meta-roj

out in the crazy business of music, there is simply no end to the number of people and companies that are willing to come along for the ride (or get a cut up front). for the performer out in that space for the first time, the offers are incredible, the incentives tempting, and the benefits questionable at best.

with that cautionary word, and based on a tip from a friend, i introduce for my review and your enjoyment: 97 radio. everything here is my opinion and speculation, based solely on the 97 radio website. i encourage you to dig deeper on your own time.

97 radio is there to help you. they say so right up front.

97radio.com

No matter what direction and goals you want to achieve with your music, whether it be pursuing Distribution, a Record Label Deal, Clubs, Venues, Booking Agents, Print Media, or all of the above, Radio Airplay is a necessity.

forget for a moment the clearchannel program-director-and-concert-business reality of radio in the united states today. forget that we’re into new music models and new ways of doing business. forget that everything that you might know about this business of music is up for grabs. forget all that for now. loyal readers might remember this:

back to plan g

my best advice for anyone in this business of music: if someone tells you they have the formula, that they know all there is to know to make your music career fly, they’re full of crap. and if they sell you a formula (at a seminar, a class, in a bar, at a coffee shop, or in the plush corner office of a shiny record label office tower) without knowing anything about you, your music, your audience, your goals, your skills, where you’ve come from, and what all this crazy stuff means to you, then just run. run, run away. chances are you can’t afford that formula.

ok, that’s the general warning. now we get into the specifics with this “you need radio airplay and we’re gonna get it for you” business model.

97 radio offers four “levels” of “campaign” – from just $597 all the way to $25,097.

at the entry level ($597) you get 20 “submissions” to local radio, national radio and record labels, or 60 total. that’s $9.95 per submission. at the top level ($25,097), you get 300 submissions to each of those, plus another 100 to booking agents, management companies and attorneys. a grand total of 1200 submissions, or $20.91 per submission. obviously, if you go for the expensive package, the submission process is more expensive. could be any number of reasons for that, but this scale isn’t quite right.

ok, anyway, you’ve signed up and paid up, and now you’re looking for some results. maybe they found someone who loves your stuff and is ready to throw some weight around behind you. then there’s another catch…

97radio.com – about us

We will have these labels coming to us wanting you!

you pay up front (that’s the retainer they emphasize so much), and they get to control your access to the results – apparently all the calls route through their offices. but you really don’t have anything to worry about, because 97 radio offers you a bold ALL CAPS guarantee!

97radio.com – legal

IF AT THE END OF THIS TERM YOU DO NOT RECEIVE AN OFFER FROM A RECORD LABEL WE WILL REFUND YOUR CAMPAIGN FEE IN FULL.

i’ll offer you a contract with my record label right now. here are the terms: i own you, your name, your band name and all the music you write or perform for the next 10 years, plus all the music you’ve written or performed at any time in the past, in any format. i control your distribution, make all artistic and management decisions for you. you work with the studios and technicians and session musicians i tell you to work with. i get to keep the first $250,000 you make, plus all my expenses on your behalf and you get 7.5% of everything you make after that. i keep the accounting records, and i’ll tell you when you should expect a check. oh, and critically important, if you breach this contract in any way or attempt to terminate it during the 10 years, you owe me $250,000 plus my expenses. there. you got an offer from a record label.

the important lesson is that a guarantee to get you an offer is no guarantee at all.

so far, none of this is really unique to 97 radio – there are companies out there doing this all the time, in one form or another.

but i do have to pick a particular nit with 97 radio – if you’re considering working with these people – if you’re seriously considering letting them represent you to “labels, radio stations, retail shops, clubs, and venues” – then carefully consider how their use of language might impact your first impression with these industry bigshots. if they can’t get their own website right, what are they going to do with your introduction to sony?

97radio.com

97 radio guarantee’s that we will get your music to top record company executives, from major and independent labels, that will sign your project.

