T100 Music Industry Fundamentals

DCMEMUFNDI_C1001
T100: Media and Entertainment
Music Industry Fundamentals
Whats This Course All About?

Module 1: Fundamentals
Overview, Key Terms
of Music Industry
Module 2: Music Industry Landscape

Key Players, Industry Trends
Module 3: Foundations of Music Business

Contracts, Deals, Licenses & Royalties
Module 4: Processes & Technologies

How It Works, Key uses of Technology
Module- I
Fundamentals Of Music Industry
Laymans View of Music

Whats in a Song?
Song
Musical Notes
Lyrics/ Words
Performance
Roles: Common Parlance Roles: Industry Parlance Some Hidden Roles
Composer
Lyricist
Singer & Musicians Artist & Musicians Retailer Label
Songwriter Producer Manufacturer Distributor
The Music Industry
Understanding the Business

Music
&
constitute
Musical Work
becomes a
Sound Recording
Lyrics
when an Artist performs the musical work and records it on to a medium
Based on this, the Music Industry has two major lines of Business Recorded Music
The Popular face of Music Deals with the Sales, Marketing and Distribution of Recorded Music (CDs, DVDs, Digital etc) Deals primarily with Recording Artists Constitutes about 75% of industry revenues
Music Publishing
The Lesser known face of Music
Deals with the Acquisition and Exploitation of Music Rights (consisting of Lyrics & Music notes) Deals primarily with Songwriters Constitutes about 25% of industry revenues
Major Entities in the Music Business

Music Record Company (Label): Business concern specializing in record production, manufacturing and marketing Music Publisher: Person or company who takes responsibility to exploit, administer and protect the repertoires of musical works that they own or control, on behalf of others Artist: Recording entity (singer) who performs the song
Songwriter: Lyricist and/ or composer of a song

Producer: Person responsible for the supervision of the recording process including assuring artistic nuances and managing recording costs Artist and Repertoire (A&R): A department within the Record Company that finds
and develops new talent by auditioning demos, attending concerts of emerging artists, and then recommending the signing of contracts with artists that he/she believes have potential
Essential Terms in the Industry

Record: Any kind of delivery of music for consumer use, whether sound alone or supported by visuals Master: First-generation audio recording (usually done at a Recording Studio) of the performance of a song that is used to make copies during manufacture. The Owner of Master Recording may be the Producer, Artist or in most cases the Record Company License: A contracted agreement that allows the owner (Licensor) to retain all rights to his work while giving a third party ( the license holder/ Licensee) permission to use it Royalty: Payment made by a music company to performing artists, publishers, songwriters or their representatives in lieu of their rights over an intellectual property. It is essentially the division of sales proceeds between Record Company and Artist or Publisher (i.e. the Artists and Publishers share from monetization of a recording or song)
Overview: Business Flow of Music Industry
Contract
Sales Data A&R Determines Artist/ Publisher Share
Recording Artist
Payout
Payout Finance
Production [Recording Studio]
Packaging
Distributor
Contract
Manufacturing Music Company
Songwriter
Publisher
Sales & Marketing
Retail [Various Formats]
Main Process
Monies paid to Artist/ Songwriter (Royalties)
Departments
Overview: Business Flow of Music Industry

Songwriter/ Composer Publishing Artist A&R Production/ Recording Manufacturing Marketing & Promotion Distribution Consumer
The traditional process of income generation in the industry begins with the creation of an intangible music composition and ends in a tangible final product embodying that composition and delivered to the consumer Notes: Manufacturing: The record company enters into an agreement with a manufacturer or distributor who is given the right to manufacture and distribute the finished product in different formats: vinyl records, cassettes, compact discs and mini discs. The manufacturing is considered to be the least costly part of the process on a per unit basis, excluding the physical plant and equipment setup. Marketing and Distribution: Bringing the product to the final consumer and the necessary promotion and advertising required to sell the product. This is the most capital intensive phase of the business.
Understanding Industry Entities: The Artist

Performs (sings) a Track that becomes part of a Record The Artist may enter into a contract with: The record label, who would drive the necessary recording process (or) A Producer, who produces their own recordings and licenses them to the label for manufacturing and distribution. In this case artist may have to pay royalties to the producer depending on the contract terms
Artists have the potential to earn through: Royalties paid by record label Royalties paid by a film, TV, or video company to use the recording in a production Touring i.e. performing live at clubs, concert venues, and private events A percentage of proceeds from ticket sales or fees Merchandising i.e. from sales of merchandise at clubs, concert venues, etc A percentage of gross sales or net profits
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Understanding Industry Entities: The Producer

Responsible for the studio recording process including coordination of activities of songwriters, singers, recording engineers etc, ensuring the maximum creative output and managing the costs involved Producer Categories: Complete Producer: Handles music, engineering and administrative duties Artists Producer: Self-produced by Artist; relies on engineer for help Executive Producer: Money and control, oversees entire project Co-Producer: Shares musical, technical or administrative duties Producers have the potential to earn through: Royalties from Recordings, Label deals Talent scout activities Studio Rental Fees A flat free for the Production from the record label
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Understanding Industry Entities: The Songwriters

Songwriters may compose music, write lyrics or do both A songwriter may write only one song or a number of songs in a record Songwriters who sign exclusive writer's contract generally are paid a cash consideration called advance Songwriters may earn royalties in the following ways: Mechanical: Paid by a record company for use of a song by an Artist and its corresponding sales as records Performance: Paid by Radio, TV, Clubs, etc for playing the song Synchronization: Paid by a Film, TV, or Video production company to use a song along with moving pictures Print: Paid by a print publisher to obtain the right to print the music notation and lyrics for a song
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Understanding Industry Entities: The Publisher

Publishers represent Songwriters in several markets including Recorded Music, Television, Films etc
The basis for Publishing industry is Copyrights

The publisher, by authority of song-writing agreements, secures rights for administering the copyrights on behalf of the songwriters
Music publishing was originally about the manufacture and sale of sheet music, but now the sale of printed sheet music is a very small portion of the publishers income
There are various kinds of publishing companies: Full-Service Companies, Independent Publishers (One person shops), Recording Company Affiliates, Specialty Publishers, Artist/writer-Owned Companies, Concert Music Publishers and Print Publishers
13

Major Functions of the Publisher Acquisition of songs For most large music publishing companies, a tough competition exists in order to acquire new and valuable copyrights & it involves lot of expenses. Exploitation Selling and marketing the songs. Exploitation drives the entire business. The intention is to get a song on a record, or in a movie, or an advertisement. Administration Collecting split letters; registering the song with the US Copyright Office and the mechanical and performing rights , and giving licenses to those who want to use the music. Protection Protecting songs from sampling, illegal use or outright theft. Collection To collect and distribute income from record companies, performance societies, foreign sub-publishers, and film and television companies
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Departments at the Publisher Royalty Department:
To handle receipts and disbursements, accounting, data processing, insurance and purchasing
Copyright Department: To register claims of copyright and keep record of existing copyrights; Also to keep record of copyright ownership transfers Legal or Business Affairs: To negotiate the publishing contracts
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Understanding Industry Entities: Record Companies

Most major Record Companys are part of bigger corporate entities*
Conglomerate Holding Company
Other Non-music Division
Music Group
Music Publishing Group
Recorded Music Group
Record Labels
Record Manufacturing
Record Distribution
* An exception to this is WMG

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A major Record Company consists of several labels, both homegrown and acquired Labels A Major label handles all creative and business aspects of getting record made, marketed and distributed into the stores on a global basis A Subsidiary label operates as a self-contained company in the same way as a major, but it does not have ability to distribute An Independent label (Indies) does not have any affiliation with a major label. Indies have been responsible for introducing some of the most influential music in the last century: grunge, hip-hop, blues and rock.
Major Sony/ BMG Sample List of Labels Columbia, J, Jive, Arista, Epic, RCA, RCA Victor
Warner Music Group

EMI Universal Music Group
Asylum, Atlantic, Bad Boy, Cordless, Elektra, East West, Lava,

Capitol, Virgin, Angel DreamWorks, A&M, Geffen, Interscope, Verve
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The organizational structure of most record companies is as follows:
Record Company President/ CEO
Executive Vice President Legal Affairs Business Affairs
VP of A&R
VP of Promotion
Artist Product & Developmaent
VP of marketing
Publicity
New media
A & R Director
Director of Promotion Regional Promotional Directors
Regional Marketing Directors
Sales
Art Department
18

An artist ,on signing a contract with a major label, gets the following advantages: Advances Recording Promotion Distribution Tour Support The Independents Besides the majors, there are Independent Record Companies (called Indies) too which usually promote Music in niche categories. Indies records may distributed by independent or major US based distributors. For internationals sales, indies usually secure a licensing deal with a label outside the country. Some independents labels in the US include Downtown records, Alive Records, Birdman Records and Daptone Records
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Understanding Industry Entities: Record Company Divisions

The various divisions at any major Record Company consists of: People who find and nurture Artists& Repertoire new talent and who work creatively with the artists Responsible for Advertising, Marketing publicity, album-cover art work, promotional videos, instore displays, promotional merchandise etc. Compute royalties that are to be paid to artists and publishers based on the sales of products involving them Sales Division that is responsible for getting records into stores Keeps track and reports companys income and expenses and ensure compliance with all regulatory norms
finance
Royalties
Responsible for promotion getting the records played on the Radio and Television
Continued
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Understanding Industry Entities: Record Company Divisions

