Tuesday, August 29, 2017

Where is the accountability in a ‘label services’ deal? | Music Business Worldwide

The following MBW blog comes from Charles Kirby-Welch, the founder of global independent music services company KARTEL – which has worked on releases from artists including Fatboy Slim, British Sea Power, Peaches, Fat Freddys Drop and Gemma Hayes, as well as labels such as Alcopop!, Xtra Mile, Tru Thoughts and Mr Bongo.

Label Services has become an increasingly common choice for entrepreneurial artists.

It is an established alternative to the traditional record label route. As the recorded music industry returns to growth it is hardly surprising we are seeing a growth in the number of small record labels owned and run by artists and management.

The IFPI Global Music Report announced the recorded music industry has grown 5.9% in 2016. Digital rights agency Merlin has reported a 52% increase in year-on-year (digital) revenues amongst its 700+ indie label membership. The outlook is positive.

“many of the most experienced record label execs are scrambling to adapt their business models as the impact of streaming changes the very nature of music consumption.”

In the same moment, many of the most experienced record label execs are scrambling to adapt their business models as the impact of streaming changes the very nature of music consumption.

Spotify has turned a negative backlash on low per-stream revenues into an idea that Playlist inclusion can be one of the most important catalysts for success.

Taylor Swift’s return to the platform acknowledges a shift to streaming becoming the dominant recorded music revenue stream. A trend that is impacting the economics of running a record label.

A question we feel deserves more attention, in a streaming-dominated era, is one of accountability.

If the recorded music business is perceived to be the riskier end of an artist’s income, who is accountable for its profitability in a label services model?

“If the recorded music business is perceived to be the riskier end of an artist’s income, who is accountable in a label services model?”

One of the positives of a label services deal should be that the terms of business are transparent as to the value of the “service” being provided.

With a line drawn between the provision of services vs. cash investment, the artist should have clear perspective on cost of sale.

Yet the question of who is accountable for the commercial success of a record is one that, as a privately owned independent label service provider, we feel needs attention.

It may seem an obvious question to answer, but with the complexities of the record business and historic bad habits in (record) deal making, we see a wide range of interpretation and expectation.

In a recent AIM Music Connected panel entitled “Independent Labels In The Streaming Age” there were some interesting reflections from experienced distribution and record label executives.

Kristine Bjornstad from INgrooves noted that in Norway, “We stopped budgeting physical four years ago. It’s all about streams per day, it’s about being flexible and it’s actually easier to run a campaign … you can see the long tail much earlier.”

“Budgeting for a more gradual revenue curve as opposed to the big week-one spike requires constant insight and ongoing engagement.”

These are new concepts for most traditional record labels.

Adrian Pope from [PIAS] (pictured inset) touched on how the streaming environment is driving a shift away from the traditional ‘peak and trough’ culture of music marketing.

He hit upon one of the key issues when it comes to accountability: “The challenges are… how do you put [a longer-term, sustained marketing approach] into practice in your budget?”

Budgeting for a more gradual revenue curve, as opposed to the big week-one spike, requires constant insight and ongoing engagement.

A label service provider typically covers Marketing, Promotion, Sales, Distribution, Logistics, Stock Management, Sync, Rights Management and Reporting (sales & analytics).

What is generally absent from this list is business management – which is an area where we are seeing an increasing need for support.

To run a label services business responsibly one must ask the question of affordability.

“To run a services business responsibly one must ask the question of affordability.”

We always start with a budget to determine a sustainable and affordable approach, but equally to engage any new client in a business dialogue. If we’re investing we want to know that the entrepreneur we’re investing in understands his/her business.

Entrepreneurial artists and managers are typically interacting with a diverse range of business areas. The range of disciplines and expertise required to do this successfully should not be underestimated.

Adding another profit centre and liability to the mix is not necessarily the right step.

The traditional record label model can offer an artist significant advantages in their approach to investment and development.

The increased risk of running a record label has perhaps been missing from the positive spin of the label services narrative, which tends to focus on greater freedom and ownership.

Yet in becoming the “record label” artists and managers must take commercial responsibility for the A&R, finance, marketing, royalty administration, business affairs and a myriad of other administrative tasks that make up the day-to-day operations of running a record label.

Whilst the creative liberty is appealing, the full scope of responsibilities are not always apparent until one is fully immersed in the model.

This is arguably where the label services provider should step in – helping to construct a business plan and conducting due diligence on the artist/manager’s would-be label

“The buck stops with the artist and they and their representative must be business savvy in order to manage a profitable label operation.”

Some label services deals are essentially “distribution +” providing basic product management, manufacturing and marketing.

In such cases it’s important to understand the label service provider doesn’t earn in relation to profitability of the record. They are not invested in the recordings and often won’t have optics for or care about origination/recording costs.

At Kartel, we believe the opportunity to bring artists greater choice, transparency and creative freedom comes with responsibilities.

Artists and managers are by definition not record label executives. That should be a good thing – but it means we must be honest and realistic about the challenges of trying to become a record label.

Legal representatives who advise artists and managers at the outset of any services deal must be realistic as to the differences in record label and service-orientated deals. Not to mention the range of different label service offerings that are available.

Obvious as it sounds, a service provider charges a fee for the provision of services. The price should be commensurate with the level of service required/offered.

As the old adage goes, “You get what you pay for.”

Investing in the creation of any new piece of art would, by most entrepreneur or Venture Capitalist standards, be viewed as high risk. Making profitable returns on such an investment is perceived to be unpredictable at best.

“Negative equity in a record (album) cycle can easily extend to 6-9 months and beyond if it is not realistically managed.”

Consider that many record labels generate more profit from catalogue than new releases.

So can a service provider offer accountability? We think so – but in order to do so, there must be a collaborative and focused effort with the artist and their representative(s).

If profit is the ultimate goal (not always the case) then a clear business plan and timeline for achieving it should be agreed and monitored throughout the duration of a campaign.

Negative equity in a record/album cycle can easily extend to 6-9 months and beyond if it is not realistically managed.

There is an overwhelming trend to over spend on traditional (outdated) promotional practices without always due consideration to the sustainability of such activities or return on investment.

The music industry has created businesses out of bad habits. Oftentimes press and airplay does not sell records.

That said, music fans continue to buy/pay for records/music. The question all-too-frequently ignored when a marketing budget is devised is: “How do we reach/grow/sell to an audience”?

That is much more important than critical acclaim, which doesn’t pay the bills.

“The music industry has created businesses out of bad habits. Oftentimes press and airplay does not sell records.”

With so much data and such a wide variety of sales channels, access to easily readable reports and meaningful commercial insight is critical in the running of any recorded music business.

We are proud that Kartel has recently launched a cloud-based reporting dashboard, which represents a first step toward a more holistic business performance insight tool for our clients – displaying digital, physical sales, licensing and neighbouring rights revenue against all types of expenditure.

This represents a critical step in helping to improve our own accountability as a services provider – one which ardently believes in helping our partners build profitable and sustainable music businesses.Music Business Worldwide

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