Radiohead's Web venture spooks Wall Street
Wall Street is taking record labels to task for lackluster Web sales, spiraling CD revenue, and the defections of marquee acts such as Madonna and Radiohead.
Nine Inch Nails' Trent Reznor
(Credit: Rob Sheridan)Two analysts downgraded Warner Music Group last week, leading to a sharp drop in the company's stock price. One of the analysts, Richard Greenfield of Pali Research, penned a gloomy report about why he thinks the sector is headed for even greater losses.
"No matter how many people the RIAA sues, no matter how many times music executives point to the growth of digital music, we believe an increasing majority of worldwide consumers simply view recorded music as free," Greenfield wrote.
Proof of this was provided last month by Radiohead fans. The British supergroup offered the digital version of In Rainbows, the band's latest album, for whatever fans wanted to pay. According to research firm ComScore, which conducted a study of the groundbreaking promotion, 62 percent of those who downloaded the album paid nothing.
To Greenfield, what's more disturbing is that Radiohead and a growing number of top acts perceive the Internet as an attractive alternative to record labels. Nine Inch Nails front man Trent Reznor has indicated that he plans to distribute his music online. Madonna announced last month that she was leaving Warner Music for Live Nation, a music promotion company.
"The paradigm in the music business has shifted," Madonna said in a statement announcing the switch. "For the first time in my career, the way that my music can reach my fans is unlimited."
Like Greenfield, Merrill Lynch analyst Jessica Cohen downgraded Warner Music's stock from "neutral" to "sell." Both also reduced next year's earnings estimates for the company.
Following the reports, Warner Music's stock hit a 52-week low ($8.78) on Friday. The company's shares, which were trading above $27 a year ago, closed Tuesday at $9.50.
What could be unsettling to those in the music business is that Warner Music was supposed to be faring better than the other three majors--Universal Music Group, Sony BMG Music Entertainment and EMI Group--according to Greenfield. Earlier in the year, his view on the stock was slightly rosier.
"Over the past couple of years," Greenfield wrote in his report, "(Warner Music) has done an impressive job, outperforming the industry weakness."
The main cause for concern continues to be spiraling CD sales. Download revenues are growing--but not fast enough to ease the pain. Greenfield expects CD revenue to drop 22 percent in the fourth quarter of 2007. He said retailers such as Wal-Mart Stores, Target, and Best Buy are rapidly reducing the floor space dedicated to discs.
How vulnerable is the music industry?
Consider that the sector generated revenues of $14.3 billion in 2000, according to the Recording Industry Association of America, or RIAA. This year, it's expected to report revenue of $10.3 billion. Had sales growth only kept pace with the U.S. economy, it now would be worth $17 billion, Greenfield wrote.
This illustrates "how dramatically the music industry is continuing to underperform," Greenfield said in the report.
Greenfield urges music executives to embrace a new ad-supported business model, one that dramatically scales back the size of record companies and doesn't saddle songs with digital rights management. He doubts that this will happen any time soon.
The industry is "not ready to endorse such a move at this point" Greenfield wrote. "Even if it was, the...transition will be incredibly painful."
Greg Sandoval covers media and digital entertainment for CNET News. He is a former reporter for The Washington Post and the Los Angeles Times. E-mail Greg, or follow him on Twitter at http://twitter.com/sandoCNET.
Its clear that if the record companies would like to survive they need to adapt. I have been saying this since '99. They need to move from being a CD based sales company to an online library of all songs ever recorded professionally. The major labels must band toegther and offer all material online... snap in some discreet advertising revenue and...Charge a monthly membership to use the sattelite or cable tv model.
The provision of quality service that people want at a fair price is the only model that works in an open and free society... and thanks or curse (depending on what side you are on) the internet and digital copying has removed the power control of the labels. They have no choice, they must be competative again.
not to mention the small unknown indie bands that have no cash flow.. with the downfall of the RIAA and its canadian counterpart.. these bands may never be able to get off the ground.
how Universal could dare stick their noses up to Apple at this
point. They want their piece, and sure, they deserve credit for
all their hard work, but they have to see the signof the times...
people just aren't willing to pay what they used to for music
anymore. Artists are going to have to bring thier music live, and
find other ways of making a buck, even if it's a little less buck.
It's what the market is princing their talents at. It's true, adapt
or die.
Then with TV shows... I think it's ok to try all things. I've tried
Hulu.com, but would rather watch TV. iTunes is about
accesability, and bringing my shows mobile and does a great job
at this. I have chosen this format, why would Universal not want
to continue to support thier customers this way? Hulu is an
undesireable version of my Tivo because I can't even keep it.
They might be making a good buck on the ads with Hulu, but 15
million is not so bad with a small but definately growing
audience on iTunes.
OTOH, Sometimes (rarely with an RIAA member-produced album these days, but once in awhile...) an album has music that takes time to grow on a person.
