Archive for the ‘International’ Category

U2 Producer’s Other Job: Selling CDs in Indonesia’s KFCs

April 4, 2017

By JON REGEN 4/03/17

Steve Lillywhite knows a thing or two about making music that sells. That six-time Grammy winning producer has worked on multiplatinum recordings with artists including U2, the Killers and the Rolling Stones.

Now Mr. Lillywhite is proving he knows how to sell music, too, although in a very unexpected way. He is the chief executive of Jagonya Music & Sport Indonesia, a company in Jakarta, Indonesia, that bundles recorded CDs with fast food at Kentucky Fried Chicken restaurants throughout that country.

At a time when the United States music industry has seen physical CD sales in free-fall — according to the latest report from the Recording Industry Association of America, 99.4 million full-length discs were sold in the United States in 2016, the fewest since 1986 — Mr. Lillywhite’s company, a subsidiary of KFC in Indonesia, sells 500,000 CDs a month alongside menu items like the Chick ’N Fillet sandwich and the Colonel Yakiniku Rice box.

“My job is basically like running a record label, except this record label also happens to sell chicken,” said Mr. Lillywhite, 62, who acts as a curator, choosing the music that goes into the Indonesian KFCs. (At the moment, the songs come exclusively from Indonesian artists, though he hopes to expand.) “Record companies pitch artists to me and I’ll say either ‘yes’ or ‘no.’ Or I’ll approach an unsigned artist and say, ‘I will guarantee you a slot in KFC if you sign directly with us,’” he said in an interview at Electric Lady Studios in Manhattan, while listening to a new U2 song he’s producing. The company orders CDs from a distributor and pays a percentage of the sales to KFC, as well as royalties to the artists.

Mr. Lillywhite’s journey from Englishman known for championing soaring choruses to creative guru of the Indonesian fried-chicken music market began six years ago, when he was asked to give a speech at a 2011 music festival in Singapore. He met some people who later invited him to produce music for the Indonesian band Noah. When he traveled to the band’s home to work on songs with them, “I immediately fell in love with the country,” he said.

“I loved the food, the people and the way they saw music as an experience. My synapses were overloading,” he added. “I imagined I would stay a year. I had nothing planned — I just thought I’d investigate the music.”

Mr. Lillywhite moved from Hollywood to Jakarta in 2014, and produced albums for artists like Iwan Fals, whose music he describes as “a mix of Springsteen and Dylan.” In March 2016, a mutual friend introduced him to Ricardo Gelael, director of PT Fast Food Indonesia, which owns 570 KFC outlets throughout Indonesia, as well as Jagonya Music & Sport, the company that places music in those restaurants. “He was looking to solidify and expand his company’s connection between CDs and chicken, as he realized he had become the new king of music distribution,” Mr. Lillywhite explained. When Mr. Gelael offered him a job to run and expand the company, Mr. Lillywhite immediately accepted.

“Steve has a proven track record in music as well as a love of Indonesia,” Mr. Gelael said in a text message. “So I thought he’d be the perfect person for the job.”

“CDs are still the No. 1 way to get music in Indonesia,” Mr. Lillywhite said, noting that a small percentage of the population has credit cards and internet connections are slow, hindering streaming. “In Indonesia, CDs are $4,” he continued. “And since nearly all of the record stores have closed down due to the cheap influx of pirated CDs, KFC is really the only place to buy them these days. People no longer go out to buy CDs on their own, but they do go out to buy chicken. And now buying a CD has become part of that experience. We even do concerts at KFC with some of our artists. So music and chicken have become intertwined.”

KFC has a more upscale reputation in Indonesia, where the flagship restaurants “are more like Hard Rock Cafes than fast food outlets,” Mr. Lillywhite said. Stores keep a display featuring 10 to 15 CDs on hand for browsing, and the cashier asks customers if they want a CD bundled with their meal. Mr. Lillywhite estimates that 98 percent of their music sales “are to people who go in to buy chicken but see the CDs and say, ‘Ooh, I’ll have a CD too!’”

When selecting music for KFC, Mr. Lillywhite draws on what he has learned “makes people’s emotions go wild.” He explained: “They love ballads, they love smooth jazz and they love to cry. I also always offer a kids’ album, as well as releases by big Indonesian artists like 19-year-old pop singer Rizky Fabian, the legendary rock band Slank and compilation albums too.”

He is considering a “duets” album pairing Indonesian and Western artists and a venture into streaming is also in the works. A smartphone app is starting this year.

Kasey Mathes of KFC public relations in Louisville, Ky., said that the company “doesn’t have any plans to bring this to the U.S. at this time.”

Whether or not this business model would work stateside is up for debate. “This is reminiscent of when quick service restaurants in the U.S. sold CDs of popular artists and compilations at a value price,” said Larry Katz, a music industry lawyer and the former senior vice president for business affairs at EMI Records, who once brokered a deal between EMI and McDonald’s that sold millions of CDs over a 30-day period in the mid-1990s. Considering the dominance of streaming in the United States, “Selling CDs at fast food restaurants here is likely a thing of the past,” he said, “but it’s not surprising that it still works in other areas of the world.”

John Burk, president of Concord Records — a company that experimented with placing CDs in Starbucks — said the concept “certainly has worked,” but also cited the rise of digital music as a deterrent now. “If you want to buy an album and put it on your phone, which is what most people want to do, it’s easier just to download it,” he said.

These days, while Mr. Lillywhite still takes the occasional trip to produce bands like U2, he is content in his new surroundings. “When I go into something, I go in feet first, with all my enthusiasm,” he said.

And what do the members of U2 think of his new venture?

“They think I’m barking mad,” he said. “Bono is obsessed with it. He’s always telling people: ‘Do you know what Lillywhite’s doing? He’s working for KFC!’”

