Katy Perry Shows How The Problem With The Major Labels Is Economics, Not Piracy

from the there's-a-lot-of-inefficiency dept

A few weeks back, the folks at Planet Money tried to break down the economics of Katy Perry's massively successful album with its five hit singles. Specifically, they wanted to figure out how much money her label made from such a big success. What comes out is a step-by-step description of the massive inefficiencies of the major label recording system. There are things like paying producers $100,000 per song they produce on the album. Then there's all the payola... er "special promotions" to get the songs played on radio so much. In the end, Planet Money calculates that Perry's label, EMI, probably made somewhere around $8 million in profit from Perry's music sales in the US. That's not topline revenue, but bottomline profit. That's not bad per se, but for an album with five hit singles and which was clearly one of the most successful albums in 2011, you begin to see why the labels are struggling.

But, of course, Perry, herself isn't struggling. As the full podcast by Planet Money notes, Perry has been able to avoid getting sucked into a "360" deal where the label gets to take some of all the revenue she earns. They just get the record sales. Perry, in the meantime, is estimated to have made $44 million in 2011 -- a large chunk of that coming from her tour, which alone grossed over $50 million.

What you begin to realize as you see more and more stories like this is, once again, the "problem" has nothing to do with the "music industry" failing... or even that musicians aren't able to make money any more. It's all about the bad economics of the record labels. They set themselves up to fail this way, focusing solely on that one slice of the pie, and not moving very quickly to adapt when the market shifts. Instead, they seem to have kept up the inefficiencies associated with making such a "hit" album, without figuring out a way to profit from the results. Of course, for artists like Perry, things are great. She's able to make a ton of money, most of which doesn't first have to filter through the label...

Filed Under: deals, katy perry, record labels, revenue, touring
Companies: emi

Jonathan Coulton Destroys The Rationale Behind The Megaupload Seizure With A Single Tweet; Follows Up With Epic Blog Post

from the and-the-score-is-Coulton:-a-billion;-content-industries:-less-than-zero dept

With Megaupload seized by the feds and everyone else even slightly involved seized by Anonymous, man-without-a-label Jonathan Coulton stepped into the breach and tweeted what we all only wish we were thinking:



(If you can't read it, Coulton said: "Any other musicians notice that ever since they shut down MegaUpload, the money has just been POURING in?")

And that's the crux of it, isn't it? The DOJ claims that Megaupload's infringement has cost copyright holders a half-billion dollars over an unspecified timeframe. And now that it's been shuttered, the money should start pouring in. But, of course, it won't. So, what then? First off, as Coulton points out, there's bound to be collateral damage.

Along with all the illegal stuff happening on MegaUpload was some amount of completely legal stuff. People used MegaUpload to send large files around. Some number of those files were personal files owned by the people sending them. I have no idea what the ratio was, and probably it would be impossible to figure that out with any certainty, but let's stipulate that it was a very large percentage of illegal activity, and only a very tiny percentage of the users were there for anything other than downloading content that they didn't buy. Still, today that tiny percentage had something taken away from them, without warning, maybe just a service they liked using, but maybe a piece of digital media that belonged to them - if they uploaded something and didn't keep a copy, that thing is now gone. Them's the breaks I guess, but in evaluating whether this shutdown was a net positive for us humans, you have to take that into account.

Even some of the illegal usage was likely the kind of activity that approaches what I consider to be victimless piracy: people downloading stuff they already bought but lost, people downloading stuff they missed on TV and couldn't find on Netflix or iTunes, people downloading stuff they didn't like and regretted watching or hearing and never would have bought anyway, people downloading a Jonathan Coulton album (oh let's say, Artificial Heart, the new Jonathan Coulton album, which is an awesome Jonathan Coulton album called Artificial Heart) and loving it so much that in a year they decide to buy a ticket to a Jonathan Coulton show and walk up to the merch table and hand me $20. I know not everyone will think all of those things are victimless crimes, and even I can admit that some of them maybe kinda sorta have victims, but my point is that you can't easily say that every illegal download is a lost sale, because it's a lot more complicated than that. So when you evaluate the "damage" that a site like MegaUpload is causing, you have to think about these things too. The grand jury indictment against them says they've caused $500 million in damages to copyright owners. Given the complexity of actual usage on a site like MegaUpload, how can they possibly know that?

