p2pnet news | Music:- Panic is mounting fast in Big 4 land.

It’s one bad thing after another and now it’s goodbye sex ‘n’ drugs ‘n’ rock’n'roll, à la Warner Music, EMI, Vivendi Universal and Sony BMG.

Because EMI, a member of the Big 4 organised music cartel, was, “spending $400,000 a year on party favors (booze, drugs, women, whatever) for its talent,” says says Peter Kafka in Silicon Insider.

According to the company’s new boss, that has to stop

And if EMI, the first Big 4 member to start dropping ‘trade association’ appendages, was/is lashing out hundreds of thousands of dollars on wine, women and song, how much were/are the other three spending?

Quoting Britain’s prestigious The Economist, Kafka goes on:

Now, having got rid of most of EMI’s senior managers and revealed embarrassing details of their spending habits (£200,000 a year went on sundries euphemistically referred to in the music business as “fruit and flowers”), Terra Firma is due to produce a new strategy later this month. But many observers reckon the private-equity men are out of their depth.

Prior to reading the article, we’ve heard two different versions of the EMI “flowers” story: One is that Guy Hands, the private equity boss who bought the company last summer, didn’t understand the term and couldn’t figure out why EMI was spending so much on floral arrangements.

But as we observed earlier, it isn’t only EMI.

‘Teen girls touting Incubus’

Peer into the depths of cyberspace, “and a big-bang picture unfolds,” Edna Gundersen wrote back in 2005.

“The stockpile is boundless, a boom in availability that could change buyer habits,” she went on. “Fan forums are spontaneously sprouting around artists and trends, from teen girls touting Incubus, Green Day and little-known emo heartthrobs at Xanga.com to hip-hop buffs advocating regional acts at Down-South.com.”

Exciting! New music in the digital 21st century!

But, “It’s a phenomenon the music business has yet to capitalize on,” Gundersen noted in USA Today.

A year earlier, “So far they [the record labels] have been slow to embrace the internet, which has seemed to them not an opportunity but their nemesis,” said The Economist.

“Rather than putting their product on file-sharing applications, they are prosecuting free-download users for theft.”

And as we approach the end of the first decade in this new era, nothing, has changed.

The Big 4, Vivendi Universal (France), Sony BMG (Japan and Germany), EMI (Britain), and Warner Music (US), are sinking slowly, inexorably, into the tar pits as they try to sue tgheir own customers into buying ‘product’.

And once again, The Economist sums it up in an enlightening report which kicks off with an equally interesting story also centered on EMI.

‘Rapidly fading away’

Apparently, says The Economist, the company invited a group of teenagers into its London HQ to, “talk to its top managers about their listening habits”.

Having picked the teens’ brains, the EMI bosses told them to help themselves to a “big pile of CDs sitting on a table,” and for free. But not one of them took a CD and, ‘That was the moment we realised the game was completely up’,” the story has someone who was there saying.

“In public, of course, music executives continued to talk a good game,” says The Economist.

Recovery is just around the corner. Digital downloads will come to Big Music’s rescue. Yada yada.

But, the story continues, results from 2007 confirm the CD, which in 2006 accounted for over 80% of total global sales, “is rapidly fading away”.

Nielsen SoundScan is cited as saying in America, the volume of physical albums sold dropped by 19% in 2007 from the year before - “faster than anyone had expected and, “For the first half of 2007, sales of music on CD and other physical formats fell by 6% in Britain, by 9% in Japan, France and Spain, by 12% in Italy, 14% in Australia and 21% in Canada. (Sales were flat in Germany.) Paid digital downloads grew rapidly, but did not begin to make up for the loss of revenue from CDs. More worryingly for the industry, the growth of digital downloads appears to be slowing.”

The Economist goes on >>>

“In 2007 it became clear that the recorded-music industry is contracting and that it will be a very different beast from what it was in the 20th century,” says Mark Mulligan, an analyst at JupiterResearch. Last year several big-name artists bypassed the record labels altogether. Madonna left Warner Music to strike a deal with Live Nation, a concert promoter, and the Eagles distributed a bestselling album in America without any help from a record label. Radiohead, a British band, deserted EMI to release an album over the internet. These were isolated, unusual deals, by artists whose careers had already brought years of profits to the big music companies. But they made the labels look irrelevant and will no doubt prompt other artists to think about leaving them too.

