At the Credit Suisse Media and Telecom Week Conference the other day, records execs discussed profit margins, music publishing, and digital growth.
Amidst all the hoopla, the most interesting comment was made by Vivendi CFO, Jacques Espinasse, who said that “The erosion of physical sales…is more than compensated by (digital , and)…the long-term trend is rather encouraging for the entire industry.”
How can this be? We hear constant exhortations to the contrary from the RIAA and individual studio execs who insist that digital music is a threat to the very business model of the entire music industry.
Piracy issues aside, record companies seem altogether unhappy that record stores are falling faster than a line of dominoes, that the standard method of selling albums to customers in a brick and mortar store is long gone.
The fact that they fought tooth and nail before eventually agreeing to digital music sales on iTunes and others speaks volumes about their inclinations. They hate it and won’t admit it. In their mind iTunes is merely a delivery device, much like a walkman or a DVD player. They dislike the fact that somebody else is intruding on their turf, that somebody else is setting the prices for them and it drives them nuts.
The Vivendi CFO went on to say that more than 10% of its revenue is from digital sales, though failed to cite how much it makes from physical sales as a comparison.
As an interesting side note, Edgar Bronfman Jr, Warner Music Group chairman and CEO, said that “You will increasingly see advertising as a revenue source, especially where music helps brands connect with consumers.” I guess this means that we can expect see more ad-supported music videos like the one that Jay-Z did in combination with Coca-Cola for example.
What was seemingly lost in all this talk at the Conference was why the RIAA is seeking to lower the royalties it is required to pay to music publishers and songwriters.
If profits are stable, with diminished physical sales being counterbalanced by increasing digital music sales, then why the need for going after the “little guys” in the music biz? Music publishers and songwriters are the people who get no glory or press, quietly writing and producing the lyrics and melodies that make artists sound good on stage.
“The music industry has undergone such fundamental that it’s time for the government to step in,” the RIAA argues.
Apparently the RIAA doesn’t like the fact that royalty payments have been increasing as more music is being used in new and innovative ways, like ringtones for example.
“Mechanical royalties currently are out of whack with historical and international rates,” RIAA executive vp and general counsel Steven Marks said. “We hope the judges will restore the proper balance by reducing the rate and moving to a more flexible percentage rate structure so that record companies can continue to create the sound recordings that drive revenues for music publishers.”
Now what exactly “mechanical royalties” is I have no idea but, you can be certain they won’t give up until its changed. If they can get the WTO to do its bidding then certainly they can get a measly panel of copyright judges to do the same.
Both of these stories again remind me of the utter hypocrisy in how the RIAA conducts itself. It fights digital distribution with all its might, only to find itself so crippled from online piracy by users who demanded it that they eventually acquiesce years later. After they do give in they find out that there is in fact money to be made after all. Oops!
Then just when it starts to make real money with the new business model, they pressure Microsoft to give it a cut of each Zune player it sells, and promises tough negotiations with Apple when its current deal expires.
I just wonder if all this will kill the goose that laid the proverbial golden egg. After all, when it come to price free is free and pirates know this. Maybe it too expensive and they’ll never be customers.
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I cant wait for them to try and shut down iTunes only to have steve jobs turn around and sign up artists onto a apple label.
OMG that would be awesome……..and so super funny.