Webware

The Alps, one of the bands that Slicethepie members can buy shares in.

(Credit: Slicethepie.com)

A lot of people have talked about selling stock in bands as a means to help finance promising musicians. In Great Britain, a company called Slicethepie.com is enabling fans to trade shares of music acts the way they would a publicly traded company.

The Web start-up has financed 13 bands and generated the equivalent of nearly $80,000 for its 40,000 "scouts," according to a story from Reuters. The company enables members to test their skills at evaluating talent and in this way they become mini music moguls.

"We effectively turn every music fan into a record label," David Cortier-Dutton, the company's CEO told Reuters. "Everyone can invest in new artists on an economically attractive basis."

The good news for Americans is that you don't need to live in Great Britain to invest, according to a note on Slicethepie.com.

This is the latest attempt to find an alternative business model for the ailing music industry and provide fans more direct interaction with entertainers. Last year, Radiohead walked away from its record label and in a ground-breaking move offered the album In Rainbows directly to the public via the Web. The band allowed anyone who wanted the music to pay what they thought it was worth.

Selling shares in a musician is not new. In 1997, David Bowie sold Bowie Bonds, which gave a single buyer (the Prudential Insurance Co.) the rights to future assets derived from Bowie's first 25 albums (287) songs for a total of 10 years. In return Bowie received an upfront payment of $55 million. After 10 years, the rights returned to Bowie.

Bowie, of course, was an established artist, and Slicethepie focuses on bankrolling unsigned and largely unknown performers. The way Slicethpie works is that members review a pool of about 7,500 acts, Reuters reported. The 20 or so with the highest ratings every month "go forward to qualify for funding."

Only about one or two acts receive enough financial backing to create and release an album. According to Reuters, a band would need to sell 100,000 albums for a major record label to break even. But at Slicethepie.com, a band need sell only 1,000 units for the Web site's members to make money.

Investors receive $1.98 for every album sold, according to Reuters. The wire service used as an example the Arctic Monkeys, a popular U.K. band. Had the group been on Slicethepie and sold 1.1 million copies, then someone making a $40 investment in the band would have received $4,000.

Artists are allowed to opt out and sign with a traditional label provided they pay a 50 percent premium, Reuters said. Next month, the indie rock band, The Alps, will be the first act from Slicethepie to release an album.

The music industry is preoccupied with giveaways these days.

The latest example will come on Sunday, when New York Daily News subscribers will find an access code in their paper that they can use to retrieve three free songs from EMI Music.

Subscribers punch the code into the newspaper's Web site, Nydailynews.com and the music is theirs. They have over 120,000 tracks to choose from.

Among the songs available is an unreleased track, "It's Love" by Ringo Starr. The promotion will also run on the following Sunday, the day of the Grammy awards.

Combining music with newspapers (two industries being pummeled by the Internet) was a powerful mixture for rocker Prince last year. The rocker made news last July by giving away copies of one of his CDs to readers of a London tabloid.

Lenny Kravitz is launching a similar giveaway in Great Britain on Feb 3.

Radiohead redefined music giveaways with its "pay-what-you-want" offer in October.

There's plenty of people in the music industry that fret that giveaways devalue music.

While it must be noted that the Daily News is compensating EMI for the songs, it's still important to point out that to the public, these days the word "music" trails the word "free" like a caboose.

British rock group The Charlatans are the latest to experiment with an online music giveaway.

The alternative rock band, known for such songs as "One to Another" and "Weirdo," said on its Web site that fans will be allowed to download its latest album, You Cross My Path, free of charge starting March 3. The music can be downloaded from the band's Web site or here.

The album's digital distribution will be followed by the release of a physical CD beginning May 19. This will include the sale of a vinyl box set.

This is nearly identical to the plan pioneered by Radiohead when launching In Rainbows. Radiohead shook the music world in October by allowing fans to pay whatever price they wanted for the album.

Some observers credit Radiohead's pay-what-you-want music offer with the brisk sales of the CD-version of In Rainbows CD.

In its debut week, the album sold more than 122,000 copies, good enough to make it the best-selling record in the U.S.

Radiohead's lead was immediately followed by spoken-word musician Saul Williams. Other marquee performers, including Courtney Love, are considering similar offerings.

