The MBW Review: Jimmy Iovine needs to mind his frees and Qs

MBW review-1
The MBW Review is a new series, published each Friday, offering commentary on some of the biggest music biz events of the past seven days.

This week, we try to make sense of Jimmy Iovine unleashing a stinging attack on all things freemium; Sony considering a sale of publishing monster Sony/ATV; Pandora spending the best part of half a billion dollars to buy a ticketing agency; and France’s new code for digital music.

Jimmy Iovine
Jimmy’s Iovine’s blistering attack on Spotify

It takes serious chutzpah to eviscerate the supposed unfairness of free music in front of people paying $5,500 to hear you babble on.

So hats off to Jimmy Iovine, who executed this feat in a slacker shirt and trainers – an island of Gap in a sea of itchy blazers. (Plus a very eye-catching Apple Watch, just to let the paying plebs know the joke was on them.)

$5,500. That’s how much registration to this week’s Vanity Fair New Establishment Summit set back delegates.

Want a chuckle? It would have taken an indie label 2.75m streams of a track during Apple Music’s free trial to generate enough cash for a ticket.

It makes you wonder: how many of these flush attendees are coughing up for Spotify subscriptions?

Not that Jimmy Iovine would want them to, of course.

This is a man for whom the saying ‘freemium’ is so distasteful, so putrid a word bubble, he literally has to wrap two little finger-quotes around it just to sweeten its passage beyond his fast-yapping mush.

If the Vanity Fair room really was stuffed with the ‘New Establishment’ – and I cast suspicion on that idea, because it included Lucian Grainge, of the established establishment – Iovine will be hoping they had accordant short memories.

“It would take 2.75m streams of a track on Apple Music to generate enough revenue to afford to watch jimmy iovine tell you free music is bad at Vanity fair’s conference.”

The rest of us recall that the device which launched Apple’s multi-billion dollar portable hardware business, the iPod, actually arrived in 2001 – slap bang in the centre of Napster‘s locust-like attack on music biz structures, and almost two years before iTunes showed up.

How much paid-for music does Jimmy think the iPod’s early adopters were uploading onto these devices; devices, remember, that built the legend upon which iPhones and iPads became behemoths of enterprise?

The music biz’s dirty little secret: before he decide to save the labels, Saint Steve Jobs capitalized on their destruction.

Negotiation 101.

That’s all ancient history now, naturally; wiped from tech culture’s collective memory by Jobs’s accepted hagiography as the saviour of the music business, rather than a barbarian upon the sanctity of the album.

As Taylor Swift told us earlier this year, Apple has “built a legacy based on innovation and pushing the right boundaries”.

Whether Iovine is pushing the right boundaries in the shadow of Jobs’s legacy is another matter.

His contention that the “television and movie industry doesn’t have [freemium]” felt painfully contrived, sidestepping the fact that the audiences of the TV and cinema industry were (a) both conditioned to a rental model in the physical world, and in the case of TV, well accustomed to subscription packages and (b) never faced the ferocity of piratical damage which blazed through the music industry when Iovine was in his A&R pomp.

Pandora confirms $450m purchase of Ticketfly

An unspectacular buyout with a spectacular pricetag.

Pandora’s purchase of Ticketfly makes a certain degree of sense for the controversial US digital radio firm, allowing it to control sale, pricing and revenue distribution of a vital cog in the holistic music business.

Ticketfly’s revenues hit $500m last year, while Pandora’s are set to top $1bn in 2015.

Rough maths therefore tells us that Pandora is now one third a live company and two-thirds a streaming music service – with data underpinning the whole shebang.

I suspect the reason its share price dropped 2% in the wake of the buyout is threefold: (i) The magnitude of the fee – around 1/6th of what Len Blavatnik paid for the whole of Warner Music Group; (ii) A pivot into live part-acknowledges that licensing strangleholds on the streaming business means it can’t generate profit at scale; (iii) The fact that the ticketing business’s problems mirror those of Pandora almost completely.

Both streaming radio and ticket agencies are high revenue, low margin operations.

“As for how pandora will expand the income streams of ticketfly? Perhaps you don’t want to know.”

It’s why irritating appendages like booking fees and cancellation insurance are thrust at you when you’re trying to buy a pass to a show; anything to add to the sliver of profit taken home by agencies before their income is distributed to managers, artists, venues, promoters and – occasionally – labels.

Pandora knows the pain of pulling in big bucks only to pay them back out again: last year, its revenues topped $900m, but almost half of them had to be re-distributed to labels and publishers.

That’s before tax and other overheads. And the labels and publishers are currently fighting for a bigger slice.

We know how unpopular Pandora and its minuscule royalty rates are with creatives – particularly songwriters.

But now it can combine a live music point of sale with data generation from Next Big Sound, a streaming music player and its Artist Marketing Platform (AMP) – a suite of tools designed to allow artists to understand and market to their fans.

Problem: that sounds useful, but not lucrative. Smart musicians value tailored data and insights very highly in an age where it’s increasingly hard to get noticed.

But they value being able to pay their rent even more.