97radio.com – about us

97 radio has developed there system over years of working with radio stations and record retailers.

just two examples – apparently one thing they don’t guarantee is proper use of an apostrophe or using the correct homophone… it’s just entirely painful to read through all the missing words, improper use and other general language abuse, so i’ll let you find the rest on your own.

i should also say that i don’t know how 97 radio actually does their business – this is all based on their website. they could be completely legitimate and just can’t express themselves on the web. i don’t know, but the information available on the web should send up so many red flags and bring to mind so many questions that if it were me, i’d run. fast. but you’re not me, and they do invite you to ask questions, so do it. i hope you get the right answers before you sign that $25,097 check.

i really don’t mean to pick on 97 radio in particular, there are hundreds of these things out there, it’s just that they approached someone i know, and he deserves a few minutes of my critical analysis. the rest of you just came along for the ride…. i hope it was useful.

update (2004.07.09): for more on the people involved in this, check out this later post and, most particularly, the comments attached to it.

the average american spends 3360 hours absorbing media in one form or another. that’s about 9 hours and 12 minutes of media attention per american per day, and it’s not going to change much. we’re not making longer days or sleeping significantly less, so if your business is media, your problem isn’t suing file-sharers, cd protection widgets, monetizing personal data, hiring enforcers, setting up an online storefront or plugging analog holes. your problem is squeezing your stuff into that 552-minute-per-day window.

sure, the total market increases with population (every new person brings another 552 minutes of attention to the party), but population growth isn’t fast enough to make impressive quarterly financial statements. that means you have to grow faster than the market to stay in business. that means you have to grab that attention from someone else.

media audiences operate in two modes, and it’s important to understand the difference, because it’s a social and human response to the discrimination problem.

* active, where the individual is seeking experience, putting forth effort, making decisions and generally focused particularly on the media experience of the moment. the current example here is swimming through the hundreds of thousands of songs on itunes and setting up playlists for that sexy ipod.
* passive, where the individual is letting the experience happen – effectively offloading the decision-making, time-consuming things that happen around the media experience. the counter-example is turning on the radio.

these aren’t mutually exclusive, in fact most media experiences are a combination of the two. what is interesting and relevant, is the ratio of active to passive participation for a given experience or a given individual.

most people spend most of their limited attention in a passive mode. they have 552 minutes a day to spend on experiences, and simply do not want to spend much of that time listening to new music (that sucks) just to find that next big band.

the discrimination problem (again)

one of the most important functions of record labels is solving what i’ve called the discrimination problem. if there are 500,000 garage bands in the us¹, then somehow, that needs to be filtered down to a few tens of thousands of viable musicians and further filtered down to 160 chart-topping pop stars. not just once, but over, and over, and over again.

this is a huge, expensive problem. it requires a lot of time. it requires a lot of attention. and for now, there is no technological solution that’s going to make this any easier, cheaper or faster². music, after all is a matter of taste (and it’s just no fun trying to listen to two tracks at once…)

watching the rise of the “net-era music business models” it seems that many of them ignore this problem completely, or, worse, rely on the efforts of the audience to make their own decisions. some of you that have been with me a while might remember some of this from back to plan g (and the two prequels, 1 and 2 – but that’s a lot of reading, and i won’t blame you for having better things to do…).

who’s your dj?

people are irrational and habit-forming. most people listen to what people tell them is good. watch what people tell them is good, read what people tell them is good, and once they’ve decided that something is good, they are likely to come back to it more than once. this introduces trust into the market – people need to find someone they trust to tell them what’s good. this passive group constitutes the big market that makes pop stars and blockbuster movies possible.

the active media seekers are a relatively small group of people, but they spend disproprotionate attention on their chosen medium, and wield amazing influence. that group constitutes the taste-makers and market-makers that [can] sway the more passive audience. these are the aggregators. these are the people that hold that trust.

filtering it up

my focus is the music business (well, that is the category), but this phenomenon occurs in every entertainment/attention market. it happens with books, it happens with movies, it happens with television, it happens all over. most of these markets have, over time, evolved a tiered solution of some sort that filters (often over several tiers) raw material before it gets anywhere near the precious conscious of the audience.

