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Berklee College of Music
Music Business Journal
www.thembj.org
Volume 7, Issue 4
Mission Statement
Music’s Fizzy Logic
The Music Business Journal, published
at Berklee College of Music, is a student
publication that serves as a forum for intellectual discussion and research into the various aspects of the music business. The goal
is to inform and educate aspiring music professionals, connect them with the industry,
and raise the academic level and interest inside and outside the Berklee Community.
By Aaron Gottlieb and Zosia Boczanowski
In July of last year, the Coca-Cola
Company formalized a partnership with full
service licensing company Music Dealers. The
deal narrows the gap between artists and brands.
It also opens up a new avenue for unsigned and
emerging talent to break onto the global music
stage.
Music Dealers
Music Dealers was founded in 2008
to help new talented artists worldwide gain
equal access to professional opportunities in
film, brands, TV, video games, and other media outlets that require a license for the use of
music. Music Dealers now controls one of the
largest pre-cleared catalogs of emerging artists
from around the world. In the first half of 2011,
for instance, it completed over 600 licensing
agreements in 24 countries and placed 1,500
songs from its catalogue in every major market.
Music Dealers has made licensing
quick and convenient by going directly to artists who own their music—as well as engaging
talent as work-for-hire. Eric Sheinkop, its CEO
and Co-Founder, has nevertheless long wished
to do more than trade in syncs and simplify the
business. He is known for connecting artists and
clients through brand partnerships, event promotions, and for creating a special proprietary
platform subscribed by hundreds of bands and
producers from around the world that wish to
engage brands. In fact, Music Dealers appears
to have streamlined both the back-end placement of music in brands and the front-end: its
songs are also delivered ready for web, mobile,
or other media applications.
A brand, of course, may not be looking for the next superstar or care much about
building a valuable music catalog—these are
concerns for record labels and publishers. Instead, Music Dealers becomes the go-between
that spots up-and-coming talent to serve the
specific needs and modus operandi of consumer
brands. However, Music Dealers is not replacing the traditional music business; its practice,
rather, is based on an inherent market advantage. Newer and unsigned artists want exposure
and seem to welcome any means to achieve that
end, so a licensing or work-for-hire agreement
with Music Dealers is, from their perspective,
entirely justified.
March 2012
Inside This Issue
Business of Podcasts
Page 4
The Global Repertoire Database
Page 5
Coca-Cola
At first sight, it may seem odd that
Coca-Cola would consider an equity stake
in a music licensing start-up. The beverage
company, however, is hardly a novice when
it comes to using music. In fact, it has a long
history of leveraging the power of popular
tunes as a way to engage its consumers. Back
in the 1960’s Coca-Cola commissioned Ray
Charles to write and perform all of its radio
spots. The company’s best-known contribution to pop music may be the 1971 song “I’d
Like To Teach The World To Sing (In Perfect
Harmony)”. The song was originally used
as a jingle first, before it was reworded and
became a pop hit. Coca-Cola used the Elvis
Presley song “A Little Less Conversation” in
one of its Japanese commercials. Other artists
such as The Beatles, David Bowie, George
Michael, Elton John, and Whitney Houston,
who appeared in a Diet Coca-Cola commercial, have promoted the company throughout
the years. More recently, Coca-Cola’s involvement in music has included sponsorship
of the talent show “American Idol”.
(Continued on Page 3)
Facebook’s Stock & Music
Page 6
Kim Dotcom
Page 10
Researching the Grammys
Page 13
Volume 7, Issue 4
Music Business Journal
Editor’s Note
Content owners today depend less on recorded music sales than ever. For them, licensing music
for outside use, whether to traditional or emerging outlets, is becoming the lifeline of choice. In this
edition of the MBJ we cover the topic in many contexts. We lead with a story that has flown under
the radar. Coca-Cola, a top consumer brand, recently purchased an equity stake in the music licensing
company Music Dealers, an independent music provider. The size of the investment and the strategic
decision that Coca-Cola made to control its music in-house both suggest that the commoditization of
music for branding is becoming urgent and that it needs to be simplified.
Other articles offer advice for content owners exploring new markets. William Minion’s discusses the untapped potential of podcasts. According to Luiz Augusto Buff, Facebook’s gaming platforms
will lead to growth in the licensing of music and more exposure for artists, especially after the company becomes cash rich with its upcoming IPO. Peter Alhadeff writes about the Global Repertoire
Database, a European initiative to create an international registry of musical works that could in time
make licensing much more efficient (this is our second piece in our series Toward Global Rights).
Lastly, I had the pleasure of interviewing the co-founder of TuneSat, Chris Woods. Tune Sat tracks the
usage of licensed works globally in both TV and Internet, and ensures that rights’ holders are properly
compensated.
The legal hurdle remains high for new music businesses because the intellectual property rights
for music are fractured and often unattainable. Ben Scudder reflects on the recent backlash by tech
companies over PIPA and SOPA. Melanie Stevenson provides an update on the case against Grooveshark, and helps clarify its legal status. Emilie Bogrand discusses the shutdown of Mega Upload and
the arrest of its colorful founder, Kim Dotcom. Finally, Mariana Migliore sheds light on the looming
conflict between the majors and the online “used record” store ReDigi.
We thought we would end with two pieces that focus just on the music. The first takes a retrospective look at 2011, and its author is Haven Belke. The second, a research paper written by Babson College professors Erick Noyes, Elaine Allen, and Salvatore Parise, studies the role of artistic mentorship
in generating Grammy winners.
From all of us at the MBJ, we hope you enjoy this issue.
Table of Contents
Business Articles
Coca-Cola Backs Music Startup.............1
Music Podcasts.......................................4
Data Reduction.......................................5
Money in Friendships.............................6
2011: A Brief.........................................12
The Academy Awards...........................13
Law Section
Sound and Fury Online..........................7
A Rogue Business Model.....................10
Grooveshark..........................................11
ReDigi...................................................11
Interview
Chris Woods, TuneSat.............................8
MBJ Editorial
Mission Statement...................................1
Editor’s Note...........................................2
Upcoming Topics...................................16
Sponsorship
Berklee Media....................................... 15
Aaron Gottlieb, Editor-in-Chief
Management
Editor-in-Chief................................................................................................................................................................Aaron Gottlieb
Content Editor.........................................................................................................................................................Zosia Boczanowski
Webmaster...........................................................................................................Itay Shahar Rahat, Ed Da Hyun Jeong, Haven Belke
Faculty Advisor and Finance.....................................................................................................................................Dr. Peter Alhadeff
Layout Editor..................................................................................................................................................................Lau Meng Wai
Contributors
Editor’s Note.................................................................................................................................................................. Aaron Gottlieb
Business Articles................................................................................Peter Alhadeff, Elaine Allen, Haven Belke, Zosia Boczanowski
Business Articles................................................Luiz Augusto Buff, Aaron Gottlieb, William Minion, Erick Noyes, Salvatore Parise
Law Section............................................................................. Emilie Bogrand, Mariana Migliore, Ben Scudder, Melanie Stevenson
Interview......................................................................................................................................................................... Aaron Gottlieb
Staff............................................................................Aaron Bolli-Thompson, Megan Dervin-Ackerman, Megan Graney, Mical Klip
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www.thembj.org
March 2012
Volume 7, Issue 4
Music Business Journal
Business Articles
Music’s Fizzy Logic (cont.)
(From Page 1)
In 2010, the beverage giant announced its “2020 Vision” aiming to target
more than 3 billion servings per day and
double revenue to $200 billion. For this, the
company has to attract the teenage demographic concentrated, for the most part, in the
emerging markets. “Every six years there
is a new population of teens in the world,”
says Coca-Cola’s SVP, Shay Drohan, and the
company is moving forward with its largest
teen-targeted campaign ever.
China, India, Indonesia, Nigeria,
Pakistan, and the U.S. will contain half of the
teen population by 2020, and that is where
Coca-Cola wants to be (as well as ninety
other growing markets). Emmanuel Seuge,
number 16 on Billboard’s “Power 100” list
and head of Global Sports and Entertainment
Marketing for Coca-Cola, says that music is a
part of everyday life and acts as an amazing
vehicle for the brand to connect emotionally.
“As the world of communication becomes
so cluttered,” he adds, “relevancy is key: it’s
about the right message at the right time and
music allows us to do that.”
Leveraging and using music to amplify Coca-Cola’s biggest sale platforms, i.e
the FIFA World Cup and the Olympics, allows the beverage company to connect well
with younger consumers. Most recently, and
in the same vein, Maroon 5 did a 24-hour studio session for Coca-Cola in which the band
worked on a song from scratch on the theme
of ‘happiness’.
Clearly, today music can be patronized in many ways. Coca-Cola invested
about $200 million in Music Dealers, likely
the largest ever example of a consumer brand
buying into a music service company. If Music Dealers had been a new startup, it would
have raised twenty times less with venture
financing than it got from Coca-Cola. Music
Dealers did very well. But to keep its campaign moving, Coca Cola needed to acquire
music legally, more efficiently, and internationally. Partnering exclusively with Music
Dealers gave them that ability.
