Warner Music Group & Violator Management Try a New B.A.G.

Before I talk about the latest and greatest news, I first want to apologize for my recent absence. It has definitely been a challenge making the adjustment back from leisurely blogging in the summer to the non-stop grind of college this fall. Well, NO EXCUSES. I have a responsibility to you all that I take very seriously, and I really missed doing all this research and sharing it with the world!

As I was preparing for today’s blog, I came across a press release I read this summer about Warner Music Group (WMG) and Violator Management. In June of this year, Warner Music Group, the only publicly-traded record company, and Violator, the artist management company responsible for acts such as Diddy, Missy Elliott and 50 Cent, announced the formation of a new joint venture named Brand Asset Group (BAG). According the press release, the Brand Asset Group is “designed to increase revenue by more aggressively managing artist brands from all genres and capitalize on the value of those brands through corporate sponsorships, strategic and integrated marketing campaigns, and comprehensive brand extension.”

The company’s first customers will ideally be most of WMG’s artists, but they are also planning on working for artists on other labels as well. The Brand Asset Group will be led by industry heavyweights Kevin Liles (Warner), a key player in Def Jam’s successful brand expansion, and Violator’s Chris Lighty, the manager who helped 50 Cent build a $200 million multi-media empire. With innovators in leadership, I plan to see the Brand Asset Group meet and exceed my expectations.

Commentary:
I know that I have been pretty hard on record labels in some of my previous blogs, but that’s why this blog is important. The record labels are not completely giving up and waiting to die. They are trying to make adjustments. With that being said, I believe this new joint venture with Warner and Violator is a great idea, and I hope it flourishes. (There is practically no doubt in my mind that it will. Kevin Liles is involved with deal! Honestly, the success of this venture would help provide more proof that our company’s business concept and model can and will work.) I respect Kevin Liles & Lyor Cohen of Warner for continuing the entrepreneurial spirit they started back at Def Jam by taking advantage of the other revenue generating aspects of the music and entertainment industry.

However, due to my past comments, I would like to clarify my stance on record labels. I support record labels, and I believe they have provided an unparalleled contribution to music and the business of music. I understand there have been so many technological advances in the past two decades that their industry and model has completely changed. It’s easy to imagine how hard it would be to keep up with these changes and, most importantly, abandon a business model that has worked for over 7 decades. In spite of my appreciation and empathy, I do not like the labels’ history of making contracts that only benefit themselves or their desire to continue positioning themselves against artists and producers by signing them to personal services contracts. Most importantly, I do not like the fact that the labels have waited so long to step up and adjust their model, especially when they have had every warning sign. My frustration was heightened when their primary goal was to preserve their current model rather than exploit the new opportunities.

No matter how many people enjoy music, record companies are still a business as long as they are selling it with the hopes of making a profit. The #1 rule in business is “know your customers.” People change so obviously their needs will change. A business is only left with two options: (in the words of rapper Jim Jones,) “Get with it or get lost!”

Let’s Get China Into the Worldwide Business Of Music!!

A trade organization known as AIM (Association Of Independent Music) has put together 10 companies to go to China September 8-14, 2007 to attempt to gain intelligence and contacts in that region to help build their businesses.

“China’s rapidly expanding economy and high broadband penetration makes it a key market for British music,” said AIM’s Chairman and CEO Alison Wenham in a statement. “Building on our previous missions, this trade mission will equip British music companies with the vital intelligence and contacts they need to develop their business in the region.”

Some of the participating companies include Creative Capital, London Calling, and Lo-Max Records Ltd. These companies will attend an event put on by the Chinese government that will have presentations from local Chinese concert promoters, lawyers, branding strategists and new media companies, plus independent music sector and international companies already operating in the sector.

Simon Wheeler, Beggars’ head of digital and chairman of AIM’s new media committee, said, “China has great potential as a new music market, but no amount of research, listening or briefings can replace the value of actually being there, seeing how people interact with music and media and feeling the excitement of a rapidly developing market.”

Commentary:

It is good to see that there are companies that want to take a less political, but more personal approach to the challenge of piracy going on in China. Make no mistake this is the underlying theme for this visit. The music industry is loosing money and would definitely benefit from legitimizing the music industry in a country as populated as China with a large amount of potential consumers waiting to spend. If this approach becomes a trend the music industry will do more than just rebound, it will grow in ways that have never been felt before. And since the music industry has become an international market every one involved in the music industry will be effected by this trade mission to China and it will change the industry forever. Everyone wins!

YouTube and Ad Dollars…Only Makes Sense!!

