Sony Corp announced today it has finalized the acquisition of BMG Music. The deal brings an end to the four-year Sony BMG joint venture. The new company will be called called Sony Music Entertainment Inc.

The $1.2 billion acquisition ($900 million net of cash received) was announced on August 5 and received approval from the European Union on September 15.

What impact will this have? The company should benefit from a single, more focused leadership. In the years after the two companies joined forces, cultural differences, constant reorganizations and power struggles hurt the company. Some believe Sony BMG has lagged behind some of its competitors in digital initiatives and progress. Less debatable is that a combination of factors has lead Sony BMG to loose recorded music market share in the last four years (from a 21.5% global share to 20.1% at the end of 2007). There is definitely room for improvement.

Posted by Glenn at 9:02 AM | Link
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Yesterday the European Union approved Sony Music's acquisition of Bertelsmann's half of its Sony BMG joint venture. (read the press release and Reuters article)

Last month Sony agreed to purchase BMG from Bertelsmann for around $900 million. The need for regulators' approval is a standard procedure and an especially potent topic in a recorded music market with such concentrated ownership. The EU approval effectively ends an appeal by indie trade group Impala that asked the EU to rescind its original approval of the merger. As I wrote last year, indie label sales in the US -- either because of or in spite of the merger -- fared well since the merger. From the time of the merger through October of 2007, a period of just over three years, Sony BMG's share of US album sales dropped to 21.76% from 29.78%. Indies rose to 20.55% from 17.58%.

Posted by Glenn at 1:25 AM | Link
|Sony BMG||Sony Music|

Over the last few days, much commentary has been offered on how Sony's acquisition of Bertelsmann's half of Sony BMG can be used as a measuring stick for other music companies. That's a low-tech way of saying people are comparing multiples and valuing companies.

From the Times Online:

The warring parties could not even agree on the valuation of Sony BMG, the world’s second-largest music company, with Sony indicating that the business was worth $1.8 billion (£920 million) and Bertelsmann preferring a figure of $2.4 billion.

The valuation implied in the deal is $1.8 billion, not $2.4 billion (which is twice the $1.2 billion paid by Sony), because Sony already had a right to half the joint venture's $600 million in cash.

Applying WMG's current price/sales ratio to Sony BMG, wrote Alley Insider's Peter Kafka, values Sony BMG at only $1.3 billion. That's a pessimistic, but not totally unreasonable, look at it. But since cash is king, let's look at earnings rather than sales. The Times Online's Dan Sabbagh wrote that Sony valued the company at 4.7 times underlying earnings. That doesn't look to be way off if you take WMG, with its music publishing, trades at 7 times EBITDA. The difference is that Sony BMG does not have music publishing, which commands a higher multiple that does recorded music. Both, by the way, are way, way lower than the 18.6 times earnings Terra Firma paid for EMI.

Sony's acquisition price "has negative implications for music industry valuations, specifically Warner Music," says Pali Research's Richard Greenfield (quoted in this Financial Times article).

This was even a conversation item during this mornings Warner Music Group conference call. WMG's Edgar Bronfman said that from WMG's knowledge of the transaction, the analysis done and the resulting multiples are "well below" the actual multiples paid and if they were correct they ague for an improved valuation of WMG. That's optimism for you.

A problem with all this is there was only one bidder for Bertelsmann's half of Sony BMG. That, and the lack of publishing, messes with any attempt to apply similar ratios to other music companies. What is clear is the market thinks far more of publishing than recorded music. Publishing has growth in it. Recorded music does not.

I'm sure Sony feels it can turn around its recorded music division and may have a better idea than the market as to how it is going to do that. Or it believes it can take better advantage of intra-company synergies...even though it had four years to capture synergies and watched its market share fall. Or, more likely, Sony has more patience than do investors. It's clear the market does not have a clear window into WMG's or Sony's vision for profit growth. There's just too little certainly if and when it will happen. Whatever is going to turn recorded music around -- if it happens -- is just barely on the horizon. But if there is growth ahead -- organization overhaul, revenue from performance royalties, successful new subscription models, the superior margins of digital, a combination of all of the above -- then maybe Sony got a good deal on Bertelsmann's half of Sony BMG. And there's nothing wrong with buying low.

Posted by Glenn at 2:28 PM | Link
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• S&P reaffirmed Warner Music Group's BB- debt rating and said it expects the company will be able to meet its financial covenants in the near term. There was actually a rare bit of optimism in the analysis. "Our continuing concerns about Warner Music's profitability as it transitions to a digital business model are somewhat tempered by the termination of its dividend and its focus on significantly reducing acquisitions," S&P said. (Thomson Financial)

• Universal Music Group will partner with Qualcomm to expand its direct-to-consumer mobile offerings. (Press release)

• Sony BMG's promotion department plays musical chairs and retains all staffers. (Music Row)

• An article on HMV's music strategy: fewer CDs, more vinyl and in-store downloads and the lure of free wifi. "Whether young people will choose to meet in an HMV store at the weekends has yet to be seen, but the retailer hopes it is a step in the right direction." (The Times)

