Case : Nettwerk: Digital Marketing in the Music IndustryFIRM C Oleh : 1. M. Yusuf Kusua !ardhany "#$1%1$%&%##%' (. Ifril Rachan "#$1%1$%&%#$)' %. I*an +i,*anni "#$1%1$%&%#(#' $. Racha Dessidianti "#$1%1$%&%#%)' &. R,salina -inda .usanti "#$1%1$%&%##/' 0RO+R1M M1+I.23R M1N143M3N F1K5-21. 3KONOMI 6 7I.NI. 5NI83R.I21. 1IR-1N++1 (#1$ Nettwerk: Digital Marketing in the Music Industry The goal of musicians : contract with a major record label. But by 2009, power of major labels were declining. So is it possible for a band to prosper without a major labels support! "ettwer# : independent music label, publisher and management firm. $n %uly 2009, Terry &cBride 'its founder( and Brian &essage 'partner who managed )adiohead(, joined to offer a company name *olyphonic. The in+estors start to belie+e that digiti,ed music and the internet would combine to create new, low-cost ways to promote music. 2he Music Industry &usic industry : art and business. .rtists, musicians and songwriters relied on publishers, to promote and sell recorded music. Two #inds of publishers : majors and independents. /ach housed of music labels, some of which once were an independent labels. 0or e1ample, 2ni+ersal &usic 3roup had become home to 4eutsche 3rammophon, &otown, *olygram and others. $n the past 50 years, consolidation had reduced the number of majors from eight to four. $ndependent labels, or 6indies7 releases were less commercially oriented. They focused on musical niches, ser+ing the dedicated fans of particular genres. Some of the independent labels had distribution agreements with the major labels and some did not. 0or those that did not, getting the product into retail outlets was more challenging. /ra of +inyl records : music industry earned its re+enue from sales of physical product. 8omposer : copyright holder. 8omposer sold copyright to a major or independent publisher, whose job was to find an artist to record it. &echanical royalties had to be paid to copyright holder for e+ery physical copy produced. $n 2009, the rate was 9,5 cents for songs of 9 minutes or less, with o+ertime rates of 5,:9 cents per minute. *erformance loyalties : each time a song was performed, had to be paid to copyright holder. Synchroni,ation royalties : when it was used in a motion picture or ad+ertisement. .rtists were paid from these album sales. . music label, contract entitled the artist to a proportion of the suggested retail price of the physical product, the rate ranging from ;< to 5=< depending on artist., but only after the label had recouped its fi1ed costs. .rtists employed managers to negotiate with labels, typically paying them 59< of the artists gross earnings. &ajor labels were fully integrated, but indies were not. $ndies could be more fle1ible and more creati+e than majors in the deals they struc# with artists. >ne tas# that was not integrated into major-label ser+ices was boo#ing li+e performances, because it was sourced to concert-promotion companies, e1ample: ?i+e "ation. ?ed by the major labels, the music industry flourished in the half of the 20 th century. The introduction of the compact disc in 59=@ stimulated replacing the +inyl records. $n 5999, recorded music re+enue in 2S reaching
[email protected] billion. 1n Old Industry Falters9 a New Industry 2akes .ha:e $n 5995, e1periments in digital audio encoding had led to the adoption of a format #nown as &*B. $n 5999, audio file sharing became an $nternet phenomenon. Shawn 0anning wrote software #nown as "apster to search the hard dri+es of computers and mo+e mpC files among subscribers to the system. M,neti;ing and 0r,,ting Digital Music .pples iTunes Store, launched in 200B. Dhere "apster disregarding its copyright, .pple negotiated royalty-sharing agreements. &usic"et tried to follow this path, but none major labels would accept. By mid-2009, iTunes was the largest single retailer of music in the 2.S. Because of re+itali,ation of the li+e-concert business, re+enue from tours reached A@ billion in 200=, an increase of 5B< o+er the pre+ious year. Seeing this new re+enue streams, major labels began to reEuire artists to sign contracts that they called 6B;0 deals7.The B;0 deals ga+e labels the rights to re+enue sharing from concerts, fan clubs and merchandise. $n 200;, ?i+e "ation, began offering B;0 deals to %ay F, 22 and &adonna, sweetened by up-front payments. GouTube and &ySpace enabled the online sharing of music +ideos. *andora, Spotify and ?ast.fm streamed music to listeners. Topspin helped to manage a bands online presence. Tune8ore distributed digital music to iTunes and .ma,on. $n 200:, )adiohead bro#e with /&$ and released an album, $n )ainbows, as a download on its website, in+iting fans to pay whate+er they felt the album was worth. $t was a+ailable on website in >ctober to 4ecember 200:, and thereafter at retail. ;0< opted to pay nothing and the rest paid about A;, for an a+erage A2.2;. Nettwerk "ettwer# : large independent music labels, publishers and management firms, whose roster o+er its 29-year history. $ncluded artists : 8oldplay, .