Entertainment & Entrepreneurship

Fortune Magazine covered the recent announcement that iTunes has crossed the 5 billion song download mark. "It took Apple (AAPL) nearly three years to sell its first billion songs (Feb 23, 2006), ten months to sell its second billion (Jan. 6, 2007), seven months to sell its third (July 31, 2007) five and a half to sell its fourth (Jan. 15, 2008), and five months to sell its fifth (June 19, 2008)." Moreover, the report states that 50,000 movies are purchased or rented daily. The apps store has been an even bigger hit, propelling sales of iPhones and the iPod Touch.

But Apple claims the iTunes store operates at just break even (though other reports suggest 10% to 30% margins, according to Fortune), including the movies and apps store.

Worse for the musician, the artists royalties for the less expensive digital albums reduce the price on which the artist's income is based.

So the artists need to take advantage of iTunes, Napster, and other online services while controlling more of their own marketing and revenue.  The elements for this new model are just appearing on the horizon.

First, there are the sell-thru services, CD Baby, Tunecore and ReverbNation. Each provides artists the ability to move their music directly through the major digital outlets. The pricing models all provide a greater return to artists than the artists would receive working with traditional record companies. But access to the audience is not nearly enough. Artists need the promotion and marketing services provided by record companies to the top of their roster.

The answer to the promotion may come from new tools in the semantic web. Google provides simple, word-based alerts, but those don't have predictive power. Instead, services from The Echo Nest, a music recommendation platform built to read the music and the music press like a musician. In addition Band Metrics builds a media analysis - social networks, blog, YouTube, and the related music press. Both these services fall into the vaguely defined (but critically important) semantic web.

The semantic model utilizes algorithms to "read" the web, including non-indexed information, develop predictive models and track interests. It is a powerful tool to develop behaviorial advertising and allow companies to know what you want to buy around the same time you do.

So it should come as no surprise that the next piece of the new music model is advertising-embedded music.

ReverbNation has jumped into these waters with its "Sponsored Songs" program, "a new online music distribution program that will give music fans access to unlimited free song downloads from 1,000 artists. Through this innovative pilot program, a passive advertisement is embedded alongside the album cover art that is seen by music fans when they play the song on their computer, portable device or phone. The advertising in Sponsored Songs travels with the fans wherever they enjoy their music - following them onto the subway, going with them to the gym, and showing up at the party - giving the advertiser frequent and regular brand exposure, and the fan free music."

Windows is the first advertiser to participate in this program. The 'free' music is at www.MySpace.com/Windows.

The advertiser-based song support makes good business sense for advertisers. Songs are a low-cost distribution tool for the advertising - far lower than television or motion picture product placement. The movement of music in peer-to-peer systems, social networks and on YouTube makes the advertising inherently viral and trackable. And the pricing can already be modeled on a per-copy basis. Music fans may not like the advertising-based music, but for now, at least, the ad-based music is just one option.

A robust music industry free of the traditional record labels needs some powerful marketing tools. The semantic web tools available to artists or independent labels will allow them to target the interested audience directly. Since the semantic web provides such a powerful tool for advertising, it is inevitable that as the semantic web tools improve, the advertisers will become increasingly interested in music as its delivery device.

So the new shape of the music industry is shaping up. Let's just be sure that the artists continue to be paid.

Posted by Jon M. Garon at 10:34 AM | Permalink | Comments (0) | TrackBacks (0)

Endgame Entertainment leader, Jim Stern, took the stage of the Indie financing panel during the LA Film Festival to remind filmmakers to pay attention to the business.

First he delivered the bad news:

"An astonishing 9,293 films were submitted to Sundance last year. Of those nearly 10,000, only 218 were screened. Of the lucky handful to get bought, so far only three have been released theatrically. It’s pretty obvious: Indies are in a world of hurt. When the financial crisis hit, any awards that independent films were winning suddenly were not enough to appease corporate paymasters, who in turn severely damaged labels like New Line, Warner Independent, Paramount Vantage, PictureHouse and so on.

