Promotion/Publicity and Media

10

Executive Decisions

The purpose of this chapter is to help you understand how the entertainment business is financially riskier than most other types of commerce. Everything is tied to everybody else doing their jobs at a wow level! Creative writers have to write the inspiring songs, scripts, books, and so forth. They have to find the agents and publishers who can license them to the major labels, film studios, book publishing companies, and others. Then, in this chain of events, the executives have to decide, based on their collaborations with the creative teams, when to place the products they select at the perfect time and place, and the best price. They know their company’s financial success is determined by these decisions. No pressure there!

Remember we are selling entertainment products as stimulants for consumers’ constructed emotions. It’s expensive, with high entry-level boundaries, and about as risky as walking on quicksand. Everybody’s success, including social and mass media programming, often depends upon gut reactions or the label executives’ combination of intuition and experience about what might sell. They frequently use research and analysis into consumer behavior in an effort to better predict how to make a crazy profit. Once a musical artist is chosen and signed, the label teams and executives usually develop a conservative total for all expenses and compare them to what they consider reasonable potential long-term career profits. That’s one of the reasons labels sign acts for up to seven years, but in reality they can be dropped anytime before the option year extension. Movie and TV production company executives and computer game software experts use the same process, except there are more decisions to be made and higher front-end financing required before signing these deals. Industry executives know that signing a deal is just the beginning of the trip into a truly risky business, and not anywhere near the end of the line to success. However, they don’t see it as a risk. Instead, they usually perceive it as an opportunity to provide a product to the world that might improve the quality of life and at the same time make them rich. Good for them!

Rock-Paper-Scissors

The tough part of this process is answering the simple questions. Are we going to make any money? Believe it or not, we’ll know within a few days. The label has spent between $1 million and $1.6 million on the chance that consumers might dig the product (a song off an album in this case). The label executives will be looking daily (as will the personal manager) to determine from the research data and Billboard charts if there are radio station airplays, videos on YouTube, streams on Spotify and other services, and any record sales. Last, they check to see how many people are stealing it (hard to believe, but they know) and where those people live. They are simply looking, hoping, and praying for an indication that the album and single being released is getting traction. They will check for Internet hits on social media and glance at the reviews in the trades and popular press. If the executives perceive some positive movement toward consumer acceptance, then they take the next step in the process, which is often pouring more money into the project to get the act touring. If it’s a new act then they may “buy on” to a major artist’s established tour, depending on if the consumers buying or stealing the products are the same or similar to the superstar’s.

Roll the Dice

Artist and product launch promotion and publicity budgets are based on the all-ins part of the contract. Remember, the all-ins are the 100% recoupable expenditures the label has invested in the act, including recording budget, advances, mechanical licenses, and platform or digital platforms. As an example, if the recording budget is $200,000, the advance $100,000, and the mechanical licenses and platform pressings or digital storage costs $100,000, then the all-ins total $400,000. First, the budget line for promotion (of a new act) usually falls between 100% and 200% of the all-ins. We also need publicity (which many people think is free), budgeted at 50%–100% of the all-ins. Publicity also costs significant money when done well as someone’s got to write the publicity copy, book the act on TV shows, plant the news article and gossip in the trades and popular press, and so forth. Publicity and promotion work together, as one gives consumers a chance to experience it (e.g., song or trailer of a movie) and the other tells consumers why they might enjoy it. Thus, if we pay $400,000 for the all-ins and add promotion at 200%, then we’ll budget another $800,000 for it. Let wrap this up with a 50% of the all-ins for a budget line for publicity (equal to $200,000) and we’ve got our final budget of $1,400,000. Remember in the chapter on labels that our investment budget amounted to $1.6 million, so this budget is conservative.

Just as the people side of the entertainment product creation is interconnected, the budgeting tells its own story about how the business of the deal and the product might make or lose money for the investors, the label or production company, and the artists involved. It costs money to make recordings of music or films, more money to promote them, and even more money for product distribution or touring. The total cost is usually figured before the first foot of film is shot or the musicians even walk into the recording studio.

Risk vs. Profits

The daily relationship between risk and threats to success drives the executives to buy bottles of Maalox and Tums antacids. Forget the talent. Now the conversation is about what constitutes a financial risk vs. potential profits. What is the competitive advantage the act needs to grab as much of the market as possible? The executives figure it out and help the act enhance both through artist development. Many famous recording artists and movie stars just don’t get it. But it is the executives’ efforts and concerns about identifying threats, here understood as competitors’ new acts and films or shows, and how they might reduce the potential income of their acts and movie launches that actually help make the seemingly ungrateful stars rich and famous.

Note the complexity of the creative processes and think about how these are all interconnected to bring a creative work to the public.

Timing

Timing becomes extremely important, as the goal is to launch the product or act at the best time in the market. It was much easier when the labels made their projections based on album sales. It wasn’t that hard to predict the “ifs” of album sales and the generated royalties from retail and digital downloads and from music publishing royalties, especially when the label had a part of the publishing deal tied to the break-even rates based on artist royalties. The same was true for the movie industry until the impact of the Internet caught up to them and they began to see the same types of financial issues caused by illegal downloads and streaming that have nailed the music labels.

The Cash Machine Poker Game

Since it has become difficult to sell albums, the projections have shifted to the more difficult “ifs” of branding and image-based revenues, such as ticket sales, merchandise, sponsorships, interactive streaming, and other sources of revenue. The innovative technologies of audio and video streaming have not generated enough revenue to pay all the copyright holders, recording artists, and songwriters, who formerly benefited from CD and DVD sales. However, the goal of the labels and movie companies has remained unchanged as they continue to discover and promote products consumers perceive as emotional “lightning in a bottle,” with the potential for hundreds of millions to billions in profits. The industry needs it, because less than 5% of products released turn into never-ending cash machines. About 80% of the deals break even or make a small profit for the labels over several years. With movies and TV shows, it is even more difficult to generate profits as they cost millions more to make and additional millions to promote and market. Thus, the film business usually sells foreign distribution rights before the first foot of film is shot in order to generate seed money in a project.

The Rejected Rocket

Some of the greatest hit movies, songs, recordings, actors, and scripts were initially, and sometimes repeatedly, rejected before someone saw their potential for success. Ironically, the off-the-wall products industry executives thought were too risky became the biggest historical moneymakers, once they got their shot. The TV series Cheers was at the bottom of the ratings for years and then slowly grew into one of the most successful syndicated shows ever. Gene Roddenberry, the producer of the TV series Star Trek, gave me a great example when I met him in the middle 1970s. My friend the late Don Cary had known Mr. Roddenberry from his old Hollywood days and suggested I and some others meet him when he was visiting to give a speech.

Mr. Roddenberry played one of his black-and-white pilots for a new science fiction space show that was rejected by network executives. It had a female captain and a Vulcan, Mr. Spock. After Mr. Roddenberry’s speech and showing, I got to meet him and I asked him a couple of questions. The pilot was the third one he’d made and pitched, and when the executives saw it, they finally agreed to stand it up with two big ifs. First, they said nobody would believe a woman could be the captain of the Enterprise spaceship, and they also demanded that he drop the guy with the “weird” ears. Every time before he’d pitched a script or pilot to the networks he’d been rejected. He would then just go back to work to earn enough money to write and film a new script. He said, “I will make you a deal. I’ll drop the woman captain, but I must keep Spock.” They agreed and the rest is a history of an entertainment and merchandise franchise that includes ten movies and seven TV series. It happens all the time, so having the passion and determination to go on sometimes pays off.

Risk Management

At the same time, inside the company, from the CEO to the lowest intern, everyone is usually aware of the business risks involved in launching a new product and in keeping existing ones fresh before the consumers. If we were selling Hondas we’d compare last year’s sales figures to the country’s GDP (gross domestic product) to predict how many Accords, Civics, and other cars in the line we’d need to make next year for sale in various countries around the world. It is not so easy in the entertainment business. Remember, it is a much riskier business as it’s based on consumers’ flaky emotional needs to experience and pay for something they connect to, often in an unarticulated way. Labels try to control risk through management processes as they launch the act or product, often budgeting a minimum investment in promotion, publicity, branding, and marketing to determine within a weekend for movies and two weeks for recordings if they’ve got a potential cash machine or a dud. Labels and entertainment production companies look at the “overnights” and weekly reports to see how or if action on the charts, sales, spins on radio, and streaming is generating any profits. Based on those results, the label executives will decide whether to pour more money into the marketing or dump the project and move on.

Artists failing to achieve profitable unit sales or other revenues are customarily dropped from the label after the first few poor-selling record releases. High-profile movie producers, experienced scriptwriters, and others in the launch of new entertainment products who have the bad luck of failing or only marginally succeeding may be associated in the executives’ minds with bad judgment, and if they fail again, gone, baby, gone. The label fulfills its contractual obligations for the commitment albums and then it passes on picking up the artist’s option. If the executives put more money into the marketing of the product, then the level of the risk management is also increased. Crazy business.

Figure 10.2 indicates how complex the industry is when you look at it as a business. It has many moving parts and these, as is common in organizations, can change depending on the life cycle of the business and its profitability.