Why Norway and the UK produce the world’s most valuable music fans

September 11, 2015

By Tim Ingham 9/10/15

Ask those in the record business about the markets that really matter to the global industry’s bottom line, and they’ll tell you about ‘the big three’.

A few years ago, that would have meant the US, Japan and the UK.

But these days, it’s the US, Japan and Germany – the outstanding trio in terms of annual cash spent on music.

Last year, across record sales, sync and performance rights, these nations generated $8.9bn between them, according to the IFPI.

To put this dominance in context, let’s look at the US alone.

In 2014, says the IFPI, the country’s record business attracted US $4.9bn – a third of the global business’s entire revenue.

The US haul was close to double the $2.63bn pulled in by Japan in 2014 and not far off quadruple Germany’s $1.4bn.

But here’s a bit of a shocker – the US market also turned over more than all of the following markets combined:
South Korea

[If you want to go really in-depth on the figures, MBW recommends picking up the IFPI’s Recording Industry In Numbers 2015 book.]

However, sheer brute size possibly isn’t the best way at evaluating the true value of these countries for the record business.

Another way to slice the pie is actually to investigate how much per person in each market is spending on music each year.

MBW has crunched the numbers of this per capita spend- dividing 2014 recorded music income in the IFPI’s Top 20 markets by the size of their population.

This tells us which music fans are really spending the most on records.

And it makes for a quite surprising list:
1.Norway: $23.58 per person
2.UK: $20.81
3.Japan: $20.64
4.Sweden: $19.75
5.Germany: $17.42
6.Australia: $16.26
7.USA: $15.36
8.Austria: $13.56
9.Switzerland: $13.39
10.France: $12.76

As you can see, Norway’s population, on average, shelled out US $23.58 on recorded music in 2014.

According to the IFPI, the Scandinavian country generated $119.9m from records last year – a spend driven by a population of just 5.084m people.

Brits can feel pretty chuffed with themselves, too. The UK market generated $1.334bn in 2014 – from a population of 64.1m people.

Germany may have overtaken the UK market in terms of revenue generation in 2011, but in terms of per-consumer spend, it’s more than $3 behind at $17.42.

And then there’s the other side of the story.

Those countries whose population – for a variety of economic, cultural and legal reasons – just aren’t pulling their commercial weight for the record business.

Below, you’ll find the sin bin of markets (in the world’s Top 20 biggest recorded music territories) whose per capita spend is the lowest.

It’s led by China; according to the IFPI, the 19th biggest recorded music market in the world, generating $105.2m in 2014.

But China also has the world’s largest population at 1.357bn people.

It’s a similar story in India (1.252bn people).

(Here’s an especially miserable stat about India, which generated just over $100m last year: according to the IFPI, subscription streaming revenue fell 42% in the country to $12.37m in 2014. Cash from free streaming? That grew 108% to $22.72m. Problematic.)
1.China: $0.07
2.India: $0.08
3.Mexico: $1.07
4.Brazil: $1.23
5.Spain: $3.87
6.Italy: $3.93
7.South Korea: $5.29
8.Canada: $9.74
9.Belgium: $9.93
10.Netherlands: $12.19

Note: All local currencies translated into US dollars at 2014 exchange rates

Apple makes more money every 3 weeks than the entire recorded music industry does in a year

January 30, 2015

Tim Ingham 1/29/15

As the world comes to terms with Apple posting the biggest quarterly profits in Wall Street’s history, it’s surely worth asking this question: just how much bigger is the iPhone giant than companies which the music industry considers ‘major’?

First, though, let’s explain that headline. Apple turned over US $75bn in its fiscal Q1, in the three months to December 27, 2014.

[Just take a moment to digest that. $75bn. That’s roughly the annual GDP of Jamaica, Iceland and Slovenia combined.]

Back to business… that gives Apple a mean average monthly turnover of $25bn.

According to the IFPI, the entire global recorded music business generated $15bn in 2013 – the last year we currently have on record.

In other words, Apple is making more money every three weeks than Universal Music, Sony Music, Warner Music, Beggars etc. combined manage to generate each year.

Let’s take a look at how Apple’s latest quarter stacks up against music’s biggest companies.

Universal Music group

Universal Music Group’s latest public quarterly results came in parent Vivendi’s Q3.

The French conglomerate reported the numbers by covering the nine months to the end of September 2014.

UMG – which owns Universal Music and Universal Music Publishing – posted revenues of €3.01bn, or $3.4bn, in the nine-month period, which averages out at a clean €1bn ($1.1bn) per quarter.

That means Apple’s turnover – wait for it – is around 75 TIMES that of recorded music’s biggest company.

It’s fair to note that because Apple’s results are hot off the press, they’re for the busiest consumer period of the year – the three months before Christmas – while Vivendi’s latest results cover quieter spring/summer/autumn months.

But as a rough guide, it certainly paints a telling picture. (Universal’s revenues in the whole of 2013 were €4.9bn, so its quarterly average income is slightly higher at around €1.2bn.)

In terms of net profits, I hope you’re sitting comfortably.

Vivendi posted a €442m net income in the first nine months of its latest fiscal year. That works out at around €147m ($166m) each quarter.

Apple notoriously posted a ginormous $18bn net profit for its Q1 this week, making its take-home quarterly income 108 times as big as the Universal parent’s average in 2014 so far.

One hundred. And eight. Times.

SONY MUSIC entertainment

We’re used to writing ‘Japanese technology giant’ or ‘Japanese entertainment giant’ when referring to Sony.

But, in reality, Apple now makes it look pretty weeny.

Let’s first look specifically at Sony Music. According to Sony Corp’s Q2 fiscal results for the three months to the end of September, 2014, Sony Music Entertainment – including Sony’s record company and its share of the world’s biggest music publisher, Sony/ATV – turned over $1.07bn in the quarter.

