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Music Business JournalVolume 6, Issue 5 April 2011

Berklee College of Music

Inside This Issue

Mission Statement

The Music Business Journal, published

at Berklee College of Music, is a student

publication that serves as a forum for intel-

lectual discussion and research into the var-

ious aspects of the music business. The goal

is to inform and educate aspiring music pro-

fessionals, connect them with the industry,

and raise the academic level and interest in-

side and outside the Berklee Community.

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One of the silver linings of the cur-rent crisis is the recognition that cooperationbetween business, government, academics, andthe creative community is needed to right theills of the music industry. That such a gatheringwill soon be taking place in the US, however, issurprising. In the US, music making is largelyindependent of government aid and continues tobe a grass-root and street-smart effort. In con-trast, Europe is more used to government actionin support of the music industry--either to pro-mote its exports, like in Sweden, or to enforcebroadcast quotas to protect the mother tongue,

as in France. Moreover, European scholars tendto make more of the connection between musicand culture than their American counterparts.

The Rethink Music conferencethat will take place in Boston on April 26-27is an attempt to bring together bedfellows that,in the US, so far have been largely estrangedfrom each other. In fact, the conference couldbecome a catalyst to consider fresh perspec-tives on common issues. Never, for instance,have so many distinguished academics sharedthe podium with industry practitioners and gov-

ernment policy makers. Harvard, through itsBerkman Center for Internet and Society andits Business School, will be present; and sowill Berklees Music Business/ManagementDepartment, representing one the largestcommunity of music students and teachers inthe world. Rights stakeholders, top record la-bel executives, public policy makers, and, ofcourse, some of the talent without which thebusiness could not exist, will also converge inBoston. The list of conrmed speakers can befound at www.rethink-music.com.

The involvement of the French MI-DEM organization, a trueprimus inter paresin international music business buildinges-pecially known for its January agship showin Cannesis also remarkable. MIDEM haschosen to piggyback on the new Berklee-Har-vard connection to attempt its rst US showsince putting up a Latin Music Conference inMiami back in 1997.

The MBJinterviewed the ExecutiveDirector of Rethink Music, Berklees AllenBargfrede, who is Assistant Professor of Mu-

Frontier Enterprises

Page 4

Master Recording RightsPage 6

MOG: An Inside View

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Apple Subscriptions?

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This Years Grammys

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A Left-Brain Take on Music:The Rethink ConferenceBy Frederic Choquette & Kerry Fee


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Table of Contents

Business Articles

Rethink Music.........................................1

Digital Music Forum East.......................4

Corporate Takeovers...............................5SXSW.....................................................11

The Apple Tax........................................12

Revisiting The Grammys.......................13

Law Section

A Transfer of Rights?..............................6

Online Security......................................14

Interview

Allen Bargfrede and Chis Bavitz............3

Anu Kirk.................................................8

MBJ Editorial

Mission Statement...................................1

Editors Note...........................................2

Upcoming Topics...................................16

Sponsorship

Berklee Media....................................... 15

Editors Note

Volume 6, Issue 5 Music Business Journal

As we observe the sudden shifts in New England weather over these past few weeks, there seemsto be a distinct sense of renewal in the air. We are surrounded by the much welcome change of theseason, and the Music Business Journals latest release is as fresh as ever. Harmonizing the tone setby this months ReThink Music Conference, the MBJ presents a compilation of industry news thatgives insight to the businesss future directions.

Fred Choquette and Kerry Fee open things up with an insightful reection and detailed interviewwith ReThink coordinators Allen Bargfrede and Chris Bavitz. As Bostons rst major music confer-ence, and the rst appearance of MIDEM in the U.S. in a while, the two share their thoughts on theevents potential for the industry. Then, Nick Susi provides rst hand accounts of this years DigitalMusic Forum East held in New York City and SXSW, held in Austin, TX.

With the recent Citigroup acquisition of the EMI record label, the instability of the majors ismore apparent than ever. Ive provided an account of the deal along with other potential mergers andacquisitions. Also, the Recording Academy has faced a great deal of criticism at this years Gram-mies, and Fred Choquette writes on the controversy. Change in the industry is reected perhaps in thediscussion over the Grammy nominations.

The world of the music cloud is taking shape quicker than ever. Kayleigh Mill has contributedan informative piece on the recently enacted Apple Tax and its possible implications. In addition,Ben Scudder provides us with an exclusive look into the inner workings of MOG through a detailed

interview with the companys mobile marketing director, Anu Kirk.

On the law side of things, Luiz Augusto Buff shares a detailed analysis of Termination Rightsand how that might affect artists. Ben Hong also provides a thought-provoking piece on InformationSecurity as it pertains to consumer activity on the Internet.

In addition to this months latest body of work, it gives me great pleasure to announce that aftersix months of rethinking our online presence, the MBJ team will be launching a brand new websitethat will feature our entire database of articles along with lots of additional content. Be sure to checkit out soon at www.thembj.org.

Thanks so much for reading,

Evan Kramer, Editor-in-Chief

Contributors

Editors Note.....................................................................................................................................................................Evan Kramer

Business Articles............................................................Frederic Choquette, Kerry Fee, Evan Kramer, Kayleigh Mill, Nicholas Susi

Law Section...............................................................................................................................Luiz Buff de Souza e Silva, Ben Hong

Interview..........................................................................................................................Frederic Choquette, Kerry Fee, Ben Scudder

Staff................................................................................................................................................... Frederic Choquette, Ben Scudder

Staff (cont)...................................................................................................................Dahyun Ed Jeong, Kerry Fee, Micah Deterville

2 www.thembj.org April 2011

Management

Editor-in-Chief...................................................................................................................................................................Evan Kramer

Content Editor...................................................................................................................................................................Nicholas Susi

Webmaster..................................................................................................................................................................Itay Shahar Rahat Faculty Advisor and Finance.....................................................................................................................................Dr. Peter Alhadeff

Layout Editor..................................................................................................................................................................Lau Meng Wai

PR Managers........ ................................................................................................................................Ben Scudder, Micah Deterville


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Business Articles

It is the only conference that has a businessmodel competition (with a substantial $50K

reward for the winner), and a competition forpublic policy papers organized by HarvardsBerkman Center. As you know, this eventalso involves MIDEM, which is coming tothe US for the rst time in a long time. MI-DEM is known for putting up the worldsbest-known annual music conference. It isprimarily providing logistical support andmarketing for the event. MIDEM has a builtin marketing database, and a lot of connec-tions and resources that regular conferenceplanners do not have.

Beyond that, the quality of the speakers andthe programming is excellent, which is not

always the case in pioneering events likethis, and were also offering access to a pret-ty good lineup of exclusive concerts.

MBJ: Please tell us about it

AB:Berklee and the Berkman Center at Har-vard are solely responsible for the content ofthe programming. We had a pre meeting inOctober at Harvard, with some key industryplayers to talk about what the issues reallywere that had to be discussed (with a viewto nd a solution).Rethinkwill feature aboutten to thirteen different panel discussions aday, with topics including technology, licens-

ing, new business models, and other profes-sionals perspectives.

We have the number one or two executivesfrom every major label coming, a UnitedStates Congressman, top managers, andheads of other successful startups. Therehave been at least two or three instanceswhere we had a VP of a company saying hewould attend, and the CEO stepped in andsaid, there are so many CEOs coming tothis, I want to come instead of my VP.

We also have a variety of artists scheduled toappear. The combination of Amanda Palmer,

Ben Folds and Damian Kulash (Ok Go) isgoing to be really special--the three artistsare going to go into a Berklee studio, do acollaboration, tape it, release it at Rethinkthe next morning, and then perform it live atnight.

MBJ: What about the Public Policy Pa-pers and the Business Plan Competition?

CB: The Berkman Center ran a Call forPapers in connection with the conference,seeking policy proposals that advance the in-terests of music creators, consumers, and en-

trepreneurs through changes in existing law.We will select a paper, and Harvard Law

Schools Journal of Sports & EntertainmentLawwill publish it this spring. The author isexpected to present at the conference as well.In addition to the Berkman Centers Call forPapers, we have put together a brieng bookcollecting research and other resources forconference participants. The brieng bookwill identify key issues that relate to lawand policy concerning music, and these is-sues will be addressed and expanded uponthroughout the course of the event.

AB: The Business Plan Competition is meantto give everyone, globally, a voice about so-lutions for moving forward. It is an oppor-

tunity to speak out and say: I think this isthe path the music industry should take. Agenerous gift of a Berklee trustee has madethis part of the conference possible.