Case Study
Eric Sheinkop, Emmanuel Seuge,
and Peter Wesslander, the latter the drummer
for the Swedish band ‘You Say France and I
Whistle’, recently sat down at MIDEM 2012
to discuss their experience working together.
A year earlier, Coca-Cola was looking for a
song with strong teen appeal for its global
March 2012
Coca-Cola Music program. Music Dealers
prepared a brief for Coca-Cola at short notice
and immediately proceeded to crowd-source,
from all over the world, twenty-two demos. It
delivered them within a couple of days. Then,
working together, Coke and Music Dealers selected and perfected “Can You Feel It” as the
song that would be performed by British band
“One Night Only” for the global ad campaign
created for the “Coca-Cola Music” program.
The ad has since aired in 60 countries, including a high profile airing during
American Idol in the US. “You Say France
& I Whistle,” the band that wrote the song,
used the opportunity to start a new record
label, book tours in Europe, and hire a PR
firm. They have earned tons of media exposure in Sweden and internationally and have
increased their bookings and revenue. They
continue to receive writer royalties whenever
the commercial runs.
Wesslander credits much of the
band’s success to the deal between Coca-Cola and Music Dealers. They knew they had
good songs and used the Internet as a platform
to get their music out there with MySpace,
which was popular at the time, as well as playing live shows locally in Stockholm. They
discovered Music Dealers, registered online,
uploaded their music, and expected very little.
The immediate response from Music Dealers
was positive. Soon afterwards Music Dealers
started providing the band with opportunities.
‘You Say France and I Whistle’ has had several other songs placed in commercials of other
companies such as Gap, Orbit/Wrigley,zand
McDonalds.
Conclusion
The agreement between the two
companies includes a commitment on CocaCola’s part to only use the services of Music
Dealers when finding music to license from
trending artists. In return, Coca-Cola now
holds a minority stake in the Chicago-based
company. Most significantly, the deal highlights a new model of sourcing and licensing music for globally branded advertising
campaigns. Coca-Cola now benefits from
Music Dealers’ industry knowledge and access, while Music Dealers and their network
of artists will continue to benefit from the
scale and marketing abilities of the CocaCola Company. Coca-Cola oversees 500
brands (fifteen of which are worth more than
$1 billion) and currently runs advertisements
and distributes to over 200 countries worldwide. “Our values are perfectly aligned…we
aim to promote independent artists and share
their music with fans around the world,” said
Music Dealers’ Sheinkop in the press release
on the deal. “Coca-Cola is a great partner
who offers solid support to our artists. When
artists record a track for Coke, they (CocaCola) put significant marketing leverage behind it. The song gets more exposure worldwide than even big artists get from a record
label. This arrangement has literally helped
artists launch their careers.”
www.thembj.org
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Volume 7, Issue 4
Music Business Journal
Business Articles
Podcasts: The Cinderella Trade
By William Minion
B l o g w o r l d ’s
annual New Media Expo, billed
as “The First and
Only
Industrywide Conference,
Tradeshow
and
Media Event for
All New Media”, is
comprised of bloggers, tech heads,
broadcasters and
new media content creators who seek to foster and expand upon new models of information exchange and dissemination.i The expo’s
attendees run the gamut from monstrous media conglomerates like AOL-Time Warner,
Google, and NBC to bludgeoning basement
operations such as Causecast, an up and coming company dedicated to the empowerment
of non-profit organizations through internet
media. One such attendee, Edison Research,
a media think tank, used the expo as a forum
to showcase its latest study, “The State of
Podcasting.”ii
A podcast, for those unfamiliar with
the term, refers to digital content, whether
audio or video, that can be downloaded and
permanently stored on a media player or computer. This definition sounds identical to that
of any old mp3 or video file. Podcasts differ
in their function, not their form. Podcasts act
as radio on-demand. Users must subscribe to a
podcast series via an RSS feed. After doing so,
new podcasts from that series will be automatically downloaded onto their computer. One
then either listens to it on the spot or transfers
it to a portable device to carry.
Furthermore, virtually anyone can
create a podcast with minimal capital or
equipment. Thus, the world of podcasting
can range anywhere from “this week’s hottest
dance tracks” to “Joe Smith’s favorite Elton
John bootleg recordings from the 80s.” In essence, a podcast creates a radio production
that can be time shifted,. The product, however, has only a niche market. Nevertheless,
podcasting has seen considerable growth over
the past decade.
ordinated two of the most prominent studies.
According to Edison’s research, the number
of Americans who simply recognize the term
podcast reached 45 percent in 2010.iii Furthermore, by 2010, 23 percent, or roughly one in
five Americans, indicated that they had listened to at least one audio podcast in the past
year.iv Edison considers a media outlet to be
mainstream once consumer usage has reached
25 percent.v When this study was published
in 2010 podcast consumption was not quite
mainstream and although their comprehensive study for podcast usage is not completely
up to date, other digital research groups have
made projections. eMarketer, a company that
conducts studies on digital marketing and Internet market trends, determined that by 2013
37.6 million American Internet users will be
regular podcast subscribers.vi
The data is conclusive; podcast
consumption is steadily increasing and will
continue to do so. What’s strange is that record labels, especially the big four, have been
slow to exploit the podcast market. A quick
glance through the biggest podcast database
in the world, the iTunes store, illustrates just
how absent record labels are from the world
of podcasting. What’s even more intriguing is
that the majors continue to ignore the podcasting success of smaller more niche-oriented
labels. The use of podcasts is mainly found
today among labels of electronic dance music. Record labels such as Anjunabeats, run
by the trance trio Above and Beyond, or Armada Music, run by Armin Van Buuren, both
attract record-breaking audiences with their
podcasts. In fact, Above and Beyond’s podcast, Trance Around the World, draws nearly
30 million listeners worldwide every week.vii
A Promise Unfulfilled
A Valuable Market
Additionally, the podcast audience is
itself an asset. One of Edison Research’s most
valuable statistical findings established that
podcast consumers are also three times more
likely to be content creators themselves. viii In
other words, podcast listeners are also bloggers, tweeters, Facebook community members and all around savvy social networkers. If
they enjoy the content they hear on a podcast,
chances are they will spread the word.
In recent years, several media research groups conducted studies on the consumption of podcasts. eMarketer and the
aforementioned Edison Research group co-
One can only speculate as to why
the mainstream, already established labels
don’t join in on the podcasting revolution. It
can’t be because they see no monetary value
4 www.thembj.org
in producing their own podcasts. Aside from
the potential buzz they would create by playing unreleased music, podcast advertising
revenue increased a whopping 31 percent in
the second quarter of 2010 alone.ix Similarly, a separate study conducted by eMarketer
found that 74 percent of new media users had
a more positive impression of the company
from which they were able to access new media content.x Therefore, a record label that actively podcasts would serve to better position
itself in the eyes of its customers as opposed
to a record label that does not.
The statistical evidence previously
discussed should turn the heads of any record
company in need of more progressive marketing strategies. Yet, as usual, the major players
remain, by and large, aloof. But podcasts can
still hold up in a cluttered digital world, as
demonstrated in the electronic dance market.
New media developers will be taking notice.
It is about time that the music business did so
too.
Sources
i) BlogWorld & New Media Expo 2012 - NEW YORK —
Learn How to Blog, Podcast and Use Social Media Better
at World’s Largest New Media & Social Media Conference,
Tradeshow & Media Event. Web. 12 Feb. 2012. <http://
www.blogworldexpo.com/2012-nyc/>.
ii) Webster, Tom. “The Current State Of Podcasting 2010
« Edison Research.” Edison Research. 9 Dec. 2010. Web.
11 Feb. 2012. <http://www.edisonresearch.com/home/archives/2010/12/the_current_state_of_podcasting_2010.
php>.
iii) Ibid.
iv) Webster, Tom. “The Current State of Podcasting.” Lecture. BlogWorld Expo. Las Vegas.Vimeo. 17 Nov. 2010.
Web. 12 Feb. 2012. <http://vimeo.com/16936611>.
v) Ibid.
vi) “Podcasting Goes Mainstream - EMarketer.” Market Research & Statistics: Internet Marketing, Advertising & Demographics - EMarketer. 9 Mar. 2009. Web. 11 Feb. 2012.
<http://www.emarketer.com/Article.aspx?id=1006937>.
vii) “To Infinity and Beyond.” DJ Mag. Web. 11 Feb. 2012.
<http://www.djmag.com/news/detail/2698>.
viii) Webster, Tom. “The Current State of Podcasting.” Lecture.
ix) Lewin, James. “Podcasters See 31% Ad Revenue Increase » Podcasting News.”Podcasting News » Features the
Latest Podcast News, along with Reviews, Hardware and
Software Info, and a Podcast Directory. 12 July 2010. Web.
11 Feb. 2012.
<http://www.podcastingnews.com/content/2010/07/podcasters-see-31-ad-revenue-increase/>.
x) “74% of Users Have Positive Impression of Companies
Who Use New Media « Jobs in Pods Blog.” Jobs in Pods
Blog. EMarketer, 30 Oct. 2009. Web. 11 Feb. 2012. <http://
jobsinpods.wordpress.com/2009/10/30/74-of-usershave-positive-impression-of-companies-who-usenew-media/>.