It was bound to happen! YouTube wants to find a way to make significant amounts of money from their video sharing site. Following the model of Google, YouTube is attempting to generate revenue from advertising dollars while simultaneously keeping the YouTube users’ attention by making the ads seamlessly integrate into the already established YouTube system with the use of a technique called InVideo overlays. This will prove to be difficult. Sashi Seth, YouTube Group Product Manager said, “…our users are not shy about telling us what they like and what they don’t like, so it behooves us to be careful.” Wednesday, August 22, 2007, is when this initiative began. By August 24, YouTube had received 669 comments from users expressing their distaste for the ads.

The ad is embedded into the YouTube video that the user is watching and takes up approximately 20% of the viewing window. The amount of space that the ad takes up in an already small window seems to be the main complaint of users that call the ad nothing more than a distraction.

“YouTube plans to continue on with InVideo overlays, and hopes ‘to make the ads an important part of the advertising model for online video,’ said Aaron Zamost, from Google corporate communications.”

Commentary:
As technology advances so does business. Companies today have the task of ensuring that they are connected with the consumer any way possible. YouTube’s InVideo overlays are a prime example. Companies see a high volume of consumers utilizing YouTube and would love nothing more than to gain another avenue to grasp the potential consumer’s attention and motivate them to buy more. I commend YouTube for realizing the need of big businesses and coming up with a creative method to give them what they want while still making their users’ desires a priority for their success.

Another online music store combating iTunes.

Today I found an article that is talking about how gBox Inc., a start up online music store due to launch on August 21, 2007, has come up with an innovative way to combat iTunes. What they have gotten Google to refer people to gBox through an ad based format. Universal Music Group is responsible for buying the ad space from Google that will guide the consumer to gBox to purchase DRM free music for 99 cents per song. This will potentially provide gBox the volume of possible shoppers they will need to be in the same arena as iTunes.

Commentary:
It is refreshing to see companies get creative in their attempts to find a solution that will revitalize the music industry financially. I commend gBox Inc. for taking the burden of coming up with a way to attract people to their online music store and somehow placing it on the shoulders of the company that already has the burden of saving itself from deeper financial woes. Simply put, gBox Inc. is leveraging the brand of Universal Music Group as the face of the ads to solidify their credibility within the music retail market. This ultimately saves gBox time and money. How? gBox Inc. will not have to put the time and money into creating and implementing some elaborate marketing and promotional campaigns to acquire the credibility that Universal Music Group can provide by simply putting their face on a Google ad. Well done!!

Music Enhances Consumer Brand Marketing

I recently stumbled across an article from one of the July issues of Music Week that spoke to one of the fastest growing trends in the brand marketing. The article discussed the increased use of music and entertainment-driven initiatives by consumer brands. Brands such as T-Mobile, Virgin Media, Vodafone, Red Stripe, and Strongbow have all recently participated in music initiatives by sponsoring music festivals, award shows, or attractions at festivals. This growing trend has even led to the launching of a major industry conference created for the sole purpose of discussing the utilization of music in marketing. This conference is Music Week’s own MusicMeetsBrands Conference in London (formerly called the Music & Brands Conference). With rise of Starbucks as a force in music and Microsoft’s launch of their new music program Ignition, it seems the value of music has not dropped, but the means through which the value will be communicated has changed.

Commentary:
I believe this trend will only begin to increase in the upcoming years as the traditional model for selling and marketing recorded music dies and consumers continue to demand a lifestyle approach from businesses. I am personally and professionally intrigued by Starbucks’ seamless, yet grand entrance into music and entertainment. As I am studying consumer brands and their continued use of music, I know there will be more to learn about strategic planning and brand management. So as I continue my research, I will soon be doing a 2-3 blog series on “The Brewing of Starbucks Entertainment.” I hope this will shed some important light on the subject from the music industry’s perspective on marketing, retail, and artist development. Hopefully, in the process, we’ll gain insight into the future of music.

WaMu using the Power of Music!

WaMu, formerly known as Washington Mutual Bank, has come up with a creative way to add incentive for its customers by partnering with venues in New York, Seattle, San Francisco, and Los Angeles. These venues showcase live concerts that WaMu customers have benefits to that will build on the already wonderful experience of a live musical performance. By simply showing your WaMu ATM, credit, or home equity card WaMu members will be privileged to VIP lounges, designated parking, special entrance and concession lines, just to name a few.

“Its about the full experience from start to finish,” Jane Zalutsky, VP of experiential marketing, “[WaMu customers] will have a unique perspective on the show right from the beginning.”