MBJ: So the intended audience of Rethinkis broad-based?

AB:Yes. This is a question that has come upover and over, and I think that we dont haveone specic target audience. We are trying tocater to the music industry professional, butthe conference is also appealing to academ-ics. We also want students and musiciansthere, which is why we had a special student/

working musician rate. Most other confer-ences have very wide discussion topics,i.e. marketing here and management there,whereas we have a dedicated focus but re-main open-minded.

We are also incorporating audience partici-pation and feedback technology. Instead ofpassing around an open microphone at theend of a session, we are going to have SMSemail, Twitter feedback, and displays onscreen. The audience will be polled at the endof each session, and people can ask questionsabout something that was discussed. Thiswill get the audiences real feedback in an

anonymous way. A record label employee,for instance, cannot raise his hand to supportsomething against the interest of his label.I think this change is going to make thingsreally interesting. If you put up a thought-provoking question, you may get 40% of theroom to publicly agreebut 80% of the au-dience may agree or disagree anonymously.Rethinkmight show us a new and interestingdynamic here.

sic Business/Management. Bargfrede is alsoa copyright and music lawyer and the author,

with Cecily Mak, ofMusic Law in the DigitalAge (Berklee Press, 2009). Additionally, weapproached Christopher Bavitz, a close col-laborator of Bargfrede and the Assistant Di-rector of Harvards Cyberlaw Clinic, a lawschool program at the Berkman Center forInternet & Society. Bavitz is a Clinical In-structor and Lecturer on Law at Harvard LawSchool. He currently teaches a seminar onMusic & Digital Media and was an in-houselawyer at EMI North America for six years.

MBJ: What focus will the conference have?

Allen Bargfrede:Above all, it is a music in-

dustry event.Rethinks focus is on copyrightand recorded music, and on nding solutionsto the current industry downturn. It will con-sider ways to save and restore the recordingindustry by involving creators, academics,and industry professionals. On the copy-right front, for example, it will have a broadspectrum of views. Examining the partiesin attendance, we have the Berkman Centerat Harvard, which is perceived to be on theleft of the copyright scale, and the Record-ing Industry Association of America, which isclearly off to the right. I see Berklee as some-what of a neutral party (think Switzerlandof music), because our interest lies solely in

promoting creativity in music and providing amarket for our graduates.

Christopher Bavitz: Yes, I think that an idealoutcome forRethinkwould be to foster good,productive discussions at the event itselfaround legal rights, business models, chal-lenges facing creators, and the like, then seethose discussions become starting points forfurther conversations going forward. I knowAllen Bargfrede and his team at Berklee haveworked hard to ensure that a wide variety ofstakeholders and viewpoints are representedat the conference. My hope is that discus-sions that begin here will continue after the

conference has come to a close. It would begreat to see the event have a real impact onthe way people involved in the legal and busi-ness aspects of the music industry approachthe challenges facing those who create anddistribute music.

MBJ: Will Rethink work in a saturatedconference market?

AB: It is a challenge, but Rethink has a lotof parts that will allow it to differentiate it-self. This is the only conference that involvescreators, academics, and industry executives.

Rethink Music (cont.)



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Business Articles

By Nicholas Susi


sic are often times

only buying CDs.He stated that 55%of paying music fansare only purchasingCDs. Theres alwaysthe argument that anartist can depend ontheir super fans,but is that enough torecover from the lossof so many buyers?

More peopleare listening to ser-vices like YouTube

than they are theirown libraries, and that is a trend thats hap-pening fast, Garland added, People playwhat they dont buy, and buy what they dontplay. So, if consumers dont listen to themusic they buy or download, and prefer tostream new content, maybe streaming ser-vices are still the answer.

Beyond Oblivion seeks to be thatanswer. Adam Kidron, the CEO and Co-Founder of Beyond Oblivion, presented anew business model. Recognizing the lim-ited royalty checks from album sales and

streamed plays, Beyond Oblivion strives tomonetize usage.

With Beyond Oblivion, we be-lieve that the download and the ownershipshould be free, and that what we must payfor and what people would be interested inpaying for--and where people see the valueis in usage, Kidron explained. Beyond willnot require subscription fees and intrusiveadvertisement interruptions. Instead, userspay a one-time lifetime-use fee. The size ofthis lifetime fee, however, is uncertain.

Beyond Oblivion is setting outto have the largest innite music library.The concept sounds nice, but it seems thatit would lead to massive licensing pains,similar to Spotifys constant headaches.Once Beyond aggregates a respectable mu-sic library, users would be able to accessthe music through a licensed player. Userscould stream, download, and share musicand playlists with their friends who havelicensed players. These licensed playerswould be able to track play counts, regard-less of whether the le was ripped, shared,or downloaded. This means artists and labels

would be paid micro-royalties per play,

hence Kidrons coining of the term usagemodel. Beyond encourages fans to virallyspread music through social media, becausemore music consumed means more plays,which means more money.

The Beyond player will functionnot only on computers, but also on smart-phones and tablets. A beta version of thisusage model will be released in April, andthe ofcial service should launch in Juneor later, depending on certain locations ofthe world. Beyond Oblivion most recentlyreceived $77 million in venture capital in-

vestment, but time will tell the true successof this new service.

Following Kidrons presentation,the various panel topics began. Spotify con-tinued to cause quite a buzz in the cloudtechnology world, as well as the prospect ofan Apple or Google streaming service be-ing launched. Surprisingly, representativesfrom MOG and Rdio didnt seem phased bythe potential rivalry. Anu Kirk, Vice Presi-dent of Mobile Products at MOG, and Cart-er Adamson, COO of Rdio, said they wouldwelcome the healthy competition and becontent with riding on the massive market-

ing dollars of Apple and Google to bringbetter awareness to subscription services togeneral consumers.

Another panel aimed to determinethe right amount of government involve-ment with illegal downloading and piracyaffairs. This topic was extremely relevantdue to the exhaustive efforts and money thatare constantly pumped into bringing pow-erhouses like Limewire and RapidShare tocourt. What could have been a constructivecivilized conversation turned into heatedbickering.

The recording industry is falling,but the music industry is doing ne, arguedJulie Samuels, Staff Attorney at the Elec-tronic Frontier Foundation. Rich Bengloff,President of A2IM, had other thoughts. Ihave looked at the touring numbers over thelast ten years, Bengloff stated in rebuttal,Ive looked at the merch business, and theoverall pie whether it be endorsements,advertising, synchs this industry has gonedown however you want to measure it.

On February 24, 2011, the 11thAnnual Digital Music Forum East was heldin New York City. The conference hosted aseries of panels that assembled artist repre-sentatives, label executives, publishers, andtechnology companies to discuss the currentissues regarding all aspects of the music in-dustry.

The conference commenced with aresearch presentation that analyzed the cur-rent state of digital music, and how consumerbehaviors and attitudes have been an inu-ence. Eric Garland, CEO and Founder of Big-Champagne, and Russ Crupnick, President ofNPD Entertainment, shared eye-opening sta-tistics. Crupnick discussed how the music in-dustry has catered to the consumer, slowingthe increase of music prices, allowing moreaccess to digital content, and offering morechoices of services to use. Instead of express-ing gratitude, consumers are ipping us thebird, Crupnick explained. He continued byshowing that the population of buying musicfans has declined by 20 million.

Garland discussed that althoughYouTube is a viable alternative source for an

artist to post content and earn potential in-come, few songs are able to amass millionsof hits before the ad revenue starts to tricklein. The disproportionate income is the samefor streaming as well 1,000 streams equalsabout $1 of revenue for an artist. Only 5%of US consumers are using subscription ser-vices, and that includes free trial users. Is anartists extreme effort to accrue thousands,even millions of hits worth the small payoff?

Crupnick pointed out that the re-maining fans still willing to purchase mu-

Music Companies Meet in New York

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April 2011 www.thembj.org 5


Business Articles

Its certainly not a positive view

of where the industry might be headed, butBengloffs brutal honesty hits hard. Find-ing who to put the blame upon seems to be apopular game among industry folk. Weveseen the decimation of the recorded musicindustry in terms of the staff, the personnel,and the creative product, Mark Eisenberg,Digital Media Executive and Consultantfor LatticeWorks Media explained, So wehave seen the worst case scenario when tech-nology runs its course, without any type ofbounds or restrictions.