Product Management In charge of whipping up all the other departments (sales, marketing, promotion etc.) and getting them to work together to push records through out its product lifecycle In charge of delivering music electronically and exploring other evolving channels to distribute music Manufacturing, cover printing, assembling and shipping to the distributors Responsible for the companys contracts with artists, publishers, record clubs, foreign licensees etc
New Media
Production
Business Affairs/ Legal
international Co-ordinates and releases records around the world and oversees all the above functions in foreign countries
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Understanding Industry Entities: Distributors

Distributors are organizations involved in distributing product from the labels to the retailers or sub-distributors Distributors are organized for handling the costs and time of distribution of recordings. It can also overcome any financial risks in a better way, and has greater leverage in collecting from retailers and wholesalers. In simple terms distributors job is to make sure record stores dont run out of their product. They also try to get prime locations in the stores for their records. Difference between Licensees and Distributors Recordings are also distributed by licensees which sign a license agreement with a record company. These agreements allow the licensee to manufacture and distribute recordings, as opposed to buying and distributing goods manufactured by the record company.
22

Type of Distributors Multinational Distributor: The four multinationals UMG, Sony BMG, WEA(WMG) and EMI distribute their own records and those from their affiliates elsewhere as well as other independent labels. Independent Distributor: Not owned by a major multinational label. It distributes product for independent record companies and sometimes for a multinational if it seeks to supplement a certain market. Distributors supply records to the one or more of the retail distribution outlets: Mass Merchants Retail: Such as retail department stores like Wal-Mart, Target, Cosco etc Independent Stores/ Specialty Merchants Retail: Such as Music World Rack-jobbers (Also called sub-distributors): Act as a wholesaler for department stores and other outlets. They lease in-store space from Mass Retailers to sell music products. E.g.: They would own and manage music sales in Wal-Mart
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Music Distribution
Record Companies
Majors Independents
Distributors
Majors
Independents
Wholesalers
Wholesalers/rack jobbers
Retailers
Independent Retail stores
Major Retailers
Mail orders (Record clubs, etc)
All the four majors have their own distribution companies: UMG owns Universal Music Distribution, EMI owns EMI Music Distribution, WMG owns WEA, and Sony/BMG owns Sony/BMG Distribution.
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Understanding Industry Entities: Collection Societies

Collection societies evolved to negotiate and collect royalties on behalf of the copyright holders from various entities including TV stations, Radio stations, Clubs, Webcasters etc who use music for public performance (i.e. play it publicly or broadcast it) The first collecting societies emerged in Europe in the mid 19th century Major Functions of collection societies include: To issue licenses for specific works in which they hold copyrights To monitor the use of copyrightable material and collect revenues globally To distribute the revenue in the form of royalties to members of the society The Collection Societies retain a percentage of the collected royalties as fees Blanket licenses that permits use of all songs from the entire catalogue owned by the Collection society are issued to radio and TV stations.
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Record Companies Publishers Represented by Composers
Collection Societies
Negotiate and collect royalties Broadcasters
Major Collection Societies US: ASCAP and BMI UK: MCPS Germany: GEMA France: SACEM Japan: JASRAC
Note: Some collection societies may perform specialized functions such as collection of Performance Royalties alone. These may be called appropriately as Performance Rights Organizations (PRO).
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American Society of Composers, Authors and Publishers (ASCAP) (Non-profit organization) The society that lobbies licenses, collects and distributes fees, on behalf of 320,000 writers and publishers, to obtain the rights to public performance of their musical works which are copyrighted. Broadcast Music Inc. (BMI) (Non-profit organization) A licensing organization that lobbies licenses, collects and distributes royalty fees for the publicly performed works of its membership of 375,000 publishers,writers and international affiliate societies SESAC Inc (For-profit entity) A performing rights organization of 10,000 songwriters and publishers that licenses and gathers fees for the use of its members works SoundExchange (Non-profit organization) Independent, performance rights organization that are responsible for collection and distribution of digital performance royalties for featured recording artists and sound recording copyright owners (usually a record label) when their sound recordings are performed on digital cable and satellite television music, internet and satellite radio.
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Module- Ii
Music Industry landscape
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Music Industry: Key Characteristics

Quintessential Copyright-driven Content industry Recording (meaning reproduction and not live performance) is the chief revenue earner of the current industry
Highly fragmented value chain participants Made up of broader group of actors, that are highly independent Tightly interwoven and interdependent cluster of activities Complicated revenue streams based on a web of payments for individuals rights Largely contracts driven payments that includes a multitude of claimants Complex organizational structures including dozens of labels and independents The industry has seen a string of acquisitions and mergers since its inception
29
Music Industry: Key Characteristics

Highly Concentrated Industry Over 60% of all industry revenues is controlled by four major companies High Costs High Risk About 10% of the records released to world markets by major labels succeed to make profit while 30% reach breakeven and 60% lose money
High Sunk Costs

High Marketing Costs Low Reproduction Cost
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Recorded Music Industry: Revenues

Global Industry Revenue (2007) : US $35.6 Billion Expected CAGR (07-11) : 2.3 Projected IT Spend (US & Europe): US $1.2 Billion
41 40 39
40.4 39 37.6 36 35.4 36.4 35.6
38
37 36 35 34 33 32 2005 2006 2007 2008
2009
2010
2011
Revenues (in US$ Bn) Source: PwC
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Recorded Music Industry: Geographical Distribution
Other 6% Asia Pacific 28%
EMEA 36%
Geographical Distribution of Recorded Music Revenues (2007)
US 30%
Expected Growth Rate of Recorded Music across Geographies (07-011)

Source: PwC
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Recorded Music Industry: Digital Sales

Digital Music Revenues
2004 2005 2006 2007
US$ billions
0.4 1.1 2.1 2.9
% Total of industry
2 5 11 15
Digital Sales by Channel - 2007 Online Mobile Subscriptions 48% 47% 5%
Currently Digital sales contribute to more than 20% of the industry revenues (world markets)
South Korea was the first market where digital sales overtook physical sales. Over 60 per cent of the South Korean market is now made up by digital sales
33
Recorded Music Industry: Physical vs. Digital

Digital Physical
36 28.7 29.9
23.4
23.6
US
EMEA
-7.3
Asia Pacific
-9.2
Latin America
Canada
-7.3 -8.5
-13.2
Source: PwC
Expected Growth Rate of Physical Music Sales vs. Digital Music Sales across Geographies
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Distribution of Revenue from a CD
Note: The Artist commands a much smaller share than the Record Company, Retailer or Distributor
35
Revenue Allocation to Value Chain Entities
Notes: Profits from a Digital Product tend to be much higher than from a Physical product Profits from catalogue sales (i.e. of existing recording; different from a new release) tend to higher than from sale of new releases
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Music Publishing Industry

Estimated worldwide Music Publishing Market (in 2004): $3.6 Billion Top five publishers account for over 65% of the market
Independents 34%
Universal (including BMG publishing) 25% EMI Music Publishing 17%
Sony/ATV Music Publishing 8%
WMG (Warner/Chappe ll) 16%
Approximate Market Share of Music Publishers (2006)

Source: PwC
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Music Publishing Industry
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Music Industry in India
E Estimated F Forecast Source: PwC
Currently physical music sales contribute 92% of the industry revenue and non physical formats contribute the rest. Ringtones already contribute around 5% of industry revenues currently Revenues from Master Use Licenses contribute 2.5% of the total industry revenues
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Source: PwC
Indian music industry is quite unique compared to those in other countries as it is virtually dependent on new Film music for 40% of its revenues
40

Major Music Companies in India * Super Cassette Industries Saregama India Universal Music Sony-BMG Tips industries Venus Records and Tapes New Entrants * Yashraj Music Big Music Online Players * Soundbuzz India Times CrimsonBay
* Randomly ordered
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Music Industry Structure

Artists Production Distribution Retail
Online Online Television
| |
Songwriters Publishing Marketing

Live Concerts Broadcast
Physical
CD Sales
Radio
Streaming Downloads (Rhapsody) (iTunes)
Physical/ Digital Media
Discovery
Performance
Audience
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Music Industry History

Disc records which overtook cylinders in popularity in the second decade of the 20th century, was invented by Emile Berliner
1888 1889
Formations of a Music Industry dominated by sheet music sales

Early 19th century 1877
The New York Phonograph Company opened the first purposebuilt recording studios
1890 1894
The demand for recordings provides incentive for research and investment in the record business
1895 1900
Thomas Alva Edison invents the first (tinfoil cylinder) phonograph
The nickel jukebox that plays gramophone becomes popular
Pathe Freres started the world famous French company making phonographs and cylinders
Establishment of His Masters Voice (HMV) as a trademark in the infant music industry by E R Johnson
Continued
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Berliner and Johnson joined interests in the Victor Talking Machine Co.
1901 1904
The Victor Companys Victrola model gramophone appears for the first time for consumer homes
1906 1919
The record business was becoming seriously depressed by the growing popularity of radio
1923
1925
RCA buys the Victor Talking Machine Company

