April 2015

CEO'S Corner
Cary Sherman On RIAA's New 2014 Music Revenue & Shipment Data
With a few words by Enjoy the Music.com's Editor and Creative Director.

  The very recently released report concerning the music industry's 2014 revenue and shipment is quite an eye-opener. There is no doubt that digital music downloads and music streaming are now the front-runners, with physical media such as the decades old CD and over century old record are taking a back seat. As a review and news reporting site, we felt it best to republish the recent report by the RIAA in full. The Recording Industry Association of America (RIAA) is the trade organization that supports and promotes the creative and financial vitality of the major music companies. Its members create, manufacture and/or distribute approximately 85% of all legitimate recorded music produced and sold within the United States of America. So obviously they have some data to mine that is of great value to those of us within the industry. You can read their report in PDF form by clicking here.

As many of you may recall, my Memo To The Industry in June 2013 was in hopes of spurring the high-end audio industry to take a strong foothold with digital audio advancements. In October 2014 i outlined how to label these new digital audio downloads. Whilst my marketing ideas were sent the The DEG on the last day of CES 2015 in a very raw form, due to an immense workload i've been too busy to fine-tune it for public release. Am hoping to publish a finalized version of how to market True Music^™ in the coming weeks. As we all know, the general public has already been enjoying high resolution audio for many years. i'll get into that, and other topics, within my upcoming and final article concerning how we launch, label, and market high resolution audio files. Yet for now, how about some eye-opening facts and a statement from the RIAA's CEO Cary Sherman:

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March 18, 2014

Today we released our report on recorded music revenues and shipment information for 2014. More than ever, the data we provide – including the aggregate valuation of various streaming services – is the most meaningful barometer about the state of the U.S. music business.

Our VP of Strategic Data Analysis, Josh Friedlander, provides a more detailed snapshot here. It's worth noting a few observations. First, the wholesale value of the American music business continues to grow – a 2% uptick this year. Modest, but the fourth straight year of such growth. The overall retail value of the business is basically flat – a small decline of .5%. This is the fifth straight year we've been essentially flat.

The music business continues to undergo a staggering transformation, one embraced by the music labels we represent. Record companies are now digital music firms, earning more than 2/3rd s of their revenues from a variety of digital formats. Streaming services collectively are generating meaningful revenue: nearly $2 billion in 2014, a 29% percent increase over 2013. You may notice that we continue to break out the revenues generated from the three major streaming categories. We believe the music community and the American public deserve to fully understand the revenues produced from each category, including the number of users of each particular type of service and the revenues generated by them.

Another observation: streaming music has been the subject of a healthy debate, which is appropriate. These are new models – how their value to the artist and label accrues is different than buying a CD or a download. But the reality is that the consumer has spoken and this is what fans want. The entire music community must come together to help make these services work for fans, artists and the music industry.

Especially as the business pivots to a streaming world, gaps in the law or decisions by some companies to deny compensation to certain categories of creators and labels is even more indefensible. That means, for example, that it's long overdue for AM and FM radio stations to pay artists and labels for the use of their work. Yes, you read that right – broadcast radio stations pay nothing to recording artists and labels for the music they use to attract listeners and sell advertising for their own commercial benefit. It's time for this special interest exemption to end.

Similarly, it is inexcusable that digital radio companies like Pandora and Sirius XM refuse to pay musical icons of our past for recordings made before 1972. Yes, you read that right, too – two of the biggest digital music companies choose not to share any of their revenues with the artists and labels behind the musical treasures of the 50's, 60's and early 70's, just because they've decided not to. And it's time for Sirius XM to start paying royalties at fair market rates, rather than below-market rates. Recording artists and labels shouldn't be forced to subsidize a multi-billion dollar behemoth like Sirius XM.

Our mantra is 'fair market value for all creators, regardless of platform.' That goes for the record labels too, who are the economic engines of the music business, investing billions of dollars to discover new artists, nurturing them as they refine their craft and helping them find an audience, all while paying a bigger share of their revenues to artists than ever.

The music business is not without its challenges, but the foundations of a continued comeback are strong. Just look at the Internet and social media, for example, where artists and music drive the conversation like nothing else. Music is more relevant to commerce and culture than ever before. It is fundamentals like these that continue to give us great hope. Here's to a bright future for music and everyone who creates it.

– Cary Sherman, Chairman & CEO, RIAA

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On March 24th (2015), Enjoy the Music.com reported within our Industry News that downloading and streaming music surpassed physical CD sales for the first time in the history of the music industry according to the RIAA). It comes as no surprise that musical artists are not happy with the payment they are receiving from this situation and, hence, Enjoy the Music.com's report two days ago about Jay-Z's idea to unite artists to leverage better pay from streaming music services. Pop singer Taylor Swift removed her music from Spotify and there may be more artists ready to have their music removed from specific streaming music services. Whilst paid subscribers to streaming services have experienced tremendous growth, many streaming services are having a hard time achieving sustainable profits. Those paying for subscriptions in 2014 grew by 26% year-over-year to 7.7 million according to RIAA and digital downloads plus streaming has reached 64% of total revenue. The decades old CD technology is floundering at a mere 32% of total revenue. The RIAA says that over 2500 digital services are licensed and operational today. Furthermore, artist royalties paid by major labels has increased over 36% as a share of major labels' net sales and gross licensing revenue. Whatever the situation, it is obvious that new agreements will need to be formed as the music industry undergoes a change from old-school physical to a modern streaming and downloading business model. Enjoy the Music.com, the high-end audio's leading online information site with the most in-depth industry news, will continue to report on these events as they develop.