Eisenbergs statement suggeststhe fact that perhaps the government should

place further restrictions on how the Internetis used within the music industry, especiallyin the case of Limewire and RapidShare. Ofcourse, the converse argument points to thefact that technology enables an artist to makeleaps and bounds that were inconceivable afew years ago. We are living in the goldenage, stated Michael Petricone, Senior VicePresident of Governmental Affairs at theConsumer Electronics Association. Theresmore music being made than ever before,there are more people listening to music thanever before, theres more discovery than everbefore. Meanwhile youve got independent

musicians coming up with innovative busi-ness models that allow them to support them-selves.

Petricone is right that technologyallows more music to be made than everbefore, but is all of that music great, qualitymusic? Have the lters been lowered l-ters that block inexperienced music made bypeople who see music as a hobby, which nowhas been poured into the same pool as seri-ous musicians that struggle to create an artand a living? Ultimately, the same argumentsand the same points were echoed across thepanel, leading the discussion to nothing but astandstill.

Hopefully the conversation willcontinue at the Digital Music Forum West,which will be held in Los Angeles on Oc-tober 6, 2011. Despite the muddling of pes-simism and optimism for the business, it isconferences like the Digital Music Forumthat encourage forward thinking among in-dustry ofcials.

EMI and Citigroup

Ever since private equity firm TerraFirma purchased the EMI Group in 2007, thelabel and publishing giant has been caught ina proverbial purgatory of sorts; too substantialand progressive to falter, yet too financiallyuncertain to move forward. Having final-ized the acquisition on the eve of that yearseconomic credit crunch, Terra Firma quicklyfound itself pulling rabbit ears out of its pantspockets in the face of a $3billion loan fromits lender, Citibank. Terra Firma Chairman,Guy Hands, then filed a lawsuit with Citibank

claiming that his loan officer, David Worms-ley, had misrepresented the label and effec-tively duped him into purchasing the com-pany. November 4th 2010 saw the conclusionof a four weeklong battle in the New YorkSupreme Court that favored Citibank. GuyHandss Terra Firma was made responsible forthe full amount of EMI Groups debt. Now,to stay in control of EMI, Guy Hands had tofind the necessary funds to pay the debtanimprobable occurrence.

Following the New York SupremeCourts decision, therefore, the transfer of

EMI ownership had an air of inevitability.However, at the time of ruling, it was as-sumed by most that the transition would nottake place until EMIs March 31st, 2011 fis-cal year-end, the time when Terra Firma wasexpected to default on its final loan payments.In an effort to expedite the process, and seizeimmediately control of the record label andpublisher, Citibank asked for a solvency testthat it expected EMI to fail. It did. As a result,Guy Hands and Terra Firma were removedearly from the company and lost any stakethey had in it. Research by Private EquityNews would put Guy Hands Terra Firmasloss at $2.7 billlionperhaps the largest ever

in the history of private equity.

The acquisition improved the posi-tion of the label. Time was bought back fromthe March 31st, 2011 deadline (Citigroup tookeffective control on February 1st). In addi-tion, the purchase reduced the debt level ofthe record label by more than 65%. Througha debt-for-equity swap, Citigroup was ableto recapitalize EMI, reducing its debts from$5.5billion to just $1.9billion. We have gonefrom a company that is vastly overleveraged to

having one of the strongest balance sheets inthe music industry, says Roger Faxon, CEOof the EMI Group. This gives us strength tomove forward ... We have plenty of headroomin our loan covenants and lots of liquidity.While restructured balance sheets have a no-table affect on EMI, they are also equally at-tractive to Citibank- who will use them as aselling point for potential investors as they be-gin the process of selling off the EMI assets,which include its valuable publishing catalog.Its pretty clear that Citigroup will not sellCDs Its not a comfortable place for a mu-sic business to sit, Faxon says; he adds that

in due course, we of course are going to getsold; but it will be an orderly and profitableprocess.

A Potential WMG Merger

The prospect of a merger betweenEMI and Warner Music Group has been onthe radar since before Terra Firma snatchedthe company in 2007. Now that EMI is effec-tively back on the market, it is up to Warnerscapital investors Thomas H. Lee Partners,

The Slings & Arrows of Industry Giants

By Evan Kramer

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Law Section

A Primer on Termination Rights

By default a person that makes anoriginal work and fixes it in a tangible formowns its copyright and consequently the ex-clusive right that will permit the extraction ofcommercial benefits from the creation. Theeconomic exploitation of copyrights is com-monly made through the granting of transfersand licenses to other parties in exchange forcompensation.

Generally speaking, songwriters as-sign rights of a musical composition to pub-lishers, while artists transfer their rights overtheir sound recordings to the record labels.Many of these licenses and transfers are usual-ly granted before the publication of the work,when it is not possible to predict its success.For this reason, authors are usually in a worsebargaining position than the transferees or li-censees--and end up collecting less than theycould.

In order to protect authors, the 1976Copyright Act established termination orrecapture rights that give authors a secondchance depending on when the grant was ex-ecuted. The statutory termination of transfersand licenses allows the renegotiation of thesegrants, either by renewing the contract withthe original grantee or by recapturing that rightin order to enter into a new agreement with athird party.

Termination is considered for anyworks other than works made for hire, andonly for U.S rights that are copyright related.It excludes the possibility of recapturing for-

By Luiz Augusto Buff

eign rights, trademarks, or any

other federal or state rights. Theterminated grantee has the rightto exploit derivative worksthat were prepared under theirgrant, but not others.

The provisions of the ter-mination rights can be found inthe 1976 Copyright Act in twodifferent contexts, dependingon when the grant was execut-ed. The first, under Section 203,provides that grant of transferor licenses that were executed

by the author in or after 1978may be terminated. Generally,the author, as well as his heirsor a duly authorized agent, hasa period of five years, begin-ning after thirty-five years of

the mentioned grant, to effect the termination.Works that were created prior to that date, butfor which the grants were executed on or afterJanuary 1st, 1978, are also included.

For works created prior to 1978 andfor which the grant was also executed beforethat date, the provisions of Section 304 (c) and(d) are applied. The general rule is that the ter-mination may be effective during a five yearperiod starting fifty-six years after the copy-right was first secured, regardless of the dateof the grant. In these cases, for the grant to besubject to termination, it is not required that itbe executed only by the author, as in Section203, but also by his heirs or executors.

However, the transfer of rights backto authors is not automatic. In order for thetermination to become effective under bothSections, the majority of the authors, heirs orduly authorized representatives must serve anotice upon the grantees, expressing the effec-

tive date of termination. In order to be valid,a copy of this notice must be registered in theCopyright Office prior to the effective dateof the termination. The service of the noticeshould occur no later than two years and noearlier than ten years of the desired date of ter-mination.

In the absence of action, the termi-nation right disappears after the closing of thefive-year window, leaving rights in the workpermanently in the hands of the grantee un-til statutory expiration of the copyright term.

For instance, for a grant executed on January

1st, 1978 the termination window will beginthirty-five years after the grant from 2013to 2018. If the author decided that they wouldwant to terminate the transfers at the earliespossible date a notice should have been sent aany time between 2003 and January 1st, 2011

With regards to the application ofthe Section 304, a point to be highlighted isthat as sound recordings were not contemplat-ed by the Copyright Law until 1972, the firstterminations of transfers for sound recordings made before 1978 will only be effectivein 2028, fifty-six years after 1972. The first

notices for such terminations will start to beserved in 2018.

There are certain works for whichgrants were signed prospectively by authorsbefore 1978, but the works only came intoexistence after January 1st, 1978. These socalled gap grants were the subject of recenanalysis by the Copyright Office. At issuewas whether or not the gap grants could beterminated, as the provisions of Section 203are applicable only for grants executed after1978 (Section 304 is not applicable because irequires a subsisting copyright in 1978 to be-come valid). After receiving comments from

different stakeholders, the study clarifies thathe Copyright Office will accept notices of termination for these works (it considers that theexecution of the grants only becomes effectiveon the date when works come into existence)However, whether such notices of termination fall within the scope of section 203 willultimately be a matter to be resolved by thecourts.

Many agreements between writerand publishers anticipate that any terminationright should be renounced, with the publisheowning the copyright for its entire term. How

ever, the Law states that the termination othe grant may be effected notwithstanding anyagreement to the contrary. The intention othe legislation was to secure for the authorthe rights of termination independently of anylanguage that might be set out in an agreement, i.e. forcing them to give up their futurerights without renegotiation.