The band Dream Theater was like that - Their album "Images and Words" (the first one I bought from that band as a young man) had one song that got my attention immediately and got me to buy the thing. At the time, the rest of the songs just made me go "***!?" a lot. Over time, I went back to listen to them, and discovered that they were actually pretty good, and as my own music tastes grew and developed, I can say with certainty that perhaps only one or two songs on that album is still not-so-good.
It led me to seek out the rest of their discography, and I currently have pretty much everything they ever sang.
But... like I said, this is a rare occurrence. In most other cases, the album has a couple of decent songs on it, one really good one, and the rest suck. And that's if I get lucky.
This probably explains why I only buy from independent (read: Non-RIAA) sources these days... they usually give you a free listen of all their goods, and you can buy 'em as albums or as singles.
/P
Moving forward, the issue is that you still have to pay for your bandwidth, servers, etc ... so you still need to make some revenue from the sale.
Yes the model is changing and the revenue the artists are going to recognize is from performing and licensing their songs, not from the purchase of CDs or digital downloads.
Current DRM technologies impact on the user's rights to copy their music and distribute to their own infrastructure of players. (Transfering their mp3s from their PC to their portable device to their car... all should be allowed.)
The music labels and the artists are going to have to adapt and come to terms with each other. While established stars can shun the producers and labels, upcoming stars cant. You can't get an audience without play time, and you can't get the mass appeal without marketing. So the artists may buck the system, they will not win in the long term.
album, In Rainbows last month, about 62 percent
walked away with the music without paying a cent,
reported ComScore, an Internet research company."
The biggest problem with studies like this is
that there is no way to factor in how many people
downloading the album were doing so out of
curiosity and would not have bought the album
anyway. The next biggest problem is how do you
factor in people who had never heard of them and
will now become fans.
The only concrete piece of data you can get from
this is how many people downloaded the album.
As for Warner, they are a dinosaur that refuses
to see the winds of change and they deserve the
fate that is coming to them. All they do is put
out canned music and movies with no real value
and then they expect us to pay for the garbage on
top of that.
If you read Wall Streets past reccomendations on what Apple should do (all short term) vs. what Apple did to be the succes it is I can rest my case.
Wall Street understands bean counting, but not passion. Passion about what they do is why Toyota, Apple, Google and others are doing well. Wall Street Bean counting is why GM, Gatewway and others...not so well.
If the music industry finds it's passion for music they will innovate new and better ways to get music to fans. Ways that work, and pay the bills.
years. We made it all the way to the 80s before big business
killed off any creativity. Now that you can steal music for free
too, it has pretty much killed what was left of the music business.
In a way it is really sad, but in a way I'm not so sad. The whole
music business needs to be blown up and rebuilt. The internet
has allowed people to find music that would never be signed by
a major label or played on any corporate radio station because it
doesn't fit the cookie cutter mold.
However, the drop in CD sales from $14 billion to $10 billiion, when, had it kept pace with inflation and the economy, should have gone to $17 billions....just shows that their policy is, not, as they claim, working...but IS, as so many others have said, a last ditch effort to keep a stranglehold on artists and the industry.
Record companies are dinosaurs...they serve no legitimate purpose in an era where distribution and manufacturing is all digitial.
What's ashame is that there are companies making money here...its just not the record companies, who, instead of innovating, made a grab to have Congress legislate their revenues (like they do in Canada).
Shame on you RIAA....now go die quietly.
That's not how the RIAA works. They aren't funding the small unknown india bands...thats rather a dream world you live in.
The RIAA tries to latch on to someone that is already a success, and take the majority of the profits for themselves.
The collapse of the RIAA, neither helps nor hurts a small unknown band...its always a huge challenge to make it big, and it always will be, because there are a lot of bands trying to make it.
It will be done in different ways, going forward.
Who on earth would allow a company to install a monitoring software to watch everything you do online. Especially while purchasing which involves disclosing your credit card numbers. This is called spyware. Not only that but how do they know how much people paid? You did have to pay at least $1 in service processing fees to download the album. Check out the web site!
Here is my take on it. Music companies are paying Comscore to release phony numbers to make the band look silly to prevent other bands from dropping their record company. I bet if there was an investigating reporter they could easily find the story. After all, why is Comscore putting out an effort to tract the Radiohead deal? Someone is paying them. Follow the money.
One problem with online distribution is online payment. I personally don't have a credit card and I live in Sweden were many has recently started to use credit card payment online, young people don't have credit cards at all. Most people I know don't shop regularly online because of a lot of security issues with payment online.
So online payment must become safer, faster and easier for me too start shopping online regularly.