• A profile on Sony's Iron Collectibles, a small company that was founded to sell art-quality reproductions of photos from Columbia Records' archives. “We’re looking to take advantage of all the assets of the company, not just the audio recordings,” said John Ingrassia, president of Sony BMG Music Entertainment’s commercial music group." An executive at Warner Music Group's Rhino Records said the label is looking at ways to turn Warner's archive into a business. Be sure to check out the article's slideshow. (New York Times)

• Music for airports: EMI has licensed its catalog for sale at MEDIAnywhere's download kiosks. (Music Week)

• Live Nation is (still) considering a Pittsburgh-area location for a 5,000-seat amphitheater. (Pittsburgh Tribune-Review)

• The IFPI's Recording Industry in Numbers 2008 is available for pre-order. (IFPI)

Posted by Glenn at 9:58 AM | Link
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Sony Corp released its earnings today. Sony BMG revenues dropped 4% while operating profit jumped 90%. (Info is on slide #4 and #18 of the earnings presentation .) No results with constant currency were given. The reason given for the drop in revenues was the standard one: declines in sales of physical products are not being offset by the growth in digital.

Music publishing is part of an "other" category that had a 7.6% increase in revenues. Sony/ATV's acquisition of Famous Music was a factor in that increase.

You can read a PDF of the consolidated financial results here.

Posted by Glenn at 4:42 PM | Link
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• Sony BMG has signed up for Nokia's Comes With Music service. (Reuters)

• Nokia was not specific, but it denied paying Universal Music Group $35 for every handset that is part of the Comes With Music service. "We are not paying that amount to any record label," said a spokesperson. (paidContent)

• The International Association of Jazz Education has canceled its 2009 conference and will file for bankruptcy. (All About Jazz)

• EMI's restructuring is reportedly facing contractual obstacles: "issues concerning 'key man' clauses in artists' contracts; clauses in executive contracts that allow top staffers to leave if their responsibilities change or the company comes under new ownership or management; and challenges meeting deadlines by certain sectors of the company." An EMI representative denied all three. (Billboard)

• Current American Idol contestant David Cook does not yet have a major label deal, yet his self-released 2006 album rose to the #1 spot on Amazon.com MP3 store's album chart. As of last night, 87 customers had reviewed the album and 82 had given it five stars. (USA Today)

• EMI Christian will release twenty titles that each contain two albums by the same artist. The CD packages will list for $13.99. (Press release)

• SpiralFrog appointed former Maverick Recordings exec Russ Reiger to the new position of VP of strategic initiatives. (Press release)

• Widget-based music service Sonific will close its doors on May 1. In a message on the company's site, co-founder Gerd Leonhard blamed an "unworkable music licensing situation and the resulting lack of solid revenue modeling" and called the music industry "certifiably dysfunctional." (Sonific, via Billboard.biz)

Posted by Glenn at 8:44 AM | Link
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Let's have some fun with Excel. Here are some bar graphs with data from Bertelsmann's 2007 Annual Report. Yesterday I listed this stuff in a post about BMG's 2007 earnings.

The bottom graph uses revenue and number of employees for the entire Sony BMG joint venture. The belt tightening had kept revenues-per-employee in check until the big dip last year. The future holds continued revenue problems and, thus, much more attrition.

Posted by Glenn at 4:02 AM | Link
|Sony BMG|

Bertelsmann reported its 2007 earnings yesterday. For the year, BMG revenues declined by 27.8% to €1.5 billion and operating EBITA (basically operating profit) dropped 46% to €93 million. Physical revenues dropped 17% while digital increased 40%. Digital accounted for 17% of BMG's revenue (up from 12% in 2006). BMG's revenue from Germany dropped 19.2% to €130 million.

The earnings release and annual report emphasize the emergence of 360 deals (called "partnerships" and "partnerships" in the annual report) BMG signed during the year, as well as the company's expansion into artist management, concert promotion and merchandising. Those new facets certainly added some revenues during the year. The company lost a good deal of revenue in 2007 when it sold its publishing division to Universal Music Group.

The annual report laid out BMG's revenue, operating EBIT and number of employees for the last five years. Revenues, from 2003 to 2007, were €2.712 billion, €2.547 billion, €2.128 billion, 2.017 billion and €1.456 billion. Operating EBIT for those years was €54 million, €162 million, €177 million, €173 million and €93 million. Number of Sony BMG employees (total for the joint venture) from 2003 through 2007 was 4880, 4259, 3597, 3009 and 2851.

Put another way, BMG's revenue has dropped 46.3% over the last five years and at a cumulative annual rate of 11.7%. The number of Sony BMG employees has dropped 41.6% over the last five years and at a cumulative annual rate of 10.2%.

And there is continued talk about Bertelsmann's possible sale of BMG. From the Times Online: "Thomas Rabe, chief financial officer, said: 'What we will do depends on price. Of course, the EMI price is a good price for a seller, but we would not be interested in selling if we were offered a figure based on the current valuation of Warner Music. The market is undervaluing music assets.'"

