Your Music is a Loss Leader

In business there is a term used to describe products that are designed to get you in the door and buy bigger ticket items. It is called loss leader pricing. When you break that phrase down the first word “loss” is because the business is probably loosing money selling those items. The word “leader” means it leads you to buy other products. We see this all of the time, but probably don’t even realize it.

For instance you can buy a brand new razor with two cartridges for around $10, but if you want to buy additional razors themselves you will have to fork over $25 for an eight pack. 

Have you ever purchased a new printer? What a steal you can get a whole unit with ink for under $50. It isn’t until you need a refill that you realize the cartridges alone will cost you over $50. 

Loss leaders are everywhere. Go into a supermarket and buy an 18 pack of water for $3, two bags of chips for $4, or a 12 pack of coke for $3.99. These are all tactics to get you to buy other, more expensive, things.

Well that is what music has officially become… a loss leader.

According to Apple’s 10-K filings for 2011 iTunes made $5.4 billion. Amazing right? Now think about this. Forbes reported that Apple sold five million phones within three days of their iPhone 5 launch on September 21st, 2012. Now even though the vast majority of these phones were at reduced rates through cellphone carriers, companies such as AT&T, Verizon, and Sprint still needed to pay Apple a subsidy to get the new highly in-demand product. According to CNN money that subsidy averages about $450 per phone. That equates to $2.25 billion dollars for Apple. A little under half of what their iTunes division made last year. So in three days Apple's iPhone made half of what their entire iTunes store made in a year. 

Last week Samsung, Apple’s biggest rival, announced they will start buying up smaller music streaming and distribution companies to strengthen their own music network called Hub. The technology bohemian isn't doing this to sell more music. They are doing it to "lead" consumers into buying one of their Galaxy smartphones or tablets. Samsung is finally catching on to something Apple, Amazon and Google have known for years. You sell more technology devices if you can easily fill them with low cost music. 

Using music to get consumers through the door to lure them to buy bigger ticket items isn’t necessarily new. For years Wal*Mart had isles of CD’s. That’s right I said “isles” of CD’s. They did this because you had to go somewhere to buy new music. This was before you could beam it to your phone while you borrowed your neighbors Wi-Fi connection. When you went to Wally World to buy that new Pearl Jam CD. I know I’m old. You were forced to look at those beautiful big screen TV’s, stereos, DVD players, and other high priced electronic items, and chances are, at least once,  you walked away with one of them. In the end your $16 CD purchase cost you about $500. That is a loss leader.

But today music has completely become a loss leader. If you don’t believe me look around. If you are a Starbucks card holder you will get the occasional free download of a new music track, or you can buy those albums in their stores for $10 while you drop another $8 on a cup of coffee, plus another cup for your friend, and, oh wait, one of those awesome muffins.

  

Artists don’t make money by selling music anymore. That is an antiquated business model and if a manager or record labels is telling you otherwise start running back to your day job because you will make more money and work less there. Just take a look at the sales numbers according to www.gloriousnoise.com.  Total album sales were at $616.6 million in 1996 and have dropped to $330.57 million last year, and yes that includes digital sales for 2011.

But for some reason artist’s still think that they make money by selling albums. The truth is in today’s market they don’t. The smart ones understand how to use their music as a loss leader just like Apple, Samsung, Coca Cola, and Starbucks. Trent Reznor gives his music away and uses those free tracks to encourage fans to buy his concert tickets, merchandise, autographed memorabilia and anything else he can make money on. He understands that the market has changed their valuation of music. To them music no longer has a monetary value. Napster has taught them otherwise. Incubus’ manager Steve Rennie said it best “for some reason college kids can afford their beer and weed money, but will not pay for their favorite song.” 

On a good note music has not lost its intrinsic value and that is why ad agencies, film companies, and big businesses still fork over money to attach their brand to a particular tune. To make money in today’s market artist must stop thinking that people will pay for their music. Instead they must start using their music to get those consumers to buy into their brand. Hell it worked pretty good for Apple.  

The Degree is Over, But the Learning has Just Begun!

It has been a long time coming...This week I will graduate with my Bachelor of Science in Music Business Management.

Over the past two and a half years I have been studying, but not in a classroom.  Because I was "on the road" I had to obtain my degree with the help of technology...Online.