Obviously, when, for instance, major labels have spent millions to make an artist successful, and they do not appreciate an artist who wants to jump to another label after they invested and worked hard to make them famous. It’s the same reaction across the entertainment industries. Performance and generated revenues are also tied to employees who fail to sign or generate profitable products or sales. After continued decline in profit, both productive and nonproductive employees are usually dismissed. It is not uncommon for the entire staff to be replaced for not producing profitable acts, movies, products, and recordings. It’s the same situation in the film business, except for the professionals who actually make the films, who are represented by unions. The union professionals are the best in the world; thus if a product fails it’s usually because of poor executive decisions, timing, a bad script, or poor marketing and risk management of the process. It’s not their fault, but if the industry suffers, they don’t get any calls and, therefore, no work. If there’s a problem with losses overshadowing the profits, then the employees at the companies and the union members who create the products are all facing unemployment.

Products

As we’ve discovered, the most difficult decision executives have to make is how much money to spend on the entertainment products they are financing. They base it on the potential profits in this risky business. Many things can go wrong, such as the actors not clicking, poor production, and the lack of great story, producing, or directing. They all have to work together to create the magic that is described as a bolt of lightning in a bottle. That’s why they often spend the big bucks on the most talented professionals to create the song, recording, computer game, book, and so forth that catch the essence of the imagination of the popular culture—wham, bam, billions in profits.

Every day, people move in different directions, events happen, political situations change, and what was hot one day is dead the next. In addition, it frequently takes more than a year to produce and market a movie and months to finish and market an album. And all the time, the wants and needs of consumers are changing. As you’ve seen in previous chapters, the budget to create the actual entertainment products is expensive at the professional levels. Low-budget movies cost $10 million or more, and albums at the master-scale levels in the recording budget will often top $200,000. Now that we’ve got something to sell, how are we going to help our world of consumers discover it? And more importantly, what’s it going to cost in addition to the recording/movie production expenses? Let’s once again look at the typical record label departments but now see how they work from the perspective of risk and management.

The Debt—The Cost of Doing Business

Signing, recording, promoting, and marketing acts and their products are expensive. We spent about $200,000 in our example of a recording budget. Labels spend more or less depending on potential profit margins. Movie companies start in the millions. Once again, let’s look at the music industry to determine a typical budget for a project, but this time including the cost of branding, marketing, promotion, publicity, and distribution. Now that we know what the marketing, promotion, and publicity plans are, let’s take a glance at what it is going to cost. Basic budgets for launching new acts are based on the all-ins.

The All-Ins

The all-ins (short for all-inclusive) are all the expenses on the artist’s careers that are 100% recoupable. Additional budget lines are recouped at 50% (meaning the label pays half and the act’s royalties pay half) on promotion (e.g., music videos) and publicity. Typically, all advances, the recording budget, and mechanical licenses fees are charged back to the act’s debt account at the label at 100%. Thus, if we gave the act a signing advance of $100,000 and the recording budget totaled $200,000 and we decided to press, digitize, and sell 100,000 albums each with ten songs all under five minutes at the CCC rate ($0.06825 per song times 10 songs, which equals 68.25¢ per album), that equals $68,250 for the mechanical license for 100,000 ten-song albums.

However, the pressing and digital storage servers also cost money (the more we press the less cost per unit). Add the artwork, shrink-wrap, and so forth, and the cost to the label is about $1.00 per unit ($0.6827 for mechanicals on ten songs and about $0.31 for the platform or server expenses). Thus, the all-in account debt in the artist’s name is $100,000 (for advances paid to the act for signing the deal), $200,000 for the recording budget (creating the recordings and paying for the producer, musicians, engineer, and singers), $68,250 (for the mechanical licenses on 100,000 albums), and another $31,750 for pressings or storage, for a grand total of $400,000. And we haven’t sold anything yet as we know we’ve got to add the promotion and publicity expenses from the projected marketing plan.

Baseline Promotion and Publicity Expenses

Promotion and publicity are expensive, and the label usually pays 50% of all expenses, as stated on their contracts. Here’s an example of the crazy cost. Music videos are now budgeted much lower as they do not push (sell) as much product as a few years ago. Indeed, YouTube posts and mash-ups that receive lots of airtime are free to the label. They love the word free! Still most acts want and need a music video or two, costing $20,000 to $100,000, depending on the status of the act and the purpose of the video. Michael Jackson would spend more than a million on some of his videos, probably not realizing that half of the million was attached to his account debt at the label and the other half was coming out of his pocket.

The 50/50 makes most artists reconsider their video budget downwards to the lower figures. In addition, most artists simply do not have that much money at hand, and thus the label runs the entire cost of the video through tour support that makes all promotion and publicity expenses 100% recoupable. Radio station tours and consultants (trying to get recordings added to playlists) also cost significant money. Regional promotional experts’ costs start at $5,000 per region, and then additional payment and bonuses may be provided with each station added. National promotion can easily cost half a million to a million for a two-week campaign.

Billboard has a circulation base of about 17,000, including the executives, creative, and broadcasters who run the industry. If we want to place an advertisement in the weekly magazine it’s expensive as so few people read it. Yet, the people who read it are the most powerful decision makers in the industry. Who are they? According to DJG Marketing, their average age is 47, their average salary is $212,000 annually, their net worth is more than a million, 68% have a college degree, and 25% have a postgraduate degree.¹ Want to know more about them? Forty-three percent of Billboard’s print readers also visit Billboard.com once a week or more, 71% of Billboard readers spend 30 minutes (or more) per week across all Billboard platforms, 49% of readers have senior/upper management job titles, and 63% of readers are business purchase decision makers.² So what will it cost? That depends on several things, including size, such as full-page, two-page spread, six-column, or half-page horizontal, vertical, or square.

The labels have many options in connecting to the target fan base. Advertisements in the popular press, trade magazines, and mass and social media are typically expensive, depending on the circulation and industry importance of the provider, magazine, or website. As an example, according to Advertising Age costs vary from media to the number of impressions (people views/number of times consumers hear something).³ Do you want to advertise nationally or regionally? Once again the costs vary and so do the results.

How much money do we have to spend on promotion and publicity? The costs will be scaled differently by region, publications selected, and size/style of the ad copy. For instance, one online website, Quora.com, says that the average cost of a full-page ad in Variety is between $3,000 and $4,000, but if you go on the Variety website, which shows you that its brand group is composed of over 400 products, it tells you to call for a quote. You get the idea. If you want to get a ballpark idea of what product placement costs in this trade publication, you can find a starting point in a consumer site, but you have to work with the publication directly for the real costs and decide how much money you have and, more keenly, want to spend on promotion and publicity.

Promotion and Publicity Budgets

Entertainment corporation executives have to control their budgets and wisely choose to spend money on promotion and publicity. The goal is to light a fire or start a buzz based on a few fans “discovering” the act or product and then using social media to spread the word. Spending money in the old days it was easy—get the recording on radio and the act on TV network talk shows. That still happens, yet radio airplay is not as powerful as it used to be and many fans don’t listen to radio, watch TV talk shows, or read newspapers. So how can labels connect? Social media, of course! Still, it all costs money and we have only a limited budget and a small time period (usually two to four weeks) to determine if the act will be successful.

The Failure of Promotional Economics

Here’s where things get hard to understand. Labels provide broadcast radio with free copies in exchange for promotion, but they almost had to blackmail streaming companies and demand payments. Excuse me, but what the heck is going on here? In addition, streaming services are quickly accelerating with younger listeners, who listen less to radio broadcast stations. So why are the broadcasters getting the music recordings for free and streamers are paying?

Labels claim both have a promotional advantage for launching new acts and products. Yet, the audience they want to reach is moving toward streaming. Network TV is having the same situation with viewers who are quickly leaving for Internet and streaming services. It seems the old free promotion of recordings given to radio may be a thing of the past and certainly needs to be reevaluated as to its value of breaking acts and products. This will of course depend on genre, as country music still seems to have a reasonable following but some of the others may not have much of an audience remaining.

It’s harder to steal a digital movie, yet many are doing it every day, using illegal sites and bit.net software. Actors, directors, music producers, and even union musicians and recording artists are also losing royalties tied to unit sales in the signatory agreements with the entertainment production companies. It simply makes the future more difficult for both the creative and business sides of the industry. In the 1950s and 1960s radio airplay was so important to the labels that some got caught illegally paying stations to play certain recordings. That’s called payola and is not legal. Clearly the value of airplay has diminished, and as a former CEO of Sony told me once, he’s not going to continue to pay high fees to promotion men/women to consult stations into playing certain products. That will also increase the need for street promotion, where people are hired (or volunteer) to spread the word about new acts and songs.

Free Goods

How can labels and distributors motivate retail outlets to stock unheard-of entertainment products, such as newly signed acts and low-budget movies? Labels provide free goods (free units that can be sold) to retail outlets to stimulate sales. Retailers usually want some guarantee from distributors that they will not lose money or be stuck with albums they can’t sell. Thus, the labels (through the distributors) usually give a certain amount of new and unknown artist releases to the retail outlet (as much as 25%) when they buy and stock a minimum inventory. Additionally, retail will usually demand 100% return on the unsold units. Thus, the retail store agrees to stock and sell the new release, it can sell or give away free units it did not pay for, and the label will accept returns on all the bought units that didn’t sell.