Since Bertelsmann has been looking for somebody to take its half of the joint venture, one would expect Rabe to insist the market has undervalued music assets.

Helpful links:

• 2007 Annual Report (8.1MB PDF)
• Investor Conference Call Presentation (PDF)

Posted by Glenn at 2:49 PM | Link
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• A few weeks ago news broke that Bertelsmann was looking into the sale of its stake in the Sony BMG joint venture. Today, as Bertelsmann reported its 2007 earnings, came news the company is considering the sale of its Direct Group book and record clubs. (AP)

• Vodafone will release seven songs from Madonna's upcoming album, each staggered by one day, to its UK customers. Her new album, Hard Candy, will be released in late April by Warner Music. (The Telegraph)

• P2P service Limewire has launched an eMusic-styled MP3 subscription service. (Listening Post)

• Carrie Underwood has been invited to join the Grand Ole Opry. (Music Row)

• Gorilla vs. Bear, one of the better and more popular music blogs out there, was asked by Sports Illustrated to be music curators for the site's 2008 NCAA basketball tournament blog. There's a free download every day. (The Tourney Blog)

Posted by Glenn at 8:32 AM | Link
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• A report says Bertelsmann AG's CFO met with two private equity firms and explored the possibility of selling some of its divisions, one being its 50% stake in Sony BMG. (Forbes.com)

• Warner Music International inked a licensing deal with MP3 download store 7digital for sale to customers in UK, Ireland, Spain, France and Germany. 7digital is the first European download store to offer Warner tracks in MP3 format. (Reuters)

• The Weinstein Co. has optioned rights to "No Woman No Cry: My Life With Bob Marley," written by Rita Marley, and plans to release a biopic on the reggae great. (Variety)

• Merge Records has launched a download stores that sells MP3s for individual tracks and complete albums and FLAC for complete albums only. I'll continue to get Merge music at eMusic, a much cheaper option. (Merge Records Store)

• "Guitar Hero" is available for AT&T mobile subscribers. (MocoNews)

• Qtrax's death watch status improves a few notches: EMI Music Publishing has renewed its deal with the ad-supported P2P service. I guess that clears the way for all those bluegrass and symphonic tributes to Ozzy Osbourne. In addition, Sony/ATV announced it has signed a licensing agreement with Qtrax. (EMI Press release, via Silicon Alley Insider and Sony/ATV Press release)

• A profile on Power Amp, a new investment fund that puts money into musicians. (BBC News)

• The William Morris Agency and AT&T are part of a venture capital fund with the goals of "discovering, funding and building small, high-impact companies focused on innovation in the consumer media technology arena." (Press release)

Posted by Glenn at 7:34 AM | Link
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The Guardian has a nice spotlight on Sony BMG UK chief Ged Doherty. The exec recounts the industry's mistakes, insists the power shift is good for majors (I agree...it'll spur innovation) and has a good deal of optimism. All in all, it's a realistic view of the next five or six years. Here's a sample:

"We're not an industry that has generally been run by forward-thinking people. The CD boom papered over lots of cracks. The current generation are paying the price for the mistakes of our forefathers," he argues. ...

But he is convinced that remodelled major labels, offering a balance of local expertise and global reach, have a future. He says relationships with artists in the digital age will rely on deals being "fair, open and transparent".

Fifty-five per cent of Sony's artists are now signed to "extended" deals that involve an element other than recorded music, he adds. "I've seen God knows how many mobile-phone companies, hamburger companies and drinks companies start labels. They've all folded because they don't know what they're doing."

Posted by Glenn at 1:09 PM | Link
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There aren't many details, but MusicRow.com tried out a few of Sony BMG's MusicPass MP3 cards and had this to say about the experience:

This writer tested several cards including Ultimate Santana, a collection of 18 tracks and three bonus music videos. MusicPass.com began to automatically download four songs at once, but due to the large number of tracks and high file size (the videos were around 80 megabytes each) I ran out of time before all the material had transferred. Upon logging in again later, the site remembered me (via the pin/serial numbers) and picked up where it had stopped. Before long I was sweating on a spin bike grooving to “Oye Como Va” on my iPhone iPod.

Other items of note (from the post and the MusicPass FAQ:

• Each card has a scratch-off PIN code and serial number combination that are entered at the MusicPass site.
• After the consumer has downloaded the album, there is an opportunity to purchase a complete catalog album from the same artist.
• Said Sony BMG Nashville's VP of Digital Business,"They have to be activated at the register just like any other gift card purchase."
• The cards have no expiration date.
• The files are watermarked with "a unique code indicating that they belong to Sony BMG" but no personal information.
• Users are not required to enter anything other than the PIN code and serial number. An email address is optional (to receive artist info).

To watch a video about the MusicPass cards, go to the website and click on the "What Is MusicPass?" link.

