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DCMEMUFNDI_C1001

T100: Media and Entertainment

Music Industry Fundamentals

Whats This Course All About?


Module 1: Fundamentals
Overview, Key Terms

of Music Industry

Module 2: Music Industry Landscape


Key Players, Industry Trends

Module 3: Foundations of Music Business


Contracts, Deals, Licenses & Royalties

Module 4: Processes & Technologies


How It Works, Key uses of Technology

Module- I

Fundamentals Of Music Industry

Laymans View of Music


Whats in a Song?

Song

Musical Notes

Lyrics/ Words

Performance

Roles: Common Parlance Roles: Industry Parlance Some Hidden Roles

Composer

Lyricist

Singer & Musicians Artist & Musicians Retailer Label

Songwriter Producer Manufacturer Distributor

The Music Industry

Understanding the Business


Music
&
constitute

Musical Work

becomes a

Sound Recording

Lyrics

when an Artist performs the musical work and records it on to a medium

Based on this, the Music Industry has two major lines of Business Recorded Music
The Popular face of Music Deals with the Sales, Marketing and Distribution of Recorded Music (CDs, DVDs, Digital etc) Deals primarily with Recording Artists Constitutes about 75% of industry revenues

Music Publishing
The Lesser known face of Music
Deals with the Acquisition and Exploitation of Music Rights (consisting of Lyrics & Music notes) Deals primarily with Songwriters Constitutes about 25% of industry revenues

Major Entities in the Music Business


Music Record Company (Label): Business concern specializing in record production, manufacturing and marketing Music Publisher: Person or company who takes responsibility to exploit, administer and protect the repertoires of musical works that they own or control, on behalf of others Artist: Recording entity (singer) who performs the song

Songwriter: Lyricist and/ or composer of a song


Producer: Person responsible for the supervision of the recording process including assuring artistic nuances and managing recording costs Artist and Repertoire (A&R): A department within the Record Company that finds

and develops new talent by auditioning demos, attending concerts of emerging artists, and then recommending the signing of contracts with artists that he/she believes have potential

Essential Terms in the Industry


Record: Any kind of delivery of music for consumer use, whether sound alone or supported by visuals Master: First-generation audio recording (usually done at a Recording Studio) of the performance of a song that is used to make copies during manufacture. The Owner of Master Recording may be the Producer, Artist or in most cases the Record Company License: A contracted agreement that allows the owner (Licensor) to retain all rights to his work while giving a third party ( the license holder/ Licensee) permission to use it Royalty: Payment made by a music company to performing artists, publishers, songwriters or their representatives in lieu of their rights over an intellectual property. It is essentially the division of sales proceeds between Record Company and Artist or Publisher (i.e. the Artists and Publishers share from monetization of a recording or song)

Overview: Business Flow of Music Industry

Contract

Sales Data A&R Determines Artist/ Publisher Share

Recording Artist

Payout

Payout Finance

Production [Recording Studio]

Packaging

Distributor

Contract

Manufacturing Music Company

Songwriter

Publisher

Sales & Marketing

Retail [Various Formats]

Main Process

Monies paid to Artist/ Songwriter (Royalties)

Departments

Overview: Business Flow of Music Industry


Songwriter/ Composer Publishing Artist A&R Production/ Recording Manufacturing Marketing & Promotion Distribution Consumer

The traditional process of income generation in the industry begins with the creation of an intangible music composition and ends in a tangible final product embodying that composition and delivered to the consumer Notes: Manufacturing: The record company enters into an agreement with a manufacturer or distributor who is given the right to manufacture and distribute the finished product in different formats: vinyl records, cassettes, compact discs and mini discs. The manufacturing is considered to be the least costly part of the process on a per unit basis, excluding the physical plant and equipment setup. Marketing and Distribution: Bringing the product to the final consumer and the necessary promotion and advertising required to sell the product. This is the most capital intensive phase of the business.

Understanding Industry Entities: The Artist


Performs (sings) a Track that becomes part of a Record The Artist may enter into a contract with: The record label, who would drive the necessary recording process (or) A Producer, who produces their own recordings and licenses them to the label for manufacturing and distribution. In this case artist may have to pay royalties to the producer depending on the contract terms

Artists have the potential to earn through: Royalties paid by record label Royalties paid by a film, TV, or video company to use the recording in a production Touring i.e. performing live at clubs, concert venues, and private events A percentage of proceeds from ticket sales or fees Merchandising i.e. from sales of merchandise at clubs, concert venues, etc A percentage of gross sales or net profits

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Understanding Industry Entities: The Producer


Responsible for the studio recording process including coordination of activities of songwriters, singers, recording engineers etc, ensuring the maximum creative output and managing the costs involved Producer Categories: Complete Producer: Handles music, engineering and administrative duties Artists Producer: Self-produced by Artist; relies on engineer for help Executive Producer: Money and control, oversees entire project Co-Producer: Shares musical, technical or administrative duties Producers have the potential to earn through: Royalties from Recordings, Label deals Talent scout activities Studio Rental Fees A flat free for the Production from the record label

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Understanding Industry Entities: The Songwriters


Songwriters may compose music, write lyrics or do both A songwriter may write only one song or a number of songs in a record Songwriters who sign exclusive writer's contract generally are paid a cash consideration called advance Songwriters may earn royalties in the following ways: Mechanical: Paid by a record company for use of a song by an Artist and its corresponding sales as records Performance: Paid by Radio, TV, Clubs, etc for playing the song Synchronization: Paid by a Film, TV, or Video production company to use a song along with moving pictures Print: Paid by a print publisher to obtain the right to print the music notation and lyrics for a song

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Understanding Industry Entities: The Publisher


Publishers represent Songwriters in several markets including Recorded Music, Television, Films etc

The basis for Publishing industry is Copyrights


The publisher, by authority of song-writing agreements, secures rights for administering the copyrights on behalf of the songwriters

Music publishing was originally about the manufacture and sale of sheet music, but now the sale of printed sheet music is a very small portion of the publishers income
There are various kinds of publishing companies: Full-Service Companies, Independent Publishers (One person shops), Recording Company Affiliates, Specialty Publishers, Artist/writer-Owned Companies, Concert Music Publishers and Print Publishers

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Understanding Industry Entities: The Publisher


Major Functions of the Publisher Acquisition of songs For most large music publishing companies, a tough competition exists in order to acquire new and valuable copyrights & it involves lot of expenses. Exploitation Selling and marketing the songs. Exploitation drives the entire business. The intention is to get a song on a record, or in a movie, or an advertisement. Administration Collecting split letters; registering the song with the US Copyright Office and the mechanical and performing rights , and giving licenses to those who want to use the music. Protection Protecting songs from sampling, illegal use or outright theft. Collection To collect and distribute income from record companies, performance societies, foreign sub-publishers, and film and television companies

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Understanding Industry Entities: The Publisher


Departments at the Publisher Royalty Department:

To handle receipts and disbursements, accounting, data processing, insurance and purchasing
Copyright Department: To register claims of copyright and keep record of existing copyrights; Also to keep record of copyright ownership transfers Legal or Business Affairs: To negotiate the publishing contracts

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Understanding Industry Entities: Record Companies


Most major Record Companys are part of bigger corporate entities*
Conglomerate Holding Company

Other Non-music Division

Music Group

Music Publishing Group

Recorded Music Group

Record Labels

Record Manufacturing

Record Distribution

* An exception to this is WMG


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Understanding Industry Entities: Record Companies


A major Record Company consists of several labels, both homegrown and acquired Labels A Major label handles all creative and business aspects of getting record made, marketed and distributed into the stores on a global basis A Subsidiary label operates as a self-contained company in the same way as a major, but it does not have ability to distribute An Independent label (Indies) does not have any affiliation with a major label. Indies have been responsible for introducing some of the most influential music in the last century: grunge, hip-hop, blues and rock.
Major Sony/ BMG Sample List of Labels Columbia, J, Jive, Arista, Epic, RCA, RCA Victor

Warner Music Group


EMI Universal Music Group

Asylum, Atlantic, Bad Boy, Cordless, Elektra, East West, Lava,


Capitol, Virgin, Angel DreamWorks, A&M, Geffen, Interscope, Verve

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Understanding Industry Entities: Record Companies


The organizational structure of most record companies is as follows:
Record Company President/ CEO

Executive Vice President Legal Affairs Business Affairs

VP of A&R

VP of Promotion

Artist Product & Developmaent

VP of marketing

Publicity

New media

A & R Director

Director of Promotion Regional Promotional Directors

Regional Marketing Directors

Sales

Art Department

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Understanding Industry Entities: Record Companies


An artist ,on signing a contract with a major label, gets the following advantages: Advances Recording Promotion Distribution Tour Support The Independents Besides the majors, there are Independent Record Companies (called Indies) too which usually promote Music in niche categories. Indies records may distributed by independent or major US based distributors. For internationals sales, indies usually secure a licensing deal with a label outside the country. Some independents labels in the US include Downtown records, Alive Records, Birdman Records and Daptone Records