Promotional Copies

Digital copies transmitted to radio stations and networks for broadcasting are not free goods that are given to retail for inventory and are not to be sold. It still costs the label money, as it has to pay for the creation of the copies and songwriter and music publishing royalties per copy provided. Artist royalties are not paid on promotional copies; in fact what often happens is artists are charged a promotion fee of up to 15% off the top of their royalties (when determining recording points times the royalty base), which means the act receives less money on each unit sold to compensate for the units given to media for promotional purposes.

Winning the Game

The risks industry executives undertake are severe, yet the profits when they succeed are amazingly strong. It’s a little like hitting the jackpot in Las Vegas, except it costs millions to play the game instead of a couple of bucks. It’s the team of experts at the labels, stage, book publishers, and movie companies working together that actually makes winning the game easier. It’s the experts working together who make the industry successful. The famous stars get the credit, but it’s the executives and all the hard-working employees at the company who make it happen. Now that the product has been produced, how can the company alert consumers it is available for use and sales? In the entertainment industry, the definition of marketing is more than the typical definition of the four Ps: product, price, placement, and promotion. Let’s take a quick look and make sure to notice the additional costs of promotion and publicity.

Artists and Repertoire Department

As we learned in Chapter 8, A&R, the department of artists and repertoire, is the part of the label’s business structure that is engaged in new artist or song acquisitions and in making sure the new acts are consistent with the brand of the label. Because they are working with the creative talent and the legal and financial teams in-house, A&R to some extent is risk central. Choose the wrong thing and you can negatively impact your company’s bottom line; choose the right thing, and you can make a lot of money.

Development

Artist development, like A&R, takes on another layer of significance in the risk management and media conversation since they are responsible for the development of the artist’s image and brand, which will later be projected in music videos, on TV, in social media, and finally, in the entire business plan surrounding the launch of the song or album. The importance of all the parts of each of these areas is played out every time a new act or a new song is considered for inclusion on the label. If you don’t promote the artist, the album, the song, or the live act, then there will be nothing to sell, so marketing and promotion styles are essential to the successful management of the artist. It’s also associated with matching the right songs to the perfect recording artist. It is essential that we follow the market share in advertising through such sources as the marketing reports published by the Pew Research Center on consumer behavior or in eMarketerDaily and other similar media analysis websites to understand and learn where ads and publicity photos will be seen. Central to successful promotion of the artist is what we can learn from the Nielsen data on consumer consumption of entertainment products, which will be discussed ahead.

Marketing and Sales Department

The weekly sales figures related to the marketing plan are used to see how well the product placement is doing in generating sales. It may let the label know that more of one kind of advertising is needed and less of another, or, more drastically, that the brand of the artist or the advertising associated with a single song might need to be overhauled. As we learned already, the marketing and sales department needs to pay close attention to psychographic research data trends to scout the common and uncommon media and retail outlets where the product can be successfully placed. It is now time to take a closer look at the idea of branding the act, as that is why the label spends time on artist development, marketing, and publicity.

Branding

Branding is the use of the act’s emotional connection with the fans to profit on consumers’ preferences, responses to the act’s image, and name recognition. Remember why consumers want to be entertained? It’s much different than most realize. We’ve already examined the psychology of entertainment and how we as consumers use our subconscious minds to help ourselves understand (feel) something. As an example, the goal is to have everything you say and do as an artist help consumers define you as a person in their minds. All of us want to be loved deeply; welcome to the Beatles singing “I want to hold your hand,” with their unique manner and sound. The brand informs the image and these combine to connect with the consumer.

The public discourse surrounding popular culture continually moves as an emotional pendulum between good and evil, love and hate, anger and kindness, and a few other emotions that many of us are stuck with throughout our lives. Listening to music, being entertained at concerts, and watching the love scene or car chase in the movie let us emotionally “connect” with something inside of us that we feel is enjoyable. Now, though we see Elvis’s dancing as harmless, the censorship rules were such in the 1950s and 1960s that network executives were afraid of being shut down for something close to what some might consider immoral use of the public airwaves, a concern led by conservative religious and political leaders. Today’s performers who show only partially covered body parts gyrate and twist in ways that might make Elvis, were he still with us, blush. Labels and artists sometimes consider over-the-top PR stunts to get the consumers’ attention, such as Lady Gaga wearing raw meat on stage and in her music videos. It has to be a wow to get a lot of people to respond emotionally strongly enough to buy the product, want to steal it, or throw a little money at it by buying merchandise and concert tickets, but that’s what the professionals in the industry accomplish every day.

If you become the next superstar actor, rock star, or whatever, then it’s because of how the fans “feel” after listening to or watching a movie or show. Thus, casting the perfect actor into the movie script with the director who “gets it” is difficult. Then you have to hire a great stage crew and creative technicians, who also have to create the perfect listening and visual environment. Roll the dice, spend the millions, and profit only when the magic happens. The bottom line is simple; fans perceive great entertainment products as having value.

It costs money to accomplish a true brand connection, and the best are often defined with one word. As an example, if we are talking about cars, then when we talk about Toyota the word reliability comes to mind. Say Volvo and the word is safety, Porsche and the words experience and fun come to mind. When it comes to human beings it’s even more difficult. But here’s the bottom line: a well-defined brand gives you the advantage in the competitive marketplace. If the consumers know you as rebel, lover, sexy, funny, solid, ideal friend, or hero, then the product branding will be matched to the image.

Publicity

Also, as we learned in Chapter 8, there is a difference between a well-orchestrated publicity campaign that is likely to help an artist reach major markets and one that the artist has launched him- or herself. Of course, after the product is a hit, risk can be further mitigated by “shameless self-promotion” that gets the artist before the public and even into new venues, such as singing the National Anthem at the Kentucky Derby. First the act is seen and heard by millions on live TV, and then their names are often dropped into news stories or clips in the sports report on the news, and picked up by racing trade publications. The importance of publicity cannot be overstated in sustaining interest, as long as the publicity remains positive for the artist and for the label!

Radio Tours

To set up the release of a new recording or movie, recording artists often take a “radio tour” and the major cast members of new film releases will hit the talk show circuits. The purpose of the radio tour is to introduce the new artist to the power brokers (program and music directors) at the stations, who make the decisions on which recordings to play.

Labels view the free airplay as promotion and the most important way to break an act or new album release. Radio views the recordings as a method to build an audience who want to listen to “the hits.” Radio stations then charge advertisers for the commercials they “air” based on the number of people listening to the music. The location of the station, the type of transmission (AM, FM, or digital), the power or wattage of the signal, and the genre of music or news being broadcast often determine the audience size and the cost of the 30-second or 60-second commercials. Stations would rather play the “established hits” to build an audience unless they can be the first to air a breakthrough song and act ahead of others. The movie stars usually avoid radio and use TV as consumers quickly recognize the “star” and listen to the talk show conversations.

Market Research—Nielsen

There are many ways consumers can access entertainment products. Table 10.1 shows you some of the more common and popular ones.

Nielsen Marketing is one of the top research companies in the industry. Major labels and other entertainment companies pay it for research to help develop their promotional, publicity, and marketing plans to launch an act or a new book, computer game, movie, recording, or other platform of entertainment.⁶ However, the size of the audience and devices consumers use typically change during the 24 hours in a day. An example is the Nielsen report of May 2015 that tracks an audience ranging from 30,644,555 at 4 a.m. to 144,184,562 at 9 p.m. That means the number of people using different devices also changed hourly, as Table 10.2 appears to show. However, about 78% of the audience disappears between 9 p.m. and 4 a.m., so the data provided ahead reflect only the percentage of the total American audience at a specific time of the day or night; yet the percentage is derived from various totals.

Table 10.1 Finding an Audience. We’ve got to find consumers first so they might buy or use our entertainment products. The average use of media by consumers is over 11 hours per day in the United States. Which media they use depends on their demographics and psychographic lifestyle choices. Executives use this type of information to determine product placement, advertisement, publicity, and promotion.

Media/Device	Total Number of Users	Total Medium Monthly Time in Hours/Minutes per User
Traditional TV	284,817,000	151:33
DVDs/Blu-Ray Devices	182,725,000	5:36
Game Consoles	98,664,000	9:15
Multimedia Devices	53,236,000	4:42
Internet on Computer	192,875,000	30:36
Watching Video on the Internet	138,502,000	12:13
Web Application on a Smartphone	170,303,000	44:32
Watching Video on a Smartphone	128,432,000	1:53
Listening to AM/FM Radio	260,099,000	58:10

Source: Nielsen (2015).⁴

Media Promotion

After the master tape is recorded and accepted by the label, a marketing plan that coordinates publicity, promotion, distribution, and sales is activated. To recap, the marketing and sales department coordinates the label’s efforts to ensure a successful launch of the product in retail and digital markets. The promotion department coordinates the label’s plan for radio airplay, streaming, videos, popular press, trade magazine advertisements and charts, plus website information, and other forms of consumer involvement, such as contest tie-ins and radio station tours. At the same time, the publicity department works on the placement of stories in the trades and popular press (tied to the act’s image and brand), schedules TV and radio talk show appearances, and uploads photos and information for an active presence on social networks and stories in approved tour date media.

Here’s a short description of the music label’s departments’ duties on the promotion and publicity side of the business. The same happens for much of the other products in the industry, yet films use expensive trailers on social media and commercial broadcasting, plus cable.

