The Musical Artist P&L in Today’s Digital Streaming World

On reflection, I realize that music has been a big part of my life since childhood. When I look at the record music industry over the past 30 years, I can see that my passion for music and resulting purchase behavior, contributed to the overall trend of US record industry sales. In the 70’s and 80’s, I amassed an impressive collection of vinyl LPs and 45’s.  CD’s of course followed. My first Apple purchase was the iPod Touch and today you will rarely find me without my earphones listening to a long and growing list of songs downloaded from iTunes. I played piano and clarinet, and sang in the school chorus and church choir. I love seeing live music, both in stadiums and small clubs.

Today, as an avid social media user with over 1,600 Twitter followers, I am quite engaged with a very active Rock & Roll community on Twitter, where Artists seek to grow their fan base and ultimately their livelihood. I understand their need to promote themselves in this new era of the music industry, where social media is a “must have” advertising & promotion tool. While the internet has impacted the music artist in a profound way, it’s great to see that the same creative brilliance that produces musical masterpieces and chart topping hits, is now used in increasingly creative ways to engage the music audience.

For instance, would you consider investing $50 in a band to help fund production of their second recorded album, if you received a tee shirt and were given an opportunity to sing a little back up chorus? Would you consider investing $50 in a horror film if the sound track was from a rock & roll Hall of Fame guitarist and you participated in recurring conference calls with this artist on the progress of the film? If you’re really paying attention, perhaps you’ll find an affordable and tax deductible opportunity to socialize at a party with some legendary rock & roll performers, and expand your music network, to support a public radio station whose goal is to bring the music listener closer to the Artist.

So why am I telling you all this? As a person passionate about music, and as an analyst who discerns insightful analytics to drive P&L growth for my clients, I think it’s important to frame this problem and raise awareness.  Since 1999, most agree that the sharp decline in US Record sales is threatening the future of the creative musical environment that gave us such classics as “Dream On” and “Paradise City”.

So let’s analyze this.

In 1983, US Record Industry sales revenue totaled $9.1 billion on 578 million units sold at a total average price of $15.69, with vinyl making up 51% of total revenue. By 1988, revenue had grown to $12.5 billion with cassette tape sales making up 55%, vinyl shrinking to 11%, and CD sales surging to 34%. The industry would soar to record highs by 1999, reaching $20.7 billion in sales revenue, more than doubling sales volume since 1983, at a total average price of $17.86, fueled by commanding growth in compact disc sales. Since then, the industry has experienced seismic change with the advent of the internet and the MP3 digital music format, beginning in 1999 with Napster, a pioneering peer to peer (P2P) file sharing internet service, and the subsequent growth of internet music piracy. The NPD Group estimates that only 37% of music acquired by U.S. consumers in 2009 was paid for.  If you do the math, that’s $14 billion in piracy value, compared to recognized sales of $8.6 billion.

https://riaa.com/physicalpiracy.php?content_selector=piracy-online-scope-of-the-problem

By 2014, total revenues have declined to a mere $7 billion, down 23% to 1983, and down 66% to the lofty highs in 1999, at an average price of $3.75.* The problem is even larger for the individual Artist where large pools of royalty revenue end up beyond the Artist’s reach in a “Black Box”. Technology has failed to keep pace and rightful owners of royalty revenue cannot be accurately identified because of a lack of an industry wide system tying usage to ownership. 



Sales Revenue

Unit Price

Piracy

Also problematic for US Artists is the lack of full performance right for sound recordings by Broadcast Radio, to match the rest of the world. Musical Artists in the United States do not receive any sound recording revenue for terrestrial broadcast on AM/FM radio stations, unlike webcast and digital streaming services like Sirius XM and Pandora who do remit sound recording revenue though Sound Exchange, with 50% to the Record labels, 45% to the Performers, and 5 % to the AFTRA Fund for background musicians.

A final point centers on pre 1972 sound recordings, where a loophole exists in US Copyright Law for sound recordings made prior to February 5, 1972 for digital sales and interactive streams.  This issue is currently being resolved through negotiated settlements between the interested parties.