I chased that degree while I worked on cruise ships, paying 35¢ per minute to watch my lecturers, research and upload assignments, and participate in virtual discussions. At some times this cost me close to $200 per month in Internet bills alone.

For a while I got to study "on land" as I worked as a show band drummer for a five star resort nestled in northern New Hampshire. The remote spot where I lived lacked an Internet connection, so I went to my virtual classes via a mobile hot spot. It was slow, so slow that sometimes I drove an hour out of town seeking a stronger cell signal to upload my assignments.

I worked hard for those two and a half plus years. I think I averaged about 45 hours per week on school work while I traveled, played some late nights, and then traveled some more.

With a few months left before graduation I moved in with family in Florida and started working for Apple Retail. Luckily my sister had a really good Internet connection so I could finish my tenure at the college strong. I was up early every day and in bed late as I polished another assignment, researched another business topic, or read another chapter.

And in the end I got my last grades and was pleasantly surprised to find out that I had achieved a 4.0 for all of my hard work. The same hard work that put me at the top of my class in Music Business Management at Full Sail University.

Many people question the validity of such a degree. I do not.

The music business landscape has radically changed. Everything is different from marketing to promotions, artist management, the record deal, contracts, and, of course, distribution. What is funny is that if you asked any "Joe blow" on the street he would tell you the same, but for some reason so many artists think otherwise. They still dream of that big record contract, the globe trotting tour to packed football stadiums, the debut album that goes platinum in the first week.

Without people like me, people who have trained in the modern music business landscape, they would starve. Or worse yet return to a normal 9-5 job. You see during this degree that many would deem somewhat useless I have studied how artists can not only survive in this new marketplace, but also prosper.

In the end I am proud of what I have accomplished thus far, but I am even more excited of what is to come. If the music business has shown me one thing, it is that the Internet is here to stay and those who don't hop on board will wither and die. I have studied one industry that almost died at the hands of an interlinked world, now I will learn how to leverage that power to help both myself and the lucky organization I will eventually work for succeed in the modern marketplace.

So you may see my posts change a bit.  I will continue to talk about the drumming world, but you will probably see more research on the modern music business landscape and the power of the Internet taking a larger role.

I look forward to sharing my experiences with you!

Want An (In-Depth) Understanding of Reggae Drumming?

A few years ago I had the opportunity to sit down with an exceptional Reggae drummer who was working on a cruise ship with me. He was the real deal. Born and raised in Jamaica and drumming for most of his life he could do things on the kit that made simple white guys like me very jealous.

During our quasi lesson he informed me that Reggae is something that is in your blood, just like Americans tend to be better when it comes to playing Swing music (his words not mine). He showed me a number of tips and tricks to get my island drumming more authentic, but I will admit Reggae has always eluded me.

Then two weeks ago I got an email from Hudson music telling me I could download Gil Sharone's Wicked Beats instructional DVD for only $15. I had to take the offer.

For you drummers who don't know who Gil Sharone is. Right after high school he became the drummer for the group Fishbone which opened a number of doors for the young musician. He has played with Blink 182, Dillinger Escape Plan, and his own group Stolen Babies. He is an active clinician and was even voted Modern Drummers #2 Most Up-And Coming Drummer in 2008. If you want to read his full bio visit Drummerworld here.

So enough about Gil and let's talk about Wicked Beats.

This is a great instructional DVD because it leads you through the development of Jamaican drumming. Gil walks you from the beginnings of the movement with the Nyabingi and Burru. This lesson is filmed with some of Reggae drumming greats whom explain the importance of Rastafarianism on the drumming style and how the sounds mimic that of nature. This really helped me to understand the underlying core concepts of the Reggae style of drumming.


From there Gil walks you through Ska and Rocksteady and how the beats change ever so slightly for each. Then he moves on to Reggae, Dancehall, 2 Tone Ska, and 3rd Wave Ska before ending with Dub. 


I was really impressed at how good of a teacher Gil Sharone is. He really helps the viewer understand where the important parts of the various Reggae style beats fall and how to make each one authentic. And he does it so simply that you catch on quite quickly.  Sometimes the best teachers are the ones very few know about.