So, there's that. An allegedly huge provider of "lost sales" taken down, along with other non-infringing material. Does anyone really think the DOJ is going to bother sorting out what's legitimate and what isn't? I wouldn't hold my breath. And to what end? Supposedly, this is a step towards returning the MPAA and RIAA fortunes to their all-time highs. But when Megaupload's takedown fails to convert into sales, then what?

No one (not even Coulton) truly expects the seizure of a single storage locker, even a mammoth one like Megaupload, to make an appreciable difference in future sales of music and movies. More sites will have to be seized, sites like Mediafire, Rapidshare, Divshare, Hulkshare, Filesonic, etc. Many of these sites host a ton of perfectly legal, non-infringing media. Look around Bandcamp for a bit and you'll run across links to these sites (Mediafire seems to be a favorite) posted by artists for their fans to make use of. Hulkshare hosts hundreds of mixtapes, uploaded by the artists themselves and promoted at sites like Datpiff.

And as each of these sites tumble without a noticeable change in sales, the march will continue on towards other sites that might be hosting infringing material. How long will it take before the rightsholders ask to peek at the contents of your cloud services? Are they going to ask, like so many commenters here, that you produce receipts for everything you have stored?

Even though the White House shot down the current incarnation of SOPA, it still made this statement:

Let us be clear-online piracy is a real problem that harms the American economy, and threatens jobs for significant numbers of middle class workers and hurts some of our nation's most creative and innovative companies and entrepreneurs. It harms everyone from struggling artists to production crews, and from startup social media companies to large movie studios. While we are strongly committed to the vigorous enforcement of intellectual property rights, existing tools are not strong enough to root out the worst online pirates beyond our borders.

But how big is this "piracy problem?" And how much does it actually "harm" the American economy? The way Coulton sees it, there's no reason to believe this "problem" is crying out for a legislative solution:

Is it really as dire as all that? It's an emergency is it? Tim (O'Reilly) points out that he and a lot of other content creators have been happily coexisting with piracy all this time, and I'm certainly one of them. Make good stuff, then make it easy for people to buy it. There's your anti-piracy plan. The big content companies are TERRIBLE at doing both of these things, so it's no wonder they're not doing so well in the current environment. And right now everyone's fighting to control distribution channels, which is why I can't watch Star Wars on Netflix or iTunes. It's fine if you want to have that fight, but don't yell and scream about how you're losing business to piracy when your stuff isn't even available in the box I have on top of my TV. A lot of us have figured out how to do this.

So if you can stand me sounding a little crazy, listen: where is the proof that piracy causes economic harm to anyone? Looking at the music business, yes profits have gone down ever since Napster, but has anyone effectively demonstrated the causal link between that and piracy? There are many alternate theories (people buying songs and not whole albums, music sucking more, niches and indie acts becoming more viable, etc.). The Swiss government did a study and determined that unauthorized downloading (which 1/3 of their citizens do) does not create any loss in revenue for the entertainment industry.

When the money fails to pour in, no one will be surprised but the content industry. And they'll be surprised and angry. Equating casual infringement with lost sales has always been a terrible assumption, but without this key bit of theoretical math, the RIAA/MPAA would be unable to make hysterical claims about job losses, overseas robber barons and Megaupload absconding with a half-billion of their cash. The problem is: the public doesn't see it this way.

We are constantly demonstrating through our actions what we believe to be the norms for acquiring and consuming content. Right now a lot of us think that it's OK to download stuff through illegal sites under certain circumstances, and a lot of us think it's totally fine to use those things to make videos and put them on YouTube even though YouTube profits from it. That's not ME saying that, that's US saying that - we're a nation of pirates and infringers. Based on our behavior, you would not be wrong to deduce that some of us think funny videos on YouTube are more important than honoring intellectual property rights. This kind of thing has happened before. Entire industries rise and fall as the world changes and our priorities shift. Sorry.

