital track share sank 1.6% When all three drop in tandem, that tells me the company's release schedule is the prime reason, not a change in strategy. Relatively weak releases will lower market share while a stronger release schedule will increase market share. Because their three shares rose in tandem, UMG and WMG market shares appear to be related to their release schedules as well.

Is EMI's increase in digital album market a short-lived burst of consumer enthusiasm, the result of shrewd marketing or an indication that its overall strategy will pay off? It's just too early to tell. The publicity surrounding EMI's DRM-free downloads has surely had a a positive impact. My gut tells me the gain in album market share is not a short-lived burst, but a good thing won't go unnoticed by EMI's competitors. A competitive advantage like this can dry up quickly.

Posted by Glenn at 1:45 PM | Link
|DRM||EMI|

• Album sales dropped 3% last week and were 14% lower than the same week last year. For the year, album sales are down 14%. Last week's #1 album was a debut, UGK's Underground Kingz (Jive). With sales of 160,000 units, it was the only album to break the 100,000 mark. Digital track sales were flat last week and were 45% higher than the same week last year. For the year, digital track sales are up 48%.

• Everyone is always looking for a sign that the Beatles' catalog will be released digitally, and we're getting warmer. John Lennon's solo catalog -- sixteen albums -- is now available at iTunes. (Sydney Morning Herald)

• A year-long EMI marketing project will be handled by Saatchi & Saatchi. Well, music is marketing. (AdWeek.com)

• Sirius Satellite Radio inked a deal with Sonos that will allow subscribers to stream Sirius at home through Sonos' home music systems. A 30-day trial will cost subscribers an additional $2.99. Only 80 Sirius channels are available, and the home streaming service will be available only to U.S. subscribers. (Hollywood Reporter)

• Here's an idea: An underage music festival held in the London. The Underage Festival was open for people aged 14 to 19 and hosted 37 bands on four stages. "Corporate sponsors have been quick to embrace the trend, and all the hard parts — staging, logistics, security — have been arranged and paid for by the likes of MySpace, Converse and BBC's Radio1. Seizing the moment, UK indie music company Mute Records has also launched a label, Irregulars, pitching new, young talent at a new, young market, with (event organizer Sam) Killcoyne on board as a talent-spotter." (Time)

• Hal Hassel is moving from CMT.com to VP, Consumer Marketing at echomusic. (Music Row)

• Music bloggers, here's a topic for conversation: Spoon's Ga Ga Ga (Merge) came out the same week as Interpol's Our Love To Admire (Capitol). Currently Spoon sits at #68 and has sales of 100,000 in five weeks. Interpol is at #85 -- and dropping -- and has sold 129,000. Spoon is on an indie, Interpol is on a major. If nothing else, this makes for a good addition to the "indie or major?" debate.

• Jeff Leeds has an article on very overlooked marketing tools: Mobile phones and text messaging. It's not the sexiest medium in the world, but there's money to be made by artists, promoters and artists. (New York Times)

Posted by Glenn at 9:46 AM | Link
|EMI||Live Music||Marketing||iTunes|

• Universal Music Group will buy V2 Records from Morgan Stanley for $14 million (though reported price tags vary). The V2 roster includes Brit legend Paul Weller, the Stereophonics, Elbow and Bloc Party. The deal does not include V2 North America, which was sold to Sheridan Square for $15 million last year. The label merged with Artemis and had been demoted to a catalog-only label. (Reuters)

• The New York Post has an article on the collaboration between Epic Records and Koch Records. "Lacking a dedicated staff to market the songs specifically to hip-hop/ R&B radio stations and music video outlets like BET, Epic hired New York-based Koch, home to rappers including Jim Jones, UNK and DJ Khaled, to do it for them." (New York Post)

• Sanctuary Group chairman Robert Ayling, as well as James Wallace, Tina Sharp and John Preston, are no longer on the company's board of directors. (Billboard.biz)

• EMI has a deal with Arvato Mobile that will allow Arvato-powered carriers (T-Mobile, Swisscom, Mobilkom) to offer EMI videos to mobile phones or PCs. Content such as videotones, wallpapers and full-track downloads are also part of the deal. (Mobile Entertainment)

• A profile of new industry site The Daily Swarm. "We all saw that there was a ton of music-business information scattered around the Web, but there wasn't really one place that was bringing it all together." Side note: Coolfer will turn four years old this month. Thanks for reading. (Chicago Sun-Times)

• According to the BPI, UK music sales in France and Germany hit a four-year high last year. UK artists represented 23 of the top 100 albums in Germany. (BBC News)

• An interview with Guy Fletcher, head of music publisher MCS. "The internet is fast becoming a major platform for delivery of music in many different contexts. However, the advent of internet social networks, peer-to-peer file sharing, free downloading, etc. have created communication systems whose operators are generally unwilling to enter into licensing agreements with collection societies making it difficult, if not impossible for them to keep track of the online use of our copyrights." (The Telegraph)

• EMI's Blue Note Records is going to change its website to incorporate social networking and direct-to-consumer downloads. (The Register)

• Apple now offers iTunes widgets. (My iTunes, via Digital Music News)

Posted by Glenn at 9:12 AM | Link
|EMI||Mobile Music||Universal Music Group||iTunes|

• In an interim management statement released today, EMI said its first quarter revenues fell 5.1%. Its recorded music segment was down 13.4% while revenues in its publishing division increased 11.9%. Digital revenues increased by 26%. Physical revenues dropped 19.8%. (Press release)

• Music download site Amie Street, which incorporates dynamic pricing, has received funding from Amazon.com. Having such a high profile investor will help put Amie Street on the map. This is good news for the concept of dynamic pricing. For the greater recorded music industry to accept dynamic pricing -- or even to try it out -- would require the presence of a company like Amazon.com. And it would be nice to have more proof that Apple is either right or wrong when it comes to pricing digital music: Do consumers need one standard, simple price? (Digital Music News)

• Universal Music Group is said to be in the market for Chrysalis's music publishing. (This Is Money)

• John Wenzel of the Denver Post attributes the success of rock band The Fray to MySpace...even though airplay and exposure on "Grey's Anatomy," "Scrubs" and "One Tree Hill" is what drove people to the band's MySpace page. (Denver Post)

• The Times Online looks at the fundraising models of Sellaband.com and Slicethepie.com and theorizes that they could act as a scouting mechansim for majors. "If Sellaband and Slicethepie can unearth credible acts with such committed fans, the big bucks – and all their media buying power – may come calling." I think the touring circuit will continue to be a better place to find potential. (Times Online)

Posted by Glenn at 8:06 AM | Link
|EMI||Earnings Releases||Universal Music Group||Venture Capital|

Mark Mulligan at Jupiter has some advice for EMI, and it has me scratching my head. Here's part of Mulligan's blog post that outlines a few of EMI's problems and his advice:

"So what can EMI do? Well continuing to aggressively pursue digital strategies is at the core. Strong iTunes download rates suggest some long overdue momentum in the digital market but it is still heavily skewed towards singles. EMI (and the other labels) need to aggressively incentivise consumers to buy albums. That means making them significantly cheaper than a CD on Amazon (digital is an inherently inferior product after all). This requires some brave licensing initiatives with the retailers. Once that strategy is in place the orders of magnitude of download revenues will augment strongly. It won’t be a like for like increase, but it will be sizeable."

Mulligan is a very good analyst with a keen eye toward emerging technologies. Maybe that's the problem with the advice. It's too shallow. EMI's problems go well beyond its digital strategies.

EMI needs to do far more than figure out a way to sell (a) more digital music and (b) more digital albums. Even the most successful, brilliant digital strategy isn't going to help with two of EMI's historical problems, a weak urban presence and difficulty breaking hit UK artists in the States. Mulligan noted that EMI has a "weak US footprint." That's true. It's true mostly because it rarely puts out urban bestsellers and its rock/pop signings have not been the type of music that mainstream Americans want to hear. There have been a few recent success stories, though. Lately EMI has had success in America with KT Tunstall and Corrine Bailey Rae, but those have been exceptions. Lily Allen has become somewhat of a star, but mainly in Europe. As Universal Republic is about to reach platinum with its UK success story, Amy Winehouse, Allen's album is 125,000 short of gold status.

EMI new artist signings are curious. Its recent signings have been the talk of the town, but they're probably going to be mid-level successes. Critics love Interpol and The Decemberists, two new Capitol Music Group artists. Critically adored, yes, but little chance of multi-platinum sales. Consumers love mainstream fare like Nickelback, Carrie Underwood and the Pussycat Dolls, three of the biggest sellers of the last few years and three artists who are not signed to EMI labels.

In addition, EMI needs to make better use of its independent distribution. Its major-owned competitors have been better at cultivating underground hits and upstreaming artists. Getting more out of its indies could do as much for EMI's bottom line as a new digital initiative.

And what about EMI's digital strategy? Its move to drop DRM is popular with tech journalists and those consumers who know what DRM means. In the short term, the move won't add much to the bottom line. In the long term, its most likely impact will be to encourage new business models and enable new promotional partners. There isn't much of a first-mover advantage, however, since any of EMI's three competitors could drop DRM and be in the same boat almost overnight.

To suggest that EMI drop prices on digital albums is another curious bit of advice. First, are artists and their managers going to accept a lower wholesale price for new releases? While a lower price may or may not have an impact on sales, it would definitely mean lower royalties and a longer period to recoupment.

Digital albums already have a far lower wholesale cost than CDs. A standard digital album has a wholesale cost of about $7.00. The typical CD has a wholesale cost of around $12.00 (for a full list price CD). iTunes prices albums at $9.99. It has the right to price albums for less and make less margin, but it does not. Instead of sale prices, iTunes offers consumers albums with value-added features like bonus tracks. It's their choice. Best Buy, on the other hand, has a relatively lower sale price because (a) it gives itself a lower margin and (b) its takes coop marketing funds from labels. Amazon.com also works on slim margins and takes label coop marketing funds.

How much does price matter for iTunes purchases? The research I've seen says price ranks below convenience and selection for music download purchases. If labels were to drop their digital wholesale prices even more, I have serious doubts that the increase in sales would offset the loss from the price cut. It might help ticket sales and merchandise sales, but EMI has few contracts that capture a share of those streams.

In any case, this could be all academic. Terra Firma could break up EMI's publishing and recorded music divisions and the number of major recorded music groups could drop to three from four. Right now, EMI's best strategy is probably to join with a company that hasn't spent the last few years waiting to be purchased.

Posted by Glenn at 4:53 PM | Link
|EMI|

• Album sales were down 2% last week and were 13% lower than the same week last year. For the year, album sales are down 14% (a number that is improving as the months pass). Digital track sales were up 1% last week and were 39% higher than the same week last year. For the year, digital track sales are up 48%.

• Terra Firma gained approval from 91.5% of EMI's shareholders and finally has control of the music group. (The Guardian)

• Virgin Entertainment Group North America posted a 15% comparable store increase last quarter. That's what shutting down underperforming stores will do for you. CEO Simon Wright says the chain's new-ish loyalty program has 150,000 members. The only thing I have to add about Virgin is that the Union Square store was practically a morgue when I walked in on an early Saturday afternoon a few weeks ago. (Billboard.biz)

• Douglas Wolk has an article on the inevitable Internet leak and how labels approach them. Its facts are almost correct, but I've heard from one label that Wolk got some of the details wrong. Doesn't change the main thrust of the article, though. I have a completely unproven theory that a leak does less damage the farther it is from the album's release date. When awareness of the leak comes near the album's release date, I think there is a convergence of awareness (album promotion plus leak hype) that is more detrimental to album sales. (Spin, via Idolator)

• PureTracks is the first Canadian retailer to offer EMI downloads in unprotected MP3 format. Even though the tracks will cost CDN $1.29, the press release does not indicate if the downloads have a higher sound quality than the standard DRM'd, WMA downloads. I really think it would be a mistake to raise the price and not raise the bit rate in tandem. (Press release)

• Epic signed Alkaline Trio. As Kings of A&R points out, major labels are attracted to bands that have done the dirty work and built up a following (not a make believe Internet following, mind you, but a real following based on years of touring and recording). There's less risk, less tour support and a better payoff at the end of the day. (Press release, via Kings of A&R)

• Good news for the concert business: The Eagles are planning to tour extensively in 2008. (Hollywood Reporter)

• Lots of articles have been written about iTunes reaching three billion downloads. All of them missed a few key points. First, iTunes is not just an American store. It has stores in many countries, and they all contributed to the sales of three billion. Sales have picked up as more iTunes store have launched. Second, it doesn't matter what profit Apple makes from iTunes (yes, there is a profit in there). The iPod would not be as successful without the iTunes store. They're a package deal. If you're going to look at profits of one, include the profit of the other.

