CMNS 230 Sound Recording


A unique medium, integral to all cultures
Attali Noise:
 In music, we catch glimpse of imminent changes in
the organisation of labour and creativity
 Why it is avant garde:




generational
smaller scale, artisanal roots are never far away
Drives adoption/invention of new media technology
Why it is fundamental


Acts as industry input to all media when incorporated
as performance
Ancillary role pushes sales: now the most lucrative
add on
CMNS 230
1
Canadian Music
 A “success”
as a cultural industry
 Why:
 Domestic
share relatively high
 A list Canadian artists making it with
international labels
 High level of cultural support: higher in
Quebec
CMNS 230
2
History of the Medium
 Straw:


It is in the realm of music where we catch an early
glimpse of the paradoxical and contradictory ways in
which new technologies, shifting markets and
changing consumption habits are transforming a
cultural industry
Music industry crises of the last century or so, always
blamed on new technologies: radio, shellac, vinyl,
CDs. MP3s DVDs,Internet/bluetooth
 Cycle busts: 40s, 70s, 90s
 But critics point to problems in creative supply &
changing habits
CMNS 230
3
History 2







One of the oldest: Edison: 1877
By the 40s: segmented by genre
50s and 60s: Hollywood Rock and Roll
60s British Invasion
70s Soundtrack/ Albums and North American
boom
80s MTV and Specialty music
But decade history obscures shorter 5 year
market cycles: speeding up
CMNS 230
4
Canadian Music History
Memory Lane: CBC’s top 50 tracks
 Before the 50s: Doo Wop Four Lads

Jazz: Moe Kaufman, Oscar Peterson

Country: Hank Snow
 50s-70s- Rock: the Band

Ronnie Hawkins
 70s Golden Era Canadian Rock
 April Wine, chilliwack, Crowbar
 Bruce Allen, agent for BTO
 Emergence of Rush

CMNS 230
5
Canadian History Continued





Late 70s Punk
 Rough Trade, Teenage Head
 Offset by Murray McLaughlin, McGarrigles, Mitchell
80s Pop Rock
 Bryan Adams, Tom Cochran, Jane Siberry, Corey Hart
Late 80s
 Blue Rodeo, Jeff Healey, Colin James
90s
 Barenaked Ladies, Tragically Hip, Morissette, KD Lang
2000
 Canadian Women take over the World
 Twain, Dion, McLaughlin, Furtado
CMNS 230
6
The Canadian Brand

Wikipedia

“ the Barenaked Ladies cleared the way… by
the late 90s a whole new Canadian Pop
landscape emerged defined by a national
pride and self confident distinctiveness never
seen before “
CMNS 230
7
The Canadian Brand

BUT




Bryan Adams excoriated the Can Con quota
Guess Who originally called the Expressions to break
into radio play disguised as a British mersey beat band
Hid Canadian Origins: Songs American Woman, these
eyes North American anthems
Versus

Tragically Hip: can make platinum on Canadian release
alone: Unlike Nickelback, not broken into US market
CMNS 230
8
An Ode to Music

Salient


HIP


An input in many other cultural industries
Defining



Disproportionately a youth medium which drives now 34% of
the market ( from 45% in 90s)
Intertextual


Still more than 15 hours a week on average
Establishes identity of a period
Wide impact on popular culture…only now becoming
understood
Destabilizing

Carries within it the seeds of ‘rebellion/innovation’
CMNS 230
9
Characteristics of the Industry

Less Capital Intensive



Most musicians and talent in small enterprises
More GLOCAL



Thus more participation rates in the industry around the world
Local audience preference: 68% global share for indigenous
music
This means MNCs form local affiiliates: record locally, have
roster of local artists and acquire local companies
Less vertical integration

( except in Quebec)
CMNS 230
10
Sizing the Global Industry
Global Sales estimated at between 32
and 37 billion
 Grey Market would represent another
third ( +12 b)
 Top markets; US is first, UK is third
 Canada represents 2% of global sales-Ranked 6th