March 2012
Volume 7, Issue 4
Music Business Journal
Business Articles
Waiting for GRD
By Peter Alhadeff
This is the second in a series of articles tracking ongoing efforts worldwide to
develop a single registry of songs. In our December cover piece, Toward Global Rights,
we suggested that there is growing recognition that music trades with friction. Even if
a music provider has the will and patience to
negotiate the complicated maze of permits required for using and selling a musical work,
often clearances cannot be guaranteed for lack
of unified information about ownership. Data
duplication, and the resulting errors, creates
inefficiencies as well that adversely affect
publishers and the creative community.
We detailed some attempts to solve
this problem on a global scale, and detailed
movement in WIPO’s International Music
Registry (IMR). IMR’s scoping report is due
next month and we shall comment on it in due
course. A parallel initiative, supported by the
European Commission, is the Global Repertoire Database (GRD). (Although IMR and
GRD representatives tend to describe both
projects as being mutually reinforcing, so far
they appear to be independently run and either
could succeed first.)
A couple of weeks ago, at MIDEM
2012 in Cannes, France, GRD’s presence was
stronger than IMR’s. GRD produced a wellattended panel in association with ICMP, the
International Confederation of Music Publishers. Present too, and supporting GRD, was
CISAC, the umbrella organization representing global authors’ performance rights. Like
IMR, GRD will release its own scoping study
shortly.
A Value Proposition
The economic case for the GRD
rests on the value of international publishing
revenues, which are about $8 billion annually.
One-tenth of that goes into maintaining the
infrastructure for collections, but rights holders and licensees incur considerable additional
expenses in processing royalties in the areas
of database management, royalty distribution,
and dispute resolution. The GRD believes that
a one-time investment in a global database
of $16-32 million is a small amount to pay
compared to the $800 billion routinely spent
on collections today. It argues, additionally,
that the production of authoritative data about
musical works would ensure transparent rights
clearance processes—both locally and worldwide—and therefore drive more business to
March 2012 every stakeholder in the music supply chain
(“GRD Working Group Recommendations”,
Dec. 2010, 6 & 14).
WIPO’s IMR would likely use these
arguments verbatim. But in order to fund
its own project, it would probably need the
support of a critical mass of countries in the
United Nations, on which WIPO is financially
dependent. Not so the GRD group, which is
proposing a more Euro-centric startup to begin with. Therefore, the chances are good that
GRD can move ahead with funding sooner,
either by tapping its stakeholders or by relying
on commercial financing.
Grass-Roots Work Needed
The politics, though, are complex.
This is frontier work that encompasses practically anyone that records, performs, or delivers music anywhere. Rights holders, including
songwriters, publishers, record companies,
and performers have the highest stakes. So
do national author societies because the collection of global performance and mechanical
rights rests on their shoulders (the same can
be said of the producer and performance societies, mostly European, that collect performance rights). Moreover, if a registry gets off
the ground, a single repository point would
greatly simplify the identification of rights
for music downloads, video streams, and
other broadcasted material so music service
providers have an incentive to join the talks.
Finally, the sheer variety of interests at stake
touches on supranational organizations like
the European Union, intent on harmonizing
copyright law and trading practices in Britain
and the Continent, and the World Intellectual
Property Organization, historically a pioneer
in the field international patent and copyright
management in both emerging and rich economies.
B2B database builders and data
management consultants are expected to
reach out to all of the parties above. GRD
formed its first working group in 2009 with
representatives from (i) EMI Publishing and
Universal Publishing; (ii) collection societies
PRS for Music (Britain), SACEM (France),
and STIM (Sweden); (iii) music service providers iTunes, Google, and Omnifone; and
(iv) multinational member associations CISAC, ICMP, and ECSA (European Composer & Songwriter Alliance). Its first order
of business was to invite bidders to propose
a technological solution. The winner was
International Copyright Enterprises (ICE),
a company wholly owned and funded by,
respectively, British and Swedish societies
PRS and STIM. Another British accounting
firm, Deloitte, was put in charge of overseeing the project and producing the scoping
report. In fact, French and German participation in GRD is so far somewhat diluted
(although Monsieur Michel Allain, Director
of Organization and Information Systems at
SACEM did sit with the GRD panel at MIDEM).
Another issue is the agreement
over works’ registration and data processing among publishers. Although a global
database might make it easier, say, to hear
Slovakian music in New Zealand (because
the Slovakian rights could be promptly
found, identified and, likely, traded), publishers in Slovakia would have to agree to
register their works in a centrally traded
repository over which they may feel they
have less control than they enjoyed under
the local collecting body. Fear of the new
can be very real, and there will be no precedent to allay suspicion about a scheme that
could be perceived as Orwellian and in the
hand of the big publishers.
Getting the Ball Rolling
It is clear that the GRD project,
like its IMR counterpart, is ambitious and
that it will have to rely on lengthy negotiations and compromises across the board.
This will take time, a luxury the GRD may
not have. Sami Valkonen, head of international music licensing for Android at
Google, which supports GRD’s efforts,
sounded a warning alarm at MIDEM 2012.
If the scoping report is delayed, he said,
the whole venture might stall. There is no
indication that this will happen, but action
needs to follow soon as proceedings started
in 2008 and there is yet no formal document
mapping the way forward.
www.thembj.org
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Volume 7, Issue 4
Music Business Journal
Business Articles
Facebook’s IPO and the Music Industry
By Luiz Augusto Buff
Less than ten years ago, Harvard student Mark Zuckerberg developed Facebook.
Since then, many books, an Oscar winning
movie, and, of course, the Internet have covered its remarkable story. A new turning point
was announced at the beginning of February,
when Facebook declared its intention to cease
being a private company by filing papers for
a public offering with the Securities and Exchange Commission (SEC).
Facebook’s IPO, i.e, its initial public
offering, is expected to raise $5 billion or more.
Diagnostic company data, released for the first
time, indicates gross revenues of $3.7 billion
in 2011, with net profits of $1billion. This margin of about one-to-three is impressive. Close
to nine-tenths of all receipts are in advertising;
third-party companies using its social platform
make up the remainder with commissions on
sales of products and services.
The company’s trade value is estimated at $75 to $100 billion, and the projection is much, much, higher than the average
multiple of twelve times net profits (Facebook
would exceed the average by a factor of seven
or more). Behind these bullish perceptions lie
the rapid spread of Internet connectivity and
the growth of mobile phone usage, especially
in emerging countries.
Facebook reported that it has 845
million users and adds 451 every minute. It
expects to reach the one billion mark in August, after its first public offering. That means
that one in every seven people in the world
will be connected via the website. More than
four-fifths of the Americans connected to the
Internet are also users of the website, and last
year slightly more than half of the advertising
revenue was generated just in the US. After the
stock flotation, the company is said to have
plans to expand globally creating more possibilities to grow ad revenue in prominent markets such as India and Brazil. Another big challenge for Facebook is to penetrate the Chinese
market, where the website is currently blocked
by the government.
Mr. Zuckerberg will still control
most of the voting rights at Facebook. However, his decisions are now accountable to
stockholders, whose concerns are more financial. Because of this, Mr. Zuckerberg decided
to write directly to potential investors and explain clearly his social mission and vision. He
wrote that Facebook was created “to make the
6 www.thembj.org
world more open and connected.” Zuckerberg
acknowledged the necessity of profits, but, he
added, “we don’t build services to make money; we make money to build better services.”
winner Chris Brown’s “Look At Me Now.”
The exponential force of Facebook’s Like and
Share buttons was apparent. Karmin has since
signed a deal with Epic Records and appeared
on NBC’s Saturday Night Live. For that matFacebook’s API
ter, marketing tools like Reverb Nation, Topspin, and BandCamp are based on the concept
By encouraging and providing the of the artist communicating directly with fans.
tools for people to share anything from week- That generally means going through Faceend pictures to articles recently read, Facebook book.
has changed user behavior on the Internet. Every user, for instance, acquires an identity that A niche market that often falls beother people and companies can interact with. low the radar of the music industry is gaming.
In many cases, Facebook has removed the bar- Yet Zynga, the company behind FarmVille,
rier between music artists and their fans by CityVille and many other social games that
connecting them directly through the platform. run through the Facebook API, accounts for
It has also created a powerful recommendation 12% of the entire Facebook revenue. Compostool, allowing users to share what they like so ers and music publishers should take notice.
that others can appreciate, and engage, their Last year Zynga developed a special avatar for
artist of choice.
Enrique Iglesias to showcase exclusive music
in their games, while Lady Gaga’s Born This
For example, the Facebook Appli- Way single was first released exclusively for
cation Programming Interface (API) allows players of FarmVille. Games, in short, are beother websites to communicate with Facebook coming an important platform for music disand use its tools. It allows for a more person- covery and artist promotion.
alized social experience, for instance, by embedding its ubiquitous Like button. Moreover, A New Standard
Facebook’s sign-in process eases sites’ registrations. Even MySpace, once a pre-eminent The biggest challenge for Facebook
music network, is trying to reemerge as a so- will be to meet investors’ expectations. More
phisticated recommendation engine and music sources of revenue will be likely needed.
discovery tool that runs through Facebook.