Posted by Glenn at 10:23 AM | Link
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Sony Corp released its Q3 earnings today (download PDF of full release here). Sony BMG's Q3 sales were flat at $1.47 billion and net income dropped 12% to $208 million from $236 million last year. That figure includes income from a legal settlement and $13 million of restructuring charges.

Posted by Glenn at 8:22 AM | Link
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For those of you wondering what will become of all-you-can-eat music services in the next few years, mosey on over to this post at paidContent that quotes Sony BMG's global digital music president Thomas Hesse.

This idea of bundling music or access ... enjoying music on a fairly large scale with either a device or with access, be it a cell phone contract or a cable contract ... to me, that’s the next frontier. We feel quite optimistic about it. ...

Access to music so that music becomes something you can access in a very free way with very little encumburences.

Last October, reports surfaced that Universal Music Group was working on an industry-owned music service called Total Music plan, an unlimited (but presumably tethered) music service whose fees would be embedded in the price of compatible hardware. In addition, UMG is working with Nokia on Comes With Music, a music service for Nokia handsets. The service's costs will be embedded in the device's price.

Coolfer is optimistic about this kind of embedded service. A great number of people don't put much value on digital music, and they care little about subscription services. The best way to frame the cost of such a service, in order to take it to the masses, is to render it as invisible as possible. Labels would receive income from the sale of every device, which is far better asking device purchasers to take a second step and opt in a music service. Maybe then would consumers embrace music services in light of their inability to work with Apple products, their DRM, their catalogs that don't dig as deep as the illegal options.

One thing is for sure: Either subscription services have done a horrible job marketing their products, or consumers just flat out don't want them.

Posted by Glenn at 11:49 PM | Link
|Comes With Music||Sony BMG||Total Music|

On the heels of news that it would drop DRM from its downloads, Sony BMG has announced it will sell artist-branded gift cards redeemable for MP3 files. Consumers will redeem cards an initial run of 37 different cards at Musicpass.com. Though its catalog will eventually be available at the proven digital retailers, Sony BMG's move shows a desire to develop its own solution. Not all of the money will not be kept in-house, though, as the cards will be available at 4,500 brick-and-mortar retailers (Best Buy, Target, Fred's, f.y.e., Winn-Dixie) buy the end of the month.

"We see MusicPass as a great way to bring digital music to the physical retail space," said Thomas Hesse, President, Global Digital Business & U.S. Sales.

The cards will cost $12.98 and will get the owner the album as well as bonus tracks and a digital booklet.

The $12.98 price tag leads me to believe a few things. First, Sony BMG is counting on cards being purchased as gifts for others; this is implied by the press release as well ("According to the 2007 American Express Gift Card Survey, Americans plan to spend 25% of their total gift spending on gift cards, up from 13% in 2005.") Two, Sony BMG must believe many people would spend more on a gift for others than they would on a purchase for themselves. At nearly $13, an album download with no resale value and no tangible nature doesn't compare well to the CD format. In addition, judging from a couple of the accounts (Fred's and Winn-Dixie) I would assume there is a hope that these cards will reach mainstream consumers who are not yet part of the digital crowd (what's another $13 on top of a huge grocery bill?).

This is a promising and positive development -- but just one of the many developments needed to breath life into music retail products. What should be remembered is this product was made available by the removal of DRM from Sony BMG's downloads. Not only do labels get to launch new products and services while circumventing iTunes, they get to develop many more sales channels than in the DRM days when Apple was the only viable option.

Posted by Glenn at 9:30 AM | Link
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• According to BusinessWeek, Sony BMG is "finalizing plans to sell songs without the copyright protection" and "will make at least part of its collection available without so-called digital rights management, or DRM, software some time in the first quarter." (BusinessWeek.com)

• U.S. and Canadian concert revenues rose 8% to $3.9 billion in 2007. That figure shows considerable growth in smaller scale concerts: revenue from the top 20 concerts dropped about 15%. (Forbes.com)

• Just as Napster quietly increased its monthly price to $12.95, Bear Stearns declared that "the pure-play music business faces significant challenges." (paidContent)

• Sirius Satellite Radio ended the year up 38% in subscribers, to 8.3 million. (Radio Ink)

Posted by Glenn at 10:06 AM | Link
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Silicon Alley Insider and Digital Music News have posted about rumored upcoming layoffs at Sony BMG and Island Def Jam. Sony BMG, according to Silicon Alley Insider, will shed "40 to 70 mid-level execs" before the end of the year. Digital Music News has picked up chatter that cuts are imminent at Columbia Music Group as well as Island Def Jam ("particularly within A&R").