Side note: Alan Moulder, the record producer who has worked with acts such as Nine Inch Nails, The Smashing Pumpkins, and The Jesus and Mary Chain, is quickly becoming the studio engineer of choice for online-music giveaways. He mixed both You Cross My Path and Williams' album, The Inevitable Rise and Liberation of NiggyTardust.

Musicians aren't merchants.

We certainly learned that through Radiohead and Trent Reznor's separate experiments with choose-your-price album promotions.

Trent Reznor of Nine Inch Nails

(Credit: Rob Sheridan)

In October, Reznor, the leader of the band Nine Inch Nails, and Radiohead attempted to promote and distribute albums online without the help of a major record label. Both offered fans the opportunity to obtain the music for free. Both saw some success.

But they also illustrated that the music business is probably better left in the hands of businessmen. Musicians are not the new labels. Artists need someone to provide financial support and business acumen. If we end up ridding the world of labels, we'll only have to re-create them--in some other, probably more nimble form.

Last week, I interviewed Reznor about the online promotion of rapper Saul William's album The Inevitable Rise and Liberation of NiggyTardust. In that interview, Reznor said he was disappointed that only 18 percent of the more than 150,000 people who downloaded the album paid for it. He and Williams offered two options: pay nothing or obtain a higher-quality audio version for $5.

By backing Williams with his money, name, and know-how, Reznor essentially thrust himself into the role of a music label. That is, a music label with a lot to learn. The first lesson was that you don't always back a winner. A music company's fortunes can often rest on its ability to discover superstars. Profits generated by a few marquee acts have always kept the companies going while all the other performers break even or lose money.

EMI said this week that only 5 percent of its acts are profitable. This kind of prospecting requires a huge investment.

Reznor said he didn't get involved with Williams to profit, but acknowledged that he spent too much making the album and said he hasn't yet recouped his money. A record company can afford to make bad bets once in a while, said Chris Castle, a music industry insider who has worked as a vice president for both Sony Music and A&M Records. Musicians, even successful ones like Reznor, probably can't.

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One of the recording industry's most daring experiments ended on Monday. Three months after Radiohead stunned the music industry by allowing fans to pay whatever they wanted for the album, In Rainbows, the band has now opted for a more traditional sales approach.

That was fast.

Just weeks ago, the group was being congratulated for laying the groundwork for a new business model that pundits said could one day save the music industry. But as Radiohead prepares to distribute songs the old-fashion way--selling CDs out of retail stores--not everybody is cheering.

Nicky Wire, a member of the Manic Street Preachers, a rock band whose hits include "Send Away The Tigers," told a news publication last week that Radiohead's offer "demeans music."

"Fair play to Radiohead for doing something different," Wire told the United Kingdom's Daily Star. "It's certainly great publicity, but I think it kind of demeans music. Music used to be a market; now it's all gone digital. It's worrying (that) cinema is doing well, video games are doing well, but music isn't. The free-download phenomenon is ruining the industry."

Such statements are heresy to the "free" culture, but Wire may be right to question whether Radiohead's experiment was a success.

Nobody other than Radiohead and its handlers know how much money the groundbreaking promotion generated, and they aren't sharing figures with the public. Nonetheless, there are signs that the revenue was less than spectacular.

Last month, ComScore, a traffic-tracking company, stirred controversy when it estimated that 62 percent of those who downloaded In Rainbows did so without paying a cent for the music.

The band called ComScore's figures, which were calculated by tracking a sample group, "wholly inaccurate."

The obvious question now is why would Radiohead kill the promotion and go back to a traditional sales model if the cash were rolling in?

The album is still in its infancy, say music industry executives. The economic life span of an album can last as long as two years. It starts when an act releases a record and is extended when the performer goes on a concert tour.

"For those of you who wish to buy In Rainbows in the usual way," said a message at Radiohead's site on Tuesday, "it will be available on CD/vinyl and download from traditional outlets from the 31st December 2007."

Several publications have also reported that Radiohead is negotiating to make In Rainbows available on iTunes.

You can argue that the reason to pull the plug on the offering is to give the band a chance to tap into the shrinking but lucrative CD market. Discs are still the way most people listen to music.

But if the pay-what-you-want promotion was a cash cow, why not keep it going at the same time that you sell CDs? If the digital and CD markets are separate then there's no fear of undercutting disc sales. If they are not, then hasn't the high-profile online promotion already doomed physical sales?

And then there are the statements made this weekend by the group's manager, Chris Hufford, in an interview with the The New York Times. He indicated that the In Rainbows strategy was a one-off.