Agreements of the contrary werethe subject of recent court decisions addressing the Section 304 termination provision. Inthe cases of Milne v. Stephen Slesinger, Inc

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(9th Cir. 2005, Winnie the Pooh Character)

and Penguin Group (USA) Inc. v. Steinbeck(2nd Cir. 2008, works of John Steinbeck),the courts decided that the renegotiation ofthe agreement during the termination win-dow revoked the original grants and werenot deemed to be agreements to the con-trary. They denied, therefore, the possibilityof termination. However, in the Classic Me-dia, Inc. v. Mewborn, (9th Cir. 2008, LassieWorks) the court preserved the terminationrights considering a post-1978 assignment asan agreement to the contrary and thereforeattending the congressional intent to givethe benefit of the additional renewal term to

the author and his heirs. There is yet no caselaw related to Section 203, as its provisionswill only become effective on 2013.

Works made for hire are the sig-nificant exception for termination provisionsand will provide a fertile ground for litiga-tion in the following years. The exemptionexists because in such cases there is no trans-fer of copyright and the employer or com-missioner shall be considered the author ofthe work from the moment of its creation.

Record labels would like to consid-er sound recordings as works made for hire.Artists, however, argue that this cannot beapplied to sound recordings, as they do notfall in one of the nine types of works listedon the definition of a work for hire (Section101 of the Copyright Law). As sound record-ings are typically a joint work of differentartists, producers and engineers, the discus-sion of who can be considered the authorwill increase. In effect, the period betweenthe service of a notice and the effective dateof the termination resembles a period of re-negotiation for record labels and artists--atleast for those who have maintained com-mercial value throughout the years.

As we approach 2013, discussionsabout the termination provisions are becom-ing more relevant. The Future of Music Co-alition recently affirmed as more copyrightsbecome eligible to revert back to creators,we may find that the artists themselves ex-ploit their works in novel ways that could bebeneficial to the overall health of the musicmarketplace. At the very least, the upcom-ing termination of transfer provisions willprovide a valuable window for authors toexploit.

Industry Giants (cont.)

Business Articles

April 2011 www.thembj.org 7


Bain Capital, and Providence Equity Partners- to

decide whether or not to make another bet on themusic industry. Despite the fact that Goldman-Sachs was recently hired on to seek out potentialbuyers for WMG assets, label executives stillmaintain vocal interest in placing a bid for EMIwhen the opportunity arrives.

One of the constraints that Warner has isEuropean and US regulators. But given these eco-nomic times, and the current status of the musicindustry, it is possible that government oversightmight be relaxed to stimulate the economy. Theexpectation that regulators need to play the roleof facilitator and help the industry make money

rather than fending off a monopoly is reasonable,and is widely held by investors today such as AnilNarang, a partner at MKM Capital Advisors thatdiscussed the Warner-EMI merger in BillboardMagazine.

The consolidation of EMI and WMGwould have a significant impact on the music in-dustryand not just the recording industry. EMIPublishing, for instance, already holds a com-manding lead in overall market share at 18.1%.The addition of Warner/Chappells 12.7% sharewould afford the new company control over morethan a third of the industrys total publishing as-sets. Moreover, the consolidation of both com-panys artist rosters, executive staff, and financialassets would create a very favorable competitiveposition in regards to the other two majors.

The role of BMG

Another player interested in EMI andWarner is the German Bertlessmann Music Group(BMG). Their interest, however, is focused exclu-sively on acquiring publishing assets, not recordlabels. Because of this, they may be at a disadvan-tage against a package-deal offer for both.

The saga of BMG is worth telling. Its

recorded music business joined forces with SonyMusic in 2004, creating at the time the larg-est global record company with a 21.5% marketshare. BMG then ran into liquidity problems thatwere unrelated to its music operations. It decidedto start selling off assets in 2007, when it soldback to Sony its 50% stake in Sony BMG for$1.5billion. BMGs separate publishing arm, notpart of the Sony-BMG merger, was also auctionedoff to Universal Music Group for $2.6billion.

However, by 2009 Bertelsmann re-opened shop. It began focusing exclusively on

music publishing, and entered into a joint

venture with private equity firm KohlbergKravis Roberts & Co. (KKR). Under theleadership of its new CEO Hartwig Ma-such, BMG is by far the fastest growingpublishing company in the industry. In thepast 18 months, the company has embarkedon an acquisition spree, picking up the likesof Crosstown Songs America, Stage ThreeMusic, Cherry Lane Music Publishing, Ev-ergreen Copyrights and Chrysalis. As ofQ310, BMG is the 6th largest music pub-lisher in America, as measured by the HarryFox Agency.

Bertelsmann is currently one ofthe front-runners going after the publish-ing assets of both EMI and WMG. Witha 5.2% market share in Q310, acquisitionof the EMI catalogue could vault BMG toa controlling share of around 23%. BMGsCEO is on record for saying that BMG isnot interested in buying a major label, [andthat] they have a scalable infrastrucure [asa publisher only]. He does not rule out,however, a future interest in controllingmaster recording rights to extend the reachof BMG serviceswhich is where EMI andWarners recorded businesses will come in.

Bibliography:

http://www.guardian.co.uk/business/2010/oct/13/citi-

group-emi

http://www.ft.com/cms/s/0/6a075f9a-ddf8-11df-88cc-

00144feabdc0.html

http://www.emii.com/Articles/2695369/Hedge-Funds/

Other-Articles---Hedge-Funds/Terra-Firma-Seeks-11.1B-

From-Citi.aspx

http://www.billboard.biz/bbbiz/others/take-it-to-the-

bank-citigroup-s-emi-takeover-1005021212.story

http://www.billboard.biz/bbbiz/others/how-citigroup-out-

foxed-guy-hands-in-its-1005020642.story

http://www.billboard.biz/bbbiz/industry/record-la-

bels/emi-and-warner-music-destined-to-be-togeth-

er-1005015022.story

http://www.billboard.biz/bbbiz/others/is-terra-firma-s-

investment-in-emi-the-biggest-1005024732.story

http://www.billboard.biz/bbbiz/others/the-publishers-

quarterly-q3-10-1004126550.story

http://www.billboard.biz/bbbiz/others/bmg-in-a-major-

key-1004126554.story

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8/16


Interviews


MOGs Anu Kirk

By Ben Scudder

Services like Rhapsodycharge a monthly subscriptionfee to grant users, with brows-ers or mobile apps, access to anextensive music catalogue. Thecontent is stored on a serversomewhere other than the usershard drive (i.e. the cloud).There is no need to safe-keepa personal music collection ormove it around devices. MOGis an example of a pioneeringcloud-based service, and wewanted to know more. Anu Kirk,

is the Lead Product Manager ofMobile Content.

MBJ: What is MOG doing

to acquire licenses/content?

Where do you feel MOG has

the most potential for growth

in terms of its catalogue?

Anu Kirk: MOG uses a com-pany called MediaNet as the pro-vider for our catalogue. We alsohave our own in-house licensingteam of people with some legal

background, some label back-ground, and we proactively reachout to specific labels that wewant to make sure that we haveon board. This process is basedon feedback from our users, whorequest such content, but alsoon our knowledge of the indus-try and our desire to bring in, soto speak, cool labels. We reachout and ask these labels if theydlike to be part of MOG. We have contracts,or terms that we offer them, we send out anagreement, and hope that they sign.

MBJ: Do you find that MOG has beenreaching out to smaller indie labels lately,

or is MOG still focused on trying to make

deals with larger independent or major re-

cord labels?

AK: Well, I feel that indie label is sort ofa vague term. Fifteen years ago, an indie la-bel would have been something like Amphet-amine Reptile, or something like SST [Re-cords]. But today, an indie label can literallybe a guy thats made a couple of records onhis computer. I definitely think theres a dif-

ference between that and a company that hasbeen around for a couple of years with a size-able catalogue and sales of physical product.And sometimes, if its a label that people haveheard of in spite of the tiny genre it serves,we go after it. But many smaller labels thatare genre specific, or even just digital, cometo us directly because theyve heard about theservice and they want to make sure their musicis placed. Many are happy to go through anaggregator like IODA, CD Baby, Tunecore,or a service like that. One of the interestingthings about being a record label today is thatit is not all that different from what running alabel was like back in the days of physical me-dia. Think about what youre trying to do ata label: youre trying to sell your product. Inthe old days, you would be on the phone with

distributors trying to makesure that your record was atTower Records, the VirginMegastore, Sam Goody,and the warehouse. Nowyou make sure that youreon MOG, iTunes, Rhap-sody, and Rdio. The labelhas some interest in gettingtheir stuff to us as well.

MBJ: How does MOG

compete with and differ-

entiate itself from other

major streaming destina-tions such as Rdio, Rhap-

sody, or Grooveshark?