with books, we have literary agents and book reviewers. with movies, we have script agents and producers and thumbs (up or down). with music we have a&r reps and program directors and djs. these are the filters that keep the garbage out ot the media channels, and keep the audience from running away screaming to some other option, some other media. and trust me, the audience has options. nothing good on tv? plug in a game console. nothing good on the console? spin up a cd. no good cds? find a movie. nothing good in theaters? pick up an old classic on dvd. nothing good on dvd? find a book. if you’re in music, you’re not just competing with other musicians – you’re competing, for attention, with everyone else that produces content. right now, you’re reading this post on a weblog, and you could be watching the lord of the rings. i know that, and thanks for your attention.

today, music suffers at each end of the discrimination process with the demise of both the label a&r rep and the local musigeek. label reps are literally paid to discover new talent. the problem is that the modern machinery of the label doesn’t allow for development of this talent, so in most cases, it’s a discover-promote-discard cycle driven as rapidly as possible to make room for the next discovery. musigeeks, the other obvious filter for music, suffer because there isn’t an obvious model to keep the them gainfully employed and fully immersed in this discovery and filtering process. long, long ago, they could get a job at a local record store and literally spend all day absorbing new material and making judgements. today they get distracted by questions about refrigerators at the big box retail outlet, if they’re involved in selling music at all.

the audience perspective

people want the illusion of control over their entertainment choices, without having to do the work. they want a limited set of choices, so they don’t have to spend hours making decisions. they want the choices pre-filtered, so they don’t have to deal with too much garbage. and on top of all that, they want enough control to feel like they’re in control.

i guess the great example here is the car radio. there may be dozens of radio stations in a city, representing a wide array of “formats.” there are the country stations and the rock stations and the oldies stations and the talk stations and a bunch of others. there are maybe six buttons on the front of the radio, and those make access to a dozen stations pretty easy. many consumers are willing to spend a few minutes setting up their radio to suit their personal tastes – the rock fan programs the 4 local rock stations and the one that does traffic reports. that’s it. that’s the extent of the active participation they are willing to devote to this issue. the rest is on the program directors. actually, many people aren’t even willing to devote that much effort – they find the one station they like and it never changes, so there’s no reason to program the buttons. does anyone have statistics on how many radio preset buttons go unprogrammed by the passive radio listening audience?

once the buttons are programmed or the dial is set, listening to the radio is pretty much a passive experience – with one exception: if you hate the song (or commercial) on one station, you might hit the next button to get away from it.

the broadest audience hasn’t demonstrated a lot of desire to “get active” – imagine if they’re not even willing to program their radio, just how little time they’re willing to devote to loading up their ipod or setting up playlists or screwing around and updating this widget or gadget. my conclusion: they’re not.

drawing some comparisons

we can even find a ready model of this behavior in the geek universe itself. with geeks, we have mac-fans and linux-fans and windows users. apple creates fans with high-style, high-concept, pride-forming placement. once converted to mac, you really are a fan – and you go out into the world and share that fandom with every geek you meet. it’s an entirely valid approach, and it’s earned mac about 3% (i think that’s the recent figure) of the market. then there are linux fans. the prototypical geek. the equivalent of the musigeek. people willing to get in and muck around a bit. people willing to – even demanding – to know everything about their platform of choice. they’re willing to experiment, learn, fail, reboot, reload, do-over and keep at it until they get their own, custom-tailored, personal supermachine on their desk. that’s worth another 3%³ of the market. the rest – the windows users (and decidely not fans) – are the passive media consumers of the geek world. turn it on, use it, don’t bother me. (and, by the way, willing to put up with minor annoyances…)

it’s difficult to get this perspective when you’re the gadget-designing ubergeek – it’s natural to assume that most people want the things you want. apple made great success catering to the musigeek population with the ipod, and i had high hopes that apple would get this clue with the ipod mini. almost, but not quite.

the future is not now

it’s still early in this new music business, but most of the “solutions” so far involve some level of “active” participation in the music-filtering-and-selection process – and generally a lot more than most people are willing to invest.

once someone’s fallen in love with you – once you’ve established a relationship with your audience, then you can count on some active participation on their part – they’ll come to your concerts, they’ll visit your website, they’ll wade through p2p networks and join your fanclub and create social groups, but you’ll never get there if you demand these things up-front from your audience. they simply have too many easier options.