Handily, that’s basically the same as Universal.

Looking at Sony Corp as an entire entity – PlayStation, mobile phones, music, TVs and all – it turned over an impressive $17.5bn in its Q2.

Impressive, that is, until you realise that’s a tenth of the size of Apple’s revenues in its latest quarter.

Some ‘giant’…

And let’s have a look at the balance sheet. Apple, remember, posted that whopping $18bn net profit in its Q1.

In Sony’s Q2? A $1.24bn loss.



Warner Music Group is technically a private company, owned by Len Blavatnik’s Access Industries – who bought it in 2011 for $3.3bn.

But it still reports its quarterly figures publicly, giving us an insight into its fiscal health.

In its latest public quarter – its Q4, the three months to end of September 2014 – WMG turned over $771m.

That makes its quarterly revenue slightly smaller than both UMG and Sony Music Entertainment. And a LOT smaller than Apple’s record-breaking Q1.

97 times smaller, in fact.

As for profit/loss, Warner posted a net loss of $24m in its Q4 2014 (narrowed compared to Q4 2013’s $57m).

That might sound like loose change to Apple, but it still makes Warner’s latest balance sheet $18.02bn behind the Cupertino company’s.

Live Nation

Ah, we hear you say. But that’s all records and publishing. Everyone knows they’ve been hurting for more than a decade.

Live music. That’s what will give Apple a hiding. That’s where the big money is.

Well, yes, it is true that in Live Nation’s latest quarter – its Q3, in the three months to end of September 2014 – it did turn over more than double that of any major label group, with $2.5bn on its books.

Even relatively speaking, that hardly cuts Apple down to size.

The iPhone company’s quarterly revenue is still 30 times as big as Live Nation’s.

As for what’s left after expenses, Live Nation’s net profit in its Q3 stood at a healthy-sounding $115.8m.

We don’t need to tell you how far behind Apple that is.

How far behind Apple everybody is.

85 Percent of Music Sales in Japan are CDs

September 21, 2014

Hugh McIntyre 9/21/14
It’s a well known fact that CD sales have been going down, and fast, for some time now. Ever since people got the internet in their homes and learned what it could do, the downfall of the physical disc has been on it’s way, whether it be by piracy or iTunes. However, it appears that in an increasingly digital business, there is one place in the world where the physical still reigns supreme.

Japan, the world’s second largest music market, is completely obsessed with CDs. In fact, of all music sales in the country, 85% are CDs, whereas in other countries, digital is the leader, or in progressive spots where streaming has now taken over, such as Sweden. If that wasn’t enough of a surprise, digital sales in the country have actually been receding for years now, which is the opposite for much of the world (though not for the US, where digital sales dropped for the first time ever this past year). In fact, while online sales reached $1 billion in 2009, just four years later they raked in only $400 million—a massive fall in such a short time frame.

While it’s odd seeing almost anyone buying a compact disc these days, it is particularly strange that Japan would be leading the world in CD sales, as they are typically an early adopter when it comes to new technology. The country is often years ahead of other markets when it comes to new phones, computers, and the like.

The New York Times reports that there are perhaps two main reasons why this phenomenon is happening: a “protectionist business climate” in the music industry and a cultural love of collecting things.

The Japanese public seems to be wary of digital sales when it comes to music, and it’s hard to say completely why. It may stem from a lack of options in the sphere, which are being held back by big businesses. Not only is rights management very confusing in the country, making licensing deals difficult, but companies also aren’t too worried about venturing into the digital space at the moment. Spotify and Rdio, two of the biggest streaming options in the world, don’t have a presence in the country yet.

In countries like the US, the move to selling music digitally happened out of necessity. That’s where people had gone to find their music for free, and it was seen as the only hope for an industry bleeding profits. In Japan however, while CD sales are declining, they aren’t going down anywhere near as fast as they did elsewhere, and they still bring in big bucks.

On top of that, the Japanese have a true love of collecting things, and this can help spur sales. Many stores and artists run promotions that encourage fans to buy more than one copy of an album, such as including tickets or special artwork. Deluxe editions and greatest hits do especially well in Japan, compared to the US where they usually only convince a few die hards to spend the extra money.

Tower Records, one of many mighty CD store chains that disappeared as digital grew, is still alive and well in Japan, with all locations bringing in a combined $500 million in sales a year. In fact, when the brand filed for bankruptcy and went out of business in the US in 2006, there were 89 locations. In Japan, there are still 85 in business, and no end in sight.

CDs may be on their way out, but they aren’t dead yet. The discs still account for 41% of recorded music sales around the world, which total around $15 billion. Like vinyl, there may always be a subset of the market that wants what only CDs can offer: a plastic case, a disc, and a booklet to go with their music.

CD-Loving Japan Resists Move to Online Music

September 17, 2014


TOKYO — Around the world, the music business has shifted toward downloads and streaming. But in Japan, the compact disc is still king.

On a drizzly Sunday afternoon recently, Tower Records’ nine-level flagship store here was packed with customers like Kimiaki Koinuma. A 23-year-old engineer in a Dee Dee Ramone T-shirt, Mr. Koinuma said that, unlike most men his age around the world, he spends little time with digital services and prefers his music on disc.

“I buy around three CDs a month,” he said, showing off a haul of six new albums, including the Rolling Stones’ classic “Exile on Main St.” and an assortment of the latest Japanese pop hits.

Japan may be one of the world’s perennial early adopters of new technologies, but its continuing attachment to the CD puts it sharply at odds with the rest of the global music industry. While CD sales are falling worldwide, including in Japan, they still account for about 85 percent of sales here, compared with as little as 20 percent in some countries, like Sweden, where online streaming is dominant.