The music industry is in the fight of their lives with multiple advocacy organizations issuing informative reports with calls to action for Artists to be compensated fairly and transparently for their work. The Future of Music Coalition, a Washington DC Not for Profit, is hosting the Future of Music Policy Summit. http://futureofmusic.org/

The Berklee College of Music’s Institute for Creative Entrepreneurship (ICE), as part of its Rethink Music Initiative, has issued a report “Fair Music: Transparency & Money Flows in the Music Industry” and is hosting a fair Music Forum. http://www.rethink-music.com/

The newly established Grammy Creators Alliance is promoting the Fair Pay Fair Play Act, and is launching a major grassroots initiative with the US Recording Academy called GRAMMY’s In My District Day (GIMD). On October 14, more than 1,600 Academy members will ascend on Capitol Hill to pressure lawmakers to make needed changes to decades old law based on recommendations made by the U.S. Copyright Office in the “Copyright and the Music Marketplace” report issued in early 2015. https://www.grammy.org/recording-academy/advocacy

The mission is huge and complex where the ultimate solution will require a coordinated and innovative approach by a team of thoughtful and committed people to the following key points:

  1. Update US Copyright Law for the digital age
  2. Create a Musical Artist Bill of Rights and provide education & support
  3. Private sector creation of a Music Rights database with a unique universal identifier structure
  4. New technology to manage and track online payments through the value chain directly from fans to music creators
  5. Greater transparency in royalty calculations

The ultimate goal is to create an efficient and transparent business landscape where musical artists are compensated fairly and the pool of musical creativity continues to grow.

The Rolling Stones said it best in their classic hit “Salt of the Earth”, in 1 of 5 rare live performances, with some special musical guests…. Let’s drink to the hardworking people!

https://www.youtube.com/watch?v=_Bt7g3H23Fc

Cover photo credits: Marti Fredericksen, American songwriter, record producer, and musician; 2002 Grammy Award Nominee Best Rock Song with Steven Tyler, “Jaded” ; 1999 Golden Globe Award Nominee Best Original Song with Chris Difford and Mick Jones, “The Flame Still Burns” from “Still Crazy”.

*All data is sourced by the Recording Industry Association of America database, with all $ figures expressed in 2014 inflation adjusted dollars. Also note that certain forms of streaming music revenue cannot be quantified in units sold and are therefore excluded in the average price calculations. 

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September 15, 2015 By Cynthia Drew In Music P&L /  

Living the Rock & Roll American Dream

How are you living the American Dream? For me it’s numbers, gymnastics, and rock & roll. Born energetic and inquisitive, with an insatiable appetite for knowledge, I’ve been an avid reader my whole life. I analyze and question everything! I was lucky, raised by highly educated parents with financial means. I did well in school and basically got everything I asked for. Reality set in by the time I was 24 though, with both of my parents gone. It was me and my autistic brother ready to take on the world! Our parents taught us to work hard, show respect, and try to make the world a better place. I’m certain we’ve made them proud! And I’ll bet they’d get a big kick out of my bucket list photo with Steven and Joe.

In general, most Americans agree that everyone should have a chance to improve themselves and do better in life. Hard work, higher education, civic participation, and a level playing field matter greatly. Today though, America faces serious challenges on both widening economic and political inequality, and the interplay between these two problems.

It is widely recognized that increasing income & wealth inequality is a major problem and that addressing this issue is critical to promote strong and sustained growth. The Organisation for Economic Co-Operation and Development (OECD) reports that rising inequality cost the U.S. economy almost 7% between 1990 and 2010. In 2013, income of the top 10% was 19 times higher than the bottom 10%. That ratio was 12.5 in the mid 1990’s and 11 in the mid 1980’s. “Countries that promote equal opportunity for all from an early age are those that will grow and prosper.”  http://www.bbc.com/news/business-30390232

In recent years Lloyd Blankfein has spoken about the need for public policies that promote fairer distribution of wealth, while not overly crimping its creation. He rose from income disparity in an East New York housing project to become CEO of Goldman Sachs, and Wall Street’s newest billionaire at 60. “I know I’m a big fat cat, plutocrat kind of guy, but I will tell you I’ve been the beneficiary of some of these redistribution policies, living in public housing and getting need based scholarships to Harvard.” http://www.bloomberg.com/news/articles/2015-07-17/blankfein-becomes-billionaire-riding-goldman-s-shares-to-riches?cmpid=linkedin.company

The Economic Policy Institute (EPI) warns that wage stagnation is the country’s greatest economic challenge. Wages for most American workers have stagnated or declined since 1979, and expanding over the last 12 years to college educated workers. In the same period of time, economy wide productivity has risen by 64%. This means that the potential for adequate widespread wage growth has existed for 3+ decades, but has not happened for most. The U.S. middle class had $17,867 less income in 2007 because of the growth of inequality since 1979.

