Panel Report:
The New Face Of Music Companies in 2012
Terry McBride, Nettwerk Entertainment (Moderator)
Gary Borman, Borman Entertainment
Jeff Kwatinetz, The Firm
Tim Leiweke, AEG
Rob Light, CAA
Don Passman, Gang, Tyre, Ramer and Brown
Michael Rapino, Live Nation

One of the goals of the Concert Industry Consortium is to bring the best minds from across all sectors of the business together to not only assess where we are and where we’ve been, but where we’re going. This year’s edition featured a panel comprising a virtual Murderer’s Row of industry heavyweights and visionaries taking a landmark look into the crystal ball.

“The New Face of Music Companies in 2012” offered an at times surrealistic snapshot of what we might expect to see in five years, led by moderator Terry McBride, the maverick chief exec of Nettwerk Music Group based in Vancouver, B.C.

McBride’s ideas about artist empowerment are well known but, when he talks about technology, one gets the feeling he’s already had the crystal ball reproduced on a computer chip and implanted in his skull. He’s one of the few industry
execs who can merit a glowing feature profile in Wired magazine and not seem out of place there.

He was joined onstage in the standing-room-only Los Angeles Ballroom February 7th by entertainment attorney and music industry bible author Donald Passman, Live Nation CEO Michael Rapino, The Firm co-chairman and CEO Jeff Kwatinetz, Creative Artists Agency Managing Partner Rob Light, Borman Entertainment President Gary Borman and Anschutz Entertainment Group President/CEO Tim Leiweke.

The panel’s premise, as introduced by McBride, seemed simple enough: Examine some of the paradigms and changes hap-pening today, which seem to be unfolding on a daily basis, to see what we think is going
to be happening in the next five years.

Among the more obvious was the trend away from amphitheatres and arenas and toward clubs and theatres. But the conversation also veered into areas as disparate as the extinction of the record label as we know it to interactive T-shirts.

And if you didn’t know what “parasitic power” was when you entered the room, you did when you left – and it probably isn’t what you guessed.

Technology, unsurprisingly, drove most of the discussion, with a smattering of other hot topics – StubHub and Steve Jobs among the favorites – thrown in.

“I would make a note that if you look back five years ago today, there was no AEG, there was no Facebook, there was no YouTube, there was no XM, there was no Sirius radio, there was none of that which we now take for granted,” CAA’s Light said. “So, flash forward five years and the control that an artist has over his life will be increased tenfold from today.

“Will they promote their own shows? Not necessarily, but we’ve all seen presales, which is an overall barometer of how a show might do, and try to imagine what ‘Presales 2.0’ might look like.

“An artist might literally e-map his fan base and ask, ‘Will you buy a ticket if we come to this town?’ You can know that 20,000 people are going to come and, in essence, be sold out before they even do any marketing, any guarantees and know exactly which venue they are going to play before they even go on sale,” Light theorized, noting that the technology to realize that scenario already exists.

Several others noted that the ultimate promoter will be the fan. McBride went so far as to suggest that in five years, fans will be willing to pay for “virtual” concerts, where an artist’s live music is presented not by a live artist but by an avatar.

No one was willing to go quite that far, yet a less futuristic but fan-promoted model has already begun to crop up: the house concert. And Light used his own kids as an example.

“Any of you with kids know that they’re hosting parties now where they charge $10 a ticket and 300 kids show up. That’s what’s cutting into concerts,” Light said. “I know, because my kids are going to them. You’re going to see kids throwing house parties and downloading concerts or music for them. I do see a place for virtual concerts.”

And with the advent of street teams, MySpace and other social networks, artists are able to avail themselves of huge databases without the benefit of a promoter or record label. How do promoters feel about that, McBride asked?
“Scared shitless!” said Live Nation’s Rapino, to much laughter. But he quickly turned serious.

“The music company of the future is going to be all about the one who can connect the artist to the fan. Historically, there’s been a lot of us in the value chain and we’ve had a very defined spot: the artist, the agent, the manager, the promoter, the venue, and those are all going to merge,” Rapino explained.

“The Internet is usually very disruptive and takes people out of the value chain. Ultimately, the fan is the promoter of the band. I think you’ll see the middle player pull out and somebody will be the new wave, maybe technology-based, to figure out new ways to provide capital and better distribution and marketing direct to the bands.”

He also noted that part of the industry’s problem was evident in the room: “You see a lot of 40-plus white guys up here so maybe diversity may be a subject for the future, if you want to know what makes up our fan base.”