Facebook could invest its surplus IPO cash
in startup companies that advance Facebook’s
Facebook’s presence is felt too as platform—like Google has done with Google
consumers trend towards streaming services. Ventures. The benefit to the startup is not just
The freemium model allows listeners to access the money tendered but the mentoring opa vast catalog of songs and play them either portunity that founding entrepreneurs receive
for free, with some advertisements, or for a from Facebook. On the other hand, even a
monthly fee that allows access to some ben- small pick of winners could bring Facebook
efits. Spotify, Rhapsody, MOG, and RDio are untold market power gains. In the meantime,
the main services here and all of them are us- there might be added value from a more expert
ing the Facebook API to permit access for us- management of advertising data. It is likely
ers, connect them to their friends, and observe that Facebook will enter the advertising market
their listening habits. Without Facebook, the seeking an important new acquisition.
impact and reach of these services would probably be much diminished.
The future of Facebook looks promising, and so do the benefits that the music inMusic Marketing and Zynga
dustry might reap indirectly from a successful
IPO. However it is extremely important for
In fact, a new generation of artist Facebook to be aware of the risks of loosing
managers is now taking advantage of Facebook its users – their most important asset. Since
in order to break new artists. Berklee Alumnus Facebook’s business model is based on minNils Gums is the businessman behind Internet ing data, issues surrounding privacy may rise
sensation Karmin, with Amy Heidemann and as the company becomes more aggressive and
Nick Noonan (both are also from Berklee). pays more attention to its bottom line.
After producing more than thirty music videos
for their channel on YouTube, the duo hit it big
with 54 million views on a cover of Grammy
March 2012
Volume 7, Issue 4
Music Business Journal
Law Section
SOPA, PIPA, and Music
By Ben Scudder
no return to the void search engine results, stop the delivery of
ads, and intrude on payment services for sites
creators.”
under investigation.
Recent debates over a pair of proposed Hollywood backed antipiracy bills have
highlighted the public’s concern in allowing
government control over major parts of the
web. Many experts believe as well that the proposed laws would create unnecessary complications.
The House bill is SOPA, the “Stop
Online Piracy Act”, and the Senate bill is
PIPA, the “Protect IP Act”. The fear is that the
bills would effectively establish a censorship
regime and set a bad precedent, stifling innovation and investment on the Internet. Public
outrage resulted in an “Internet Blackout Day”
on January 18, the largest online protest ever
recorded. Though the bills have been shelved
for being too broadly written, their concerns
were legitimate and the debate is still brewing.
The Trade Organizations
Both bills affect musicians directly,
so there has been much debate about them.
Those in support of SOPA and PIPA include
many major media companies that are committed to the creation of copyrighted content,
including the RIAA, MPAA, major music publishers, NBC, and Viacom to name a few. Sandra Aistars, Executive Director of the Copyright Alliance, spoke in a recent interview of
her support for the bills. She says, “I represent
thousands of artists across the United States
who depend on the Internet to network, market,
fund raise, connect with fans, to distribute their
work, and basically to make a living. Their
ability to do so is being compromised by rogue
websites offshore distributing counterfeit
goods and copyrighted goods for a profit with
March 2012 Aistars’ s view is
also a grass-root
position. A2IM,
a trade organization of independent musicians
and labels run by
Rich Bengloff, is
also in support
SOPA and PIPA:
“Our members
are small and
medium sized independent businesses that invest
in the creation of
music and whose
very existence is being threatened by the availability of illegal content online.” It might surprise to hear that there is an alignment between
musicians and their trade organizations with
some of the major media companies. But small
companies that deal with indie talent have just
as much to lose as the majors. They too need
all the revenue they can to get from delivering
intellectual property to consumers.
General Business Considerations
Moreover, under the House version
of the bill, private companies would be able
to sue Internet service providers if they found
that they were hosting content that infringed
on their copyrights. This provision goes beyond the Digital Millennium Copyright Act,
removing the ability for sites to act on good
faith and take down infringing content upon
notification.
With the music business becoming driven more and more by “do-it-yourself”
minded companies and artists, online business
restrictions like these could stifle creativity
and innovation. Technology companies are
also small tech startups, and many new music
companies fall into this category. In addition,
music is part of a cultural heritage that is best
shared and disseminated, not privatized or
shackled with excess regulations. Finally, new
artists need to be exposed, an interest that is
in conflict with that of established songwriters
and performers that depend on copyrights for
their livelihood. Those same artists, however,
may become known and aspire later to the
The Technology Companies
terms of the SOPA and PIPA bills. Such diver
While the concern for piracy is legit- gent interests need to be carefully considered
imate, the flip side of the coin is the question in the next iteration of the legislation.
of whether or not regulating piracy should be
Sources
in the hands of the government. The feeling
is that the bills seem to be aimed at an honor- 1) http://www.youtube.com/watch?v=mgWDnstRzgg
able cause, but have underlying implications
that could be ominous. Among the critics is 2)http://articles.baltimoresun.com/2012-01-18/entertainco-founder of Wikipedia, Jimmy Wales. “The ment/bal-sopa-pipa-bills-pit-music-business-against-tech-inbills”, he says, “are very clearly about censor- dustry-20120118_1_wye-oak-independent-musicians-creditship; the Senate version of the bill has provi- card-companies
sions to implement DNS blocking of oversees 3) http://www.nytimes.com/2012/01/02/business/media/thewebsites, and provisions to prevent someone danger-of-an-attack-on-piracy-online.html?_r=1
like Google from linking to sites like the Pirate
Bay-…[it] is outrageous and just not accept- 4)http://www.tuftsdaily.com/debates-over-megauploadshutdown-rage-across-college-campuses-nation-1.2697018#.
able under the First Amendment.”
The divide between technology
companies and entertainment companies is
growing. SOPA supporters see technology
companies as enablers of piracy. But under
the current drafts of the bills, the government
would have the ability to shut down a site for
suspicion of copyright without a trial, hearing,
or any other constraint. This instills fear into
businesses with online investments, including
venture capitalists. The arm of the law would
Tzh5nUxWp5F
5)http://www.forbes.com/sites/johngaudiosi/2012/01/16/
obama-says-so-long-sopa-killing-controversial-internet-piracy-legislation/
www.thembj.org 7
Volume 7, Issue 4
Music Business Journal
Interview
Spotting Revenue: TuneSat’s Chris Woods
By Aaron Gottlieb
Chris Woods is the cofounder and
COO of TuneSat. Since launching in 2009,
TuneSat has helped rights holders collect millions of dollars that would otherwise have been
lost or undiscovered without the essential detection data that the company provides.
MBJ: How did TuneSat come to be?
CW: I graduated from Berklee in a major,
Music Synthesis, that incorporated a lot of the
digital recording technologies. I was really interested in the engineering aspect of commercial music and in Pro Tools. When I moved to
New York City, I started a jingle studio. Doing
that, I met my current business partner at TuneSat, Scott Schreer, and he had a long history of
writing music for television. He had written
the NFL on Fox theme and a lot of other music
for sports brands that we hear on television. At
the time he was working with “watermarking”
technology to identify music used on television
to help content owners get paid properly, which
I thought was a really cool concept.
MBJ: How did you approach financiers to MBJ: How does fingerprinting turn into
a business?
help grow the company?
CW: We started off with some angel investors;
they were friends and family who really liked
the idea of what we wanted to do. From them,
we had a little bit of seed money to start the
business. We began to make inroads through
associations and introductions. We built a
financial model and a business plan that we
would present to high net-worth individuals
and venture capitalists. It took a lot of time.
There were a lot of presentations and a lot of
“No’s”, but eventually we got to a “Yes”. We
MBJ: Can you explain what “watermarking” an audio file is?
CW: Watermarking is code that’s embedded
into a master recording, but a listening device
could only identify versions of a song with watermarking in it. This had been around since
the late 1990’s to early 2000’s. We started
working with various “fingerprinting” technologies because we saw that as the best method
going forward.
MBJ: You seem to have found a niche in
the market.
CW: The product that we’re offering was a
long time in the making. The point of starting
this company was to address the problem of
the huge misallocation of performance royalties due to manual reporting processes. As a
composer myself, not composing pop music,
but having music on television, getting paid
properly was a problem because of faulty manual cue sheets. If the guy with the stop watch
in one hand and a pencil in the other isn’t paying attention, doesn’t know what the song is, or
isn’t even doing a cue sheet at all, you don’t get
paid. As a composer, you rely on that revenue
stream, you rely on licensing and performance
royalties to sustain a living. We saw that taking
this technology and using it on applicable mediums would be beneficial to composers, artists, and copyright owners to know where their
music was being used so they could get paid.
8
www.thembj.org
were trying to convince them of what we already knew. The performance royalty business
is huge. Globally, there’s over $9 billion being collected in performance royalties per year.