http://www.epi.org/pay-agenda/ http://www.epi.org/publication/charting-wage-stagnation/

In a September 2014 Economist article, central bankers tell how they used to worry about a return to the price wage spiral days of the 1970’s. Since the 2008 financial crisis though, the worry is now on stagnant wages and the growing risk of deflation. They feel a healthy and sustained recovery in the rich world will remain elusive until the pay squeeze ends. http://www.economist.com/news/finance-and-economics/21615589-throughout-rich-world-wages-are-stuck-big-freeze

This leads to the discussion of how rising political inequality factors into the equation. A study at Northwestern University found that policy preferences of the affluent (top 1% of US wealth holders) vary widely from those of the general public, who are more open to policies reducing inequality. The wealthy are extremely politically active and have far greater influence than the general public. As to policy preferences, 40% of the affluent favor minimum wage reform, compared to 78% of the general public. A notable area of difference is deficit reduction. 87% of the affluent name budget deficits as the top problem facing our country. The general public is concerned about budget deficits as well, but to a lesser degree. 2012 CNN exit polls showed 59% considered the economy the most important issue, compared to 15% who named the deficit. http://www.russellsage.org/research/reports/wealthy-americans-political-preferences

A key policy area deemed critical to upward social mobility is higher education. While affluent Americans and business leaders broadly favor access to higher education, they often do not prioritize education policies over other goals such as lower taxes. In New Jersey for example, Governor Christie, whom affluent voters supported by a 21% margin in 2009, has issued more than $1.57 billion in corporate tax breaks, while cutting school district funding in 2010 and 2011 by $1.3 billion. Education advocates successfully sued the state for failing to meet minimum education standards. A judge ruled the plan underfunded schools by $1.6 billion over two years. 59% of New Jersey registered voters opposed those steep education cuts. Similar cuts to education and expansion of tax credits favoring the wealthy and business have occurred in Florida and Pennsylvania, where Governors were elected with strong affluent voter support.

Voting is one of the most concrete ways that citizens influence public policy. 82% of Americans making over $150,000 voted in the 2008 Presidential election, compared to 65% making under $50,000, and just 50% for those making under $30,000.

Looking at 2012 Presidential campaign contributions, while just 0.07% of the US population gave $2,500 or more, this totaled $1.4 billion. The total for those giving $200-$2,500 was $486 million, and small donors giving less than $200 totaled $313 million.

http://www.demos.org/stacked-deck-how-dominance-politics-affluent-business-undermines-economic-mobility-america

I love numbers because they tell a story! My brain finds solutions through numbers. As an analyst in the highly competitive and rapidly evolving capital markets industry, you have to stay abreast of a lot of “number intelligence”. There are many specifics that would probably fill a complete blog post for each, and perhaps I’m already formulating ideas for the coming months. But if we turn our focus more broadly, economic activity across the US and global economy is where it begins. I am so grateful for the mentors in my life who afford me the opportunity to discover and learn a diverse, and often provocative, set of information and stats. As I pulled this post together, I gained new understanding I find compelling. Isn’t that what it’s all about?

As for living the American Dream, my brother Geoffrey will surely continue to build model airplanes and call me with excitement every time a Bell Boeing V-22 Osprey or a Black Hawk Sikorsky helicopter flies over Riverdale. I’m going to keep modeling and analyzing numbers, judging & cheering on gymnasts, and saving my money so I can buy more rock & roll VIP tickets …

Life is short, make the most out of it, live with joy, purpose, and abundance… Dream On America!

https://www.youtube.com/watch?v=54BCLYNkFKg

 

 

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August 4, 2015 By Cynthia Drew In Articles /   1 Comment
2012 Olympic Champions

Long Term Capital Appreciation. Heart of A Champion Delivers!

The USA “Fierce Five” Gymnastics team won Olympic Gold in 2012 with a score of 183.596, +5.066 to Russia, +7.182 to Romania. The commanding first place finish was due in large part to the fact that all three USA gymnasts performed the “Amanar” Vault, compared to one competitor from Russian, and none from Romania. This vault, AKA the Yurchenko 2 1/2, has a difficulty value of 6.5, +0.7 to a Yurchenko double. The USA Women achieved remarkable success in London, winning 5 out of a possible 6 medals, 3 Gold, 1 Silver, and 1 Bronze.  The drive and determination of these 5 teenage athletes closed the deal.