The smallest major labels, EMI and Warner Music, are struggling most visibly. Warner Music’s share price has fallen to $4.75, 72% lower than its IPO price in 2005, and it is weighed down by debt. EMI’s new private-equity owner, Terra Firma, paid a high price for the business in August 2007. Now, having got rid of most of EMI’s senior managers and revealed embarrassing details of their spending habits (£200,000 a year went on sundries euphemistically referred to in the music business as “fruit and flowers”), Terra Firma is due to produce a new strategy later this month. But many observers reckon the private-equity men are out of their depth.

The two biggest majors - Universal, which is owned by Vivendi, a French conglomerate, and Sony BMG, a joint venture between Sony and Bertelsmann, a German media firm - derive some protection from their parent companies. Universal is the strongest and is gaining market share. But people speculate that Bertelsmann may want to sell out to Sony next year.

Three vicious circles have now set in for the recorded-music firms. First, because sales of CDs are tumbling, big retailers such as Wal-Mart are cutting the amount of shelf-space they give to music, which in turn accelerates the decline. Richard Greenfield of Pali Research, an independent research firm, reckons that retail floor-space devoted to CDs in America will be cut by 30% or more in 2008. The pattern is likely to repeat itself elsewhere as sales fall.

Circular arguments

Second, because the majors are cutting costs severely, particularly at EMI and Warner Music, artists are receiving far less marketing and promotional support than before, which could prompt them to seek alternatives. “They’ve cut out the guts of middle managers and there are fewer people on the ground to promote records,” says Peter Mensch, manager of the Red Hot Chili Peppers and Shania Twain.

Third, record companies face such hostile conditions that their backers, whether private equity or corporations, are loth to spend the sums required to move into the bits of the music industry that are thriving, such as touring and merchandising. The majors are trying to strike “360-degree” deals with artists that grant them a share of these earnings. But even if artists agree to such deals, they will not hand over new rights unless they get better terms on recorded music, so the majors may not see much benefit overall. Tim Renner, a former boss of Universal Music in Germany, says the majors should have acted years ago. “Then they had the money and could have built the competence by buying concert agencies and merchandise companies,” he says. Now it may be too late.

And there’s an interesting and, IMHO, extremely significant ommission in this otherwise fascinating and highly revealing article.

No mention is made of the effect the Big 4’s bizarre sue’ em all marketing scheme may be having on sales.

Under it, the Big 4 are harassing suing innocent ‘consumers’ [read customers’] as young as 10 in a desperate bid to compel them to buy corporate ‘product’.

However, far from resulting in an increase, or even stabilisation, of sales, the policy means the companies are haemorrhaging consumers in their hundreds of thousands, in the process creating a brand new base of people who will go to almost any lengths to avoid buying not only Warner Music, EMI, Vivendi Universal and Sony BMG CDs, but anything else dissociated with them.

Meanwhile, the direction of most of the labels’ recent digital deals, such as with Imeem, a social network that offers advertising-supported streamed music, “is to offer music free at the point of delivery to consumers,” says The Economist.

“Perhaps the most important experiment of all is a deal Universal struck in December with Nokia, the biggest mobile-phone maker, to supply its music for new handsets that will go on sale later this year. These ‘Comes With Music’ phones will allow customers to download all the music they want to their phones and PCs and keep it - even if they change handsets when their year’s subscription ends. Instead of charging consumers directly, Universal will take a cut of the price of each phone. The other majors are expected to strike similar deals.

This is a recognition that online music, “has to be given away for free, or close to free,” The Economoist has JupiterResearch’s Mulligan saying, adding:

“Paid-for download services will continue and ad-supported music will become more widespread, but subsidised services where people do not pay directly for music will become by far the most popular, he says. For the recorded-music industry this is a leap into the unknown. Universal and its fellow majors may never earn anything like as much from partnership with device-makers as they did from physical formats.”

And, “some among their number, indeed, may not survive”.

(Thanks Liz, and everyone else)

Jon Newton - p2pnet

Slashdot it!

Also See:-

Silicon Insider - EMI’s $400,000 Coke And Hookers Budget, January 12, 2008
dropping ‘trade association’ appendages - EMI dumps IFPI: RIAA, IFPI merger, January 11, 2008
big-bang picture - File sharing, p2p criminals, March 12, 2005
USA Today - Music fans reach for the stars, March 9, 2005
The Economist - Music’s brighter future, October 28, 2004
The Economist - From major to minor, January 10, 2008

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This entry was posted on Monday, January 14th, 2008 at 7:00 am and is filed under RIAA News, 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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