• I'll be back in Nashville in two weeks and will have to check out the city's traffic lights that play country music. (The Tennessean)

Posted by Glenn at 12:23 PM | Link
|A&R||Brick-And-Mortor Retail||EMI||iTunes|

• Album sales dropped 2% last week and were 9% lower than the same week last year. Year to date, album sales are down 14%. Sales of digital tracks rose 3% last year and were 52% higher than the same week last year. For the year, digital tracks are up 48%.

• Lenders could be jittery over Terra Firma's buyout of EMI. "It is understood that Citigroup, which is financing the acquisition of EMI by Guy Hands’s Terra Firma, has not given its approval to extend a key deadline for shareholders to vote on the deal." (Times Online)

• Joni Mitchell signed to Starbucks' Hear Music label, which will release her album Shine on September 25. I expect the media blitz surrounding her move to Hear Music will be beneficial to sales of the album, just as it was for Paul McCartney. The label's third of fourth gray-haired signing, though, should expect less attention. (Billboard.biz)

• I forgot to post this yesterday: The U.K. government does not want to extend copyright on sound recordings to 70 years from 50 years. The government followed the recommendation of Andrew Gowers given late last year. The BPI and other trade groups reacted by pledging to continue its campaign for the longer copyright. (Inquirer and Hollywood Reporter)

• XM president and CEO Hugh Panero will leave the company next month. COO Nate Davis will take over as interim CEO. In the event Sirius merges with XM, Sirius CEO Mel Karmazin will take over the reins of the combined company. (Radio Ink)

• The lineup for the Vegoose music festival was announced yesterday. It's an odd mish-mash of old (Public Enemy, Cypress Hill) and new (Ghostland Observatory, Battles). Rage Against the Machine, Daft Punk, Queens of the Stone Age and Muse headline. (Pollstar)

• Universal Music Publishing Group has signed Ric Ocasek to an exclusive publishing administration deal. Under the deal, UMPG will have world-wide administration and sync rights to Ocasek's catalog of hits. (Press release)

• CinemaNow, an online distributor of online movies, signed licensing agreements with Sanctuary, EMI and Sony BMG to offer music videos and concert performances. CinemaNow and WatchMusicHere.com will offer more than 6,000 videos. Music video downloads will be priced at $1.99 and concerts and long-form videos will go for $9.95 to $14.95, or $2.99 to $3.99 for rental in the WMV format. (Press release)

• Lee Gomes has an article on the industry's drive to expand royalties for music. "Most lay people surveying this terrain quickly conclude that it would be more efficient to have everyone involved in music creation, be they record labels or songwriters, aligned on one side and negotiating together, with the same occurring across the table with music users, be they radio stations or Web broadcasters. But there is little chance of that happening. The legal, financial and institutional interests all diverge." (Wall Street Journal)

Posted by Glenn at 8:19 AM | Link
|EMI||Live Music||Publishing||Starbucks||Webcasting|

• Terra Firm again extended its bid for EMI. It has just over a quarter of shareholders on board. (Wall Street Journal)

• The Recording Industry Association of Japan (RIAJ) released sales figures for the first half of 2007. CD sales were down 15% and the value of the sales were down only 7%. No data was released for digital download or mobile sales. (RIAJ, via Digital Music News)

• This week, Apple will start selling Spanish language iTunes gift cards. The prepaid download cards will first be sold in Best Buy and Target, then Wal-Mart and Safeway. (Brandweek)

• The U.K. Office of Fair Trading has cleared Universal Music Group's purchase of Sanctuary Group. (Billboard.biz)

• Jim DeRogatis on the demise of the print magazine Punk Planet. (Chicago Sun-Times)

• Newsweek interviewed Alexandra A. Seno, chairman of Decca Label Group, the classical division of Universal Music Group. The talk centered around how Decca has found success in the digital arena. Said Seno, "Universal Music’s classical labels have had a great deal of success using digital because it presents a new way for us to present classical music and the younger generation of artists." (Newsweek)

Posted by Glenn at 7:30 AM | Link
|EMI||Marketing||iTunes|

• Hallmark has launched its "Use Music Summer Tour." The seven-city tour coincides with the launch of 100 new Cards with Sound. In addition, the retail chain now offers iTunes gift cards at most of its stores. (Press release)

• The advocate general for the European Union of Justice said ISPs are not required to identify subscribers in civil copyright infringement cases. Promusicae, Spain's music trade group, had sued Spanish ISP Telefonica to force it to turn over information on subscribers suspected of sharing music via KaZaA. (Ars Technica)

• Blockbuster had its credit facility trimmed by $50 million and is thinking about reducing the footprint of some stores. (Video Business)

• What does Terra Firma have in mind for EMI? The Independent puts forth some good ideas. (The Independent)

• Universal Music Group chairman and CEO, Doug Morris, was elected to the board of directors of Columbia University's National Center on Addiction and Substance Abuse. Morris is a Columbia graduate. (Earth Times)

• The worst prediction of the week comes from Music Week editor Martin Talbor. On Prince's direct marketing campaign he told Time magazine, "If we keep moving down this particular route, companies will only release records that are sure home runs. That means either stuff by established artists or unknown artists doing cover versions. There is the danger that it will no longer be worth it for companies to invest in new, up-and-coming artists. And if record companies don't invest in them, who will." (Time)

• The British press is really eying the opening of a new Rough Trade store. BBC News has another article on the indie retailer's expansion plans. I suppose it is newsworthy given that the new store will have ten times the floor space of the old store, and this comes as so many have written off physical formats. Rough Trade believes the selling of music has been lost. "If anything, the people I talk to appreciate vinyl and CDs more than ever in this digital age. It's just that they've gone off the way it's sold. The High Street has, unfortunately, commoditised music. When you walk into a High Street record, or entertainment, store, it's about three-for-two and the price message is what hits you. And if you're interested in music, it's quite a demeaning, quite demoralising message to hit you." (BBC News)

Posted by Glenn at 7:49 AM | Link
|Brick-And-Mortor Retail||EMI||P2P|

• Album sales sank 5% last week and were 11% lower than the same week last year. For the year, album sales are down 15%. Digital track sales dropped 6% last week and were 44% higher than the same week last year. For the year, digital track sales are up 48%.

• According to research by Informa Telecoms & Media, Universal Music Group was tops in both physical and digital music in 2006. The company had 25.7% of the global market, up from 25.6% in 2005. Independents amounted to 27.5% of the total market. (Reuters)

• EMI Music Publishing and Universal Music Publishing have entered into a joint venture with music search engine One Llama and APM Music, which has "the world’s leading production music library." Try to get through the long-winded and wordy press release if you're feeling spry, but the bottom line here is that all parties are trying to facilitate and improve the process of finding the right music for a project. One Llamas is backed by illinoisVENTURES. (Press release)

• It's the year of the widget. ReverbNation has launched a Facebook widget called My Band that has a band's profile, picture, play statistics, songs (that can be shared) and tour schedule.

• The Independent previews James Blunt's upcoming court battle over the authorship of six tracks from his hit album. (The Independent)

• Yesterday's Soundcheck program on WNYC found guests Timothy English, author of "Sounds Like Teen Spirit," and Robert Clarida, an attorney who specializes in copyright issues, talking about the lawsuit against Avril Lavigne and other moments in music copyright history. In my opinion, Lavigne's song "Boyfriend" bears little resemblance to The Rubinoos' "I Wanna Be Your Boyfriend." There's an obvious Stones riff ("Hey! You!") in the Rubinoos' song, though. Check out this YouTube video that lays "I Wanna Be Your Boyfriend" over the video for "Girlfriend." (Soundcheck)

• SESAC, the performance rights organization, and MySpace have reached a deal that will pay SESAC members for streams at the popular social networking site. The deal does not cover songs uploaded to an artist's MySpace page. (Press release)

• A Bear Stearns analyst predicts the FCC will approve a merger of XM and Sirius. "We believe the merger likely will be approved on merits. ... We underscore though, if political forces are more powerful than the merits of the deal, the outcome may be different. However, our sense is that the deal will be judged on merits and is therefore likely to pass." (Radio Ink)

Posted by Glenn at 8:26 AM | Link
|EMI||Music 2.0||Research||Universal Music Group|

• If you want to bid on EMI, you have until this Thursday to put in a bid. (Reuters)

• An interview with Barnes & Noble Borders chief executive George Jones, who has aggressive digital strategies that include in-store downloading. "There are tons of people 35 and older who don't own an MP3 player, or if they have one, they don't know how to operate it. These are people who just won't take the time to learn how to do it. I'm like that myself. I love music, but I don't download music onto my iPod. We think there is a place for a retailer to offer a comfortable environment that offers guidance and the opportunity to discover products that provide knowledge and entertainment. We'll show you. Bring in your MP3 player and let us know what you want. We'll download it for you." He speaks a bit more about music later. Check it out. (Wall Street Journal)

• Starting Wednesday, Starbucks will offer exclusive EPs in a branded section of the iTunes music store. Rissi Palmer, Alice Russell and WinterKids will receive airplay in Starbucks locations as well as placement at the iTunes page. (Digital Music News)

• S-Curve Records will be re-launched by founder and CEO Steve Greenberg. To fit with the times, the label will branch out to publishing and artist management. Greenberg stepped down as Columbia Records' president in June of last year. (Billboard.biz)

• Microsoft's Zune portable media player will be on show at Live Nation venues around the country. Zune Spots, held in converted freight containers, will allow concert goers to try the Zune device. Consumers can also win a trip to see a band at a Live Nation venue through the Zune Zoom Away competition. If you're looking for a signal about Microsoft's commitment to the Zune's development, I think a series of converted freight containers is a good place to start. (Press release)

• Sony BMG and Dada have launched a joint venture called Dada Entertainment. The venture will offer "direct-to-consumer entertainment services with integrated mobile and web offerings." I wish I had an example of what that means exactly. (Press release)

• Nominees for the Mercury Prize were announced this morning. On the list are Jamie T, Arctic Monkeys, Bat for Lashes, Klaxons, Fionn Regan, Amy Winehouse, The View, Dizzee Rascal, Maps and Basuiat Strings. (XFM)

Posted by Glenn at 7:24 AM | Link
|Brick-And-Mortor Retail||EMI||Sony BMG||Starbucks||Zune|

• Private equity firm Terra Firma has extended its deadline for its offer for EMI again, this time for one week. (BBC News)

• Universal Music Group has extended to July 26th its offer to buy the Sanctuary Group. UMG has offered $87.7 million. Last month news broke that investment bank Crosby Capital Partners was preparing a bid for Sanctuary, but the firm has not yet made an official bid. (Billboard.biz)

• Microsoft has applied for a patent titled "Off-line Economies for Digital Media" that is system for paying a commission to Zune owners for sharing music. Owners would be paid only if the other user who received the song purchased it at the Zune Marketplace. (ZuneScene, via Engadet)

• Music retail legend Music Millennium in Portland, OR is going to close down one of its two stores after 30 years. The combination of declining music sales and increasing rents was too much for owner Terry Currier. Since last August, the store has lost $93,000. (The Oregonian)

• Michael Geist, professor Law and columnist, helped create a video that aims to show how the media's reporting of piracy has helped lead to movie piracy legislation and two government committees that seek tougher action on piracy. The movie addresses claims of music piracy made by the CRIA with statistics and info on Canada's music market. Not all of Geist's rebuttals actually rebut the often-made claims. Rather, they try to present a more balanced view. The video is almost nine minutes long, spend some time with it if you can. (Michael Geist)

• Inside Digital Media has an podcast interview with Jim Burger, an attorney who discusses the recent WIPO meeting and the issue of fair use of acquired media in home networks. (Inside Digital Media)

Posted by Glenn at 7:09 AM | Link
|Brick-And-Mortor Retail||EMI||Podcasts||Universal Music Group||Zune|

• The European Commission cleared Terra Firma's takeover bid of EMI. Today is the last day of Terra Firma's extended bid period. (Dow Jones)

• The rootkit is back in the news. Sony BMG has sued The Amergence Group (formerly SunnComm), the maker of the anti-piracy technology included in Sony BMG CDs that resulted in public outcry, lawsuits and government investigations. (AP)

• Senator Russ Feingold is checking in with the radio industry to make sure they're complying with the FCC's directive to enforce the ban on payola practices. He sent a letter to executives at Clear Channel, CBS Radio, Citadel and Entercom that asked for information on access the companies have given to artists and labels. "Have you taken any efforts to increase the amount of access provided and to facilitate submissions?" he asked. (Billboard.biz)

• The Wall Street Journal's Sarah McBride has an article on radio stations' analysis of P2P traffic to help create playlists. Clear Channel's Premiere Radio Networks has a venture with BigChampagne that offers traffic data to radio stations. She tells the story of Shop Boyz' "Party Like A Rockstar," which was big with file sharers but wasn't getting requests. Eventually, the requests started to roll in -- especially in text messages from mobile phones -- and track downloads increased as well. (Wall Street Journal)

• Fox and the production company behind "Laguna Beach" and "The Hills" are planning a reality TV series called "Nashville" that will follow musicians trying to make it in Music City. The show will feature Sony BMG artists Chuck Wicks, Matt Jenkins and Mika Combs. (Music Row)

• Just as Kelly Clarkson's My December album dropped 60% in its second week, rumor is that RCA pulled Clarkson's summer TV and print campaigns and are focusing on the upcoming Carrie Underwood album. (Kings of A&R)

• Swiss consumers will have to pay a tax on digital music players and some types of A/V recorders. (SwissInfo)

• Napster unlimited over-the-air download service launched with NTT DoCoMo in Japan. The service is integrated with the PC-based Napster To Go service. Here's a new twist for Napster: Customers have the option of paying for Napster through their DoCoMo bill. Whether or not mobile subscription services will take off is still up in the air, but these are positive steps. I like the billing option a lot. (No link to press release yet.)