Media Publicity

Publicity boosts promotion by providing the backstory of the artist, which is tied to his or her image and brand through appearances on talk shows, articles in the trades, and popular press, social media, and other outlets. As we read through the different types of media and promotional tours, remember that the artist is also selling him- or herself at the same time by being (acting or actually being) who the consumer thinks the artist is. Thus, stories appear in the media and so do the acts. What do they talk about? Themselves, in a positive, friendly manner, and they are also excited about the products they are selling and tours they are on. The unspoken works are “come see me” and “buy my products and tickets.” The people love you for whom they think you are (in their heads) and what they perceive is often what they get. It makes tons of money and always works best when the image, brand, talent, and personality are based on facts, not made up. It’s hard to fake honesty on that little TV screen.

Talk Show Circuit

Talk show moderators have been provided with a script of questions the movie star or singer has already seen. The purpose is to blend just enough private stuff (gossip) and then drop into the discussion information about the new movie, book, or whatever that is going to be released on a certain date. Radio receives the digital copies free and labels beg, scream, and twist the arms of the program directors for airplay. Here’s another comparable metric for everyone ages 2+ for the average week during the first quarter of 2015.⁷ The labels and studios want to make sure they market their products and acts on the correct media that will increase the chances (and thus reduce the risk) of consumers discovering what they’ve got to sell. The artists usually have agreed to all promotional and marketing plans (availability) when they signed their deals. The radio or TV networks pay the base union scale for their appearance, plus transportation, housing, food, and limos. It is amazing how different radio and TV stations are, as some are AM, others FM, some are high-power stations reaching millions, others are low-power day timers (operating only during daylight hours), and still others are very low-power campus stations. The industry’s goal is to have as many people “discover” the new acts and products (recordings) as fast as possible. Therefore, whatever the power of the stations, the ones located in the main population centers of major cities are most important. Second are lower-population areas and last is just getting some airplay anywhere, however it’s possible.

Social Media

Why not let consumers promote the acts and entertainment products themselves? Social media allows consumers to do the job for the labels for very little money. Hey! As an example, Billboard magazine has a weekly subscription of only 17,000, which is viewed by 115,000 viewers, but it has 15.2 million fans (views monthly) and music industry insiders who read the .com and .biz sites. Billboard Mobile has 6.7 million a month who use the website and charts, 12.9 million a month who use the networks for social connections, and it also sponsors 20+ events every year to help target industry insiders with fan-based information.⁸ Every successful artist today is texting, tweeting, and doing everything else they can think of to connect with the fan base. It makes the artist/fan connection “seem” more personal and stronger.

Social network sites such as Facebook and many others allow consumers with common interests and preferences to construct their own virtual reality tribes of friends and fans. The owners of the websites then use the membership totals to price and sell advertisement impressions (based on hits) to companies to market products correlated to the memberships’ usage (click) patterns. Of course, the music and entertainment industry has many albums, films, TV shows, and so forth they want to sell, and they use the sites to spread the brand and start the buzz. Social networks give established artists and labels a direct way to connect their products to consumers.

Taking a look at the bigger picture, we’ll see that social network members are in effect doing the labels’ promotional work for free. Love it! It costs the labels very little to place stories and ads where social media users can discover them. If they click on it and like it, then they start to “spread the word” to their social network “friends.” Once a fan base is established, labels and artists quickly use the connections to build a larger fan base and buzz (excitement for the act). Some sites have tried to establish legal and free music downloads based on advertising hits (viewers/impressions) per thousand. Advertisers pay an amount of money based on the number of viewers who use the site for music downloads. Sadly, most of the smaller ones are failing. MySpace, Facebook, Twitter, and others have failed to deliver the desired unit sales through streaming and downloads, yet they are providing another method for major labels to use the enthusiasm of fans tied to technology and innovation to increase marketing and profits.

Marketing Plan

Labels, movie companies, networks, and others use whatever information they can acquire to create a marketing plan. Before the acts are signed at labels or movies are shot, the executives usually discuss the suggested size of the market and the promotional processes to reach the consumers. If it’s a no-brainer, then there’s not much of a problem as the executives simply review previous sales figures and analyze the types of consumers who most bought music, downloaded it legally or illegally (remember Sony), or attended concerts. If it’s a new act or risky story line for a movie, the entire project will be riskier and jobs may be on the line. It often costs more on the front end to break an unknown artist than a known superstar. However, if the act or movie (Star Trek was my earlier example) turns into a cultural phenomenon, then the cash rolls in for many years. Everyone gets a promotion (we wish)!

Having musical and vocal talent does not guarantee a hit recording. Consequently, A&R directors seek the types of acts who not only have talent but also can sell records, merchandise, corporate sponsorship, and live event tickets through a clearly defined image, plus a brand. There is a difference, and record labels make and lose millions of dollars each year gambling on which acts connect with the music-buying public. Recordings are packages consisting of great songs that fit the image and persona of the artist, supported by an excellent vocal and musical performance by the artists and musicians. Successful acts establish the credibility of the A&R person who signed them. Failures can cost them their jobs. Successful signings provide additional record producing opportunities. Album productions enhance an A&R person’s status as a record producer within the company and industry. Multiple successful deals and session productions (with the corresponding gold and platinum records) make the A&R producer a powerful, wealthy individual, often famous within the industry.

So, let’s pick up where we left off after developing the recording budget in Chapter 8. Now, we’re halfway there in the launch of a new act. We’ve completed and accepted all the bills for the creative side of the recording and development; now the business operations consisting of promotion, publicity, and distribution kick in, working together to hopefully start a fire of emotion within the consumers’ minds. Executives in the marketing, promotion, and publicity departments usually determine marketing plans. How are we going to help consumers “discover” the act or product and what’s it going to cost?

Prioritizing Media for Product Promotion

Did you know that all radio and television stations are not the same? Some are very powerful and can be heard by millions of people. Have you ever been driving and turning the radio stations and pick up one from Montreal in the middle of the night? Remember that before CD players, radio was all we had for entertainment in our cars. Film companies, record labels, major studios want to reach the largest number of people possible when they are promoting recordings films and other entertainment products. Thus, the power of the station’s signal and where it is located become extremely important. As an example, a 1,000-watt radio station, which is a very weak signal, will have more listeners if it is located in downtown Los Angeles. While a very powerful AM station, say 50,000-watts, may be heard by fewer people because it is being broadcast over a sparsely populated area. Production companies rely on the marketing and sales department to identify, using consumer marketing reports, the outlets where they have the best chance to connect the potential consumers to their products. Another example is the different lifestyles of the consumers including race, language, income, education, and psychographics that need to be matched to their entertainment preferences. Trying to sell an English-speaking record to a Spanish or Japanese market is riskier. Accordingly, the amount of money labels, studios and artists are paid depends upon how many consumers discover their entertainment products. Thus, market research experts need to understand the technical underpinnings of how media, including radio stations, the Internet, and others, work so they can make the best decision in matching their entertainment products to consumer lifestyles through different forms of media.

Radio

Radio from the 1920s to 1930s was programmed with talk radio and live musicians and singers in live performances. Recording tape and direct to disc recordings made a difference until vinyl records were released for media play and consumer markets. Radio still receives the latest recordings free and just has to pay for the music publishing and songwriting royalties usually collected in blanket license fees from ASCAP, BMI, and SESAC in the United States. According to the Federal Communication Commission (FCC) there are 15,470 full-power radio stations in the United States, of which 11,380 are commercial AM and FM stations and the remaining 4,090 are FM educational stations, usually tied to PBS and universities.⁹ There are also UHF commercials and educational TV stations, FM translators and boosters, and low-power TV stations that bring the total users of the airwaves to over 31,000.¹⁰

Analog Radio Signals

Analog radio waves are provided in two different forms (AM and FM) that use the broadcast signal wave as a carrier wave to embed the program or music being transmitted from the station tower. Amplitude modulation (AM) modulates the peaks of the carrier wave and frequency modulation (FM) changes in the frequency. Changing the amplitude or shape of the waves (AM) or the number of cycles of the wave (FM) means that if the carrier wave is diverted or blocked then you lose the signal.

Digital Signals

Digital signals offer many advantages in the quality of the sound, picture, and signal. Instead of the music program being carried on a wave and then being played by a receiver, the digital signal transmitted is simply binary codes of zeros and ones. The digits or signals are carried on a bandwidth 1,500 times wider than AM and FM, so the signal is much stronger. The computer chips in our TVs and our radios convert the binary code (numbers) into sounds we hear as the programmed music (refer to Chapter 3 for more on this). Therefore, the quality is excellent. There are radio and digital TV stations that carry several different signals at the same time, called multiplexing, which enables the sound quality to be consistent across the platforms.¹¹

Digital Receivers

We receive the digital signals broadcast and transmitted to our TVs, radios, and cell phones from digital radio, TV stations, cable, and satellites that are converted into the recordings, movies, computer games, phone conversations, texts, or whatever by the computer chips in our devices. The key to the advent of small devices is literally size! The smaller the device, the more convenient it is to use any time, any place, anywhere. Love it. However, this explosion has also made the marketing of entertainment products more difficult as the market now has many consumers of all races, ages, social economic status, and locations with access to the products. That’s a great advance in technology. But there’s also a bad side, which is, if we’ve got a few 100 million or so people who don’t give a flip about property laws or copyrights, it makes the executives’ jobs of marketing their entertainment products for profit (a return on their investments) much more challenging. It’s a double-sided coin as the passive market of consumers who have to buy or use (watch or listen to films, recordings, and so forth on media) the products has switched from the retail (controlled) markets to the lawless Wild West of taking what you want for free.