1928 1930
Invention of diode and triode makes electrical recording a possibility
United Artists formed by early film stars Charlie Chaplin, Douglas Fairbanks and Mary Pickford which eventually crosses into the record business by issuing movie soundtracks RCA is formed by GE and AT&T
Victor and Columbia introduces electrically recorded discs The Brunswick Label emerges as the most successful new independent label following the postWorld War I boom of new record labels
Invention of cassette tape cartridge The Brunswick Label is bought by motion picture company Warner Brothers
Continued
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The Electric and Musical Industries (EMI) is established after the merger of Columbia and the Gramophone Company. EMI opened its recording studios in London and began development on stereo recording
1931 1938
Continued
Capitol Records becomes the first major label based on the west coast
1942 1943
Film studio MGM launches its record division MGM Records

1946 1952
Epic Records launched as a CBS subsidiary for jazz and classical music
1953 1954
American Recording Company (ARC) bought by CBS network founder William Paley. The Columbia name is retained.
Vinyl discs introduced to replace the shellac disks
Cinerama presents multi sound track replay to the public for the first time
Companies begin to provide the equipment for stereo recording in major studios. Vast improvements in sound quality.
45

Pre-recorded Music cassettes are released. Simple to use, the cassette format was to become very popular.
1965 1963 1966
Paramount Pictures launches ABC Records

1955 1956
The Sony Company introduces the first pocket size transistor radio
1957
Chris Blackwell forms Island Records Scepter Records is also launched

1959 1958
Stereo LPs become available and new releases issued in both mono (monaural) and stereo (stereophonic) versions.
Jack Warner, a founder of the Warner Brothers motion picture company, launches Warner Brothers Records
Philips introduces the record - Reel-toreel tape and the 8 track audio cassette
Dr Ray Dolby introduces the Dolby Noise Reduction System which becomes a universal standard.
Continued
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Around eighty-five different manufacturers had sold over 2.4 million cassette players world wide and cassette business was worth about $150 million. By the end of the decade, the Philips compact cassette had become the standard format for tape recording.
1968 1970
First announcement of Compact Disc from Philips Industries

1978
1979
MTV (Music Television), a cable channel begins transmitting video clips. During the next few years, the music video became essential for the promotion of a recording and once established as a promotional tool it became an entertainment product in its own right.
1981 1982
CD is officially launched in the UK. It is hailed as "the most important development in the recorded music industry since the long playing record".
1983
WEA is formed under Warner Communications between the three labels Warner, Elektra and Atlantic to create a huge distribution operation
Sony introduces the Soundabout cassette player which was later renamed the Walkman
Michael Jacksons Thriller album released by the Columbia subsidiary Epic Records ultimately sold 40m copies world wide and becomes the most successful product in the history of recorded sound
Continued
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Digital Audio Tape The CD is firmly (DAT) that employs the cassette format to established as the record digitally but finest available music carrier for the using a smaller sized cassette is introduced present and by Sony in US foreseeable future
1984 1988 1989 1990
CDs become the most popular music format. MP3 is approved as the new medium of storage for computer audio files which approach CD quality
1992
Universal Music Group is formed by Seagram purchasing MCA. The first DVD (Digital Versatile Disc) product is showcased.
1996 1995
For the first time sales of CD are higher than vinyl and accounts for over 200 million units and the LP begins to disappear from record stores
Invention of Moving Picture Experts Group1, Layer-3 (MP3) that compresses digital audio files by 12 times
RealAudio successfully launches the first major streaming audio service Philips introduces its Compact Disc Interactive (CD-I) based on a CD-ROM (read only memory) technology to industrial users before marketing it as an entertainment system for all consumers Continued
48

Music piracy on the Internet, using the MP3 format, becomes a cult activity. Watermarks were introduced for music. The Digital Millennium Copyright bill is passed in US
1998 1999
Napster is shut down; the industrys first victory against piracy

2001
2003
Sony merges with BMG as the number of major labels shrink to four
2004
Apple reports that it had sold its billionth song on iTunes

2006 2005
EMI announces DRM-free tracks; others follow suit

2007
UMG becomes the world's leading music company by acquiring PolyGram Debut of the peer to peer file sharing network Napster
Apple launches iTunes and iPod Player thereby revolutionizing the music purchasing experience by offering 99 cent song downloads through the online music store
NY Attorney General Eliot Spitzer launches a crackdown on music industry payola. He successfully pressured two of the big four major labels to admit involvement in "pay for play" practices with radio stations.
Continued
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In the early 1950s the big five major record labels were Columbia, RCA Victor, Decca, Capitol and Mercury
By the end of the 1960s the top major labels were CBS, Warner Brothers, RCA Victor, Capitol-EMI, PolyGram and MCA
By the end of the 1970s the top major labels were CBS, EMI, Warner, PolyGram and MCA By the end of the 1980s the top major labels were Sony, Warner, PolyGram, BMG, EMI and MCA Currently the record majors include UMG, EMI, Sony, BMG and WMG
50
Music Industry Majors and Labels

The four major players contribute 65% of Publishing revenues, 75% of Recorded Music revenues and 85% of Distribution revenues
Universal Music Group

Geffen Records, Interscope Geffen A&M,Lost Highway Records, Uni Records ,Mercury Nashville, MCA Nashville, Motown Records, Universal Records , Island Def Jam Music Group, Uni Music South, Universal Music Classics Group, Verve Music Group, Universal Music Enterprises, Uni Music Latino
Sony BMG Entertainment

Arista Nashville, Burgundy Records ,Arista Records, Bluebird Jazz, BNA Records Label, Columbia Nashville, J Records , Epic Records, Jive Records, LaFace Records, Verity Records ,Legacy Recordings,Provident Label Group, Sony BMG U.S. Latin, Columbia Records ,RCA Records, RCA Records Label Nashville, Sony BMG Masterworks ,Sony Wonder, Winham Hill , RCA Victor,
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Music Industry Majors and Labels

EMI Group
Angel Records, Astralwerks, Blue Note Records ,Back Porch Records,Capitol Records, EMI Christian Music Group, EMI Gospel, EMI CMG Distribution, EMI Latin, Forefront Records, Higher Octave Music, Manhattan Records, Caroline Distribution ,Narada, Sparrow Records, Virgin Records
Warner Music Group (Organized into Label Groups)

Atlantic Records Group: Atlantic Records, Elektra Records, Badboy Records, Roadrunner Records ,Lava Records Independent Label Group: Asylum, Cordless Recordings, EastWest Rhino Entertainment: Rhino Records Rykodisc: Rykodisc Warner Brothers Records: Sire Records, Maverick Records, Nonesuch, Warner Bros. Records, WBR Nashville, Reprise Records Warner Music International: WMI Word Entertainment: Word Distribution,Word Music, Word Entertainment, Word Records
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Industry Bodies: Unions and Guilds

American Federation of Television and Radio Artists (AFTRA) 55,000 professional broadcasters and performers are represented by the Union by negotiating a contract and administrating of taped and live broadcast performances. American Federation of Musicians (AF of M) A union that represents, administers ,negotiates and protects contractual rights of its 190,000 professional members in the United States and Canada. American Guild of Musical Artists (AGMA) A labor union of 5,000 opera singers, ballet and modern dance companies. American Guild of Variety Artists (AGVA) A labor union that represents jugglers, comic, magician, variety acts, and nightclub singers. The Songwriters Guild of America A company that supports and protects its membership of 4,500 American songwriters.
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Industry Bodies: Harry Fox Agency

Harry Fox Agency (HFA) is a mechanical rights agency that represents music publishers to fulfill their needs of mechanical and digital licensing . Maximum percentage of the digital and mechanical benefits of music in the United States Of America on CDs are licensed by HFA, digital services, records and tapes. HFA provides various services to its affiliated publishers. Following are the services: Issues and collects mechanical licenses (includes CDs, ringtones, and Internet downloads) Distributes mechanical royalties, and synchronization fees for licenses given prior to 2002 Pursues piracy claims HFA does NOT: Issue synchronization licenses (since 2002) Administer performance rights Issue print rights Issue master use rights
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Industry Bodies: IFPI

Recording industry all over the world is represented by IFPI (International Federation of the Phonographic Industry) with around 1400 members in 73 nations and affiliated industry associations in 48 nations Location of IFPI's international Secretariat is London and is connected to regional offices in Brussels, Moscow ,Hong Kong and Miami. IFPI's Mission: Protect the rights of record producers Expand the commercial uses of recorded music Promote the value of recorded music Key Areas of Involvement Anti-piracy Enforcement, Technology, Licensing and E-Commerce, government lobbying and portraying at international organizations, Litigation and Public Relations, Legal strategies. Key Activities Co-ordinate international strategies in the important areas which are in focus Key source of market research and information
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Industry Bodies: RIAA

The Recording Industry Association of America (RIAA) acts as a trade group which portrays the U.S. recording industry i.e. mainly record companies that operate there RIAA members create, manufacture and/or distribute approximately 90% of all legitimate recordings of sound produced and sold in the United States RIAA Mission To foster a business and legal environment that promotes and supports members' innovative and financial vitality Key Activities Protect intellectual property rights in the whole world and the First Amendment rights of artists Certify platinum and gold albums and singles in the United States Perform research about the music industry Administer and review relevant rules, regulations and policies
56
Industry Bodies: RIAA