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Understanding Industry Entities: Record Company Divisions


The various divisions at any major Record Company consists of: People who find and nurture Artists& Repertoire new talent and who work creatively with the artists Responsible for Advertising, Marketing publicity, album-cover art work, promotional videos, instore displays, promotional merchandise etc. Compute royalties that are to be paid to artists and publishers based on the sales of products involving them Sales Division that is responsible for getting records into stores Keeps track and reports companys income and expenses and ensure compliance with all regulatory norms

finance

Royalties

Responsible for promotion getting the records played on the Radio and Television
Continued

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Understanding Industry Entities: Record Company Divisions


Product Management In charge of whipping up all the other departments (sales, marketing, promotion etc.) and getting them to work together to push records through out its product lifecycle In charge of delivering music electronically and exploring other evolving channels to distribute music Manufacturing, cover printing, assembling and shipping to the distributors Responsible for the companys contracts with artists, publishers, record clubs, foreign licensees etc

New Media

Production
Business Affairs/ Legal

international Co-ordinates and releases records around the world and oversees all the above functions in foreign countries

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Understanding Industry Entities: Distributors


Distributors are organizations involved in distributing product from the labels to the retailers or sub-distributors Distributors are organized for handling the costs and time of distribution of recordings. It can also overcome any financial risks in a better way, and has greater leverage in collecting from retailers and wholesalers. In simple terms distributors job is to make sure record stores dont run out of their product. They also try to get prime locations in the stores for their records. Difference between Licensees and Distributors Recordings are also distributed by licensees which sign a license agreement with a record company. These agreements allow the licensee to manufacture and distribute recordings, as opposed to buying and distributing goods manufactured by the record company.

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Understanding Industry Entities: Distributors


Type of Distributors Multinational Distributor: The four multinationals UMG, Sony BMG, WEA(WMG) and EMI distribute their own records and those from their affiliates elsewhere as well as other independent labels. Independent Distributor: Not owned by a major multinational label. It distributes product for independent record companies and sometimes for a multinational if it seeks to supplement a certain market. Distributors supply records to the one or more of the retail distribution outlets: Mass Merchants Retail: Such as retail department stores like Wal-Mart, Target, Cosco etc Independent Stores/ Specialty Merchants Retail: Such as Music World Rack-jobbers (Also called sub-distributors): Act as a wholesaler for department stores and other outlets. They lease in-store space from Mass Retailers to sell music products. E.g.: They would own and manage music sales in Wal-Mart

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Understanding Industry Entities: Distributors


Music Distribution
Record Companies
Majors Independents

Distributors

Majors

Independents

Wholesalers
Wholesalers/rack jobbers

Retailers

Independent Retail stores

Major Retailers

Mail orders (Record clubs, etc)

All the four majors have their own distribution companies: UMG owns Universal Music Distribution, EMI owns EMI Music Distribution, WMG owns WEA, and Sony/BMG owns Sony/BMG Distribution.
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Understanding Industry Entities: Collection Societies


Collection societies evolved to negotiate and collect royalties on behalf of the copyright holders from various entities including TV stations, Radio stations, Clubs, Webcasters etc who use music for public performance (i.e. play it publicly or broadcast it) The first collecting societies emerged in Europe in the mid 19th century Major Functions of collection societies include: To issue licenses for specific works in which they hold copyrights To monitor the use of copyrightable material and collect revenues globally To distribute the revenue in the form of royalties to members of the society The Collection Societies retain a percentage of the collected royalties as fees Blanket licenses that permits use of all songs from the entire catalogue owned by the Collection society are issued to radio and TV stations.

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Understanding Industry Entities: Collection Societies


Record Companies Publishers Represented by Composers

Collection Societies

Negotiate and collect royalties Broadcasters

Major Collection Societies US: ASCAP and BMI UK: MCPS Germany: GEMA France: SACEM Japan: JASRAC
Note: Some collection societies may perform specialized functions such as collection of Performance Royalties alone. These may be called appropriately as Performance Rights Organizations (PRO).

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Understanding Industry Entities: Collection Societies


American Society of Composers, Authors and Publishers (ASCAP) (Non-profit organization) The society that lobbies licenses, collects and distributes fees, on behalf of 320,000 writers and publishers, to obtain the rights to public performance of their musical works which are copyrighted. Broadcast Music Inc. (BMI) (Non-profit organization) A licensing organization that lobbies licenses, collects and distributes royalty fees for the publicly performed works of its membership of 375,000 publishers,writers and international affiliate societies SESAC Inc (For-profit entity) A performing rights organization of 10,000 songwriters and publishers that licenses and gathers fees for the use of its members works SoundExchange (Non-profit organization) Independent, performance rights organization that are responsible for collection and distribution of digital performance royalties for featured recording artists and sound recording copyright owners (usually a record label) when their sound recordings are performed on digital cable and satellite television music, internet and satellite radio.
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Module- Ii

Music Industry landscape

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Music Industry: Key Characteristics


Quintessential Copyright-driven Content industry Recording (meaning reproduction and not live performance) is the chief revenue earner of the current industry

Highly fragmented value chain participants Made up of broader group of actors, that are highly independent Tightly interwoven and interdependent cluster of activities Complicated revenue streams based on a web of payments for individuals rights Largely contracts driven payments that includes a multitude of claimants Complex organizational structures including dozens of labels and independents The industry has seen a string of acquisitions and mergers since its inception

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Music Industry: Key Characteristics


Highly Concentrated Industry Over 60% of all industry revenues is controlled by four major companies High Costs High Risk About 10% of the records released to world markets by major labels succeed to make profit while 30% reach breakeven and 60% lose money

High Sunk Costs


High Marketing Costs Low Reproduction Cost

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Recorded Music Industry: Revenues


Global Industry Revenue (2007) : US $35.6 Billion Expected CAGR (07-11) : 2.3 Projected IT Spend (US & Europe): US $1.2 Billion
41 40 39

40.4 39 37.6 36 35.4 36.4 35.6

38
37 36 35 34 33 32 2005 2006 2007 2008

2009

2010

2011

Revenues (in US$ Bn) Source: PwC

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Recorded Music Industry: Geographical Distribution

Other 6% Asia Pacific 28%

EMEA 36%

Geographical Distribution of Recorded Music Revenues (2007)

US 30%

Expected Growth Rate of Recorded Music across Geographies (07-011)


Source: PwC

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Recorded Music Industry: Digital Sales


Digital Music Revenues
2004 2005 2006 2007

US$ billions
0.4 1.1 2.1 2.9

% Total of industry
2 5 11 15

Digital Sales by Channel - 2007 Online Mobile Subscriptions 48% 47% 5%

Currently Digital sales contribute to more than 20% of the industry revenues (world markets)

South Korea was the first market where digital sales overtook physical sales. Over 60 per cent of the South Korean market is now made up by digital sales

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Recorded Music Industry: Physical vs. Digital


Digital Physical

36 28.7 29.9

23.4

23.6

US

EMEA
-7.3

Asia Pacific
-9.2

Latin America

Canada
-7.3 -8.5

-13.2

Source: PwC

Expected Growth Rate of Physical Music Sales vs. Digital Music Sales across Geographies

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Distribution of Revenue from a CD

Note: The Artist commands a much smaller share than the Record Company, Retailer or Distributor

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Revenue Allocation to Value Chain Entities

Notes: Profits from a Digital Product tend to be much higher than from a Physical product Profits from catalogue sales (i.e. of existing recording; different from a new release) tend to higher than from sale of new releases

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Music Publishing Industry


Estimated worldwide Music Publishing Market (in 2004): $3.6 Billion Top five publishers account for over 65% of the market

Independents 34%

Universal (including BMG publishing) 25% EMI Music Publishing 17%

Sony/ATV Music Publishing 8%

WMG (Warner/Chappe ll) 16%

Approximate Market Share of Music Publishers (2006)


Source: PwC

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Music Publishing Industry

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Music Industry in India

E Estimated F Forecast Source: PwC

Currently physical music sales contribute 92% of the industry revenue and non physical formats contribute the rest. Ringtones already contribute around 5% of industry revenues currently Revenues from Master Use Licenses contribute 2.5% of the total industry revenues

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Music Industry in India

Source: PwC

Indian music industry is quite unique compared to those in other countries as it is virtually dependent on new Film music for 40% of its revenues

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Music Industry in India


Major Music Companies in India * Super Cassette Industries Saregama India Universal Music Sony-BMG Tips industries Venus Records and Tapes New Entrants * Yashraj Music Big Music Online Players * Soundbuzz India Times CrimsonBay

* Randomly ordered

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Music Industry Structure


Artists Production Distribution Retail
Online Online Television

| |

Songwriters Publishing Marketing


Live Concerts Broadcast

Physical
CD Sales

Radio
Streaming Downloads (Rhapsody) (iTunes)

Physical/ Digital Media

Discovery

Performance

Audience

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Music Industry History


Disc records which overtook cylinders in popularity in the second decade of the 20th century, was invented by Emile Berliner
1888 1889

