Tag Archive for 'Paul Resnikoff'

Is Trent Reznor Reshaping the Music Business?

Published on March 4, 2008 in Blog. 0 Comments Tags: , , , , , , , , , , , , , , .

Syndicated from: Digital Music News – by Paul Resnikoff

Ghosts is a variation on a theme created by Radiohead. The latest NIN album is part free, part paid, part digital, and part traditional. And a broad range of consumer preferences and budgets are accommodated by the initiative.

Reznor and Radiohead are important market-movers and fearless risk-takers. But are these experiments really relevant to the broader music industry?

The problem is that only part of the consumer population is going to play along. Radiohead found that a disproportionate number of fans downloaded In Rainbows for free, an offered option. But an even larger number of fans downloaded the album for free outside of the Radiohead page, on BitTorrent, P2P, and other sharing protocols.

These fans wanted the album on their turf, not Radiohead’s. And that has been the bigger story for the recording industry for the past ten years. Sure, the iTunes Store has sold 4 billion downloads, but that is just a tiny fraction of the free downloads obtained from other channels.

Outlets like Limewire offer instant, on-demand bulk downloads and comprehensive recording catalogs for free. The iTunes Store offers a cleaner copy, but for a price that makes collection volume difficult to achieve.

Now, Trent Reznor is about to learn a similar lesson. Most likely, fans will grab the first, free volume of the album in heavy numbers, and a smaller percentage will pay for the expanded collection.

But that is only part of the story. Outside of that sandbox, volumes II-IV will quickly creep onto Gnutella, BitTorrent, and IM. Sure, Reznor seeded the first volume onto BitTorrent. But who are we kidding? Fans are in charge of this channel, not Reznor.

That means far lower volumes for NIN, or any other established artist, compared to the 90s. Other factors are also sapping energy, including an increasingly-fragmented media market, and the lowered attention spans that come with it.

Then again, who needs 90s volumes when the major label is suddenly optional? After all, Reznor can now keep the revenues (almost) all to himself, and achieve robust revenues on far smaller volumes.

The math is alluring, and a major disincentive for signing with a label. Marketing specialist Seth Godin urges artists to cultivate targeted, niche audiences, and any business school graduate will lecture you on the value of consumer targeting. Why not translate those principles and percentages into a healthy, more controllable career?

The question is becoming less and less academic, and artists like Trent Reznor are putting the possibilities into motion. But it remains unclear if artists can healthily sustain themselves using this philosophy, at least in scalable numbers.

And smaller artists will have difficulty applying the Radiohead model, at least until their recognition grows. Why? The reason is that most lesser-known artists have trouble getting people to download their content for free, much less pay for it. Why pay for something blind? That is a game for pre-2000 consumers.

In contrast, Reznor and Radiohead have established names, thanks to a massive, major label publicity machine. That tailwind is a critical component of the current models – and a major reason why media outlets are focusing heavily on their initiatives.

In the middle are artists like Saul Williams, a poet and rapper that exists outside of the mainstream. Reznor actually helped Williams create a Radiohead-like model with the help of Musicane, and the results were mixed. Less than 20 percent opted to pay $5 for the album – a total of nearly 28,000. Then again, that translates into roughly $142,000, a revenue total that easily pays the bills.

And any starving artist knows that six-figures is a goldmine for a life in the arts. A major would drop Williams in a heartbeat after a performance like that. But sailing solo, Williams could command a decent and consistent payout.

So is the Radiohead model relevant? For more established, post-label artists, the concept probably maximizes recording profits, and creates momentum for other revenue generators. And the results are boosted if the recordings are dispersed across a broad number of sales outlets, including the artist page, iTunes, Amazon MP3, and even traditional brick-n-mortar.

Sure, the result is smaller than 90s recording sales potentials, but it is something nonetheless. And if the consumer elects to pay, they have the opportunity to do so.
What about everyone else? For mid-size artists, the concept can translate into meaningful revenues, and for smaller artists, the idea is probably premature ahead of broader audience awareness. But more than ever, artists have the potential to reach super-targeted audiences, and that greatly increases the chances of a paid transaction.

How Serious is the Sales Decline in the Music Business?

Published on February 7, 2008 in Blog. 1 Comment Tags: , , , , , , , , , , .

Syndicated from: Digital Music News – Paul Resnikoff

Despite strong digital gains, recent quarterly losses at Warner Music Group are part of a continuing profit slide. But just how serious is the financial picture?

This isn’t a rosy period of double-digit gains, that’s for sure. And flagship CDs are in a free-fall. But the financial picture at Warner is showing more resilience than you might imagine under the circumstances.

Warner Music Group first went public in 2005, a period that featured far more investor optimism. But the profit picture has been slipping since, and Wall Street has been mostly unsympathetic.

What was once slightly-in-the-black has now gone red. During Warner’s calendar fourth quarter of 2004, profits landed at $36 million, only to improve to $69 million the following year. But by 2006, the holiday story started losing steam. The company earned a smaller $18 million during the period, though profits turned to losses – of $16 million – during the most recent Christmas buying quarter.

But not everything is so bleak. Major label executives often temper the picture by pointing to more stable revenues, less severe profit declines, and bullish digital gains. Of course, some of that is spin, but in the case of Warner Music, balance sheets actually support those claims.

In fact, the revenue story has not been disastrous. Revenues topped $1.088 billion during the fourth quarter of 2004, roughly 9.1 percent greater than revenues reported during the recent period. Of that total, digital assets now account for 14 percent of total revenues – up from nearly zero several years ago.

On an annual scale, a similar revenue picture emerges. Dialing back to the fiscal year ending November 30th, 2003, revenues neared $3.23 billion. Fast-forward to the fiscal year ending September 30th, 2007, and revenues of $3.39 billion appear – hardly an implosion. Not the envy of companies worldwide – after all, a flattening revenue picture is rarely good news. But not exactly a sinkhole, either.

Why the revenue resilience? Is creative accounting at work? Almost every company dances the numbers a bit, but artistic accounting has its limits – especially in the current regulatory climate.

And ugly profit losses year-after-year prove the point. Warner Music dropped $21 million during the most recent fiscal year, and actually gained $60 million during the previous year.

But the worst financial losses happened during the earlier part of the decade. In 2005, the company lost $169 million, an improvement over 2004 declines of $1.42 billion. And losses hit an immense $1.35 billion in 2003, and a disastrous $6.03 billion in 2002, in part because of accounting methodology changes.

Those are major drops, though at least the earnings picture is showing improvement. The question is whether Warner – and other majors – can survive the current turmoil, one that now includes a massive, 15 percent US-based album sales decline in 2007.

The current terrain is characterized by serious overhead cuts and slippery traditional retail declines. That is a worsening picture, though major labels like Warner carry enviable recording and publishing assets.

Perhaps the best prognostication involves a breed of smaller major labels ahead, though survival depends on a leaner, greatly diversified model. And in the case of Warner, and other labels, the financial picture is less severe than generally reported – and that spells a little more wiggle room for radical reinvention.