I believe in copyright. I benefit from it. I don't want it to go away. I love that we have laws and people to enforce them. But if I had to give up one thing, if I had to choose between copyright and the wild west, semi-lawless, innovation-fest that is the internet? I'll take the internet every time.

Amen to that.

Filed Under: jonathan coulton, piracy, revenue
Companies: megaupload

Minecraft's Developer Making $350,000 $100,000 Per Day [Updated]

from the um.-wow. dept

We've been writing a few stories about Minecraft lately, kicking off with a discussion about how developer Markus Persson doesn't worry about "piracy," because he feels it's better to focus on giving people a reason to buy than caring about what others are doing. More recently, there was a big discussion around the simple coolness of a guy in Minecraft building a working computer within the game itself. Both were neat stories.

Now Jay sends in some news that continues to build on the legend of Minecraft, pointing to a story claiming that Persson is making $350,000 per day (see the update below). With alpha software, and without going after "pirates" who are supposedly destroying the industry. Yeah. Apparently, he's selling a copy every 3 seconds. And he's done all this with no distribution. No retail deals. Just creating a really good game, getting people interested in it, not treating them like criminals, and giving them a reason to buy.

Whatever happened to "pirates" killing the gaming market, huh?

Update: There's some discussion in the comments about this, and I hadn't realized that Persson posts sales stats publicly. From that, it looks like the $350k per day claim was a bit exaggerated -- though, there was one such day. It looks like a more typical day is closer to $100,000. Still seems like a pretty damn good success story.

Filed Under: business models, indie games, markus persson, minecraft, revenue

Yet Another Study Shows Musicians Making More Money

from the well,-look-at-that dept

We've made the argument repeatedly that saying unauthorized file sharing is hurting the music business lacks evidence. Instead, what we've seen, over and over again, is that more money is pouring into the music business, more music is being produced and (most importantly) that more musicians who embrace this new world are doing better than they would have otherwise. Now, we've pointed to research in the UK, Sweden and the US that have all shown aggregate growth for the music business, with some of the numbers suggesting more money going directly to musicians, rather than gatekeepers.

The latest study, highlighted by TorrentFreak takes a similar look at the Norwegian music market to show very similar findings and (of course) that musicians are, indeed, benefiting: Like the UK and Swedish studies, this study, covering Norway, found that the aggregate amount going to the industry is up slightly (4% in real terms), mostly thanks to live shows more than making up for the decline in music sales (it's important to note that these researchers appear to have modeled their research on both the UK and Swedish studies, and made only slight changes, which they explain (and justify) in the report. The key finding is that musicians appear to be making significantly more these days than in the past:

Total artist revenues have gone from NOK 208 million in 1999 to NOK 545 million in 2009, which is an increase of about 162%. Excluding state subsidization, the income from 1999 to 2009 has increased with NOK 229 million, or 147%....

According to this, Norwegian artists have seen an increase in all four of their income sources during the past eleven years. This goes contrary to the common belief that artists have seen a decline in income because of the digitalization of the industry.

The loss of record sales because of consequences of the digitalization of the industry has not affected the Norwegian artists in the same brutal way as it has the record companies. Artists earn in general 20% or less from record sales, and a decrease in record sales would most likely be compensated by an increase in one or more of the other three income sources.

Now, it's worth pointing out -- as I learned when I attended Nordic Music Week last year -- that the Norwegian music industry is heavily subsidized by the government, which is one of the four revenue streams discussed above. However, that only represents about 30% of artist revenue in 2009. The largest single component -- again similar to what we've seen elsewhere -- is live revenue, which continues to grow. Even if you exclude state subsidies, the report found that Norwegian artists doubled their income in the past 11 years:

Adjusted for inflation, total artist revenue has gone from NOK 255 million in 1999 to NOK 545 million in 2009, an increase of about NOK 290 million or 114%. Excluding state subsidizations, the increase has changed from NOK 192 million to NOK 386 million, which is an increase of NOK 194 million or 101% This goes to show that the artists themselves, as a group, have seen tremendous more growth than the industry as a whole.