There’s a lot of money out there, and through
research of our own, we had discovered that
80% of the music being used in TV goes unreported. That means that all this money is being
misallocated based on inaccurate, incomplete,
or non-existent manual cue sheet reporting.
The 80% is just for TV alone; online, it’s much
worse. That’s just for performance royalties.
Then you get into all of the revenue that should
be going to the labels and the publishers from
content that is not even getting licensed in the
first place. There’s a lot of money at stake. In
a time when the music business is in a bit of a
flux due to decline in sales and all sorts of other
issues, it is imperative that content owners get
paid for the use of their content--be they labels,
publishers, or independent artists.
CW: With “fingerprint” technology we
can identify any version of a song. It doesn’t
matter if it was distributed over 30 years ago,
or will be distributed 30 years from now, as
long as you have a fingerprint of the original
recording in the database, you’re covered.
We acquired our own fingerprint algorithm
in 2006. We set up TuneSat, got funding for
the company, and set up a monitoring facility
in New York City where we started monitoring 110 national network broadcasters. We
tested for a year and got the kinks worked out
and all of the applications written. Then, in
2009 we launched our business to the public,
which is basically a subscription-based service that any content owner can sign up for.
They supply us with their master recordings;
we fingerprint the music and create an account for them. The content owner can then
log-in and see their songs’ performance data
in real time as to when and where their music
has been used on television. We back up our
findings with MP3 recordings of every detection as proof of usage. Content owners really
like this because they had never had the ability to know of their music being played before, or where it’s being played, or how often
it’s being played – especially not to this level
of accuracy and efficiency.
The key to the algorithm, especially in TV
with a lot music being buried under dialogue,
is its ability to still be able to identify the audio and get full duration information.
MBJ: How do your clients use the information that you provide?
CW: Our clients really use this information
for three things.
The first is to address the accounting of performance royalties. All of the performance
rights societies around the world make their
distributions based on manual cue sheets that
they receive from their licensees, the broadcasters – CBS, Fox, etc. The problem with
this is that it’s a manual process and millions
of needle-drops are used each year in television--a lot of stuff falls between the cracks.
This results in a huge misallocation of performance royalties. With this information in
hand, we’re able to run an application that
compares our own data against a client’s royalty statement for the corresponding period
and give them proof that we detected perfor(Continued on Page 9)
March 2012
Volume 7, Issue 4 Music Business Journal
Interview
(From Page 8)
mances that were not accounted for. They can the cover to present proof of it’s usage.
take our data to the PRO and get paid on their
performance properly.
MBJ: Would you ever consider licensing
your technology to other companies?
Secondly, a lot of content that gets broadcasted
– more than we ever anticipated – is done so CW: Sure. We do it today. We have licenses
without a synchronization license or a master in Europe as well as licenses in South Ameruse license, which is a big deal. It’s copyright ica. The main purpose of TuneSat’s business
infringement. The penalties are quite high, and model is subscription based, but we’ll license
so our clients can also use our data to ensure that the technology to other companies with various
songs that do get used are properly licensed. If needs. It could be for consumer-based mobile
it happens that they’re not licensed, they can use devices like phones and iPads. We’ll license
our data to pursue those claims.
our technology to broadcasters themselves to
help improve efficiency in the music reporting
The third reason our clients find a lot of value process.
in the data is because of all the business intelligence. They know which songs are getting NBC Sports, here in New York over at 30
used the most, which titles are getting the most Rock, was an early adopter of the technology.
traction, and can track new releases. This data We’ve had TuneSat’s technology used for the
serves as a marketing and business-tracking Olympics and countless sporting events since
tool. As of 2011, we’re now able to track thir- Beijing. We’re constantly listening for the muteen countries: US, UK, Germany, France, Italy, sic that those programs use, creating cue sheets
Netherlands, Spain, Austria, Switzerland, Swe- then are then filed by the broadcasters with
den, Norway, Denmark, and Finland.
the local societies to facilitate accurate performance royalty distributions.
MBJ: Do you need licenses to be able to tune
into all of these networks?
MBJ: It’s my understanding that your clientele base is quite broad. You have small
CW: No, we’re able to obtain the satellite feeds clients, but then you also have publishers
just like any normal consumer would, and we’re that oversee massive catalogs. At what point
listening to those broadcasts with the purpose of does somebody need a service like TuneSat?
identifying copyrighted music on behalf our clients, the content owners, like the Universals of CW: It’s valuable to anybody who has muthe world and the Orchards of the world. Even sic being played on TV within the countries
composers like myself are able to know where that we monitor. We just started monitoring
in the world their music is being played so that internet plays, but as it pertains to TV, if you
they can be paid properly.
write for television, or if you’re an artist and
you have a lot of your music being used and
MBJ: How exactly does it work?
actively licensed, then it’s a worthwhile service
to consider using.
CW: Our system is listening to harmonic content as well as transient properties. Think of The way we structured the business model is
how music looks on a spectrograph. It’s kind that it works for the small guy just as easily as it
of like that when you can visualize the sonic works for Universal or Warner in that anybody
properties of audio. The algorithms are doing can sign up for an account. The smallest tier
the same and picking up on key properties that that we have is $10 per month for ten tracks.
are unique to the audio file, and then storing that That’s basically an album that you can track for
as an acoustic fingerprint--which is kind of like just 10 bucks a month. That’s pretty cheap for
the DNA of the recording itself. After that, it’s a service that provides 24/7 monitoring.
constantly looking for matches with whatever is
in the fingerprint database.
The new service is an Internet monitoring service. Basically the way that works is we’re
MBJ: Let’s say that McCoy Tyner covers a crawling millions of websites in about 26 counBeatles tune. Is the system capable of recog- tries and looking at any publically available IP
nizing it as a Beatles tune?
address that is hosting multimedia files, whether it’s a business, a blog, or a user generated
CW: Covers are a different case. The way most website like YouTube. Once we find multimefingerprinting systems work, and ours specifi- dia files, we’ll record them, pass them through
cally is by having a master recording. It’s not the system, and then populate our clients’ aclike we can have one copyright in the system, counts with the URL of where the music was
or one master recording of a copyrighted work, identified. That opens the business a bit wider
and identify all of the other recordings out there. to a larger client base. Now you don’t have to
The audio for the cover has its own unique prop- have music on TV, but you can have music on
erties, so we would need the master recording of the Internet. The Internet is so expansive. You
March 2012
don’t know where your music is, you don’t
know who’s using it, or who is blogging about
it, but we’ll be able to identify where it’s at and
how it’s being used.
MBJ: Do you think that the composer or
artist who gives their music away for free to
fans is entitled to royalties for synchronization?
CW: I think so. The fact that it’s put out in the
public does not make it public property. That
person is still the owner of that music. You’d
have to register the music and you’d still have
to be a member of a performance rights society. Instead of that, there’s always the option
of licensing it directly to the commissioning
party. That happens a lot with certain broadcasters who demand those rights. It happens
with brands that use music for various campaigns.
MBJ: Finally, what is your take on the possibility of a global registry of metadata?
CW: I think it would be great if it happened,
and I think that there are a lot of entities attempting their own flavor of it. Maybe that’s
part of the problem in that too many people are
trying to do things in a way that’s proprietary,
whether it’s GRD or DDEX or any of these
other standards that are being developed. It
seems that the labels have figured it out somewhat with ISRC codes (International Standard
Recording Code), which are more easily traceable. I learned through doing this that when it
comes to a publisher, though, it’s really a mess.
I think sometimes that publishers aren’t even
aware of all of the copyrights that they own.
They’ll buy a catalog just for the top copyrights that can make them the most money and
that’s all that they’re concerned about. It could
take years before the less lucrative copyrights
are registered. It’s definitely messy. Then you
have to take into account that fact that international copyrights for the same song may have
different terms.
I think it would be great to have a central repository of who owns what, though. It’s just a
very daunting task and I’m not sure who will be
able to do it properly. I think that we could be
a part of the solution in that we have the ability
to identify audio files and we can help people
clean metadata. Part of what we’re doing now
is to fingerprint about 13 million popular music audio files. For us, this will enable us to
expand outside of TuneSat’s core subscription
model. But it will also help us match an audio
fingerprint to the larger database of ownership
metadata, which could be useful for everyone.
www.thembj.org
9
Volume 7, Issue 4
Music Business Journal
Law Section
Living in the Fast Lane:
Megaupload’s Kim Dotcom
By Emilie Bogrand
In Hollywood, they call him Dr. Evil.
According to the U.S. Department of Justice,
his company has stolen over half a billion dollars from copyright owners of music, movies,
software, audiobooks and other media. He lived
lavishly in the most expensive private home
in New Zealand and drove eighteen luxury
cars with license plates labeled “MAFIA” and
“GUILTY”. On January 19th, the New Zealand police arrested Kim Dotcom, founder of
Megaupload.com, and several of the company’s
top executives. In their press release, the F.B.I.
described the operation as “among the largest
criminal copyright cases ever brought by the
United States.” (The five counts of indictment
brought against the file-sharing service are telling: Conspiracy To Commit Racketeering, Conspiracy To Commit Copyright Infringement,
Conspiracy To Commit Money Laundering
and two counts of Criminal Copyright Infringement).