Media Promotion

Industry executives use media as promotional opportunities to break new acts and products to the consumer market. Remember, the label’s job at this stage of the game is to help the public “discover” and “get excited” about their entertainment products and acts. Promotion is the second part of the four Ps of marketing, starting with product (which we’ve already created by spending millions to sign talent and create), and then promotion (which is to create and grow a market for the products and acts through airplay, media impressions, videos, advertisements, and other activities). The last two Ps are price and placement (distribution). The labels, movie production companies, studios, computer game companies, and book publishing companies all use the four Ps, but it costs money, of course, to create the electronic press kits, advertisements, promotional videos, news stories, and so forth, and more money to get them “placed” on the right types of media at the right time in order to best “reach” the targeted consumers.

Programming

Radio stations have varying degrees of importance to labels and movie production companies for promotion depending on the station location, signal power, audience size, and broadcasting hours of operation. Believe it or not, some stations are only 1,000 watt AM and others 50,000 watt FM. The quality of the broadcast signal is poor, yet the signal is strong on AM compared to a higher-quality but weaker signal on FM. Digital signals are mandatory on TV, satellites, and cable, and there are a few radio stations that are starting to use it. However, not all cars and homes have digital radio receivers in them so it will take a few years to complete the change to digital radio.

Day Parts

Radio listeners are divided into average listeners per hour (quarter of an hour by Nielsen Research) and ages such as 18 or older or 55 or older. As an example, in May 2015 nationally on all radio there were 35,600,000 Americans listening to radio stations at 7 a.m., compared to only 5,663,300 listening at 11 p.m.¹² The number of people listening to radio on all devices is the highest during what the industry likes to call “drive time” or when people are in their cars driving to work. Thus, the cost of advertising at that time in the morning (6 a.m. to 9 a.m.) is much more expensive than 9 p.m. to midnight as the amount of people listening is only about 16% of the drive time audience. These 2015 results are presented in the Nielsen Research pie chart (Figure 10.4), which provides an average of all radio formats’ popularity in the United States.¹³ Though we don’t think radio matters that much anymore, the Nielsen data suggest otherwise, so here is some information on the major radio markets. Remember, there are just three major labels active in the United States today, so imagine the competition for market share as you read the descriptions of these broadcast companies.

iHeart Media (Clear Channel)

Clear Channel now is under the iHeart Media banner, with more than 245 million listeners each month in all the nation’s major radio markets through its 858 stations and digital iHeart Media services. It has another 450 million listeners monthly worldwide.¹⁵ Its programming is available on more than 150 AM and FM stations, HD digital radio channels, and the Internet through iPods and cell phones, and is used by navigation systems in cars and global positioning systems (GPS), such as TomTom and Garmin. The company’s operations include radio broadcasting, syndication, and independent media representation and outdoor billboards. iHeart Radio has a free digital music service of more than 2,000 live radio stations that allow listeners to create a custom station based on their favorite artists and songs.¹⁶

Cumulus Media, Inc.

Cumulus Media has about 454 radio stations in the top 90 U.S. markets that reach an audience of 245 million weekly. Westwood One (the radio production side of the business) syndicates radio programs to over 8,200 stations, with agreements with the National Football League, the NCAA, and the Grammys, Country Music, and Billboard Award Shows.¹⁷

Cox Media Group

Cox Media Group is a broadcasting, publishing, direct marketing, and digital media combination of companies that includes 14 TV and 59 radio stations. It also owns seven daily newspapers and other types of publications and digital services. It owns Valpak digital marketing, a leading advertising company. It has about 52 million weekly customers, including 31 million TV viewers, 14 million radio listeners, and 3.5 million print and online readers.¹⁸

NPR (National Public Radio)

NPR is an internationally acclaimed producer and distributor of noncommercial news, talk, and entertainment programming. A publicly supported, not-for-profit membership organization, NPR serves a growing audience of 26 million Americans each week in partnership with more than 925 independently operated, noncommercial public radio and TV stations. It has a budget of $188.7 million and about 800 employees.¹⁹

Target Marketing

Once again, the executives in promotion have to target the station and their audience to the preferences of the listeners. As an example, who watches more TV broadcasts, blacks, whites, Hispanics, or Asian Americans? Each has different preferences based on ethnicity, cultural norms, divergence, and economic factors. The answer may surprise us, as according to Nielsen (2015) blacks watch broadcast TV an average of 51:23 minutes per week, compared to Hispanics at 29:13 per week, and 18:44 for Asian Americans.²⁰ Radio stations’ broadcast formats are based on the ethnicity and divergence of their potential audience. Programming is usually tagged as Pop Contemporary Hit Radio (CHR), Country, Hot Adult Contemporary (AC), Rhythmic Contemporary Hit Radio, Adult Contemporary (AC), Urban Contemporary, Mexican Regional, Alternative, Classic Rock, Sports, and News, Talk, and Information.²¹

The variance in radio is also tied to gender and age. Accordingly, the number-one format for persons six years old and over in 2014 was News, Talk, and Information. But also in 2014, the number-one format for persons aged 18–34 placed News, Talk, and Information on the bottom of the list and Pop Contemporary Hit Radio (CHR) on top. Many sources provide “charts” on how well entertainment products such as recording artists, TV shows, computer games, and movies are selling based on units sold. Forbes Magazine has a different chart as it lists the top entertainer or celebrities every year based on revenues but also website hits and the mention of someone’s name on TV, radio, and social media. What you’ll learn is that when major personalities hit it big, we really do mean millions of dollars.

SoundExchange

Most of the royalties being collected from the media are for the “use of a song” paid directly to the copyright owner(s) and songwriter(s) of the songs (©) by ASCAP, BMI, and SESAC.

However, if the recordings of the songs are “transmitted digitally” over the Internet, such as on Pandora, webcasters, cable TV music channels, or Sirius XM satellite, then digital performance royalty licenses fees are collected and paid to the featured (royalty artists) and nonfeatured performing artists (e.g., musicians and background singers), and the label (the owner of the copyright of the recording ℗).²² This is a common practice in most of the world; however, the NAB (the National Association of Broadcasters) has a very strong lobby in Washington, DC, that has successfully represented broadcasters for an approved exception to this licensing requirement. SoundExchange collects royalties and fees ($3 billion since it was commissioned by Congress) and pays them to its 110,000 members, who are the labels, musicians, singers, and royalty artists.²³

AirPlay Direct

AirPlay Direct is a company that provides secure delivery of broadcast-quality recordings and artists’ press kits digitally to radio programmers and film and television music supervisors (who seek songs and recordings in their visual productions). It is free to advertise, although the company has paid membership fees for additional uploads and advertisement banners. Established labels, independents, and even wannabes can use its services to upload new recordings. Broadcast and Internet streaming services around the world may download recordings to play in rotation. The top 50 singles and albums downloaded are charted by the number of station/streamer downloads. The music programmers who are impressed with the music and audience reactions may provide “radio creds,” which are then added to the “charts” if you’ve got enough plays and streams. There are several of these types of services, and it’s an inexpensive way to try to launch a career and to see if your recordings and talent have any market value. Analytics are provided that show station locations and plays. Contact information for the station is provided, and for the few program directors who like to be in search of the next big thing, this is a very valuable service. If the label finds its music is getting a positive response in Germany, then obviously it will start booking a club tour. There are also opportunities to provide telephone interviews and Skype content that may be fed directly through the stations to listeners.

Television

About the same time radio stations were hitting the airwaves, a 21-year-old guy named Philo Farnsworth invented the first television picture. However, David Sarnoff of RCA later became known as the “father of TV” as he marketed the first sets, and many just assumed he also invented it. The first really bad distorted images were broadcast at the 1939 World’s Fair in New York, and the first major league baseball game was telecast shortly thereafter, with almost nobody watching as most consumers could not afford the TV receiver (called a set) in their homes.²⁴ It took almost ten years for the networks to build an audience before World War II was over, the economy had improved, and programming was available. Most of the shows were live and shot head-on with one camera and very cheap staging and lighting. As the TV audience grew, the live touring vaudeville market started to dry up.

When the center of entertainment in the 1890s was the player piano, the main source of profit in the music business was sheet music and piano rolls. Sheet music was sold next to the cash register at the local five and dime and was delivered by the same distributor as books. When the railroad systems were completed in the United States, actors, comedians, and musicians hit the “rail” to stage small shows in almost every little town on the way. That was the development of the vaudeville circuit, and it was about the only form of entertainment other than books, pianos, and a few radio programs. As radio started to increase in market share many of the vaudeville performances jumped off the trains and started to perform live on the radio. When TV really started to take off in the 1950s, the vaudeville stars moved from radio to TV. Radio had to come up with something to program, so they started accepting major labels’ free recordings, which led to the first stages of multiple sources of entertainment programming available to consumers.