Kimiaki Koinuma, an engineer, with CDs he bought at Tower Records in Tokyo. “I buy around three CDs a month,” he said. Credit Hiroyuki Ito for The New York Times
“Japan is utterly, totally unique,” said Lucian Grainge, the chairman of the Universal Music Group, the world’s largest music conglomerate.

That uniqueness has the rest of the music business worried. Despite its robust CD market, sales in Japan — the world’s second-largest music market, after the United States — have been sliding for a decade, and last year they dropped 17 percent, dragging worldwide results down 3.9 percent.

Digital sales — rising in every other top market — are quickly eroding in Japan, going from almost $1 billion in 2009 to just $400 million last year, according to the Recording Industry Association of Japan.

Turning Japan around has become a priority for the global music business, which has struggled to regain its footing after losing about half its value since 2000, when digital technology began to disrupt the album-based business model.

But accomplishing change has been difficult, according to analysts and music executives in Japan and the West, in part because of a protectionist business climate in Japan that still views the digital business with suspicion.

Streaming music services like Spotify and Rdio, widely seen as the industry’s best new hope for new revenue, have stalled in efforts to enter Japan. Spotify, the biggest such player, has been stuck for two years in licensing negotiations with music companies in Japan, where homegrown pop idols by far outsell Western acts.

Ken Parks, Spotify’s chief content officer, said he was optimistic about his company’s prospects, and noted that the negotiating process was slow wherever it went. Spotify, which has more than 10 million customers in 57 markets around the world, negotiated with labels for almost two years before it arrived in the United States in 2011, for example.

“When the decision makers finally feel that the heat is intense enough that they have to do something different, they will,” Mr. Parks said. “I think we are approaching that moment in Japan.”
Others have doubts, pointing to the Japanese market’s devotion to the CD, which remains a primary source of revenue for record labels in the country, and an indispensable promotional tool.

Peculiarities of Japan’s business climate have shaped its attachment to the CD, but cultural factors may also be at play, like Japanese consumers’ love for collectible goods. Greatest hits albums, for example, do particularly well in Japan, perhaps because of the elaborate, artist-focused packaging. The hugely popular girl group AKB48 pioneered the sale of CDs containing tickets that can be redeemed for access to live events — a strategy credited with propping up CD sales, because it can lead the biggest fans to buy multiple copies of an album.

Tower Records closed its 89 American outlets in 2006, but the Japanese branch of the chain — controlled by NTT DoCoMo, Japan’s largest phone carrier — still has 85 outlets, doing $500 million in business a year.

At Tower’s flagship store, in the heart of the skyscraper-lined shopping district of Shibuya, a group of preteen girls called Kokepiyo performed for fans and autographed CDs one afternoon last month, while their mother-managers watched protectively. Outside, an 18-year-old student who gave her name as Yuria had come to Tower to see her favorite band, the Lotus. She carried a bag full of merchandise she had bought at the store, and said that she frequently buys multiple collectible copies of CDs.

“Each store has its own freebies to give away to sell more CDs,” Yuria said. “So it all depends on how good they are.”

In the United States, digital sales have long since overtaken physical ones. But CDs still account for 41 percent of the $15 billion recorded music market worldwide, and, in addition to Japan, some big markets like Germany remain reliant on CD sales. That attachment worries some analysts, who contend that if those countries do not embrace online music, an inevitable decline in CD sales will further damage the industry.

“If Japan sneezes and Germany catches a cold, that’s it — we’re done,” said Alice Enders, a media analyst with Enders Analysis in London.

A distinctive business ecosystem in Japan has kept CD sales lucrative for music companies. Pricing restrictions on retailers keep the cost of most new CDs at more than $20. In the mid-2000s, a nascent download service, Recochoku, was tethered to Japan’s expansive cellphone market, but that system collapsed once the country moved on to smartphones like the iPhone.

Part of the problem, executives say, is the complex array of companies that control rights to the most popular music in Japan, which have been very slow to license new services.

Sony’s Music Unlimited, for example, is the largest available streaming service in Japan, but it lacks the most popular hits there. (Sony declines to say how many subscribers it has to Music Unlimited, in Japan or elsewhere.) Apple’s iTunes store arrived in Japan in 2005, but only in 2012 did it begin to sell the Japanese music titles of its hardware rival Sony.

Executives in Japan and the West blame an overly cautious Japanese music industry for not adapting, and serious worries remain about Japan’s ability to recover from its losses last year.

“A substantial amount of senior management is worried about what happens on their watch, but not necessarily worried about what happens after that,” Shigeo Maruyama, the former president of Sony Music Entertainment Japan, said in an interview.

This year, things in Japan are looking slightly better. In 2013, there were no million-selling albums, but this year there have been two: a Japanese version of Disney’s “Frozen” soundtrack and the latest release by AKB48. Yet in the first half of the year sales were still down an additional 3 percent compared with a year earlier.

“The Japanese record companies’ hope is to maintain the current size of the physical market, and to try to make the digital market grow again by licensing new digital services,” said Yoichiro Hata a director of the Recording Industry Association of Japan.

For the rest of the struggling global recording industry, that growth cannot come soon enough.

“It’s inevitable that this market comes back to growth,” said Mr. Grainge, of Universal. “What I’m not going to predict is when.”

Mexico is undergoing a streaming music revolution

September 2, 2014

Tim Ingham 8/29/14

Mexico is undergoing a streaming music revolution

Revenues generated by streaming music services in Mexico have exploded in the past 12 months – up a staggering 130% year-on-year in the first half of 2014.

According to new figures from the Mexican Association of Phonographic Producers (Amprofon), analysed by Music Week, income to the local record industry from streaming services more than doubled to around 175 million Pesos (£8.0 million) in the six months to June 30.