Megaupload.com was estimated at
one point to have been the thirteenth most frequently visited website on the Internet, bragging that it accounted for four percent of all
online traffic. Disguised as a service to help users transfer large files, the deactivated website
offered free downloads of popular media. It sold
advertisement space and premium subscriptions
but did not pay rights holders. According to
the indictment, Megaupload.com generated
$25 million in advertising and $150 million in
subscription fees over five years. The money
laundering accusations were for the company’s
backhanded financial incentive plans designed
to pay users who uploaded content that was in
high demand.
Dotcom’s arrest was the culmination of a two year international investigation
conducted by authorities in the United States
(where some of the company’s servers were located), New Zealand (Dotcom’s country of residence), Hong Kong (where the company was
based), Canada (another country that hosted
servers for Megaupload.com), Germany (one of
Dotcom’s countries of citizenship), the United
Kingdom, Australia and the Philippines.
This is not the first legal scandal for
Kim Dotcom, who was born Kim Schmitz. In
2002, he was arrested in Germany for insider
trading and embezzlement. This time, in January 2012, two helicopters ambushed Dotcom’s
mansion where the police were forced to cut
10 www.thembj.org
their way through to a panic room where Dot- Celebration Gone Awry
com hid with a gun by his side.
In December 2011, Megaupload
Dotcom has his defenders. The bust released a promotional video on Youtube
triggered online acts of retaliation by a group boasting about its one billion users and fifty
of hacktivists named Anonymous. The group million daily visitors. The video was apattacked major websites including those of the parently organized with the help of Swizz
U.S. Department of Justice, the U.S. Copy- Beatz, who was in serious talks to become
right Office, Universal Music Group, The Re- the company’s CEO. The four-minute video
cording Industry Association of America and features appearances from music celebrithe Motion Picture Association of America. ties including Kanye West, Jamie Foxx, The
Anonymous believes that the U.S. govern- Black Eyed Peas, Diddy and many others.
ment’s seizure of the Megaupload.com domain “When I gotta send files across the globe, I
name is “a violation of freedom of speech,” use Megaupload,” raps Will.i.am..
“internet censorship,” and that the government
is “stepping outside of their jurisdiction.”
Universal Music forced Youtube to
remove the video, which cost $3 million to
Under Cover of Daylight
make and has been viewed over thirteen million times. The takedown lasted five days
Why Kim Dotcom had to have serv- and ended on December 9th. Megaupload
ers in this country and make himself an easy then sued Universal Music, accusing the
target for the Department of Justice is not label of abusing copyright laws and soiling
clear, because intellectual property protection Megaupload’s reputation. Universal Music
is getting harder to circumvent. Perhaps he responded by declaring Megaupload a pirate
hoped that his legitimate activities would give site in a defense court filing. The two comhim cover. In fact, along with Megaupload- panies will now swap sides in court as Kim
related domain names, U.S. authorities also Dotcom faces the possibility of twenty years
seized $50 million in assets and froze the com- in prison.
pany’s bank accounts. This is now preventing Megaupload from paying its server hosts, Reflection
which currently store content in digital lockers. Users, including the ones who use the site In the end, and as was shown, a nalegitimately as a storage cloud, could lose per- tional and international effort helped thwart
sonal documents such as family photos, school an abuse of intellectual property. In part, and
reports, and other.
taking a broader view, this must have come
about because manufacturing is no longer
Some of these users are threatening the main driver of current economic growth
to sue the F.B.I. if their files are erased. The in the developed world. An economy based
Associated Press reported that U.S. prosecu- on ideas, and their trade, is becoming intors issued a letter on January 30th stating that creasingly important to all of us.
two of the Megaupload servers, Carpathia
Hosting Inc. and Cogent Communications It is good to remember that an inGroup Inc., could begin erasing files four days ternational system of patents was created to
later.
promote inventions at the turn of the XIXth
Century, when inventors stopped attending
The planned purging was delayed to World Fairs for fear that their innovations
the following day and the two hosting compa- were being replicated without remuneration.
nies agreed not to erase data for at least two It was important to distinguish then, as it is
weeks. The website’s users are not alone in now, between the legal and illegal transacwanting to protect the content. Megaupload tions of those ideas to advance productivity
attorneys need this data as evidence to prove worldwide. By the same token, it may not be
the company’s legitimacy. On the side of the a bad thing for musicians that the DOJ and
prosecution, the F.B.I. already has emails from the rest of the world took Kim Dotcom and
Megaupload employees proving they knew Megaupload down.
about the pirated media and also discussed
strategies to prevent a government shutdown
of the site.
March 2012
Volume 7, Issue 4
Music Business Journal
Law Section
Grooveshark: A Clarification
By Mariana Migliore
By Melanie Stevenson
Grooveshark has been in the news
lately. Many of the major music companies
have filed suit. Proceedings against Grooveshark started in November 2011, with Universal Music demanding compensation for
tracks that were not cleared. A month later,
Sony Music Entertainment and the Warner
Music Group followed. By January 2012,
EMI Music Publishing was alleging breach
of contract and failure to pay agreed royalties. In the federal case, Grooveshark executives are being accused of personally uploading copyrighted material to their site.
to be eligible under the provision because the
service enables users to upload and stream
music through their site; Grooveshark itself
only provides the server.
Yet early in the Fall, and before
the above allegations were made, the Music
Business Journal treated Grooveshark as a
legitimate business in a comparison with
Spotify and Rhapsody. We now know better,
and would like to apologize for this oversight; see “Spotify: Not Out of the Woods
Yet”, MBJ, October, 2011; 8-9.
On the first question, Digital Music
News was served a subpoena by Escape Media to reveal the source of the article where
the anonymous comment implicated the
group. Paul Resnikoff, chief editor of Digital
Music News, argued that he was protected
by the law and was not obligated to disclose
his sources. He added, defiantly, that “[such a
protection] is the cornerstone of a free press
and open society that we all enjoy in the
United States, and the result for us has been
a body of knowledge that is unrivaled and
growing every day… we count many executives from Escape Media Group as devoted
readers”. (For Resnikoff’s full response see
http://www.digitalmusicnews.com/permalin
k/2012/120119deargrooveshark)
Here is a brief update. The legal
case against Grooveshark was given momentum when one of its employees was anonymously quoted on Digital Music News suggesting that the company understood it was
flouting the law. The site allows streams
and uploads of music and offers two different premium-subscription paid memberships
with various perks (such as no advertisements and customizable features). It is likely
profitable, with about 35 million users. Ironically, the company that owns Grooveshark is
named the Escape Media Group.
Back-end B2B deals in the US
are thus on hold for the moment, although
progress has been made with some independent labels. Nevertheless, the arm of the big
four labels extends overseas, so the future
of Grooveshark is also in question there. In
January, GEMA, a German authors’ and performing rights organization protecting more
than a million copyright owners worldwide,
shut down Grooveshark’s operations after an
impasse over a refusal to pay high licensing
costs (Spotify and Rhapsody have not yet
entered the German market because of such
high costs).
Grooveshark’s main defense seems
to be the Safe Harbor Provision, which basically states that the company is not liable
for the content uploaded by users onto their
site. On paper, their business model appears
March 2012 Recycling Music
Universal’s basis for the suit is, incidentally, (i) whether the anonymous comment posted on Digital Music News can
be traced back to its source and implicate
Grooveshark; and (ii) whether there are
business records at Escape Media Group that
show uploads by its own company employees.
The answer to the second question
will depend on the evidence presented to the
court. Still, the arm of the law seems to be
reaching out to make yet again the case for
intellectual property theft. At the very least,
this is bound to stunt Grooveshark’s growth.
The concept of going green assumes
a change in behavior. For the past few decades,
we have become more and more educated
about saving energy, choosing products from
socially responsible companies, and recycling
waste. The music industry is not an island and
a Boston startup, ReDigi, has recently proposed a new idea: recycling pre-owned digital music. The company has become a magnet
of media attention since it was launched early
last June, joining a space occupied by Spotify,
MegaUpload, and Google Music.
ReDigi
ReDigi works as a used digital record store. The prospective user has to make
an account using his or her Facebook username in order to download the Beta ReDigi
application and accept its terms of use. Once
downloaded, the application scans the computer’s hard-drive looking for “eligible” mp3
files. What ReDigi defines as eligible is music that has been legally acquired. During the
scanning process the Redigi Media Manager
uses a forensic verification engine that identifies which songs are available for the user to
resell.
Selling a song from a user library
means that, once sold, it will no longer be
available for access. ReDigi erases the track
from the computer and all sync devices when
the “Send to ReDigi” button is pressed. Once
uploaded, the song is offered in ReDigi’s market for 59 cents, and the user gets 10 cents
when a sale is completed. In fact, ReDigi has
its own currency. There are ReDigi Credits and
ReDigi Coupons. ReDigi Credits are equal to
real money. In order to get credit, the user has
to add money into a hosted account or earn it
by selling songs. ReDigi coupons are the same
as any supermarket’s discount coupons. Every
time a song is uploaded for sale, a coupon is
earned for discounts on future purchases.