Networks

Chains of radio and TV stations owned or associated with one umbrella company are known as networks. As the technology improved, new stations (both radio and TV) had to be built where the people lived and the market existed, depending on the signal strength and population of the area. The business model is still the same today: acquire programming, place it on the airwaves, and then sell advertisements to pay the bills and gain a few profits.

The Federal Communications Commission

Nobody owns the air over the United States so the government had to issues licenses to radio and TV stations to “serve in the public interest.” The stations were provided with a broadcast frequency just as radio stations are permitted to broadcast on the AM and FM spectrum. The purpose, of course, was to control the number of stations and programming and to also assure a clear signal so that one station’s signal did not interfere with others’. Consumers soon loved the free programming and national and local news, and starting spending many hours daily in front of the black-and-white TV screens. The FCC’s job has exploded with the Internet and the entrepreneurial uses and new business opportunities that have been created. Congress will soon have to make decisions about the FCC’s reviewing powers of the Internet in the United States and all of the corresponding legal issues of access, taxes, and authorship of programming, bandwidth, and, of course, copyright violations.

Movie Production Companies

Movie companies have their own labels: the Walt Disney Company owns Walt Disney Records and Hollywood Records. But there’s also a bigger picture to the story and that’s what we hear when we watch a movie or TV show. Music beds enhance the emotion of the shot and the presentation of the line. Then there’s the opening and closing credits, and let’s not forget the meet cute plot point, where the iconic lovers meet in some crazy, unusual way that builds the foundation of the story. Music supervisors select the songs, recordings, and music that best fit the director’s and the producer’s visions of the film. Having a song in a movie can break a new artist into an upper level of success practically overnight. Just ask Hayley Williams of the rock band Paramore, and you’ll get my point. Their 2008 song “Decode” in the hit movie Twilight helped bring a new fan base to the group and Paramore’s fans to the movie. It also got them on the soundtrack album with promotion and publicity that helped promote both the movie and them. According to Williams (2008),

All forms of media, broadcast, print, transmissions, cell phones, and Wi-Fi, are powerful business and promotional systems of entertainment and communication. Everyone uses them: politicians, actors, recording artists, advertisers, news sources, manufacturers of products of entertainment, and even national and local personalities.

Entertainment Media and Politics

Remember how political the Gutenberg printing press was in the 1500s? With the advent of this invention, anyone could print a book about almost anything or anybody. The same thing happened with the invention of the radio and TV in the United States. In the late 1940s, Senator Joseph McCarthy (1908–1957) of the U.S. Congress held hearings of the House Un-American Activities Committee, as it was called, concerning the impact of possible communist control of the media. World War II was over, but there was a concern that the Soviet Union wanted to take over the world and might be using broadcast media to get its message against American values out to the people. Sadly, in America, people in the entertainment industry were getting fired and blacklisted based on their political beliefs, and Congress’s effort to protect the people from the threat of communism caused many talented creative people to lose their jobs and careers. It has taken years for some people’s reputations to be restored.²⁶

The Quicksand

Digital transmissions have become an important part of the marketing plan for the labels, but not because of promotion. Labels receive payment for every stream on audio and video, as they are the copyright holders of the recordings, but the stream is to only one person instead of being broadcast by a radio station to thousands. Songwriters and music publishers still receive public performance royalties collected by ASCAP, BMI, or SESAC. This is the new quicksand facing the industry when it comes to management of risk and potential profits. The risk is, quite bluntly, that anything digitized and transmitted will probably be stolen, in which case the labels receive zip on their investments, or it will be streamed and the label will receive approximately 6/10ths of a cent per stream. The difference in gross revenues between a person buying an album and a stream has resulted in billions of dollars of revenue losses. The labels could recoup a lot of their business expenses out of album sales, but the volume of such sales no longer exists. Successful recording artists, once the losses had been recouped, started making money on every album sold. That business model is gone.

Distribution—Retail Platforms

Labels still make money from the sale of the recordings they place into retail, and while labels determine the suggested retail list price, the cost of creating, promoting, and marketing recordings seldom determines the selling price of an album. Consumer demand and profit levels are more important. Wholesale and retail markups between retail outlets and distribution depend on the following:

• The type of distribution (retail, department stores/racks, or one-stops)
• The type of platform on which the music is recorded (CDs, DVDs)
• The sales propensity of the artist (a hot superstar, a high-ticket item, a known artist with current radio airplay, or title albums with recurrent radio airplay)

Retailers often ignore the SRLS (suggested retail list price) in favor of their own marketing strategies, offering discounts on some items and price increases on hot-selling or hard-to-find recordings. However, the SRLS is used to determine the wholesale price. Retail outlets use the range (difference) between wholesale (what they paid for the product) and retail (the price they quote to the public) to generate profits. Accordingly, brick-and-mortar retail outlets that sell CDs for $16.95 more than likely paid about 60% or approximately $10.17 for that CD. The distributors are paid about 20% ($3.39, in this case), and the labels recoup the remaining 40% or around $6.78 per album.

Traditional retail outlets have suffered financially as consumers have more choices for their entertainment dollars. In addition, consumers know they can buy the same album for several dollars less at another store or online (which is instant and more convenient), and that’s if they plan on paying for it at all. Traditional retail includes the following.

One-Stops

One-stops are the brick-and-mortar stores and the mom-and-pop places that are now mostly out of business or bankrupt. They simply cannot compete with the lower economies of scale of digital downloads.

Mass Merchandisers

Best Buy still places the CDs and DVDs in the front or middle of the store and prices them low to draw in customers, and then encourages them to buy a larger-ticket item, such as a computer, TV, or home appliance.

Rack Jobbers

Walmart, Kmart, and Target place CDs in racks in their stores, rent the floor space, and pay a small commission on each unit sold. Unlike the one-stops, with their large inventory and slow turnover (and therefore, higher prices), rack jobbers stock a smaller inventory of mostly hits that will sell quickly at a lower price. The racks keep getting smaller as most of these companies believe they will stop selling CDs within the next three to five years.

Record Clubs

BMG Direct and Columbia House have been two of the best-kept secrets in the business as they have often been used to unload overstock items for a huge profit. The CDs are sold at higher prices (after the discounted membership units, which are used as a tax write-off by the labels), and the customer pays the distribution cost (shipping and handling). The artists usually only receive 50% of their royalties, which is an industry standard. Columbia House and BMG Direct, which are owned by Sony Music, have quickly moved into digital downloads.

PI Advertising

“Per-inquiry advertising” is those late-night attempts to sell the overstocked albums through television. Older consumers who do not shop in record stores or online still buy old recordings that seem to stimulate fond memories of their youth. Television and cable systems play the advertisements for free when they have unsold air or broadcast time available. They are then paid a small percentage of the money consumers send in when they buy the products.

Steve Jobs

Many in the industry see the late Steve Jobs and his devices at Apple as “the man who saved the music industry by killing the album.” When the labels signed up to iTunes they got a wonderful 70/30% split in the price paid, but consumers were also allowed to download “singles” from the albums, which almost wiped out album sales. Before, the labels were collecting about $6.78 on a retail album sold at a brick-and-mortar store and almost $7.00 online. But consumers started buying the singles they preferred off the album instead, meaning the label made about 70¢ per single instead of the $7.00. Talk about a reduction in financial gross income! What made it worse was the illegal snatching of unreleased products (CDs and DVDs) from the pressing plants by employees and then the uploading of them to bit.net sites. Now, the labels and movie company losses only increased. Meanwhile, Jobs and Apple made billions on the devices they sold and consumers got used to getting their entertainment products for zip.

Changing Attitudes

However, the products consumers often want for entertainment are still available through streaming, as the safe harbor laws allow the ISPs protection while creating an method for consumers to acquire entertainment products legally instead of stealing them. Technological innovation developed to the point where streaming is technically of high quality, but at the cost of billions to the copyright holders of entertainment products. My hope is if consumers develop a “habit” for streamed content, there is at least a chance that labels and artists will make some money. But uncontrolled and unregulated downloading of artists’ copyrighted material will make it hard for them to preserve what is legally their property.

The best thing that could happen at this point is for consumers to get used to paying for a streaming service just as they have with cable TV. In many ways that is what is great about Netflix as we have a menu of what’s available and can pick and choose what we want to watch, when we want to see or listen to it. We pay for that service (probably not enough) but it provides a way for consumers to pay pennies instead of dollars to be entertained. Let’s look again at Honda Motor Company: we walked onto the lot and decided which car we’re going to drive away. Guess what—they won’t let us do that unless we buy it or lease it. Maybe leasing is the solution, which is similar to the streaming model, yet we’d need to pay enough money to make it feasible.

Three Blind Mice

What’s really going on is some companies, such as ISPs, are turning a blind eye or facilitating copyright violations on a massive scale to the point where the industry executives had to blackmail them to comply (by paying millions up front) or be shut down. Still, billions of dollars have been ripped off and the major entertainment companies have lost their equity in copyrights that are protected by law. The safe harbor rules have moved the responsibility of digital copyright infringement from the businesses that make the products available to be downloaded or viewed to the consumers, who either don’t care about the legalities of their use of the content or are unaware of any potential legal issues with their activities. All future sales and profits from owning the copyrighted entertainment products are close to worthless as the market is gone. The money spent in developing the entertainment content is lost when the consumers can acquire it for free. Here’s an example: let’s say Honda Motor Company spends billions to design, produce, and market new cars. Then consumers can go to any of the dealerships and take any car they want for free. How long do you think Honda would stay in the car business?