Wicked Beats is a true "in-depth" DVD. Not only does Gil show you how to properly lay down various authentic sounding Reggae beats, but he also includes commentary from noted Reggae historian Roger Steffans who's history lesson helps the drummer understanding how the music has developed and evolved.

What I dig the most about Sharone's DVD is the fact that he brings in special guest such as  Lloyd Knibb of The Skatalites who offer insight into Reggae technique. These "true" Reggae greats offer amazing concepts that can give your drumming that real island flavor.

I will leave you with the trailer for Wicked Beats and encourage you to either buy the DVD or download it directly through Hudson Music on Demand.

Drumming Greats: Mick Fleetwood

As I weaved through traffic on Orange Blossom Trail with my windows down and music cranked up the other day I couldn't help but notice that I was getting some awkward looks from other motorists.

Now let me explain for a second. OBT, as we affectionately call it, is propagated by people who enjoy hip hop and Latin music, so when I pull up at a red light and Fleetwood Mac's Dreams is blaring from my VW sound system I guess I can understand the funny looks from other motorists sitting on their 22" rims. What these motorists don't realize is that I am a drummer, and Fleetwood Mac is backed by one of the greats in the drumming community – Mick Fleetwood.

OK, so I will admit that Mick wouldn't be a drummers first choice when it comes to inspiration. He isn't  a blazing jazz pioneer like Billy Cobham or Max Roach, he isn't a progressive superstar such as Neil Peart, or a modern day rock star such as Rich Redmond, but we should all give Mick Fleetwood his due and here's why:

1. You know a rhythm section is great when the band is named after the bassist and drummer.

Sure many fans associate Fleetwood's fame with the vocals of Stevie Nicks, but many do not know that the band started out as a blues group and was named after bassist John McVie and Mick Fleetwood. Hence the name Fleetwood Mac.

2. To be a drummer you have to have brass balls.

Part of being a great drummer is having confidence. Nothing says confidence like wearing a wedding dress for a Rolling Stone article, and Mick did just that.

3. Mick kept the band alive.

We all know of the chaos that is Fleetwood Mac. The marriages, the divorces, and all the drugs, but through it all Mick is responsible for keeping the group going. After a long hiatus Mick urged the group to get back together for a new album in 1997 called Dreams, which brought them back to the mainstream and put the original line-up back on stage thus reinventing the Fleetwood brand.

4. Showmanship.

Watch any Fleetwood video and you will see Mick making faces, dancing on the kit, and feeling the music. To be a great drummer you have to be "in the music", and for his entire career Mick has been inside the music.

5. The tick-tock.

This is what keeps Fleetwood Mac on my playlist. Sure some drummers can burn the double bass, others can swing like mad, and newbies can play at 200 plus beats per minute, but to get the audience to dance and your records to sell your music has to have a groove. When it comes to groove Mick and John created a tick-tock that is always in the pocket, on time, and infectious.

I urge all the young drummers out there to give Fleetwood Mac a listen. See what these musical pioneers do that has pushed them up the charts and put them on stages across the world. In this day of speed drumming competitions and programmed beats we often forget that when you put great musicians together you get a great product. When that band has a drummer who can keep solid time, create an infectious groove with the bassist, and perform with confidence and musicality you can survive the test of time.

Finally watch this video from their successful Dance video, even with the University of Southern California Marching band Mick keeps the groove alive.

A Great FREE Learning Resource for Drummers

During my practice routines I like to devote some time to playing with study materials that give you music without drums and a chart to follow. I have found Tommy Igoe's Grove Essentials series (you can find these great books here), and Steve Houghton's Ultimate Drumset Reading Anthology (you can check out this manual and more here) to be great resources.

But after daily practice with these books the purpose behind reading charts and playing along with the tracks looses it's value. I mean it's pretty useless to read through a chart when you know the songs inside and out because you have played them too much.

So I went on a search this morning to find some new play along material, and being a consumer of the new technology driven universe I wanted to download something as opposed to purchasing a CD and then waiting for said disc in the mail before I could practice.  Through an Internet search I came across Vic Firth's Education section of their website and was pleasantly surprised.