That was enough to claim a 41% share of total digital music sales, which were up 14% on H1 2013, pulling in 428 million Pesos (£19.7m) overall.

Streaming services legally available in the territory include Spotify, Deezer and Rdio.

In total, the Mexican record industry generated revenues of 724 million Pesos (£33.3 million) in the six months, of which 59% were digital.

In turn, 59% of those digital revenues were accrued from sales. Of these, single tracks claimed 29%, albums 15%, mobile content 8%, ringtones 5% and music videos 1%.

That means 41% of record music’s overall revenues were claimed by physical formats, showing the continued strong position of the sector in Mexico.

83% of these sales of physical music were on CD; 12% were on DVD audio; 4% on DVD video; 1% was claimed by a combination of vinyl, cassettes, mini discs and Blu Ray.

More than a third (34%) of physical sales were claimed by Mexican artists. Just 29% were made up of ‘international anglo’ – i.e. non-Mexican English speaking artists.

Previously notorious as a hotbed of piracy, according to IFPI figures the Mexican record market increased in value by 17% between 2008 and 2012.

However, the annual market in Mexico fell by 4.4% in 2013 to total $135 million (1.76bn Pesos; £81.28m).

Taking into account the territory’s worth in the first half of 2014 – 724 million Peso (£33.3m) – would suggest the country’s overall 12-month value is once again likely to slip slightly this year.

The machine behind Taylor Swift

January 21, 2014

Paul Sexton Financial Times 01/20/14

Country music has sometimes ignored international markets. When Scott Borchetta signed up the 15-year-old Taylor Swift, however, he envisaged her winning fans thousands of miles beyond Nashville.

“I was always fascinated by artists that could appeal globally,” he says. “So my goal with Taylor from the beginning was that she was going to be a global superstar.”

Almost a decade later, Mr Borchetta, president and chief executive of Big Machine Label Group, has very much achieved this ambition. Ms Swift, now 24, is now one of music’s biggest stars, having sold almost 30m albums of country-tinged pop, more than 6.5m of these outside the US.

Her latest world tour, which involved nearly 70 North American performances, arrives in London for five arena shows next month, with a further night in Berlin. She is also nominated in four categories at next Sunday’s Grammy Awards.

“We started the label in 2005, and Taylor was my first signing, so that was a good day,” Mr Borchetta says, with some understatement.

The success of Ms Swift and other signings such as The Band Perry and Rascal Flatts has made the innovative Big Machine one of the most successful independent music groups in the US, at a time when the domestic market share of “indies” has risen to almost 35 per cent in spite of broader record company consolidation.

Mr Borchetta says: “We were able to attain momentum quickly, and to add great executives and great artists. We have three labels in the group, a publishing company and merchandising, and there’s a lot of other branding opportunities. But if we don’t have great music, nothing else matters.”

Born in Burbank, California, 51-year-old Mr Borchetta has the music business in his blood. He followed his father into record promotion, moving to Nashville and progressing to MCA Records, where he marketed such artists as Reba McEntire and Trisha Yearwood.

Even when he moved to an executive role at another big label, DreamWorks, he continued a parallel passion for car racing, even becoming a Nascar truck champion.

Off the track, Mr Borchetta has shown a similar boldness in the outspoken position he has taken on one of the most sensitive industry issues.

Most labels embrace, or at least accept, the now palpable swing away from track and album downloading towards streaming, via services such as Spotify and Deezer.
“I have real concerns with the biggest companies licensing their catalogues to any streaming service that switches on”

Mr Borchetta, however, is wary that they might be cannibalising sales, and is not shy of acting accordingly.

When Ms Swift’s most recent studio album Red was released in the autumn of 2012, it remained unavailable on streaming services for well over six months.

The decision was described as “flat out stupid” on one technology website, and some of her fans, already immersed in streaming culture, were similarly upset.

The decision looked substantially less questionable when Red sold 1.21m copies in its first week in America alone, the biggest opening tally there for more than a decade.

“I have real concerns with the biggest companies licensing their catalogues to any streaming service that switches on,” says Mr Borchetta. “I think that devalues music, and so it’s really important that record companies and content providers around the world make sure that we’re holding on to . . . value. It takes a lot of time and effort and money and talent to do this, and if we start giving it all away for fractions of pennies, we’re not going to be able to do it any more.”

Ms Swift’s pre-eminence in the market enabled her label to withhold those digital rights from the streaming services. Why rush to embrace Spotify when tracking company Nielsen SoundScan reports that digital sales of her tracks in the US now total 68m?

Nevertheless, Big Machine’s decision to stream or not to stream is taken on a case-by-case basis. Its newer breakthroughs, such as the pop-leaning country duo Florida Georgia Line, have enjoyed massive US success in streams, as well as downloads and CD sales.

Mr Borchetta made another bold move in 2012, when he agreed a groundbreaking deal with the largest owner of radio stations in the US, Clear Channel.

US radio stations have traditionally paid a royalty to songwriters and the music publishers that represent them for using their music, but performers received nothing, unless it was played online.

Ms Swift writes all of her material, occasionally in partnership with other composers, so was earning the songwriter royalty but nothing as the recording artist.

The deal with Clear Channel means that Big Machine and its performers are now paid a proportion of the broadcaster’s advertising revenue when it plays their music through conventional radio too.

Clear Channel’s concession on a point that has long been controversial for musicians was seen as a way of limiting the royalties incurred by its growing online business at the cost of paying more for its traditional broadcasting.

Other label owners, including Warner Music, have since made similar pacts with Clear Channel to secure these performance royalties.

The trendsetting Big Machine, meanwhile, has persuaded other radio groups to follow Clear Channel’s example. “I believe most broadcasters know that performance royalties are part of the future, as more and more are or will be broadcasting digitally,” says Mr Borchetta.