Formations of a Music Industry dominated by sheet music sales


Early 19th century 1877

The New York Phonograph Company opened the first purposebuilt recording studios
1890 1894

The demand for recordings provides incentive for research and investment in the record business
1895 1900

Thomas Alva Edison invents the first (tinfoil cylinder) phonograph

The nickel jukebox that plays gramophone becomes popular

Pathe Freres started the world famous French company making phonographs and cylinders

Establishment of His Masters Voice (HMV) as a trademark in the infant music industry by E R Johnson
Continued

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Music Industry History


Berliner and Johnson joined interests in the Victor Talking Machine Co.
1901 1904

The Victor Companys Victrola model gramophone appears for the first time for consumer homes
1906 1919

The record business was becoming seriously depressed by the growing popularity of radio
1923
1925

RCA buys the Victor Talking Machine Company


1928 1930

Invention of diode and triode makes electrical recording a possibility

United Artists formed by early film stars Charlie Chaplin, Douglas Fairbanks and Mary Pickford which eventually crosses into the record business by issuing movie soundtracks RCA is formed by GE and AT&T

Victor and Columbia introduces electrically recorded discs The Brunswick Label emerges as the most successful new independent label following the postWorld War I boom of new record labels

Invention of cassette tape cartridge The Brunswick Label is bought by motion picture company Warner Brothers
Continued

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Music Industry History


The Electric and Musical Industries (EMI) is established after the merger of Columbia and the Gramophone Company. EMI opened its recording studios in London and began development on stereo recording
1931 1938
Continued

Capitol Records becomes the first major label based on the west coast
1942 1943

Film studio MGM launches its record division MGM Records


1946 1952

Epic Records launched as a CBS subsidiary for jazz and classical music
1953 1954

American Recording Company (ARC) bought by CBS network founder William Paley. The Columbia name is retained.

Vinyl discs introduced to replace the shellac disks

Cinerama presents multi sound track replay to the public for the first time

Companies begin to provide the equipment for stereo recording in major studios. Vast improvements in sound quality.

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Music Industry History


Pre-recorded Music cassettes are released. Simple to use, the cassette format was to become very popular.
1965 1963 1966

Paramount Pictures launches ABC Records


1955 1956

The Sony Company introduces the first pocket size transistor radio
1957

Chris Blackwell forms Island Records Scepter Records is also launched


1959 1958

Stereo LPs become available and new releases issued in both mono (monaural) and stereo (stereophonic) versions.

Jack Warner, a founder of the Warner Brothers motion picture company, launches Warner Brothers Records

Philips introduces the record - Reel-toreel tape and the 8 track audio cassette

Dr Ray Dolby introduces the Dolby Noise Reduction System which becomes a universal standard.

Continued

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Music Industry History


Around eighty-five different manufacturers had sold over 2.4 million cassette players world wide and cassette business was worth about $150 million. By the end of the decade, the Philips compact cassette had become the standard format for tape recording.
1968 1970

First announcement of Compact Disc from Philips Industries


1978
1979

MTV (Music Television), a cable channel begins transmitting video clips. During the next few years, the music video became essential for the promotion of a recording and once established as a promotional tool it became an entertainment product in its own right.
1981 1982

CD is officially launched in the UK. It is hailed as "the most important development in the recorded music industry since the long playing record".
1983

WEA is formed under Warner Communications between the three labels Warner, Elektra and Atlantic to create a huge distribution operation

Sony introduces the Soundabout cassette player which was later renamed the Walkman

Michael Jacksons Thriller album released by the Columbia subsidiary Epic Records ultimately sold 40m copies world wide and becomes the most successful product in the history of recorded sound

Continued

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Music Industry History


Digital Audio Tape The CD is firmly (DAT) that employs the cassette format to established as the record digitally but finest available music carrier for the using a smaller sized cassette is introduced present and by Sony in US foreseeable future
1984 1988 1989 1990

CDs become the most popular music format. MP3 is approved as the new medium of storage for computer audio files which approach CD quality
1992

Universal Music Group is formed by Seagram purchasing MCA. The first DVD (Digital Versatile Disc) product is showcased.
1996 1995

For the first time sales of CD are higher than vinyl and accounts for over 200 million units and the LP begins to disappear from record stores

Invention of Moving Picture Experts Group1, Layer-3 (MP3) that compresses digital audio files by 12 times

RealAudio successfully launches the first major streaming audio service Philips introduces its Compact Disc Interactive (CD-I) based on a CD-ROM (read only memory) technology to industrial users before marketing it as an entertainment system for all consumers Continued

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Music Industry History


Music piracy on the Internet, using the MP3 format, becomes a cult activity. Watermarks were introduced for music. The Digital Millennium Copyright bill is passed in US
1998 1999

Napster is shut down; the industrys first victory against piracy


2001
2003

Sony merges with BMG as the number of major labels shrink to four
2004

Apple reports that it had sold its billionth song on iTunes


2006 2005

EMI announces DRM-free tracks; others follow suit


2007

UMG becomes the world's leading music company by acquiring PolyGram Debut of the peer to peer file sharing network Napster

Apple launches iTunes and iPod Player thereby revolutionizing the music purchasing experience by offering 99 cent song downloads through the online music store

NY Attorney General Eliot Spitzer launches a crackdown on music industry payola. He successfully pressured two of the big four major labels to admit involvement in "pay for play" practices with radio stations.
Continued

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Music Industry History


In the early 1950s the big five major record labels were Columbia, RCA Victor, Decca, Capitol and Mercury

By the end of the 1960s the top major labels were CBS, Warner Brothers, RCA Victor, Capitol-EMI, PolyGram and MCA

By the end of the 1970s the top major labels were CBS, EMI, Warner, PolyGram and MCA By the end of the 1980s the top major labels were Sony, Warner, PolyGram, BMG, EMI and MCA Currently the record majors include UMG, EMI, Sony, BMG and WMG

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Music Industry Majors and Labels


The four major players contribute 65% of Publishing revenues, 75% of Recorded Music revenues and 85% of Distribution revenues

Universal Music Group


Geffen Records, Interscope Geffen A&M,Lost Highway Records, Uni Records ,Mercury Nashville, MCA Nashville, Motown Records, Universal Records , Island Def Jam Music Group, Uni Music South, Universal Music Classics Group, Verve Music Group, Universal Music Enterprises, Uni Music Latino

Sony BMG Entertainment


Arista Nashville, Burgundy Records ,Arista Records, Bluebird Jazz, BNA Records Label, Columbia Nashville, J Records , Epic Records, Jive Records, LaFace Records, Verity Records ,Legacy Recordings,Provident Label Group, Sony BMG U.S. Latin, Columbia Records ,RCA Records, RCA Records Label Nashville, Sony BMG Masterworks ,Sony Wonder, Winham Hill , RCA Victor,

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Music Industry Majors and Labels


EMI Group
Angel Records, Astralwerks, Blue Note Records ,Back Porch Records,Capitol Records, EMI Christian Music Group, EMI Gospel, EMI CMG Distribution, EMI Latin, Forefront Records, Higher Octave Music, Manhattan Records, Caroline Distribution ,Narada, Sparrow Records, Virgin Records

Warner Music Group (Organized into Label Groups)


Atlantic Records Group: Atlantic Records, Elektra Records, Badboy Records, Roadrunner Records ,Lava Records Independent Label Group: Asylum, Cordless Recordings, EastWest Rhino Entertainment: Rhino Records Rykodisc: Rykodisc Warner Brothers Records: Sire Records, Maverick Records, Nonesuch, Warner Bros. Records, WBR Nashville, Reprise Records Warner Music International: WMI Word Entertainment: Word Distribution,Word Music, Word Entertainment, Word Records

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Industry Bodies: Unions and Guilds


American Federation of Television and Radio Artists (AFTRA) 55,000 professional broadcasters and performers are represented by the Union by negotiating a contract and administrating of taped and live broadcast performances. American Federation of Musicians (AF of M) A union that represents, administers ,negotiates and protects contractual rights of its 190,000 professional members in the United States and Canada. American Guild of Musical Artists (AGMA) A labor union of 5,000 opera singers, ballet and modern dance companies. American Guild of Variety Artists (AGVA) A labor union that represents jugglers, comic, magician, variety acts, and nightclub singers. The Songwriters Guild of America A company that supports and protects its membership of 4,500 American songwriters.