I have to thank the folks at Vic Firth because this is a great resource for both drummers looking to boost their game and music instructors seeking ways to efficiently pass down their craft. They have countless videos of the drumming community's best offering lessons, live footage, and their own theories on the instrument. You can download their copy of the 40 Essential Snare Drum Rudiments, although I would encourage you to get my book on that (shameless plug), along with a plethora of other resources. They even have an ongoing Podcast that keeps you up-to-date with performances of today's top drummers.

The gem I found was at their drum set play along section (you can get there here).  

This page offers countless songs with and without drums. These free online lessons cover a number of genres and each one includes music to help you work on your chart reading skills at the same time. They are all songs by today's top drummers so be prepared to be challenged during your practice routine when you connect with these bad boys. 

All in all this is a great free resource for drummers looking to up their game. I encourage you all to take a tour of Vic Firth's website and see how they can help you get better on the kit.

Say hello to your new 360 recording contract.

There is no need to beat a dead horse, but lets kick Mr. Ed around for a second.

The music industry has changed, and even if you don't like what's happening you may have to just suck it up and deal with it if you really want to be a musical icon. So here are a few facts.

The four major, soon to be three, record labels account for 88% of recorded music sales leaving just 12% to be split among the countless indie labels out there and popping up as you read this.

The major labels are responsible for this huge difference because they have the financial backing and resources needed to launch an artists career. I am not saying you can't live comfortably with an indie, or even start out with one and then move up to the big leagues. I am just saying that if you still dream of being the next Jay-Z, Madonna, or Taylor Swift you will need a major in your corner. Now here's the downside, or the upside if you actually pay attention.

All of the major labels, Sony/BMG, Universal, and Warner have instituted the notorious 360º Deal for their new artists. Now you may be able to get signed without handing them a piece to the whole pie, but it is very unlikely at this time. Many musicians are furious about this new practice, and some hold valid arguments, but for a second let's step away from what you have been told by your buddies and examine what a 360º Deal is.

Basically put, and I am sure you all know this, the 360º gives the record label a piece of your recording royalties, publishing, merchandising, touring income, endorsement deals, licensing, and whatever else you may make money on with your brand image. Notice how I said brand image instead of music.

In the past artists just forked over money from their physical recordings and in some instances publishing royalties to their label partners and got to keep all the other income associated with their business model. Now if you just read the 360º Deal as that you would scream and shout that you were getting the shaft. What many pundits leave out is what the label gives to you for that chunk of pie.

When you sign a 360º Deal with most major labels they then takeover all of the production and costs associated with every aspect of your brand. They help design, print, and distribute your merchandise. They help solicit your music to film, television and advertising companies. They help put together your tour. They even help you find sponsors. Without this type of deal you, as the artist, would need to fund these endeavors yourself, and many times that required asking your label for a loan to get each project off the ground. Now they do that for you, basically because the more they invest the more they stand to earn.

On top of funding all of the other income streams that can make you money the labels have the connections to get your new product and services to a much larger audience than if you went at it alone. They have connections in the film and advertising industry, the touring industry, the merchandising and distribution realm, and they have those connections all over the world.  So think of it like this you could do it yourself and potentially reach two million people in one geographical location in the states, or hand it over to a company that can reach 2 billion in China alone.

When Jay-Z signed his 360º Deal with Live Nation he got 775,434 shares, plus an option on an additional 500,000 with the exercise price of $13.73.  

You see they have the money and the connections to make you into that superstar you always dreamed about. But to hammer the point home I offer one more point.  If I was the head of A&R for Sony and had two bands that I wanted to add to our roster. One of them was more than willing to sign to a 360º Deal and the other demanded a typical contract, as a business person looking out for my bottom line who do you think I would sign first?

I am not condoning the 360º Deal or condemning it in any way. I am just tired of seeing all the negativity with very little about what the majors give to you in return. Remember in any true negotiation or business deal each party should feel as though they have given a little and got a little in return. And finally if you really dream about super stardom, private jets, sold out shows at Madison Square Garden and a gold plated shark tank in your mansion you may have no choice but to sign a 360º Deal so be prepared.

And finally, if you ever have the carrot dangled in front of your face GO OUT AND GET A REPUTABLE ATTORNEY who specializes in music business contract negotiation. The ambulance chaser you saw on TV can't help. You need a contract lawyer who can make the language work better for your career and save you millions in the process.

