Wednesday, July 23, 2008

Ritch Esra and Stephen Trumbull Letter to the Music Industry

This is a letter posted on the Music Business Registry site.

THE MUSIC BUSINESS REGISTRY, INC.



Dear A&R Registry Reader,

Welcome to the summer edition of 2008! In the U.S., we're used to summer being a time of vacations, vacation from school, family trips to the beach, or just a time of year for a more relaxed pace. Unfortunately, this summer is anything but relaxed for the Music Industry, and an increasing number of employees are going on permanent 'vacations'. We all knew it was coming, but the 2,000 personnel cuts announced by EMI's Guy Hands have started and sadly, we're afraid we will see more and more of this type of massive reductions at the Major Label level. With CD sales down 15% so far this year and digital sales up 34%, many in the C-level suites are wondering if their companies can even stay in business. BMG's German parent has been quite public in stating that they no longer want to be in the Music Business. BMG has already sold off all of their Music Publishing assets to Universal for $2.1 Billion last year and last month The Wall Street Journal reported that BMG has already begun discussions with Sony Music (their joint-venture partner) to sell off their remaining music assets (RCA, J, Jive, BMG Distribution). If the sale happens, it will be the end of BMG Music as we know it and will produce even more layoffs of 2,000-3,000 music industry professionals worldwide.

EMI, the smallest of the Major Labels, is making a herculean effort to make a go of it as is Warner Music, yet both have little to show for their efforts. Sources have hinted that Terra Ferma Capital Partners (the new owner of EMI) will have trouble making the payments on the $4.6 Billion loan it used to purchase EMI, EMI's market share in the US has fallen below 9%, its lowest in years, and Warner Music's stock price has continued to be pummeled downward. The lesson we can take away from these examples is what we've been saying for some time now - the Major Label paradigm is dead. This business model simply cannot work in the 21st Century. The old paradigm was built on a model that required a level of sales that just isn't possible in today's marketplace. This old business model also flourished in large part because of the almost total control that the Major Labels held over the ancillary operations (radio, retail, media, etc.) necessary to support their product. Utilizing that outdated model in today's marketplace simply doesn't work because of the tremendous need and subsequent cost of the infrastructure needed to break through today's diverse musical landscape. And cutting overhead by reducing large numbers of staff, even very highly-paid executives as both Warner Music and EMI have done, is not the answer because it does not address the core issues facing labels today.

Given the shrinking profit margins in the music industry today, the Major Labels must be asking, 'Do we even want to be in this business anymore?' Now, before you answer, 'Of Course they do, what else would they do?', consider that two (soon to be three) parent companies over the last four years have said in no uncertain terms, 'No, we do not!' Time/Warner let their entire music division go for a mere song ($2.6 Billion in 2004), Thorn Electronics let EMI Music go last year for $4.6 Billion and now BMG will sell their remaining music assets at a price that is well below market value. And investors are voting as well. There was an interesting article posted on Linux.com written by Robin 'Roblimo' Miller back in 1992 titled Can Newspapers Help Make Record Companies Obsolete? The author was pointing out back even in 1992 - as were we - that technology was allowing artists to bypass the huge cuts taken by the record labels and sell their music directly to the listeners -- a shot across the bow of the Major Labels that went unheeded. What the author didn't know at the time was that newspapers would also join the Major Labels in the distinct club now known as Old Media.

What we're continually surprised and distressed by is that one of the main issues not being talked about is that what built the Major Label empire in the first place was a business model based on a long-term commitment to discovering, signing and developing talent. And that meant, a long-term commitment to their artists. The profitable result of this was the amazing gain in the value of the labels' catalogs (is there a better catalog anywhere than the one owned by Warner Music?). But, apparently, not one of the Major Labels wants to do this today - not one! They are scouring for talent that has already been developed and has its own touring and sales base. Compounding the problem is that most every superstar act who does sell large amounts of CDs leaves the label system entirely when their contracts expire; Nickelback, Paul McCartney, Prince, Madonna, Jay-Z, Nine-Inch Nails, Oasis, and Radiohead are just a few of the more notable examples. With the Major Labels now wanting a percentage of additional income sources from the small amount of new talent they do sign, more and more new artists are choosing not to sign with a Major Label. Aside from the huge percentages the labels demand for these deals, it's become increasingly clear to artists that the labels can no longer break non-Top 40 artists, either because they lack the knowledge or the patience to do so. With more top-selling artists leaving the labels after contracts expire and more and more new artists bypassing the label system altogether, the pressure on those executives still left in the Major Label offices must be growing by the day.