"This was a solution to a series of issues," Hufford told the Times. "I doubt it would work the same way ever again."

He's not saying the promotion was a bust, but neither is he hollering, "Eureka, we've discovered the new paradigm!"

There's no doubt that Radiohead's gutsy move scored points with fans. Another benefit is that other performers who follow Radiohead's experiment, such as rapper Saul Williams, are sure to learn much from their experiences. They might even improve on the idea.

Last month, Williams launched an offering similar to Radiohead's but tweaked it so people would have more motivation to plunk down money. At the same time he gave away a digital version of his album The Inevitable Rise and Liberation of NiggyTardus, Williams offered a higher quality download that could only be obtained with a $5 donation.

At this point, it looks like Radiohead began a discussion. There's plenty still to be debated.

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."

LAST UPDATE: 3:54 p.m. PT--Those who predicted that Radiohead would see mass financial support after allowing fans to pay whatever they wanted for the band's latest album appear to have been a tad optimistic, according to a study released Monday.

Of those who downloaded Radiohead's digital album, In Rainbows last month, about 62 percent walked away with the music without paying a cent, reported ComScore, an Internet research company.

About 17 percent plunked down between a penny and $4, far below the $12 and $15 retail price of a CD. The next largest group (12 percent) was willing to pay between $8 and $12--the cost of most albums at Apple's iTunes is $9.99. They were followed by the 6 percent who paid between $4.01 and $8 and 4 percent coughed up between $12 and $20.

Last month, Radiohead, one of the world's most recognized music acts, thrilled fans across the globe by giving them the option of paying whatever they wanted to obtain a digital copy of In Rainbows.

Music blogs lit up with excitement. Pundits crowed that the file-sharing crowd would prove that they weren't really just free loaders by happily supporting artists who had walked away from the labels. That appears not to have happened by and large.

But an important question still unanswered is whether the band is making any money. While Radiohead is believed to have had to pay the costs that go with distributing music online, the group also didn't have to share revenue with a record company.

Chris Castle, a long-time music attorney and record executive, cautions that it's way too early to try and assess whether Radiohead's experiment has failed or not.

Castle, who has represented singer Sheryl Crow and worked for A&M Records, said that the money-generating lifespan of an album can last as long as two years. It starts when an act releases a record and is extended when the performer goes on a concert tour.

The real question, Castle said, is whether Radiohead can equal the same kind of money it made when it was still making records for music company EMI.

Castle offered an educated guess about what the British band was earning at the label. He figures that in every year a Radiohead album was released, it was EMI's top-selling record. The band likely negotiated a larger royalty rate than most performers earn.

He guessed that when royalties were combined with money earned from publishing, Radiohead saw between $3 and $5 for every album sale.

Castle also estimates that the band typically sold between 3 and 4 million units worldwide. That would mean Radiohead hauled in between $9 million and $20 million per album. An EMI spokeswoman declined to comment for this story.

If Castle is right about the band's cut, then the money it received from letting fans pay may not have been a huge drop. According to ComScore, the average amount spent for all downloads came to $2.26.

Castle also said that not only is it too soon to try and measure Radiohead's success, but that they are not a good band to use as a test case. The group is a phenomenon with an enormous following and not all acts will see the same success by going independent.

"I may not agree with what they are doing but I think people should respect what the artist wants," Castle said. "If they want to give their music away, let them."

Radiohead's experiment with a different business model may benefit the entire music industry if record executives can learn from it, according to Castle.

"I think if we had done this kind of thing a long time ago," Castle said, "we'd all be better off."

Already, Radiohead's promotion has given rise to similar offerings from other bands. Last week, rapper Saul Williams released the album The Inevitable Rise and Liberation of NiggyTardust. Williams gave fans the option of obtaining the music for free or for a $5 donation.

An important difference between the offers of Williams and Radiohead is that those who paid for Williams' music received songs at higher bit rates and thus better quality.

Trent Reznor, the front man for Nine Inch Nails, produced NiggyTardust, and he offered kudos to Radiohead for experimenting with a new business model.

"I think there were some serious flaws with how they executed," Reznor said in an interview with CNET News.com last week, "but it was a good idea."

Coincidentally, on the same day that ComScore released Radiohead numbers, EMI announced that it was releasing the group's first six studio albums and one live album in several formats including uncompressed WAV files.

The WAV files come on a USB drive and goes for $167.