Sales Certification is an endorsement by RIAA (and thus the Music Industry) that a Music Album or Single has breached a certain number in terms of sales Earlier, Album or Single certification included only Physical Media In 2004, branch of certification was supplemented by RIAA for digital recordings, meaning recordings transferred to the recipient over a network (such as those sold via the iTunes Store) In 2006, digital ringtones were augmented to this branch of certification As of 2007, the criteria of certification for such recordings are as follows: Silver: 100,000 | Gold: 500,000 | Platinum: 1,000,000 | Multi-Platinum: 2,000,000 (recertified at each million-unit interval) | Diamond: 10,000,000 Video Long form certification: This release format includes live albums, compilation albums, "greatest hits" albums, and DVD releases. The certification criteria is as follows: Gold: 50,000 | Platinum: 100,000
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Industry Standards: ISRC

ISRC is the abbreviation for International Standard Recording Code Developed by International Organization for Standardization (ISO) to uniquely identify sound and music video recordings internationally It does NOT identify physical products or digitally distributed packages and that no conflict is there after the coexistence with the product catalogue numbering systems Unique Features of ISRC Each unique recording is to have its own unique ISRC The first owner or present owner of the rights to a recording normally allocates the ISRC, provided no ISRC is issued before. It identifies the recording throughout its entire lifetime and is generally used by producers of music videos (i.e. record labels) and sound recordings, as well as by copyright organizations, broadcasting organizations, libraries, licensees etc. If a recording is already been licensed or sold and is then released ,the ISRC remains the same. Continued
58
Industry Standards: ISRC

A single ISRC is used for each unchanged recording regardless of the format in which it is released. ISRC coding system is compatible with standards developed in the field of consumer electronics. The ISRC is increasingly used in electronic copyright management systems and Digital Rights Management systems.
ISRC FR - Z03 - 98 - 00212

ISRC
Code identifier
FR
Country Code (2 chars.) FR = France
Z03
Registrant Code (3 characters) Z03 = Mercury France
98
Year of Reference (2 digits) 98 = 1998
00212
Designation Code (5 digits)
Country Code: The country of residence of the registrant Registrant Code: Code for the entity assigning the Designation Code in an ISRC Year of Reference: Identifies the year in which the ISRC is allocated Designation Code: Sequential numbering of recordings in a calendar year
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Industry Standards: GRid

Developed by members of IFPI and the RIAA for the identification of electronic music Releases GRid (Global Release Identifier) provides an identification and description scheme for Releases which embody multiple Digital Resources
Release is acting as an abstract entity portraying a package of one or more Digital Resources compiled by an Issuer to distribute to individual consumers electronically Product acts as a Release manifestation, in the form available to consumers. Digital Resource is an expression s digital fixation of an abstract work, such as sound or audio-visual recording, photograph, software, graphic image or text
GRid Standard specifies the elements which help form the Reference Descriptive Metadata for a Release
Metadata Repository is system which meets the requirements of the International GRid Authority which is used for maintenance ,storage and access of Reference Descriptive Metadata
IFPI manages and administers the GRid Standard on behalf of global recording industry IFPI also identifies and assigns issuer codes to the parties assigning GRids to new releases and ensures their compliance with the standard Continued
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Industry Standards: GRid
Identifier Scheme: Distinguishes GRids from other identifiers. In GRid, A1 always acts as the identifier scheme element Issuer code: This is the unique code given to each Issuer of GRids by the Registration Agency. Release Number: Unique number given by the Issuer to each release which they control. The Issuer is responsible for ensuring that each release number element that they use is distinct within their own Issuer code. Check Character: An algorithm is used to find the Check Character in accordance with the relationship i.e mathematical which exists with the other alphanumeric characters contained in it.
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Industry Standards: DDEX

The Digital Data Exchange, LLC (DDEX) was initiated by a consortium of 11 companies to maintain and develop a strong & compact framework of communication standards to support the digital distribution of digital content Current members include Record Companies (EMI Music, Sony BMG Music Entertainment, Universal Music Group ,Warner Music Group), Rights Societies (ASCAP, The Harry Fox Agency, MCPS-PRS Alliance, SGAE, SACEM) and Digital/ Mobile Sales Providers (AOL, Apple, Microsoft and Real Networks). Key Drivers for DDEX Companies involved in the business for providing digital music already exchange significant amounts of data Detailed info on Releases and offerings on sale from Music Company to partners Reporting back of sales from Partners to Music Company However, the number of organizations participating, the number of services available to consumers and the volume of transactions to be administered are on the rise
Continued
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Currently the data exchange between partners which are individual is done mainly using many proprietary solutions The industry needs to adopt standards in order to simplify important business processes in the larger course. DDEX has issued the following key standards Main Standards Electronic Release Notification Message Suite: Series of computer readable messages that enables sending of metadata about releases to music digital service providers Digital Sales Report Message Suite: Series of computer readable messages that enables sending of music sales metadata Supporting Standards DDEX Data Dictionary: Contains all the terms used in the messages and their definitions
Continued
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DDEX Party ID: This is a unique alpha-numeric string that will be allocated to any organization wishing to exchange messages using the DDEX message standards that enables other DDEX message standard users to uniquely identify the sender and received of the messages Key Advantages Lesser time to Market Operational Quality and Efficiency is increased in value Enhanced Data Quality Transaction management costs are minimized Communication costs are minimized System Development/ Maintenance costs are minimized
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Industry Trends & Priorities

Influencing Trends Priorities
Decline in physical sales of recorded music is a global trend (decreased by approx 9% inn 2006) The increase in digital sales has not been able to compensate for these losses Specialty music retailers (stores which exclusively sell only music) are depleting; and therefore the outlets for physical music sales is correspondingly decreasing Fuelled by increased broadband adoption and expansion of wireless networks, digital distribution is on the rise (expected to grow at a CAGR of 26% globally by 2011) Single track downloads continue to be the biggest chunk of digital sales; introduction of new services, bundled sales etc are gaining significance to address this trend
Continued
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Enhancing Digital Distribution Opportunities

This is causing an increasing dependence on leading online retailers (E.g. Apple) and mass in-store retailers (E.g.: Wal-Mart), who are in a better bargaining position than the music industry itself In 2006, the industry suffered a loss of approx. US$4.5 billion in physical piracy and loss on sales of over 20 billion songs in terms of digital piracy Proliferation of internet, lowering costs of technology (duplicators) and emergence of portable platforms such as MP3 players and mobile phones accelerate this trend Most Digital Rights Management software have failed to protect assets effectively
Enhancing Digital Distribution Opportunities
Addressing the Piracy Problem
Continued
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Multiple emerging platforms to consider and address in short term E.g.: Wireless Devices With each emerging platform, complexities such as pricing, revenue sharing with retailer, royalties payouts, effective enforcement of digital protection, portability etc have to be addressed For a music major, on boarding of partners is a very frequent activity since unique entities have evolved along the digital distribution space that have to be tapped as potential sales channels via partnerships On average currently music companies deal with 500+ Digital or Mobile Sales Providers
Continued
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Capitalizing on emerging platforms

Lowered barriers to entry are promoting the entry of a larger number of artists, releases and even e-Labels (i.e. online-only labels) Improved competition from independent labels that are getting better visibility through the reach of the internet Upward pressure on marketing costs to differentiate and get visibility in an over-crowded market place, is creating downward pressure on pricing and margins The industry had not been very successful in identifying and tapping into new sources of revenue besides music sales (for e.g.: Merchandising) Music Companies are increasingly signing on artists on 360-degree deals that intends to exploit all aspects of their music and public persona to generate revenues
Managing in Increased competition and crowded markets
Tapping new Sources of Revenue

Continued
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A current release involves 200+ products being released simultaneously 80% of the products created for a new release are digital. This includes ringtones, wallpapers, online download tracks, music videos etc Music companies may soon venture beyond music and related content to explore new revenue streams such as licensing of long form videos (such as movies) Costs of talent acquisition, artist development and marketing keep rising
Tapping New Sources of Revenue
Focus on driving efficiency into processes (through initiatives in process and technology outsourcing) to address increasing pressures on operating margins
Controlling spiraling costs
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Module- IIi
Foundations of music Business
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Foundations of Music Business

Contracts/ Deals Royalties
Contract
Sales Data A&R Determines Artist/ Publisher Share
Recording Artist
Payout
Payout Finance
Production [Recording Studio]
Packaging
Distributor
Contract
Songwriter
Publisher
Sales & Marketing
Licensing
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Understanding Copyrights
Copyrights provide the Legal and Commercial foundations for the Music Industry Unlike patents, basically the copyright is not issued but simply avered by the author or publisher The songwriter owns his or her copyright upon physical creation of the song According to U.S copyright law, some special rights are given to owners in their copyrighted content, which include: Work reproduction work performance in front of public Distribution of the works copies Create a work which is derived from the other work. Display the work publicly Copyrights protection is not same across the world and depends on legislation in each territory
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Understanding Copyrights
The core Copyright industries in USA contribute $260 billion to the economy and has by now bred over $60 billion in foreign exchange earning
Validity of Copyright Protection in US Works created as works made for hire lasts for 120 years from creation or 95 years from first publication , whichever comes to end first Works that are not created as works made for hire ends at 70 years plus the life of the author After copyright expiration, the work goes into public domain and reproduction is free
Copyrights on Music is as follows: Musical Work: Rights are with Songwriter (50% with Lyricist and 50% with Composer, unless stated otherwise) It may issued to a Publisher who has a contract with the Songwriter Sound Recording: Rights are with Artist, Music Company or Producer depending on contract
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Music Law: DRPA