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Industry Bodies: Harry Fox Agency


Harry Fox Agency (HFA) is a mechanical rights agency that represents music publishers to fulfill their needs of mechanical and digital licensing . Maximum percentage of the digital and mechanical benefits of music in the United States Of America on CDs are licensed by HFA, digital services, records and tapes. HFA provides various services to its affiliated publishers. Following are the services: Issues and collects mechanical licenses (includes CDs, ringtones, and Internet downloads) Distributes mechanical royalties, and synchronization fees for licenses given prior to 2002 Pursues piracy claims HFA does NOT: Issue synchronization licenses (since 2002) Administer performance rights Issue print rights Issue master use rights

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Industry Bodies: IFPI


Recording industry all over the world is represented by IFPI (International Federation of the Phonographic Industry) with around 1400 members in 73 nations and affiliated industry associations in 48 nations Location of IFPI's international Secretariat is London and is connected to regional offices in Brussels, Moscow ,Hong Kong and Miami. IFPI's Mission: Protect the rights of record producers Expand the commercial uses of recorded music Promote the value of recorded music Key Areas of Involvement Anti-piracy Enforcement, Technology, Licensing and E-Commerce, government lobbying and portraying at international organizations, Litigation and Public Relations, Legal strategies. Key Activities Co-ordinate international strategies in the important areas which are in focus Key source of market research and information
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Industry Bodies: RIAA


The Recording Industry Association of America (RIAA) acts as a trade group which portrays the U.S. recording industry i.e. mainly record companies that operate there RIAA members create, manufacture and/or distribute approximately 90% of all legitimate recordings of sound produced and sold in the United States RIAA Mission To foster a business and legal environment that promotes and supports members' innovative and financial vitality Key Activities Protect intellectual property rights in the whole world and the First Amendment rights of artists Certify platinum and gold albums and singles in the United States Perform research about the music industry Administer and review relevant rules, regulations and policies

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Industry Bodies: RIAA


Sales Certification is an endorsement by RIAA (and thus the Music Industry) that a Music Album or Single has breached a certain number in terms of sales Earlier, Album or Single certification included only Physical Media In 2004, branch of certification was supplemented by RIAA for digital recordings, meaning recordings transferred to the recipient over a network (such as those sold via the iTunes Store) In 2006, digital ringtones were augmented to this branch of certification As of 2007, the criteria of certification for such recordings are as follows: Silver: 100,000 | Gold: 500,000 | Platinum: 1,000,000 | Multi-Platinum: 2,000,000 (recertified at each million-unit interval) | Diamond: 10,000,000 Video Long form certification: This release format includes live albums, compilation albums, "greatest hits" albums, and DVD releases. The certification criteria is as follows: Gold: 50,000 | Platinum: 100,000

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Industry Standards: ISRC


ISRC is the abbreviation for International Standard Recording Code Developed by International Organization for Standardization (ISO) to uniquely identify sound and music video recordings internationally It does NOT identify physical products or digitally distributed packages and that no conflict is there after the coexistence with the product catalogue numbering systems Unique Features of ISRC Each unique recording is to have its own unique ISRC The first owner or present owner of the rights to a recording normally allocates the ISRC, provided no ISRC is issued before. It identifies the recording throughout its entire lifetime and is generally used by producers of music videos (i.e. record labels) and sound recordings, as well as by copyright organizations, broadcasting organizations, libraries, licensees etc. If a recording is already been licensed or sold and is then released ,the ISRC remains the same. Continued
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Industry Standards: ISRC


A single ISRC is used for each unchanged recording regardless of the format in which it is released. ISRC coding system is compatible with standards developed in the field of consumer electronics. The ISRC is increasingly used in electronic copyright management systems and Digital Rights Management systems.

ISRC FR - Z03 - 98 - 00212


ISRC
Code identifier

FR
Country Code (2 chars.) FR = France

Z03
Registrant Code (3 characters) Z03 = Mercury France

98
Year of Reference (2 digits) 98 = 1998

00212
Designation Code (5 digits)

Country Code: The country of residence of the registrant Registrant Code: Code for the entity assigning the Designation Code in an ISRC Year of Reference: Identifies the year in which the ISRC is allocated Designation Code: Sequential numbering of recordings in a calendar year

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Industry Standards: GRid


Developed by members of IFPI and the RIAA for the identification of electronic music Releases GRid (Global Release Identifier) provides an identification and description scheme for Releases which embody multiple Digital Resources
Release is acting as an abstract entity portraying a package of one or more Digital Resources compiled by an Issuer to distribute to individual consumers electronically Product acts as a Release manifestation, in the form available to consumers. Digital Resource is an expression s digital fixation of an abstract work, such as sound or audio-visual recording, photograph, software, graphic image or text

GRid Standard specifies the elements which help form the Reference Descriptive Metadata for a Release
Metadata Repository is system which meets the requirements of the International GRid Authority which is used for maintenance ,storage and access of Reference Descriptive Metadata

IFPI manages and administers the GRid Standard on behalf of global recording industry IFPI also identifies and assigns issuer codes to the parties assigning GRids to new releases and ensures their compliance with the standard Continued
60

Industry Standards: GRid

Identifier Scheme: Distinguishes GRids from other identifiers. In GRid, A1 always acts as the identifier scheme element Issuer code: This is the unique code given to each Issuer of GRids by the Registration Agency. Release Number: Unique number given by the Issuer to each release which they control. The Issuer is responsible for ensuring that each release number element that they use is distinct within their own Issuer code. Check Character: An algorithm is used to find the Check Character in accordance with the relationship i.e mathematical which exists with the other alphanumeric characters contained in it.
61

Industry Standards: DDEX


The Digital Data Exchange, LLC (DDEX) was initiated by a consortium of 11 companies to maintain and develop a strong & compact framework of communication standards to support the digital distribution of digital content Current members include Record Companies (EMI Music, Sony BMG Music Entertainment, Universal Music Group ,Warner Music Group), Rights Societies (ASCAP, The Harry Fox Agency, MCPS-PRS Alliance, SGAE, SACEM) and Digital/ Mobile Sales Providers (AOL, Apple, Microsoft and Real Networks). Key Drivers for DDEX Companies involved in the business for providing digital music already exchange significant amounts of data Detailed info on Releases and offerings on sale from Music Company to partners Reporting back of sales from Partners to Music Company However, the number of organizations participating, the number of services available to consumers and the volume of transactions to be administered are on the rise
Continued
62

Industry Standards: DDEX


Currently the data exchange between partners which are individual is done mainly using many proprietary solutions The industry needs to adopt standards in order to simplify important business processes in the larger course. DDEX has issued the following key standards Main Standards Electronic Release Notification Message Suite: Series of computer readable messages that enables sending of metadata about releases to music digital service providers Digital Sales Report Message Suite: Series of computer readable messages that enables sending of music sales metadata Supporting Standards DDEX Data Dictionary: Contains all the terms used in the messages and their definitions
Continued
63

Industry Standards: DDEX


DDEX Party ID: This is a unique alpha-numeric string that will be allocated to any organization wishing to exchange messages using the DDEX message standards that enables other DDEX message standard users to uniquely identify the sender and received of the messages Key Advantages Lesser time to Market Operational Quality and Efficiency is increased in value Enhanced Data Quality Transaction management costs are minimized Communication costs are minimized System Development/ Maintenance costs are minimized

64

Industry Trends & Priorities


Influencing Trends Priorities

Decline in physical sales of recorded music is a global trend (decreased by approx 9% inn 2006) The increase in digital sales has not been able to compensate for these losses Specialty music retailers (stores which exclusively sell only music) are depleting; and therefore the outlets for physical music sales is correspondingly decreasing Fuelled by increased broadband adoption and expansion of wireless networks, digital distribution is on the rise (expected to grow at a CAGR of 26% globally by 2011) Single track downloads continue to be the biggest chunk of digital sales; introduction of new services, bundled sales etc are gaining significance to address this trend
Continued
65

Enhancing Digital Distribution Opportunities

Industry Trends & Priorities


Influencing Trends Priorities

This is causing an increasing dependence on leading online retailers (E.g. Apple) and mass in-store retailers (E.g.: Wal-Mart), who are in a better bargaining position than the music industry itself In 2006, the industry suffered a loss of approx. US$4.5 billion in physical piracy and loss on sales of over 20 billion songs in terms of digital piracy Proliferation of internet, lowering costs of technology (duplicators) and emergence of portable platforms such as MP3 players and mobile phones accelerate this trend Most Digital Rights Management software have failed to protect assets effectively

Enhancing Digital Distribution Opportunities

Addressing the Piracy Problem

Continued
66

Industry Trends & Priorities


Influencing Trends Priorities

Multiple emerging platforms to consider and address in short term E.g.: Wireless Devices With each emerging platform, complexities such as pricing, revenue sharing with retailer, royalties payouts, effective enforcement of digital protection, portability etc have to be addressed For a music major, on boarding of partners is a very frequent activity since unique entities have evolved along the digital distribution space that have to be tapped as potential sales channels via partnerships On average currently music companies deal with 500+ Digital or Mobile Sales Providers
Continued
67

Capitalizing on emerging platforms

Industry Trends & Priorities


Influencing Trends Priorities

Lowered barriers to entry are promoting the entry of a larger number of artists, releases and even e-Labels (i.e. online-only labels) Improved competition from independent labels that are getting better visibility through the reach of the internet Upward pressure on marketing costs to differentiate and get visibility in an over-crowded market place, is creating downward pressure on pricing and margins The industry had not been very successful in identifying and tapping into new sources of revenue besides music sales (for e.g.: Merchandising) Music Companies are increasingly signing on artists on 360-degree deals that intends to exploit all aspects of their music and public persona to generate revenues

