Thursday, August 09, 2007

The Music Biz: 2007, Part 2

Robert Sandall, in The Prospect, gives a great British perspective on the sea changes going on in the music business these days.

From a macro level, the value of the typical "music company" has both completely shifted internally, while taking a nose-dive overall.
This decline in fortunes has been noticed in the financial markets: EMI is being bought up by private equity group Terra Firma, for £3.2bn.

Almost as soon as the offer was accepted, Terra Firma were reported to be in discussions with Warner to offload EMI's recorded music division. The side of EMI that interested Terra Firma was its song publishing arm, the world's largest and a profitable performer. It is regarded as a safer bet because the exploitation of song copyrights is not subject to the same feasts and famines as the hitmaking process. As well as receiving around 14 per cent of the profit on any CD sale, the publisher has its fingers in other pies, such as licensing fees for films, adverts or any of the other myriad outlets which now employ music. Once upon a time, EMI's publishing arm accounted for about a third of the market value of the whole group. Now it's the only part that's worth anything to the people who venture their capital. It is no coincidence that Terra Firma's offer valued EMI at about a third, in real terms, of what it nearly fetched ten years ago when a sale to its competitor Universal was mooted.
In other words, the only real value of a music company is in the rights to license its music to commercials. Selling the music to consumers is a complete non-starter. Incredible.

And online music sales, the Great White Hope of the industry? Say hello to Jack Johnson's right fist.
The market for digital downloads was worth around $981m in the US last year, around a tenth of the value of the CD market. Yet the labels' great hope is that the slump in demand for physical formats will be offset by growth in the download market. This looks wildly optimistic. The latest figures from the US reveal that while paid-for downloads are increasingly popular—up 74 per cent in 2006 on the previous year—the surge in demand is slowing. And while the total value of music sales across all formats remained more or less static in 2004 and 2005, it declined by more than 6 per cent in 2006. The trade body of the American record industry, the RIAA, optimistically predicts that by 2011, the global online music market will be worth $6.6bn; three times what it currently amounts to. This situation will, as the RIAA delicately puts it, "leave the industry better positioned to offset physical sales."

Yet however it finds itself in 2011, the underlying truth is that recorded music, on or offline, has moved from being a high-margin, "high-end" product to a low-margin, low-prestige commodity.
The upshot? It really is a simple matter of Economics 101. What is cheap and what is dear. As Sandall points out, the development of the CD in the early 1980s was actually the first step on the road to where we are now -- awash in a sea of recorded music availability (both legally and illegally obtained).

If you can quickly and easily access most of a band's recorded catalog at a reasonable price (often zero), then it -- and any structures built around it -- becomes cheap.

What becomes dear is what cannot be quickly and easily accessed, and that is seeing the band live.
It is difficult to prove that the rising popularity and price of live music has been directly affected by the superfluity and cheapness of the recorded stuff. But it seems more than a coincidence that just as fans are spending less on the tunes they listen to at home, they will pay unprecedented sums to hear them in concert. Ticket prices, especially for A-list artists, have soared.

Back in the 1980s, a seat at a concert by a superstar cost about the same as one CD album. By contrast, last summer you could have bought Madonna's entire catalogue for less than half of what it cost to see her perform at Wembley Arena. ... Ticket inflation with smaller bands is less intense. But even a relative unknown like the American singer-songwriter Laura Veirs charged £15 for her London show at Bush Hall this July. More telling is the ubiquitous presence of touts outside low-key venues where no secondary market for tickets existed ten years ago.

Attendance at arena rock shows grew by 11 per cent in Britain last year, and looks set to rise again in 2007. The bigger the concerts, the more we seem to like them. Hence the explosion in the festival trade. In 2007, there are 450 such large-scale gatherings scheduled, ranging from the recent Glastonbury festival to the one-day Underage festival in Hackney on 10th August, which claims to be the first to be aimed exclusively at 14 to 18 year olds.

A rediscovery, or a renewed appreciation, of the communal source of music-making—and listening— must lie near the root of this upending of the music business. As personal stereos and MP3 players have grown in popularity, so has an appreciation that music isn't just something that goes on between your ears. The guitarist of the American hardcore band Anthrax expressed this rather neatly: "Our album is the menu," he explained. "The concert is the meal."

In his book e-Topia, William Mitchell relates the increasing value of shared experience to the isolating nature of electronic or online virtual worlds. "In conducting our daily transactions, we will find ourselves constantly considering the benefits of the different grades of presence that are now available to us, and weighing these against the costs," he writes. Being in the same place at the same time as a live performance, music fans appear to have decided, is the rarest and most precious presence of all.
So maybe it all comes back to what Neil Young once said. "Live music are better."


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