The same sort of scenario as Radiohead's would happen if you put any product up for sale with the sign 'Pay what you want.' Imagine if a convenience store adopted that same policy. Its very hard to imagine different results. Virtually every store in existence has some sort of security installed because of a simple principle: Someone will cheat the system if they can get away with it. I'm really having a hard time understanding why the results are that surprising. Especially when many people don't even have the intent of getting something for nothing; they just want to listen to the music before they decide on a price to pay. I think that analysts jumped the gun on this... lets wait to hear what Radiohead has to say.
I do applaud Radiohead for trusting the fans and for cutting out the middlemen; I hope the results go well for them.
I realized my reaction was to buy the DVDs instead. Yes, the movie industry is having similar (albeit smaller) problems with piracy, but for the most part DVDs still have a greater value for your buck, even over a free copy you can get of a movie online. CD, on the other hand, have the songs, and that's it.
The record companies haven't just dropped the ball on music downloads, but also on value in general. I might buy more CDs if there were more value in them, or even DVDs of music with extra value, documentaries, interviews... But right now, there's no extra value.
In fact, I have some old vynal records, the big gatefold types with lyrics and large artwork... Beautifully rendered compared to CDs today. Here's "the point of no return", the front cover is gorgeous! The CD is this little tiny thing... meh! Back in those days people WANTED to have the full records because of the value... I wouldn't have settled back them for a low quality tape or high quality tape even! I wanted the big album covers!
Today, there's almost no value in a CD at all. The record companies have dropped the ball, big time.
Creative ones live on, only the parasites are gone. Rejoice!
I buy music either CD, DVD, or online, but I am sick and tired of the DRM in the online and DVD versions.
I am very happy to hear that some online stores are now offering DRM-Free MP3s instead of those draconian proprietary formats (Microsoft, Apple).
I don't think the studios and production companies will disappear but they do not have the stranglehold on the public that they once had and flaunted. As far as the RIAA, other than a standards group I think they will disappear.
I'd like to hear directly from the band on how well the trial went in a few months.
Also a lot of the 62% of the downloaders would never have bought the cd anyway so they do not lose anything on them. I have never heard any of their songs but I am tempted to go download some and give it a listen to see if I like it. I might become a fan and send them some money if it is good. So they get a lot of valuable advertising. The label was going to charge a lot more than 62% of the revenue for promoting them.
But more important is the fact that they still own the rights to their songs. If they sign with a label then the label owns their songs forever. Now they are the masters and not the slaves.
Yahoo and Rhaphsody are a scam, plain and simple. My player needs to be re-connected on a seemingly random basis to update licenses of the songs I've downloaded, otherwise they DON'T PLAY.
Even then, I have now lost about 20% of the songs on my player because they are "no longer eligible for relicensing". What a crock!
Or, sometimes the relicensing process doesn't work... and Yahoo Music tries (and fails) to walk me through a process of uninstalling the application and SEVERAL MICORSOFT HOT FIXES to get it to work again... after several days of effort.
THIS is the online convenience these services promised us? They should be prosecuted for selling a fraudulent product. And the RIAA should be sued for extortion.
I have NO SYMPATHY for the fragile economic condition of the record companies.
I purchased several songs in the past that had DRM restrictions. Every single time I buy a new computer, I have problems. It is not fun. It's a huge waste of my time. Just imagine if you go out and buy 1000 songs at 99 cents and then discover that none work next week when you upgrade your system or when the company from where you bought them closes up shop.
It is not only the cost of the products, but the wasted time trying to address DRM issues. Even if a company gives you a refund for your purchase, as Google did, who pays for your time to go re-acquire the products you bought? Nobody, that's who.
It is my own view that music ought to be sold as such ridiculously low prices that nobody really cares about the price. They buy what they need for their MP3 player and don't worry about losing it. At 99 cents, people care. What about 5 cents? At what price would people feel comfortable considering the money they paid to put music on a device as entirely disposable? It is at that point where the music industry actually might see an increase in sales, because people pay for the same music over and over again. People would likely buy songs even if they did not necessarily love the song too much.
Has anybody explored the idea of pricing music at prices that makes the investment entirely disposable?
"comScore maintains a group of users who have monitoring software (with brands including PermissionResearch and OpinionSquare) installed on their computers."
Okay? It's a totally skewed sample.
- Rather than steal, why not just not get the music?
-
by PFreak
November 8, 2007 1:14 PM PST
- So many posts here say there are only one or two good songs per
-
Reply to this comment
-
-
- Copyright infringement is not stealing
-
by MSSlayer
November 8, 2007 2:28 PM PST
- Is it just paid RIAA shills that are here posting BS or are people really this stupid?
-
View
reply
-
Showing 1 of 2 pages (38 Comments)album so why pay for the CD. If the music is that bad why are you
bothering to steal it at all? You don't get to decide how much you
are willing to pay for anything. Try going into a Porche dealership
and saying you'll give them $2,000 for a 911 and watch them
escort you out the door. If you like the song, buy it. If you don't
then don't steal it then ***** if you get sued.