Managing in Increased competition and crowded markets

Tapping new Sources of Revenue


Continued

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Industry Trends & Priorities


Influencing Trends Priorities

A current release involves 200+ products being released simultaneously 80% of the products created for a new release are digital. This includes ringtones, wallpapers, online download tracks, music videos etc Music companies may soon venture beyond music and related content to explore new revenue streams such as licensing of long form videos (such as movies) Costs of talent acquisition, artist development and marketing keep rising

Tapping New Sources of Revenue

Focus on driving efficiency into processes (through initiatives in process and technology outsourcing) to address increasing pressures on operating margins

Controlling spiraling costs

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Module- IIi

Foundations of music Business

70

Foundations of Music Business


Contracts/ Deals Royalties

Contract

Sales Data A&R Determines Artist/ Publisher Share

Recording Artist

Payout

Payout Finance

Production [Recording Studio]

Packaging

Distributor

Contract

Manufacturing Music Company

Songwriter

Publisher

Sales & Marketing

Retail [Various Formats]

Licensing
71

Understanding Copyrights
Copyrights provide the Legal and Commercial foundations for the Music Industry Unlike patents, basically the copyright is not issued but simply avered by the author or publisher The songwriter owns his or her copyright upon physical creation of the song According to U.S copyright law, some special rights are given to owners in their copyrighted content, which include: Work reproduction work performance in front of public Distribution of the works copies Create a work which is derived from the other work. Display the work publicly Copyrights protection is not same across the world and depends on legislation in each territory

72

Understanding Copyrights
The core Copyright industries in USA contribute $260 billion to the economy and has by now bred over $60 billion in foreign exchange earning

Validity of Copyright Protection in US Works created as works made for hire lasts for 120 years from creation or 95 years from first publication , whichever comes to end first Works that are not created as works made for hire ends at 70 years plus the life of the author After copyright expiration, the work goes into public domain and reproduction is free
Copyrights on Music is as follows: Musical Work: Rights are with Songwriter (50% with Lyricist and 50% with Composer, unless stated otherwise) It may issued to a Publisher who has a contract with the Songwriter Sound Recording: Rights are with Artist, Music Company or Producer depending on contract

73

Music Law: DRPA


Until 1995, the inclusion of any right in public performances of sound recordings was not there in the sound recording copyright. While the basic requirement of public performance of a sound recording is a license from the owner of the musical composition, permission was not required from the copyright holder in the sound recording itself. However, the origin of new methods of delivery of digital music made sound recording copyright holders to worry that the knack of creating perfect music copies and the ease with which those copies could be distributed would destroy revenues from record sales. Because of this, in 1995 the Digital Performance Right in Sound Recordings Act (DPRA) was decreed. The law expanded the scope of copyright protection incurred to sound recordings by the inclusion of a fresh right for open public performances of sound recordings by digital audio transmission. The new public performance right applied only to subscription services and interactive services and precisely let off broadcasting and related transmissions.

74

Music Law: DMCA


The Digital Millennium Copyright Act (DMCA) is a US copyright law which incorporates two pacts of the World Intellectual Property Organization (WIPO) (pacts declared in 1996). The law criminalizes the following and heightens the penalties for copyright violation on the Internet: Production and diffusion of devices, technology, or services intended to circumvent DRM measures that control access to copyrighted works and The act of encompassing an access control, whether or not there exists a real copyright infringement. The DMCA exempts internet service providers and other intermediaries from direct and indirect liability. The law was passed by a common vote in the U.S. Senate on Oct 12, 1998 and signed into law by President Bill Clinton. On May 22, 2001, EU Copyright Directive or EUCD was passed by the European Union(EU) , which specifies some of the same issues as the DMCA.
75

Understanding Rights: Licensing of Musical Works


Mechanical License Gives the rights for reproducing and distributing copyrighted musical works onto any medium (i.e. records, CD , certain digital configurations and tapes) Issued by a Mechanical Rights Agency or a Publisher who represents the songwriter(s) Synchronization License Gives the right to employ the musical work in a movie or an advertisement i.e. permission to synchronize it with motion picture Issued by a Publisher or Collection Societies Print License Grants the license to print and distribute sheet music of musical works Performance License Type 1: Grants the privilege for publicly performing a musical work as in a club, TV, Radio etc
Issued by a Performance Rights Organization representing the publisher or songwriter. This may be a Blanket License (to play a portfolio of songs for a fee).
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Understanding Rights: Licensing of Sound Recordings


Type 2: Gives the right to perform a sound recording in the public through certain digital transmissions
Issued by SoundExchange (in US)

Master Use License Gives the right to distribute and reproduce copyrighted sound recordings material onto any medium (i.e. CDs, records, tapes, and certain digital configurations) or any other uses of it (including synchronization) Obtained from the owner of the master recording, mostly a record company For specific exploitations of a sound recording, licenses from multiple copyright owners (such as owner of musical work, owner of sound recording etc) may be required For E.g.: To use a recording in a motion picture, rights will have to be obtained as follows: Sync Permission through the issue of a Master License of the Recording Synchronization license from Songwriter for usage of musical works that are part of the recording

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Understanding Rights: Licensing Sample Scenarios


Area of Music Use Phonorecord sold for private use Environmental music (e.g. Muzak) Public broadcasting station Jukebox Cable TV Commercial broadcast of non-dramatic music Non-broadcast performance of non-dramatic music Broadcast Commercial Merchandizing Tie-ins, Computer software applications etc Music video production used for broadcaster cable TV Movie, music video other video software sold or rented to individuals for home use Motions picture for theatrical exhibition Dramatic-musical production (Performed live e.g.: Opera) Type of License Required Mechanical License Performance License Performance License Performance License Performance License Performance License Performance License Synchronization License Synchronization License Synchronization License and Performance License Synchronization License that includes License to mechanically reproduce copies for sale Synchronization License that includes a right to exhibit Dramatic right

78

Understanding Royalties: Types of Royalty


Artist Royalty
Paid to the recording artist Based on the concept of business partnership Usually the cost of recording is borne by Artist The music company pays for manufacturing, distribution and promotion Complexities Multiple artists for a single song Multiple rates for the same artist

Publisher Royalty
Paid to the Publisher or Songwriter The various ways by which publisher royalty is paid are: Statutory (Stat) Rate: As decided by the US Congress Negotiated Rate: Negotiated and tied to Stat Rate (as a %) Fixed/ Contracted Rate: Negotiated rate NOT tied to Stat Rate Complexities: More than one songwriter for a song Differing ownership percentages

79

Understanding Royalties: Sources of Royalty


Mechanical Royalties (Artist & Publisher) Paid for the records sold against the exclusive right to reproduce and distribute copyrighted works. This includes all music sold on as CDs, DVDs, Tapes, Internet downloads etc. Paid for the exclusive right to perform copyrighted works publicly. This includes TV, Radio, Clubs and certain digital transmissions etc Paid for the use of a song used as background music. This may include its use in a Movie, TV show, Advertisement etc Paid to song writers for sales of sheet music against the exclusive right to distribute

Performance Royalties (Artist & Publisher)

Synchronization Royalties (Artist & Publisher)

Print Royalties (Publisher)

Note: To exploit each of these opportunities, separate licenses are required for each song
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Music industry Revenue Streams


Payment of Royalties constitute the chief revenue for all downstream entities (artist, publisher etc) in the Music Industry

Artists Royalties Share


Advances & Royalties

Record Companies

Distributors

Retailers

Income from Sales

Producers
Royalties Share

Mechanical Royalties Consumers Performance, Synchronization and Print Royalties


Broadcast Companies, Concert Promoters, Clubs, Publishers, Film Producers etc.

Songwriters

Royalties

Publishers

Royalties

Collection Societies and PROs

Income from Sales

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Music Industry Revenue Streams


Creation Music Companies/Agencies
Contract Performance Royalty

Distribution

Right to exploit music work through a contract

Publisher Copyright Owner Songwriter Composer Text writer Translator


Print Royalties & other Collected royalties Royalties

Collection Societies Performance rights Synch rights

A&R Sheet Music Copyright mgmt.