• EMI and management company Union Entertainment Group have formed a joint venture record label called Audionest. The label will be distributed by Caroline. UEG manages rock bands Nickelback, Default and Candlebox. (Billboard.biz)

Posted by Glenn at 8:09 AM | Link
|EMI||Napster||P2P||Payola||Sony BMG|

One month after iTunes Plus introduced the country to unprotected EMI downloads, there is some proof that the change has been beneficial to EMI's digital shares. It is harder too tell, though, what impact the company's digital strategy has had on its overall market share (probably little to none).

The above graph shows cumulative, year-to-date market shares at the end of each month for EMI's digital, CD and overall album sales. Each of the first six months of the year is represented in the graph. Digital is in blue, CD is in red, overall is in white.

To account for the strength of its release schedule, which by itself could increase or decrease the company's market share, we have to look at how EMI's digital market share moved in relation to its CD market share.

Market shares actually peaked in February, which coincides with the release of Norah Jones' Not Too Late. The actual market share, though, is not what's important in this case. The impact of selling DRM-free downloads -- and the impact of iTunes Plus -- can be seen in the difference between CD and digital market shares. The difference between the blue (digital) and red (CD) lines decreased and is almost zero in June. The ground digital made up in June represents the increase in digital market share due to iTunes Plus.

In June, EMI's year-to-date digital album share rose 1.4% while its year-to-date CD market share dropped 3%. Because digital rose while CD dropped we can tell that iTunes Plus had an impact on EMI's digital sales.

Posted by Glenn at 9:17 AM | Link
|EMI|

Billboard (the print version only) offered details of Korn's two-album, revenue-sharing deal with EMI (the article is republished at Korn Underground, via from Blabbermouth). EMI purchased a 30% stake in Korn's revenues (touring, merch, recorded music, etc) for $25 million. The deal goes through 2010.

"To date, Billboard projects it has generated around $15 million on the sales of 'See You on the Other Side' (based on worldwide sales of about 2 million units and estimating a net of about $7.75 per album after manufacturing and distribution costs, based on an $11.45 wholesale price).

The band has also pulled an estimated $4 million after fees from additional sales of digital downloads, ringtones and the 'Unplugged' album. On top of that it has netted a projected $7 million-plus after expenses in touring-related revenue from the 2006 Family Values Tour and a 20-date U.S. theatre tour and selected European dates that grossed more than $11 million in box-office receipts.

Tour sponsorships and merch pulled in another estimated $2.2 million. That leaves the band still needing to earn another $20 million-$30 million in profits by 2010."

Posted by Glenn at 8:20 AM | Link
|EMI|

• Only 3.6% of EMI investors accepted Terra Firma's $4.8 billion bid, which led Terra Firm to extend the offer to July 12. (Bloomberg)

• Overall sales were down 1% last week and were 8% below the same week last year. For the year album sales are down 15%. Sales of digital tracks were also down 1% last week, and were 40% ahead of the same week last year. Year to date, sales of digital tracks are up 49%.

• Clive's fears came true: Hannah Montana topped Kelly Clarkson last week. Montana debuted with 326,000 while Clarkson's My December debuted with 291,000.

• A Belgian court has ruled that Internet Service Providers must use the technical means available to stop illegal file-sharing on their networks. The IFPI is, of course, thrilled. (Press release)

• Sony BMG is trying to renegotiate the terms of its music publishing joint venture with Michael Jackson that will allow it to sign songwriters. The current terms of Sony/ATV does not allow Sony to sign competing songwriters. Talks are reportedly at an early stage. (Times Online)

• David Cameron, leader of the Conservative Party, has a deal for the British music industry: Stop with the misogyny, guns and materialism and he will support an extension of copyright to 70 years from 50 years. (Times Online)

• Edna Gundersen writes about Live Earth and "benefit fatigue" that could limit its effectiveness. My fear is that people move on," said Grammy producer Ken Ehrlich. The Pet Shop Boys' Neil Tennant worried about "the idea of rock stars lecturing people as if they know something the rest of us don't." (USA Today)

Posted by Glenn at 7:49 AM | Link
|EMI||P2P||Publishing||Sony BMG|

With EMI's deal to sell high quality, DRM-free MP3s through Snocap (read press release), downloads have become untethered from online retail. EMI artists have Snocap widgets on the artist websites, and Blue Note has a widget on its page. Tracks will cost $1.30 apiece, in line with prices for similar files at iTunes.

What has been overlooked so far is, to me, one of the biggest parts of the announcement: Albums will be made available through Snocap "later this year." To date, Snocap has sold only individual tracks. It has not been a cost-effective source for EPs or albums. Cherry picking at $1.30 per track is a fair deal, but a typical ten-track album would cost $13.00 through Snocap (outside of the country genre, most albums have more than ten tracks). If EMI prices its DRM-free albums the same as at iTunes, that would be $10.00-- an amount that covers almost seven a la carte tracks purchased at $1.30 each.

One problem I see is some artists' Snocap widget do not give any details on the file format or sound quality. It's basic information that should be readily visible. Not all Snocap-enabled downloads are MP3. People will want to know if the format is WMA.

Posted by Glenn at 3:53 PM | Link
|EMI||Snocap|

My post on EMI's digital sales in its DRM-free era has attracted a lot of attention. When I saw that Jupiter's Mark Mulligan referenced the stats I posted (he incorrectly assumed those stats were put out by EMI), I figured it was time to put a needle in everybody's balloon. I worry, though, that the tech media will not cover the following statistics with the same fervor with which they reported the data in my first post.

Allow me to preface the following comments by saying not enough time has passed to make a proper judgment on the effectiveness of EMI's decision to drop DRM from digital downloads. It is a long term strategy that requires a proper time period for reflection. Even so, people want to draw some kind of conclusion as soon as possible, so I'll share with you some information.

If you look just at digital sales of Pink Floyd's Dark Side of the Moon, which have somehow become the standard bearer for EMI's recent digital strategy, one would have a difficult time believing the strategy is clearly working.

Digital sales of Dark Side of the Moon dropped 14% last week, which followed drops of 33% and 42%. Before dropping 42%, digital sales rose 350%. That was the week iTunes Plus launched and allowed people to upgrade to the DRM-free versions for an additional $0.30 per track. Word is that SoundScan does not count those upgrades as sales, but I am very skeptical. I suppose the peak could have been explained by consumers' lust for DRM-free music, but that demand should have lasted more than one week, right?

A one-week peak fits in with a scenario in which the most avid iTunes users upgraded to iTunes Plus as soon as it was available and then upgraded their EMI downloads. (Some did it just to experiment. Some were journalists and bloggers writing about the new technology. Some actually wanted to DRM-free music.) In the following weeks, incrementally fewer iTunes users have upgraded to the new version of iTunes and in turn upgraded their EMI downloads. What happens when iTunes Plus adoption levels off? Dark Side of the Moon digital sales will level off.

Everybody has focused on the 350% increase but has ignored what has happened since. Dark Side of the Moon's inital sales are still almost double what they were before iTunes Plus launched, but they're dropping like a rock.

Once again, more time is needed before drawing any good conclusions.

Posted by Glenn at 11:02 AM | Link
|DRM||EMI|

• Terra Firma, the private equity firm that has placed a bid on EMI, is reportedly going to extend its deadline by which investors must accept its offer. The bid stands at $4.79 billion. (Reuters)

• Those DRM-free EMI downloads with user information embedded within? Privatunes has free software that will render those files anonymous. (Privatunes , via Slashdot)

• Guitar Center has agreed to be acquired by Bain Capital Partners for about $1.9 billion. The music equipment retailer's sales have nearly doubled in the last four five years. Net income rose from 2002 to 2005 and dropped in 2006 only because of an extraordinary charge related to a goodwill impairment. (Billboard.biz)

• Digital Music Group has inked distribution deals with Mush Records, Joyful Noise Recordings and Clockwize Online. (Press release)

• Ringtone sales are flat. Said one executive, "I think the ringtone business is in peril now because the operators have allowed into the market mobile phones which can sideload MP3s and use them as ringtones." What to do about it? "...innovative products are being introduced: EMI, for instance, has just unveiled a remixable realtone for the hip hop artist MIMS, while independent labels such as Ninja Tune are using them as freebie promotional tools. What is certain is that prices cannot remain static. And as with moves to incorporate VoIP services and flat-rate data charges, it is innovation that will move the market forward, rather than the protection of any perceived golden goose." (The Guardian)

• paidContent just posted a video segment of a panel discussion on social media and the music industry that was recorded at its EconSM Conference in late April. On the panel are Josh Deutsch (CEO, Downtown Records), Courtney Holt (EVP, Digital Music and Media, MTV), and Hadi Partovi (President and COO, iLike). (paidContent)

• Merrill Lynch loves Sirius whether or not it hooks up with XM: "We continue to believe the shares have upside potential using our reasonable, and often conservative, assumptions, including: 1) 80-85% of long-term gross adds are from auto 2) declining ARPU (ignores data impact), 3) combined 40mm subscribers in 2014 – comments by both Sirius and XM suggest this level in 2010, and 4) annual FCF exceeds $1bb in 2016." (Radio Ink)

• British music retailer HMV posted a slightly lower annual profit and announced a DRM-free download store that will launch in September. EMI is the only major on board for the download store. (Billboard.biz)

• The question of the '00's: To give away or not to give away? David at Digital Audio Insider lists his pros and cons of giving away his band's upcoming album. "If we're primarily doing all of this for the enjoyment of the creative process -- and we're not making much money from it -- would we be better off giving the music away?"(Digital Audio Insider)

Posted by Glenn at 6:45 AM | Link
|Digital Distribution||EMI||Earnings Releases||M&A||Sirius|

Here's a follow-up to my post earlier this week that found its way into the online media...people are obviously interested in EMI's digital sales since its digital downloads become available without DRM.

Digital sales Pink Floyd's Dark Side of the Moon dropped 33% last week (CD sales rose 26%) and are 61% below the high mark from the week iTunes Plus was launched. Digital sales of Norah Jones' Come Away With Me, which jumped 62% the week iTunes Plus launched, has been all over the place, dropping 23% and then rising 51% last week (CD sales kept pace with a 54% increase).

Coldplay's A Rush Of Blood To The Head saw its digital sales jump 170% when iTunes Plus launched. Two weeks ago it rose 1% (CD dropped 5%) and last week sales fell 21% (CD rose 11%). OK Go's Oh No, up 173% three weeks ago, rose 3% two weeks ago (CD rose 4%) and dropped 7% last week (CD rose 33%) -- pretty much steady since iTunes Plus launched.

What to think of these numbers? It's very difficult to draw a conclusion given the short term and the natural volatility of some titles. It's clear that digital sales for some titles peaked in the week of the iTunes Plus launch. The coming weeks will offer a clearer picture of any real impact on digital sales. Hopefully the data will indicate whether or not EMI's DRM policy is the cause behind the fluctuations. I predict that no material, across-the-board change in sales will be seen until Amazon.com's digital download store launches. That will definitely move the neede.