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¹ picked that number out of a hat, i’m still looking for someone who can find me a decent source for this top-line number.

² there are efforts to build software that can “identify hits,” but even these cannot overcome the same limitations that human hit-pickers have – periodically, someone, somewhere has to “break through” with a new (or new old) sound. once that happens (and is recognized), too many “of that type” are piled on. it’s a grunge thing.

³ this article gives mac 2.9%, linux 2.8% and windows 93.8% of the desktop market.

some days ago, reuters had a piece on concert ticket prices. as one of the three primary revenue options for musicians, and with the recording option under heavy assault, concert pricing is an important issue for musicians trying to turn a song into a career.

Don Law, co-CEO of Clear Channel Entertainment’s music division

High ticket prices hurt us as an industry. We really have plateaued — and the consumer has responded negatively.

the business seems to have found the point of consumer resistance where those old economic principles come home – price above $50, and attendance drops. across the industry as a whole (and not just the top concerts), lower attendance is probably a function of the higher price points and other available media options.

concert-goers balk at ticket prices

Average concert attendance is decreasing, down more than 32% from four years ago, according to figures reported to Billboard Boxscore.

The 2003 average of 3,895 per show was an 8% decline from 2002.

Jerry Mickelson, co-president of Jam Productions

You don’t experiment for $50

fans are confident that they’ll get their moneys’ worth out of a band they’ve built a decades-old relationship with, but not so confident about that band that has one or two popular songs… as jerry mickelson notes, people don’t experiment when things cost that much. that hurts the developing artists, the mid-tier – combine that with a classic recording contract, and the musicians have two of the three value options locked up in bad situations.

Alex Hodges, executive VP at House of Blues Concerts.

The promoters are trying to get to a point of break-even with high prices, and the artists are trying to one-up each other simply get paid the most that the market will bear.

it could be as simple as short-term greed over long-term value.

while wandering around the web, i found an old press release from the riaa, with the bold title “Aiken ‘Measures’ Up In November.”

since i recently looked at the pop chart picture and singled out aiken specifically as the weakest #1 of the year (ranking 71 of 160 for artistjuice, despite a #1 debut), i guess this means the riaa and i use different sticks to measure these things.

come to think of it, that may explain a lot of my thoughts on the music business.

year ends on high note for album sales [reuters]. echoing news that we got from barry ritholtz we find that the music industry turned in 2003.

year ends on high note for album sales

With the holiday shifting back a day, from Wednesday in 2002 to Thursday, album sales are up a whopping 20.6% over the same week of the prior year. The final week’s splurge more than compensates for the 5.8% deficit seen the week before the Christmas frame or the 0.5% gap of the year’s 50th week.

Further, the 31.3 million album units sold during this Christmas shopping period also exceeds those of the holiday week in 2001, when Dec. 25 fell on a Tuesday. There were 24.8 million sold that week and 25.9 million tallied during Christmas week 2002. The strong holiday rally closes the gap in this year’s album sales to just 3.6%, the smallest lag behind prior-year sales that the industry has seen in 24 months.

Add up the last two shopping weeks of 2003, and the 63.4 million album units sold in that period beats the same window of 2002 by 5.6%, when Nielsen SoundScan had the year’s final two weeks clocked at 60 million copies.

the riaa and the pew internet and american life project would have you believe this demonstrates the success of the lawsuit strategy and their “education campaign.” barry has another theory.

barry ritholtz

If the marketplace is allowed to freely function, competition would drive prices down and unit sales up. Artificial price supports are what was killing sales, and not the advertising that is file sharing . . .

well, we have the page at apple, and it’s just not quite right yet.

important points are $249 and 1000 songs. technically, that’s 4gb, temporally it’s 60+ hours.

compared to my hints not too long ago, this mini ipod isn’t quite where i would go with the concept.

who’s ready to fund the roj-pod?