Concerts Live Performance


Performance Royalty

Performance/Synch Royalties Mechanical License Mechanical Royalty

Clubs/Discos
Performance Royalty

Holds a contract

Record Company

AF of M Media Press TV Video Radio Internet

Artists
Master Recording

Singers Musicians

% of performers Royalty A&R Artist Management Manufacturing Promotion and Marketing Packaging Marketing Promotion Manufactured recordings Distribution Licensing

Producer Studios Equipment Engineers Remixers

Record Royalties

Distributor

Recordings

Retail Sales
Sales profit Sales profit

Monetary Flow Deals

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Consumer

Contracts and Deals


5

1
Grants copyright to exploit his/ her work (s) for commercial returns

6 TV/Radio

Song writer

Publisher

2b

Harry Fox (US)


Issues mechanical licenses and collects royalties on behalf of publishers

PRO

Contracts with the music company for production, distribution and sales of a song

2a

Issues performance Station licenses and collects royalties on behalf of publishers

Artist

Music Company

Licensee

Specifies the rates applicable and specific terms for royalties on Licensee payouts etc

Agreement with a third party (usually foreign sales) to produce, distribute and sell company products in specific territories

Note 1: PRO is Performing Rights Organization. A form of Collection Societies | Note: 2 can be either 2a or 2b

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Contracts and Deals


Music Industry is governed mainly by the following contracts: I. Recording Company Contracts Recording Contract Recording artists royalties are paid for recording music under a work for hire recording contract. This contract transfers the copyright of the recording from artist to the recording company. Publishing Contract The recording company pays royalty to the composer and song writer in order to acquire the mechanical right to reproduce the composition. Distribution Deals The label contracts with the distributor for the distribution of records II. Publishing Company Contracts Publisher-Songwriter Contract The publisher acquires the right to exploit the music work through various channels (Mechanical, Performance, Synch, Print)

84

Recording Company Contracts: Artist Deals


Some terms of contract Term How long the label keeps the artist under an exclusive agreement is the Term of the deal Free Goods To promote sales, 5-10% of the records are usually given free to the stores. Free goods do not bear royalties, as they are actually cost to the record company Promotion Copies Records distributed for promotion such as radio-station copies that do not bear royalties. Advances Advance is a type of credit provided to the artist in the form of advance payment that is recoverable from their royalty. All-in Royalties Implies artist is responsible, out of his/her royalty, for paying the producer

85

Recording Company Contract: Artist Deals


Cross Collateralization A term in the agreement between artist and the label, through which the label can recoup the advances paid to artist across all albums recorded by the artist with the company Escalations The augment in royalty percentage based on no of records sold. Escalations apply only to full-priced retail sales. 360 degree deals Where Record companies become artists partner not only in records, but also in touring, merchandising, publishing, content licensing, sponsorships, DVD and broadcast rights, and fan club revenues Options A label may commit to record one album of an artist. It has the option to require an additional four or five albums, at the companys election. The committed albums are called firm albums, others are option albums.

86

Recording Company Contracts: Artist Deals


Specifics of Advances (Recoupable costs): If the artist does not sell any records, the music company will never be able to recoup the advances and hence they are deemed non-returnable Recoupable costs
Advances: Payment to Artist Tour Support: travel, food, stay, crew expenses Video Costs: video production costs Indie Radio promo: professional who get radio air play Indie Publicists: professional who get media coverage

Non- Recoupable costs


Cost of doing business: phone, electricity, office rents etc.. Manufacturing of CDs Mechanical Royalties: payment to songwriters/publishers Salaries: staff who sells records Web sites: development, design, maintenance Mailings: promotions to press etc. In-store promotion: posters etc. Consumer Advertisements: Magazine ads

87

Recording Company Contracts: Publisher Deals


Some terms of contract Type of Mechanical License Limited Quantity licensing: Limit on the no of times the musical work is reproduced Digital Licensing: Licensing for various digital formats (Digital Phonorecord Delivery (DPD's), limited use digital downloads, on-demand streaming, etc.) Advance against Royalties Payment made in advance that would be reimbursed from the Royalties Reduced rate The label may pay a reduced royalty rate on record club sales, budget sales etc. First use The first recording of a musical work. The compulsory license that is required for reproduction of a copyrighted work does not apply to first use. Once recorded and authorized by the copyright owner, the license can be issued.

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Recording Company Contracts: Distributor Deals


Distribution Deal Types Pressing and Distribution (P&D) Agreements: Distributor agrees to create records for a production firm or an independent label and to distribute them as a wholesaler. The distribution fee ranges from 18% - 25% of gross billings. Under a P&D agreement, the label or the production company usually pays the costs of manufacturing and mechanical artist royalties. License Agreements: A license agreement occurs mostly between a production company or an independent label and a domestic-based or distributor or foreign record company.

The distributor gets advance and royalties.


Typical royalty is 14% - 18%. The term is usually for 3-5 years.

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Publisher-Songwriter Contracts
Because of the difficulties of publishing a song, many unknown writers have contracts to write exclusively for one publishing company. The contract will have a detailed description of a financial (royalty) agreement. Under exclusive writer's contracts, payments are commonly termed advances and are recouped from royalties which would otherwise be paid to the writer. If a songwriter has collaborated with another songwriter, the royalties will be split

per an agreement between the songwriters. If there is no agreement, the industry


and the courts have placed an equal value on the music and the lyrics. There are two types of advances: Specific: these are recouped from the royalties of specific works.

General: these are recouped from the royalties of an entire catalog.

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Publisher-Songwriter Contracts
Publisher - Songwriter Deal Types Full-Publishing Agreement

Appropriate for small and not so well established writers


Publisher usually would not get more than 50% Co-Publishing Agreement Writer receives additional amount as co-publishers share

The co-publishers share is usually 25%


Experienced writers insist on co-publishing agreement Administration Agreement Writer does not grant the copyrights to publisher and continues to own it Employs the publisher to administer the licenses and collect money Usually done only with established and successful writers

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Module- IV

Processes & Technologies

92

Music Industry: Business Process Map


The key activities in the Music industry can be classified under three different phases: Prerelease This phase includes all those activities which are involved with the initiation and creation of a new release This is a Product Creation/ Production focused phase Release This phase includes all those activities which are involved with managing a new release This is a Business Operations focused phase Post-release This phase includes all those activities including business support process that become significant once the product reaches the market This is also a Business Operations focused phase

93

Music Industry: Business Process Map

94

Prerelease Processes
Artist Setup and Management It involves the signing up of an artist i.e. establishing a contract and initiating all artist service related setups within the Music company. Artist services include primarily Contracts Management, Career Development (including development of products), Event Scheduling (Calendar Planning) and Royalties setup. Inefficient Artist Services is a good reason to be the sore point of contention and reason for Artists abandoning their original Music companies. Project Management A project may be defined as a budgeted piece of task performed by a specific Artist working with certain Producers and Engineers. Each release is defined as a project and budgets and workflows are setup accordingly to conclude the same. Closely tracking and managing such projects is critical since the bottom-line of the company will be significantly affected due to this.

95

Prerelease Processes
Clearances Management Clearance is a permission granted to use copyright-protected material for monetization purposes. Clearances Management is the process of owning or acquiring rights and approvals to exploit and market product manifestations of the same. Clearances should be acquired from both Publishers and Artists (for recordings which they own). Product Definition The Product Definition process determines the tracks that go into a particular release and all other aspects of it such as identifying key stakeholders, designing the CD layout, determining the contents of the Digital Package etc Products in Music industry terms is divided into two categories: i. Finished Goods: End products E.g.: Music CD; constituted of multiple components.

96

Prerelease Processes
Components: Part of finished goods; Classified into two types: Printable Components: All printed material such as Inlay Cards, Stickers etc Non-Printable Components: Includes all other manufactured components such as CDs, Jewel (CD) Cases etc There are basically five owners to be identified for every Product Definition and Release. They are: Artist: who will perform the song Repertoire Owner: who owns the recording rights Marketing Owner: who will market and sell the product Distributor: who will distribute the product in various territories Publisher: who owns the song rights As mentioned earlier, present day music releases often result in the simultaneous release of over 400 products to the market. Over 80% of these may be in the digital form. ii.

97

Prerelease Processes
Digital Content Production and Management The Content Production Process in the Music industry as in many other related Media industries is largely digital. This process involves the submission of master assets, management of the same and all its manifestations in the form of audio, video, ring tones and graphics content and quality assurance of the same. Audio Master Content is registered and encoded into all required file formats before making it ready for inclusion into product releases. This process also involves the application of audio watermarking to registered assets to track its usage in networks over time. Purchases/ Physical Production Purchase Orders are placed by Music Companies for Components and Products Present day companies may often outsource the actual production and printing of physical products (CDs, labels etc) to other external vendors.

98

Prerelease Processes
The Purchases process involves vendor management that realizes the basic step of manufacturing the physical goods as per expectations and shipping it to warehouses owned by the Music company. A single vendor (usually the one manufacturing and pressing the CD) may coordinate the shipments from component manufacturers to include all parts that will be part of the final product. Pricing Pricing process determines the price of every good that the company sells. Price of any Product on any Sales Order is based on Price Lists mainly derived based on Customer, Product and Effective Date of Price Charges (for Freight, Packing, Services etc) and promotions affect the final price of a product Services are actions or processing that must occur for an order in the warehouse. For example, affixing special stickers onto the products for a particular retailer. These deem extra charges beyond the regular price.

99

Release Processes
Inventory Management Inventory is essentially the stock of goods (Products or Components) that are for sale Inventory Management process deals with the workflows and procedures which manage and track inventory and all its related costs Warehouses hold inventory that comes in from the manufacturer before being disposed to customers as per orders Inventory gets updated in the following scenarios: Purchase Order fulfilled as manufacturer delivers goods Sales Order shipped to customers or trading partners Transfer of Stocks from one warehouse to another

New Releases Scheduling The New Release Scheduling process involves the creation, search and maintenance of new release schedules.

