As the embattled music industry continued to morph in 2012, a few trends were clear: Players at the top of heap continued to consolidate, digital distribution and streaming became the rule, not the exception, and the court of last resort for those seeking a bigger slice of the changing pie was, well — the courts (and Congress). Here are some of the deals, decisions and developments that are likely to have an impact on the biz in the year(s) to come.
After an auction process that took up the better part of a year, and over the loud objections from independents overseas, Citigroup sold EMI Music’s publishing unit to a consortium headed by Sony/ATV for $2.1 billion in July, and EMI’s labels (minus crucial regulator-mandated divestments) to Universal Music Group for $1.9 billion in September. UMG’s label acquisition was the first major music business consolidation since the Sony-BMG joint venture of 2004; the pickup created a behemoth that accounts for some 40% of the U.S. market. UMG will now operate EMI as a separate unit, with former Columbia Records co-chairman/chief operating officer Steve Barnett moving to the top in late November. On the publishing side, former EMI Publishing topper Martin Bandier, now at Sony/ATV, will once again oversee the assets he helped turn into the world’s most powerful song concern — the company holds copyrights by writers ranging from the Beatles to Taylor Swift.
Now a distant third behind UMG and Sony Music Entertainment among the big three music firms, WMG is a very different company than it was in January, when ex-CEO Edgar Bronfman Jr. — who engineered the 2004 purchase of the unit from Time Warner — exited the executive suite. With new CEO Stephen Cooper at the helm, installed by Len Blavatnik after his Access Industries bought WMG in 2011, a round of changes came down in late 2012. In September, recorded music chairman-CEO Lyor Cohen ankled WMG after eight years at the top. In November, WMG was reorganized into three divisions — with Warner/Chappell Music chairman-CEO Cameron Strang given oversight of both publishing and recorded catalog. Finally, early in December, Strang added responsibility for Warner Bros. Records to his duties, as WBR co-president Todd Moscowitz, a longtime Cohen lieutenant, announced his resignation. Strang’s elevation fired speculation that changes could be in store for Atlantic Records Group co-chairmen Julie Greenwald and Craig Kallman, also close Cohen associates.
In September, AEG, privately held by Denver billionaire Philip Anschutz, announced it was entertaining bids. The diversified sports and entertainment company owns interests in professional teams (including the Los Angeles Lakers, Kings and Galaxy) and dozens of venues (including Staples Center and other L.A. Live properties); its AEG Live division, which encompasses Goldenvoice, promotes the annual Coachella Festival, country fest Stagecoach and other lucrative events. Second only to Live Nation Entertainment in size and scope, AEG is expected to command a monumental price of $8 billion-$12 billion. No matter who bids on the firm, a shakeup in the highly competitive concert market can be expected — that is, if a sale price and cash-and-debt terms can meet with Anschutz’s approval.
Streaming radio service Pandora has been at the forefront to get Congress to pass the Internet Radio Fairness Act — which will reduce licensing royalties Web radio services pay. Alongside terrestrial radio giant Clear Channel (which operates Web platform iHeartRadio), Pandora testified last month at a House hearing for the bill. After having filed suit over the issue against performing rights org ASCAP in November, Pandora is also urging its listeners to write to their congressmen. On the other side of the debate were artists, music publishers and labels, who not only pushed for maintaining current congressionally mandated Web rates, but also for artist royalties for airplay on terrestrial radio — long resisted by the National Assn. of Broadcasters. As the debate roiled this year, Clear Channel agreed to unprecedented individual revenue-sharing deals with indie labels Big Machine, Glassnote and Naxos for both terrestrial and digital radio, opening another front in a battle sure to heat up further in 2013.
Can digital music files be re-sold legally? That is the question at the heart of a lawsuit filed in January by EMI’s Capitol Records against ReDigi, a Massachusetts-based company established as a marketplace for so-called “used” digital songs. Capitol maintains that the company is nothing more than a clearinghouse for copyright infringement which relies on unauthorized copying of music. ReDigi claims its operations are secured under the first-sale doctrine protecting the redistribution of albums and other purchased copyrighted material. A federal judge in New York declined to grant an injunction against ReDigi, but a definitive ruling on the merits of Capitol’s case was pending as of press time. A finding in ReDigi’s favor could have a negative impact on labels, which enjoy no revenue from such “re-sold” product, and whose earnings have already been wracked in the digital era.
In October, UMG and Aftermath Records settled a long-pending suit filed by Eminem’s early production team over royalties for downloads and ringtones. The companies had suffered a setback in September 2010, when an appellate court overturned a verdict in their favor, and ruled that royalties for downloads and ringtones should be computed at a higher rate granted for licenses, and not as “sales.” The ruling has been cited as a precedent in more than a dozen class actions and individual suits filed against UMG and the other majors by heritage acts seeking higher digital royalty payments; James Taylor and Kenny Rogers were among the artists who took to the courts this year. It remains to be seen if the “Eminem case” settlement will provide any leverage for those plaintiffs, or if other acts with decades-old contracts will launch new litigation looking for bigger payouts.
The RIAA announced that digital shipment of music accounted for more than 50% of the business for the first time ever in 2011, and unexpected alliances began to manifest themselves in 2012. In March, UMG exited the indie distribution game, selling its Fontana Distribution unit to the San Francisco-based digital wholesaler INgrooves, which reestablished itself as a full-service digital and physical distrib. The same week, digital aggregators the Orchard and Ioda announced their own merger. Further realignment of the digital side of the business can be anticipated in 2013.
Now valued at $3 billion, streaming service Spotify continued as the big dog in the online hunt in 2012. In November, it secured $100 million in new funding, including an infusion from Coca-Cola, Goldman Sachs and Fidelity Investments. Earlier this month, the Sweden-based company announced it had 20 million users, with 5 million paid subscribers (1 million of them U.S.-based). While some question whether a 25% paid subscriber base represents a workable business model for the service, which draws the majority of its users with a free, ad-supported tier, many observers believe that streaming music will ultimately be the most fertile growth sector of the business.
Electronic dance music has been the growth genre on the live front over the past few years, with mega-raves drawing thousands of partiers to large outdoor venues here and (especially) abroad. The business at large has been paying attention: Live Nation bought British EDM promoter Cream Holdings in May and L.A.-based Hard Events in June. However, two of the biggest promoters in the genre took a hit, as Insomniac Events’ Pasquale Rotella and Go Ventures’ Reza Gerami — who mounted such massive L.A. dance dates as Electric Daisy Carnival and Together as One — were indicted in March in a bribery and embezzlement case involving the Los Angeles Coliseum and its officials. Though the men have not yet been brought to trial, their dance music business has effectively exited L.A. for the more fertile, and lucrative, environment of Las Vegas.