Did Nostradamus Predict the Pending Music Ice Age?

[H82BL8]

MUSIC DOOMSDAY THEORY!

While the major labels celebrate the performance royalties established by the Webcasters Settlement Act of 2009, and anticipate the approval of a broadcast performance royalty for radio, Internet companies and radio broadcasters are reeling. Unfortunately, few people are paying very much attention to the potential consequences to the independent music industry.

Internet Effect
1. Internet companies must license an empirical copy of songs to play online. The licensing fees cost millions of dollars in up front fees, which is a huge barrier to entry for start ups.
2. Performance royalties for non-interactive streaming are substantial, as high as 25% of revenues for companies with revenues in excess of $1.25M.
3. VC that are funding music companies see their investment dollars simply changing hands and not augmenting the growth of their investment therefore, VC dollars are moving away from music companies, meaning fewer music-centric startups.
4. Companies that are not funded by VC can not afford the licensing fees and royalties to start up, meaning fewer outlets for music.
5. Adverting only business models alone can not support these two major expenses therefore many companies attempt to migrate to premium listener subscription services.
6. Most listeners won’t pay to listen to music and commercials when they can listen to the radio or Internet for free.
7. Many companies offering listener subscription services are not generating sufficient revenue to cover for the costs of licensing and royalties and are therefore shutting down.

Radio Effect
1. If the performance royalty is adopted for radio broadcasting, then the state of affairs for music programming gets even grimmer!
2. Radio stations playing music in small markets may stop playing music altogether because there is not enough advertising available in small markets to accommodate added expenses.
3. Small market radio stations will drop streaming
4. Partly because of the bandwidth costs,
5. Partly because of the royalty costs,
6. Partly because they can’t commercialize it with advertisements, and
7. Partly because of the administration required for reporting requires additional personnel.
8. Small market stations will migrate to lower cost formats. They are not likely to absorb the costs or sacrifice the livelihood of their business for music. They will migrate to talk, sports or sell air time to third parties to make ends meet.

Summary - The Webcasters Settlement Act of 2009 in addition to the high cost of music licensing creates a substantial barrier to entry, forcing venture capital companies to migrate away from the Internet music space. These costs alone put downward pressure on an already saturated market grappling with a seriously diluted adverting market.

There will be; fewer VC investments, fewer music related start ups, fewer digital outlets to sell music and fewer opportunities to earn royalties from online resources or revenues from advertisers.

Small market radio stations unable to absorb the additional costs to stream music are also affected. The addition of a broadcast performance royalty will force many stations to migrate to less expense broadcast formats such as talk, sports and news. These additional costs result in fewer radio stations playing music, fewer stations streaming music, fewer opportunities to expose new music, and fewer opportunities to earn royalties.

About 2,700 record stores have closed across the country since 2003, according to the research group Almighty Institute of Music Retail. Subscription services such as; Virgin, AOL, FullAudio, MusicNow, and Datz Music Lounge have shut down and Yahoo sold its subscribers to Rhapsody and shut down because they could not compete with free music services like radio.

What will the record labels do when there is nobody left that can afford to play their music?

 

[Tom Wells]

What will the record labels do when there is nobody left that can afford to play their music?

Ummmm, stew in their own juices?

 

[TheBigA]

What will the record labels do when there is nobody left that can afford to play their music?

First of all, this is a great topic and a great post. My compliments to you.

Second of all, my view is that that this isn't just about the money, but control. The record labels and artists want to control who plays their music. So they have the right to negotiate these royalties, and got Congress to make SoundExchange the single negotiating organization for all music. That basically created a legal music monopoly.

SoundExchange immediately set up negotiations with all the digital users of music. They sat there like Don Corleone and said "You play ball with us, and we'll play ball with you." Pandora walked in and got a hugely favorable rate. The NAB walked in and got a bad rate. And so it goes. Now it's up to Spotify. They'd like to enter the music streaming world, and get a nice favorable rate. We'll see how they do. And can Apple use its position in music retail to leverage its royalty for its newly aquired streaming service, Lala? There are good deals to be made, as YouTube found out. Same with MySpace.