As for how Pandora hopes to expand the income streams of Ticketfly? Perhaps you don’t want to know.

If there’s one thing that angers artists and songwriters more than streaming rates, it’s secondary ticketing – which cuts them out of the value chain completely, while generating heavy profits based on free market avarice.

Pretty much every other serious ticket agent on earth has expanded into this murky world.

We’ll leave it there.

Michael Jackson Thriller
sony poised to sell stake in Sony/ATV

Are you ready for the biggest independent music company the world has ever seen?

An internal memo at Sony Music Entertainment from boss Michael Lynton sent yesterday confirms that Sony has triggered a buy-sell clause in its Sony/ATV co-ownership contract with the Jackson estate.

This will allow one party to gobble up the other’s 50% stake in the publishing business.

There is still a question mark over which way that purchase will go, but evidence is mounting that it’s Sony looking to sell.

The Wall Street Journal’s sources suggest the motivation for the Japanese giant is to offload its music publishing company due to the economic pressures of the streaming age.

Nine months prior, an internal Sony email from CFO Ken Yoshida actually admitted that Sony was considering a sale of Sony/ATV.

Also, Lynton’s memo to staff makes no attempt to reassure staff that, in fact, SME is the aggressor in the buy-sell negotiations.

“Sony considers that now is an appropriate time to review our ownership status and thus has decided to begin this process,” he writes.

“If the jackson estate takes control of Sony/ATV, it will become a mega-indie. One saddled with a ginormous catalogue that needs care, attention and admin.”

“We will decide our next steps, based on a number of factors, as this process advances… I strongly believe that, whoever ultimately ends up owning the company, Sony/ATV will remain a great business and a leader in music publishing for many years to come.”

He adds: “For now, I ask that you proceed with business as usual, stay focused on your work, and continue to build on Sony/ATV’s terrific legacy and success.”

Stay focused on your work!

Nah. Let’s speculate wildly instead.

If the Jackson estate does take control, Sony/ATV (gosh, that’s going to require a re-brand) will be a mega-indie – yet one saddled with a ginormous catalogue that needs care, attention and administration.

Two fellow independent companies that specialise in lightening the load of just this kind of global burden? BMG and Kobalt.

Both of which, ironically enough, have been steadily chomping into the major publishers’ market share for the past few years – heaping pressure on the cost structures of businesses like… Sony/ATV.

Such an outcome would change the power balance of the music business forever.

(Important: it appears that Sony is only up for selling its stake in Sony/ATV. Between them, Sony and the Jackson estate own around 40% of EMI Music Publishing, which Sony/ATV administers. Other co-owners of this real estate include David Geffen. EMI appears to be off the table for now.)

France’s code of conduct: 7 objectives revealed

MBW ran an abridged version of France’s new Government-backed Code of Conduct for the music business earlier this week.

Co-signed by labels, artists, digital services and collection societies, it sets out rules and recommendations for a less opaque industry – with fewer opportunities for money to be surreptitiously siphoned off at each stage.

One line in particular got my mind whirring.

The French want to make digital breakage, as much as possible, a thing of the past.

To do so, it wants to cap guaranteed revenue payment requirements from online services to labels/publishers, and ensure they are based on ‘transparent methods of calculation using real data’.

Here’s a thought: Deezer alone paid $23m in breakage to labels between 2012 – 2014.

Remember, this is money promised at the start of a deal which royalties from streaming failed to chalk up.

It’s surplus cash.

Rather than then hitting labels’ bottom line – and/or being ‘shared’ with artists to an unclear degree – maybe this money could be put to better use: future-proofing the entire music biz ecosystem.

Stay with me.

What about funneling breakage back into global marketing campaigns for streaming services? Maybe experiential promotion in shopping malls, for example, which had such a marked impact on the adoption of broadband and TV subscription services.

“Here’s a crazy thought: why couldn’t breakage money be put back into a pot to build a global rights database?”

Or perhaps – and here’s a crazy line of thought – it could be used to build a Global Rights Database for every single rights-owner in the world.

Recorded music rights, songwriter and publisher credits, producers, instrumentalists – all in one authoritative global ledger.

The money this would eventually save everyone in the music biz is gargantuan –  especially those on both sides of the DSP/rights-holder divide currently bashing their heads against ludicrous ISRC discrepancies while trying to rectify bad data against billions of lines of streaming information.

It’s also not beyond the realms of mathematics: last time the music publishing collection societies tried to build a GRD, they contributed £8m ($12m) before throwing in the towel. That’s around half of Deezer’s surplus payments to labels alone.

For this to work in any capacity, though, a modern music business ideology would have to be shattered: as eloquently argued by Andy Heath on MBW earlier this week, this is not a era where collectively beneficial, long-termist music biz interdependence is abundant.

Quite the opposite.

Which is why, mark my words, Google will end up building the industry’s go-to GRD, and every rights-holder across the planet will be even further in the search giant’s pocket.

Quite literally.

If you thought those moans of ‘we should have made our own iTunes!’ sounded baleful today, you ain’t heard nothing yet.Music Business Worldwide

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