Posted by Glenn at 12:21 PM | Link
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• Another entry into the alternative distribution model game: MySpace will allow users to download an upcoming album by punk group Pennywise by adding as a friend mobile music distributor Textango. Free music on the Internet...no, it's not that unique. What is unique about this is the level of the band involved, the involvement of MySpace and the fact that the album can be downloaded rather than streamed. The difference between streams, which MySpace has plenty of, and downloads is all the difference in the world. (AdWeek)

• Sony BMG finalized an on-demand video licensing deal with Yahoo. The deal includes the ability for users to put Sony BMG music in their user-generated audiovisual content. (Press release)

• Video game "Guitar Hero III," developed by MTV Networks-owned Harmonix Music Systems, had sales of 1.4 million in its first week of release. (Billboard.biz)

• Nokia has inked a deal with EMI U.K. to offer to its Nokia Music Store subscribers Kylie Minogue's new album five days before its general release. The album will cost £8 or 80 pence per track. (Mobile Today)

• Haier has launched the Ibiza Rhapsody, a Linux-based, WiFi-enabled portable music player that integrates the Rhapsody music service. The device costs $330 and has 30GB of storage space. (Engadget)

• JupiterResearch put the five-year outlook of the U.S. digital music market at $3.4 billion per year and says "on-demand subscription services will appeal primarily to niche audiences among music aficionados" for the foreseeable future. Not a big surprise there. The typical American just don't see much value in subscription services. (Digital Music News)

Posted by Glenn at 11:23 AM | Link
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Bertelsmann, the parent company of one half half of the Sony BMG joint venture, reported its financial results for the first nine months of its fiscal year. Both revenues and profits were down. Revenue dropped 2% to €13.27 billion while profits dropped 65% to €132 billion. Profits sank so sharply because fiscal 2007 includes a large special expense related to the company's Napster settlement. (The company settled with Warner Music Group and EMI this year, and with Universal Music Group last year). Operating EBIT was actually up almost 5% to €1.03 billion. Bertelsmann sold its BMG music publishing division to Universal last year.

From Bertelsmann's 2006 earnings report: BMG posted revenues of € 2.0 billion (down 5.2% from € 2.1 billion in 2005) and operating earnings (before interest and taxes) of € 173 million (down 2.3% from € 177 million in 2005). The company said the music division's lower 2006 performance "is attributed solely to the recorded music business." But there was (slight) good news as BMG "was able to raise the revenue contribution from digital formats from seven to twelve percent."

Posted by Glenn at 2:30 PM | Link
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• Album sales increased 5% last week but were 17% lower than the same week last year. Carrie Underwood's Carnival Ride debuted at #1 with sales of 527,000 units (9% digital). For the year, album sales are down 14%. Sales of digital tracks dropped 2% last week and were 38% higher than the same week last year. Chris Brown's "Kiss Kiss" was the top digital track again last week, with sales of 187,000 units. For the year, digital tracks are up 46%.

• Sony BMG UK is the last of the four majors to sign on with Cliq, a music purchase system that will allow -- on 85% of U.K. mobile phones -- users to buy music when they hear it streamed on their mobile phones. (Thomson Financial)

• Though the Sony BMG merger passed a second European Commission review, a member of the European Parliament has questioned the commission's reasoning. Said Guy Bono, member of the Committee on Culture and Education, "The European Parliament is exercising democratic control over European institutions by interrogating the Commission on the Sony BMG merge." He continued to say that "music suffers from chronic concentration" and that "cultural diversity" should be at the heart of EU policy. (Billboard.biz)

• The Forms gave away a copy of their new CD to each ticket buyer at last night's show at NYC's Cake Shop. And an open bar. Free music and free alcohol, a combination for an ailing industry. (The Forms, via Brooklyn Vegan)

• An interview with Trent Reznor, who is now free from his contract with Universal Music Group. "Radiohead is one of my favorite bands. When they announced they were releasing that album for free, I got dozens of text messages. It gave me goose bumps? It's such an exciting way to sell a record. ... I think there were some serious flaws with how they executed but it was a good idea." (News.com)

• A Maryland couple has ended its lawsuit against Wal-Mart stemming from obscene lyrics in an Evanescence purchased at a Wal-Mart store. The judge refused to classify the suit as class action. The couple settled with Sony BMG in 2005. A similar lawsuit is still alive in Illinois. (AP)

• It's hard to say much about a greater trend, so let's keep this as an isolated incident for now: a radio station in Hartford has gone back to alternative rock after switching to hip hop four years ago. Said the local operations manager for Clear Channel, "What we've been hearing since the [modern rock] format left the city, is ... that women and men between the ages of 25 and 34 in the Hartford area really don't have a radio station to listen to." (Hartford Courant)

Posted by Glenn at 8:32 AM | Link
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• Sony BMG, fresh from an E.U. approval, revealed it is looking for a partnership between its parent companies that would allow it to expand into music publishing. Bertelsmann, BMG's parent company, sold off its music publishing unit last year to reduce debt. Rolf Schmidt-Holtz, Sony BMG chief executive, said the proposed deal structure would allow Sony BMG to pursue publishing for its own artists without competing against Sony's Sony ATV publishing division. (Financial Times)