AK: MOG operates abusiness, in many ways,very similar to Rhapsodyand Rdio. All of these ser-vices are comprehensivesubscription services thatcharge the same amountof money for access to asimilar catalogue of mu-sic. The way that most of

these services tend to dif-ferentiate themselves isthrough the quality of theirservice, the user interfacedesign, i.e. the packag-ing with which the appis delivered. Weve alsodifferentiated ourselves bybeing on different kind ofplatforms than other com-panies. Rdio, for example,

has done a pretty good job of getting onto mobile phones, but they have not donea great job with consumer electronics inte-gration and they dont have a Chrome App

for the Google Chrome browser. Rhapsodyhas done a pretty good job of getting out toa little more, but they have not been as ag-gressive about adopting new platforms andtechnologies as MOG is. I dont think thatany of the services really believe that theircatalogue is substantially better or worsethan another.

MBJ: MOGs radio slider feature al-

lows people to customize and control

their radio experience. Does MOG

hold any exclusivity over that technol-

(ContinuedonPage9)



ogy? How do you perfect/develop that

technology so that users get a quality mix

of artists on demand?

AK: One of the things you had asked washow do we differentiate ourselves. The ra-dio slider feature that allows you to movebetween the original artist and similar artistsis a good example of the type of differentia-tion that MOG is interested in attaining. Theother services may have similar types of fea-tures, but they are not presented as elegantlyor stylishly as the slider. This radio featureis, I think, a key feature of MOG. One ofthe problems that other music services haveis that you pick the song or an album, andit plays that song or album and then stops.The service plays the one song you like,then youre listening to silence until you fig-ure out what you want to hear next. With

MOGs radio feature built right into the playqueue, after a song is played we add stuffthat youre going to like. This makes dis-covery super easy. The slider uses a par-ticular algorithm that we developed over acouple of years for matching similar artists,and gives the user control over how muchand how wide they want to go. We think itssomething really unique to MOG.

MBJ: What are your feelings about free

trials? How do they affect MOGs specific

business and subscription rate?

AK: Well I think that giving people theability to try the service is extremely im-portant. Even though subscription serviceshave been around for decades, many peopleare unfamiliar with them; they dont reallyknow what they are all about. People wanta free trial because they want to see if theservice has music that they want to hear,and they want to check out the interface. Ithink the free trial is absolutely essential. Interms of how long that trial should be, thatssomething that the industry is constantly ex-perimenting with, as is MOG. When MOGinitially launched its web subscription ser-vice before they had the mobile phone apps,

the trial was one hour long. That was a veryshort period of time, but all you needed toget out of those trials was an email address.The concern was that if you made the trialany longer, people would be creating fakeemail addresses just to listen to music forfree. But currently, weve been experiment-ing with free trials that are 7 days or 14 days.Im sure you saw the announcement thatRhapsody is going to try and give peoplea 60-day free trial. I think theres a certainpoint where you reach diminishing returnsfor free trials. What you really want to do

is give people some idea of how the serviceworks, but you dont want to remove thesense of urgency or excitement about signingup. Its really important. The other piece isthat you want to make sure that the user isntjust sitting there with a clock ticking, thatthey are actively engaged with the product,and that they understand what it is and howit works. So its critically important, but alsoone of those things that we have to keep ex-perimenting with to find the right balance ofduration and how much you pester the userduring the trial.

MBJ: What are your feelings towards the

actions that Spotify has taken to bring its

service into the U.S? How do you see this

affecting MOGs business?

AK:Well, the funny thing about Spotify is

that they have been about to come into theUS for two and a half years. I dont wantto sound overly skeptical, but until theylaunch here, its sort of an academic discus-sion. Spotify gets a lot of press for a coupleof reasons. They have the totally free option,and you cant have it in the U.S. right now--so its got kind of the thrill of the forbid-den. They also happen to have a pretty goodproduct. Its not substantially different thanMOG, Rhapsody, or any other subscriptionservices, but theyve done a pretty nice jobof executing against a very small feature set.For this, they get a lot of credit. But if they

launch in the US, it is highly unlikely thatthey are going to have the same free modelthat they have over in Europe. And if they dohave it here, it is highly likely that everybodyelse who is in the States will offer exactly thesame thing. The labels cant just give oneset of deals to one company and not offer thesame to others. It just doesnt work that way.That said, obviously everybody is concernedbecause they do have a fantastic reputationbased on a few people using it and saying itsawesome when free. But mostly, were tak-ing a wait-and-see approach. Weve done alot of talking internally about what we thinkour strengths and weaknesses are relative to

Spotify, and how we can counter their next

moves. I think of them as another competitorthat may or may not enter the market in thesummertime. I would be surprised if whatthey launch is substantially different thanwhats already on the field.

MBJ: When could we expect to see MOG

available outside of the US?

AK: I cant comment on that publicly, Ican tell you its something that we are veryinterested in, and that we are investigating.We want to make sure that if we do launchoverseas, its going to be a quality experienceand something that everyone can be excitedabout and give us platform to build on for thefuture. We definitely want to do it. Muchlike Spotify coming to the States, movingoverseas is a little more complex than it ap-pears on the surface. Its not like you can just

copy your software to a computer in a differ-ent country, turn it on and off you go. Youhave all sorts of compliance issues, and haveto do deals with the labels locally. So yeah,were definitely looking at that but we cantgive a timeframe.

MBJ: The MOG Music Network is a des-

tination within MOG that provides news,

reviews, and blogs on current music events

and trends. Does this platform lead a lot

of people to subscribe to the MOG ser-

vice? What percentage of MOGs overall

business does this account for?

AK: The MOG Music Network is a networkof blogs that MOG partners with to help de-liver advertising for those blogs. You haveall these people who are very passionateabout music, writing all these cool entries,and keeping up with the music scene. Theseare people who want to write about music fora living; they dont want to worry about mon-etizing their ads. So we have a partnershipdeal where MOG takes care of selling theads on the sites in exchange for the revenue.We have something like 1,800 blogs there,though Im not quite sure what the numberis now. Its a separate business from the sub-

scription service, and we have a loose linkage


Interviews

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10/1610 www.thembj.org April 2011


Interviews

between the two. Obviously, we think thereis some of value in having those blogs outthere with the MOG name present, becauseit does encourage people to come check outthe service. It also reminds people that we

are in the business of getting excited aboutmusic--not just billing your subscription ona credit card. It works out rather well, weleverage some of the blogs content on theMOG website, and the blogs help MOG getmore subscriptions.

MBJ: Do you find that people are using

the apps such as the Google Chrome App,

or mobile apps, more often than they are

actually visiting www.MOG.com? If so,

how might MOGs model change to adapt

to the app trend?

AK: Were still trying to analyze the dataourselves. Its funny, doing that type of anal-ysis you would think would be very easy andimportant, but were so busy building thesite and the service that doing detailed track-ing and trying to draw conclusions from thisdata is difficult. When you get any group ofsmart people together to look at some num-bers, youll get totally different conclusions.What I can tell you is that usage across dif-ferent platforms is really dependent on theuser. One person might only use it on theiriPhone, one person might be using it on ev-erything, and some people might be goingback and forth between platforms to try and

find which one works best for them. Wedefinitely see a lot using more than one plat-form partially because thats the key valuethat MOG brings to the table- the idea thatyou can get all your music anywhere thatyou want. The chrome app is definitely thedirection that we want to go in for the web-site. We like the fact that it is very clean andsimple, focused on music listening with few-er of the distractions that are present on thewebsite. We want to move the existing sitemore in that direction. Its just that we havea relatively smaller team for that and it takesus a little while to get where we want to go.

MBJ: There is a lot of discussion and

speculation on what companies like Apple

and Google will do next. Where do you

see the industry headed if Google or Apple

decides to release their own cloud-based

service?

AK: Well, I actually think that with Ap-ples recent announcement about its plansto charge subscription services 30%, itis much less likely that theyre going tolaunch something. Right now, its a lot ofrumor and speculation for both Google and

Apple. I would honestly be surprised to seethem not do something in the space, but if youlook at those companies, traditionally Googlehas not charged users for things. Most of theirproducts are free to the consumer. It would be

very difficult for Google to launch somethinglike MOG or Rhapsody and make it free to theuser without them losing lots of money. WhatI heard they might be doing is making a lockerfor mp3 files, and something like that may fitin with what Apple is doing. Its hard to say,but I think you can make a strong argument thatApple is assembling all of the pieces to launchsome kind of integrated digital media servicethat includes eBooks and movies. Again itsreally just speculation, and nobody really everknows what Apple is doing and Im very reluc-tant to speculate. I will say that I think if Appleor Google entered into the same business, itwould actually be a great thing for MOG be-cause one of the things those companies woulddo is drive the market, advertise, and explainthese new services. Its sort of like the iPod-there were mp3 players before the iPod, butit was very difficult for people to understandwhat they were. One of the great things aboutApples Internet marketing is that they spend aton of money educating people. If those guyscame in and did the same thing for the subscrip-tion music business, that would be awesome. Ialso think its healthy for the industry to havecompetition.