CMNS 230
11
Sizing the Canadian Industry
2005
Overall: about a Billion dollars
CIRPA data show 54 units sold, with CDs at 49 million
Total value $608 million of product
2600 employed in sector: many more musicians and
of those, 80% never sign
Thus a very small part of the cultural GDP of $15
billion
A very small part of the labour force
BUT: slightly higher multiplier effect ( 2.2)
source: Nordicity 2004 study
CMNS 230
12
Sources of Revenue
Sales
Subscription
Micro revenues per download
Artists Collect Direct from Label or
Consumer or through Royalty Collectives
CMNS 230
13
Trade Profile
In 2000, Statistics Canada finds sound
recording ranks second in export of
goods after books ( with $543 million in
foreign sales)
In services, another 200+ million ranking
4th
CMNS 230
14
The Value Chain for the Sound Recording
Industry




Stage
Composition
Sound Recording

Stakeholders
 Composer/lyricist
 Music Publisher




Artist/Band
Artist Management
Recording Studio
Producer and Engineer


Manufacturer
Graphics
Manufacturing


Distributor
Retailer
 On-line distributor

Distribution

CMNS 230
Source: Ference-Weicker &
Co.
15
Thesis: Disintermediation

Cut out middle man:



Labels, wholesalers, retailers
Show value chain before and after
Case: Puretracks and I-tunes for direct legal downloads

CMNS 230
16
Music Segments
Recording
 Publishing( controls copyright)
 Live performance

CMNS 230
17
Associated Synergy

Reliant on Print to Chart


CM, CMN, Chart, Exclaim, RPM( under)
Reliant on Radio to promote

CFNY: Casbys. Late emergence black
radio/hindi etc.
Rock Video Channels: Much Music
 Music Variety/ shows: Canadian Idol
format

CMNS 230
18
Sectors of the Industry
Talent
Includes singers, musicians, songwriters, managers,
lyricists, performance and tour
cannibalizes
Artists and Repertoire
Indie producers, agents managers, demo tape
location and assessment
Production
Recording Companies, Studios, do the engineering,
sound mixing, publicity, advertising,design,
merchandizing
CMNS 230
19
Sectors Cont’d
Distribution
Retail
Rack jobbers
One stop
Direct consumer sales
Online retailers
Direct Downloads
Retail
Superstores
Specialty like HMV, A&B Sound ( a shrinking
share 33%)
CMNS 230
20
Corporate Profile
4 major companies combined control 75% of
market ( Source: Reuters, Sept 2, 2006)
Warner Music
Sony Bertelsmann
Universal
EMI
Now 400 indie Canadian companies/labels
Churn high: 16% or so since, Like film, companies
start up for projects
Real core of Canadian independent industry is 37
companies
CMNS 230
21
Rate of Production/Releases
Annually, about 165 French albums
About 1,888 English
CMNS 230
22
Canadian Market Share
Nielsen Soundscan
Of Units: 25%*
Of Titles: 21%
Note; Nordicity Report disputes this estimate
as high
Soundscans own data for Canadian
Independent labels places share at 18%
and even this may be overstated (page 28)
CMNS 230
23
By Certified Traffic ( 2004)
CRIA ( the Canadian wing of FIPA)
Gold ( 50,00 units)= 40
Platinum ( 100,000)= 35
Diamond( I million)=1
Represents: 59 artists and 76 releases.
CMNS 230
24
What the Companies Do
Artists and Repertoire
Sales and Distribution
Advertise and Martket
Promote
Business
Publicity
Artists Development
CMNS 230
25
A Typical Album
Costs about a million to produce
Lifecycle of release becoming more like a
movie: in first weekend
Artist Royalties typically enter at around 59% of sales; move to 15 and for A list
artists may go as high as 25%
See:
CMNS 230
26
Dominick, 2006 Costs and
Profits of a Typical CD
Manufacture
Record………0.65
Manuf……… 1.25
Package
1.30
Ad/Prom
2.00
ARTIST R
1.60
Freight
0.09
Trust
0.65
Profit (Manuf)
Distributors
Retail/Exp& Profit
Total
2.94
1.50
5.00
16.98
See profile pp. 193-194. The Dynamics of Mass
Communications
CMNS 230
27
World Genres
In US: rock pop and country took 61% of
sales in 1993
 Dropped to 44% in 2002
 Rap and Hip Hop rose from 9 to 14%
 World Music, techno rising

