Threats and opportunities in the music business.

1. Music Industry
Threats & Opportunities
Chris Baker
www.musicstudentinfo.com

2. “The record industry as we know it is
dying, but the music business is
exploding”

3. Opportunity Summary
• The traditional major label value proposition is outdated and
on the verge of collapse.
• The global decline in recorded music revenue is in excess of
23% (IFPI)
• Despite exponential growth, 100% in 2006, the digital
business has not offset the physical sales decline,
representing only 0.06% of the global business (IFPI)
• Internet file-sharing involves 800 million unauthorized music
files at any one time (CRIA)

4. Opportunity Summary
“Major labels have been late in exploiting emerging technologies
and new business models. Their obsolete strategies have not
allowed them to monetize the opportunities and have turned away
artists and consumers”
The Chicago Tribune

5. Opportunity Summary
• The major labels have been so focused on recovery that
the creative process, nurturing of talent and artist
development has been largely ignored.
• The major label/artist relationship is not perceived as a
partnership but rather as an ‘Us vs. Them’ proposition.
• Artists are looking for an alternative to the standard
label/artist relationship which is based on a contractual
model that dates back to the early 1970’s

6. Opportunity Summary
• Despite the fall of the major label model, the music business
is thriving
• Live touring in 2006 broke records for gross revenues:
1. Attendance was up 5.6% in 2006 (billboard.com)
2. Revenues were up 13.3% (billboard.com)
3. Ticket prices increased for Top 100 tours to a record $57
last year (pollstar.com)
• Global revenues from music publishing in 2005 were up 8%
from the year before to $4.25 billion
• The $10billion video game industry recently surpassed
Hollywood in revenues (The San Francisco Chronicle)

7. Opportunity Summary
Artists with strong representation and strong brands also
derive significant income from:
Record Sales
Touring
Legal Downloads
Sponsorship
Ringtones
Endorsements
Publishing
(Synch, Mechanicals, Performance)
Appearances
Merchandising
(Tour, Retail)
Video Games
TV and Film

8. Opportunity Summary Touring & Sponsorship
Touring
This income is based on a fee for each show/concert. It allows an artist to
exploit their albums and brand outside of an album cycle. The fee is largely a
direct correlation of the value of the brand to the consumer.
Sponsorship /
Endorsement
Sponsorships involve a commitment by an artist to use a company’s product.
The fee is typically based on a term in which they must use that product. An
Endorsement requires the artist to champion or support a product. This is
typically with little time commitment or risk to the artist. The fee is commonly
based on a term in which the artist must contribute to the branding of that
product.

9. Opportunity Summary Record Sales
Record Sales
Direct Label
With direct signings to a label the artist stands to make an average of $1.50/unit.
This is based on a advance recoupable from this royalty (100% recording, 50%
video).
License Deal
The artist covers the costs of recording the album, videos and artwork. They then
license the product to a record company and use their established marketing,
promo, sales, etc. departments at a cost to the record company.
Enhanced Distribution
The artist engages a label for manufacturing and distribution, and other minimal
services (i.e. publicity / marketing). The artist maintains a higher profit margin.
Distribution
The artist engages the label to distribute their product. Although the highest profit
margin, the artist is responsible for marketing, promotion, publicity, etc

10. Opportunity Summary Downloads & Ringtones
Legal Downloads
With more than 500 legal on-line services worldwide the global digital-download market
tripled between 2004 and 2005. Access to music is increased and consumers are able to
select only the songs they want. Master owners, artists and songwriters profit from these
purchases.
Ringtones
In 2005 the US ringtone market reached $600million. The purchase of these ‘tones’ from
both sites owned by the communication companies, and private entrepreneurial sites,
earn money for master owners, artists and songwriters. The Caribbean now has a chance
to win in this area of business because of the high penetration rate of mobile phones in
the region, and profitable telecom companies.

11. Opportunity Summary Merchandising
Appearances
An artist is often paid to simply attend an event, appear on TV, or host an award
ceremony.
Merchandising
Tour
Souvenir items at live shows can include t-shirts to ‘tour books’. An artist can sell
a value of merchandise equal to that of 10% of the ticket sales for the show.
Retail
An artist will often do a deal with a retailer or manufacturer to carry their souvenir
items. In most cases the artist will see 15% of the retail value of the product.