Until 1995, the inclusion of any right in public performances of sound recordings was not there in the sound recording copyright. While the basic requirement of public performance of a sound recording is a license from the owner of the musical composition, permission was not required from the copyright holder in the sound recording itself. However, the origin of new methods of delivery of digital music made sound recording copyright holders to worry that the knack of creating perfect music copies and the ease with which those copies could be distributed would destroy revenues from record sales. Because of this, in 1995 the Digital Performance Right in Sound Recordings Act (DPRA) was decreed. The law expanded the scope of copyright protection incurred to sound recordings by the inclusion of a fresh right for open public performances of sound recordings by digital audio transmission. The new public performance right applied only to subscription services and interactive services and precisely let off broadcasting and related transmissions.
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Music Law: DMCA

The Digital Millennium Copyright Act (DMCA) is a US copyright law which incorporates two pacts of the World Intellectual Property Organization (WIPO) (pacts declared in 1996). The law criminalizes the following and heightens the penalties for copyright violation on the Internet: Production and diffusion of devices, technology, or services intended to circumvent DRM measures that control access to copyrighted works and The act of encompassing an access control, whether or not there exists a real copyright infringement. The DMCA exempts internet service providers and other intermediaries from direct and indirect liability. The law was passed by a common vote in the U.S. Senate on Oct 12, 1998 and signed into law by President Bill Clinton. On May 22, 2001, EU Copyright Directive or EUCD was passed by the European Union(EU) , which specifies some of the same issues as the DMCA.
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Understanding Rights: Licensing of Musical Works

Mechanical License Gives the rights for reproducing and distributing copyrighted musical works onto any medium (i.e. records, CD , certain digital configurations and tapes) Issued by a Mechanical Rights Agency or a Publisher who represents the songwriter(s) Synchronization License Gives the right to employ the musical work in a movie or an advertisement i.e. permission to synchronize it with motion picture Issued by a Publisher or Collection Societies Print License Grants the license to print and distribute sheet music of musical works Performance License Type 1: Grants the privilege for publicly performing a musical work as in a club, TV, Radio etc
Issued by a Performance Rights Organization representing the publisher or songwriter. This may be a Blanket License (to play a portfolio of songs for a fee).
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Understanding Rights: Licensing of Sound Recordings

Type 2: Gives the right to perform a sound recording in the public through certain digital transmissions
Issued by SoundExchange (in US)
Master Use License Gives the right to distribute and reproduce copyrighted sound recordings material onto any medium (i.e. CDs, records, tapes, and certain digital configurations) or any other uses of it (including synchronization) Obtained from the owner of the master recording, mostly a record company For specific exploitations of a sound recording, licenses from multiple copyright owners (such as owner of musical work, owner of sound recording etc) may be required For E.g.: To use a recording in a motion picture, rights will have to be obtained as follows: Sync Permission through the issue of a Master License of the Recording Synchronization license from Songwriter for usage of musical works that are part of the recording
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Understanding Rights: Licensing Sample Scenarios

Area of Music Use Phonorecord sold for private use Environmental music (e.g. Muzak) Public broadcasting station Jukebox Cable TV Commercial broadcast of non-dramatic music Non-broadcast performance of non-dramatic music Broadcast Commercial Merchandizing Tie-ins, Computer software applications etc Music video production used for broadcaster cable TV Movie, music video other video software sold or rented to individuals for home use Motions picture for theatrical exhibition Dramatic-musical production (Performed live e.g.: Opera) Type of License Required Mechanical License Performance License Performance License Performance License Performance License Performance License Performance License Synchronization License Synchronization License Synchronization License and Performance License Synchronization License that includes License to mechanically reproduce copies for sale Synchronization License that includes a right to exhibit Dramatic right
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Understanding Royalties: Types of Royalty

Artist Royalty
Paid to the recording artist Based on the concept of business partnership Usually the cost of recording is borne by Artist The music company pays for manufacturing, distribution and promotion Complexities Multiple artists for a single song Multiple rates for the same artist
Publisher Royalty
Paid to the Publisher or Songwriter The various ways by which publisher royalty is paid are: Statutory (Stat) Rate: As decided by the US Congress Negotiated Rate: Negotiated and tied to Stat Rate (as a %) Fixed/ Contracted Rate: Negotiated rate NOT tied to Stat Rate Complexities: More than one songwriter for a song Differing ownership percentages
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Understanding Royalties: Sources of Royalty

Mechanical Royalties (Artist & Publisher) Paid for the records sold against the exclusive right to reproduce and distribute copyrighted works. This includes all music sold on as CDs, DVDs, Tapes, Internet downloads etc. Paid for the exclusive right to perform copyrighted works publicly. This includes TV, Radio, Clubs and certain digital transmissions etc Paid for the use of a song used as background music. This may include its use in a Movie, TV show, Advertisement etc Paid to song writers for sales of sheet music against the exclusive right to distribute
Performance Royalties (Artist & Publisher)
Synchronization Royalties (Artist & Publisher)
Print Royalties (Publisher)
Note: To exploit each of these opportunities, separate licenses are required for each song
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Music industry Revenue Streams

Payment of Royalties constitute the chief revenue for all downstream entities (artist, publisher etc) in the Music Industry
Artists Royalties Share

Advances & Royalties
Record Companies
Distributors
Retailers
Income from Sales
Producers
Royalties Share
Mechanical Royalties Consumers Performance, Synchronization and Print Royalties

Broadcast Companies, Concert Promoters, Clubs, Publishers, Film Producers etc.
Songwriters
Royalties
Publishers
Royalties
Collection Societies and PROs
Income from Sales
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Music Industry Revenue Streams

Creation Music Companies/Agencies
Contract Performance Royalty
Distribution
Right to exploit music work through a contract
Publisher Copyright Owner Songwriter Composer Text writer Translator

Print Royalties & other Collected royalties Royalties
Collection Societies Performance rights Synch rights
A&R Sheet Music Copyright mgmt.
Concerts Live Performance

Performance Royalty
Performance/Synch Royalties Mechanical License Mechanical Royalty
Clubs/Discos
Performance Royalty
Holds a contract
Record Company
AF of M Media Press TV Video Radio Internet
Artists
Master Recording
Singers Musicians
% of performers Royalty A&R Artist Management Manufacturing Promotion and Marketing Packaging Marketing Promotion Manufactured recordings Distribution Licensing
Producer Studios Equipment Engineers Remixers
Record Royalties
Distributor
Recordings
Retail Sales
Sales profit Sales profit
Monetary Flow Deals
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Consumer
Contracts and Deals

5
1
Grants copyright to exploit his/ her work (s) for commercial returns
6 TV/Radio
Song writer
Publisher
2b
Harry Fox (US)

Issues mechanical licenses and collects royalties on behalf of publishers
PRO
Contracts with the music company for production, distribution and sales of a song
2a
Issues performance Station licenses and collects royalties on behalf of publishers
Artist
Music Company
Licensee
Specifies the rates applicable and specific terms for royalties on Licensee payouts etc
Agreement with a third party (usually foreign sales) to produce, distribute and sell company products in specific territories
Note 1: PRO is Performing Rights Organization. A form of Collection Societies | Note: 2 can be either 2a or 2b
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Contracts and Deals

Music Industry is governed mainly by the following contracts: I. Recording Company Contracts Recording Contract Recording artists royalties are paid for recording music under a work for hire recording contract. This contract transfers the copyright of the recording from artist to the recording company. Publishing Contract The recording company pays royalty to the composer and song writer in order to acquire the mechanical right to reproduce the composition. Distribution Deals The label contracts with the distributor for the distribution of records II. Publishing Company Contracts Publisher-Songwriter Contract The publisher acquires the right to exploit the music work through various channels (Mechanical, Performance, Synch, Print)
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Recording Company Contracts: Artist Deals

Some terms of contract Term How long the label keeps the artist under an exclusive agreement is the Term of the deal Free Goods To promote sales, 5-10% of the records are usually given free to the stores. Free goods do not bear royalties, as they are actually cost to the record company Promotion Copies Records distributed for promotion such as radio-station copies that do not bear royalties. Advances Advance is a type of credit provided to the artist in the form of advance payment that is recoverable from their royalty. All-in Royalties Implies artist is responsible, out of his/her royalty, for paying the producer
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Recording Company Contract: Artist Deals