"With fewer U.S. distributors, financiers were badly burned when the financial crisis turned global, and foreign markets no longer could be relied on to mitigate the risk of not having U.S. distribution. Those markets used to be the backstop of smaller films. But they started choosing to run their own affordable domestic movies instead of independent American films. And since those markets need big studio titles to drive ratings and ad revenues, what suffers is… the indie."

Worse, Stern explained that while $100 million films were up, comparing January to May 2008 to 2009, "the number of indies that grossed over $1 million dollars went from 16 to six. Less than half."

Then he gave some sage advice - lifted from Patrick Goldstein:

“The real problem with the indie business isn’t quality, but discipline. We have a generation of
filmmakers who feel entitled to make personal films and a generation of executives who’ve been
willing to essentially use specialty films as a loss-leader to launch their division or win awards. If
people in the indie world want to start making money again, they have to start treating their
investment like a truly precious natural resource, not like Monopoly money. Discipline is not
antithetical to art.”

Stern's Endgame advise is simple: Make smarter movies, with tight discipline and a focus on the specific target audience. Stay on budget. Don't compete for cast or effects. When Stern derides filmmakers who take financing and deliver different films or shoot over budget, his advice to work more professionally is well said. Independent film is more than a business. Those with the precious opportunity to make films should respect the opportunity to make successful films that open doors for new projects rather than treat the opportunities for self indulgence or vanity projects.

But knowing the audience is a much trickier task.  Filmmakers couldn't have predicted that Juno was a cross-over hit for adults, and it is highly likely the film would not have looked the same had demographers or statisticians predicted what should have appeared in a teen pregnancy film. Slumdog Millionaire is a highly unlikely success. And even A Chorus Line would never have been made if "follow the audience" was the mantra of Michael Bennet - as becomes clear from Stern's own moving documentary, Every Single Step.

Stern misses the point when he talks about the audience. Kurt Vonnegut's rule for writing is that the writer must write for a particular reader. Not an audience or a market, but a reader. He wrote for his sister. Filmmakers should do the same. Kevin Smith writes to make Jason Mewes laugh. More often than not, it works.

The same lesson should inform the casting. A-list talent will help sell an indie film, but it isn't necessary. On the other hand, writing characters so well that A-list talent will work for scale to play the parts sets a script apart from the rest.

With the financial crisis still in full bloom, the movies being made are more carefully selected than ever. Entitlement has toned down (for now). But actors are still searching for meaningful roles, writers continue to tell powerful stories, and the audience remains ready to be swept away. Directors just need to listen to the person on the other side of the silver screen.

And so it goes.

Posted by Jon M. Garon at 05:58 PM | Permalink | Comments (0) | TrackBacks (0)

For two tortuous years, The British-based Virgin Megastores remained the largest music-only based chain. But the sales of CDs have dropped by half since 2000, iTunes has grown to control 20% of the market, Amazon has taken 8% of the market while WalMart and Target continue to stuggle to maintain their market share. Tower Records demise in 2006 merely heralded the dramatic transformation of music sales. With the sale of the last New York and Los Angeles Virgin Megastores, the chain will leave the U.S. It still has over 100 stores worldwide.

Rollingstone does find a glimmer of a silver lining in the long lines outside the 14th Street store as people pick up deeply discounted discs for their collections. But this silver lining is thin indeed. The economic downturn has put pressure on music sales and live ticket sales. The industry's strategies to stop illegal downloading have failed. As CBS news pointed out, the top album in 2000 had a 3.6 million CD sales opening week. This year's Green Day achieved the goal with 600,000 units. ('N Sync's No Strings Attached sold 9.9 million in 2000; Lil Wayne's "Tha Carter III" sold 2.88 million in 2008 - the first time the top album was below 3 million, according to Billboard. Coldplay's  "Viva La Vida or Death and All His Friends" followed well behind at 2.15 million.)