And, yes, there are more musicians out there to split the pie, but the growth rate in the industry has increased more quickly than the growth in musicians.

Since the total number of artists in 1999 and 2009 are available to the authors, it is possible to calculate an average income from music for artists in Norway. With 3200 artists in 1999 the average income from music would be about NOK 65 000. With 4100 artists in 2009 the average income from music is about NOK 133 000, creating an increase of NOK 68 000 or 105%. Adjusted for inflation the income has increased with from about NOK 80 000 to NOK 133 000, an increase of NOK 53 000, an increase of 66%.

Overall, the results, like those in Sweden and the UK, seem to clearly debunk the repeated claims from recording industry folks (and some musicians) that artists are somehow suffering under this new setup. Now, there may absolutely be cases where artists who fail to adapt are struggling, and there's no doubt that some labels that failed to adapt are struggling -- but there's increasingly little evidence that the overall music industry or artists as a whole are suffering. All of the evidence seems to suggest that it's not file sharing that's a problem at all. More money is going into the music business. The only problems are from those in the industry too stubborn or too clueless to adapt to capture the money that's flowing in.

Filed Under: music, norway, revenue

Parents Television Council Demands Details Of Comcast's Porn Revenue

from the of-all-the-complaints... dept

I still think those opposed to the Comcast/NBC Universal merger are overreacting, but I have to admit the most amusing effort to deal with the merger may come from the Parents Television Council, the group famous for flooding the FCC with complaints every time it hears about something it doesn't believe belongs on TV. Apparently, PTC is now demanding that Comcast reveal how much money it makes from porn. Honestly, I'm wondering if it got the idea from a recent episode of 30 Rock, which has been using the "fictional" ongoing merger between NBC (in the show) and Kabletown to mock the proposed real-life merger. In one episode, a Kabletown exec claims that the entire business is funded on porn, and execs don't have to do anything, because the money just rolls in.

"Comcast is one of the most far-reaching distributors of pornography in the communities it serves, raising serious questions about whether the company meets the character and public interest obligations required," said PTC President Tim Winter.

Interesting. I didn't realize that "character" was part of how the FCC reviewed mergers. Good luck with that one, PTC.

Filed Under: parents television council, porn, revenue
Companies: comcast, nbc universal

Avatar Sees Theater Attendance Bump After DVD Release

from the well,-look-at-that... dept

Earlier this year, we noted that with Avatar still being popular in theaters, it looked as though the DVD release would occur while the movie was still available in a bunch of theaters, and wondered what if it would actually boost sales at the box office. For years, of course, movie theaters owners have whined that they can't possibly compete against home theaters, and have boycotted movies that tried to do a "day and date" release, where they offer the DVDs at the same time the movie is in the theater. This seems to ignore the fact that the theatrical experience is about the social experience of going out -- which is not the same as staying in to watch a movie at home (no matter how good your home theater system is). But most theater owners don't seem to believe this, and insist that if DVDs are out at the same time as the movie is in the theater, it will harm box office sales.

Avatar seems to suggest that's not true.

btrussell points us to the news of the record-breaking sales of Avatar DVDs this weekend. His point, in submitting it, is noting that the sales were so strong even though the movie has been widely downloadable and widely downloaded for months. So, despite the claims that file sharing is destroying the DVD market, it looks like people are still quite willing to buy.

But a more interesting point is the impact on the box office. Last weekend, April 16 - 18th, Avatar averaged $2,006 at the box office per theater. On April 22nd, the DVD was released. This past weekend (April 23 - 25th)? Avatar averaged $2,257 at the box office per theater. That's an increase of 12.5% over the week. That doesn't seem to fit with the theater owners' claims, now, does it?