Cross Collateralization A term in the agreement between artist and the label, through which the label can recoup the advances paid to artist across all albums recorded by the artist with the company Escalations The augment in royalty percentage based on no of records sold. Escalations apply only to full-priced retail sales. 360 degree deals Where Record companies become artists partner not only in records, but also in touring, merchandising, publishing, content licensing, sponsorships, DVD and broadcast rights, and fan club revenues Options A label may commit to record one album of an artist. It has the option to require an additional four or five albums, at the companys election. The committed albums are called firm albums, others are option albums.
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Recording Company Contracts: Artist Deals

Specifics of Advances (Recoupable costs): If the artist does not sell any records, the music company will never be able to recoup the advances and hence they are deemed non-returnable Recoupable costs
Advances: Payment to Artist Tour Support: travel, food, stay, crew expenses Video Costs: video production costs Indie Radio promo: professional who get radio air play Indie Publicists: professional who get media coverage
Non- Recoupable costs

Cost of doing business: phone, electricity, office rents etc.. Manufacturing of CDs Mechanical Royalties: payment to songwriters/publishers Salaries: staff who sells records Web sites: development, design, maintenance Mailings: promotions to press etc. In-store promotion: posters etc. Consumer Advertisements: Magazine ads
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Recording Company Contracts: Publisher Deals

Some terms of contract Type of Mechanical License Limited Quantity licensing: Limit on the no of times the musical work is reproduced Digital Licensing: Licensing for various digital formats (Digital Phonorecord Delivery (DPD's), limited use digital downloads, on-demand streaming, etc.) Advance against Royalties Payment made in advance that would be reimbursed from the Royalties Reduced rate The label may pay a reduced royalty rate on record club sales, budget sales etc. First use The first recording of a musical work. The compulsory license that is required for reproduction of a copyrighted work does not apply to first use. Once recorded and authorized by the copyright owner, the license can be issued.
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Recording Company Contracts: Distributor Deals

Distribution Deal Types Pressing and Distribution (P&D) Agreements: Distributor agrees to create records for a production firm or an independent label and to distribute them as a wholesaler. The distribution fee ranges from 18% - 25% of gross billings. Under a P&D agreement, the label or the production company usually pays the costs of manufacturing and mechanical artist royalties. License Agreements: A license agreement occurs mostly between a production company or an independent label and a domestic-based or distributor or foreign record company.
The distributor gets advance and royalties.

Typical royalty is 14% - 18%. The term is usually for 3-5 years.
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Publisher-Songwriter Contracts
Because of the difficulties of publishing a song, many unknown writers have contracts to write exclusively for one publishing company. The contract will have a detailed description of a financial (royalty) agreement. Under exclusive writer's contracts, payments are commonly termed advances and are recouped from royalties which would otherwise be paid to the writer. If a songwriter has collaborated with another songwriter, the royalties will be split
per an agreement between the songwriters. If there is no agreement, the industry

and the courts have placed an equal value on the music and the lyrics. There are two types of advances: Specific: these are recouped from the royalties of specific works.
General: these are recouped from the royalties of an entire catalog.
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Publisher-Songwriter Contracts
Publisher - Songwriter Deal Types Full-Publishing Agreement
Appropriate for small and not so well established writers

Publisher usually would not get more than 50% Co-Publishing Agreement Writer receives additional amount as co-publishers share
The co-publishers share is usually 25%

Experienced writers insist on co-publishing agreement Administration Agreement Writer does not grant the copyrights to publisher and continues to own it Employs the publisher to administer the licenses and collect money Usually done only with established and successful writers
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Module- IV
Processes & Technologies
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Music Industry: Business Process Map

The key activities in the Music industry can be classified under three different phases: Prerelease This phase includes all those activities which are involved with the initiation and creation of a new release This is a Product Creation/ Production focused phase Release This phase includes all those activities which are involved with managing a new release This is a Business Operations focused phase Post-release This phase includes all those activities including business support process that become significant once the product reaches the market This is also a Business Operations focused phase
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Music Industry: Business Process Map
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Prerelease Processes
Artist Setup and Management It involves the signing up of an artist i.e. establishing a contract and initiating all artist service related setups within the Music company. Artist services include primarily Contracts Management, Career Development (including development of products), Event Scheduling (Calendar Planning) and Royalties setup. Inefficient Artist Services is a good reason to be the sore point of contention and reason for Artists abandoning their original Music companies. Project Management A project may be defined as a budgeted piece of task performed by a specific Artist working with certain Producers and Engineers. Each release is defined as a project and budgets and workflows are setup accordingly to conclude the same. Closely tracking and managing such projects is critical since the bottom-line of the company will be significantly affected due to this.
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Clearances Management Clearance is a permission granted to use copyright-protected material for monetization purposes. Clearances Management is the process of owning or acquiring rights and approvals to exploit and market product manifestations of the same. Clearances should be acquired from both Publishers and Artists (for recordings which they own). Product Definition The Product Definition process determines the tracks that go into a particular release and all other aspects of it such as identifying key stakeholders, designing the CD layout, determining the contents of the Digital Package etc Products in Music industry terms is divided into two categories: i. Finished Goods: End products E.g.: Music CD; constituted of multiple components.
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Components: Part of finished goods; Classified into two types: Printable Components: All printed material such as Inlay Cards, Stickers etc Non-Printable Components: Includes all other manufactured components such as CDs, Jewel (CD) Cases etc There are basically five owners to be identified for every Product Definition and Release. They are: Artist: who will perform the song Repertoire Owner: who owns the recording rights Marketing Owner: who will market and sell the product Distributor: who will distribute the product in various territories Publisher: who owns the song rights As mentioned earlier, present day music releases often result in the simultaneous release of over 400 products to the market. Over 80% of these may be in the digital form. ii.
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Digital Content Production and Management The Content Production Process in the Music industry as in many other related Media industries is largely digital. This process involves the submission of master assets, management of the same and all its manifestations in the form of audio, video, ring tones and graphics content and quality assurance of the same. Audio Master Content is registered and encoded into all required file formats before making it ready for inclusion into product releases. This process also involves the application of audio watermarking to registered assets to track its usage in networks over time. Purchases/ Physical Production Purchase Orders are placed by Music Companies for Components and Products Present day companies may often outsource the actual production and printing of physical products (CDs, labels etc) to other external vendors.
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The Purchases process involves vendor management that realizes the basic step of manufacturing the physical goods as per expectations and shipping it to warehouses owned by the Music company. A single vendor (usually the one manufacturing and pressing the CD) may coordinate the shipments from component manufacturers to include all parts that will be part of the final product. Pricing Pricing process determines the price of every good that the company sells. Price of any Product on any Sales Order is based on Price Lists mainly derived based on Customer, Product and Effective Date of Price Charges (for Freight, Packing, Services etc) and promotions affect the final price of a product Services are actions or processing that must occur for an order in the warehouse. For example, affixing special stickers onto the products for a particular retailer. These deem extra charges beyond the regular price.
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Release Processes
Inventory Management Inventory is essentially the stock of goods (Products or Components) that are for sale Inventory Management process deals with the workflows and procedures which manage and track inventory and all its related costs Warehouses hold inventory that comes in from the manufacturer before being disposed to customers as per orders Inventory gets updated in the following scenarios: Purchase Order fulfilled as manufacturer delivers goods Sales Order shipped to customers or trading partners Transfer of Stocks from one warehouse to another
New Releases Scheduling The New Release Scheduling process involves the creation, search and maintenance of new release schedules.
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Release Processes
The date on which a product should be released into the market is called its Street Date. Releasing a product means making the product available for shipping and delivery. Physical and digital items are scheduled for release based on the territory/ cluster to which the product release has to occur. Release for a particular product can be uniform across territories or staggered. For e.g.: A US release may occur prior to an India release Digital Packaging and Delivery The Digital Packaging and Delivery process consists of three steps: Picking Packaging and Shipping Digital Pick phase involves picking schedules of New Releases and generating a manifest, which holds details of products across various customer accounts.
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Release Processes
A digital Bill-of-Material (dBOM) completes the configuration and verification of a release to make it ready for packaging. The Packaging phase prepares a product for the shipment process by validating and confirming all requisite business rules. A package contains an XML file with metadata and references to all digital assets, cover art graphic files and audio or video encoded assets. In Shipping phase, the digital content is provisioned to specific DSPs utilizing various transport technologies. Promotions and Advertising This process entails all activities surrounding the Promotions and Advertising initiatives at the Music Company. This process involves campaign planning, cooperative advertising, email campaigning, and promotions via free goods distribution Marketing Budgets are set of each project and activities are planned and undertaken to maximize sale of releases.
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Release Processes
Cooperative Advertising translates to specific activities undertaken at a
particular territory by specific retailers for which the Music Company shares the costs.
Cooperative Advertising includes organizing in-store promotions, highlighted

product placements, issuing of Print coupons via local newspapers, CD signing by an Artist at a store etc.
Physical Sales Management This process includes all the tasks involved in the fulfillment and processing of a sales order for physical products A Sales Order is an order from a customer for finished goods. The following are its types:
Shipment Orders: shipped to customers from warehouse Direct-ship Orders: shipped directly from the manufacturing plant Promotional Orders: shipped to customers, artists or employees at no cost
Prepack Orders: Orders from customers requesting for single products consisting of multiple finished goods
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Release Processes
Managing the Return of finished goods from customers is also a significant part of the Physical Sales Management process Digital Sales Management This process entails the monthly/weekly processing of sales data from Digital Sales Providers (DSP) and Mobile Sales Providers (MSP) Digital Sales Providers include players such as iTunes who provide online music sales and Mobile Sales Providers include players such as Digiplug who provide music sales via Mobile networks The processed data is included into downstream processes such as General Ledger entries, AR Invoices and Royalties.
Invoice Management Invoice is a legal document specifying an asset in relation to a customer or a debt in relation to a vendor due to a "forward" business transaction.
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Release Processes
Invoices are generated by a Music Company for Shipment orders and for Return orders. Pre-Condition for Invoicing Process is completion of Shipment Confirmations files received from Warehouses. An invoice to a customer is posted as an asset in the Accounts Receivable A music company also receives invoices from vendors. This is posted as a debt in the Accounts Payable.
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Post release Processes