At the same time, we have mega manager Irving Azoff building his own artist-based web streaming radio stations, where his artists can play their own music, waive the royalty, and use it as a platform for their own sponsors. So there are lots of ways to play the cards. And you didn't even mention the role the ISPs play. Think outside the box, folks. That's what Nostradamus did.

 

[radioskeptic]

The progressive web site AlterNet today featured an article titled "10 Ways to Screw Over the Corporate Jackals Who've Been Screwing You."

You'll want to see the seventh way they suggest to do that: "7. Avoid CDs and DVDs"

http://www.alternet.org/workplace/1..._jackals_who've_been_screwing_you?page=entire

 

[Silkie]

The progressive web site AlterNet today featured an article titled "10 Ways to Screw Over the Corporate Jackals Who've Been Screwing You."

You'll want to see the seventh way they suggest to do that: "7. Avoid CDs and DVDs"

http://www.alternet.org/workplace/1..._jackals_who've_been_screwing_you?page=entire

There is truth in that. I have seen two very successful music stores close within the past six months, the primary reason when asked being, "Nobody buys music anymore".

 

[TheBigA]

There is truth in that. I have seen two very successful music stores close within the past six months, the primary reason when asked being, "Nobody buys music anymore".

The point of this thread, however, is not that people don't buy CDs (athough they actually do, but not to the degree they once did). The reason music stores have gone out of business is there's no profit in selling music any more. The cost of a CD is higher than the price people are willing to pay. When you see new CDs selling at 9.99, the profit is less than 50 cents. You can't run a store for that any more.

The fact is that people still LISTEN to music, perhaps to a greater degree than they ever have. But there's more file sharing and streaming than actual buying. So the question is: how can the music industry replace declining music sales with other revenues so they can continue to feed our insatiable music appetite?

 

[landtuna]

The reason music stores have gone out of business is there's no profit in selling music any more. The cost of a CD is higher than the price people are willing to pay. When you see new CDs selling at 9.99, the profit is less than 50 cents. You can't run a store for that any more.

I'm not in the business but as a layman I'd speculate that one major reason people aren't buying what we used to call albums any longer is they now can buy/download/steal individual cuts of their favorites. I remember as a kid in the 50's being mad because you then had to buy an entire album to get the one or two songs you really liked.

The other reason, of course, is the overall quality of popular music compared to the "old days". Rap and Hip-Hop just doesn't appeal to the masses like old time popular and RnR music used to. Even with the increased population of tweens/teens/young adults the customers aren't there like they used to be.

 

[Binx]

This is just what's left of the record industry trying to cope with the fact that they have become obsolete. The Internet is a better distribution system than they will ever be. As more and more established artist's break free from their recording contracts, the reaction from the industry is to control their existing catalogs.

Radio is not obsolete, but remains it's own worst enemy which is getting it there. Having worked in it for 4 years now, it's pretty clear that it will never change. The main reason, as I see it, is because radio has no in-house R&D, and because of this good ideas are in short supply. The entire industry relies on hundreds of 3rd party vendor's applications, equipment, and developers even though 90% of the functions they provide could be done in house for a fraction of the licensing costs paid for it all. The expense of paying for these vendors cuts into funding for R&D. It's R&D that generates ideas and those generate revenue.

So now it's almost 2010 and the industry still relies on local and national sales as its main source of revenue, just as they have for the past 50 years. Internet revenue is funnelled through companies like targetspot and Ando. The people who work in radio know nothing about techology or how to use it, the ones who do leave radio and start their own company to sell their great idea back to the station, and the cycle continues.

 

[davideduardo]

...radio has no in-house R&D, and because of this good ideas are in short supply. The entire industry relies on hundreds of 3rd party vendor's applications, equipment, and developers even though 90% of the functions they provide could be done in house for a fraction of the licensing costs paid for it all.

What are you referring to? What are the kind of vendors you refer to?

The expense of paying for these vendors cuts into funding for R&D. It's R&D that generates ideas and those generate revenue.

Radio has cut research as well as every other expense in the last several years due to the economy. Radio does not have the "burn capital" of startups.

But radio does, even now. research audience tastes and preferences as well as developing trends that may represent format options. However, in a bad economy one does not nuke a poorly performing station with some billing to start a new format with zero billing and a slow growth curve.