The Sharing Economy

One of the real psychological trends in the world today is younger people’s belief that ownership of entertainment and physical property (such as cars) is actually a burden. If they can get it for free, who needs to own it? In some ways, this is really a cool ideal now that we have the technology to share things quickly by renting a bike, or jumping into someone’s Uber taxi. Still, it’s not right to steal others’ property. But in this business it has clearly happened, so how are we going to make money now?

Labels Become Music Companies

To survive, record labels had to morph their old business models into marketing and branding companies that marketed artists to consumers instead of albums for profits. That’s why we have the 360 deals as the labels still have to sign talent, record albums (for promotional reasons), and promote the peanut butter out of it in order to break an act. However, since the revenues from album sales are in the toilet, they have had no other choice than to fund and then receive a percentage of all the other artist revenue streams. Superstars at the time of the transition hated it, but when their deals expired, what they got offered were 360 deals. New artists and wannabes think 360s are a rip until they try it on their own and realize that in most cases only label executives can accomplish the task. We’ll probably still call them labels; however, they are now much more than the old definition as they now include funding and profiting from concert ticket sales, merchandise, branding, and corporate sponsorships. The transition to the new types of deals has not been easy, but the economies of scale have changed the royalties (which stay the same on album and single recording sales) to a percentage of all artist revenues from their entertainment businesses. Other than that, about the only other change is that the packaging fees that usually come off the top of the digital sales have been dropped.

Websites

We’ve probably clicked on a label’s website to check recording schedules or news, merchandise, careers, and label stuff. The bottom line is label artists usually have two sites, the label’s and their own. Since 360-deal labels want to make sure their investments are controlled and protected, merchandise and other fan base connections are provided by the label. It’s all about building the brand and giving fans a feeling they are a part of it. Executive names, pictures, and bios may be included. Latest news and publicity buttons show the headlines and a “read more” button provides a click away to the full story. Always written to feature the acts’ and the label’s image and brand in a relational manner, the publicity hit is based on the fans’ emotional excitement and belief that they know the act and want to help them become more successful. The goal is to feed the fans’ enthusiasm and let their emotional connection to the label and act build a buzz, sell stuff, and make a profit. Featured videos are available as well as links to the act’s official website and online store. Press kits, videos, pictures, blog links, and bios of the artists are supplied at the act’s site, which may or may not be operated by the major label. The online store link connects the fan directly to a label-provided merchandise store or third parties, such as Amazon.com. Let’s just say they want to make it easy for the fans to purchase act- and label-related products. Professional websites cost $10,000 to $250,000 to set up and operate.

Distribution—Digital Platforms

Digital downloads are sold by providers such as iTunes, Amazon, and many others, including phone services, such as AT&T. Downloads are priced close to wholesale (60% of SRLP). As in our previous example, a $16.95 SRLP album is downloadable for about $9.95. This has forced the SRLP of $16.95 to consumers down to $12.95 to $10.95 in many big-box retail stores, but it has also reduced the size of the inventory. In addition, digital downloads bypass the cost of brick-and-mortar retail outlets and of shipping and pressing, and (most importantly) the split is 70/30 (label/provider), as opposed to the 40/20/40 of retail outlets. Thus, the label receives slightly more money on digital downloads than on traditional sales. In the case of a digital download, the label receives about $6.96 (70%) on a $9.95 album instead of the $6.78 on the traditional brick-and-mortar unit with the outdated SRLP of $16.95 at a one-stop or $12.95 at a rack jobber.

Applications (Apps)

The future may be direct sales of recordings, tickets, and merchandise by recording artists through their own app that provides a direct link to fans. Free or low-cost apps simply take out the intermediary and reduce the cost and time consumers need to acquire products. Apps also provide a direct marketing connection to the fan base. However, potential fans need to know who you are and they need to have discovered your music before they will buy the app (even if it’s free). Thus, cell phone apps are great for known acts but not very useful for new acts until a marketing, promotion, and publicity program has been successful. Once an act and their recordings have been discovered by consumers, labels may need to increase the quality, speed, and value of the “discovery.” The process is tied to the consumers’ actual emotional connection(s) to the songs, recordings, and images of the acts. The label or music company is in the background, just trying to profit off its investments. Cell phone applications are a great way to provide a more personalized pathway to the act that will hopefully enhance the emotional connection and increase the buying of an act’s products.

Digital Subscription Services

Labels are starting to make significant money from digital subscription services, such as Rhapsody, Spotify, Pandora, Amazon Prime, MySpace, and Yahoo. The key terms to remember are interactive and passive when referring to customers and tethered or untethered when talking about labels.²⁷ Some of the digital music providers allow interactive streaming, where consumers can choose what they want to listen to or download (e.g., Pandora for listening and iTunes for 30-second clips and buying). “Passive” means that the listener has to listen to whatever is offered, as with traditional radio stations streaming their signal over the Internet. “Tethered” and “untethered” are label terms that define whether the label is giving up certain rights, allowing the purchaser to make unlimited copies (untethered), allowing the recording to be downloaded and used for a limited time, or allowing consumers to make a limited number of copies on various devices they own (tethered).²⁸ According to Passman,

Digital Streaming Services

Why buy music or even steal it when we can stream it instantly for a few pennies on our computer, cell phone, or mobile device any time we want it? I keep asking that question over and over, but that is really about what monetizing entertainment has become: How can the creative writers, actors, musicians, and singers, and the business executives, employees, and stockholders, make money in today’s psychological environment? Consumer behavior trends (their use of cell phones and other devices) appear to indicate a major cognitive shift in lifestyles and ethics. The key players in the game have been Rhapsody, Spotify, Pandora, iTunes’s Beats and Apple Music, Amazon’s Prime Music, Tidal, Google Play Music, and of course many others. YouTube Music is a new entry available on both iPhone and Android devices. It provides programming around the old concept of top 40 radio, called the Daily 40 singles. It is presented in both the audio and video formats, and just as with top-40 radio programming, its purpose is to provide multiple streams of the same top 40 singles in an effort to increase and maintain its consumer base.³⁰

Spotify

Streaming music sites merge the idea of acquiring music over the Internet (Rhapsody and Spotify) with social networking, tied to the labels’ desire to make money and break new artists. The streaming sites (e.g., Spotify) sync everything on to all our devices. Amazon.com offers its Prime Music and digital store, with its corresponding phone app and Kindle reader. Spotify is a European model that offers music for free with advertisements, or for a low monthly fee without advertisements, and has millions of songs we can listen to almost instantly. It has about 20 million paying subscribers ($10 per month) and 55–60 million free users who tolerate the advertisements. However, the service is quickly growing its audience base as consumers change their listening habits around streaming. The common denominator is the music. It is the glue that connects the consumers to the acts and the labels intend to profit from that connection, along with the investors of the website provider. Spotify also has a “dashboard” function that provides artists’ managers and labels with analytics (algorithmic curating) about the location, demographic, and minor psychographic lifestyle of their listeners. Very cool for decisions that need to be made about touring dates and locations, ticket sales, promotion, and merchandise offers.

Streaming Revenues vs. Sales

Recording artists make $1.50+ on album sales and about 8¢–12¢ or more on the sale of a one-song recording. Labels gross about $7 on an album purchase and about 70¢ on a single sale, out of which they have to pay mechanicals, artist royalties, and other administrative fees. How much do they make from one stream? Hold on to your hat, as this will give us a clue about the economics of streaming for the artist and label. It depends on if the Internet service provider or ISP—Spotify or Pandora—is paying subscriptions or drawing down advertising-based revenues. As an example, if the customer buys a single CD or digital download, the label will owe the royalty artist close to 8¢–12¢. But the label will be paid only 0.12¢ from Spotify on an advertising revenue stream (free to the consumer) and 0.59¢ on a subscription stream. Both streams are paid less than one cent and the artist may be paid zero depending on the deal with the label. Pandora pays SoundExchange and then it pays the label far less (0.067¢); however, in this case, the artist also receives 0.067¢. To counter the loss of revenue, the major labels receive 70% of all of Spotify’s generated revenues. In addition, they own 15%–18% of the company, thus getting another bite out of the profits. It would take about 178 streams on Pandora to equal the money paid to the artist and over 1,000 to equal the revenues the label would have grossed if the consumer had purchased the single instead of streaming it.

The recording acts often complain that they are not getting their fair share, yet they signed their contracts. The labels pay what’s in the deal or they’ll have to spend too much money on attorneys. So, the labels have to be paid by the streaming companies to license the rights to the master recordings to provide programming on their interactive streaming sites. The acts may not receive any money, as the royalties may not be defined in the deal as album royalties.

Labels who are the copyright holders of the recordings have had to strap on their “bad guy” caps and threaten to shut down some of the lowest-paying sites, such as YouTube. That places the labels or copyright holders of the recordings in the position to (shall we say) “blackmail” the violators, such as YouTube, when some kid mixes a recording owned by a major label with some stupid video. That’s why every so often we’ll see a message posted on YouTube that states “content no longer available.” The labels are just defending their property rights and, of course, they should be paid. They made their point with Spotify, which now pays 70% of its net revenues (gross income, minus business expenses) to the label, and in addition, labels also own about 18% of the company. That gives the major labels some control of the business and additional profits on top of the licensing fees. Sadly, this has created a series of interrelated problems.