CMNS 230
28
The Business
CMNS 230
29
The Big Picture




The creation of distinctively Canadian cultural works fulfills a key
element of the Department's strategic priority: to build Confident
and Competitive Voice at Home and Abroad.
Canadian performing artists have had growing success at home
and abroad.
Twenty-three percent of records sold in Canada are by
Canadians, and Canada's top 21 artists have sold more than $12
billion worth of records around the world, making Canada the
second largest source of music talent.
Such success did not happen overnight; it is the result of sound
policy decisions and timely investments through targeted
programs. Continued stable investment in sound recording
through the Canada Music Fund is essential to continued growth
and success. ( Department of Canadian Heritage, 2004/2005
Budget estimates).
CMNS 230
30
Profile of Current Industry




Canadian artists' share of the top 200 best selling
albums in Canada has increased from 15.1% in
2001 to 27.2% in 2003.
 If Canadian drama were as popular as Canadian
music and literature, up to 8 of the Top 20 shows on
Canadian television would be Canadian shows, as
opposed to the current 1 in 20.( Stursberg speech
2005)
90% of Canadians consider Canadian music is just
as good as other countries
50% of the nominees for Geminis benefited from
the CMF ( Canadian Music Fund)
In 2004, 1500 new Canadian recordings
CMNS 230
31
Profile Cont’d

Royalties paid to Canadian songwriters for
performance of their works abroad reached $47 million
in 2003 ( up 7%)
 Source: Departmental Performance Report,20032004. Department of Canadian Heritage.
 In fact, 2002 and 2003 are the first years in SOCAN's
history that royalties revenues from international
sources have exceeded royalties paid out to foreign
songwriters, composers and publishers.
 Majority of sales are generated from releases of foreign
artists (84% of releases in 2000)
 And market share of Canadian artists is sharply
cyclical: in 2003, top 50 albums included 4 of top 10
(Avril,Shania and Celine with a compilation) plus 10
others
CMNS 230
32
Methodological Problem:
Determining Share






By artist ( Straw)
By label
By sales
By downloads
By sales and downloads
By survey data on favorite artist
CMNS 230
33
Big Five Now Four =75% Global Sales


Vivendi/Universal Music 25.9%
Sony Music 14.1%

Warner Music 11.9%
EMI 12%
BMG
11.1%

All Indies: 25%****






* note EU blocked merger of EMI and Warner/Bertelsmann
MAJOR MERGER: SONY AND BMG
Source: IFPI cited in Ference Weicker
But, in Canada, indies account for 10-12% of the Canadian retail
music market, thus half of the global share for indies… ie indies
less developed in Canada
CMNS 230
34
Other Fast Music Facts


The US is the largest producer and market for sound
recordings (1/3 of sales)
Sound recording outnumbers revs from music
publishing 5 to 1 ( $32b versus 6)
CMNS 230
35
Music Around the World

Mid 80s to late 90s an unmitigated boom
IFPI: 1999 saw $39 billion US in revs
 Why: shift to CD; broadening distribution
channels, growth to emerging markets
 A correction in 2000 ( many reasons)
 British Study found 80-90% micro business
( employing less than 9)
CMNS 230
36
The Music Business Models

A. The Big Label
What: signs artists, produces masters, builds libraries and
promote their music through films, mags and a number of
sister media in conglomerates.
 High margin ( in 80s 30%... Now ‘realigning; to 10 or so)
 Price fixing?
 Universal drops its prices.
B. Brokers
 Distribute indie masters
C. Self Publishers
 Market on the Internet ( source: Straw)
D. Compilers
 EG: dance music teams