Commentary:
Companies today are all taking notice of the power that is inherently in music to build brand loyalty with consumers. For an entity that is in a completely different field of business to realize the attractive benefits that music has to offer to their customers says volumes of the value that music can instantly add to any company around the world.
With the music industry struggling to stay alive I believe it to be necessary that initiatives such as these take place due to how the business of music is shifting. Some may think this is going to eventually kill the music industry as we know it. Maybe. But it can’t, and never will kill the music itself. The only inevitable occurrence is the adaptation to how people want to consume the music and who can deliver this to them in the most innovative and long lasting manner.
Gentlemen, Start Your Engines!!

Technology Also Affects Recording Studios

In our society, we have all experienced the power of technology and seen how rapidly it can progress. Technology is one of the few forces that constantly affects every industry from health care to education. Entertainment, specifically the music industry, is clearly not exempt from the effects of technology. For the last five years, the entire world has repeatedly heard about the problems with music piracy via traditional hand-to-hand bootlegging and illegal downloading on file sharing sites such as LimeWire. Obviously, these problems get a lot of attention in the media because of the illegal nature of the activities, but due to the severity of the current situation other important issues are being ignored. An article I read yesterday in the current issue of Mix magazine suggests that writer Rick Clark agrees with me. The article really hits home for me, literally. This article investigates the decline of recording studio facilities. Clark uses Nashville and, specifically, the historic Music Row to illustrate a bigger situation.

In Nashville, a popular recording studio on Music Row, Masterfonics, recently closed down. Immediately you might think, “Internet piracy is killing everything,” but the closing of Masterfonics was actually due to completely legal advances in recording technology. Recordings used to require extremely expensive and large equipment. Now, recordings can be professionally done with little more than your personal computer. In the article, several people in Nashville’s recording studio business share their perspective. Nancy Quigley of NTS Promedia provides weight to the matter when says, “We saw recording projects go from $2,000-plus on analog tape to a $200 hard drive.”

In spite of what has transpired over the past five years, the article does note that some businesses have made adjustments and are thriving. Steve Tveit of Omnisound Studios is one person who decided early on to “be proactive” and adjust his model before the new technology crippled his business. Steve summarized his perspective by saying, The old “days are gone and are never coming; you either understand that or you don’t.”

At one point, the problem becomes clear as Mr. Tveit says, “people are stuck in the old way of doing things, blaming what they can’t control.” If Mr. Tveit established the problem, Nancy Quigley provided the solution when she said:

We, as music industry professionals, must embrace the tremendous opportunity that new technologies offer instead of seeing them as threat[s] to our existence. There are a multitude of avenues in which to generate revenue from the music we love to create and participate in – and not just survive in the music industry, but thrive.

I personally believe the moral of this story was made plain when she simply said, “change is good.”

Commentary:

The only thing you have to decide is whether or not you are going to be a master of change or a victim of change. Are you going to be a creator of circumstances or a creature of circumstances? Are you going to ride the wave and stay ahead of the curve of change or are you going to be blown over by it and left in its wake? It will be one or the other, but the impact of change will be forced upon you whatever you do. Remember, you are always free to choose.

– an excerpt from Brian Tracy’s Thinking Big

Name That Tune…Search Engine Edition

Dr. Sandra Uitdenbogerd, a researcher of Melbourne’s RMIT University in Australia, is on the verge of creating a new method to search for music at an online music retail store like iTunes that enables the consumer to sing into their computer to locate a song instead of the traditional approach of typing in the title into the search engine. This is directed towards those that have forgotten the exact title of a song but know how the song is sang. It is also directed more towards genres such as classical music that, in some instances, do not have lyrics or any vocal arrangement at all within the song.

With a Ph.D in Computer Science, Dr. Utidenbogerd explains how extremely complex the code behind providing such a technological component to a search can be. She stated that it would take approximately 3-4 years to effectively index all of the music in the world to ensure that this searching option is accurate. On the other hand the requirements for a consumer to use this technology is very simple. All you need to have is a microphone, the applicable software, and an Internet connection and you’re in business.

Commentary:
This advance in technology is another testament to the shift into the digital marketplace. With record numbers of people shopping on the Internet it has become apparent that the need to enhance the experience of the online consumer has quickly taken a priority. With this technology on the horizon it is limiting the number of excuses that people may have in attempting to locate a specific product on the Internet. It capitalizes on ease and convenience, two critical components to ensure that consumers are being fulfilled in their experience with their virtual storefront and potentially establishing loyalty with the consumer.

With the success of this technology I can already see the engineers adjusting the code so that we are able to search the World Wide Web by simply talking to our computers. I for one welcome this advance and I look forward to the next innovation in technology that will once again cause another shift in our consumer experience.