Gabrielle Douglas left home in Virginia Beach and moved to Iowa with a host family to train with legendary coach Liang Chow; her parents were divorcing and dad was serving in Afghanistan. She realized her life long dream to become USA’s 4th Olympic All Around Champion!

Jordan Wieber, 2011 World Champion and long expected to be an All Around contender in London, but failed to qualify in a 2 person per country rule, certainly had some business to finish in the Team All Around. She delivered with an invincible 15.933 on Vault and 15.0 on Floor!

Alexandra Raisman, who trained many years in the shadow of America’s most decorated US Gymnast Alicia Sacramone, was ready to make her case! She did not disappoint, earning the most Olympic medals of the team, 2 Gold & 1 Bronze, and becoming USA’s First Olympic Floor Exercise Champion!

Kyla Ross, a first year senior in 2012, finishing 5th in the Olympic Trials and known for her artistic elegance and long clean lines, sealed the deal with her strength on bars 14.933 and beam 15.133!

McKayla Maroney, a formidable floor & balance beam competitor, widely recognized as the greatest vaulter in the history of the sport, arrived in London with a healing broken toe, only to break it further during training. Now with one job to do in the team competition, foot heavily taped, she thundered down the vault runway and soared into the air! She stuck the landing with exquisite perfection to earn a 16.233 in one of Gymnastics’ greatest Olympic moments! McKayla Maroney Vault

To deliver long term capital appreciation to investors, companies need extraordinary leadership, a long term growth strategy, employees determined to deliver that strategy, and the right balance of long term investment and short term profit allocation.  

In recent years, the debate has intensified on the short term approach.  Dominic Barton, Global Managing Director McKinsey & Company and Mark Wiseman, CEO Canada Pension Plan Investment Board make their case in a June 2015 op-ed “Focusing Capital on the Long Term”. CPPIB and McKinsey & Company launched the same named initiative in 2014 to develop practical metrics and approaches to promote a longer term focus in business. In 2013, a survey of 1,000+ C level execs & board members found 79% feel pressure to deliver financial results in a two year time frame while 73% said their strategic planning outlook should be a minimum of three years.  Read more here.

The authors believe this ongoing short-termism in the business world is a serious concern because it undermines the ability of companies to invest and grow. Missed investment opportunities result in slower economic growth, higher levels of unemployment and lower returns for savers. They’re not alone in their thinking. Laurence Fink, CEO of BlackRock, recently sent a letter to the CEO of every S&P 500 company urging corporate leaders to ‘play their part by persuasively communicating their company’s long-term strategy for growth’.

Bill Budinger, inventor, entrepreneur, founder & CEO Rodel, Inc. has penned some interesting perspective where he sees activist investors who “harvest internal wealth and in so doing, cripple or kill the golden goose.” He sees growing pressure on public companies to act short-term and distribute rather than reinvest. “Today far more capital flows out of public corporations than flows in. Corporate profits, once a source of growth, are instead being dispensed to shareholders. In the last 10 years, the companies in the S&P 500 have distributed 91% of their profits to shareholders. In effect, planting has been replaced by harvesting.” He believes we need to stop robbing our nation of its future prosperity and return to planting instead of just harvesting.  Are American Investors Killing Their Golden Geese?

I’ve been forecasting business results for global financial services firms for 20+ years. Of course, there is always focus on the upcoming quarter and current budget year. With a solid understanding of revenue & expense drivers combined with realistic operating assumptions, the short term modeling exercise is relatively simple. In the longer term, keen understanding of true product margins and industry outlook, combined with spirited innovation and operational discipline, are critical to success and managing investor expectations. At the top, you need a visionary leader with passion and integrity! A select few come to mind.

Warren Buffett, considered one of the World’s most influential people, has grown Berkshire Hathaway to $300B+ market capitalization and is leading a global philanthropic cause with Bill Gates, “The Giving Pledge”.

Allen Mulally, former CEO of Boeing and Ford Motor Co., was largely credited with Boeing’s resurgence in the mid 2000’s over Airbus, and Ford’s return to profitability, and the only US car manufacturer to avoid government bailout.