CMNS 230
37
What Differs in the Models



Extent to which firm will be involved with talent,
production, distribution or marketing
As tastes become increasingly specialised, they have
encouraged a wider range of structures
Straw argues the old artist and repertoire functions of
the labels no longer needed in this business
environment ( point to compilations)
CMNS 230
38
The Shift in Distribution




From specialty stores to Wal Mart and Future
Shop…(Starbucks, Canadian Tire, Eddie Bauer)
Latter top 20 only or special compilations
Makes it harder for new artists to break in
Retailers are trying to shift risk onto distributors…incur
ad costs, provide just in time delivery
CMNS 230
39
Canadian Music Industries









From 2000 to 2003 inclusive, CRIA tracks a downturn ( some 36% per year)
Definitive source of stats: Nielsen Soundscan ( see Straw)
Canadian downturn echoes US, and also marks fewer
blockbusters
Lifecycles of albums now looking more like movies: sales in the
first weekend of release are important predictors.
Question: is downturn attibuted to P2P
2001– demise of last Canadian trade mag the Record
Bankruptcy of Song Corporation, and Attic Records
Bankrupcy of Sam the Record Man ( distributors: Virgin /foreign
Why downturn? Business analysts attributed it to failure of
Canada to adapt to urban genres: music stores shifting to DVDs
and other products
CMNS 230
40
The Canadian Indie Labels


Quebec Audiogram( fully integrated house) survived
where Song failed
See Insert
CMNS 230
41
Associations





CRIA ( claims to represent 95% of sound recordings
manufactured in Canada)
SoCan Foundation ( supprts education, residencies,
competitions, foreign tours)
Factor ( Musicaction) ( a private non profit organisation to assist
artists and songwriters in having their material produced, videos
created,tour internationally. Also support labels,
distributors,producers, engineers and directors– all those facets
which grow the industry.
Videofact( offers non recoupable grants for production of
Canadian music videos ( grew out of Much)
Radio Starmaker Fund ( CAB since 2000) backs those with
proven track record who want to get to the next level
CMNS 230
42
Marketing Structure





CBC New Music P2P websites for new artists
Much Music
Alt music on radio/indie channels
Juno and other regional awards
No industry trade mag () Straw: weakens data
base monitoring industry


See: Have not been the Same, Making Music (
historical compilations)
Gian Gomeshi ( CBC): top 50 Canadian
albums of all time…on line ballots
CMNS 230
43
Strengths of the Sector

Strong Demand
Growth exceeds rest of economy
 Robust Canadian share
 Global stars
 Isolated label winners: Nettwerk and
innovation with new business model
 Like Britain, healthy signs of rise of musical
underground

CMNS 230
44
Weaknesses

Traditional business model does not work
 Very weak financial performance: low margins
for Canadian independents
 Loss of revenues means reducing risk:
downsizine, signing fewer new artists
 Will Straw:

The problem for English Canadian Music Cos is
that successful integration can no longer be
accomplished through joining together music only
CMNS 230
45
Challenges
Fragmentation of market
 Hyper inflation of promotion costs
 Flight of artists ( Twain: Switzerland,
Dionne:Vegas)
 Weak access to capital for Canadian
Firms

CMNS 230
46
Innovations
New niches: ethnic, older audiences
 Diversifying revenue streams: Canadian
firms now 33% of their revenues from
non recording market sources
 Make strategic alliances up or
downstream
 Is the new business model integrated
DVD production: Vancouver may be
leader