Light underscored that comment by pointing out that today’s youth do very few things the way their parents, or even their older siblings, did just a few years ago. Not only are CDs falling out of favor, but so are the print and terrestrial media such as newspapers and radio that advertised them – which changes the way the industry must look at concerts, too.

“There’s a whole new generation that will look and communicate differently. We were talking about how nobody will use print anymore. No one will use radio in the same way. No one will talk to the consumer in the same way anymore,” Light said.

“And they will intersect in a different way, so we have to change the outlook that there may not be bands that can do four or five nights in an arena like they do 10 nights in a club. Why do you build a 7,000-seater? Because you know that’s where your next generation wants to go and wants the experience to be more intimate.”

Borman, who specializes in artist management, returned the focus to the artist.

“The face of 2012 is really what the face of music has been all along but is now getting recognized: It’s the artist,” he said. “The opportunity that the artist has to create a Web site to reward fans, to engage fans, to build loyalty, distri-bute content, to monetize that distribution of content … it’s all there.

We’re being forced, in order to control our destiny and fulfill our obligations to our clients, to seize these opportunities and some of it has to do with the artist tolerance for risk – whether they’re willing to go for the big guarantee or take a chance and promote themselves. It’s going to vary from artist to artist and manager to management depending on risk tolerance and skill. With this decentralization we have a real opportunity to rebuild this business in a different form than we’ve seen it, and tech is going to provide that opportunity,” Borman continued.

“But it will always come down to that basic, simple thing of rewarding our fans, and drawing them in as opposed to shoveling shit down their throats the way we’ve been doing.”

The way things have been done is going to change, and changing rapidly as it is, because of advances in technology that have wrought the iPod and, soon, the iPhone. As the CD gives way to the download, the ticket will give way to the bar code. Artists are already communicating directly with fans, and T-shirts will sport parasitic power.

“There’s so many revenue streams that stem from technology that will provide us with so many opportunities whether it’s text messaging or fan interaction, selling merchandise, selling content from the program, upselling music or giving it away,” Borman said.

“Technology is at the center of the whole thing, not just from the announcement of the tour but, once you capture those people through the announcement, hopefully you will keep them coming back and continue to engage them, through the release of the content. It may not be in the form of an album; it might be releasing a song a month instead of an album.”

Light hailed the approaching advent of the iPhone, which he said turned “the cell phone into the next-generation iPod.” He noted that in Europe, technology is already being used to deliver bar codes to fans’ cell phones instead of concert tickets to their mail boxes.

“You’ll order your ticket with your cell phone, your ticket will be sent to your cell phone. I’m curious how Ticket-master’s going to charge for that,” Light said, drawing laughter. “But it will get sent directly to your cell phone, you’ll walk into your venue, your bar code will be scanned and, the second the show is over, you’ll get a text message asking if you want a copy of the show.

“That band will be able to say here’s our new single, here’s the highlights of the show, here’s what’s happening next. The question is: Who’s going to share in that revenue? And I’m sure Tim (Leiweke) and Michael (Rapino) will say, ‘We should share part of it since we produced the concert, and I would argue that they shouldn’t share part of it because we don’t get a piece of the popcorn.

“But that will be, in five years, the fight we’re going to have.”

McBride then switched gears to talk about merchandise. Not just any merchandise, but the parasitic-powered T-shirt.
“Parasitic power is basically the power the body generates within shirts that have silver filaments. The shirts can now be powered,” McBride explained. “The shirt can power an iPod. That shirt can also power a message, or a design if you want.

“The minute you do that, you allow the T-shirt to now turn into a chip, and you can update software to what that shirt is. Let’s think about how this tech is going to change every single aspect of what we do.”

McBride proceeded to paint a picture that was more Sci-Fi than Hi-Fi.

“Remember, the rock T-shirt is not going to be the same five years from now,” he explained.

“[Fans] are going to get the concert, or the option to purchase the concert, on their cell phone. And then let’s think about [telecommunications companies]. In Korea, all of the music is disseminated to mobile, and the telcos are putting on concerts. They’re competing with every single part of our paradigm,” McBride warned.

The Firm’s Jeff Kwatinetz wasn’t impressed and in short order shifted focus from technology to a favorite target: the major record labels.

“Face it, we’re not a technology business. We’re in the art business. We’re in the content business,” Kwatinetz said. “Music and content is a very important, viable, growing area. If technology can help distribute it, that’s a positive thing.
“The way that the record labels have chosen to monetize it, it’s not positive and it’s hurt everybody who’s in the chain of making music content.