Posted by Glenn at 11:05 AM | Link
|DRM||Digital Music||EMI|

• Investment bank Crosby Capital Partners is preparing a counterbid for Sanctuary Music Group. Last week Sanctuary accepted a takeover bid from Universal Music Group. (The Guardian)

• In a victory over rival format HD DVD, Blockbuster said it will favor Blu-Ray DH discs. (Reuters)

• Paul McCartney's new album sold 161,000 copies in its first week of release. Over 60% of those sales came from "non-traditional" stores, which includes download stores (iTunes, eMusic), online CD sellers (Amazon.com) and non-traditional brick-and-mortar retail (Starbucks). Since digital accounted for only 10% of sales, the bulk -- roughly 81,000 units -- of the non-traditional number can be attributed to Starbucks sales. (Pop Machine Blog, via Digital Audio Insider)

• How much did ousted EMI Music chief Alain Levy get on his way out the door? £4.6 million (US$9.09 million). (The Guardian)

• David Ring has been named EVP of business development and business affairs for Universal Music Group's eLabs, the division that handles the company's online and mobile sales as well as new media opportunities. (Variety)

• A profile on Belgian label Crammed Discs, home of Bebel Gilberto, Cibelle, Kocani Orkestar and Konono No. 1. (AP)

Posted by Glenn at 7:54 AM | Link
|Brick-And-Mortor Retail||EMI||M&A||Starbucks||Universal Music Group|

• Tower Records founder Russ Solomon is readying R5 Records in Sacramento for a soft launch in the next few weeks. "There are things that need to be tried. And since I was preaching against a wall the last two years that what Tower was doing and what the industry was doing was misdirected and wrong, I owe it to myself and to the business to do it my way." (Sacramento Bee)

• Digital sales in India are higher than physical sales, a first in the world according to the article. Soundbuzz predicts that by 2009 Indian consumers will purchase nine times more mobile music (in terms of revenue) than any other format. (Deccan Herald)

• Here's an article about EMI's and Sanctuary's difficulties selling British music in America. Seems this article would have had better timing before KT Tunstall, Lily Allen and Corrine Baily Rae, but whatever. Here are some good stats from the article: U.K. artists accounted for 8.2% of U.S. album sales in 2006, up from 7.6% in 2004. That figure was 32% in 1986 and less than 1% in 1999. (International Herald Tribune)

• A profile on Integral, a UK company that offers marketing and financial assistance to independent labels and rights holders. (The Independent)

• Hollywood is getting more frustrated with YouTube and its continued level of infringing material. "Clearly, this is not a resource constraint," said one executive. "This is a function of will." (News.com)

Posted by Glenn at 7:28 AM | Link
|Brick-And-Mortor Retail||Digital Music||EMI||Marketing||YouTube|

• Navarre finalized the sale of its independent music distribution segment to Koch yesterday. Navarre received $6.5 million at closing and plans to collect $11 million from trade receivables that were not part of the transaction. The company plans to use the proceeds to pay down its credit facility. (Press release)

• EMI had agreed to give YouTube users access to its videos and music and use the content in their own user-generated content. EMI will use YouTube's management tools to track and monetize the content. EMI is the last of the four majors to come to an agreement with YouTube. (Press release)

• Ad-supported P2P (sort of) site SpiralFrog is set to launch by the end of the summer, according to company chairman and founder Joe Mohen. SpiralFrog has been in a period of upheaval with the exit of executives and directors. One bright spot: the company is currently in beta testing in Canada. (Billboard.biz)

• David at Digital Audio Insider went through his latest eMusic statement and blogged about the payout increase. His band's per-song payout rose 11.3% since eMusic recently increased its payout rates. (Digital Audio Insider)

• You don't hear about retailers seeing sales of iPods and related accessories, but Sharper Image reported sales of both were instrumental in the company's 21.5% drop in revenues for fiscal 2006. (10-K)

• Industry legend Alan McGee is reportedly winding down his Poptones record label because he thinks bands should release music themselves and developing new acts is not economically feasible. "New groups will have to develop themselves," he said. (Digital Spy)

• PaidContent has an audio interview with RealNetworks' Rob Glaser. (Download MP3 or stream at this page)

• Perhaps inspired by Al Gore, the IFPI posted a list of "ten inconvenient truths about the music industry today," which includes blasts against Pirate Bay, Allofmp3.com, organized crime, file sharers and ISPs that "facilitate the illegal swapping on copyright infringing music on a grand scale." (IFPI)

Posted by Glenn at 8:34 AM | Link
|Distribution||EMI||RealNetworks||eMusic|

iTunes US started offering unprotected AAC files today for EMI artist downloads. iTunes Plus offers what EMI calls premium downloads. Engadget runs us through the new store and gives a step-by-step of the simple process of upgrading your EMI purchases.

Posted by Glenn at 11:07 AM | Link
|EMI||iTunes|

• Vivendi, parent company of Universal Music Group, will reportedly launch a paid content portal to sell music, videos and mobile content. Given labels' past history with these sorts of endeavors, I don't think this will be successful. Entertainment groups fare better when they let others sell to consumers. I can see bands carving out some space for themselves with direct-to-consumer relationships, and niche-fulfilling indie labels can pull it off on a small scale, but not this. (Reuters)

• A Greenfield Online Fact of the Week survey showed that 64% of online respondents still get their music by purchasing CDs. (mi2n)

• Contrary to its initiatives elsewhere, EMI is reportedly selling protected MP3 files in Russia through Soundkey.ru. (WebPlanet)

• PayPlay.fm will start selling its 1.3 million-deep catalog in unprotected MP3 format by the end of this month. MP3 files will cost $0.88 while WMA files cost $0.77. You won't find many popular acts there, but a few searches revealed some local (to Nashville) names such as Justin Earle. (Listening Post)

• Muzak and DMX, a design firm, want to merge and then be acquired by a third company. The Department of Justice has a few questions about the transaction's effect on competition. (Bizjournals)

• Music-heavy social media site Buzznet laned $6 million in funding. (paidContent)

• A report says some (Don) "Ienner loyalists" have left Sony BMG recently, including SVP of marketing, Barbara Jones. (Digital Music News)

• The IFPI has pointed to research by Italy's Luigi Einaudi Foundation that shows how file-sharing reduces consumers' physical music purchases. While 30% of file sharers surveyed say they purchase fewer CDs, 6% say they purchase more. The press release does not mention any increase in digital purchases, which makes it look pretty one sided. If you can read Italian, view the report here (file is about 9MB). (Press release)

Posted by Glenn at 12:16 PM | Link
|DRM||EMI||Sony BMG||Universal Music Group|

• The New York Post reported former EMI exec Jim Fifield is still working on a deal to buy the company despite his backer, Corvus Capital, pulling out. Fifield, the article said, wants to run the recorded music division and sell the music publishing division to record exec Charles Koppelman and private equity firm GTCR Golder Rauner. (New York Post)

• IFPI scare tactics are working. Ars Technica finds that some sellers of allofmp3.com gift certificates are getting out of the business after one London-based seller was arrested. (Ars Technica, via Billboard.biz)

• Ad-supported online music service Ruckus, the most miserable music service I have ever seen, has landed $10 million in funding. Well...it obviously needs it. (Reuters)

• Downloads are hurting the venerable CD single in the UK. Supermarket chain ASDA, one of the top music sellers in Britain, is going to stop selling CD singles. (Related: Handleman UK and ASDA have terminated their music supply agreement.) At the same time, indie stores are seeing a resurgance in the 7" vinyl single. Said one indie retailer, "We find customers like to have a more aesthetically pleasing physical product as a collectable item, rather than a throw away mass-produced CD single." (Manchester Evening News)

Posted by Glenn at 12:33 PM | Link
|EMI||Online Stores/Services||Venture Capital||Warner Music Group|

The Financial Times reported today that Warner Music Group is just now starting its due diligence and is in talks with private equity groups, including Terra Firma, about acquiring EMI's recorded music division once EMI's sale is complete.

Some believe WMG's efforts to acquire EMI are being hampered by the EU's decision to take another look at the Sony BMG merger. A sale to Terra Firma would give cash to EMI shareholders in a short period of time while a sale to WMG could result in uncertain regulatory scrutiny.

Just yesterday, the EU approved the sale of BMG Music Publishing to Universal Music Group. UMG agreed to rid itself of some publishing assets to help gain approval. Similarly, WMG might be better off waiting to buy just a piece of EMI from a private equity firm.

Posted by Glenn at 1:44 PM | Link
|EMI||Warner Music Group|

On the same day it announced a winning takeover bid, EMI announced its results for the fiscal year ending March 31, 2007. Revenue dropped 15.8% (12.1% on constant currency) and a £118.1 million gain in fiscal 2006 turned into a £263.3 million loss in 2007.

Included in operating profit are an exceptional gain of £50.2 million (sale and leasebacks of offices in Tokyo and Los Angeles, plus Bertelsmann settlement money) and an exceptional costs of £191.5 million (restructuring charges) and £164 million (balance sheet review).

Key items:

• Total cash from operations was a paltry £7.3 million (versus £188.3 million last year).
• Gross margin dropped to 34.9% from 37.2%.
• EMI has suspended dividend payments (this was announced on April 18th) and an interim dividend of 2p per share has been paid.
• Recorded music sales dropped by 15%. Digital represented 10.4% of recorded music and 9.4% of total company revenues.
• By region: North American dropped 7.7% (digital up 80.1%); UK & Ireland dropped 11.8% (digital up 79.7%); and Japan dropped 2.4% (digital up 69%).
• Publishing operating profits increased 4.2% (at constant currency) while revenue, dragged down by lower physical sales, dipped 0.9%.
• Publishing revenues related to digital music increased 35.5%, although "growth in digital revenues in music publishing continues to lag the recorded music industry."
• Performance revenue increased by 10.1% and synchronization revenue increased 5.6%.
• EMI's interest coverage ratio dropped to 1.9 as EBITDA decreased to £174 million from £275.8 million.

Conclusion: Extraordinary events killed operating profit and restructuring charges were a big hit to cash flows from operations. Publishing shows potential and is the company's current strength. Sync and performance revenues are up. Digital revenues are up big. The problem remains: Nothing can overcome the drop in revenue from falling CD sales. EMI was smart to begin a restructuring program, but it came too late. Chalk that one up to the slow-to-react leadership of the Munns/Levy era.

Posted by Glenn at 2:09 PM | Link
|EMI||Earnings Releases|

This morning it was reported that EMI has accepted a bid by private equity firm Terra Firma Capital Partners Ltd. EMI, which had recently opened its books to Warner Music Group and had received interest from a number of private equity firms, said Terra Firma's bid of $4.7 billion was the best of the proposals it has received. Said EMI chairman John Gildersleeve in a statement:

"The global music industry is undergoing significant change and, whilst EMI is confident in its ability to deliver its recently announced restructuring plans, significant uncertainty exists as to the timing and extent of future market developments. Terra Firma's offer is the most attractive proposal received and delivers cash now, without regulatory uncertainty and with the minimum of operational risk to the company."

Terra Firma's CEO had the following to say:

"Terra Firma's objective is to build on EMI's current position as one of the world's leading music companies and accelerate the development of its digital and online strategy to fully exploit this long-term growth opportunity."

So EMI put a greater value on regulatory certainty and lower operational risk (read: a merger with WMG could result in conflicting styles and loyalties) and less value on synergies and their resulting cost savings from a WMG acquisition. Both portend significant changes: Cut and merged divisions, layoffs and increased emphasis on digital.

Posted by Glenn at 12:04 PM | Link
|EMI|

The Times Online reported today Warner Music Group is prepared to up its bid by £100 million ($197 million).

"The size of the payment reflects the confidence of Edgar Bronfman, Warner’s chairman, that a £4.6 billion merger with EMI will now be approved by competition regulators. He is prepared to offer investors a financial inducement to weaken EMI’s argument that they should accept a lower offer from private equity."

Just yesterday, The Times Online reported that WMG would be "unlikely" to increase its previous bid of 260p per share. That article claimed WMG had emerged as the most likely winner of the four companies interested in EMI (WMG and three private equity groups).

In recent weeks, there have been reports that the EU would probably approve a WMG acquistion of EMI. What I'm wondering is what this would do to EMI's foray into sales of unprotected downloads. WMG and the other majors do not see eye to eye (or say they say publicly) with EMI on the matter of DRM.

Posted by Glenn at 9:59 PM | Link
|EMI||EMI WMG Merger Talk||Warner Music Group|

• EMI has opened a data room at an investment back and has asked bidders to submit offers by May 23rd. It is said that EMI chairman John Gildersleeve is running the process while Deutsche Bank and Citigroup are advising EMI Group head Eric Nicoli. (New York Post)

• All those efforst to prop of the value of music and now this: Coke joins with iTunes to give away two billion songs in Europe. (Billboard.biz)

• Hypebot claims to have information on Amazon.com's digital track pricing structure: Full albums for $4.99 to $8.99 and tracks from $0.89 to $0.99. iTunes has sub-$9.99 albums but they're hard to find. It would be nice if Amazon.com breaks out digital albums by price as it does with bargain CDs. Even better would be sale pricing, something iTunes does not have. (Hypebot)

• The National Post has perhaps the worst take on Canda's 35% drop in CD sales: "The recording industry itself is to blame for this trend, because it imposes harsh copy protection rules on the sale of digital music." Yeah, that and about 106 other reasons, most of which relate to changing ways of listening to music. Journalists often miss the point, but usually not that badly. (The National Post)

Posted by Glenn at 2:05 PM | Link
|EMI||Online Stores/Services|

There are three big announcements today that relate to DRM-free downloads. For a change, there will be some optimism in the air (for a day or two) about the future of recorded music....not that I expect the other three majors to hurt themselves in a mad scramble to follow suit, but it's good to see EMI giving it a shot.

