Australian Biz Faces 5-Year Decline

The Australian recorded music market will continue to contract over the next five years, according to gloomy new analysis from PricewaterhouseCoopers (PWC).

The consultancy today (Aug. 5) released the latest edition of its annual Australian Entertainment & Media Outlook, which examines issues that will influence the local industries through to 2012.

In its music analysis, PWC states that the recorded music market fell by 10.6% in 2007 and this year will decline a further 6.8% to be worth $795 million Australian ($729 million) at the end of 2008. All told, the consultancy expects the market to contract at a compounded annual growth rate (CAGR) of 1.5% through to 2012.

According to PWC, the "rapid decline in physical recorded music sales is not matched by the growth in digital music downloads and ringtones". The fall in the volume of CDs sales plus discounting by retailers is also impacting margins, the report adds.

PWC believes that the overall Australian entertainment and media sector will continue to enjoy growth and by 2012 will be worth $31.2 Australian billion ($28.6 billion). However, David Wiadrowski, lead partner for technology, information, communication and entertainment, says the sector must continue to innovate if it is to ride out the current economic downturn.

"If entertainment and media businesses were to enter the difficult days ahead without thoughtful, innovative strategies to maintain share, it could be harder for them to recover than from a cyclical economic downturn," he says.

Music industry ‘should embrace illegal websites’

The music industry should embrace illegal file-sharing websites, according to a study of Radiohead’s last album release that found huge numbers of people downloaded it illegally even though the band allowed fans to pay little or nothing for it.

“Rights-holders should be aware that these non-traditional venues are stubbornly entrenched, incredibly popular and will never go away,” said Eric Garland, co-author of the study, which concluded there was strong brand loyalty to controversial “torrent” and peer-to-peer services.
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Radiohead’s release of In Rainbows on a pay-what-you-want basis last October generated enormous traffic to the band’s own website and intense speculation about how much fans had paid.

He urged record companies to study the outcome and accept that file-sharing sites were here to stay. “It’s time to stop swimming against the tide of what people want,” he said.

The study by the MCPS-PRS Alliance, which represents music rights holders, and Big Champagne, an online media measurement company, found that legal downloads of In Rainbows were far exceeded by illegal torrent downloads of the album.

Almost 400,000 illegal torrent downloads were made on the first day and 2.3m in the 25 days following the album’s release, compared with a full-week’s peak of just 158,000 for the next most popular album of the period.

“The expectation among rights-holders is that, in order to create a success story, you must reduce the rate of piracy – we’ve found that is not the case,” said Mr Garland, chief executive of Big Champagne, who highlighted the benefits that Radiohead received from the album’s popularity, including strong ticket sales for its concerts this year.

The findings could add impetus to rights-holders’ efforts to license digital services that are at present beyond their reach, following the pattern of the MCPS-PRS Alliance’s recent move to license YouTube, the Google-owned online video-sharing site.

“Developing new ways and finding new places to get something as opposed to nothing” was important, said Will Page, MCPS-PRS chief economist and co-author of the report.

Those new places could be peer-to-peer sites or internet service providers, he added.

Record companies should ask themselves: “What are the costs and benefits of control versus the costs and benefits of scale?” said Mr Page.

He also challenged the assumption that no other band could achieve the same benefits, saying Radiohead’s experiment had reduced the marginal cost and risk for those following their lead.

He described the launch of In Rainbows as “stunt marketing at its best”.

Copyright The Financial Times Limited 2008

Artist Quote of the Week

The music industry is a strange combination of having real and intangible assets: pop bands are brand names in themselves, and at a given stage in their careers their name alone can practically gaurantee hit records.

Richard Branson

HFA - mechanical licenses for cover songs

"Songfile" can be used by musicians who plan to make and distribute 2,500 copies or less of their recordings to obtain the necessary licenses for cover versions of songs. Licenses can be obtained for CDs, cassettes, LPs, or permanent digital downloads (DPDs).

Customers can create an account with the Songfile service, search HFA’s catalog of almost 1.9 million songs, and complete their mechanical licensing transaction in minutes. Royalties are calculated at the statutory mechanical rate (currently 9.1¢ per copy for songs 5 minutes or less in length, or 1.75¢ per minute (or fraction thereof) per copy, for songs over 5 minutes). There is also a nominal processing fee ($13-15) on each song licensed.

Best Buy To Open In-store Music Centers

Hoping to cater to everyone from the garage guitarist to a recording musician, Best Buy Co. Inc. is announcing a massive new initiative that sets aside store space for an array of musical instruments and gear in dozens of sites nationwide.

The nation's largest consumer electronics retailer will announce Tuesday that it plans to open as many as 85 of the music centers inside its stores by the end of the year and could add even more locations in the future, executives told The Associated Press.

Each site will use about 2,500 square feet of retail space and include roughly 1,000 different products with well-known brand names such as Fender, Gibson, Drum Workshop and Roland.

"We're not just extending the shelf space in the store, we're creating a designated area specifically for this experience," said Kevin Balon, the company's vice president of musical instruments. "And we're trying to create an authentic and genuine musical instrument store look and feel inside of Best Buy."

The Richfield, Minn.-based retailer - already an industry leader in sales of everything from digital cameras to video games - will use its headfirst jump into the $8 billion U.S. musical instrument market to carve out new revenue opportunities as sales of CDs and DVDs slow, experts said.

When the rollout is complete, Best Buy - already considered by many investors to be a global powerhouse in the electronics retailing world - will become the second-largest instrument seller in the country based on locations.

But some observers are cautious about whether the expansion efforts will reap big rewards, particularly as the nation's economy slows and consumers become even more particular about spending hard-earned paychecks.

"It's not a high-growth area and it's obviously going to take up a lot of real estate," said Morningstar retail analyst Brady Lemos.

Executives declined to comment on how much the company is investing in the project or how much they expect to gain from the store-within-a-store effort.

So far, ten sites are already open, including five in California, two in Illinois and two in Minnesota.

Best Buy's selection will include everything from accessories - picks, sheet music and cases - to high-end basses, guitars, keyboards and DJ equipment. Instruments will be housed in separate rooms and the company also plans to offer group music lessons.

Acoustic guitars will sell between $89.99 and $3,200 and drum kits will retail for as much as $5,000.

A selection of the offerings will also be available online in early August.
"However you want to play, if play means you're just learning and you want to play with a bunch of buddies, or you want to play on stage, we can support any of that," Balon said

5 Lies Indie Musicians Tell Themselves

1. "The internet leveled the playing field for indie music." - Big checkbooks and the marketing campaigns they buy still have the edge. The internet just opened the door for everyone. It's what you do now that you're in the now overcrowded room that matters.
2. "I'm going D.I.Y." - Sorry, but you can't Do It all Yourself. You need a team; preferably an experienced one. Just for starters: manager, agent, web guru, marketing and PR.
3. "The quality of the music matters more now." - It has always started with a great song...or at least a catchy one. That hasn't changed and neither has the fact that after that it's still about hard work, who your champions are and luck.
4. "Now that the FCC ended payola, my music has a chance at radio." - Dream on. There are still gatekeepers and they still don't care about you.
5. "My sales suck, but so do everyone else's." Sure the numbers have changed, but if you can't get people to pay something for your music then you've got a problem...with your music.