Some commentators have interpreted the more pop-flavoured recordings in Ms Swift’s output as an attempt to outgrow country music. Mr Borchetta denies the allegation, but makes no apologies for attempting to reach the widest possible audience with all of his artists.

“While her music has definitely become more worldly, she lives in Nashville and there’s always going to be a sense of that running through her music. I encourage her to make what she wants to make, so the next record could be anything from pure pop to bluegrass, who knows.”

Big Machine’s three labels enjoy the benefits of a distribution deal with Universal Music, whose chairman and chief executive Lucian Grainge praises Mr Borchetta effusively.

“Scott is that rare executive who combines great creative instincts with the focus and discipline of a successful entrepreneur,” he says.

But even as it straddles the divide between indies and majors, the company is the frequent subject of rumours that it will be sold. Mr Borchetta declares that this would only happen for “an outrageous sum which also absolutely guaranteed our independence operationally”. He adds: “I don’t see that offer coming in.”

Country roads lead overseas for Nashville signings

Scott Borchetta, Big Machine’s president and chief executive, says it became obvious to him in 2008 that cracking foreign markets would require a big commitment by the label and its star act, Taylor Swift.

The realisation came when he visited London that year to strike an international distribution deal with Universal Music Group. Ms Swift has subsequently gone abroad at least three to four times a year.

That deal was overseen by Lucian Grainge, now chairman and CEO of UMG, and by Max Hole, now chairman and CEO of UMG’s international division. Mr Grainge says Mr Borchetta has “transformed Big Machine into a global music powerhouse”.

As The Band Perry and Rascal Flatts prepare to return to Europe, Mr Borchetta is targeting an international audience for another Big Machine signing, a Southern rock band called the Cadillac Three.

“We have a mantra here that we’re right until proven wrong,” he says. “I want to give [international] listeners a chance to decide, and if they tell us, ‘You know what, we don’t like that,’ then OK, we’ve got it. I tell my artists all the time: ‘If you want to go just once, go on vacation. If you’re not going to come back, they’re going to forget about you.’”

CDs Rule Japan’s Music Market, Thanks to Girl Groups and Add-Ons

July 4, 2013

Mariko Yasu Bloomberg 07/03/13

Ritsuhiko Tajima has about 100 CDs by his favorite artist, Japanese girl group AKB48, many of them copies of the same disc. The attraction? The CDs often include tickets to events where he can briefly meet his idols. “I don’t think I’ll ever get tired of them,” the 28-year-old nursing assistant says as he waits at the group’s Tokyo theater for a monthly sale of limited-edition photos of its members. “They’re pop stars that I can come visit.”

Fans such as Tajima helped increase music sales to consumers in Japan by 3 percent last year, to $4.3 billion, surpassing the U.S. to become the world’s biggest market, according to the Recording Industry Association of Japan. Japanese consumer music revenue rose in 2012 for the first time in five years, led by tunes delivered on CDs and other physical media, bucking a trend in the U.S. and other Western markets as cheaper downloads gain ground.

Physical media—preferred by some music companies because they’re less subject to pirating than digital downloads—made up 80 percent of Japanese music sales last year, vs. 34 percent in the U.S., according to the International Federation of the Phonographic Industry. Japan’s record companies boost sales with add-ons, and revenue gets a further lift from artist-related tchotchkes such as posters, key chains, and tote bags. “Japanese people tend to want to possess goods,” says Shigeto Shoji, a director in the recording association’s planning department. “CD jackets and lyrics add value for domestic consumers.”

Much of Japan’s strength can be attributed to acts such as AKB48, whose miniskirted members perform in three groups of about 20 each at the 250-seat theater above a discount store in Tokyo’s Akihabara district. Formed in 2005, AKB48 is the nation’s top-selling girl group, spawning three sister acts in Japan and two abroad. Sony (SNE), which has the second-largest share of Japan’s music market, started a rival group called Nogizaka 46 last year to compete with AKB48, a Sony act before leaving in 2008 for King Record. “Sony Music is betting its future to grow this idol group,” Yasushi Akimoto, the lyricist and producer for Nogizaka 46, and producer of AKB48, says on the Nogizaka website.

Behind the success of Japan’s girl groups is “a drastic change in relationships with fans by involving them in the star-making process,” says Hideki Take, a music commentator and disc jockey in Tokyo. After being chosen in amateur auditions, prospective members perform in small theaters where fans vote on who will be featured, à la American Idol. “Unlike most stars selected by executives at recording companies, it’s a fan-centered system,” Take says. “The fans feel they are part of the success.”

One fan, Yuka Kimura, traveled more than an hour from Tokyo for an AKB48 handshake event in Chiba prefecture. She had 10 tickets from 10 identical CDs that she bought for 1,000 yen ($10) each, which let her line up multiple times to meet her favorite singers—though each encounter lasts less than five seconds, and no photos or autographs are allowed. “It’s worth paying the price,” Kimura says. “Even just for a few seconds, I get to meet my favorite member, and that’s fun.”

The girl group AKB48 has become a cultural phenomenon, with its own theater and plenty of swagPhotograph by The Yomiuri Shimbun/AP ImagesThe girl group AKB48 has become a cultural phenomenon, with its own theater and plenty of swag

AKB48’s singing and dancing teens are divided into three teams—A, K, and B—that rotate performances every evening. Several times a year they also do tours where thousands of followers gather at convention halls across Japan for a chance to briefly meet their girl-band idols.

Nogizaka 46 is following a similar script, part of an effort by Sony to shore up domestic sales that have fallen in spite of the industry’s strength. Sony says its Japan music revenue dropped to 167 billion yen ($1.7 billion) in the year ended March 31, from 174 billion yen a year earlier. The company had a 14.4 percent share of the country’s music market last year, 0.5 points behind Avex Group Holdings (7860), according to researcher Oricon (4800).