Amazon.com ended months of speculation and announced today it launch a music download store that will sell unprotected MP3 downloads. The store, to launch later this year, will offer more than 12,000 record labels, but only one major, EMI. No details were given on pricing. EMI already announced a deal with Apple that will offer DRM-free downloads at $1.29, a $0.30-cent-per-track premium over the cost for a protected AAC download.

EMI also had two other related announcements today. In France, VirginMega will sell EMI tracks as DRM-free, higher-quality downloads. The downloads will be 320kbps MP3 files; the existing format will also be available.

And In Scandanavia, EMI has an agreement with multiple online and mobile operators to sell premium, DRM-free downloads in the coming months. The deal covers more than 20 stores and will push bits rates "up to CD quality."

Posted by Glenn at 11:45 AM | Link
|DRM||EMI|

Fox News' Roger Friedman has some info about a 2004 failed attempt to merger Warner Music Group and EMI. (read article here, scroll down.) The details have surfaced as exhibits in a lawsuit brought against WMG's Edgar Bronfman by Richard Snyder. Documents offer insight on a proposal for WMG's recorded music group and part of its publishing group. That letter, sent by EMI chairman Eric Nicoli on Feb 9, 2004, was sent to WMG and Scott Sperling of Thomas H. Lee Partners, the firm that financed Bronfman's acquisition of WMG from Time Warner.

Nicoli proposed a merger with WMG for $1.6 billion in cash and a structure with Bronfman as CEO of the "enlarged EMI group," Alain Levy as CEO of the music group and Martin Bandier as the CEO of the publishing group.

The thrust of the article is a belief that this merger should have gone through and that Bronfman missed a golden opportunity to save the industry. His opinion should not be taken too seriously; Friedman is not a business writer or analyst. He is a connected, gossipy entertainment journalist. ("There might be a record business now," he confidently wrote at the beginning of the piece.) "It's that simple," wrote Friedman. "All Nicoli asks is that his EMI executives remain in place through the new company." That simple? Maybe Friedman should look at the Sony BMG culture wars as a case study of muddy executive leadership when entertainment companies on opposite sides of the Atlantic merge.

Posted by Glenn at 11:22 AM | Link
|EMI||EMI WMG Merger Talk||Warner Music Group|

• After months (or was it weeks?) if speculation and rumors, Rick Rubin has officially joined Columbia Records as an (as-yet-unnamed) executive. Rubin takes with him his American Recordings label (previously with Warner Music Group). This marks the most exciting development at Sony BMG in a while, though there are no details yet on the "new model for the music business of the future" that will come with Rubin's arrival. (Billboard.biz)

• According to Berg Insight, digital sales will overtake physical sales in Western Europe in 2011 and the European music market will revert back to growth in 2008. The key to the 6.5% compounded annual growth rate will be mobile handsets. "We expect that the handset is going to become the primary portable listening device. Once consumers are provided with unhindered mobile Internet access, these devices will increasingly be utilised for accessing online music content." I don't doubt the mobile device could become the primary listening device, but I'm skeptical that as a purchase driver it will do better than MP3 players have done when tethered to personal computers. Mobile stores and services must improve greatly. (Press release)

• An article on the publishing assets just purchased from Dimensional Associates by Colonial First State. Said the CFS head of strategy and development, "It will be a high-yield fund that will appeal to investors with their eye on longer-term, low-volatility assets, that offer growth on the upside." (Herald Sun)

• Mike Oldfield is criticizing EMI for "devaluing" his classic album Tubular Bells by using at part of a newspaper giveaway. (Contact Music)

• MTV Networks will license a social networking media player that was created by Georgia Tech students for MTV's Digital Incubator program. (Press release, via paidContent)

Posted by Glenn at 9:04 AM | Link
|EMI||Research||Sony BMG|

• According to The Telegraph, two American hedge funds, Fortress and Cerberus, are planning to jointly bid on EMI at a price below the $4.1 million Warner Music Group bid earlier this year. They hope EMI will accept a sub-WMG bid because of the lower level of regulatory scrutiny they expect to come with their bids. The report says One Equity is still looking at EMI but will not join the bid with Fortress and Ceberus. Permira is unlikely to join in the bidding. (The Telegraph)

• Sony BMG, which recently rid itself of its BMG music publishing arm, plans to get back into the music publishing game. Said chief executive Rolf Schmidt-Holtz, "We will do everything to re-enter the market for music publishing. ... Our shareholders see that a music company that has a music publishing business is more attractive" And why not? The revenue is far more less volatile and risky than that in the recorded music world. (Financial Times)

• The price for a non-DRM track at the New Zealand iTunes store will carry a 39% premium. A DRM track costs NZ$1.79 and a non-DRM track will carry a NZ$2.49 price tag. The U.S. iTunes store will charge only a 30% premium for the non-DRM version. (PC World NZ)

• The New York Post has a decent article on how labels are looking to ad-supported business models. Nothing new there, but at least some execs went on the record with their thoughts. (New York Post)

• Warner Music Group has signed a worldwide publishing deal with Destiny's Child member LeToya that covers her 2006 self-titled album and future compositions. (Press release)

• Vickie Winans' Destiny Joy Records has signed a distribution deal with Central South Distribution. (BreatheCast)

Posted by Glenn at 9:16 AM | Link
|DRM||EMI||Publishing||Sony BMG||iTunes|

• Digital Music News reported the names of some Warner Music execs who have or will leave their posts: Nikke Slight, Atlantic SVP of New Media, and Robin Bechtel, head of new media at Warner Bros. Records. Those departures have led to the entry of Jack Isquith, formerly with AOL Music. Isquith will report directly to Warner Bros. chief executive Tom Whalley. (Digital Music News)

• PassAlong Networks announced version 2.0 of freedomMP3. The new version adds track-based rules that allow rightsholders to predetermine how many times the song can be moved off a PC. (Press release)

• EMI Music UK announced a strategic partnership with TLC Marketing to launch a download royalty card that will be used in third-party promotions. TLC has brand partnerships with Samsung, First Direct and British Gas. The promotion will allow consumers to download songs from an EMI owned and branded website. (Creative Match)

• With every concert ticket purchased online, Ticketmaster is giving away a free, ten-song digital sampler. Between Memorial Day and Labor Day, each ticket purchased will get one free download at iTunes. (Press release)

• A report by eMarketer finds that the music industry as a whole is "healthy" and "growth in many other areas will more than make up for the shortfall" in falling CD sales. Growth in music publishing and live music will help the industry grow at an average annual rate of 2.8% through 2011. (Press release)

• Guitar Center announced its Q1 2007 results. Net sales increased 13.5% to $534.5 million and earnings rose to $17.2 million. The company opened 12 new stores during the quarter, one being the result of an acquisition of the former Victor's House of Music in Paramus, New Jersey. (Press release)

Posted by Glenn at 11:41 AM | Link
|DRM||EMI||Marketing||Warner Music Group||iTunes|

• Billboard's Ed Christman reported today that Warner Music Group is planning to lay off 400 employees. The restructure includes staggered layoffs and additional hires in digital areas. (Billboard.biz)

• According to the Financial Times, EMI has interest from three private equity groups: Fortress, Cerberus and the previously mentioned One Equity. All three are expected to make presentations to EMI's board of directors this week. EMI will reportedly open its books to all three and will give them until May 23, the day it announces its annual results, to make full offers. (The Age)

• Billboard is reporting that "at least six" indie labels plan either to pull their catalogs from eMusic or offer only back catalog through the music download service. "I hope they can make it a better value proposition for the labels," said one unnamed label head. "But if they don't, we are planning on pulling out." eMusic offers subscriptions of varying quantity and price. Though popular, the low subscription prices means labels get less per song that they would from sales other download stores. A recent price hike by eMusic appeared to be a move to appease some disgruntled labels. (Billboard)

• Warner Music Group is launching a production unit called Den of Thieves that will create content for video platforms such as television, DVD and mobile. (Variety)

• The Tennessean's Nicole Keiper has a good article on high-tech music marketing -- and I don't think it's good just because I'm quoted frequently. Keiper talked to Nashville musician Jeremy Lister and the manger of Ben Folds -- also of Nashville -- about their experience performing in the virtual reality world of Second Life. MySpace, too, is a topic, as is music-oriented MySpace clone Virb. (The Tennessean)

• An old Tower Records location that former Tower owner Russ Solomon is using to open a new retail site will be called R5 Records-Video and is slated to open in June. (Sacramento Bee)

Posted by Glenn at 9:20 AM | Link
|Brick-And-Mortor Retail||EMI||Marketing||eMusic|

EMI released a statement today that said the company "has received a number of preliminary indications of interest to acquire."

Reports say that private equity firm One Equity Partners was the company that approached EMI. This Reuters article, pointing to a figure reported in the Financial Times, put the bid amount at $6 billion.

The last bid, which was rejected, by Warner Music Group was $4.2 billion.

Posted by Glenn at 1:01 PM | Link
|EMI|

• More talk that Wal-Mart will cut its CD stock unless the release schedule picks up. That move would certainly compound labels' sales problems. (Digital Music News)

• A jury found that Yahoo!'s Launchcast is not liable to Sony BMG for copyright infringement. The heart of the lawsuit was whether or not Launchcast is an interactive service. An interactive service requires a negotiated licensing agreement. A non-interactive service can be covered by a compulsory license. (Billboard.biz)

• EMI's Sparrow signed a deal with Amy Grant that will include the singer's catalog. Sparrow gets all digital and mobile rights. Many of the albums to be reissued have not yet been made available in digital format. (Press release)

• After being dropped by Warner Music, The Crimea self-financed its sophomore album and will give it away for free as a digital download and hopes to make up the difference through touring, merchandise sales and licensing revenue. (The band is selling copies of the CD version.) I find it especially interesting that the publicists, marketers and radio promoters who will work the album have waived their fees in return for a share of future revenue. Secrets Of The Witching Hour will be released May 13th. (The Guardian)

• Hurt by lower orders by labels, CD manufacturer Cinram is looking to high-definition DVDs and video games. (The Times-Tribune)

• A profile on world music label Putumayo, whose growth is in contrast to the industry's slump. Maybe its sales strategy has something to do with it. Roughly 65% of the labels sales come from non-traditional retailers like Whole Foods and Bath & Body Works. (New York Post)

Posted by Glenn at 3:26 AM | Link
|Brick-And-Mortor Retail||EMI||Legal||Sony BMG|

• Big news out of EMI's Caroline Distribution: All regional sales reps are being let go. The three remaining Los Angeles employees are gone. Their accounts are going to be serviced by EMM reps. (Billboard.biz)

• The value of Canada's music sales fell 35% in Q1 of 2007 (to $68.7 million from $105.6 million) a big increase over the 12% drop last year. Digital music sales make up a mere 6% of the market. (CRIA press release)

• XM Satellite Radio announced its earnings for Q1, a net loss of $122 million on revenues of $264 million. Revenues were up 27% year over year. Subscribers increased to 7.9 million from 6.5 million. (Press release)

• The IFPI announced a "major step forward" in licensing music for streaming across different European countries. (Press release)

• A panel at paidContent's @EconSM conference talked about music and social networking. Not a big surprise that panelists said the musicians cannot rely on MySpace alone. (paidContent)

Posted by Glenn at 10:25 AM | Link
|Conferences||EMI||XM|

Big news from EMI: Roger Ames, former Warner Music Group chairman/CEO, has been named the head of EMI Music North America.

In addition, Ivan Gavin is leaving his role as EMI Music COO.

There will be more EMI-related news by tomorrow morning, according to someone close to the company. Stay tuned.