12. Opportunity Summary Publishing
Publishing
Mechanicals
For each album (or song) sold the songwriter/publisher will see approximately
8cents per song, per album sold. With no conditions on which song the consumer
actually purchased the album for, the songwriter/publisher’s income can very
quickly add up.
Performance
With songwriters/publishers earning royalties for radio, TV play and live
performance this is often the most common ‘high-earner’ for copyright owners.
Synch
The use of music in formats like films, advertisements and other public applications
earns money for the artist and songwriter. Worldwide campaigns can earn 6-digit
figures for non-exclusive and temporary uses.

13. Opportunity Summary TV, Film, Video & Games
TV and FILM
Placement of music in television shows and movies generates an upfront licensing fee (as
well as back-end performance fees). These fees can be income for both songwriters and
artists as ownership of master rights also generate income. Often very minimal portions of
songs, i.e. 10 seconds, are licensed for 5-digit figures.
Video Games
Artists or songwriter’s music in a video game must be licensed by the producer. This fee is
paid upfront and has been proven to also affect album sales, artist brand, etc. in a positive
way. This fee is split between songwriter/publisher and artist/master owner.

14. Opportunity Summary
• While the record business is under siege, the overall music
business is thriving.
• The music business will benefit from a new model that: is an
entertainment company focused on artist brands and
branding core business is brand marketing and exploitation,
focusing on management and content signs recording artists
as well as songwriters and producers, and offers an array of
support including management, business management,
publishing administration, contractual negotiation and record
label services launches with a strong, established artist base
of internationally renowned artists already generating
significant income.

15. Opportunity Summary
• The music business will benefit from a new model that
understands the opportunities within the global digital music
market and is proactive in tracking emerging business models,
for example: there are 498 online music services available in
over 40 countries.
• Social networking sites have exploded in popularity.
• Advertising supported models such as video licensing are
future revenue models.
• Portable music players totaled 120 million in 2006, an
increase of 40%
• Third generation mobile technology has reached over 50%
penetration in Japan, and is rising in the rest of the World.

16. Opportunity Summary China & India
• The music business will also benefit from a focus on
underdeveloped markets that have major growth
opportunities (specifically China and India) despite a lack of
infrastructure and intellectual property law:
• China has a small digital music business, but with 430
million mobile subscribers, fast growing broadband and
high consumer demand, China is potentially the fastest
growing market for music consumption.

17. Opportunity Summary
With a population of 1.1 billion, and an entertainment industry
that is expected to grow by 200% in the next 5 years, India’s
film and music industries have begun to work together aided
by digital infrastructure, affective distribution formats and a
more conducive and effective regulatory regime, to combat
piracy and get the listener back into the buying model.

18. Opportunity Summary
The music business will also benefit from a new model that:
• Creates trust with artists through transparent business
management, streamlined, simplified agreements and a
overall career focus
• Aligns artists financial goals with company goals
• Derives revenue from all creative activities with less emphasis
on record sales

19. Opportunity Summary
Future growth in the music industry will come from:
1. REVENUE DIVERSIFICATION
2. FOCUS ON FULL BRAND MANAGEMENT AND
EXPLOITATION
3. IMPROVED COOPERATION BY ALIGNING STAKEHOLDERS
INTERESTS

20. Organizational Structure
Based on the income streams of an All Rights Management
Company, the following specific duties should be looked at
carefully and be applied with true diligence.
Label Relations
1. Spearhead label strategies for artists
2. Liaise with the record labels
3. Solicit labels for unsigned artists internationally
4. Provide label services for distribution deals
Digital Media
1. Spearhead global digital strategy
2. Liaise with global partners in major markets
3. Establish strategic alliances in other territories with global digital partners
4. Research new digital innovations and developments

21. Organizational Structure
Touring
1. Develop touring strategies for artists
2. Seek out large scale tour opportunities
3. Work with promoters to advance shows
4. Manage tours of artists
Merchandise, Endorsements and Synchronization
1. Build strategies for brand exploitation
2. Pitch for endorsements and sponsorships
3. Exploit and coordinate merchandising/sponsorship opportunities
4. Solicit music library for synchronization opportunities
Publishing
1. Oversee potential catalogue acquisitions and publishing deals
2. Liaise with co-publishers, sub-publishers and administrators
3. Handle song registrations, licenses and royalties