Account Management A Music company maintains accounts of its customers for several reasons including appropriate pricing of orders Digital Sales Providers (DSP) are the primary customers for the Music Company. Customer Accounts are usually maintained as Sell-To customers and Bill-To customers. The Sell-To determines the address to which the orders are to be shipped whereas the Bill-To determines the address to which the order will be billed. A Bill-To customer can be associated with multiple Sell-To customers. Sales Reporting Sales for a Music Company occur through DSPs, MSPs and various affiliates across the globe.
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The Sales Reporting process involves ways in which Sales data from all over the world is processed, analyzed and used for and critical decision making The Sales Reporting and processing serves as the primary input for Sales Forecasting, Demand Inventory Management and Consumer Analysis Detailed sales information is used for generating financial results, as well as calculating the royalty payments to artists Demand data is used to predict the market demand for the companys products Royalties Management Royalty is a payment made by the record distribution company to the artist(s), publishers(s) and their representatives in lieu of their IP rights over a song or services rendered for a recording. The Royalties Management process involves royalty accounting and payout for both artist and publisher royalties. This is one of the most critical and complex processes at a Music company Details on this process have been covered in Module III. Please refer.
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Library and Asset Management This process includes all asset management initiatives at the Music Company Before the advent of digital, sound and video recordings were made on tapes. These tapes serve as masters even today. All such masters are stored in tape libraries located at multiple locations. Assets like artwork, documents, graphic posters etc that dont have a master may also stored in the warehouse. The Art and Publicity department may use a digital asset management system and establish relevant workflows for managing their digital assets such as photos, graphics, CD layouts etc. Content Management systems may be deployed to manage company websites Finance These processes essentially record, track and report each and every business transaction and thus interacts with almost every other process These processes are critical from a compliance and Regulatory point of view
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Technology Focus in this Course

Technology Touch points across Processes Production Technologies Production Process and related Technologies Audio Formats Digital Distribution Technologies Digital Distribution Models and Technologies Peer-To-Peer Distribution and Piracy Digital Rights Management (DRM) in Music Consumer Technologies
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Technology Touch Points in Business Processes

Pressing Plastics
Mass production
Analogue recording
Finding Artists & Songs

Listening to existing collection Auditions Monitoring Consumers Finding new songs Financing the deals Acquiring License Matching producers & artists
Vinyl Cassette Tape

Pressing
Marketing & Promotion

Tape technology Encryption DRM Fan Clubs/websites Radio airplay Internet Radio Broadcast
Compact Disc
Live Performance Video Production Encryption & Compression TV broadcast Recording
Mini Disc
Technology in Music Industry

Royalties Collection and Distribution Rights administration & management Copyright Licensing Print/Publishing Technologies Broadcasting Mastering Sound Engineering Mixing Recording Writing & Composing Encryption and streaming Logistics Distribution management systems Product management
Printing
Art work & copyright
Playing Devices
Publishing
Master recording Production
Disseminating Records
Packaging
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Music Production Process
Musical Work
Musical Work is the song to be produced. The producer decides the parts to be recorded, the instruments to be used in the arrangement and who play them.
Recording
Performances that make up the musical arrangement are recorded to any of variety of audio and MIDI recording hardware devices and software
Editing
The performances recorded can be edited in a variety of ways to change either the individual performances or the entire arrangement
Mixing
The individual tracks that make up a multi-track recording are combined and processed using effects, to create a final stereo recording to the song
Mastering
The finished stereo mix is prepared for distribution as either an audio CD, or a MP3 file, by making final adjustments to the overall sound of the recording
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Music Production Process

Recording Studio A place where performing artists, musicians, songwriters, music producers and sound technicians work in a group to create a distinct sound. The time spent in the studio is known as a recording session. Recording sessions in large professional quarters can be expensive affairs Time in the recording studio includes use of the facility and its equipment, and also the technicians and sound engineers that might be required.
Instruments and Production Tools Acoustic Sources: Performances by a purely acoustic instrument, such as a sax or a piano, or by vocals that isn't plugged directly into any recording apparatus will be recorded via a microphone. Special microphones may be used for individual instruments. Electric Instruments: Instruments such as basses, electric guitars and some electric pianos and organs can be recorded directly into an audio recorder
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Music Production Process: Musical Work

Electronic Instruments: Synthesizers, samplers, drum machines, and groove boxes are examples of purely electronic instruments. Mixers: Explained under Mixing Effects Boxes : Used by musicians who play electric instruments for adding certain effect to their instrument's sound. Faders: Enable the sound engineer to slowly increase or decrease the volume of the music being recorded. Any electronic instrument can be controlled using the communications language MIDI (Musical Instrument Digital Interface). Arrangements Musical works usually start out as a simple melody and chord progression. Producer decides whether the melody of a piece will be sung (called Vocal arrangement) or played by an instrument (Instrumental Arrangement). In either case, there will be instruments providing accompaniment to the melody.
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Music Production Process: Recording

There are two distinct models to record a musical performance Direct to Stereo Recording
Ensemble
Source Source Source Source Source
Multi-Track Recording
Source Source
Musicians
Source
Source
Multi Track Recorder

Left Right
Two Track Recorder
CD
Mixer
CD
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Music Production Process: Recording

Direct to Stereo Recording Also called Ensemble recording, occurs when the whole musical arrangement is performed and recorded. E.g.: recordings of orchestras and jazz ensembles. Spontaneous interaction between musicians is essential. Once recorded, the recording becomes the final output and the features of the instruments used in the recording can not be changed. Multi-track Recording Most recordings are done in this method. Individual musical performances are recorded on separate tracks, then edited and mixed into a final stereo version. Musicians are not necessary to be at the same time in the same place to contribute to a performance. Overdubbing: The process of adding new performance track to an existing recording
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Music Production Process: Editing

The recorded music tracks are further refined by editing Editing may include the following changes: Edit the individual notes in a performance Change the sounds used to play the notes in a performance Build composite tracks using standard copy- and paste-editing techniques Change the form of a song by copying and pasting the whole sections of a recording Editing software: Cubase SL for PC or Mac Logic Express for Mac only Sonar Studio for PC only
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Music Production Process: Mixing

Mixers: Enable the recording engineer to control the sounds that are coming from the singers and instruments as they link to other sounds in the session. Elements that are controlled in mixing: Volume: Volume levels of individual tracks Panning: Controls placement of each track in the left-right stereo image. Equalization: character of the sound recorded on each track is adjusted using specialized types of tone controls called equalizers. Effects: Effects such as compression, chorus, flanging, and delay Reverb: Individual tracks is placed in a simulated acoustic space. A Multi-track Master is obtained and archived at this stage. Two-Track Stereophonic Reduction The Individual tracks constituting the multi-track master are send to hardware or virtual mixing console to create a stereo mix. The resulting stereo mix is recorded on a Digital Audio Tape(DAT) recorder or saved as an audio file.
117
Music Production Process: Mastering

Mastering is preparing the final mix of a song for distribution After Mixing, the following are the steps for the creation of a final product
Edit Edit the file to remove any unwanted sound from beginning and end of the mix
Equalize Make any final tonal adjustment to the mix using equalizer
Compress Make final adjustments to the overall level of the file using compression
Distribute Save the final version as an mp3 file or burn to a recordable CD
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Production Technologies
Digital Audio Workstations (DAW) have simplified the Production technology landscape A combination of audio multi-track software and high-quality audio hardware designed to record, play back and edit digital audio Two varieties: Computer-based: consists of a computer, an ADC-DAC, and digital audio editor software E.g.: Adobe Audition, Tracktion ,Garageband, Pro Tools, Nuendo and Sonar Integrated: consists of a mixing console, digital interface and control surface in one device
ADC
Storage
Storage can be on a CD, an MP3 player, a hard drive, USB flash drive, or any other digital data storage device
DAC
DAC runs at a specific sampling rate and bit resolution but this sampling rate may not be the same as the initial rate
Playback
Playback occurs when the signal from the DAC is fed into a Player / Speaker system
Digital Audio Devices
ADC runs at a sampling rate and converts at a known bit resolution (OR) S/w Synthesizer generated
119
Audio Formats
Media Formats
Recording Formats
Analog MECHANICAL | MAGNETIZATION DOLBY STEREO (1975) | PCM (1982) | AIFF (1985) | WAV (1992) | DTS (1993) | MP3 (1995) | DOLBY DIGITAL (1997) | WMA (1999) | TTA (1999) | FLAC (2000) | AAC (2001) | OGG VORBIS (2002) | ALAC (2004)
Digital
120
Common Audio Formats