Posted by Glenn at 3:24 PM | Link
|EMI|

• A Sunday Times report says EMI is "braced to receive a fresh bid" from Warner Music Group and expects some bids from private equity groups. (Forbes.com)

• eMusic president and chief executive David Pakman on talks with Amazon.com: "I can confirm there are no talks right now with any strategic buyer. The company's not for sale. The company is in no need of financing, and our growth is off the charts. We've talked to every media company on the planet, we've been approached by everyone. The company has had 100% year-over-year sequential growth for the last three years." (Forbes.com)

• Music-centric video games are, says a Warner Music Group exec, "one of the few places we've seen in the sweet spot of what consumers want to do with music today, which is interact with it." (Billboard)

• An odd prediction by RoyaltyShare CEO Bob Kohn: Removing DRM will double or triple the size of the music download business. I think that's odd because even with DRM, the download market will double in (roughly) the next 18 months (it's on pace for over 60% annual growth for 2007). Kohn supports dropping DRM but wants to continue to ban the legal sharing of DRM-free tracks (I wonder where that would leave the Zune?) and the posting of such tracks on web sites (which is already a no no that has spotty enforcement). (MusicDish.com)

• Here's a different way to release an album: Rancid's Tim Armstrong is releasing a solo album and giving it away for free -- but not all at one place -- before its official release date. Fans will be able to hunt for the ten tracks (two of while were already released on the Internet) on Rancid-related websites and MySpace pages. (Harp)

Posted by Glenn at 11:07 AM | Link
|DRM||EMI||eMusic|

• Clear Channel agreed to an increased offer of $39 a share -- $19.5 billion in total -- from private equity firms Thomas H. Lee and Bain Capital. Shares are currently trading at $36. Some investors may hold out for a higher offer, but Lee and Bain called $39 their "best and final" offer. (BBC News)

• EMI is in talks with Singapore-based Soundbuzz to offer DRM-free tracks in "multiple markets" in Southeast Asia. (Billboard.biz)

• Amazon.com launched a new music section, called "Go Indie," dedicated to indie music. It has a "hand-picked selection" of nearly 700 titles, 150 of which sell for $9.99. (Press release)

• Standard Life Investments, which owns about 1% of EMI's stock, believes a merger with another media company would be the company's best option. "And it's hard to argue against the logic of large players in the industry coming together and sharing the benefits of cost saving and all sorts of rationalisation that would come with that," said an investment analyst with the company. (Forbes.com)

• Sprint Nextel will open a virtual concert venue in the Second Life virtual reality site that will cater to fans of Latin music. The Sprint Center will stream pre-recorded performances from the Telemundo series "Concierto Clandestino." (Billboard.biz)

Posted by Glenn at 12:02 PM | Link
|EMI||Mobile Music||Radio|

• EMI issued a trading update this morning ahead of its announcement of earnings for its fiscal year ended March 31st. Revenue is expected to decline 15% year over year. Digital revenue is expected to increase 59% and will account for 10% of total revenue. Music sales (at constant currency) are in line with guidance, its publishing division has improved operating margin and earnings before interest, depreciation and amortization is expected to be £174 million. Two bullet points stand out. One says EMI is considering the securitization of its publishing assets. The other said the company is suspending dividend payments until its restructuring program has concluded. (Press release)

• Some analyst say a possibly deal with Warner Music Group would be complicated if EMI issues securities backed by its publishing assets. (Reuters)

• Yesterday the RIAA revealed sales figures for 2005 (total revenue down 6.2%, CD sales down 13%) and tried to put a positive spin on the situation. "Today's music marketplace has challenges, but it also offers reason for hope and optimism," said Mitch Bainwol in a statement. "The appetite for music is as strong as ever." (Washington Post)

• EMI's first quarter UK market share pulled even with that of Sony BMG at 16.1%. Universal Music Group was the top dog with 32.8% and Warner Music Group was fourth (of the four majors) with 9.4%. (The Scotsman)

• Warner Bros signed underground legend Murs, the Living Legends member whose previous albums have come out on Def Jux and Record Collector. (SOHH)

• Sirius CEO Mel Karmazin and NAB Radio Board Vice Chairman Russ Withers spoke about a XM/Sirius merger before the US Senate Committee on Commerce, Science & Transportation. Karmazin talked about "more choice at lower prices" and Withers warned of the dangers of a monopoly. (Radio Ink)

Posted by Glenn at 10:41 AM | Link
|EMI||Publishing||Satellite Radio||Sirius||XM|

Retuers has an article on Thomas H. Lee Partners' Scott Sperling that offers some thoughts on EMI from the Warner Music Group shareholder. (Sperling also sits on WMG's Board of Directors.)

"We want to be very realistic about what we would be buying and what we could do with the company, (as) the base level of profitability and the growth becomes increasingly problematic.

"EMI has announced a series of disappointing results and we don't see it turning around."

We have to look for hints about Sperling's feelings on DRM, and this quote leads me to believe piracy is still high on his list of worries: "The fundamental demand for music continues to grow," Sperling said, but whether consumers are "going to pay for it or steal it is the question."

Posted by Glenn at 1:30 AM | Link
|EMI||Warner Music Group|

How do you know the financial press is examining the health of the music industry? Yesterday's issue of Financial Times had three articles dedicated to the music industry, its slumping sales and its attempts to overhaul its business models. EMI's recent moves had ratcheted up the debate on the industry. I think it's a good sign that the financial press is taking a greater interest. When investors take a greater interest, major music groups are more likely to pursue innovative strategies in earnest -- not just merge divisions and cut artist rosters, but really re-think how they do things. (I'm pretty much on board with what labels are doing, but over the last year or so they have collectively lost their way. There has been too little experimentation, too little serious transformation and not enough encourage of entrepreneurship.)

One article claims EMI's copyright decision has divided the music industry. Emiko Terazono wrote that "some music executives worry that raising prices could stifle the digital download market which still accounts for only 12 per cent of the whole music market." (Of course, EMI did not exactly raise prices. It chose to offer a DRM-free, higher bit-rate version for a higher price in addition to the existing format and price. Whether or not the two-tiered pricing will work is another issue.)

Such worries are premature. The entire market will be stifled only if (a) the plan backfires, which could happen if (b) the other majors do not join in the plan. If those worried execs want to do their part to sink EMI's hopes, they will not follow EMI's lead. Without the help of its peers, EMI will find that it cannot by itself invigorate music sales. After all, would iTunes be as successful as it has become if it sold only EMI music? Not by a longshot. But should those worried execs want EMI's plan to fail?

Continue reading "To DRM Or Not To DRM? Future Investment May Depend On It" »

Posted by Glenn at 6:18 PM | Link
|DRM||EMI|

• The Sunday Times reported that Warner Music Group may pursue a merger with EMI by making a direct appeal to its shareholders. The report claimed WMG execs were "astonished" that EMI had moved to drop DRM from downloads while it was a bid target. (Forbes.com)

• Merril Lynch analyst Jessica Reif Cohen warned of more declines this year (no kidding). "With digital growth naturally decelerating over time and the decline in physical sales accelerating, an imminent return to growth for the industry no longer appears likely." She kept a "neutral" on Warner Music Group. If you recall, Reif Cohen caused Merril Lynch to drop out of WMG's IPO and lose millions in underwriting fees after she told the firm it was overvaluing the shares. (Hollywood Reporter)

• It's high time for indie culture to go mainstream: Top indie labels will create a series of compilations, similar to the Now That's What I Call Music series, and partner with MTV2. Distribution will be aimed at mass merchants like Wal-Mart. Vice will release the first volume. Sub Pop and Matador are considering future editions. Said the always quotable Adam Shore of Vice, "We don't really expect indie-rock stores to support this record. It's for the casual fan." (Entertainment Weekly, via Hypebot)

• Sony BMG announced it will release two music titles on Blu-ray this summer: Bruce Springsteen and the E-Sreet Band: Live in Dublin, and Chris Botti Live with Orchestra and Guests. (High-Def Digest)

• Warner Music Group will offer videos through Joost. (Press release)

• Some feedback on download sales at MySpace. In a nutshell, they're quite low thus far. "People don't go to MySpace to buy," one source said. "I just don't think people are going to MySpace to buy stuff," said another. Obviously Snocap and Hooka have to get people to register and become familiar with the process. (Digital Music News)

• A profile of Dennis Mudd, CEO and co-founder of digital music company Slacker. (USA Today)

Posted by Glenn at 8:35 AM | Link
|EMI||EMI WMG Merger Talk||MySpace||Snocap||Warner Music Group|

Just about everybody has an opinion on EMI's drop of DRM from its digital downloads. Here's a compilation of analysts' quotes and a few of my thoughts.

Jupiter's David Card sees little short-term impact and a greater long-term impact: "Will DRM-free distribution jump-start digital music sales? (Especially enough to deflect the impact of dying CDs.) Unlikely. At least not in and of itself. It should enable more competition among stores and devices, which, in the longer run, will."

Card is right. EMI alone cannot cause much of a change in digital sales. Consumers will react when they have a reasonable expectation of what product and price awaits them. Since iTunes is mostly a "pull" retailer, customers will have to stumble across EMI's DRM-free tracks artist by artist, release by release. (I imagine that serious jazz fans know which titles are owned by EMI, but mainstream pop fans? No way.) When consumers know that all tracks are DRM-free, their behavior will begin to change (which could mean an increase in purchases or the purchase of a different music player).

Dropping DRM was good news for the digital kiosk industry, which to date has been hampered by interoperability. There's a great deal of potential there -- but only when all songs are DRM-free. Partially DRM-free catalogs could be a source of confusion and frustration.

In writing about the DRM drop's effect on iPod competitors, Jupiter's Michael Gartenberg did not make a prediction but explained the implications of either outcome: "For other vendors in the hardware space, it will eventually remove the issue of iTunes lock in but if their sales don't take off, it will be clear that it wasn't lock in to the iPod economy that prevented their success."

Gartner's Mike McGwire had two points (read article here). First, Apple will get more money for basically the same product. Second, DRM's future lies in subscription-based models, or as he put it "less as a lock and more as a tracking mechanism." I think that's fair to say. All-you-can-eat subscription models require DRM.

Said NPD Group's Ross Rubin (in this SF Chronicle article), "Most consumers just care if it works with their music player today. But in the long term, it'll benefit consumers because we'll see more devices able to work with digital music."

Bridgewell analyst Patrick Yau did not go out on a limb. "EMI has said that it is aiming for 25 percent of its revenues to come from digital sales by 2010, and we suspect that this will provide a boost to those aims," he said. Sure. Unless labels do something to shore up CD sales, that 25% by 2010 would be a done deal without ditching DRM.

Posted by Glenn at 12:13 PM | Link
|Apple||DRM||EMI|

EMI held a press conference today to announce it will sell its entire catalog in DRM-free, high quality downloads. (Read press release.) iTunes will be the first online retailer to offer the tracks. Each track will cost $1.29, or $0.30 higher than lower quality tracks with DRM. Complete albums will automatically be sold with the higher sound quality and without DRM -- but at the same price (now iTunes' second incentive to purchase an entire album over individual tracks).

Said EMI's Eric Nicoli, "ur goal is to give consumers the best possible digital music experience. By providing DRM-free downloads, we aim to address the lack of interoperability which is frustrating for many music fans. We believe that offering consumers the opportunity to buy higher quality tracks and listen to them on the device or platform of their choice will boost sales of digital music."

Engadget live-blogged the event and its Q&A session. Click here to listen to the webcast of the press conference.

On a side note, I have to wonder if today's announcement would have been held if Levy and Munns were still running EMI. Many seemed to feel that EMI's previous leadership was too "old guard" and that the company was not properly transforming itself for the digital era. Nicoli did not waste much time in ridding EMI of at least one old convention.

Posted by Glenn at 9:11 AM | Link
|EMI||iTunes|

• A private equity group abandoned its plans to bid on EMI. That equity group is led by former EMI exec Jim Fifield. (The Guardian)

• Sony BMG UK has launched a A&R blogs (using Six Apart's Vox) where users can post tracks and videos. Right now there are two such blogs, Columbiademos.co.uk and RCAdemos.co.uk. A good idea? Too early to say. If the labels wanted to have to sift through much more mediocre material, then yes, mission accomplished. (Hollywood Reporter)

• Rumors are circulating that Amazon.com is going to purchase eMusic. (Hypebot)

• Victory Records is following shifts in industry and creating an in-house touring division to book shows for Victory bands that do not yet have a proper booking agent. Labels are smart to offer this service to its acts; why let somebody else make money off your artists? If music is ever to be used as a loss leader -- which some people are pushing -- the line between label and booking agent will be completely blurred. (Billboard.biz)

• Online radio station WOXY launched a music blog titled The Futurist. Not that the world needs another indie rock-heavy music blog, but WOXY will post its own live studio recordings (Ted Leo, Cloud Cult and Land of Talk have been posted thus far). (The Futurist, via Largehearted Boy)

Posted by Glenn at 8:51 AM | Link
|EMI||Indies|

EMI's Eric Nicoli and Apple Computer's Steve Jobs will hold a press conference tomorrow (Monday) afternoon at EMI's London headquarters. (Read article at MacWorld.) The invitation to journalists reads, "Please join EMI Group CEO Eric Nicoli at EMI’s headquarters on Monday 2 April at 1pm London/8am New York time to hear about an exciting new digital offering, with special guest, Apple CEO Steve Jobs."