Admittedly, a bunch of theaters stopped showing the movie this past week, probably falsely believing that with the DVD out, it would harm sales. But... the week before, a bunch of theaters added Avatar back into their lineup. If we go back two weeks, we have a much more apples to apples comparison. The weekend of April 9 - 11, Avatar showed in 454 theaters, with an average take of $1,860 per theater for a grand total of $844,651. Yet, again, this past weekend, when the movie was showing in fewer theaters, 421, it brought in both a higher average take per theater at $2,257 and a higher grand total at $950,000. So if we compare those two weeks, with fewer theaters, there was a bump of 21.3% in box office sales after the DVD was released

As we predicted, it sure looks like the DVD release while the movie was still in the theaters actually may have driven more people to the theater, rather than taken them away from the theater.

Filed Under: avatar, dvd, movie theaters, movies, revenue, successes

Performers See Tiny Revenue From Streaming... But How Much Do They Make From Radio?

from the you're-measuring-it-wrong dept

Copycense points us to a Billboard/Reuters article over the fact that music performers are not making very much money from online streaming services. The article is designed to be "shocking," but seems to leave out some rather important facts. For example, in the US, if Billboard did the same calculation, it would find that performers make even less from radio. That's because performers make nothing from radio in the US, because Congress realized a while back that radio is advertising for musicians, and it seems ridiculous to force radio stations to pay musicians to advertise for them. In fact, the repeated stories of record labels illegally paying radio stations via payola showed that the market actually valued things in the other direction.

It seems quite odd that Billboard would leave this out of its analysis, instead, trying to position the streaming revenue as being so low as to be problematic. Yes, the numbers are low, but streaming radio acts as advertising for musicians that let's them make money in lots of other ways.

This is the same discussion we had last week when some people got too focused on the question of whether or not Spotify was making people buy more music. That's not the point. The point is whether or not streaming services make people buy more of anything that helps fund those musicians. Narrowly looking at just whether or not those streaming services pay musicians is really missing the point. It's like asking how much NBC paid BMW to air BMW commercials. The answer is nothing. The money went in the other direction, because that's where the real value was.

Filed Under: musicians, revenue, streaming

Metallica Sued Napster For This?

from the pound-foolish dept

David Levine has a post up looking at Metallica's revenue streams last year. Apparently, the band made the vast majority of its money from concert revenue -- bringing in $22.8 million. It made $1.6 million from album sales. As Levine notes:

Hmmm...think it would make a lot of difference to the world if they lost the $1.6 million from the albums? Without copyright they'd only make $22.8 million from touring...You might almost think it would be worth it to them to give the recorded music away for free to promote their concerts...

Or, hell, give away the tracks and promote other stuff as well. Selling music directly (relying on copyright) is a tiny business compared to the opportunities elsewhere. And, of all the bands out there, Metallica should clearly recognize that.

Filed Under: album sales, copyright, live, metallica, revenue

More Charts The Record Labels Don't Want You To See: Swedish Musicians Making More Money

from the artists-are-doing-better-than-ever dept

We've already discussed the research on the UK music industry that shows both that live revenue is more than making up the decline in recorded revenue and that musicians themselves are making more revenue than ever before. Some people have suggested that this is a UK-only phenomenon, but a worldwide study found the same thing as well. And, now it looks like the same is being found in Sweden as well -- home of The Pirate Bay, which we keep being told is destroying the industry. Swedish indie record label owner Martin sends in the news on data from the Swedish music industry, which looks quite similar to the UK data. First, it shows that while there was a tiny dip in overall revenue, it's back up to being close to it's high, mostly because of a big growth in live music:
Chart by Daniel Johansson

Basically, recorded revenues dropped. Collections stayed about the same, but live grew. More importantly, though, is the second chart, which shows the revenue for actual musicians. And that's going in one direction: up.
Chart by Daniel Johansson

And yet, The Pirate Bay is destroying the ability to make music, right? Funny that the numbers don't seem to support that at all. Basically, these charts are showing the same thing that those other studies have shown. More music is being created. There is greater "discovery" of new music. There are greater revenue opportunities for musicians, and the only part of the business that appears to be suffering is the part that involves selling plastic discs. Yes, that sucks if your business was based on selling plastic discs, but for those who can adapt and adjust, there is more money than ever before to be made. That sorta goes against the claims that "piracy" is somehow destroying the industry, doesn't it?

Filed Under: live, music, revenue, sweden