[/quote]So now it's almost 2010 and the industry still relies on local and national sales as its main source of revenue, just as they have for the past 50 years.[/quote]

First, most stations in the US depend almost entirely on local sales. A large number, in markets that have excess stations, don't even sell advertising... they broker out time or sell blocks for third parties to preach or program to a niche ethnic or special interest group. Only the larger stations in larger markets have a big piece of regional and national agency business.

Since AM and FM stations are licensed to broadcast "free" there is no other revenue stream available to them, save a bit of money for SCA or HD2, HD3 channnels. Or leasing to others on an owned tower...

Internet revenue is funnelled through companies like targetspot and Ando.

Local web streaming revenue is handled locally, but placement is done by the providers. No station has the ability to negotiate or build server farms, and most of us don't want to do that because radio, to survive, is in the content business, not the technology business.

The people who work in radio know nothing about techology or how to use it,

Since streaming is sold, like network radio, network TV and even Cable nets, based on mostly national delivery, the groups like Ando serve the same purpose as national sales reps for spot... they develop the market and handle logistics, allowing the station to concentrate on content.

There is no reason for stations to reinvent what is already avaialble, particularly when doing so would be much more costly. Of course, it is great to see people who have worked in radio at companies like those you mentionn, since that makes for a common ground.

Radio is about content, and content can be delivered by RF, fiber optics, WiMax or 8-Track and wire recordings...

 

[Binx]

What are you referring to? What are the kind of vendors you refer to?

Where to get started we have Sharepoints, Ando, JumpGate, Efficio, Marketron, Lawson, Wideorbit, Promosuite, Akamia, Dialglobal, etc, etc..

Radio has cut research as well as every other expense in the last several years due to the economy. Radio does not have the "burn capital" of startups.

But radio does, even now. research audience tastes and preferences as well as developing trends that may represent format options. However, in a bad economy one does not nuke a poorly performing station with some billing to start a new format with zero billing and a slow growth curve.

I should have been more clear, when I say R&D I'm talking technically, as in adopting and creating new technologies that work with the Internet to expand radio's relevance in the internet world of today. I wasn't referring to testing music for formats.

First, most stations in the US depend almost entirely on local sales. A large number, in markets that have excess stations, don't even sell advertising... they broker out time or sell blocks for third parties to preach or program to a niche ethnic or special interest group. Only the larger stations in larger markets have a big piece of regional and national agency business.

Since AM and FM stations are licensed to broadcast "free" there is no other revenue stream available to them, save a bit of money for SCA or HD2, HD3 channels. Or leasing to others on an owned tower.

That's true, but what I am saying is that there is potential to make money online using the same outlets as the record labels. People will pay for premium content, why not sell your morning show's best of segments on itunes for $1. The argument is always "Why would people pay for something that is free?" yet television studios bank on dvd/blu-ray sales of their free Tv shows every season in the form of box sets. That's revenue that is flushed down the toilet daily, and that's just one example.

Local web streaming revenue is handled locally, but placement is done by the providers. No station has the ability to negotiate or build server farms, and most of us don't want to do that because radio, to survive, is in the content business, not the technology business.

Radio needs to be in the technology business, that's my entire point, it's the lack of technological understanding/willingness/ability that is killing the industry. Radio stations should place their own content, invest in R&D that will think of alternatives to streaming and remove those providers from the equation.

Since streaming is sold, like network radio, network TV and even Cable nets, based on mostly national delivery, the groups like Ando serve the same purpose as national sales reps for spot... they develop the market and handle logistics, allowing the station to concentrate on content.

There is no reason for stations to reinvent what is already available, particularly when doing so would be much more costly. Of course, it is great to see people who have worked in radio at companies like those you mention, since that makes for a common ground.

Right, but the whole point is that the RF delivery system is becoming a casualty of these other systems and because radio does not create its content or develop its own technologies there is no reason for listeners or advertisers to stick with RF when you have these other distribution systems which are pushing boundaries and generating new revenue streams.

Radio is about content, and content can be delivered by RF, fiber optics, WiMax or 8-Track and wire recordings...

I would say Radio is content delivery, like the internet, very few radio stations create their own content anymore.