A. Bad Music (bad music didn’t have to do with it) B. Mp3s and digital piracyC. The singleD. Streaming?3. Since 2003 there has been a drastic decline in the sale of CDs and digital has increased their dollars per capitaTaylor Swift-she removed her music from the free platforms but not from the platinum platform because she gets compensated betterFree Streaming wouldn’t exist without the threat of piracyStreaming (on demand) Youtube$1 -$2 for 1000 views+?Webcasting(not on demand but close) Pandora “near on demand”$1 for 1000 spinsPayments not based on spins. Based on share of services revenuesmain problem with streaming and webcastingCompulsory government mandated licenses and prices.All songs the same price. No price discovery end compulsory licensing?kim.com-he was doing what iTunes does but he wasn’t paying anyoneit cost him millions of dollars to make the websiteMBUS 3000 1st Edition Lecture 9Outline of Last Lecture I. Assets II. Liabilities III. Financing statements Outline of Current Lecture IV. Death of the recorded music business V. Bain chartVI. Digital Age VII. Singles VIII. Free pirated music IX. From an artists perspective X. Record labels XI. Some random points Current LectureA) Death of the Recorded Music Business? The decline in recorded music revenue1. Meet the new boss worse than the old boss. The for-profit piracy business2. The death of the recorded music industry what killed it? A. Bad Music (bad music didn’t have to do with it)B. Mp3s and digital piracy C. The single D. Streaming?These notes represent a detailed interpretation of the professor’s lecture. GradeBuddy is best used as a supplement to your own notes, not as a substitute.3. Since 2003 there has been a drastic decline in the sale of CDs and digital has increased their dollars per capita B) Bain Chart1) Inaccurate conclusions one might reasonably draw from the misleading Bain chart: - Wrong: The music industry is down around 40% from its peak in 1999Correct: The music industry is down 64% from its peak.- Wrong: At least the music industry is almost 4 times better off than in 1973.Correct: The music industry is actually down 45% from where it was in 1973- Wrong: The CD era was the aberration. (Mr. Gruber’s reasonable take)Correct: The CD peak was only 13% better than the vinyl peak, not over 250% better as the Bain chart implies. - The overall conclusion is that the music industry is actually doing much worse than the Bain chart implies:- somewhat unsurprisingly, the recording industry makes almost all their money from full-length albums but album sales have been decreasing in recent years C) Digital Age- The two key elements of the “digital” strategy are not: working mobile and subscription based models. - At least not yet. If apple goes to a subscription model that may change. - Digital brought the era of the single - No one is buying albums anymore. “The Single is killing the album” Just over 1 album a year per capita CDs .25 downloaded albums per year Even lower now. - 10 years ago the average American spent almost 3 times as much on recorded music products as they do today.- 26 years ago they spent almost twice as much as they do today. - 1990s you mostly bought CDs- decline of almost half in dollars per capita since 1978- early 2000s there was barely any profit in singles D) singles: - 2003 the itunes store launched along with the ipodo iTunes 99 cents a song- Recorded music sales down 64% from peak - EMI (music record company) employees 1999 about 11,000 - EMI employees now (2012) >1,000 (actually just bought by universal) down +90% o Why does this suggest good news? o More efficient to sell more albums with less employeeso Some of those jobs lost by record labels have been recreated by other companies. Like Amazon, iTunes, Spotify, Pandora, CD baby,Tunecore, Thirty tigers. o Majority of jobs were lost in distribution and record stores. Above companies replaced some of their distribution functions. - Despite what you may read on the internet and from various experts, you can’t replace recorded music revenues with revenues from touring.- Fall 2011 “Tourpocalypse” Too many artists on the road. E) Streaming- The next plunge in revenue is taking shape- Based on album sales decline, on a gross based artists are losing around $3,000,000 a month from music streaming, which is offset by about $200k or less in streaming revenue - Taylor Swift-she removed her music from the free platforms but not from the platinum platform because she gets compensated better - Free Streaming wouldn’t exist without the threat of piracy - Streaming (on demand) Youtubeo $1 -$2 for 1000 views+? - Webcasting(not on demand but close) Pandora “near on demand”o $1 for 1000 spins o Payments not based on spins. Based on share of services revenues - main problem with streaming and webcasting o Compulsory government mandated licenses and prices. o All songs the same price. No price discovery end compulsory licensing? --F) Free pirated music - free pirated music isn’t free, hardware, broadband connection, advertising, premiumaccounts costs money - How do “pirates” make money vs. How does Spotify make money? o They make money the exact same way only difference Spotify pays artists royalties(however small) mp3skull.com pays artists nothing- kim.com-he was doing what iTunes does but he wasn’t paying anyone o it cost him millions of dollars to make the website G) From an Artists Perspective - Meet The New Boss Worse than the Old Boss? - Comparing the share of recorded music revenue captured by artist under the “bad” old record company system to the new digital distribution paradigm - In the new digital paradigm artists get a raw deal from:1. Piracy2. Streaming (YouTube) 3. Record Labels/iTunes/Amazon - File sharingo The Man 100% of revenue o The Artist 0% of revenue H) Record Labels- Record label got rid of most expenses Artists kept most of their expenses - Record labels pay everyone like there was moderate successo Accidentally overpaid the artistso 80-90 percent of all artists un recoupedo They received a larger share of gross revenue than contract required. I) random points - Record labelso subsidized losers with winners money 100% capital risk content - New Boss Google/Amazon/Itunes/Pandora/Spotify o winner take allo 0% capital risk content o Long tail long