Here are some links to learn more about 360º Deals:
http://musicians.about.com/od/ah/g/360deals.htm
http://techcrunch.com/2008/11/08/360-music-deals-become-mandatory-as-labels-prepare-for-free-music/
http://www.nytimes.com/2007/11/11/arts/music/11leed.html?_r=1
http://lawyer4musicians.com/2009/03/22/you-spin-me-right-round-like-a-360-record-deal/

The street fight over EMI's publishing catalog.

On April 19th it was announced that Sony Music had gotten the nod from the European Union to go through with their purchase of EMI's publishing rights. You can read the full article on The Guardian's website. Warner has been fighting Sony's attempts ever since EMI defaulted on a $5.4 billion dollar loan in early 2011 and was put up for sale by CitiGroup to ease the debt. Almost immediately the big four major labels were left to but three, Sony, Warner, and Universal.

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At that time Universal already controlled the market with roughly a 27% of the business and was able to pounce on the fire sale going after EMI's recorded music division which holds the rights to such artists as Norah Jones, The Smashing Pumpkins, Keith Urban, Brad Paisley, and some small band known as The Beatles. The purchase will boost Universal's market share up to 36% dominating Sony's at 23% and Warner at 15%. Despite this fact the war over EMI's assets hasn't revolved around their recorded music division, but rather their publishing division which, according to Rolling Stone Magazine, holds the rights to 1.3 million songs including works by Rihanna, The White Stripes, Sting, and many others.

Ever since EMI's publishing assets were put up for sale Sony and Warner have gone to war trying to secure these copyrights. Each company has attracted outside investors to help sweeten their offer until Sony was able to throw down $2.2 billion for the catalog ousting Warner from the race. But the third largest music conglomerate in the world wouldn't go down without a fight. Since then Warner has challenged the deal both in the U.S. and European court systems hoping to thwart Sony from gaining such a huge market share in the publishing business of the music making world. But why such a fight for publishing rights?

The reasoning has to do with the current trend of musical consumer buying behaviors, and how these behaviors can equate to large amounts of income for whomever owns the proper rights. Recorded music rights provide income to the persons who control the actual recordings of a work. So if you buy a CD, or you license Sting's recorded version of "Every Breath You Take" for a movie you have to fork over some dough to whomever owns the copyrights to the actual recordings you use. Publishing rights on the other hand cover many more situations. Not only would you have to pay whoever owns the recorded version of the Sting tune you plan to use, but you would also have to pay the publishing company for the underlying music and lyrics in the song. So what's the big deal if you own the recorded music you are getting a piece of the pie and if you own the publishing you get the other half? The answer lies in how we are using music today.

Take for example the popular FOX hit Glee. These teenagers, whom all appear to be in their mid twenties by the way, perform a number of popular music hits in each episode, but because they are the ones performing the hit the owners of the recorded music are paid less, if even paid at all. This is because they aren't using the original recording of the song, instead they are remixing it in their own way.  Yet despite this fact they still must pay the publishing holders the statutory rate. Now think about all the television shows, movies, and advertisements that do this. We've got American Idol, America's Got Talent, and The X Factor all presenting contestants singing their favorite hits and that's just in the U.S.. Still don't think it's a big deal? Now think about the millions of videos on YouTube of people performing these hits with their own bands or by themselves with their dogs singing harmony.

But the income stream gets much larger for publishing rights holders. In the current musical landscape touring has become a major breadwinner for bands. In these situations the only people getting monies from these performances are the performance rights organizations whom pay the publishing holders of the songs that are performed. Many of these publishing houses also own the rights to the Artists images, signatures, fragrances, and whatever else can be branded with their namesake.

So to put it in simple terms the recording music royalties will make you money on the uses of the actual recording while the publishing royalties will earn you money on those items plus any other way that the song may be used in the marketplace from other performers singing your tune, to public performances, and even a bunch of people trying to impress judges or sing about their high school angst on television. Which income stream would you rather have?

That is why there is a street brawl over EMI's publishing division. The big boys know how much money is at stake, and the company whom holds the largest stable of hits will eventually win the battle when it is time to knock it down to the big two.