MBJ: You had mentioned Apples an-

nouncement about the 30% revenue tax itwould collect from all subscription services

through its Apple store. What action has

MOG taken to respond to that announce-

ment, and when will it go into effect?

AK: Apple will not implement this until theend of June, so it hasnt affected anyone yet.Apple has been sort of vague about whetheror not they intend to collect from services likeMOG or Rhapsody. I love developing for theApple platform, and its a great and wonderfulplatform to work with. I also recognize Applesright to monetize its platform. I think what

people like Rhapsody [and us] have taken issuewith is the amount that Apple wants to charge.Being a music service like Rhapsody or MOGis somewhat like running a record store, and themargins are not huge. None of the existing ser-vices can afford to support a 30% payout. It isalso fair to say that I dont think any of the ser-vices today are making anywhere near 30% ofgross revenue themselves, so they would in ef-fect be giving Apple a bigger cut of their earn-ings. And it is hard to argue that Apple addsmore value to MOG than MOG adds to MOG.Were not making 30%. I think the most likelyoutcome in the short term is that, were Apple

to go through with this, MOG we will justsimply remove the ability for people to signup and pay for the app from within the app.Theyll have to go to our own site to sign up.And Apple seems to say that this is a legiti-mate way to avoid the levy.

MBJ: MOGs CEO, David Hyman, is an

active collector of vinyl. This seems to sug-

gest that an interest in physically delivered

music. Given your line of work, how is the

physical experience different in your opin-

ion and how does that transfer into the

MOG service?

AK: Historically, subscription services havepositioned themselves as never buy a CD ora record again. This is not the case of MOG,and is not a realistic way to look at music. Theway I like to describe it to people is that that,

on balance, these types of services encour-age more purchasing of music and spending.Think of it this way: four-fifths of the house-holds in the US, or more, pay for cable or sat-ellite television. They still go out to the mov-ies, or buy a DVD, watch pay-per-view videoson the web, or use Netflix. They use all ofthose things, and in some cases more than theydid before. So I just think its a question ofmaking the pie bigger, and it means that youhave choices. If you wake up one morningand you have Sweet Home Alabama stuckin your head, you dont have to go and buy thesong for a buck, and you dont have to go andbuy the CD for $20. You can go to MOG andplay it. I like to say that choice drives moreinformed buying.

MBJ: What advice would you give to aspir-

ing music business professionals entering

the market today?

AK: I think its an absolutely great time to bea musician or a creative person, because thetools are so powerful and cheap. Its a chal-lenging time to be a music businessperson,because the business model is uncertain rightnow. People are experimenting. The downside is theres no formula that says, Okay, if

you do this then youll have a successful busi-ness. But the upside is that you have thisopportunity to do something new and exitingthat nobody else has thought of--which couldmake a big difference. Id mostly say to peo-ple getting into the business: dont limit your-self. Dream big and go for it, try and thinkabout something that will be exciting andmake it happen. Ive been a musician myselfsince I was fifteen, and Ive been working inthe digital business for ten years. Keep dream-ing, keep trying, and keep coming up withnew things. Thats when the magic happens.

(FromPage9)



Business Articles


Taking Stock of SXSW

South by Southwest (SXSW) is a

music, film, and interactive festival and con-ference that is held annually in Austin, Texas.This most recent SXSW Music (March 14-21,2011) had the highest attendance ever, withover 14,000 people flocking to the scheduledevents. The music festival offers artists achance to reach new ears, and it offers fans achance to discover new music. SXSW Music,however, is not just about concerts and par-ties; it congregates the industrys top CEOsand prospective entrepreneurs together forprosperous and productive industry discus-sion creating an excellent opportunity forbusinesses to explore new ideas and expand

their networks.

Allen Bargfrede and Chris Bavitz(the Berklee and Harvard minds behind theReThink Music Conference) led a panel onhow an artists experience in the music busi-ness informs their creative process, and viceversa. Typically, panel topics are strictly busi-ness, but this panel provided great insightto both the business and creative side of theequation. Holland songwriter, Sondre Lerche,discussed his career and the importance ofhaving both a strong business and creativemind. He began his music career on a majorlabel, and he admits that the label was a hugefactor in launching his career; despite the badreputation labels are given. After releasing afew records under the label, he parted waysto establish his own label and record on hisown terms. He continued to use a major labelfor distribution, but his latest album will beself-released. The gradual evolution of his ca-reer led to increased profits, not only becausehe continued to make quality music, but alsobecause he continued to make smart busi-ness decisions. Granted, every success storydiffers from artist to artist, but the panel didoutline the fact that labels still have a role inthe industry and that independent artists must

have a strong business mind to be successful.

The topic of branding and licensingwas also popular among panels, and one inparticular discussed the possibility of brandsbecoming and/or replacing record labels alto-gether. Brands are beginning to take on theroles that labels typically fulfill. Once an art-ist establishes a joint venture with a brand, thebrand becomes a tastemaker, providing inter-national promotion, distribution, and eventour funding. Kerri Cockrill, the director ofbrand entertainment at Blackberry, explainedthat the artist benefits the brand by introduc-

By Nicholas Susi

ing new custom-

ers and giving aface and sound tothe brand. For in-stance, Blackberryreleased the newTorch multimediaphone and theysought out DJ/Pro-ducer Diplo of Ma-jor Lazer to give aface and sound tothe product. Black-berry sponsoredDiplos latest tour,

and both the art-ist and the brandreceived massiveexposure from their travels. Diplo earned sig-nificant income through licensing and touringwith Blackberry, none of which was requiredto be recouped, which would have beenthe case with a label. There are cases wherebranding has failed, however. Ron Faris, thehead of brand marketing at Virgin Mobile,explained that recently, Honda and TommyHilfiger both ran campaigns with the VampireWeekend song, Holiday, during the samemonths. Occasionally, the two commercialsaired back to back and the song played twice,doing a disservice to both the brand and thesong. All in all, artists and brands have to beselective when establishing joint ventures, butthe collaboration could lead to a major payoffon both ends.

Perhaps the most controversialspeech was given by SXSW keynote speaker,Bob Geldof, who is best known for his help inorganizing Live Aid in 1985. He is extremelypassionate about music and utilizing music tobring communities together to help those inneed, and his speech did not stray from thosequalities. People talk about the demise of

the industry, and those within the industry areworried, stated Geldof, But the industry isonly a function of the music, and the music isonly successful when its relevant.

His speech was based around theend of relevance for music. He talked abouthow rock and roll changed his life, becauserock and roll demanded that the world adaptaround it, rather than adapt to the world. Heworries that songs are becoming trivial withno context; that the art is not being used toits full potential. He worries that music is notmaking a loud enough noise against politics

and hunger. Its not enough for an artist to becomplacent with keeping their day job andplaying the bars at night. He stated that artistsand their songs dont change the world andthat their lyrics dont have to literally demandchange, but change must be suggested throughfeeling in music to give a push to a commu-nity.

The fan club of 6,000 people of acommunity of interest is far more powerfulthan 6,000 friends. Its an oxymoron you

cannot have 6,000 friends. The attendancefor this years SXSW Interactive surpassedthe attendance for SXSW Music, and Geldofworries that its a testament to where peoplespriorities lay. Human language cannot expressthe sensations and emotions that music can.He believes that the Internet and bloggingcraze is dumbing down the noise for change.He admitted blogs could lead to brilliantconversation, but they instead echo personalprejudices and make noise with no intent andno filter against it. Since the eighties, the mostsuccessful music has been made by superstarsabout material things. He believes new tech-nology has potential, but it has instead given

the illusion of talent, where everyone has themeans to say something important and insteadsay nothing.

Geldofs speech was met with astanding ovation, although not everyone mayhave agreed with his views. But such is theallure of SXSW. It offers an incredibly vastpalette of showcases and panels, morphingAustin into a churning engine that monetizespeoples passion for music and encourages re-flection upon the past and future of this indus-try.