Ringtones, video games and other music genres are replacing some of the revenue streams, but the shuttering of Virgin Megastores should not go unnoticed. Today may not be the day the music died, but we've lost a friend nonetheless.

Posted by Jon M. Garon at 08:23 AM | Permalink | Comments (0) | TrackBacks (0)

The Pew Internet & American Life Project provides an excellent array of surveys and empirical data of the development of online media and its societal influence. The Project has covered music, teen behavior, election fundraising, the digital divide, and a host of issues.

One of their more interesting projects comes out next week. On, Monday, June 15th, it will report "The State of Music Online: Ten Years After Napster."

From the Project release:

Posted by Jon M. Garon at 07:20 AM | Permalink | Comments (0) | TrackBacks (0)

One of my favorite business rules comes from an old scouting lesson:  A bear jumps out of the woods and begins chasing the campers. Everyone runs in fear. A boy shouts to one of the girls, "I'll never be able to outrun that bear." "Don't worry," she replies as she passes him, "You just have to outrun someone else."

Smart businesses know that to succeed they need to outrun at least some of the competition, but they do not necessarily need to outrun all of it. We see a reminder of this in the recent launch of both Microsoft's Bing.com search engine and Palm's new smartphone, the Pre. In both cases, analysts have focused on the new products ability to topple the industry leaders - Google and Apple, respectively. But this is the wrong question.


But in less than a week, Bing has moved to surpass Yahoo in search, giving Microsoft a healthy market share and a chance to compete with Google. The Palm Pre has caught the attention of a loyal Palm following, a large swatch of IT departments unwilling to go down the ultra-proprietary Apple path, and even Verizon which intimates it will have its own Pre device in coming months. For individual buyers, the Sprint-Pre package has been reported the best value of smartphone now on the market.

So sure, Google and Apple will retain their place atop the leader boards. But the twin assault on Google may make it refocus on its core business instead of investing in Android.

For Yahoo, Google's Android division (and perhaps even Blackberry), the bear may just be getting a bit closer.

And with the slate of new and different devices coming out of Computex, the Tiawan computer show, the race from the bear (economy- that is) may be more confusing than ever.

Posted by Jon M. Garon at 07:57 AM | Permalink | Comments (0) | TrackBacks (0)

Cher, the Rock Legend and heir to Sonny Bono's musical legacy, has sued Universal Music Group according to a report by The Hollywood Reporter. According to the California state lawsuit just filed, UMG has used the well known tricks of selling albums through its controlled subsidiaries to avoid royalty obligations to Cher and song producer Snuff Garrett. In addition to Cher and their music producer, Bono's second wife Mary Bono-Mack and Bono's children also have an interest in the royalties.

Of course, these tactics are nothing new for the music industry. But as Cher's attorney reportedly commented, "Universal is playing a game of catch-me-if-you-can with one of the most popular and iconic artists of all time."

Still, at a time when the music industry is under intense scrutiny for its anti-piracy efforts and hoping to reform itself into a less parasitic industry, lawsuits like this which highlight the extent to which the labels take advantage of their artists are particularly embarrassing. If the allegations are true, the UMG should go well beyond a mere accounting correction and think about a more representative business for its artists.

As a result, I expect the stakes may be much higher than other cases where "accounting irregularities" are identified by their victims.

Posted by Jon M. Garon at 09:54 AM | Permalink | Comments (1) | TrackBacks (0)

Led by Paul McCartney and Ringo Starr, E3 hosted a press conference for the September release of The Beatles: Rock Band. The game will be available for Playstation 3, X Box 360 and Wii, so everyone can get together and play the game.

The graphics range from stunning to strange as we experience the Beatles move from their 1964 Ed Sullivan barnstormer image to the psychedelic image of the '70s. Even more exciting may be the replica instruments, including brand name guitars and the logo-emblazoned drum kit.