+ril ?a+igne, Sarah &c?achlan and others. By 2009, "ettwer# had offices in 8anada, four 2S cities, the 2H, and 3ermany. The largest offices, ?. and Iancou+er, had staffs of 90 people and "ettwer# &usic 3roup employed 900 people. "ettwer# was born from Terry &+Bride as an engineering student in the 59=0s at the 2ni+ersity of British 8olumbia in Iancou+er. $n 59=@, he and &ar# %owett, formed an independent label, "ettwer# )ecords. . brea#through came in 59=9, on the road in Jalifa1, "o+a Scotia, %owett saw Sarah &c?achlan performing in a bac#up band. "ettwer# signed the artist to a deal that made "ettwer# her label, publisher, artist manager and the holder of merchandising rights. Because her +oice did not fit into any of the radio formats, "ettwer# had to build interest in Sarah &c?achlan in one local mar#et after another. $n 59==, it penetrated 50 local mar#ets. The cost was estimated at a few thousand dollars per mar#et, +ersus si1-figure budgets for national promotion. $n 599B, &c?achlans third album, 0umbling Toward /cstasy, one million copies were sold. Jer success create new national radio format, album adult alternati+e, such as Sheryl 8row and Sting. &c ?achlan fourth album, Surfacing, released in 599:, entered the Billboard charts, went on to sel 55 million copies and netted the artist two 3rammy .wards. "ettwer#s success at managing &c?achlans career attracted Barena#ed ?adies in 5999, hired &cBride as manager. Nettwerk Res:,nds t, the Digital 2ransf,rati,n $n 2002, Terry &cBride proposed to "ettwer# the focus to the digital music mar#etplace. But "ettwer# felt it sounded ris#y to many. &cBride argued that the popularity of file sharing on peer-to-peer networ#s foreshadowed a new model for the music industry. 8onsumer were strating to consume music in the form of single songs, not albums, an whether or not the music industry appro+ed,, they were getting much of their music for free. .<uirreling the 2ail 2ele*isi,n :laceent. The Deepies, managed by "ettwer#, one beneficiary of a sEuirreled tail. They met at 8lub *assim, 8ambridge, &assachusets in 2005, de+eloped acoustic sound in a tele+ision show producers and placed in episodes of 3reys .natomy, Jow $ &et Gour &other, 3ossip 3irl, and Se1 and the 8ity. The Deepies was featured in holiday ad+ertising campaigns for national retailers %8 *enney. Dhen Se1 and the 8ity was released in ?ondon and .ustralia, the soundtrac# 84 was promoted to 0aceboo# fans. $n 200=, the Deepies net re+enue e1ceeded A@00,000. 1d :laceent. "ettwer#s "ew Gor# office called regularly on ad+ertising e1ecuti+es, matching its bands to the needs of ad+ertising campaigns. Dhen a song was used in ad, the band earned between A20,000 and A;0,000 if they were a lesser-#nown independent artist and A590,000 if they were a higher-profile act. $n 200;, ?iberty &utual $nsurance hired a relati+ely un#noen band, Jem, to pro+ide ads in its 6)esponsibility7 campaign. Cause=related arketing. Two of "ettwer#s artists, Sarah &c?achlan and State )adio, sere supporters of social causes. Sarah &c?achlan supported humanitarian causes to animal protection. $n 200;, she was approached by the .merican Society for the *re+ention of 8ruelty to .nimals '.S*8.( to participate in a fundraising ad. State )adio, whose singer 8had Sto#es, was an acti+ist who had opted to li+e in Fimbabwe for a year instead of attending college, and the +isit inspired the creation of the /lias 0und to aid the youth of Fimbabwe. State )adios net re+enues from licensing, performance, and album sales in 200= were about AB00,000. Niche tastes : the case ,f y,ga. Dhile attending a yoga class, &cBride had been intrigued by the call-and-response style of music in the bac#ground. There is Dade $mre &orissette, a yoga instructor who had taught classes for 59 years. Je is the twin brother of singer .lanis &orissette.. Je found his attention in Sargam Scales of &usic, a self- released album that &orissette sold as an ambassador for the yoga-wear company ?ululemon, +isiting yoga retreats, conferences and studios. $n 200;, &cBride trac#ed down &orissette and signed hi, to athree-albu, deal with &ettwer#s "utone label. $n 200=, Goga %ournal published a list of the top 50 yoga music artists. /ight of them sere on the "utone label. 0r,,ti,n. .rtists often released collections of holiday songs for the 8hristmas, e1ample : Barena#ed ?adies with Barena#ed for the Jolidays in 200@. $t reached C;@ on the Billboard album charts. $n 200=, they released a digital +ersion at a A2.99 promotional price on .ma,on.com. "ettwer# had succeeded in growing bac#-catalog sales to 90< of its total re+enues, far higher than major labels. 2he 0,ly:h,nic 8enture $n 2009, one industry measurement source, "ielsen Soundscan, reported that four times as many albums were released in 200= as in 2000. >f the 509,000 new albums released in 200=, just ;,000 sold more than 5,000 copies at a retail price about A52. Brian &essage of .T8 &anagement, the 2H based music company, with &cBride in 2009 formed *olyphonic. *olyphonic was funded to A20 million and ad+ance about AB00,000 to each band to co+er recording, +ideo production and initial touring costs, as well as mar#eting and promotion e1penses. .rtists would retain ownership of their copyrights, although *olyphonic would ha+e the right to e1ploit copyrights created during the term of its contract for 50 years. 4a+id *a#man, a "ew Gor# +enture-capital partner with long e1perience with music technology, he estimated a A: royalty per album sold and assumed that re+enues from all sources would be about double the album re+enues. $f *oluphonic signed 20 artist groups each year for three years, he estimated that it stood to earn only A2: million on its A20 million in+estment, unless its artist performed far better than was typical. Balanced incenti+es between artist and in+estor would not, on their own, be enough to sa+e the industry. But if digital tools could directly harness the passion of fans and produce a disproportionate number of succecces, perhaps art could now flourish without the power of major labels.