100

Release Processes
The date on which a product should be released into the market is called its Street Date. Releasing a product means making the product available for shipping and delivery. Physical and digital items are scheduled for release based on the territory/ cluster to which the product release has to occur. Release for a particular product can be uniform across territories or staggered. For e.g.: A US release may occur prior to an India release Digital Packaging and Delivery The Digital Packaging and Delivery process consists of three steps: Picking Packaging and Shipping Digital Pick phase involves picking schedules of New Releases and generating a manifest, which holds details of products across various customer accounts.
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Release Processes
A digital Bill-of-Material (dBOM) completes the configuration and verification of a release to make it ready for packaging. The Packaging phase prepares a product for the shipment process by validating and confirming all requisite business rules. A package contains an XML file with metadata and references to all digital assets, cover art graphic files and audio or video encoded assets. In Shipping phase, the digital content is provisioned to specific DSPs utilizing various transport technologies. Promotions and Advertising This process entails all activities surrounding the Promotions and Advertising initiatives at the Music Company. This process involves campaign planning, cooperative advertising, email campaigning, and promotions via free goods distribution Marketing Budgets are set of each project and activities are planned and undertaken to maximize sale of releases.

102

Release Processes
Cooperative Advertising translates to specific activities undertaken at a
particular territory by specific retailers for which the Music Company shares the costs.

Cooperative Advertising includes organizing in-store promotions, highlighted


product placements, issuing of Print coupons via local newspapers, CD signing by an Artist at a store etc.

Physical Sales Management This process includes all the tasks involved in the fulfillment and processing of a sales order for physical products A Sales Order is an order from a customer for finished goods. The following are its types:
Shipment Orders: shipped to customers from warehouse Direct-ship Orders: shipped directly from the manufacturing plant Promotional Orders: shipped to customers, artists or employees at no cost

Prepack Orders: Orders from customers requesting for single products consisting of multiple finished goods
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Release Processes
Managing the Return of finished goods from customers is also a significant part of the Physical Sales Management process Digital Sales Management This process entails the monthly/weekly processing of sales data from Digital Sales Providers (DSP) and Mobile Sales Providers (MSP) Digital Sales Providers include players such as iTunes who provide online music sales and Mobile Sales Providers include players such as Digiplug who provide music sales via Mobile networks The processed data is included into downstream processes such as General Ledger entries, AR Invoices and Royalties.

Invoice Management Invoice is a legal document specifying an asset in relation to a customer or a debt in relation to a vendor due to a "forward" business transaction.

104

Release Processes
Invoices are generated by a Music Company for Shipment orders and for Return orders. Pre-Condition for Invoicing Process is completion of Shipment Confirmations files received from Warehouses. An invoice to a customer is posted as an asset in the Accounts Receivable A music company also receives invoices from vendors. This is posted as a debt in the Accounts Payable.

105

Post release Processes


Account Management A Music company maintains accounts of its customers for several reasons including appropriate pricing of orders Digital Sales Providers (DSP) are the primary customers for the Music Company. Customer Accounts are usually maintained as Sell-To customers and Bill-To customers. The Sell-To determines the address to which the orders are to be shipped whereas the Bill-To determines the address to which the order will be billed. A Bill-To customer can be associated with multiple Sell-To customers. Sales Reporting Sales for a Music Company occur through DSPs, MSPs and various affiliates across the globe.

106

Post release Processes


The Sales Reporting process involves ways in which Sales data from all over the world is processed, analyzed and used for and critical decision making The Sales Reporting and processing serves as the primary input for Sales Forecasting, Demand Inventory Management and Consumer Analysis Detailed sales information is used for generating financial results, as well as calculating the royalty payments to artists Demand data is used to predict the market demand for the companys products Royalties Management Royalty is a payment made by the record distribution company to the artist(s), publishers(s) and their representatives in lieu of their IP rights over a song or services rendered for a recording. The Royalties Management process involves royalty accounting and payout for both artist and publisher royalties. This is one of the most critical and complex processes at a Music company Details on this process have been covered in Module III. Please refer.
107

Post release Processes


Library and Asset Management This process includes all asset management initiatives at the Music Company Before the advent of digital, sound and video recordings were made on tapes. These tapes serve as masters even today. All such masters are stored in tape libraries located at multiple locations. Assets like artwork, documents, graphic posters etc that dont have a master may also stored in the warehouse. The Art and Publicity department may use a digital asset management system and establish relevant workflows for managing their digital assets such as photos, graphics, CD layouts etc. Content Management systems may be deployed to manage company websites Finance These processes essentially record, track and report each and every business transaction and thus interacts with almost every other process These processes are critical from a compliance and Regulatory point of view

108

Technology Focus in this Course


Technology Touch points across Processes Production Technologies Production Process and related Technologies Audio Formats Digital Distribution Technologies Digital Distribution Models and Technologies Peer-To-Peer Distribution and Piracy Digital Rights Management (DRM) in Music Consumer Technologies

109

Technology Touch Points in Business Processes


Pressing Plastics

Mass production
Analogue recording

Finding Artists & Songs


Listening to existing collection Auditions Monitoring Consumers Finding new songs Financing the deals Acquiring License Matching producers & artists

Vinyl Cassette Tape


Pressing

Marketing & Promotion


Tape technology Encryption DRM Fan Clubs/websites Radio airplay Internet Radio Broadcast

Compact Disc
Live Performance Video Production Encryption & Compression TV broadcast Recording

Mini Disc

Technology in Music Industry


Royalties Collection and Distribution Rights administration & management Copyright Licensing Print/Publishing Technologies Broadcasting Mastering Sound Engineering Mixing Recording Writing & Composing Encryption and streaming Logistics Distribution management systems Product management

Printing

Art work & copyright

Playing Devices

Publishing

Master recording Production

Disseminating Records

Packaging

110

Music Production Process

Musical Work
Musical Work is the song to be produced. The producer decides the parts to be recorded, the instruments to be used in the arrangement and who play them.

Recording
Performances that make up the musical arrangement are recorded to any of variety of audio and MIDI recording hardware devices and software

Editing
The performances recorded can be edited in a variety of ways to change either the individual performances or the entire arrangement

Mixing
The individual tracks that make up a multi-track recording are combined and processed using effects, to create a final stereo recording to the song

Mastering
The finished stereo mix is prepared for distribution as either an audio CD, or a MP3 file, by making final adjustments to the overall sound of the recording

111

Music Production Process


Recording Studio A place where performing artists, musicians, songwriters, music producers and sound technicians work in a group to create a distinct sound. The time spent in the studio is known as a recording session. Recording sessions in large professional quarters can be expensive affairs Time in the recording studio includes use of the facility and its equipment, and also the technicians and sound engineers that might be required.

Instruments and Production Tools Acoustic Sources: Performances by a purely acoustic instrument, such as a sax or a piano, or by vocals that isn't plugged directly into any recording apparatus will be recorded via a microphone. Special microphones may be used for individual instruments. Electric Instruments: Instruments such as basses, electric guitars and some electric pianos and organs can be recorded directly into an audio recorder

112

Music Production Process: Musical Work


Electronic Instruments: Synthesizers, samplers, drum machines, and groove boxes are examples of purely electronic instruments. Mixers: Explained under Mixing Effects Boxes : Used by musicians who play electric instruments for adding certain effect to their instrument's sound. Faders: Enable the sound engineer to slowly increase or decrease the volume of the music being recorded. Any electronic instrument can be controlled using the communications language MIDI (Musical Instrument Digital Interface). Arrangements Musical works usually start out as a simple melody and chord progression. Producer decides whether the melody of a piece will be sung (called Vocal arrangement) or played by an instrument (Instrumental Arrangement). In either case, there will be instruments providing accompaniment to the melody.
113

Music Production Process: Recording


There are two distinct models to record a musical performance Direct to Stereo Recording
Ensemble
Source Source Source Source Source

Multi-Track Recording
Source Source

Musicians

Source

Source

Multi Track Recorder


Left Right

Two Track Recorder

CD

Mixer

CD

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Music Production Process: Recording


Direct to Stereo Recording Also called Ensemble recording, occurs when the whole musical arrangement is performed and recorded. E.g.: recordings of orchestras and jazz ensembles. Spontaneous interaction between musicians is essential. Once recorded, the recording becomes the final output and the features of the instruments used in the recording can not be changed. Multi-track Recording Most recordings are done in this method. Individual musical performances are recorded on separate tracks, then edited and mixed into a final stereo version. Musicians are not necessary to be at the same time in the same place to contribute to a performance. Overdubbing: The process of adding new performance track to an existing recording

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Music Production Process: Editing


The recorded music tracks are further refined by editing Editing may include the following changes: Edit the individual notes in a performance Change the sounds used to play the notes in a performance Build composite tracks using standard copy- and paste-editing techniques Change the form of a song by copying and pasting the whole sections of a recording Editing software: Cubase SL for PC or Mac Logic Express for Mac only Sonar Studio for PC only

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Music Production Process: Mixing


Mixers: Enable the recording engineer to control the sounds that are coming from the singers and instruments as they link to other sounds in the session. Elements that are controlled in mixing: Volume: Volume levels of individual tracks Panning: Controls placement of each track in the left-right stereo image. Equalization: character of the sound recorded on each track is adjusted using specialized types of tone controls called equalizers. Effects: Effects such as compression, chorus, flanging, and delay Reverb: Individual tracks is placed in a simulated acoustic space. A Multi-track Master is obtained and archived at this stage. Two-Track Stereophonic Reduction The Individual tracks constituting the multi-track master are send to hardware or virtual mixing console to create a stereo mix. The resulting stereo mix is recorded on a Digital Audio Tape(DAT) recorder or saved as an audio file.