Jamie Dimon, 2011 CEO of the year, has led JP Morgan Chase to become the leading U.S. bank in domestic assets under management $2.5B+, market capitalization $250B+, and publicly traded stock value $67.

Mark Zuckerberg, 31 with a net worth of $36 Billion, also considered one of the World’s most influential, he started Facebook in his Harvard dorm and has grown the platform to more than 1 Billion users worldwide and $240B+ market capitalization. He has joined Buffett’s and Gate’s “The Giving Pledge”.

The Heart Of A Champion The only way you’re going down is in history.  Let’s go!

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July 5, 2015 By Cynthia Drew In Articles /  

ReInventing Yourself & Finding the “Paradise City”

A lot has changed in 27 years.

In 1988, American rock band Guns & Roses’ “Appetite for Destruction” soared to #1 on the Billboard 200.  It has sold in excess of 28 million copies worldwide, including 18 million in the US, making it the best-selling debut album in American music history.

In 1994, a 30 year old Duff McKagan, the original Guns bass player, chose life over death and began  a journey towards sobriety with the discipline of martial arts & mountain biking.  Today, in his 21st year of sobriety, he is married to super model Susan Holmes and is a very involved dad to Grace and Mae.  Motivated by his lack of understanding of the millions he earned in his 20’s, and as a former high school drop out, he enrolled in Seattle University’s Alber School of Business & Economics and started a wealth management firm Meridian Rock.  He has a growing audience as a writer, with his first book in 2011 “It’s So Easy and Other Lies” making the NY Times Best Seller List, and as a regular columnist on Seattle Weekly and ESPN.  In 2012, the original line up of Guns & Roses were inducted into the Rock & Roll Hall of Fame, their first year of eligibility.  Released on May 15, 2015, Duff McKagan’s new book “How To Be A Man (and other illusions)”, recants entertaining perspective on how to find a gym when traveling abroad, parenting daughters, and being a man in a house filled with females.  Of course always a rocker, and living his mantra “Never Quit Doing What You Love” he continues to perform with his band Loaded and the Kings of Chaos, and write new material.  His newest single “How to be a Man” was just released on itunes.

http://www.duffonline.com

In 1988, the DJIA closed at 2,168.57.  Today, the market opened at 18,033.33 and 12 of those 30 stocks remain, including Boeing and GE, once led by visionary innovators Alan Mullaly and Jack Welch.  Technology firms Apple, Cisco, Intel and Microsoft dominate with a combined market cap of about $1.4 trillion.  In 1988, I was a new business school grad, living a rock & roll life and ready to take on the world!  Born energetic and goal driven, with vivid imagination, I began my career as an analyst. I had a great boss who provided me with a strong foundation.  Passionate about numbers and all things finance and analytical, I knew I was on the right path.  In 1995, after receiving my MBA, I made the move from domestic retail banking to international private and commercial banking.

In 1988, the lion’s share of US equity trading took place on the NYSE, AMEX, and Nasdaq.  Spreads were wider, the NYSE floor was filled with market makers executing trades with a pad and pencil.  Today, spreads have thinned, the floor is empty and US equity trading is electronic and fragmented.  Electronic trading has transformed the industry and investment firms have turned to a new industry of trading technology providers to develop software roadmaps, algorithms, matching engines, datacenter colocation, network & client comms, FIX messaging, & market data to manage their P&L.

In 2006, ready for the next chapter in my life, I left the worldwide Leumi Group and began a new career in trading technology.  I started at NYFIX, which was acquired by NYSE in 2009, then recruited to Pico in 2013 as Head of Business Planning & Analysis.  As a trading technology business partner driving P&L growth, I have helped firms manage their development roadmap p&l.  I have reduced data center, market data, and telecom expense.  I have created a monthly pricing analytics book, highlighting key competitive trends.  I have created a market data entitlement and reporting framework.  I have engineered financial automation my entire career, developing innovative financial models, dashboards, and Board of Director presentations.

Today, this Upper East Side rock & roll fan, announces the launch of my new finance analytical consulting firm, EAST 84TH STREET ANALYTIC$ LLC.  Uniquely qualified with 9 years experience in the evolving landscape of trading technology, I am committed to help investment firms and technology providers grow their P&L and find their Paradise City.

https://www.youtube.com/watch?v=Rbm6GXllBiw&list=RDRbm6GXllBiw

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June 2, 2015 By Cynthia Drew In Articles /  1