• Rumors are surfacing about the music store Facebook is thought to be working on. "The platform will allows bands and labels to create artists pages, and allow various widgets to be embedded for music promotion, organizing events, etc. Among those widgets would be iLike, the most popular app inside Facebook, but will also include iTunes widgets for sampling (to being with), and eventually buying music through Apple." (paidContent)

• The New York Times profiles classical label Naxos. "Bucking conventional wisdom has made Naxos not only a successful classical record label, but also, within the last few years, a profitable one. This year, having become a force in the digital market as well, Naxos is celebrating its 20th anniversary." (New York Times)

• A profile of Scotti's Record Shops, the country's oldest independent record store chain. "Scotti grudgingly accepts that the public's music consumption habits aren't what they used to be. He's more furious with the big record companies. As far as Scotti is concerned, the major labels never bothered to package CDs in a way that would make them attractive to customers." (Fortune)

• Sony BMG artists will be used in online Honda ads. "The campaign marks the first time that Sony BMG has sold an ad package encompassing all of its new music video releases to a single sponsor via its year-old Web site, Sony BMG Music Box. Neither the client nor Sony would discuss pricing, but sources said Honda is paying between $500,000 and $1 million for the new-release sponsorship." (Ad Week)

• An article on independent retailer Looney Tunes, which was recently damaged by a fire (to the tune of $300,000). The store isn't just fixing up damages, it's setting its target high. The store's owner has taken out a $1 million loan to build "the biggest and best independent record store in the entire country." (Newsday)

• Interesting story on branding in the music world: Brian Leighton, leader of the Minneapolis band GB Leighton, has licensed his name for a new nightclub, GB Leighton’s Pickle Park. Leighton has set up two corporations: one for touring (he pays salaries for up to five musicians) and the other for albums and merchandise. Great entrepreneurship, especially since it's on a regional level. (Star Tribune)

Posted by Glenn at 1:03 AM | Link
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• Labels trotted out a lot of big names last week but sales were still down 9% versus last year -- though up 9% over the previous week. Rascal Flatts' Still Feels Good lead a large slate of debuts. The country stars' album sold an impressive 546,000 units (8% digital). (Their 78-week-old album Me and My Gang rose ten spots to #46 and has sold 4.6 million.) Sales of digital tracks were up 1% over the previous week and 49% over the same week last year. For the year, digital tracks are up 46%.

• Confirming a September 10 report, The European Union cleared the Sony BMG merger. Said the antitrust commissioner, "It clearly shows that the merger would not raise competition concerns in any of the affected markets." Imagine what that statement would have been if Radiohead had been signed to RCA rather than EMI. (AP)

• The National Association of Broadcasters has filed comments in the FCC's ownership review. The NAB expressed its general support for "market-based stimulants" that increase women and minority ownership and participation but emphasized its broadcasters need the freedom to stay competitive. "Initiatives to promote diversity in broadcasting would be moot in an environment where radio and television stations are held back from effectively competing in an ever-expanding digital media marketplace." (Radio Ink)

• Warner Music Group head honcho Edgar Bronfman, Jr. has agreed to settle a suit with Vivendi, at which he was executive vice chairman after it acquired Seagram, over pension payments. (Reuters)

• Billboard.biz compiles some of the blog buzz on Radiohead's pay-what-you-like digital album sales. (Billboard.biz)

• How about an economist's take on Radiohead's album sale? Harvard's Greg Mankiw explains that like most economists he doesn't understand tipping. "Normally, we assume that consumers pay as little as they have to when buying the products they want," he wrote. "Yet, when buying meals, haircuts, and taxi services, most consumers voluntarily pay more than they are legally required. Why does this happen? Why is it more true for some services than for others? Why do tipping customs vary from country to country? I have no idea." If the strategy works, Mankiw jokes, he'll "put a hat next to the lectern." Be sure to read the comments. Good stuff. (Greg Mankiw's Blog)

• Viacom CEO Philippe Dauman told the U.S. Chamber of Commerce companies should use more DRM, not less, and predicted that anti-piracy measures such as DRM and watermarking "will usher in an unprecedented period of creative output across the globe." (The Inquirer)

• Browsing around Amazon MP3, I see all sorts of bargains. Steve Earle's new album is $6.99. Ben Lee's new album is also $6.99. Josh Rouse's is $6.99. M.I.A.'s is $6.97.

Posted by Glenn at 11:21 AM | Link
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• The New York Post has reported that Steve Bartels, an operations executive at Island Def Jam Music Group and president of Island Records, will also be the president of the label group. (New York Post)

• Prince, just weeks ago a leading light for the future of the music industry, has entered the muddy, new media-vs-old media fight. The artist is threatening to sue YouTube, eBay and The Pirate bay for failing to filter pirated versions of his content. (Epicenter)

• Ad-supported music download site SpiralFrog has finally launched. I recently reviewed the beta version of the site. Read that post here. Even though my post came before deals to include the catalogs of IODA and INgroove, the site still looks like a Universal Music Group exposition. (UMG is the only major to have signed on.)