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Music Production Process: Mastering


Mastering is preparing the final mix of a song for distribution After Mixing, the following are the steps for the creation of a final product

Edit Edit the file to remove any unwanted sound from beginning and end of the mix

Equalize Make any final tonal adjustment to the mix using equalizer

Compress Make final adjustments to the overall level of the file using compression

Distribute Save the final version as an mp3 file or burn to a recordable CD

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Production Technologies
Digital Audio Workstations (DAW) have simplified the Production technology landscape A combination of audio multi-track software and high-quality audio hardware designed to record, play back and edit digital audio Two varieties: Computer-based: consists of a computer, an ADC-DAC, and digital audio editor software E.g.: Adobe Audition, Tracktion ,Garageband, Pro Tools, Nuendo and Sonar Integrated: consists of a mixing console, digital interface and control surface in one device

ADC

Storage
Storage can be on a CD, an MP3 player, a hard drive, USB flash drive, or any other digital data storage device

DAC
DAC runs at a specific sampling rate and bit resolution but this sampling rate may not be the same as the initial rate

Playback
Playback occurs when the signal from the DAC is fed into a Player / Speaker system

Digital Audio Devices

ADC runs at a sampling rate and converts at a known bit resolution (OR) S/w Synthesizer generated

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Audio Formats
Media Formats

Recording Formats
Analog MECHANICAL | MAGNETIZATION DOLBY STEREO (1975) | PCM (1982) | AIFF (1985) | WAV (1992) | DTS (1993) | MP3 (1995) | DOLBY DIGITAL (1997) | WMA (1999) | TTA (1999) | FLAC (2000) | AAC (2001) | OGG VORBIS (2002) | ALAC (2004)

Digital

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Common Audio Formats


WAV Stores uncompressed CD-quality files MP3 MPEG-1 Layer 3 format FLAC Lossless compression format AU Standard audio file format used by Sun AIFF (Audio Interchange File Format) Standard audio file format used by Apple AC3 Common Format for DVDs Also called Dolby Digital WMA (Windows Media Audio) Format owned by Microsoft AAC (Advanced Audio Coding) Extension: m4a Based on the MPEG4 audio standard RM (Real Audio) Designed for streaming audio over the Internet RAM Text file that contains a link to the Internet address where the Real Audio file is stored

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Common Audio Formats: WAV


A variant of the RIFF bit stream format method for storing data in chunks Mainly used on Windows systems for Lossless raw audio Suitable for retaining first generation archived files of high quality The most common WAV format contains uncompressed audio in the PCM format Able to hold compressed audio data also Limited to files that are less than 4 GB in size Decreased in popularity due to large file sizes Audio CDs DO NOT use WAV as their sound format, instead using Red Book audio Both have the audio data encoded in PCM

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Common Audio Formats: MP3


Also known as MPEG-1 Layer 3 Audio-specific compression format Based on the Perceptual audio coding algorithm Lossy compression technique Encoding process is adapted the to the characteristics of the human perception of sound The parts of the audio signal that humans perceive distinctly are coded with high accuracy, the less distinctive parts are coded less accurately, and parts of the sound which we do not hear at all are mostly discarded or replaced by quantization noise Estimate of the actual masking threshold is computed by using rules known from psychoacoustics Works on both mono and stereo audio signals Supports Bitrate switching - May have variable bitrate

File

File Structure

A Frame

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Digital Distribution
The birth of MP3 in 1990 changed the face of the music industry forever. The compressed size without compromising on quality and the convenience of easy transfer from computer to computer triggered its huge popularity. Digital sales via internet started in 2003, accounting for 2% of the total music industry in that year. High costs involved in physical distribution (such as distance to be covered and availability of stocks) have encouraged the digital distribution Digital sales traditionally included single track downloads, album downloads, whereas the recent trends include online and mobile subscriptions, mobile wallpapers, ring tones and videos. The number of tracks available online became twice in 2006 to about four million Portable player sales totaled around 120 million in 2006, an increase of 43% on 2005 There are currently 500 online music services available in forty countries IFPI predicts that by 2010 the digital sales would grow to 25% of the global sales

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Digital Distribution: Business Models


Traditional Model
Artist Record Company Online Retailer Consumer

Evolving Models
Artist Record Company Consumer

Artist

Consumer

Artist

Record Company

Online Retailer

Consumer

Note: The key drivers for the evolving models are: 1) Advances in technology and rapid consumer adoption of the same 2) Investments from Record companies to counter the increasing power position of online retailers

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Digital Distribution: Types of Online Outlets


Aggregator Outlets
Aggregates Music from various record companies and places it for online sales (usually download-to-own) E.g.: iTunes

Exclusive Online Outlets


Direct-to-Consumer initiatives by Record Companies or Artists

Social Media Outlets


Sale of Music via online communities and special interest groups E.g.: MySpace Music

Ad-supported Outlets
Free Music supported by Advertisements embedded into the songs E.g.: Spiralfrog

Subscription Supported Outlets


Online Music forums which allow listening to online music or music downloads that work only if subscription is active E.g.: Rhapsody (Rhapsody supports aggregator model too)

Online Radio
Webcasting of music over the internet by online radio entities either for subscription or ad-supported free music E.g.: Shoutcast

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Digital Distribution: Key Players

Major Players

Napster

Essential Elements for Internet Distribution success: A large digital catalogue: to cater to the long tail of content High performance Internet Infrastructure Supplying safe and virus-free files Providing secure payment systems Development of a consumer-friendly digital rights management system Clearing recordings and compositions with various copyright holders

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Peer-To-Peer Distribution
The Napster revolution that initiated the large scale decline of the Music industry was based on a File Swapping Network, enabled by a Central Index Server

Technology Shift/ Decentralization

File Swapping Network

P2P Illustration

The technology shift and decentralization to Peer-to-Peer technologies triggered Piracy to new levels of popularity among internet users

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Peer-To-Peer Distribution
P2P Technology: Any software or system that allows individual users of the Internet to connect (directly, through the Internet) to each other so as to transfer or exchange computer files Contrary to the usual client/server concept, where one server will serve many clients, every computer with P2P software installed can act as a server and distribute files across the internet

Popular P2P Applications Bittorrent Gnutella Morpheus Kazaa Limewire BearShare

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Digital Rights Management (DRM)

A technology concept intended to protect the interests of content providers.


DRM enforces copyright by allowing the content provider to set rules and restrictions on how the distributed content can be used.

Music Usage Rights enforcement Secure Rendering Music Creation Rights Specification Labeling Protection Music Distribution Rights Authorization Tracking Label Management

Digital Rights Management

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DRM for Music


Name FairPlay 3-day-or-3play Used for Apple iTunes Library, iPod Microsoft Zune Description Files are encoded as AAC, a format exclusively compatible with iTunes and the iPod Music files that are received wirelessly from other Zune devices can be played only a maximum of 3 times on the device, and expire after 3days whether they are played or not Invented by the Open Mobile Alliance to protect cell phone ring tones Provides secure delivery of audio/video content over an IP network in such a way that the distributor can control how that content is used Proprietary Yes Yes

OMA DRM Windows Media DRM

Mobile Phone Ring Tones Online Video Distribution Networks

No Yes

Janus WMA DRM


MagicGate Helix DRM

PlaysForSure Devices
Audio Players Portable devices

Portable version of Windows Media DRM for portable devices


Invented and promoted by Sony Supports different file formats for audio & video

Yes
Yes Yes

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Consumer Technologies

Online Sales Consumer Devices Players/ Phone Manufacturers

Content Sources Music Companies

Consumer Interfaces & Supporting Online Technologies Digital Store fronts

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Consumer Technologies: The Online Interface


Media Player Library Search

Advertisem _ents

Devices

Catalogue

Recommen _dations

Website iTunes Store Main Window

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Conclusion: The Big Picture


Sales Data

Contract

A&R Recording Payout Artist Production [Recording Studio]

Determines Artist/ Publisher Share

Payout Finance

Packaging

Distributor

Contract

Manufacturing Music Company

Songwriter

Publisher

Sales & Marketing

Retail [Various Formats]

Main Process

Monies paid to Artist/ Songwriter (Royalties)

Departments

With the changes being brought about by technology and innovative business models, the music industry of the future could look very different from that depicted above

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Thank you

For Certifications Please use COD

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