“Steve Jobs is laughing all the way to the bank. He doesn’t pay us money. He gets all his music for free. He lists it all for free. He takes no risk in terms of producing music. And he makes billions and billions of dollars,” Kwatinetz continued. “Steve Jobs can’t afford to not have music be vital and not have a lot of important bands existing. “Live Nation can’t afford that. They need bands to draw people. People are going to say enough with the record label, and I honestly think that’s a great thing. Technology is not all that we should be talking about. Where’s the content coming from?”

Kwatinetz’s company and his client Korn partnered with Live Nation last year on a recording and touring partnership that was unique in that it essentially cut out the major labels.

“The discussion isn’t the fight between the agent, manager and promoter about how to divide the money,” he said. “That’s actually an easier fight because each one of us is doing something right.

“I don’t understand why I have to give RCA any money when Kelly Clarkson records a live re-cord in a venue and sells it when people are walking out. Not only that, but they’re the ones in control of it; you can’t move it forward. That’s why it’s a great thing that record companies are falling apart. It’s a great thing!

“Where’s the label’s questions about where she is going to be in five years or 10 years? The problem is, they know they’re not going to be around, so why should they give a shit?”

Passman, who writes his fair share of contracts between artists and labels, knows full well the control Kwatinetz referred to. “When I first started writing these recording contracts, they were maybe 30 pages,” Passman said. “Now they’re 100. They never remove anything; they just keep adding on, right down to control over whether an artist can appear on a late night talk show.”

So what will record labels look like in 2012? Many of the panelists argued that record companies as they used to be known have already vanished.

“I would say that it goes back to record companies being an A&R, marketing and distribution company,” Light opined. “They don’t distribute anymore. They certainly don’t market anymore and they aren’t doing a lot of A&R. So they’ve just about said to the world, ‘We’re not in that business.’

“I think they’ve become basically catalogue companies. I think the next generation of record company is really a management company. It’s career development companies and music listing technology or fan-based editors that push the music forward.”

Kwatinetz also discounted the role of the record company in the music industry in 2012. “The real question is: What will the music companies look like in 2012? If the promoter and the content are aligned, they can come up with different ways to make it make sense. Promoters are set up to take a much bigger role in developing artists, and I hope you guys do it because otherwise we’re all going to be here five years from now asking, ‘will anyone ever play in an arena again?’

“We need to be developing artists and we need to look at this. I want to hear what the promoters think about how we develop artists in a territory. Because the promoters tend to actually care a lot more about developing artists for the long run."

Rapino then brought up the “S” word – StubHub.

Noting the music industry has basically become a business-to-business proposition “all fighting over the same 10 percent of the pie,” Rapino said that while the upstart secondary ticketing company angers him, it operates a business-to-consumer model that doesn’t need the artist to succeed but at the same time better services the fan.
“There is a whole other world that says, ‘I’m going to deal with servicing the consumer and supply them with the product they want and the artist will use that distribution platform.’” Rapino said. “Can we become a platform, and become a really consumer-oriented company, that somehow reinvents itself? I don’t think our capital is going to be enough to hold onto our value any more.

“I’ve met with StubHub to understand that model, and the nameless person who was there and running it said something that pissed me off but made great sense: ‘I really don’t need to get the artist to embrace this.’ “I made the usual speech how we need the artist, we’re in it, we give money…and he said, ‘I don’t need the artist, because I have the fans. My orientation is the fans.’ And unfortunately, he’s right,” Rapino continued. “In my platform, he’s a consumer company. He woke up in a garage and said, ‘How do I make a better product for the fan?’ We wake up every day saying we have some entitlement to everything that has to do with the artist.”

Leiweke also made it known he has no soft spot for StubHub. Remarking on its recent purchase by online auction giant eBay, he said, “I don’t think it’s lost on anyone here that StubHub just sold for hundreds of millions of dollars and they own nothing.

“They don’t own venues, they don’t own promoters, they don’t own artists and I have no idea what the hell eBay just bought,” Leiweke said. “But they think, at the end of the day, that they’re going to be a player in the business? You invest $100 million to put an artist on tour and give them a guarantee, and in particular the infrastructure to service that tour and the fans that come to that tour, we have a huge problem with a company that comes in and controls the
after-market and has nothing in the game: no risk, no capital, no development, no involvement.

“And eBay needs to know, and we’ve sent them a pretty strong message, that if you think you’re going to continue to do this, and the artist is not going to get their fair share, and the ones who write the checks are not going to get their fair share, and the people building clubs, theatres and arenas are taking huge risks to create great places to do live entertainment are not going to get their fair share, they’ve got another thing coming.”