• UMG's Fontana Distribution will distribute Amoeba Records, the label founded by legendary retailer Amoeba Music. (Press release)

• CrunchGear has a positive yet thin review of new music service Grooveshark. I have registered witht the P2P service but have not yet given it a whirl. Expect some comments within a week or so. (CrunchGear)

• Sony BMG has joined with Starwood Hotels & Resorts Worldwide to offer customized programming for Starwood hotels. Starwood believes it will offer exposure to Sony BMG artists. Sony BMG is excited to give each different hotel brand a different sound and feel. Of course, other than promotion a goal is the upsell (always an iffy proposition if you ask me). Starwood will sell $20 CDs with Sony BMG artists. (Reuters)

• 20 great music applications for Facebook. (Mashable)

Posted by Glenn at 9:45 AM | Link
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The Financial Times reported tonight that Sony BMG is set to win "unconditional backing" from the European Union for its merger three years ago.

"The ruling, which could come as early as this month, would end more than a year of legal uncertainty following a controversial court ruling that annulled the European Commission's original 2004 decision to clear the deal. ... That outcome – if confirmed – would be a blow to the independent record labels, whose legal challenge against the original 2004 merger clearance triggered last year's court reversal. It could boost hopes of another merger in the sector, between Warner Music and EMI Music."

To recap, indie trade group Impala launched a legal challenge to the merger, and the E.U. ended up taking another look at the matter after a court threw out the original merger. In December 2003, Impala called the merger "a bold move to make it even more easy to control the marketplace by reducing competition, consumer value and choice."

Posted by Glenn at 12:03 AM | Link
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• Due in part to amounts paid related to Napster lawsuits, Bertelsmann reported a net loss of €50.9 million ($69 million) for the first half of 2007. Sales were 2% lower after the company sold its BMG Music Publishing division to rival Universal Music Group last year. Sony BMG, Bertlelsmann's music joint venture with Sony, posted an operating loss of €2 million ($2.7 million) compared to an operating gain of €3 million ($4.07 million) last year. (Bloomberg)

• BMI posted record revenue and royalty distributions for its 2006-2007 fiscal year. The performing rights society recorded revenues of over $839 million and will distribute over $732 million to its artists. (Press release)

• LiveNation has release Stuart Galbraith, its U.K. managing director, due to a "breach of contract." (Billboard.biz)

• Warner Music Group announces a quarterly cash dividend of $19.4 million, or $0.13 per share of common stock. (Press release)

• A good article on how Saddle Creek Records has helped transform downtown Omaha. The label owns an entire city block and recently opened a 470-capacity venue called Slowdown. A coffee shop and Urban Outfitters rent space on the block. (Beatrice Daily Sun)

Posted by Glenn at 8:40 AM | Link
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• Sony ATV Music Publishing has signed Jonathan Rotem, producer and co-writer of the Sean Kingston hit "Beautiful Girls" and Rihanna's "SOS." (Billboard.biz)

• Redeye Distribution inked deals with Daptone Records and the band Cake and its Upbeat Records imprint. (Billboard.biz)

• An interview with Rep. Howard Berman, chairman of the House Judiciary Subcommittee on Courts, the Internet and Intellectual Property. He said there will soon be legislation regarding terrestrial radio's exemption from paying sound recording royalties. "Anybody who is transmitting radio digitally has to pay but over-the-air terrestrial is the one platform that is exempt. They have what I think of as an unfair competitive advantage. ... It is going to cost them a few cents on the dollar. There will be some rate determination. They are selling commercial advertising and are drawing customers and are economically exploiting for their programming the work of someone else. That is what compensation is for." (San Fernando Valley Business Journal)

• The race for convergence has companies fighting for each other's market share. Consumers are left scratching their heads. Said one analyst, "I pity the poor consumer. From a consumer perspective, it's very confusing to figure out where to go." (Herald Tribune)

• Pictures (legit?) of the next generations of the Microsoft Zune, one being a flash drive version with 4 GB and 8 GB of memory, the other a standard-sized Zune with 80 GB of memory. The design has been updated a bit but looks roughly the same as the first generation. (Gizmodo)

• It's the end of the line for Sony Atrac format. Connect download store on its way out and the new video Walkmans that will not support the format. Atrac is a good case study on a proprietary format that started with good intentions -- it was developed for Sony's Minidisc -- but ultimately helped slow Sony's growth in digital music. (Digital Noise)

Posted by Glenn at 10:48 AM | Link
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The New York Times' Sunday Magazine has an article by Lynn Hirschberg about Rick Rubin, the new co-head of Columbia Records, and the forces and events that lead to his hiring. There's a lot of, "Can Rubin save the music industry?" stuff in the article, which overestimates the influence one person can have. His hiring is, however, symbolic of the recent open-mindedness of major labels. (OK, so they've been forced to become more open-minded out of sheer desperation, but there have been all sorts of leaps forward this year.) It's a long read but worth your time.

