Recutting the Music Business Pie
Everyone Grab A Knife

Moderator: Larry Blake Manatt, Phelps & Phillips
Miles Copeland, Firstars
Dell Furano, Signatures Network
Marc Geiger, William Morris Agency
Randy Phillips, AEG Live
Simon Renshaw, The Firm
Sami Valkonen, DiscLive Inc.

Moderator Larry Blake handed out knives to the panelists when this session began. But along the way, the discussion turned from recutting the pie to increasing the pie to throwing it away and baking a different flavor.

He brought up EMI’s deal with Robbie Williams a year ago where the label gave him a huge grip of cash in return for participation in non-album revenue sources, including concerts. Did that idea catch on?

No one had heard of a similar scenario but the topic brought to light the underlying implications of such a deal – the record companies are in dire straits. And since the labels historically have played such an important role in an artist’s career, things have to change. A new model for the entire industry is on the horizon.

Miles Copeland, who has worn the hats of record exec, agent and manager, said the idea of a record label participating in concert and other artist revenues is not necessarily bad.

“In the old days, where the record label would make enough money on the records, that all made sense. They could take their piece of the pie,” he explained.

But with the Internet, things have changed. Fans are getting their music for free and labels are finding them-selves in a frustrating situation.

“[Labels] begin to look out and say, ‘Wait a minute. We’re spending all the money to take this unknown shmuck artist and make them famous and then they make us buy tickets to see them at their own shows,’ which is crazy,” Copeland said.

He added that if an artist is going to get famous thanks to the efforts of a record company, the label should be a partner.

Internet revolu-tionary Marc Geiger, who’s worked on all sides of the music industry, said he knows no other business where the investor gives up a revenue stream as labels do.

However, Dixie Chicks manager Simon Renshaw said the record labels are the last partner he’d want to share revenue with.

“We can’t trust the record companies to distribute royalties accurately. ...You have to really question their worth and their value in certain areas these days,” he said. “Now, (with technology) anyone can be a record company.”

If that’s the case, should promoters, who are writing much bigger checks, start throwing their weight around and demand a bigger piece of the pie?

AEG Live’s Randy Phillips didn’t like the term “throwing weight around,” but said if his company could put together a compelling model with an artist, it would go for it, as AEG Live did with Queen Latifah. The promoter made a 50-50 deal with Latifah (who is signed to Flavor Unit Records as a rapper) to reprise the character she played in the film “Chicago.”

“We’re making an album of incredible standards like Dorothy Dandridge songs, Pearl Bailey, Bessie Smith, Billie Holliday,” Phillips said. “We’re going to do a TV special. HBO and CBS negotiated against each other to get rights to it. We’re going to cull a DVD from that, put a tour behind it and we’re also going to do merchandise rights.”

He added that it’s true the music industry is looking at a whole new future and everybody’s going to have to stumble through it before a workable model is established.

The old model of everybody working separately for their chunk of the pie doesn’t work anymore, Copeland said.
“It has to be a team effort. You have to build a brand and to build a brand properly, everybody has to be on the same side.”

Geiger got more specific.

“The number one thing I want this industry to do this year is bundle the CD with the ticket and the download and watch what happens,” he said. “You won’t even need a distributor; you don’t need to market that much.”

While that sounds good and fine, Phillips pointed out, “There are a lot of institutions in this industry that are so committed to the old model that you have to overcome. ... There’s a lot of fear. We do not want these institutions to go away. We make money off of them.”

However, AEG Live is involved in a bundling strategy of its own, using the parent company’s movie theatre chain to show live concerts and couple them with DVDs, etc. But Phillips doesn’t consider it a sales model as much as an opportunity to develop artists.

“What we need as an industry is to break more acts,” Phillips said.

“I’m going to have to retire in two years because there’s not going to be any more headliners. It’s really, really important to break acts.”

The issues involved in recutting the pie seemed never ending, but one of the panelists, Sami Valkonen, heads a company that has something else in mind – increasing the pie. DiscLive provides the service of recording live concerts and making the CD available within 15 minutes after the show. And everybody – artists, promoters, venues, labels, publishers, etc. – get paid.

“We believe we have the only technology that can deliver 1,000 CDs within 15 minutes, which is really what you need in order to make it [a valid] proposition for anyone,” Valkonen said. “I haven’t heard any legitimate reasons why this should not become a part of our industry because it is increasing the pie and it is a benefit for all concerned.”

But Dell Furano, who’s in the merch business, isn’t sharing in that. In fact, DiscLive just may be infringing on his piece of the pie. Furano’s company often prepays artists nearly 100 percent of their merchandise royalties and relies on recouping that money at concerts.

“We’ve got to sell a white T-shirt for $35 that costs us $3.50,” he said. “The artist makes 50 percent, we make 8 percent. Anything that does not fit into that pricing model starts siphoning sales off.”

“How much money do you think these people have?” Phillips chimed in, adding he was pitched the DiscLive idea several times but didn’t buy into it.

“They can spend $25 on the record and $40 on that sweatshirt? No, they can’t. I think we sometimes think way outside of where the consumer is and how much money they have to spend.”

Everybody in the industry should work together to overcomes the many challenges they face (but don’t hold your breath). In the meantime, Phillips said players need to remember why they’re here.

“The ultimate value is the artist,” he said. “I don’t delude myself; nobody comes to the Staples Center because Phil Anschutz owns it. No one comes to a concert because Concerts West presents it. They’re coming because of the acts. And that’s really what it’s about. That’s where the power is, that’s what it’s going to come back to and it’s going to be very helpful for the business.”

- Back to Conference Schedule -