The changing role of the agent, promoter and manager took center stage for the remainder of the discussion – which included a somewhat startling admission from Live Nation’s Rapino.

McBride had to prod his pa-nelists a couple of times when he asked if any of them intended to get into content development and A&R areas, given some of them were all but writing off the major labels. While his colleagues were understandably reticent about possibly playing their business hand, Rapino laid it on the line.

“We spent $1.8 billion on talent guarantees last year so we’ve already paid for a lot of houses but didn’t get a lot of return,” he said. “We had a lot of nice little two-hour affairs. We have to figure out how to have a longer relationship with those artists.

“One of the great things is, I don’t actually want to own anything. I’m OK without owning stuff. I don’t need to be owning your masters,” he said as the room hushed. “I would like to rent a lot of stuff for a longer period of time. I’d like to be in the renting business and figure out how to make some money. Tim and I might want to rent your show for say, two weeks, that we could stream somewhere sometime to somebody.

“I think there’s a real chance for the promoter who, right now, rents your show for two hours and puts a lot of capital up and hasn’t figured out how to really turn that into anything other than that two-hour affair,” he continued.

“There’s still a belief in the bu-siness that we’re hiding popcorn money versus trying to figure out how do you take, say, $2 billion over three years; how do you take those great buildings, how do you take all that marketing infrastructure that the promoters all have, that great on-the-road experience, and create new revenue, versus fighting over the popcorn money that’s long been paid for and counted?

“That’s where I think we’re going to align our agendas and make more money together with that infrastructure.” Artist manager Borman grinned. “I welcome either of your two com-panies (LN and AEG) to come in and help me create content, perception and image, and I’m happy to make you a partner in it, particularly if you don’t want to own it."

Rapino replied, “Look, we pay a big premium to turn a one-night affair into a 30-date affair called a tour, and that’s losing its value in terms of the price of the premium. We’d love to be in a business where we can say, ‘We’d like to get three weeks of Kelly Clarkson that we could download and stream on our site. Can we get some other rights for a year? Can we get merch rights for a year? There’s a whole bunch of ways we can be in business without ever having to say we want to own your master.”

Kwatinetz jumped in, suggesting he’d take Rapino up on such an offer, especially if Live Nation would help pay for some of his artist development costs including studio time, marketing and promotion. “That makes sense,” he said. “You’re building a $1 billion building that can’t be downloaded on the Internet. That’s distribution that means something, whether it’s amphitheatres or arenas. That’s tangible stuff.

“Content, as it becomes digitized, the whole wall between the consumer, has gone away. That’s what we’re all talking about, and the thing that can’t be replicated by anybody is owning real estate. If we had a Kelly record, you helped finance that, and we had more finances to do marketing and promotion, and you guys helped us do that, well then when you say, ‘Can I have some live concerts,’ we can do that.”

Leiweke also pointed out that AEG considers Coachella Valley Music & Arts Festival, and its new country cousin Stagecoach, to be forays into cre-ating content and artist development. And when pressed by McBride about building studios to go with its festivals and clubs, the AEG chief was ready with an answer. “It’s already there. We spent $12 million to build the back of house studio (at L.A. Live) to do live production and we’re building generic studios,” Leiweke said. “We are going to create content. We have to go to the artist and create a unique platform, a unique event,
a unique live experience that can be distributed through a lot of different partners and that turns people on to new music or old music, new artists or old artists.”

Rob Light closed the session reminding the crowd that much of what it will see in 2012 doesn’t yet exist – and that’s a good thing. “In a vacuum, people step up and develop. In some ways, Vans has been an artist develop-ment company because they’ve bank-rolled Warped and they’ve helped develop a lot of bands. And their repay-ment is owning a piece of that tour.

“You are going to see corporate America figuring out that print ads in newspapers and spot ads on radio stations, even on TV commercials, aren’t hitting their demo. They’re going to rea-lize that talking over the Internet and talking through music is the way to talk to the next generation of consumer,” Light said.

“They’re going to find a way to talk to that consumer and it’s going to be through artists and content. Somebody’s going to figure out how to monetize it and he’s going to be the next owner of YouTube, Google or Skype. We’re going to have five other people up here in five years who were never in the business.

“It’s like how Steve Jobs wasn’t in the business five years ago. There’s going to be five new people with five new ideas for a whole new way of monetization to what we do. Part of our job is to keep the artist active in that part of it.”

- Deborah Speers