p2pnet news | Music:- “The RIAA can bitch. Songwriters in Nashville can ask how they’re going to get paid. No one’s paying attention anymore. They had EIGHT YEARS to make a move, to fix things, and they didn’t accomplish a damn thing. Mainstream media is now with the public. The record companies fucked up. Music is free. Accept it and deal with it.”

The quote is from Bob Lefsetz, a former entertainment industry lawyer now famous for his Lefsetz Letter. And it about sums the situation up.

His scathing comments come in reference to a report by Rich Greenfield from Pali Research, the independent equity research arm of New York’s Pali Capital.

Greenfield’s observations centre on the Warner Music, a member of the Big 4 organised music cartel, the other three miscreants being EMI, Vivendi Universal and Sony BMG.

And if Leftsetz’s intro nails the situation, so does the headline Greenfield’s report.

It says, simply:

Majority of Consumers Now View Recorded Music as Free – SELL WMG

And if you’re still in doubt, the next two paragraphs should clear things up for you:

No matter how many people the RIAA sues, no matter how many times music executives’ point to the growth of digital music, we believe an increasing majority of worldwide consumers simply view recorded music as ‘free’. A new model for music consumption must emerge and that model most likely involves DRM-free downloadable music at no cost to consumers, fully-supported by advertising (within some form of social networking environment that enables consumers to discover/explore music).

The music industry is not ready to endorse such a move at this point and even if it was, the economic model transition will be incredibly painful.

Further down, under What is the Purpose of a Label?, Greenfield and Smaldon state:

* Nobody should view WMG’s decision to lose Madonna as anything other than a major negative for the industry. While it may be positive that WMG did not vastly overpay to keep Madonna, the fact that established artists simply do not need record labels is very concerning.

* Artists such as Radiohead are proving they can sell music quite profitably directly to fans, while other acts such as Nine Inch Nails are publicly stating that music is far too expensive (watch this video on Youtube: http://youtube.com/watch?v=TJ5iHaV0dP4).

* Emerging artists are building identities online and selling music directly to fans. While they still crave a major label signing, these artists are gaining leverage online driving up their cost to labels. Bargaining power is shifting further and further away from the major labels.

* US music industry revenues were $14.3 billion in 2000 (based on RIAA data) and are expected to be only $10.3 billion in 2007. Yet, if industry revenues had only grown at GDP levels over that period of time, 2007 industry revenues would have been nearly $17 billion, illustrating how dramatically the music industry has and is continuing to underperform.

Artists make the vast majority of their money on touring and merchandise, not CDs. In turn, it is increasingly logical to believe that artists want to have their music reach the widest possible audience at the lowest possible price – meaning FREE. Yet that puts the music labels in a very difficult position as their recorded music divisions make virtually all their money off of the sale of music.

Music labels need to get significantly smaller as the industry shrinks and they need to shift their business into new areas such as artist representation, touring, merchandising, etc. However, this is not easy to do and requires the music companies to make significant acquisitions – essentially spending their current free cash flow to buy into a more sustainable revenue stream than their current business.

Are you paying attention, Warner Music, EMI, Vivendi Universal and Sony BMG?

Probably not.

Meanwhile, the report adds:

“Rapid Shift to DRM Free Music. We believe the industry needs to rapidly shift to DRM-free music to end interoperability issues that are pressuring digital music growth. While we do not expect the industry to widely embrace DRM-free music (beyond tests and trials) until mid-2008 and more likely 2009, a rapid shift to removing DRM could improve WMG’s prospects.”

If you’d like to read the report in full, you’ll need to register at Pali Research. But don’t worry. They don’t ask for details you wouldn’t freely give to any reputable concern.

Jon Newton – p2pnet

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This entry was posted on Friday, November 2nd, 2007 at 7:19 am and is filed under Music. You can follow any responses to this entry through the RSS 2.0 feed. You can skip to the end and leave a response. Pinging is currently not allowed.

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