12/16

Business Articles



has made it clear that he wishes one-clickpurchases to be the norm. Effectively, Jobs isasking publishers of content to adjust pricesso that the end users experience is simpli-fied. This is good for Apple, because it helpssell hardware, but costly for content creatorsand aggregators. The plight of music streaming ser-vices, for instance, was described by Rhap-sodys CEO, John Erwin. Erwin argues that[this Apple-imposed arrangement comes] inaddition to [other] content fees that we pay tothe music labels, publishers and artists, [and]

Apple Sets Terms and Prepares for Subscriptions

is economically untenable. He adds:The bottom line is we would not beable to offer our service through theiTunes store if subjected to Apples30 percent monthly fee vs. a typical2.5 percent credit card fee.

Erwin is apparently not afraid topull out Rhapsody from Apple. If so,Rhapsody would still be offered onAndroid smart phones and on mobilebrowsers, like Safari on the iPhoneand the iPad. Last.fm co-founder,Richard Jones, and Rdios CEO,

Drew Larner, expressed similar con-cerns. With the financial difficultiesthat these companies face already,their frustration with Apple grows.

From a consumer point-of-view,it seems advantageous for Apple toopen yet another market. In-app sub-scriptions could tap into a previouslyuntouched segment of the popula-tion. Apples apps are extremely us-er-friendly and the in-app subscrip-tion process is no exception. Thereis no need to deal with credit cards,transactions are mostly one-click

away, and users can opt out of shar-ing their information with the musicservices. The simplicity of Applesapproach, and the added privacy,could bring a sizeable influx of newsubscribers.

Is Apple in the wrong? After all,companies such as Rhapsody andRdio are not required to use Applesservices. And Apple is entitled tocharge them. This is reminiscent ofthe discussions between Apple andthe majors over variable pricing. Ittook a while for Apple to accom-

modate variable pricing, and in themeantime the labels agreed to Apples termsbecause they feared losing the new onlinemarketthen turned legal by Apple for thefirst time.

At this point, streaming serviceshave several options to weigh. On one hand,they could stick with Apple, accept the cutfrom profits, and hope that the amount of newsubscribers covers the revenue lost to Apple.A similar but more proactive approach wouldbe to raise the price of subscribing to ensure

The iPod, iPhone, and iPadseem to have taken over the musicmarket. Apple, in effect, rules like anempire over it all. Yet there are threats.Music licensing seems to be movingtowards cloud-based subscription ser-vices, and the challenge to the exist-ing mp3-based music model is all tooreal. Indeed, streaming services suchas Rhapsody, Rdio, and MOG providea simpler, and oftentimes more cost-ef-fective, way of accessing and enjoyingmusic. Apples recent announcementof a new 30% levy on all subscriptions

via in-apps should be seen in the lightof the competition for subscriptions,where the computer company is hopingto prevail.

Subscriptions via in-apps areaccessed though an existing applica-tion, and are a new and growing sourceof revenue. Apple has always takena cut of a third from song and albumdownloads. Historically, that was thevalue added by major label distributorsto music sales in the physical world. In2003, when iTunes was launched, thesame terms in the physical domain were

applied to the new online world. Themajors had tried and failed with theirown versions of MusicNet and Press-Play, and finally capitulated to Apple,licensing in full their product to them.Unfortunately, they did it on the sameterms that they had traded earlier. Nowit was the record labels that had to payApple, instead of the consumer payingthat value directly to the label distribu-tors.

This may be the next itera-tion of the hold of Apple in the musicmarketplace, which continues to impact

artists and their labels. Apples devicesare popular, so its decisions affect cutting-edge services like Rhapsody, Rdio, or MOG.In Apples model, announced early in Febru-ary, publishers set the price and length of thesubscription, i.e. weekly, monthly, bi-month-ly, quarterly, bi-yearly or yearly. Consum-ers choose and pay accordingly. Then Appleprocesses all payments, from which the 30per cent levy is deduced. Apple requires thatsubscriptions made directly by the publishersat least match or are an improvement over theterms offered in the Apple store. Steve Jobs

By Kayleigh Mill

(ContinuedonPage16



Technology has changed not justhow music is transmitted but also how it ismade, helping independent artists becomenational sensations in a matter of months.The Grammys, however, are designed toreward talented artists and musical excel-lence. The challenge is when the avor ofthe week overshadows a distinguished act.

On February 20th, the New YorkTimes published a long and passionate pleafrom renowned hip-hop producer SteveStout that questioned the selection methodsat the Grammys. Many were quick to labelthis as an artists publicity stunt, but Stoutsbrief produced reactions globally, and notjust from fans but the creative communityand industry professionals. Had the Gram-mys lost touch with mainstream culture?

The Recoding Academy maintainsthat the Grammy Awards are awarded toartists and technical professionals for artistic

or technical achievement, not sales or chartpositions. Commercial success should havelittle bearing, if any, on a Grammy. Artisticachievement, of course, is a loaded phraseencompassing much meaning. Thereinlies the difcultyand this in spite of theopenness of the voting by members of theAcademy and the strict criteria for selection,including no less than creative or technicalcredits on six commercially released tracks,or their equivalent. The reader can consultterms at http://www.grammy.org/recording-academy/awards/voting-process.

As members on the nomination com-mittee are industry professionals, the yearlywinners can often be at odds with public opin-ion, for the criteria is not usually congruent withthat of the casual music listener. This begs animportant point. If the Academys choice doesnot t into our current cultural and musical mo-saic, could it lose touch and deny accolades to

the talent in society that is most loved?

Advocates of the advancement of mu-sic as an art form will say that it is good to pro-mote artists who, in their own individual way,are guiding music to new and unexplored plac-es. However, critics cite occurrences of grand-fathered artists stealing Grammy awards witha mediocre album or song. An example that isoften quoted is Eric Claptons 1992 win for Lay-la. At the time, it was believed that NirvanasSmells Like Teen Spirit should have made thehonor.

Still, the Grammys do advance the

cause of album sales for lesser known, but prom-ising talent. Artists like Lauryn Hill and AlanisMorissette, although denitely not anonymousby any means before their respective wins, sawup to six digit boosts in album sales, and thispropelled their careers to new heights. Anotherexample is Esperanza Spalding, winner of 2011Best New Artist. Spalding has witnessed a nearlyve-fold increase in album sales to date (www.grammy.org). In fact, one would be hard pressedto nd any past winner of the big awards whosesales failed to grow after the televised show. TheRecording Academy, in short, has a key role inpromoting new artists in the marketplace.

By Frederic Choquette

Yet the Recording Academy doesnot necessarily have just music sales in mind.Esperanza Spaldings talent and genius areunquestionable, but her jazz-based targetaudience seems limited for a Best Artist ofthe Year award. If the Academy had wantedto reach a larger audience, they would havepicked Justin Beiber, whos mellow and blandpop tunes seem to have the capacity of reach-ing millions. Interestingly, Bieber did notseem to need the award as much. Digital al-bum sales of his Never Say Never increasedby two-thirds after this years Award Ceremo-ny (www.grammy.org).

It is also important to note thatwhile there will always be some debate asto the legitimacy of the awardees, the Acad-emy has clearly made signicant efforts tokeep the various performances seen duringthe ceremony in line with popular culture.For instance, this years performers includedLady Gaga, Eminem, Katy Perry, Drake andRihanna, all of whom are international popicons.

Perhaps the approach to determin-ing the role of a music artist in our ever-changing culture has been dened too nar-rowly. What if the scope of their engagement

to society is not to fulll one specic goal butinstead to ll many of them simultaneously?Using this explanation, the general unpredict-ability of the results becomes much more un-derstandable as goals may vary from ceremo-ny to ceremony or even from award to award.Although the legitimacy of some of the pastwinners is debatable, one cannot overestimatethe positive impact the Grammys have hadon the promotion of music through media.

Finally, it has to be said that SteveStouts grievances may have some validity.The Recording Academy did use the mostpopular artists of the day to promote a show

full of upsets. But this compromise over TVratings should not be viewed as dening theAcademy over time. Choosing the GrammyAwards is a complex proposition for many ofits voting members. The choices they makeboth promote sales and contribute to musicsgeneral appreciation. The Recording Acad-emy should be judged on a variety of fronts.