Best Buy Creeps Into Music Business with Indie Label

I’m feeling very inspired right now. In my 5:30 p.m. – 9:30 p.m. Foundations of Entrepreneurship class, I had the pleasure of watching October Sky starring Oscar-nominated actor Jake Gyllenhaal. (I’ve sent it once before, but it was my first time watching it from the beginning in its entirety.) We spent some time in class analyzing the similarities between the movie and the entrepreneurial process. This story is about Homer Hickam and the Rocketboys of Coalwood, West Virginia. I will not go into the story, but I will say it’s a “must-see.” Homer and his friends definitely turned up the heat and gave the effort necessary to see their dreams become a reality. So in honor of Homer Hickham, I am going blog twice in one day. It may seem small, but one degree makes the difference!

With my recent post on Levi’s entrance into the record business still fresh on my mind, I decided to inform everyone of some recent information I acquired. In fall of 1999 (my freshman year of high school), Best Buy set a new trend while simultaneously making a bold move that foreshadowed the future of music. They started an independent record label, Redline; and they did it silently with little, to no, fanfare. Redline’s first two releases were genre-specific compilations–rock and pop. With series like Now That’s What I Call Music, we now know the earning potential of simply compiling today’s hits on one album.

Commentary:
Redline Entertainment has had some success since it’s inception. They have created unique compilations and developed innovative partnerships. Unfortunately, the “recording” industry and music retailers, as usual, fought change. So Best Buy and Redline have also experienced their fair share of opposition from competitors. In 2003, the Rolling Stones were boycotted by retailers in Canada and the U.S. for selling a new DVD set exclusively at Best Buy via Redline. Regardless of Redline Entertainment’s level of success or notoriety, there is an amazing entrepreneurial spirit within this venture that should be applauded.

In 1999, record labels were still doing very well, but the flaws in their model were already embedded into their system. For example, record labels sell their albums to stores on consignment. Therefore, stores are allowed to return unsold albums to the label and receive credit for future shipments or releases. Consequently, retail stores are not overwhelmed when a particular artist doesn’t sell because they are not ultimately responsible for the financial loss. Best Buy now had a reason to reserve the prime shelf space for itself. Best Buy used their 337 stores and the marketing dollars spent by major labels to reach fans. Just think, as every major label promotes their artists, the traffic in Best Buy increases. In this situation, Best Buy may have slightly been ahead of its time, but it allowed them to perfect their system and gain a understanding of what separates them from the competing labels and retail stores. So as I salute Homer Hickam, I must also salute Best Buy for their willingness to take risks in their pursuit of continual growth and excellence.

Jeans Brand Enters the Music Business

There is now another brand entering the music business. Levi’s®, the clothing company famous for their jeans wear, is now starting it’s own record label, Levity, in Australia. Less than 2 weeks ago the Sydney Morning Herald reported, Levi’s®, which is owned by Levi Strauss & Co., is seeking to take the brand’s interest in music beyond basic sponsorships because they want to strengthen their relationship with the consumer. Levi’s® continues to claim that this new initiative is really more than an opportunity to exploit their artists and music to simply sell more jeans, but this venture is about the relationship between the clothing and music in their customers’ lifestyles. Obviously, we have seen this model become very successful in recent months as Starbucks as signed Paul McCartney to their label Hear Music for his latest project, Memory Almost Full. Now Levi’s®, with a strong history in music with artists like Bob Dylan and the Rolling Stones notoriously wearing their jeans, hopes to become a more complete home for the lifestyles of their customers, and maybe they can sell a few jeans and albums along the way.

Commentary:
This is another clear example of the future of music and the death of traditional record labels. We are now seeing another monumental brand work its way into the recording industry. Why? Because it’s logical. In our society, nothing is as lifestyle-focused as fashion and entertainment. There are typically specific fashion trends associated with specific styles of music or even artists. Obviously, the opportunities for Levi’s® brand are endless with their direct connection to music. Promotional campaigns like buy the new CD from “Band XYZ” and get $10 off the full-price of any pair of jeans have the potential to gain attention and revenue.

What makes this growing trend even more exciting? The fact record labels worldwide are being exposed for what they really are. Record labels are specialized venture capitalists who have access to the proper resources to develop and promote an artist. I use the word “access” because, most of the time, labels hire independent contractors for the development work. (i.e. record producers, image consultants, publicists, etc.) In a situation such as this, Levi’s® has vast experience with logistics, lifestyle marketing, sales, public relations, and retail. They even have their own retail stores. So there will be no fighting for space on the display. Companies like Levi’s® and Starbucks can do almost every business function better than most labels, and whatever they don’t know can easily be contracted out. Now more than ever, it is clear that we are now in the middle of the transition into the future of recorded music.