The dedicated website explains it all:


Rock Band Beatles Trailer from E3 featuring Gameplay

The "game" may be less a platform for the current generation of gamer rather than a digitized re-imaging of history. With powerful graphics, games like this may become the next battleground on the "truth" of history. Academics might not view the history of The Beatles as the same as the Civil War, but all history is selective and written by the victors.

Playing with history may be taking on new meaning.

Posted by Jon M. Garon at 08:08 PM | Permalink | Comments (0) | TrackBacks (0)

Earlier this month, California asked the United States Supreme Court to hear a case concerning the constitutionality of its statutory prohibition to the sale or rental of violent games to minors.  At the district and federal court level, the case law has been uniformly against the position taken by Governor Schwarzenegger. In each case, the courts have found that video games are entitled to First Amendment protection and that the exceptions to the free speech rights of the video game producers (and their users) simply do not extend the concept of obscenity to obscenely violent games.

Of course, it was not all that long ago that the First Amendment was even applied to mere entertainment. (See,  Playing in the Virtual Arena: Avatars, Publicity and Identity Reconceptualized through Virtual Worlds and Computer Games, http://ssrn.com/abstract=1334950.) But as video games have become more realistic, the distinctions between games and other traditionally protected forms of speech - novels, music, photography and film - have dropped away, providing video games the same level of protection as other forms of entertainment.

To enable the cities, counties and states to regulate the video games, clever politicians drafted statutes that closely mirror obscenity laws in crafting anti-violent game laws. California's summary is typical:

California Civil Code sections 1746-1746.5 prohibit the sale of violent video games to minors under 18 where a reasonable person would find that the violent content appeals to a deviant or morbid interest of minors, is patently offensive to prevailing community standards as to what is suitable for minors, and causes the game as a whole to lack serious literary, artistic, political, or scientific value for minors.

As explained in California's brief before the Supreme Court, "[t]he respondent industry groups challenged this prohibition on its face as violating the Free Speech Clause of the First Amendment. The court of appeals affirmed the district court’s judgment permanently enjoining enforcement of the prohibition."

Similar statutes have been struck down in every case. Instead, the industry relies on voluntary labeling. As an alternative, voluntary labeling is little more than a political figleaf.  Voluntary labeling restrictions do little to discourage the purchase or rental of these games. Increasingly, the point of purchase for these products is through a computer download which gives parents little opportunity to review the content or discuss the appropriateness with their children.

So this returns us to the core question: should there be a legal standard for obscenely violent content, either for adults or for children? In my earlier article, Playing in the Virtual Arena, I made the following comment:

“[The Appellate Courts refuse] to label graphic content “obscene” to minors, finding that historically only sexual content can be deemed obscene. In doing so, the [courts reject] the attempt to make a new category of unprotected speech for violent content that is sold to minors, despite the lawful regulation of non-obscene sexually explicit content sold to minors and commercial advertising directed at minors. …

 

“While it is axiomatic that obscene materials (which have no constitutional protection for any reader) can be banned for children, the Supreme Court recognizes the state’s interest in protecting children from harmful speech that is beyond regulation for adults. While a modern court may demand a more substantial standard than that of Ginsberg, the interest in protecting minors from harmful content has not been repudiated.”

The simply phrased question presented to the Supreme Court is asking that this question be revisited. When California asks "Does the First Amendment bar a state from restricting the sale of violent video games to minors?" it is asking whether violence can ever be treated the same as obscenity.

As a frequent world traveler, I see media from across the globe. Many countries are much more comfortable with nudity and sex than we in the United States. Those same nations are shocked at the level of violence in our media.

I hope that the Supreme Court looks carefully at the question. I am distrustful of any government regulation of content and believe in a very expansive First Amendment. But the notion that violent content, no matter how repugnant is protected speech, while judicial panels can draw distinctions regarding levels of pornography simply makes no rational sense.

The question should be brought to the attention of the public. Certiorari should be granted and the debate engaged.

Posted by Jon M. Garon at 03:23 PM | Permalink | Comments (0) | TrackBacks (0)