Analysts warn that the revival of Japan’s music market could be short-lived. Sales of music delivered on physical media dropped 6 percent in the first five months of 2013 from a year earlier, according to the Recording Industry Association. And the U.S. still accounts for more total music-related revenue when the data include subscription and streaming service fees and licensing for films and ads. “We may appear to be in better shape than other markets, but music companies here aren’t feeling optimistic,” says Yusuke Nakagawa, president of Asobisystem, a talent agency.

The challenge for Japanese music companies is creating fan loyalty elsewhere, says Damian Thong, an analyst at Macquarie Group (MQBKY) in Tokyo. AKB48’s backers have launched groups in Shanghai (SNH48) and Jakarta (JKT48) to extend the franchise. “AKB48’s innovation was not, in a sense, making new music but in creating a new kind of immediacy and new kind of connection to the fan base,” Thong says.

Nogizaka 46 still has a long way to go before catching AKB48. Sony’s group sold 303,474 CD singles of its biggest hit, Seifuku no Mannequin, or Mannequin in Uniform, in the first half of this year. That was dwarfed by AKB48’s Sayonara Crawl, the No. 1 release, which sold 1.9 million copies. (That’s almost double the total number of CD singles sold in the U.S. in all of 2012, according to data from the Recording Industry Association of America.)

Sony auditioned 38,934 girls to select 33 members for the Nogizaka group. The company is adding 13 new members this year after a second round of auditions in May. Among the stars fans can meet is 16-year-old Erika Ikuta, a front-line performer who says she enjoys shaking thousands of hands a day. “At these events, I learn my fans are paying so much more attention to me than I could ever imagine,” Ikuta says before the group’s dance practice at Sony Music’s Japan headquarters. “It gives me a supportive push.”

The bottom line: With girl-group fans buying multiple copies of CDs, music sales in Japan grew 3 percent last year, to $4.3 billion.


IFPI: Global record industry grew for first time in 13 years in 2012

February 26, 2013

Tom Pakinkis 02/26/13 Music Week

The global trade value of the recorded music grew for the first time since 1999 in 2012, according to the IFPI.
The landmark growth figure comes in the international trade body’s new Digital Music Report 2013, which states that the music industry grew by 0.3% in 2012 – the best result since 1998 “and a sign that the improvement in market conditions seen in 2011 has been sustained.”
The report also declares that digital revenues in 2012 reached $5.6 billion (up 9% on 2011), with digital now representing 34% of total market value.
Digital channels account for the majority of income in an increasing number of markets including India, Norway, Sweden and the US.
The IFPI also found that 62% of internet users now use licensed services to consume music, that the number of paying subscribers to music services has increased 44% and that download unit sales are up 12%.
Digital Music sales increased 12% in 2012 to 4.3 billion units globally – more than twice the pace of single tracks. There were 2.3 billion single track downloads in 2012 (up 8% on 2011) and 207 million digital album sales (up 17% on 2011).
Subscription services are described by the IFPI as a now “integral part of the recorded music market.” There were 20 million paying subscribers globally in 2012.
Moreover, subscriptions services are expected to have crossed the 10% mark as a share of total digital revenues in 2012 for the first time. In Europe the forecasted share is expected to be at a higher 20%.
The IFPI report flags up a number of exemplary territories as beneficiaries of the new digital surge, and ones that will be key players in the international music market of the future.
“We have plenty to do and some amazing opportunities ahead of us,” says Stu Bergen, executive vice president, International and head of Global Marketing, Recorded Music, Warner Music Group, in the report. “Until recently, the vast majority of our revenues came from a handful of countries. Today, digital channels mean we can monetise markets worldwide much more effectively.
Edgar Berger, president and CEO, International, Sony Music Entertainment adds, “We can see growth happening already from Brazil to Scandinavia, Canada to India. We think this is the start of a global growth story for the industry. “
The IFPI highlights a number of emerging markets, pointing out that, while at the start of 2011 the major international digital services were present in 23 markets, they are present in more than 100 today.
Digital sales are said to have taken off in 2012 following the launch of iTunes at the end of 2011 and revenues are expected to have nearly doubled in the past 12 months. Brazil’s music market has grown 8% in the last three years.
India is “nearing an all-time high” with its recorded music market growing for the third consecutive year in 2012 and digital sales overtaking physical.
Meanwhile, despite piracy being historically high in the Netherlands, where government is reluctant to intervene, the IFPI has tipped the territory for a Swedish style turnaround in the future thanks to the spread of licensed digital services.
The number of Dutch internet users using unlicensed services in January 2012 fell by 4% by December 2012 (from 6.6 million to 6.1 million), according to IFPI figures.
The Dutch market is estimated to have had the biggest digital growth among the major European markets in 2012 (up 52%). Although total sales are expected to have declined in 2012 due to falls in physical sales, the Netherlands “may soon bounce back to growth” as the digital share of the market grows, says the IFPI.
“This year’s Digital Music Report reflects the growing optimism felt across the music business internationally,” says IFPI CEO Frances Moore in the report. “We are on the path to recovery and driving the digital economy. These are hard-won achievements – we will be pushing to build on them in 2013.”

Record labels invest US$4.5 billion in new music

November 13, 2012

IFPI Report 11/12/12

Record companies’ total investment in A&R and marketing tops US$4.5 billion annually according to IFPI’s Investing in Music report

Labels have maintained A&R spending at US$2.7 billion, representing 16 per cent of global recorded music revenues, despite the economic recession

US$1 million to break a new artist in major markets

More than 70 per cent of unsigned artists would like a recording contract according to two new surveys

Download the ‘Investing in Music’ report:

Record companies have defied the global economic downturn to invest US$4.5 billion annually in artists and repertoire (A&R) and marketing, according to a comprehensive new report from IFPI on the changing economics of the music business.