Among the interesting tidbits in the article: Rubin convinced Sony BMG to do away with plastic jewel cases for more eco-friendly packaging; Rubin thinks subscription models are the future of the music industry (Columbia co-head Steve Barnett is skeptical); Rubin won't say if he will push artists to sign 360-degree deals; he has never watched "American Idol;" and one of his first projects will be Paul Potts, an opera-singing participant on "Britain's Got Talent" (view a YouTube clip here).

A quote from David Geffen:

"The music business, as a whole, has lost its faith in content. Only 10 years ago, companies wanted to make records, presumably good records, and see if they sold. But panic has set in, and now it's no longer about making music, it's all about how to sell music. And there's no clear answer about how to fix that problem. But I still believe that the top priority at any record company has to be coming up with great music. And for that reason, Sony was very smart to hire Rick."

A football metaphor from Barnett:

"My sons would go to training camp, and when Marshall Faulk started playing for the team, they called me and said, 'Not only is this guy a great player, he makes everyone around him better.' Of course, the Rams went on to win the Super Bowl. I think Rick Rubin is our Marshall Faulk. I knew he would change the culture here.'

Posted by Glenn at 9:32 PM | Link
|Sony BMG|

By acquiring majority stakes in MTS, a management firm, and Bucardo, a booking agency, Sony BMG Germany has positioned itself for 360-degree contracts, broad artist deals that cover recorded music and services such as management and booking. The majors have traditionally been involved in recorded music and publishing. Broader contracts require additional services. Acquisitions are the best and fastest way for the majors to attain those services.

Universal Music Group has acquired Sanctuary Group, which has recorded music in addition to management, merchandise and publishing. Warner Music Group has a joint venture with artist management firm Violator. EMI has not moved toward similar 360 deals, though the company has does have a variation of a 360 deal. Its revenue sharing deals, with Korn and Robbie Williams, gives EMI a portion of revenues in exchange for an initial lump sum investment. The Korn deal gave the band $15 million up front in return for 25% of the band's publishing, merchandise and touring revenues, plus profits from the band's albums. EMI's model works better for superstar deals (due to lower risk) but Sony BMG, WMG and Universal are better positioned to offer broader deals to developing and middle-tier artists.

Additional reading:

• The Economist's July 2007 article on 360 deals. "Instead of settling for a cut of CD sales, they increasingly offer artists broader contracts that encompass live music, merchandise and endorsement deals. Such deals, also known as multiple-rights or all-rights contracts, are particularly important in regions with rampant CD piracy, such as Africa, Asia and Latin America."
• Billboard's article that broke down the economics of Korn's revenue sharing deal with EMI. "If its next album repeats the sales of the last (2 million units worldwide), and the band posts numbers on the road similar to 2006 (50 dates grossing around $11 million), it should come close to break-even by the end of this new album cycle. That's before any additional nontouring/non-CD revenue is factored in."

Posted by Glenn at 2:36 PM | Link
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• The Rick Rubin era at Columbia Records is upon us. Kyambo Joshua, formerly the SVP of A&R at Warner Music Group, has been named president of the urban department. Joshua recruited Chicago producer Dion Wilson to head urban's A&R department. (Billboard.biz)

• "So far, the RIAA is batting 1.000 when it comes to the 'making available' argument." (Ars Technica)

• CD Baby is now selling MP3 album downloads at its website. Each album download is priced the same as the CD and comes in a zip file with album art and liner notes. (Digital Audio Insider, via Listening Post)

• Verizon Wireless customers will get the chance to buy exclusive Bob Marley ringtones. Twenty-eight ringtones, all from songs from the greatest hits album Legend, are available for on Get It Now-capable phones. (Press release)

• How good is Starbucks at selling music? Almost half of the 511,000 units sold of Paul McCartney's Memory Almost Full has come from Starbucks stores. The chain can also help develop new artists. The article offers Ceu as an example, and it's a good example. The Brazilian singer's Six Degrees album has scanned 77,000 units. Just over 64,000 of those are CDs (83%) and about 56,000 of those come from non-traditional retailers (which covers Startbucks as well as online retailers like Amazon.com). (Financial Times)

• The always interviewable David Pakman of eMusic talks with the Hollywood Reporter. "The number of people in our focus and demographic is at least 5-10 million right now. ... (But a current study of baby boomers who retailers don’t really cater to) shows that 33% of boomers spend $50 on music a year. That’s 25 million people, and they are becoming increasingly tech savvy. If you are focused on selling music to a teen audience, that market is shrinking. For 2007 so far, people 25 and younger represents only 27% of music sales. We’re focused on the other 73%." (Hollywood Reporter)

• Ecast has signed an agreement with The Orchard to offer the latter's catalog to Ecast's multitude of broadband-connected, touchscreen jukeboxes. (Press release)

• Groan. MTV will produce a series of hourlong shows called "Celebrity Rap Superstars" in which B-list celebrities will receive mentoring and tutoring in an eight-week series of rap showdowns. Isn't it enough seeing them play during the NBA All-Star weekend? (Variety)

Posted by Glenn at 8:47 AM | Link
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