The Controversy
The company calls itself “The
World’s One and Only Verified, Pre-Owned
Storage and On-line Marketplace for Digital
Music.” Nevertheless, this does not mean that
the rest of the world agrees. Recently, RIAA
and Capitol Records have sued ReDigi for
copyright infringement.
(Continued on Page 16)
www.thembj.org
11
Volume 7, Issue 4
Music Business Journal
Business Articles
A Year in Review
By Haven Belke
2011 was a year of hit records,
powerful female artists, the discovery of
electronic dance music within the US,
and more genre crossovers into the main
stream, especially rap/hip-hop. Live music did better than in 2010 and the majors
continued their cost-cutting measures, with
the demise of EMI in December marking
perhaps the end of an era.
undiscovered, and most talented acts of
the year and the genre is becoming more
universal. It wouldn’t be surprising if Cash
Money Records makes an even bigger
statement on next year’s charts.
The Grammies
Diversity and Renewal
There was diversity and renewal
in the charts as measured by Adele (Top
Artist), Lil Wayne (Top Artists-Male), Wiz
Khalifa (Top New Artist), Taylor Swift
(Top Country Artists), Shakira (Top Latin
Artist), Mumford & Sons (Top Rock Artist),
and Katy Perry (Top Club Artist). But the year
was undoubtedly Adele’s. Since the release of
her second album, 21, she soared into the spotlight. 21 spent nearly forty straight weeks in
the top five spots of the Billboard 200 Chart,
which set the record for the most number in
the top five spots for an initial release. The
track “Someone Like You” was number one
for fourteen weeks in a row, and she led the
Top Artists, Top Billboard 200, and Hot 100
Songs charts. A female artist has never accomplished this before.
Another marker of the significance
of female artists this year is that for the first
time in Billboard’s history four female artists
have dominated the Top Artists chart: Adele,
Rihanna, Katy Perry, and Lady Gaga.
Electronic dance music has been
huge in Europe for many years now. But 2011
brought electronic dance music to the United
States with a vengeance. Annual festivals and
raves became more popular and new artists
emerged. Skrillex won three Grammys this
year (Best Dance Recording, Best Dance/
Electronica Album, and Best Remixed Recording.), and Deadmau5 performed at the
Recording Academy Awards next to the Foo
Fighters. Other artists that have put out popular albums in the genre were LMFAO, Daft
Punk, Lady Gaga, and David Guetta.
Live Music
Touring seems to have made a
comeback in 2011. After poor attendances
in 2010, managers, promoters, venues, and
booking agents adjusted their strategy. Ticket
12
www.thembj.org
sales improved, artists were matched with the
appropriate venues, and concert attendance
increased (artists performed less in order to
improve their returns).
The biggest tour of the year was
U2’s 360° Tour (the Circle tour was the highest grossing ever, bringing in, since 2009,
$265 million). Taylor Swift played in major
arenas across the United States and then took
Speak Now abroad (her receipts for that tour
in the US alone were over $100 million). Other successful tours were by Kenny Chesney,
Katy Perry, Lady Gaga, and Usher.
General Business
In other business news, Citigroup
sold EMI to Universal and Sony. Universal
bought EMI Music for $1.9 billion, while
Sony bought EMI Publishing for $2.2 billion.
The spilt and merger of these companies created a shift in the music industry and top executives switched companies, with artists and
song catalogs being placed under new management. The remaining three labels, i.e. Universal, Sony-BMG, and Warner, will likely
benefit from EMI’s loss.
This was an important year for Cash
Money Records. Because the label is a subsidiary of Universal Music, it has helped that
major do well. Its catalog of rap/hip-hop artists was all over the Billboard Charts in 2011.
Lil Wayne, Nicki Minaj, Drake, Weezy, Wiz
Khalifa, and many more rap/hip-hop artists
have crossed over between genres. Many of
their albums and singles placed at the top or
extremely high on a variety of charts. Tha
Carter IV, Pink Friday, and Take Care are a
few of its most popular albums. Cash Money
Records is producing some of the newest, raw,
As always, the Grammys are a magical night for artists and their audiences.
Bruce Springsteen, Paul McCartney, the
Foo Fighters, Adele, Katy Perry, Taylor
Swift, Nicki Minaj, The Civil Wars, and
many more artists went on stage to an all
time record TV viewing audience (largely, it seems, because of Whitney Houston’s untimely death). All, in their own right,
amazed their fans, but it was the sheer number
of performers and the variety of genres that
made this year’s Grammys memorable.
The somber tone added to the proceedings, and Jennifer Hudson’s emotional
rendition of “I Will Always Love You” will
long be remembered. Overall, this year there
were not many awards presented live, as the
night mostly focused on the performances.
Adele swept the Awards by winning six: Record of the Year, Album of the Year, Song of
the Year, Best Pop Solo Performance, Best
Pop Vocal Album, and Best Short Form Music
Video. Other Grammies for Best New Artist went to Bon Iver, Best Rock Performance
to the Foo Fighters, Best Country Duo to
the Civil Wars, Best Country Song to Taylor
Swift’s “Mean”, Best Country Album Lady
Antebellum’s “Own the Night” and Best
Dance Album to Skrillex for “Scary Monsters
and Nice Sprites”.
It is worthwhile to note that the total
number of categories shrunk this year from
over one hundred to about eighty, in a controversial attempt, yet to be fully digested in the
industry, to prevent the Awards from being diluted over time. Rhythm and Blues, Latin Music, and Native America Music seem to have
suffered the most. A full list of the awards, and
the changes in question, can be found on the
Grammy site.
March 2012
Volume 7, Issue 4
Music Business Journal
Business Articles
The Muse of the Grammys
By Erick Noyes, Elaine Allen, and Salvatore Parise
In a creative industry, what pattern
of artistic influences increases the likelihood
that an artist will produce innovative products? This research examines all major artists in popular music between 1951 and 2008,
their unique historic network of artistic influences, and their innovation achievements in
the Popular Music Industry. The research applies network analysis to the social structure
of the industry to see: do artists who create
innovative products occupy unique structural
positions in the complete network of artistic
influences?
Artistic influences are the set of
recognized social predecessors in a Creative
Industry who are credited for prior achievements in a Creative Industry. The creative influences of artists in a Creative Industry can
and do vary widely, but they are particularly
interesting because artists openly recognize
and celebrate their influences—the raw material from which they attempt to fashion
industry-changing innovations. For example,
The Beatles report they were strongly influenced by Buddy Holly and Roy Orbison who,
respectively, were influenced by Elvis Presley, The Clovers, Hank Williams, and Hank
Ballard. Influence networks of this type, for
each artist, can be assembled and traced back
to before the creation of recognized innovation achievements in the industry to determine
what patterns of influences are most productive for fashioning innovative products. We
examine each artist’s structural pattern of
artistic influences as idiosyncratic resources
from which they may develop new music.
The popular music industry is of
interest for research in entrepreneurship because it is a rich environment to explore the
evolution of an industry, because musical innovations can be tracked, and because social
networks are an important element in how innovations are assembled and diffused. Each
artist is embedded in, and therefore occupies
a unique position in, the historical/longitudinal network of musical influences. As such,
one can study artists as a type of entrepreneur
that looks to bring change to an industry by
exploring and exploiting new combinations of
resources.
Our dependent variable is number
of Grammy Awards won, the industry’s standard of an artist’s innovativeness. Grammy
Awards are not bestowed based on an artist’s
March 2012
album sales or chart performance. Rather,
the Grammy Foundation states that Grammy
Awards are “the only peer-presented award to
honor artistic achievement, technical proficiency, and overall excellence in the recording
industry”. We find that musicians with structural holes (disconnects) in their influences
network—those who are brokers between otherwise disconnected artists—are most likely
to create innovative products as measured by
Grammy-winning.
Artistic Ties and Popular Music
Entrepreneurs and entrepreneurial
firms in Creative Industries—such as music,
film, publishing, software and design—commonly develop innovations and generate new
wealth by exploiting resources in their professional and personal networks.
Relatedly, if one looks to the Popular
Music Industry, artists responsible for major
innovations have often combined new technologies, new group members and fused different musical styles to fashion new musical
experiences (e.g., The Beatles, David Bowie,
Pink Floyd, Stevie Wonder, and Herbie Hancock). More broadly, in Creative Industries,
loose personal and professional affiliations are
a treasure chest for locating critical talent, for
sourcing funding for risky new ventures and
for assembling teams to commercialize and
industry-shaping innovation.
Social contacts, or one’s position
in a social network, may enable or constrain
access to critical resources needed for basic
operation, growth and innovation. Critical re-
sources obtained though social contacts may
include financial resources, such as funds
needed to develop a technical innovation, or
social capital, such as important social contacts needed to assemble or distribute an innovation. From this perspective, social ties—
and particularly resources obtainable in the
external environment—are what shape the
survival and innovation capacity of certain industry players. A chief point in this theoretical
perspective is that one’s position in a social
network may enable or constrain strategic actions by an industry entrepreneur.