CMNS 230
47
Opportunities



Digital Retailing
 Micropayments through individual downloads
 Forrester predicts this will grow to one third of the US market,
20% of European market
 Canadian experment: Puretracks ( Bell Investment) versus I
tunes which has 70% share
Copyright from New Media
 Videogames, Internet Radio
Integrated DVD audio-visual production
 Nordicity found this at 6% of income and rising in 2004
 Signs; MySpace is moving into digital movie business, as of
September 2006 signed 3 million indie bands they claim for a
distribution fee and allows bands to set their own price
CMNS 230
48
The Policy/ Regulatory Structure


Before 1970 none
1970 Introduce Can Con Quota on Radio at 30%


First beneficiaries Anne Murray’s Snow Bird and Guess Who

1971 Introduce Junos
1986 Sound Recording Development Program

Copyright (1998)


Neighbouring Rights: radio cos must pay artists and
companies not only songwriters and publishers
2001 Set up Industry Council and Fold SRDP
into the Canadian Music Fund
CMNS 230
49
Canadian Content Quota

One of the first in the world
 Set at 30%
 To qualify: MAPL
CMNS 230
50
Canadian Music Fund



Goal to ensure that Canadian music artists and
entrepreneurs have the skills, know how and tools
to succeed in a global and digital environment
To enhance Canadians’ access to a diverse range
of Canadian music choices
To increase opportunities available for Canadian
Music Artists and cultural entrepreneurs to make a
significant and lasting contribution to Canadian
cultural expression
CMNS 230
51
The Canadian Music Fund (about C$30 million per annum)








Creators Assistance Program………about $1m
Canadian Musical Diversity Program….$1.5 m with
Canada Council
New Musical Works Program ( with Factor)…10.5 m
Music Entrepreneur Program ( with Telefilm) 9 m
Support to Sector Associations Program (500,000)
Collective Initiatives Program (with Factor) 1.8 m
Canadian Music Memories Program (200,000)
Policy Monitoring Program (1m)
CMNS 230
52
The BC Report

See: An Industry in Transition: the Sound Recording
Industry in BC ( January 2004) a Report Prepared for
the Ministry of Community, Aboriginal and Women’s
Services, Canadian Heritage and Western
Diversification by Ference Weicker and Company








41 cos
34 m in revenues in 2000
Employ 2000
Retail $150 m annually
Music publishing revenues: aobut 20m
Live performances 90 m
34% of BC radio revs in programming
Input in film production ( 1.2b annually)
CMNS 230
53
Recs for BC Policy

1. Build Export Capacity of BC artists and companies.


2. Improve the live peformance environment



Venues and link to tourism and trade
Promote in public places: ferries, transit, airpoprts, malls, and establish a BC
tour circuit
3. Target Tax Incentives



Help audience intelligence building, finance trade exhibitions MIDEM etc.
TRADEROUTES, and money on foreign marketing
Tax credit for sound recording like BC Film Tax Credit
Revise PST on rentals to level playing field with Ontario and LA
4. Support the Development of MUSIC BC


Need to bring the players together in a strong industry association with a
common goal of building the industry
BUT: CURRENTLY NO PROVINDIAL GOVT PROGRAMS TARGETED
SPECIFICALLY FOR SOUND RECORDING… VIDEOGAMES SAYING THIS
IS THE NEXT GENERATION OF DEVELOPMENT CHALLENGE, AND BC
UNDERPREPARED
BC Arts Council
( Ontario has a 20% tax credit)

CMNS 230
54
BC Winners








Daavid Foster: multiple Grammy Award winning producer,
performer and label exec
Sarah McLachlan
Bruce Allen
Michael Buble, Diana Krall, Nickelback, Nelly Furtado, Swollen
Members…
Strong Managers: Nettwerk Management
Etc. Mint Records, 604 Records, Maximum Jazz,Troubadour,
Battle Axe
Export of Bhangra…Surrey
Biggest constraint seen as access to financing ( Ference
Weicker); lack of profile in BC, lack of a star system
CMNS 230
55
Peer to Peer (P2P)
CMNS 230
56
P2P ‘culture’ of file sharing