WAV Stores uncompressed CD-quality files MP3 MPEG-1 Layer 3 format FLAC Lossless compression format AU Standard audio file format used by Sun AIFF (Audio Interchange File Format) Standard audio file format used by Apple AC3 Common Format for DVDs Also called Dolby Digital WMA (Windows Media Audio) Format owned by Microsoft AAC (Advanced Audio Coding) Extension: m4a Based on the MPEG4 audio standard RM (Real Audio) Designed for streaming audio over the Internet RAM Text file that contains a link to the Internet address where the Real Audio file is stored
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Common Audio Formats: WAV

A variant of the RIFF bit stream format method for storing data in chunks Mainly used on Windows systems for Lossless raw audio Suitable for retaining first generation archived files of high quality The most common WAV format contains uncompressed audio in the PCM format Able to hold compressed audio data also Limited to files that are less than 4 GB in size Decreased in popularity due to large file sizes Audio CDs DO NOT use WAV as their sound format, instead using Red Book audio Both have the audio data encoded in PCM
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Common Audio Formats: MP3

Also known as MPEG-1 Layer 3 Audio-specific compression format Based on the Perceptual audio coding algorithm Lossy compression technique Encoding process is adapted the to the characteristics of the human perception of sound The parts of the audio signal that humans perceive distinctly are coded with high accuracy, the less distinctive parts are coded less accurately, and parts of the sound which we do not hear at all are mostly discarded or replaced by quantization noise Estimate of the actual masking threshold is computed by using rules known from psychoacoustics Works on both mono and stereo audio signals Supports Bitrate switching - May have variable bitrate
File
File Structure
A Frame
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Digital Distribution
The birth of MP3 in 1990 changed the face of the music industry forever. The compressed size without compromising on quality and the convenience of easy transfer from computer to computer triggered its huge popularity. Digital sales via internet started in 2003, accounting for 2% of the total music industry in that year. High costs involved in physical distribution (such as distance to be covered and availability of stocks) have encouraged the digital distribution Digital sales traditionally included single track downloads, album downloads, whereas the recent trends include online and mobile subscriptions, mobile wallpapers, ring tones and videos. The number of tracks available online became twice in 2006 to about four million Portable player sales totaled around 120 million in 2006, an increase of 43% on 2005 There are currently 500 online music services available in forty countries IFPI predicts that by 2010 the digital sales would grow to 25% of the global sales
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Digital Distribution: Business Models

Traditional Model
Artist Record Company Online Retailer Consumer
Evolving Models
Artist Record Company Consumer
Artist
Consumer
Artist
Record Company
Online Retailer
Consumer
Note: The key drivers for the evolving models are: 1) Advances in technology and rapid consumer adoption of the same 2) Investments from Record companies to counter the increasing power position of online retailers
125
Digital Distribution: Types of Online Outlets

Aggregator Outlets
Aggregates Music from various record companies and places it for online sales (usually download-to-own) E.g.: iTunes
Exclusive Online Outlets

Direct-to-Consumer initiatives by Record Companies or Artists
Social Media Outlets

Sale of Music via online communities and special interest groups E.g.: MySpace Music
Ad-supported Outlets
Free Music supported by Advertisements embedded into the songs E.g.: Spiralfrog
Subscription Supported Outlets

Online Music forums which allow listening to online music or music downloads that work only if subscription is active E.g.: Rhapsody (Rhapsody supports aggregator model too)
Online Radio
Webcasting of music over the internet by online radio entities either for subscription or ad-supported free music E.g.: Shoutcast
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Digital Distribution: Key Players
Major Players
Napster
Essential Elements for Internet Distribution success: A large digital catalogue: to cater to the long tail of content High performance Internet Infrastructure Supplying safe and virus-free files Providing secure payment systems Development of a consumer-friendly digital rights management system Clearing recordings and compositions with various copyright holders
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Peer-To-Peer Distribution
The Napster revolution that initiated the large scale decline of the Music industry was based on a File Swapping Network, enabled by a Central Index Server
Technology Shift/ Decentralization
File Swapping Network
P2P Illustration
The technology shift and decentralization to Peer-to-Peer technologies triggered Piracy to new levels of popularity among internet users
128
Peer-To-Peer Distribution
P2P Technology: Any software or system that allows individual users of the Internet to connect (directly, through the Internet) to each other so as to transfer or exchange computer files Contrary to the usual client/server concept, where one server will serve many clients, every computer with P2P software installed can act as a server and distribute files across the internet
Popular P2P Applications Bittorrent Gnutella Morpheus Kazaa Limewire BearShare
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Digital Rights Management (DRM)
A technology concept intended to protect the interests of content providers.

DRM enforces copyright by allowing the content provider to set rules and restrictions on how the distributed content can be used.
Music Usage Rights enforcement Secure Rendering Music Creation Rights Specification Labeling Protection Music Distribution Rights Authorization Tracking Label Management
Digital Rights Management
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DRM for Music

Name FairPlay 3-day-or-3play Used for Apple iTunes Library, iPod Microsoft Zune Description Files are encoded as AAC, a format exclusively compatible with iTunes and the iPod Music files that are received wirelessly from other Zune devices can be played only a maximum of 3 times on the device, and expire after 3days whether they are played or not Invented by the Open Mobile Alliance to protect cell phone ring tones Provides secure delivery of audio/video content over an IP network in such a way that the distributor can control how that content is used Proprietary Yes Yes
OMA DRM Windows Media DRM
Mobile Phone Ring Tones Online Video Distribution Networks
No Yes
Janus WMA DRM

MagicGate Helix DRM
PlaysForSure Devices
Audio Players Portable devices
Portable version of Windows Media DRM for portable devices

Invented and promoted by Sony Supports different file formats for audio & video
Yes
Yes Yes
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Consumer Technologies
Online Sales Consumer Devices Players/ Phone Manufacturers
Content Sources Music Companies
Consumer Interfaces & Supporting Online Technologies Digital Store fronts
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Consumer Technologies: The Online Interface

Media Player Library Search
Advertisem _ents
Devices
Catalogue
Recommen _dations
Website iTunes Store Main Window
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Conclusion: The Big Picture

Sales Data
Contract
A&R Recording Payout Artist Production [Recording Studio]
Determines Artist/ Publisher Share
Payout Finance
Packaging
Distributor
Contract
Songwriter
Publisher
Sales & Marketing
Main Process
Monies paid to Artist/ Songwriter (Royalties)
Departments
With the changes being brought about by technology and innovative business models, the music industry of the future could look very different from that depicted above
134
Thank you
For Certifications Please use COD
135

T100 Music Industry Fundamentals

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DCMEMUFNDI_C1001

T100: Media and Entertainment

Music Industry Fundamentals

Whats This Course All About?

Module 2: Music Industry Landscape

Module 3: Foundations of Music Business

Module 4: Processes & Technologies

Fundamentals Of Music Industry

Laymans View of Music

Roles: Common Parlance Roles: Industry Parlance Some Hidden Roles

Singer & Musicians Artist & Musicians Retailer Label

Songwriter Producer Manufacturer Distributor

The Music Industry

Understanding the Business

when an Artist performs the musical work and records it on to a medium

Major Entities in the Music Business

Songwriter: Lyricist and/ or composer of a song

Essential Terms in the Industry

Overview: Business Flow of Music Industry

Sales Data A&R Determines Artist/ Publisher Share

Production [Recording Studio]

Manufacturing Music Company

Sales & Marketing

Retail [Various Formats]

Monies paid to Artist/ Songwriter (Royalties)

Overview: Business Flow of Music Industry

Understanding Industry Entities: The Artist

Understanding Industry Entities: The Producer

Understanding Industry Entities: The Songwriters

Understanding Industry Entities: The Publisher

The basis for Publishing industry is Copyrights

Understanding Industry Entities: The Publisher

Understanding Industry Entities: The Publisher

Understanding Industry Entities: Record Companies

Other Non-music Division

Music Publishing Group

Recorded Music Group

* An exception to this is WMG

Understanding Industry Entities: Record Companies

Warner Music Group

Asylum, Atlantic, Bad Boy, Cordless, Elektra, East West, Lava,

Understanding Industry Entities: Record Companies

Executive Vice President Legal Affairs Business Affairs

Artist Product & Developmaent

Director of Promotion Regional Promotional Directors

Regional Marketing Directors

Understanding Industry Entities: Record Companies

Understanding Industry Entities: Record Company Divisions

Understanding Industry Entities: Record Company Divisions

Understanding Industry Entities: Distributors

Understanding Industry Entities: Distributors

Understanding Industry Entities: Distributors

Independent Retail stores

Mail orders (Record clubs, etc)

Understanding Industry Entities: Collection Societies

Understanding Industry Entities: Collection Societies

Negotiate and collect royalties Broadcasters

Understanding Industry Entities: Collection Societies

Music Industry landscape

Music Industry: Key Characteristics

Music Industry: Key Characteristics

High Sunk Costs

Recorded Music Industry: Revenues