On February 6th (2015) Enjoy the Music.com reported that it looks like we are finally getting a new United States of America Copyright Office ruling, as a just-released report recommends changes to federal music copyright laws. Next up will be the U.S. Congress to see if these changes should be implemented. New changes to current law reflect today's environment while also ensuring copyright holders, musicians, etc get fairly paid for the work. Within the report it says, "This report was prepared by the Office of the General Counsel, U.S. Copyright Office, following an exhaustive analysis of industry practices and considerable dialogue with music creators and the businesses that represent and invest in their interests, as well as music services and distributors and other interested parties. I am indebted to the staff who worked so tirelessly and thoughtfully to see the report to fruition and am confident that it will be a major resource for both Congress and the public." According to a report, the Copyright Office is recommending:

• The creation of a performance royalty that would pay artists and record labels when their songs are played on traditional radio.
• The elimination of the copyright loophole that cuts artists and labels out of digital royalty payments for songs recorded before 1972.
• Putting the copyright attached to a song's composition — the one owned by a publisher and songwriter — on equal footing with the copyright attached to the sound recording — the one owned by a record label and artist.

Guiding principles include:
• Music creators should be fairly compensated for their contributions.
• The licensing process should be more efficient.
• Market participants should have access to authoritative data to identify and license sound recordings and musical works.
• Usage and payment information should be transparent and accessible to rights owners.

The point is that publishers and songwriters have long complained how online playback has caused far higher rates to be paid to labels and artists while composition owners are not properly compensated. "This does not mean that the Office assumes that the rates for sound recordings and musical works should be equal," says the report. "Rather, the goal is to encourage evenhanded consideration of both rates by a single body, under a common standard, to achieve a fair result." Songwriter and President of ASCAP said, "With its report today, the U.S. Copyright Office was clear: The current music licensing system needs reform and fast. The report emphasizes how the current system undervalues musical works — something many of our members experience daily. The many proposed updates — particularly recommendations intended to make the system more equitable for songwriters — underscore yet again the inefficiency of the current system for music fans and creators alike." Cary Sherman, CEO for the Recording Industry Association of America, said "the report is an important contribution to the ongoing conversation about modernizing the copyright laws. Reform is necessary to develop new revenue streams for all creators and innovative consumer product offerings for music fans. The office also recognized that it is time to fix the system to ensure that all creators are paid fair market value for their work, regardless of the platform on which their work is used. For example, a performance right for FM and AM radio is long overdue." You can read all 245 pages (PDF) of the report by clicking here.

There is no doubt that the music industry is right now in the midst of major changes. At the same time, musical artists, the people who create and shape the content we all enjoy, need to be compensated properly for their work. One of my friends, recording engineer Ken Lewis, helped the Woo-Tang Clan create an album. Literally it is one album, a single copy which can be heard as it tours the United States. Only a handful of weeks ago Jay-Z (Shawn Carter), as first reported to audiophiles worldwide by Enjoy the Music.com in January, had his company Project Panther Bidco Ltd. acquire Aspiro (owners of WiMP and TIDAL). He is now setting his sights on a new initiative to benefit musical artists. Industry journalist Bobby Owsinski, the author of 24 books on recording and the music business, wrote in Forbes that Jay-Z has a "Radical Idea To Upend The Streaming Music Business". Jay-Z brought together giants within the music industry including Beyonce, Daft Punk, Kanye West, Madonna, Nikki Minaj, Chris Martin of Coldplay, Jack White and about 20 others that included "non-musicians ranging from attorneys to music execs" to discuss how Jay-Z can form a conglomerate along the idea of United Artists film studio. This would provide the artists to have control of the business and reaped more of the rewards than within today's corporatocracy. Project Panther Bidco Ltd has now finalized acquiring Aspiro and will re-launch TIDAL as TIDALHiFi. It is no secret that musical artists feel they are not being paid fairly by corporations who stream their music online or play their music on the radio. Jay-Z is seeking the change that. To quite the Forbes article, "The biggest plus in Jay-Z's purchase of Aspiro is that the company already has licenses in the U.S., Canada, and many European countries, which would be nearly impossible to quickly acquire if he tried to build a streaming network from scratch. TIDAL also offers more than 75,000 high-definition videos, which makes it different from other audio-only networks, at least until YouTube Music Key shows up." Whilst there is no doubt Jay-Z is a savvy businessman, he also needs to have the right structure and people in place with a true vision of possibilities for the future of the music industry. There is no doubt risk is involved. The benefits to musical artists, who feel they are paid very little under today's corporate structure, feel that there needs to be a change in the industry and Jay-Z is in a position to help find a solution. Of course the big boys in the game, including Apple and Google, need to be respected for their ability to use high leverage to their massive user base.

Update: Literally minutes after Enjoy the Music.com posted this article, it has been reported that TIDAL will be 'relaunching' by offering new releases by Daft Punk, Madonna, Kanye West, etc before they become available within other online music services such as Beats and Spotify. According to TechCrunch, "The company [TIDAL] has been sending out invites for a press conference being held at 5pm Eastern time today, in which Shawn "Jay-Z" Carter "will announce a commitment to a new direction for the music industry from both a creative and business perspective."

This news also just in: TIDAL will offer up CD-quality streaming for all Sonos homes starting today (March 30, 2015). This is for for all users as 'day one' of TIDAL's global availability. Note that there is also now available a price drop for a new tier. For $9.99.mo you get standard lossy compressed sound quality and access to high definition music videos and expertly curated editorial. For $19.99/mo you get TIDAL HiFi CD sound quality, high definition music videos and expertly curated editorial.

For us music lovers and enthusiasts, including those within the high-end audio industry, we do indeed live in interesting times.

Enjoy the Music (Dear Mr. Fantasy...),

Steven R. Rochlin