Trade and download
Chat
 Merit around preferences, ideas, trends
 Signs of self selected communities of taste
 IN MARKETING: WORD OF MOUTH OR VIRAL
MARKETING (Garofalo, 2003 in Laba).
CMNS 230
57
The Gray/Play/Free Cultural Economy

IFPI found that illegal sales outstrip legal in 21
countries
 Between 99 and 2002… about $1.8 billion
illegal to $3 bn legal…ie. About 40%
CMNS 230
58
The Numbers Game








Has there been harm to revenues or Not?
CRIA, RIAA say yes…and at the individual level, firms are taking
hits… eg. EMI
But Overholzer and Strumpf study… says not…
They interpolate Neilson Soundscan and downloads…
Found little, possibly negative effect…
Other surveys found peole still purchased CDS
Actual Revenues and Profits have recently undergone a recovery
But, no denying a 20% downturn in the 3 years 2000-2003




A number of bankruptcies
Mergers & retrenchment
Consumer distrust: price fixing
In Canada, where margins precarious, downloads a bigger hit: but
Nordicity study does not find same defensiveness as majors
CMNS 230
59
The Struggle for a New Business Model



Move to per unit download costs.( sub services)
 Must: reduce price, provide product bonuses,
educate and undertake legal action
 CANNOT ignore global decline of 17% between 98
and 2002 to 32b US; 21% in terms of units
MAJOR ERRORS IN FORECASTS:2004 Ference
Weicker study predicted ‘no obvious carrier technology
that is projected to drive sales over the next years’
 Multiple platforms( Xbox etc can play CDs)
Convergence, film, music, ads, interactive content
CMNS 230
60
Future Business Model

Aside from on line distribution: major potential
distribution technologies:
 Electronic distribution to retailer
 Digital audio broadcasts
 RING TONES: CELL PHONES
 "The success digital music distribution will
ultimately depend on the depth of content, flexibility
of content rights and reasonableness of pricing.
Service must be outstanding if the industry hopes
to convince people to pay," said Mr Bosiljevac.
( Australian Music Recording Society, 2004)
CMNS 230
61
CBC
www.newmusiccanada.com
 Podcasting: The Subhumans

Fidgital
 Relaunch for Fall 2005

CMNS 230
62
CBC New Music

Radio 3's podcast is truly unique: it's full of amazing,
100% Canadian music from new and emerging artists.
It's great news for music fans and it's even better news
for independent Canadian musicians. We are
extremely excited about the potential for exposing
Canadian artists to a wider international audience with
this new technology."
To access the podcasts, just insert the following URL
in your podcasting client:
http://www.cbcradio3.com/podcast/
CMNS 230
63
Podcast Cont’d

Are You An Independent Musician Who Wants to Get Involved In Radio 3
Podcasts?
 If you're already a member of NewMusicCanada, log on to your member
page and agree to our new podcasting waiver. When you first signed up
with NMC there was no such thing as podcasting, and therefore, no
mention of it in the original waiver you agreed to. In order for us to
include your music in this exciting new programming initiative and keep
everyone protected, we've created an addendum to the NMC waiver
which grants us permission to include your tracks. If you're not yet a
member of NewMusicCanada, head over to
http://www.newmusiccanada.com/submit/submit.cfm and sign up!
 If you have any comments, questions, or concerns regarding our move
into podcasting, please don't hesitate to drop us an email or contact CBC
Audience Relations.
 Thanks for your support of Canadian music and hope you enjoy the new
podcasts!
CMNS 230
64
Sources on Canada








http://www.music.gc.ca/flash/enreg_index_e.asp
`http://www.telefilm.gc.ca/document/en/01/17/NordicityMusicRepo
rt.pdf#search=%22sound%20recording%20industry%20in%20ca
nada%22
Wikipedia: Music of Canada
Encyclopedia of Music in Canada
Canada Music Centre
Canadian Recording Industry Association ( CRIA)_
Canadian Independent Recording Producers’ Association
( CIRPA)
Nielsen Soundscan
CMNS 230
65