update (2004.01.07): businessweek is underwhelmed too.

the brilliant geek(s) of musicbrainz have taken a big step forward in the “useful” department with the introduction of permanent links that hook into their database. musicbrainz has a huge pile of coherent, organized data, and now there’s a way to get to it for anyone with a net presence.

i could probably bore you to death with why this is a Good Thing, but you’re too smart for that. there are several ways to use this, and if we all make enough noise about it, the cool ones will happen…

several months ago, i went back to the 2002 pop season and cooked up some charts about the charts. one showed the trajectory of #1 hits as they worked up and out of the top 40 range. two others showed juice – both for individual songs and for artists.

with the close of 2003, we have the full set of charts available, and since these pictures were so popular, i just had to give you the updates.

to echo the points about 2002…

12 songs hit #1 in 2003 (up from 9 in 2002), from 10 different artists (up from 8 in 2002). we again had a #1 debut (clay aiken), following the path of kelly clarkson, and quickly falling out of the chart. for 2003, two artists hit #1 twice (50 cent and beyonce, although beyonce had a little help with one of those).

 

 

the general pictures look pretty similar from 2002 to 2003…

we have 224 charting songs in 2003 (down from 233 last year), representing 160 artists (down from 165). as last year, #1 hits can be pretty far down the curve – clay aiken ranked #71 for artists juice and #88 for song juice with his #1 hit.

the charm of the tv-manufactured popstar may have already worn off, compare kelly clarkson (the 2002 candidate), racking up a total of 417 points, to clay aiken (the 2003 candidate) with only 180.

even more dramatic was the disconnect between the #1 chart position and song juice. this year two tracks accumulated more song-juice (kid rock scoring 1051 and r. kelly scoring 944) than 50 cent’s chart-topper (scoring 822). #1s did manage to suck up about 15% of the total available song juice and 20% of the available artist juice.

update: added label information to most of the trajectory chart. just in case you were keeping track…

the guys at news.com have a piece on the mini-ipod rumors now. they give a $121 million revenue figure for the ipod line (which you may contrast to the purely hypothetical music store revenue of somewhere around $20 million).

news.com – Would $100 iPod compete or cannibalize?

“I don’t think Apple currently needs to sell a $100 iPod at risk of cannibalizing sales of existing models and sacrificing gross margins, ” said Tim Deal, analyst with Technology Business Research in Hampton, N.H. “Apple already has the market lead, so I don’t see the need for (the $100 version) when people are buying $299 and $399 models.”

put on your own analyst hat and decide if “up 9 percent from the prior quarter and 128 percent from a year ago” doesn’t suggest that all the musigeeks that want 10,000+ song ipods are already geared up, and it’s time to expand the market to the rest of the people… anyway, my cards are already on the table.

an ipod in every pocket in 2004!

(discussion at ars-technica).

online music stores quickly converged on 99 cents, because it’s close – real close – to making a little money. close enough that you can fudge it in the business plan. i like fudge, so, today, i’m going to launch the meta-roj music store.

the top line

based on previous material, we know that the top-line is going to converge quickly at 99 cents per track, unless i decide to take on walmart at 88 cents.

i’m going to make an executive decision that we’re going with the pack on this one, at 99 cents. that could make me either greedy or conservative. maybe both.

what does the music cost?

i’ve seen at least two credible breakdowns for online music sales:

knowledge@wharton

The download services pay music labels around 79 cents per track in royalties.

billboard/reuters [pdf, via delvian records]

Sources present at the meeting say the terms offered to the indies were identical to those granted to major-label participants: a 65%-35% split of proceeds from the 99-cent downloads, favoring the labels, with payments every month.

for the meta-roj music store, let’s say that i make the label’s cut 72 cents (that’s about halfway between these estimates).

what does the sale cost?

now that we have the music, we need to sell it, and that introduces transaction costs. since i’m not a credit-card company, i need to make a deal with one. typical terms from the big-two (visa and mastercard) are 25 cents plus 2.5%. (walmart has had some success taking on the big credit card companies, so, maybe there’s some negotiating room).