Networks should have advantages
in recognizing entrepreneurial opportunities
and fashioning innovations because they sit at
the nexus of unique information. Specifically,
those artists who are connected to other network actors—where those network actors are
otherwise unconnected—can exploit unique
information flows and perceive entrepreneurial opportunities that only partially present
themselves to others (who, by contrast, have
inferior access to unique information by virtue of their network positions). In specific
terms, a structural hole is an absence of ties
(or hole) between network peers from the perspective of a focal actor. Structural holes may
occur within networks at all levels of analysis,
but here we explicitly consider the individual
level of analysis. A growing body of networks
research suggests that brokerage across structural holes is favorable for initiating innovations. Therefore, examining musicians in the
music industry, we posit:
Hypothesis 1: The structural pattern of artistic influences for innovators will be different
than non-innovators.
Hypothesis 2: Artists with structural holes in
their influence networks will be more likely to
create innovative products.
The context we are studying is particularly interesting because structural holes
do not occur within a close, small group of industry participants. Moreover, the underlying
social ties we examine are not direct in nature.
Few artists maintain relationships with all of
their direct and indirect artistic influences.
Rather, we analyze the impact of different
structural positions of direct and indirect influences on an artist’s likelihood of creating
innovative products.
(Continued on Page 14
www.thembj.org
13
Volume 7, Issue 4
Music Business Journal
Business Articles
Grammys (cont.)
The Grammy Awards
Analysis
The Grammy Awards are presented
annually for outstanding achievements in the
music industry. Since the awards were established in the 1950’s, nearly 8,000 Grammy
awards have been bestowed. We chose this
measure of an artist’s ability to create innovative products because it is measurable; because it is the industry’s standard for artistic
innovation; and because, as noted, Grammy
Awards are bestowed unrelated to the financial or chart performance of an artist.
Initially, relationships between variables were examined by whether the artist won
a Grammy award and whether the artist was
a pioneer of a new market. Market pioneers
(those creating music into new markets during
their first year of existence) have almost six
times the mean number of Top 10 albums (7.9
for market pioneers vs. 1.6 for others) and almost double the overall mean number of albums
(24.8 vs. 14.9, respectively). For artists with at
least one Grammy award, the results are more
modest with five times the mean number of Top
10 albums (5.0 vs. .9) and almost 30% more albums overall (19.7 vs. 14.0).
Data
The data come from allmusic.com,
whose database is the platform for both America Online’s and Yahoo! Music’s e-commerce
website. The archive provides data including
each artist’s name, discographies, and most
importantly, lists of artistic influences. In total, there are 14,000+ “influenced by” ties for
nearly one thousand artists. This data allows
for a seamless and complete network picture
of all major artists in the industry and their artistic influences over the past six decades. Figure 2 provides a network visualization showing the artistic influences among the most
influential musicians in the industry (those
cited most as artistic influences to all the other
musicians in the industry).
Not surprisingly, the number of decades an artist produces music, the number of
albums produced by an artist, the number of
other musicians influenced by the artist, and
pioneering a new market have a strong positive
relationship to the number of Grammy’s won.
Interestingly, solo artists win more Grammies
than group artists. Somewhat surprising is that
having multiple record labels and performing in
multiple styles have a negative impact on the
number of Grammy awards won.
Consistent with Hypothesis 1, those
winning the most Grammy awards are peripherally not centrally, located in the complete network of influences. Consistent with Hypothesis
For this study, we built the com- 2, artists with more structural holes, or low netplete network of artistic influences and mea- work constraint, win more Grammy awards.
sured the network positions associated with
each artist. Based on each artist’s structural Collectively, the findings about the
position in the network, we calculated each negative association with centrality and the posartist’s structural holes in addition to other itive association with structural holes suggest
common structural network variables includ- brokerage among artistic influences is a better
ing the number of times a musician occupies predictor of Grammy winning than occupying a
the shortest average path between other musi- central position in the influences network. This
cians based on their position in the network is true even considering the span across six deand the number of musicians citing an artist as cades of direct and indirect artistic influences.
an influence. Because the following controls In particular, structural disconnects across artiscould also influence the number of Grammies tic influences increases the probability of winwon, we included in our model: the number ning multiple Grammies.
of decades an artist produced music as well as
the number of years they were deemed active, Implications and Value
whether the artist is a solo artist or a group,
the total number of albums created, the total This research draws attention to the
number of Top 10 albums created, the number unique social nature of innovative product creof labels signed onto, and the total number of ation. Despite the widespread stereotype of the
genres played. We also examined whether or socially isolated, tortured artist, our findings
not artists created in new markets in the first suggest that innovators likely fuse together sevyear of their existence (market pioneers vs. eral different creative influences versus fashionnon-pioneers), arguably a separate potential ing innovations from an absence of influences.
measure of artistic innovation.
14 www.thembj.org
As with our other research on new market pioneering in the music industry, these findings
de-emphasize the importance of one’s individual talent versus one’s idiosyncratic pattern of
artistic influences in creating innovation.
One’s position in a network should
impact one’s ability to create innovative products, particularly if one has superior access
to resources that other’s do not. Here, access
is meant in a creative or inspirational sense
where all musicians have artistic influences,
but only some have certain structural patterns
among their influences and occupy certain
unique structural positions in the complete
network of influences. Being influenced by
structurally-separated artists, appears to be an
especially efficient way to access the disparate
resources from which to fashion innovative
music.
This research may suggest that music recording companies, such as BMG, Sony
Music or Universal, might examine their aggregate artist portfolio positions in influence
networks to maximize the probability of creating innovative products in the future. Such an
inquiry might suggest which music-recording
companies are strongly, or weakly, positioned
for future industry evolution.
Future research examining networks
in Creative Industries should examine how
artist positions in networks impact commercial success, which often differs dramatically
from what is regarded as innovation. While
there are artists in creative industries that are
regarded for creating commercially-successful
innovations, a common outcome is innovation
without commercial success or commercial
success without innovation. Clearly, research
on creative industries needs to examine both
market and financial outcomes in relation to
these questions. This research presents the
opportunity to disentangle the importance
of individual talent—which is so commonly
viewed as a primary driver of innovation—
and the importance of idiosyncratic influences
on innovation.
The three authors are professors at Babson
College, MA. For a full version of the paper
see Noyes, Erik; Allen, Elaine; and Parise,
Salvatore (2010) “Artistic Influences And
Innovation In The Popular Music Industry,”
Frontiers of Entrepreneurship Research, Vol.
30: Iss. 15,Article 3. Available at: http://digitalknowledge.babson.edu/fer/vol30/iss15/3
March 2012
Volume 7, Issue 4
Music Business Journal
Berklee College of Music
Music Business Journal
Volume 7, Issue 4
March 2012
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Recycling Music (cont.)
(From Page 11)
At first sight, if ReDigi functions as
a used record store, it should be protected by
the “first sale doctrine”. Section 109 (a) of the
Copyright Act states that “the owner of a particular copy or phonorecord … or any person
authorized by such owner, is entitled, without
the authority of the copyright owner, to sell
or otherwise dispose of the possession of that
copy or phonorecord.” However, even if the
law stipulates that reselling an “owner’s particular copy” is allowed, it does not make a
distinction of how to handle a copy of a copy.
This is pounced upon by the RIAA, which
maintains that “[ReDigi’s] software duplicates
the user’s copy of the track, places a watermark on that copy, stores it on ReDigi servers
and purportedly deletes the original file from
the user’s hard drive or mobile device. Then
ReDigi offers sale of the copy to other users
of its service.”
If that’s the case, shouldn’t ReDigi
pay a mechanical license for making a copy of
the track to sell it? The answer is tricky. ReDi-
gi is paying the users who sell tracks to them.
If those tracks have been legally acquired,
mechanical royalties have already been paid.
Also, ReDigi takes away all of the user’s copies and replaces them with their own. But ReDigi cannot prevent users from keeping the
tracks if they want to, by copying them to a
different source first.
Capitol Records is targeting ReDigi
too, claiming that the company is also violating the right of copyright owners to distribute,
reproduce and perform their music. The giant
search engine Google recently tried to enter
into the fray, arguing that it was in the best interests of the cloud computing industry (worth
about $40 billion) that the Court hear the case
at length and not reach a premature decision;
for Google, some file transfers in the cloud
still need legal clarification. The judge disagreed, though, and told Google that it would
proceed with Capital Records vs ReDigi as it
saw fit.
Moving Forward
ReDigi’s business claims to be on
the artist’s side by paying copyright royalties.
Its business plan, though, has weaknesses. In
addition to the presumption that a user will
give away a digital copy of a file without saving it elsewhere, patrons are unlikely to take
kindly to software that scans their hard-drives.
The law is still catching up with the
rapid changes in the digital music market, and
ReDigi’s story is familiar. Change brings fear,
uncertainty, and new challenges. ReDigi’s proponents will underline the value of returned
copyright monies and savings for recorded
music listeners. Still, for ReDigi to find a way
forward with mp3 sharing users, there will
have to be more buy in for the idea of recycled
music. There is no precedent for monetizing
that and the record labels will want to make
sure that this new business model is not built
on their backs.