Why would Jobs go to London to make an announcement with EMI? If it's not something related to The Beatles catalog, I'm stumped.

From New York Times: Jupiter analyst Mark Mulligan has a guess on tomorrow's event: a "Yellow Submarine" iPod that comes preloaded with Beatles tracks. "The trademark settlement deal clearly raised the possibility of Apple selling EMI music in a physical format. This is an original idea and helps Apple with their core business, selling devices.”

Update: Reuters has sources that say this will not be a Beatles announcement.

So....what is this about? DRM possibly. I can't imagine that Jobs would show up for an announcement about something as (to the layman) mundane as a new licensing agreement. Apple rolls out new iTunes features very quietly, but it makes a big splash with hardware-related news. Nicoli was really talking up with iPhone the other day, so that's a possibility.

Updated update: According to the Wall Street Journal (via Idolator), EMI will announce it will offer a "significant amounts of its catalog" without DRM.

Wow. I'm not totally blown away, but I'm blown away. Offering just parts of its catalog without DRM is a major change in strategy. But it makes perfect sense. This is a year in which things are coming to a boil and pressure to re-think entrenched beliefs is higher than ever. The fun part will be the wait for EMI's competitors, and seeing how this effects catalog sales.

Posted by Glenn at 11:44 PM | Link
|EMI|

You know the music industry is really aching to develop new revenue streams when EMI's Eric Nicoli gently talks down at mobile operators he feels are stunting the market's growth. Said Nicoli at the CTIA Wireless trade show in Orlando,

"We will not reach our goals if we carry on as we have been doing. Not to diminish what we have achieved so far, but there are important challenges to address if we want to take this business to the next level. And that means we must put the customer at the forefront."

By "we" he means "we can be only as successful as hardware manufacturers and mobile operators allow us to be," which is partially true. And...

"Apple makes stuff that people love to own. They love the simplicity and user-friendliness of the iPod and iTunes. Apple doesn't employ any sorcery or dark magic to achieve this. They listen to what consumers want. And that shouldn't be Apple's unique privilege."

More from paidContent:

"He suggests a three-part test for every decision: value for money, good product offering, ease of use. Nicoli said he feared 'many of us' would fail the test if applied to what is being offered now: 'I'm merely asserting that we all have more room for improvement than we can comfortably admit in public.'"

Posted by Glenn at 3:32 PM | Link
|EMI||Mobile Music|

Maybe you too have noticed that the press has been quiet about Warner Music Group and EMI for the last few weeks. Today the New York Post's Peter Laura breaks the silence with a look at how WMG's weakening financial position could be hurting its bid to acquire EMI.

"Warner stock fell to $16.26 yesterday, only 19 cents above its 52-week low it reached on Friday. More important, that's $2.62 below the price on March 2 when EMI's board rejected its takeover bid. Based on Warner's roughly 150 million outstanding shares, that $2.62 per share collapse equates to a paper loss of $393 million.

What's more, after Warner posted a 74 percent drop in net income in the fiscal first quarter, analysts are bracing for a similarly dreary second quarter, which will end Friday. But given EMI's own problems - two profit warnings, layoffs and merging of its Capitol and Virgin record labels - Warner's financial difficulties by comparison have gone largely unnoticed."

Last week, the European Union announced it would take longer to approve the Sony BMG merger. Add to that poor market conditions and WMG's worsening financial position and you've got a different outlook at a possible acquisition of EMI.

Posted by Glenn at 5:50 PM | Link
|EMI||Warner Music Group|

• EMI and Bertelsmann settled their lawsuit related to the latter's support (loans) for the Napster P2P service. Specifics were not disclosed. Universal Music Group settled for $60 million in September 2006. (FT.com)

• Napster inked a deal to provide its Napster To Go subscription service free of charge to AT&T wireless and high-speed Internet customers. Customers will be able to upload tracks to portable music players and compatible mobile phones. The offer will be free with a two-year wireless agreement with purchase of select phones. Home users will get the service if they purchase ATT&T Yahoo! or FastAccess DSL Ultra Internet service. (Press release)

• Sprint is dropping prices for over-the-air downloads to $0.99 for customers that subscribe to any Sprint Data Vision data plan. (Press release)

• Nettwerk and video game company Electronic Arts announced a joint venture label, Artwerk, to develop new and established for both physical and digital distribution. (Digital Media Wire)

• Waylon Jennings' "Theme From Dukes of Hazzard (Good Ol' Boys)" has become the first country music ringtone to reach platinum, or sales of one million. (Press release)

• Doug Morris, CEO of Universal Music Group, was named to CBS Corp's board of directors. (Broadcast Newsroom)

• Read DiMA's reaction to the U.S. Register's call for modernization of Section 115 of the Copyright Act. "A streamlined blanket music licensing system will guarantee digital music services access to more music with lower transaction costs, which in turn will encourage innovation, keep legal music prices low, grow our industry and increase royalties to all creators." (Press release)

Posted by Glenn at 8:15 AM | Link
|EMI||Mobile Music||Napster||Ringtones|

• An Enders Analysis report claims the recorded music market "could" stabilize by 2009. Lower CD sales are one reason why music publisher revenue is expected to have a cumulative annual growth rate of only 2.2% through 2012. (Enders Analysis)

• To celebrate his 80th birthday, EMI is offering 11 currently unavailable Rostropovich albums -- two of which have never been issued on CD -- at iTunes. (Playbill)

• The RIAA on its legal battle against P2P company Limewire: "They respond. We respond. They respond, etc. Then discovery. These things take a long time." (Digital Music News)

• The FCC approved Citadel's acquisition of 24 ABC radio stations. Commissioner Copps said the transaction is "narrowly" in the public interest. (Radio Ink)

• Jupiter analyst David Card on album sales: "The industry has to spread artist development risk more efficiently. That means that radio probably does have to pay, or share revenues. And artists have to get paid at the back end, not in advance. It's not just the labels who'll die if this continues." He's right, but as is always the case in a convoluted industry, it's easier said than done. (David Card's Jupiter Blog)

Posted by Glenn at 4:29 PM | Link
|Digital Distribution||Digital Music||EMI||Legal||P2P||Publishing|

• Starbucks and Concord Music Group have formed a new record label, Hear Music, that will release titles for both internal and external distribution. Seems like odd timing given that company founder Howard Schultz has been worried about the chain's brand recently. (Billboard.biz)

• EMI has dismissed claims by UK download site Wippit that the Beatles catalog will soon be available online. (Irish Examiner)

• British retailer HMV issued a profit warning. The company plans to close unprofitable stores and refurbish others. Also in the mix is a social networking site, to be tied to its own website, for music and film fans. (BBC News)

• Sub Pop Records has founded a new label, Hardly Art. (Pitchfork)

• Warner Music Group looks to be hesitant to up its offer of 260p per share for EMI, an offer that is "subject to numerous assumptions and conditions." EMI doesn't want to give access to its books without a commitment of a higher offer. (Times Online)

• Primary Wave's first big Nirvana licensing deal after purchasing 50% of the catalog for $50 million? Inclusion on the Major League Baseball 2K7 video game for the track "Breed." (New York Post)

• Old news, but I'll mention it: Universal Music Group settled its lawsuit with online video site Bolt.com for a "multimillion payment for damages for past infringement." (Press release)

Posted by Glenn at 9:17 AM | Link
|Brick-And-Mortor Retail||EMI||Indies||Publishing||Starbucks|

• Warner Music Group is ready to go after EMI again, The Wall Street Journal reported. (AFX)

• Country group Lonestar has been dropped by Sony BMG's BNA Records. (CMT.com)

• European Union consumer chief Meglena Kuneva has criticized Apple's combination of iPod and iTunes. "Do you think it's fine that a CD plays in all CD players but that an iTunes song only plays in an iPod?" he asked. "I don't. Something has to change." (Reuters)

• Warner Music Group has added hip hop label Rhymesayers to its Independent Label Group. Rhymesayers was previously distributed by Navarre and will now go through WMG's ADA Distribution. (Billboard.biz)

• Congressman Mike Doyle spoke about mash-ups and mixtapes at last week's "Future of Radio" House Telecom and Internet sub-committee hearing...and name dropped one of his constituents, indie dance artist Girl Talk. Said Doyle, "I hope that everyone involved will take a step back and ask themselves if mash-ups and mixtapes are really different or if it's the same as Paul McCartney admitting that he nicked the Chuck Berry bass-riff and used it on the Beatle's hit 'I Saw Her Standing There.'" (The 463: Inside Tech Policy)

• Warner Bros' expensive mistake of 2006, Paris Hilton's debut album, fared so poorly that Hilton will reportedly be dropped in the coming weeks. (Digital Spy)

Posted by Glenn at 11:51 AM | Link
|EMI||Indies||Warner Music Group|

Making the rounds right now is a story that EMI asked online retailers to make cash advances in exchange for the right to sell its catalog in the open MP3 format.

What strikes me about this move is the lack of takers. Look at the factors that are believed by many to be truths. Here are three things about MP3 that are held by many to be true: First, people will pay more for MP3s. Second, labels will sell more music if they ditch DRM. Third, DRM does not stop piracy and should be removed.

EMI needed an insurance policy. It wanted retailers to share in the risk. The cash advances were its insurance policy. If the three items above hold true, logic dictates that EMI's insurance policy will never be exercised. Piracy will not increase -- but sales will increase. If the three items above hold true, digital music sellers will make more money. Increased sales of more expensive files is a double-shot to the top line. If the three items above hold true, there is all reward and no risk.

So EMI asked companies to put their money where their mouths are. If there's no risk, EMI's offer implied to retailers, then share in the reward.

Turns out there were no takers of EMI's offer. Turns out there are gaps between EMI's estimate of risk and retailers estimate of the reward.

I understand EMI's point of view. Retailers are asking EMI to bear all the risk and assume none of it themselves. EMI's proposal was to shift some risk to its retail partners. Maybe its requested advance was just too high. Maybe they set it too high to see what counteroffers they would get. One thing I can ascertain from this is that retailers were not turned off by simply the idea of paying an advance.

Posted by Glenn at 2:14 PM | Link
|EMI|

• US buyout firm Fortress is taking a look at EMI, as are Apollo and private equity firm One Equity. (AFX)

• Los Angeles gets a country station today. (Radio Ink)

• Story of a YouTube "star" who doesn't want to sign with a record label. The move could end up saving labels from themselves. If OK Go gets only 200,000 album sales from a YouTube megahit, why look use YouTube popularity as an indicator of future music sales? Who's to say YouTube popularity will translate to success at radio, television or touring? Right now, all indicators point to YouTube popularity existing in a near vacuum. (Billboard)

• A profile on DC-area indie retail chain cd.gameexchange. (Washington Post)

• Broadcasters speak out for relaxed ownership rules at the FCC media ownership hearing in Harrisburg, PA. (AP)

• DRM lives on: BitTorrent to launch a movie download service today with files protected by Microsoft DRM. The press seems to be going a bit light on founder Bram Cohen even though media files will be wrapped in the same sort of DRM that gets online music retailers so much grief. (The News.com)

Posted by Glenn at 8:22 AM | Link
|Brick-And-Mortor Retail||DRM||EMI||YouTube|

• To cut is (probably not) to cure: EMI laid off an undisclosed number of employees in Canada. (Billboard.biz)

• The EU is looking at whether or not the Sony BMG merger has raised CD prices. A survey sent to record companies and trade group asks, "Have the majors shown a parallel behavior, in particular in terms of prices before the merger? Did the merger have an effect on such parallelism?" Honest answers please. (Bloomberg News)

• The newly-created House Antitrust Task Force will hold a public hearing next week on the proposed merger between Sirius and XM. (The Wall Street Journal)

• Internet radio listening jumped 26% in 2006. AOL's radio network, at 15.25 hours per week, is the most listened to online radio network. (Radio Ink)

• The UK government responded to a petition to ban DRM. In short, it is not jumping on Norway's bandwagon. Excerpt: "DRM does not only act as a policeman through technical protection measures, it also enables content companies to offer the consumer unprecedented choice in terms of how they consume content, and the corresponding price they wish to pay." (Number-10.gov, via Tech Digest)

• The state of music retail in Columbia, Ohio. (The Other Paper)

• The state of music retail in Belfast, Ireland. "The demise of the independent sector has been rapid, brutal and in inverse proportion to the rise of downloading and the digital revolution." Actually, I think the demise has been in direct proportion to the rise of downloading and the digital revolution, but I get what they're saying. (Belfast Telegraph)