Record companies remain the primary investors in artists, maintaining A&R spend despite declining overall revenues in recent years. Labels spent US$2.7 billion in 2011, only marginally down on 2008 (US$2.8 billion), despite an overall decline of 16 per cent in the trade value of the industry globally over the same period. Revenues invested in A&R increased from 15 to 16 per cent of industry turnover between 2008 and 2011.

Music companies invest a greater proportion of their global revenues in A&R than most other sectors do in research and development (R&D). Comparisons show music industry investment exceeding that of industries including software and computing (9.6%) and the pharmaceutical and biotech sector (15.3%). The comparisons are based on the European Commission’s 2011 EU Industrial R&D Investment Scoreboard.

Two new surveys, conducted in the UK and Germany in 2012, show more than 70 per cent of unsigned acts want a record deal, with marketing leading the perceived benefits of record company support.

Investing in Music is published today by IFPI, representing the recording industry worldwide, in association with WIN, representing independent labels internationally. With fresh data and scores of case studies, the report outlines the evolving and enduring partnership between labels and artists in the digital world.

Frances Moore, chief executive of IFPI, says: “Investing in Music highlights a simple truth – that behind the highly visible world of artists who touch people’s lives there is a less visible industry of enormous diversity, creativity and economic value. This report shows the role record companies, major and independent, play around the world in discovering, nurturing and promoting artistic talent.”

There are more than 5,000 artists signed to major labels’ rosters, with tens of thousands more signed by independent labels. One in four artists on labels’ rosters is a new signing, highlighting the role of fresh talent as the lifeblood of the industry.

Alison Wenham, chair of WIN, says: “Today, the relationship between the artists performing music and the investors supporting them has subtly changed and is continuing to evolve. The traditional model of significant advances and marketing support from larger record companies to artists remains widely in place, but there is now a greater emphasis on partnership, shared skills and shared revenues.”

The report features data from record companies and case studies from around the world, including studies on Michael Bublé, Raphael Gualazzi, David Guetta, Jan Lisiecki and Sexion D’Assaut. Other highlights of the report include:

Labels are taking advantage of new digital media channels, running more focused, cost-effective promotional campaigns and increasing their use of social networking and new media. Reflecting this, the industry’s marketing spend is estimated to have declined from US$2.4 billion in 2008 to US$1.7 billion in 2011. The fall is also put down partially to the impact of piracy and declining revenues, which has squeezed labels’ marketing budgets.

Unsigned artists want a record deal. Research conducted with The Unsigned Guide in the UK found 71 per cent of unsigned acts wanted a recording contract. BVMI research in Germany found that 80 per cent of unsigned artists wanted a recording contract. Marketing support is the most valued form of investment (with over 70% of artists citing this in both surveys), followed by tour support and the payment of an advance.

The costs of breaking an artist in a major market remain substantial at up to US$1.4 million. The cost typically breaks down as payment of an advance (US$200,000), recording costs (US$200,000-300,000), video production costs (US$50,000-300,000), tour support (US$100,000) and marketing and promotional costs (US$200,000-500,000).

Live performance has not replaced recordings as the driver of the music industry. While record companies invest US$2.7 billion in A&R, there is little evidence of such substantial investment in new music coming from any other source. The top five global live acts of 2011 – U2, Bon Jovi, Take That, Roger Waters and Taylor Swift – all have substantial back catalogues of recorded material.

Brand partnerships and synch deals have grown in importance. A recording deal unlocks a range of different revenue streams for artists and labels. These include a new generation of brand partnership and synchronisation deals, involving the use of recordings in TV, film, games and adverts. Synch income has increased from negligible figures in 2008 to US$342 million globally by 2011. The report highlights the case study of Ellie Goulding, whose cover of Your Song was used in an advertising campaign, generating direct income and also helping lift the sales of her album by an additional 400,000 copies

Record companies invest in local talent and break it to a global audience. Domestic repertoire accounts for the majority of the Top 100 physical format album sales in all the industry’s major markets: USA (62%), Japan (77%), Germany (55%), UK (53%) and France (54%). Industry executives believe the industry will widen its revenue base in the future, expanding beyond the 10 countries where it currently makes 80 per cent of its revenues into new markets such as Brazil, China, India and Russia.

The Unsigned Guide survey (UK)
Yes No
Is your aim to be signed by a record company? 71% 29%
Do you think having a record deal is an important step in developing a successful career as an artist? 75% 25%

What do you see as the benefits of having the support of a record label?
Getting upfront financial support in the form of an advance 35%
Marketing and promotional support 76%
Getting advice from teams of experienced professionals 24%
Creative input and guidance 5%
Support for touring and live performances 46%
Professional video production 3%
Help in partnering with potential brand partners 6%
International expertise and the ability to get to a global audience 31%
Making contacts with producers, songwriters and other potential partners 13%
Handling the business and admin, leaving you to the creative work 26%
Contacts with TV and radio stations 20%
Other reasons 3%

Source: 301 unsigned artists responding to The Unsigned Guide’s survey. All percentages rounded.

BVMI study (Germany)
Yes No
Is your aim to be signed by a record company? 80% 20%
Do you think having a record deal is an important step in developing a successful career as an artist? 65% 35%

What do you see as the benefits of having the support of a record label? Very important / quite important Very important
Support with marketing and promotion 95% 71%
TV and radio contacts 90% 58%
The opportunity to focus on the creative process 82% 50%
Support with tour planning and live concerts 81% 46%
Financial support through payment of an advance 80% 45%

Source: 313 unsigned artists participated in the online survey. All percentages rounded.INVESTING IN MUSIC