to really estimate this expense, we need to know how many tracks get sold in a typical transaction – and that’s going to be hard to pin down.

a one-track sale at 99 cents would cost 25 cents + 2.5 cents = 27.5 cents per track.
a two-track sale at $1.98 would cost 25 cents + 5 cents = 15 cents per track
a 14-track album sale at $9.99 would cost 25 cents + 25 cents = 3.6 cents per track.

i don’t have much leverage, and i think many sales will be single-track situations. then i need to add in some other per-track and per-sale expenses, like the fractions of pennies that add up as i transfer the few-megabytes of song data and such.

let’s say that my transaction costs come in around 18 cents per track (because that’s just going to make a nice round number).

ya gotta build it before they come

now, we come to the issue of building a big site and keeping it running. some servers, some code and some labor to get everything ripped, encoded, tagged, encrypted, rights-managed and ready for sale. and i need to promote this thing, so you’ll find it.

$500,000? $1,000,000? let’s go with a million.

the bottom line

i get 99 cents per track, but it costs me 90 cents on each one. my margin is 9 cents per song, and i’ve got a $1 million hole to dig myself out of… it takes 11.1 million tracks at 9 cents each to get to $1 million.

knowledge@wharton

Between June and November, music lovers bought 7.7 million songs online, but only 4 million single-song CDs at stores.

that’s enough to pay for about 2/3rds of the meta-roj music store, in just 4 months! and the business is accelerating! only 13.3 other stores to go. itunes recently announced their 20 millionth track, but you have to dig a bit to decide how the dollars fall out from that mark. with 750,000 albums at $9.99 and 11 million singles at 99 cents, that means itunes has grossed about $18.4 million. if itunes follows our 10%-ish margin, that’s $1.84 million. now how much did apple spend to build it and promote it?

eh, no matter. those crazy kids love their music. plenty of room.

what’s the potential?

we have some data on the global market for recorded music – about $30 billion per year. that is based on 92.5% of sales as albums and only 7.5% as singles, revealing an average unit-price of $9.8.

unfortunately, the meta-roj music store is in the singles business (the evidence is hard to ignore). if it’s anything like itunes, it’s more like 5.5% albums and 94.5% singles. the itunes experience suggests an aggregate unit price – singles plus albums – is about $1.49.

from here we can make two assumptions – the $30 billion is going to stick. as they are given more choices, and more options, people will buy more music. they’ll buy just as many dollars worth of music as they did before, so we’ve still got a $30 billion pie to split up. at 99 cents per track, that’s 30.3 billion tracks sold per year, so there’s plenty of room for the meta-roj music store in the market. i only need .037% of the market to break even ($11.1m/$30.3b). sounds just like every other “if we just capture 1% of the market…” pitch!

the other possibility is that they will buy about the same amount of music as they did before. and then we get two more paths to follow, both of which lead to some more-troublesome math (and a lot more assumptions).

let’s start with unit-sales of 2,850 million albums and 230 million singles. if (and this is a great debate) each album really has only one or two good tracks, let’s give them credit for three “equivalent singles per album.” based on that assumption, we’ll call the market at 9 billion tracks (8550 + 230) per year. we’ve just watched the market collapse from about $30 billion to about $9 billion. big change, that.

another way to come at this is to just work the unit price data. $30 billion at $9.8/unit is 3 billion units. 3 billion units at $1.49/unit is $4.5 billion. even bigger change, but i can still make the “1% pitch” even at this level – $11.1m/$4.5b = .25%!

there’s room for everybody

even with the $4.5 billion market, and 14 competitors (that’s the 13 announced players plus the meta-roj music store, of course), we can split this evenly and each take $320 million! with 10% margins, we net $32 million! each! every year! and, of course, the meta-roj music store is going to get the lion’s share of the market. we should be able to double or triple that!

… and that begs the question

it’s an easy pitch. you can flesh this out in several dozen different ways to make it look good. it can look good for apple. it can look good for walmart. it can even look good for coke. that’s why 99 cents. that’s why everyone’s piling into this game. now, the important question that’s missing from this post: what could go wrong?