So the question remains, what, if any, role will the Major Labels have in the Music Industry moving forward? To answer this, look to the strengths and assets of the Major Labels. Distribution? Well, the Major Labels are great at getting large volumes of product onto store shelves, but is that what's really needed given that music can be delivered digitally and the fact that more and more artists are inking direct deals with retailers on their own. Probably the greatest assets the Major Labels have is their catalogs, which, as we said earlier, is due to their past efforts and previous business model. These catalogs contain various music and songs that can be licensed for use in Motion Pictures, Television, Video Games and release of boxed-sets (though the labels' recent management of boxed-sets has resulted in a dramatic sales decline lately). However, the catalogs of the Major Labels remains arguably their greatest asset and the most profitable area of income because it requires the least amount of investment on their part. They have already spent the money acquiring and developing the catalog and they own it. In a reverse sense, this is why Walt Disney has had such a remarkable track record launching their TV starts into music - the artist's name, face and brand is already very well-known to millions of viewers (Hillary Duff, Jesse McCartney, Miley Cyrus and Jonas Brothers are four acts that come to mind). Well, we shall see how the Major Labels respond to the new marketplace, and we'll keep tracking all of the job losses as they find their way.

As we already said, the cuts at EMI have begun as have the cuts at the other labels. Starting in the US on the A&R side, Steve Prudholme and Jamie Feldman have both left Capitol on the West Coast while Lee Trink, Vlad Bar and Jimmy Landry leave on the East Coast. Larry Willoughby has left Capitol Nashville, Jeff Rougvie exits Caroline, Neil Levine and Til Welch exit Imperial and John McCracken exits Manhattan. In the UK, Mark Poston, Matt Edward, Kevin Doran and Steve Proud all exit EMI. Victoria Ree exits EMI, but joins A&R as their new A&R Scout. Michaela Terry exits EMI Classics and other EMI UK exits include Ferdy Unger-Hamilton, Stephen Bass and Jonathan Chapman who all exit Virgin, while Dean Wengrow exits Mute. One of the more notable exits was Michael Goldstone who left his position of three years as President of Sire to join Artist Management firm Q-Prime. We wish him all the best in his new endeavor. In addition, David Rocco exits Atlantic while Wendy Higgs exits Interscope and Matt Marshall exits RCA.

A bright and refreshing spot among all of the departures is being able to report on someone joining an A&R Department rather than leaving. Brandon Creed joins Epic's A&R Department on the East Coast. And on the publishing side, we're happy to report that Betsy Anthony has joined the creative staff of Bug Music, while Sara Kapuchinski joins Stage 3 from Chrysalis and Diana Turk joins Primary Wave from Right Bank Music. Also, please make note that Sony Music UK (Columbia, RCA, Epic, 20/20 and Sony BMG Europe) have all moved into a new location.

As you may have already noticed, we have completely revamped the look of our Music Conference Page and added a Table of Contents all to make the A&R Registry even more helpful. Be sure to check out Vickie Hamilton's interview with Cleopatra Records President Brian Perera. If that wasn't enough, remember that all of our directories are available in print as well as online at www.recordXpress.net. You can call our offices at 800-377-7411 (or 818-995-7458 for our international customers) to order or you can order online at www.musicregistry.com.

Until our next issue, please know that we always try our best to make sure all of our directory information is correct at the time of printing, but if you ever come across a bad telephone number or email address, just let us know and we'll make sure to track down the correct information (if we haven't already!). Until then, we remain

Sincerely,

Ritch Esra and Stephen Trumbull
Publishers










The Music Business Registry, Inc.
7510 Sunset Boulevard, #1041
Los Angeles, CA 90046-3400 USA
818-995-7458 * Fax: 818-995-7459

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