Posted by Glenn at 7:17 AM | Link
|Brick-And-Mortor Retail||DRM||EMI||Satellite Radio||Sony BMG|

• EMI wrote Warner Music Group and highlighted its regulatory concerns over a possible acquisition. (Reuters)

• Andy Gershon lands at Epic Records -- as executive VP -- after departing V2. (Billboard.biz)

• Indie retail legend Reckless Records is expanding to a third Chicago location. (Chicago Reader, via Fifth Disc)

• Sirius CEO Mel Karmazin predicts a better than 50/50 chance of getting regulatory approval for a merger with XM. Analysts aren't so optimistic. I'm not either. (BusinessWeek.com)

• EMI is taking the entire 15th floor of a waterfront office building in Jersey City. (The Real Estate)

• Puretracks announced it is offering music in the MP3 format from labels such as Arts & Crafts and Beggars Banquet, which are already available DRM-free elsewhere. (CBC)

Posted by Glenn at 9:36 AM | Link
|Brick-And-Mortor Retail||EMI||Online Stores/Services||Satellite Radio||Sirius||Sony BMG||XM|

• Interscope Geffen A&M Records has acquired Octone Records, home of Maroon 5. (Billboard.biz)

• Bennett Lincoff, former Director of Legal Affairs at ASCAP, posted a white paper on his website that outlines his plan to fix the music business. It hinges upon licenses not for consumers but for "responsible for the digital transmissions at issue" -- which would include music bloggers. (Musical Licensing White Paper PDF, via Wired's Listening Post)

• Warner Music Group's offer for EMI likely to be in cold, hard cash. (Reuters)

• An analyst at Hargreaves Lansdown Stockbrokers on a WMG acquisition of EMI: "A deal would be a no-brainer." (The Herald)

• And maybe it would be more of a no-brainer for regulators. "The industry is having a very bad time now, and regulators may take a more lenient approach," said an analyst at Panmure Gordon. I dunno. Regulators tend to be concerned with consumers and competition more than propping up the financial health of companies. The market would arguably be more competitive if private equity purchased EMI's recorded music business. (New York Times)

• For its 2007 event, SXSW posted a 3.1 GB BitTorrent with 739 MP3s from 739 artists. (Download)

Posted by Glenn at 7:50 AM | Link
|EMI||Universal Music Group|

Following an EMI statement, Warner Music Group issued a statement this morning about its approach of EMI to acquire the troubled London-based music group. (Read WMG press release) This came before EMI's most recent profit warning and stock slide. What prompted the timing of WMG's approach of EMI? WMG got the support of indie label trade group Independent Music Publishers and Labels Association (IMPALA), which pledged support for an acquisition before the European Commission and other regulatory bodies.

If WMG were to make an offer for EMI, it would do three things. First, it would provide funds for Merlin, the new indie-created global licensing group (read press release). Second, WMG would divest itself of "certain recorded music assets" to protect indie market share. Third, it would pursue "various other behavioral commitments" which would benefit the music market as a whole and, specifically, the indie sector.

EMI's statement (read press release) "There is, however, no proposal currently for the EMI Board to consider," the company said.

WMG's approach of EMI was not much by a key EMI shareholder. "As far we are concerned, the takeover approach does not really move the dial a huge distance. If it progresses to a more formal offer, we will judge it on the basis of the offer."

Posted by Glenn at 9:58 AM | Link
|EMI||Warner Music Group|

The Wall Street Journal has an article on a letter from hedge fund Eclectica Asset Management to EMI Chairman John Gildersleeve. (Article in online today, will probably be in tomorrow's print version. The Times Online also has an article on the letter.) The letter calls for greater "transparency" in the way EMI values its assets. Pointing to how Chrysalis discloses its net-of-royalties revenue, EAM urged EMI to disclose the after-royalty income of its music publishing unit. Such disclosures would help valuate the company and relieve what EAM called "valuation uncertainty and excessive share price volatility."

News of EMI's financial situation is all over the place. Here's some more reading.

• EMI may issue debt, to be backed by its publishing revenues, to pay off almost $2 billion of bonds. (Bloomberg)
• EMI considering a sale of its recorded music business or refinancing its publishing division. See above for just such a financing decision, similar to The David Bowie Publishing-Backed Bond Sale. (The Guardian)

Posted by Glenn at 6:17 PM | Link
|EMI|

In his Bit Player blog at the LA Times, Jon Healey lays out EMI's strategy for pushing MP3s at online retail as told to him by "two sources in the online music biz." While the press oddly attributed news of EMI's recent push to MP3 to Steve Jobs' DRM-bashing open letter, Jobs looks to have been reacting to EMI's quiet MP3 strategy.

EMI, wrote Healey, was asking online retailers for cash advances in exchange for the right to sell its catalog in MP3 format. That strategy was a reaction to a proposal by RealNetworks for switching to MP3. Who did and who did not get EMI's proposal explains Jobs' recent push to get rid of DRM.

"The deal was apparently not offered to Apple, however; evidently, EMI wanted to build up momentum among the also-rans before making Jobs and offer he might otherwise refuse. Before EMI could sign on the dotted line with the likes of RealNetworks and Napster, however, Jobs dropped his DRM bombshell. Go straight to the head of the parade, Steve! Then the Wall Street Journal reported EMI's MP3 overtures, and suddenly the record company wasn't in such a hurry to announce its initiative."

Looks like a good theory on the sequence of events. EMI wants to sell MP3s but wants to start small and build up to iTunes. Apple doesn't want to miss the MP3 party and throws a wrench into EMI's plan to leave Apple out of its initial plans.

Posted by Glenn at 3:42 PM | Link
|DRM||EMI||iTunes|

• In 30 days, PassAlong Networks will start offering its entire catalog in MP3 format. The company will use its FreedomMP3, which allows the use of MP3 format with "a reasonable amount of rights management" that works on PCs with Windows 2000 or higher. (Press release)

• CMC Management Group is try to launch the Country Music Cafe in Nashville, the first in what it hopes will be a nationwide expansion. On the CMC team is music industry vet Tim Wipperman. (Nashville Scene)

• Louis Hau on music's digital holdouts. It's not just The Beatles, but AC/DC, Paul McCartney and, I've often noticed, Husker Du. Radiohead and others do not permit a la carte downloads, instead requiring purchase of entire albums. (Forbes.com)

• EMI woes seen unlikely to shift merger block. (Reuters)

• EMI in desperate need of venture capital rehab. "The difficulty for Eric Nicoli, who has been chairman or chief executive since 1999, is that he is not a Michael Grade who can provide creative leadership; nor is it clear that he will spend much time in the US. Instead, much responsibility is invested in Jason Flom’s running of the merged Capitol and Virgin labels." (Times Online)

• An article on Daytrotter.com, which records indie bands -- Cold War Kids, Bonnie Price Billy, Elf Power, for example -- in its studio and gives away the MP3s for free. Bands do not collect a fee, and the site sells advertising and a few T-shirts. (Chicago Reader)

Posted by Glenn at 2:42 PM | Link
|EMI||Online Stores/Services|

• Entertainment One Income Fund sold its investments -- which include Koch Entertainment Distribution -- to Marwyn Investment Management for approximately US $161 million. (Video Business)

• More Koch: The company announced the formation of Koch Records Jazz/Adult Division. Chuck Mitchell, former head of Verve Records, will head the new operation. (Jazz News)

• Warner Music Group announced a partnership with Norway-based mobile operator Telenor that originally covers nine of Telenor's mobile operators. (Press release)

• Nic Feldes has a good recap of EMI's current situation. (The Independent)

• Read the text of Edgar Bronfman's keynote at the 3GSM Conference in Barcelona. Here's a sample of the frank commentary: "Actually, it’s amazing that we’ve generated as much revenue as we have through mobile music, given how cumbersome the consumer experience can be." (Download PDF)

• Actor Heath Ledger has partnered with musician Ben Harper to start the new Masses Music Co record label. First singing: Australian Grace Woodruffe. (StarPulse)

Posted by Glenn at 7:10 AM | Link
|A&R||EMI||Indies||Mobile Music||Warner Music Group|

• EMI warns of lower profits for the fiscal year -- a whopping 15% decline year over year -- and points to weakening sales in North America. (Press release)

• David Goldberg, one of the leading critics of DRM, is one of two execs leaving Yahoo! Music for "personal reasons." He said he will return to his "entrepreneurial roots." (Billboard.biz, more at paidContent)

• At the 3GSM conference, music executives criticize mobile operators for poor user experiences. (New Media Age)

• Trans World announces Vcommerce Enterprise, consolidates the majority of its stores under the name f.y.e." (Press release)

• LiveNation has closed the Starwood Amphitheater in Nashville and canceled its 2007 season. (WKRN.com)

• Venture capital for musical acts. (Billboard.biz)

• Canada is making a second attempt to tax MP3 players. (VNUNet)

Posted by Glenn at 7:53 AM | Link
|Brick-And-Mortor Retail||EMI||Live Music||Mobile Music||Online Stores/Services|

Fox News' Roger Friedman reported today that Neil Aspinall, the head of Apple Corps Ltd, told him over the weekend that the Beatles' catalog will be available at online stores soon.

"'All 13 core albums, the ones originally released on CD in 1987, have been remastered,' Aspinall told me. "At some point they will all be released, probably at the same time.'

But the film “Let It Be” remains in DVD purgatory, Aspinall says. The reason? 'The film was so controversial when it first came out. When we got halfway through restoring it, we looked at the outtakes and realized: This stuff is still controversial. It raised a lot of old issues.

... And those 13 remastered albums? They will not include “Hey Jude,” a 1969 compilation album that Americans of a certain age fondly recall and keep in their collections on vinyl only.'"

Posted by Glenn at 8:36 AM | Link
|EMI|

• Capita>ol Music Group has started laying off workers says a Billboard report. I heard it had started last week, but no difference. Pink slips are pink slips. Seven promotions employees got the axe at Capita>ol. (Yes, I know I spell the label wrong on occasion. After writing about net working capital and capital structure all day, I guess it's a hard habit to break.) (Billboard.biz)

• Ticketmaster hooks up with iTunes to offer a free song with every ticket purchased at Ticketmaster.com. (Hollywood Reporter)

• Now this is PR: An entire article on EMI's scant MP3 experiments. Such experiments are unlikely to offer an indication of potential results on a broader scale, though EMI spokesperson Adam Grossberg called them "very positive" (without giving any numbers). (MarketWatch)

• Steve Machin has joined Ultrastar as Vice President of International Business Development. Machin was previously head of Ticketmaster's European strategy and business development. (Press release)

• A directory of RIAA lawsuits. (Recording Industry vs The People)

Posted by Glenn at 10:03 AM | Link
|EMI||RIAA||iTunes|

• As reported recently by the New York Post, Jermaine Dupri will be named president of Island Urban later today. (Billboard.biz)

• Even more changes at EMI. Chris Ancliff has been upped to General Counsel. He replaced Charles Ashcroft, who leaves for health reasons. (Variety)

• Helio announces a mobile download store, and all four majors are on board. Over-the-air downloads go for $1.99. Tracks downloaded to PC cost half that. (InformationWeek)

• Viacom is considering selling its music publishing division, Famous Music, the home of Eminem and Shakira. (Reuters)

• Warner Music Group and Last.fm, the music-centered social networking site, announced a partnership that will offer WMG's catalog over multiple services, one of which will be a premium, subscription-based interactive radio. Currently, Last.fm streams songs on a non-interactive basis. (Press release)

• Reggae label VP Records signed a digital and mobile distribution deal with Universal Music Group that excludes North America, Japan and the Caribbean. (Tropicalfete)

• British music retailer Music Zone has sold 67 of its 100 stores to competitor Fopp. (Scotsman)

Posted by Glenn at 7:12 AM | Link
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• EMI and AOL Europe will run an ad-supported music video streaming site. (NewMediaAge)

• Rumor: Microsoft is developing a Zune phone. (CrunchGear, via Billboard.biz)

• Just as Norah Jones hit the top of the charts, concerns about the company's debt burden caused Standard & Poor's to downgrade EM's long-term rating to BB- from BB. (Forbes.com)

• Expectations of a weak first quarter earnings -- which will be announced Thursday -- dropped Warner Music Group's stock 3.4% yesterday. (Reuters)

• Columbian music star Juanes, who already has a recording contract with Universal Music Group, has signed on with Universal Music Publishing. (Monsters & Critics)

• Sting on the digital revolution: "I genuinely do not believe that the digital download phenomenon is as big as the websites are suggesting, certainly not in the album market." (The Australian)

• Reminder: The 2007 Plug: Independent Music Awards, which celebrate independent artists, are this Saturday at New York City's Webster Hall. (PlugAwards.com)

Posted by Glenn at 8:20 AM | Link
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