Reference

http://www.hufngtonpost.com/steve-stoute/steve-stoute-

grammys_b_825377.html

A Controversial Grammy Night


Business Articles


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Law Section


The Trade-Off Between Connectivity & Privacy

The survival of a business

depends today on the gathering of in-formation for marketing purposes. Asuccessful company has to analyze data,plan, and then execute a strategy. TheInternet and todays technology havemade the first step quick and efficient.Google Analytics, for example, gener-ates detailed numbers about websitevisits, summarizes the information intoconvenient charts, and helps users strat-egize and develop marketing plans.

Much like any other business,the music industry requires informationto target specific fans. After all, music

without people willing to listen to it hasno market value. However, the Inter-nets potential raises issues of privacyand information security. As the Internethas only been commercially availablefor about fifteen years, users are stillnot educated enough to understand thesignificance of good privacy protection.We tend not read the terms of servicewhen signing up for website. Youngergenerations are prone to be more vulner-able because they are not trained to thinkmuch about privacy. Thus, we continueto find cases of online defamation, un-solicited emails, and the creation of per-

sonal information databases without therequisite clearance.

In August of 2010, a group represent-ing minors and parents sued Warner BrothersRecords, as well as Disney and several othercorporations, for placing flash-based cookiesdeveloped by Clearspring Technologies ontouser systems that enabled tracking of visitorsthat web-surfed beyond their sites. Plus, thesecookies had an ability to regenerate once de-leted, without notification or asking for theconsent of the user. Since the federal govern-ment lets private database owners decide how,when, and where they can share this informa-

tion, it ends up being sold to third parties suchas ad agencies.

Finding a balance between privacyand good ethics is complicated, and there is atrade-off between more security and the ben-efit of the new technology. In December 2010,Apple, Pandora, and a number of other topsmartphone manufacturers and software devel-opers were sued for possible privacy breaches.According to the lawsuit, iPads and iPhonescontaina Unique Device Identifier (UDID) thatacts as a cookie for web browsers, and can track

all activities performed by the user. The cookieretrieves personal information such as location,age, and gender that can be collected and sold tothird party ad agencies. Officially, the purposeof UDID is for Apple to approve the installa-tion of new software. The user cannot turn offthe UDID, because it protects mobile carriersfrom pirated software. With the release of theiPhone4, congress has questioned the collectionof a range of user information, including lo-cation specifics. Nevertheless, Steve Jobs hassaid that users have the ultimate control whetherto purchase the device or not, and they also havethe ability to turn off the real-time geographiclocator. (To view a table that shows personaldata collected from several popular apps in theiPhone and Android, see: http://blogs.wsj.com/wtk-mobile/.)

Facebook has also had to deal withan onslaught of privacy concerns, and recentbreaches have led to an ongoing investigation.On May 7th 2010, fifteen organizations, includ-ing the Electronic Privacy Information Center(EPIC), filed a complaint to the Federal TradeCommission (FTC). Facebook, they said, hasengaged in unfair and deceptive trade practic-

By Ben Hong

es. In their prepared testimony, they

asked lawmakers to update and amendthe federal privacy law to limit theability of Social Network companiesto disclose user information to thirdparties without informed and explicitconsent. They urge the FTC to inves-tigate Facebooks business model, asusers cannot keep up with the countlesschanges and updates to their privacypolicies. Without easily accessible in-formation on the updates, users haveno control about where their personalinformation goes.The following are some examples ofcontroversial features in Facebook, as

listed on EPICs official website:

(i) Facebook requires accurate, currentand complete information of users asthey activate their account, thus, requir-ing online identities to match their reallife identities.(ii) Facebook allows users to invitetheir colleagues and friends via a con-tact importer, which downloads all thecontacts from users existing e-mail ac-counts. The website does not specifywhat happens when these e-mail ad-dresses are given out.(iii) Users can utilize various applica-

tions via the Facebook Platform, whichwas introduced in 2007. For users to

gain access to these applications, Facebookhas to share their data.(iv) Facebook displays social adsandpagesthat target users demographically, usingcollected information upon the creation ofa Facebook account.

Facebook, of course, has intro-duced many useful innovations and is of-ficially supportive of privacy terms. Buton March 2, 2011, replying to a letter byCongressmen Ed Markey and Joe Barton,Facebook could still say that it would go

forward with a proposal to provide users[information] to third-party application de-velopers. In the meantime, reports of can-celled accounts are rising. Facebook scoredjust 64 on the American Customer Satisfac-tion Indexs (ACSI) 100-point scale.

The above suggests that, regard-less of Facebooks practices, there hasbeen a movement in Congress to amendfederal privacy law in accordance to prob-lems raised by social networking websites.While the United States Constitution does

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Live Music Production

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Volume 6, Issue 5 April 2011www.thembj.org

Music Business JournalBerklee College of Music

Apple (cont.)

that the cost of Apples levy is covered. Forafter tax earnings to break even, however, itappears that these services would have to raisetheir prices by more than the levy. The higherprices may discourage potential subscribers andcause current subscribers to cancel their sub-scriptions.

Conversely, music streaming servic-

es could withdraw from the Apple ecosystemcompletely. If all music-streaming servicesboycott Apple, the company would be forcedto reconsider its stance. The loss of every avail-able streaming service would harm its image ofproviding a cutting edge music and entertain-ment experience. Also, Apple isnt the onlycompany that produces mobile devices that sup-port streaming; Android would gladly pick upthe slack.

Many analysts have speculated thatApple may be intentionally putting streamingservices at a disadvantage in preparation forlaunching their own subscription cloud ser-

vice, MobileMe. Mobile Me is expected earlyin June, and would corner all the revenue fromits service and collect very well from compet-itorsa smart business plan. Judging by howpopular most of Apples endeavors are, theymay well end up leading the music-streamingmarket. They recently bought rival Lala, whichthey will shutter on May 31st. They also invest-ed in a $1 billion data center in Maiden, N.C.,which they hope to leverage later in the spring.Apple is still dealing with licensing issues butas the record labels rely mostly iTunes sales, anaccommodation is likely.

Sources

- Apple Data Center Opens In Spring To Support Cloud.Hypebot. Web. 22 Mar. 2011. .

- Apple Launches Subscriptions on the App Store.Apple. Web. 22 Mar. 2011. .

- Apple To Shut Down Lala On May 31, ITunes.com

Launch Impending? TechCrunch. Web. 22 Mar. 2011..

- Apples Big Subscription Bet: Brilliant, Brazen,Or Batsh*t Crazy? TechCrunch. Web. 22 Mar. 2011..

- Bruno, Antony. Apples New Subscription Rules CouldKill Streaming Music Services | Billboard.biz. Mu-sic Business | Music Industry | Record Sales | BillboardCharts | Billboard Hot 100. Web. 22 Mar. 2011. .

- Rdio CEO Says New Apple Tax Makes It UntenableFor Them to Exist On IOS Devices. Hypebot. Web. 22

Mar. 2011..

- Rhapsody CEO Blasts Apple: New App Store Terms

- Economically Untenable Hypebot. Web. 22 Mar.2011. .

- Will Apple Back Down From 30% Charge? Hy-pebot. Web. 22 Mar. 2011. .

not contain the word privacy, the concept of iprevails throughout its amendments, and it is recognized as apenumbral right; i.e. a right by implication. At stake here, and from an individuaperspective, is the balance between a great userexperience and the safeguarding of private information.

If user behavior is the measure of our

concern for privacy, it may appear that this is nosuch a priority for most of us. Acording to statistics posted on Facebook, its user base has morethan 500 million active users, who spend over 700billion minutes on the site a month. Artists andbands will certainly continue to utilize the benefits of having access to a large user base, fromwhich they may plan their marketing strategy. Infact, if Congress pushes its agenda too much andforbids all the features within social networkingplatforms that touch on privacy concerns, the advantage of utilizing Facebook and other websitemay disappear. Connectivity and sharing are twokey concepts of social networking, and as long asthis is valued more highly than privacy, contro

of an individuals profile over the Internet mighbecome more and more elusive.

Sources

http://www.dmwmedia.com/news/2010/08/16/disney-warner

records-sued-over-clearspring-tracking-cookies

http://www.hypedsound.com/news//details/LAWSUIT-ACCUS

ES-PANDORA-OF-PRIVACY-INVASION

http://digitalmusicnews.com/stories/122710pandoraprivacy

http://digitalmusicnews.com/stories/062410apple

h t tp : / /ep ic .o rg /p r ivacy / facebook / in_re_facebook_

ii.html#summary

http://www.foreseeresults.com/news-events/press-releases/face-

book-flops-in-acsi-ebusiness-report.shtml

http://www.facebook.com/press/info.php?statistics

Privacy (cont.)(FromPage14)(FromPage12)

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