First, the digital streaming royalties being paid to the labels does not cover the expenses (cost of doing business), and, therefore, the artist royalties (recouped to pay the debt) are absent. So, the old business model of album sales is broken and not coming back.

Second, many artists are now signed to 360 deals, yet they may or may not be receiving all the money due to them as the old contracts may not pay them a high enough percentage from the “other” resources. Remember, it’s all about risk at this point in the game. Any newer acts have a very hard time securing reasonable percentage deals until their level of success is established.

Third, due to the advanced technology, consumers may acquire programming through low subscription services or just steal the stuff using bit.net. This situation has been about a twenty-year problem that has gutted the economic value of the production companies and label that owned the copyrights. So many of the labels and movie industry’s valuable copyrights are now worthless as consumers already have them or can find them free online and pay zip for them. The same thing is starting to happen as consumers make the move to Netflix and Amazon Prime.

Fourth, most of the Internet streaming companies claim to be “safe harbors” as long as they take down copyrighted recordings, which they often fail to accomplish. This puts the labels in the position of demanding money for the master recordings they own and they can ask any amount of money they want, which puts them in the position of almost “blackmailing” the safe harbor streaming services.

Fifth, the artists may or may not be paid in exchange for the lost revenues from the increases in streaming and decline in album sales due to the types of contracts they are committed to or might sign. The royalty artists who may have millions of streams may end up with a whopping check of about $5,000, as the SoundExchange rates do not cover the royalties from album sales.

Streaming Payments

Labels usually demand all the streaming royalties up front before they approve any streaming deals. That means they are receiving hundreds of millions of dollars before they know what is going to be actually streamed. Artists want to know what share of the money paid is theirs (if any) even before the labels may know. Crazy business. Yet it is the label’s millions that got the act’s careers launched and it is a little bit of mystery about who’s getting paid and when. Honestly the labels have taken a lot of heat from acts that feel that the difference between the losses of album sales royalties and streaming royalties is a rip-off. Labels are making their first efforts this spring (2016) to address the situation with Sony Music Group and Warner Music Group, both suggestions based on packaging fee reductions and a percentage of the sales price of the streaming stock, if and when the labels decide to sell it.

YouTube

YouTube to the industry is a double-edged sword. On one side, the site allows consumers to post copyrighted songs, videos, and so forth without permission, payments, or even licenses. Sure, they are operating as a safe harbor, but they have been very slow in abiding by the law. Thus, lots of videos are posted and only later taken down. One view or listen to a copy (audio) is a violation. On the other side, YouTube provides viewers the industry perceives as a potential market, and, thus, they use it for promotion. At the same time, this situation places the labels in the position of having to threaten YouTube for money or shut it down. This is sort of a sleazy way of doing business as the labels would rather be paid for their copyrights, but since that hasn’t happened yet, they have been forced to “do their best” in this unregulated vacuum.

What would happen if the legal shoe drops on YouTube? According to a January 2015 article on Pollstar, industry insider Irving Azoff is getting ready for that to happen: “mogul Irving Azoff formed performing rights organization Global Rights Services and ended the new year rattling his formidable sword at the online video service over 20,000 songs, for which he figures YouTube owes $1 billion.”³¹ Google, which paid $1.65 million in 2006 in a stock trade with owner/founders Chad Hurley and Steve Chen, now owns YouTube. Sequoia Capital is the third player in the game as they invested in Google and now have about 30% of YouTube.³² Just before its own deal, YouTube signed deals with Warner Music Group, Sony Entertainment, Universal Music Group, and CBS Corporation to avoid a threatened lawsuit for copyright infringements. Not a surprise—either pay us money or … we’ll sue you for copyright violations. Guess who’s in control in this case? We’d think it is the copyright holders as the labels were able to get at least some money for the illegal use of their recordings. However, laws have been broken and the same appears to be the case in the Authors Guild lawsuit against Google, except two different judges have ruled for Google and against the copyright owners.

YouTube—Safe Harbor Status

It is estimated that about half of the digital data between the U.S. and European countries is protected under the Safe Harbor Act. However, in early 2015, the European Court of Justice rejected the law and the EU Court of Appeals reconfirmed that decision on October 6 of the same year.³³ Congress has not yet responded to European court actions. Let’s take a closer look at what the Safe Harbor Act is really about and why it’s so controversial.

Congress was faced with a balancing act in 1998 when they passed the Digital Millennium Copyright Act into Title 17 of the U.S. Copyright Codes. To ensure that the copyright laws would not restrict future innovations in technology, they added the Online Copyright Infringement Limited Liability Act or what we call a safe harbor. It limits the liability of providers such as Google, which owns YouTube, that have billions of copyright infractions. With the videos it could be movie clips, photos, or an amateur video mixed with a copyrighted song or recording. To operate under the safe harbor status, companies (e.g., YouTube) are required to make services available for copyright holders to notify them if any of their copyright properties are being used illegally.

The catch is that the ISP is then not responsible for copyrighted materials being transmitted on their channels. If the people who use the services and who violate the law don’t have any money, they are not worth chasing down for a lawsuit. Under safe harbor, the copyright owner has the burden of notifying the ISP instead of the other way around. It’s the copyright owner’s responsibility to find the infractions, the name and contact information of who should be alerted at the ISP, and then file a complaint. If any of the required information on the forms is missing, the complaint is ignored.

European High Court

It now seems the safe harbor worm may be turning as the European High Court ruled against the safe harbor laws in early 2015 and it was upheld October 6, 2015. That means the fight has really moved into the court systems in Europe as the rulings may hamper ISPs’ business model to operate legally, unless they become responsible for streaming any copyrighted products. If that happens in the United States, many streaming sites, such as YouTube, would have to seriously restrict their current programming and possibly shut down.

The Black Box

The “black box” account is the place where labels place unclaimed royalties and revenues that may be paid in the future. Some of the streaming revenues may end up in the black box depending on the individual contracts between the company and their roster of acts and possible changes by Congress in the copyright laws.

Gold, Platinum, and Diamond Awards

In the halls of many of the executive offices in major labels are the old vinyl gold records awards hanging on the walls. Success was visually hanging right in front of me as I’d walk down the halls to meetings. In his home, Jimmy Bowen had a large room plastered full of the gold and platinum records he’d been awarded from producing many famous artists and their best-known hits. He’d produced everyone from Frank Sinatra and Dean Martin to Hank Williams, Jr., and George Strait. His career (1957 to today) has been working as a performer, composer, producer, and label executive.³⁴ A great combination if you’ve got the talent. Seated in his guest room, full of the awards, I realized how imposing this must be for a new person. Record awards are presented by the RIAA (Recording Industry Association of America), which is the trade organization that represents labels. A gold award is for the pressing and selling of 500,000 units, platinum is for a million, and diamond for 10 million.

Billboard Charts

Billboard magazine reports airplay differently as it looks at the news of the industry and the chart placement of the recordings being played, streamed, and sold nationally and internationally. Instead of charting and ranking “who is listening and buying” it examines the “popularity and sales” of the actual recording in various forms of media and retail sales. The industry executives use the charts to determine market play and label strategies. Consumers use the charts to see what’s available and becoming popular. Billboard’s weekly charts include the following:

Other charts include R&B (Rhythm and Blues)/Hip-Hop, Pop, Dance/Electronic, Country, Rock, Latin, and Christian/Gospel, plus many others based on genres and world or territory indicators. The Hot 100 and Billboard 200 charts may list any genre of music from the individual charts once they hit the sales, airplay, and streaming to place onto the national charts.

Buzz Angle

A new research database labels and industry insiders use to determine marketing plans and promotional and publicity decisions is BuzzAngle.com. Nielsen and Billboard provide weekly charts and news, but Buzz Angle provides the charts daily. In addition, Buzz Angle software provides industry insiders data and charts based on the researchers’ selections, based on song, album, sales, streaming, airplay, and social media metrics in a unique “snap-shot based on real time analysis.” In addition, it provides retail data on physical and digital sales, including 225 record stores, direct-to-fans sales, venue sales, on-demand streamers, and radio station airplay. This is great information for labels, managers, acts, and concert promoters making plans about acts and products. Buzz Angle’s CEO, Jim Lidestri, states,

There are other industry sources used by executives to determine how well an artist and product are selling (current and past), and then we can use the information to set up and predict future success. Celebrity Access is a little over $50 a month, yet it provides touring information and contacts for managers, acts, venues, transportation, and lighting and sound technicians. Billboard and others have both printed and online research that provides similar information. Pollstar is the trade magazine for touring, and we’ll take a glimpse at it in Chapter 12, on touring.

Variety

Variety is the weekly trade magazine that reports box office revenues and business news about the film, movie, music, theater, and other areas of the entertainment industry. News articles on the business of production, broadcasting, transmitting, and streaming networks are detailed. Film projects, production schedules, casting calls, and updates and stories about Hollywood actors, directors, producers, and other personalities are provided. On the website, movie clips and interviews of new movie releases are provided. Digital entertainment news is detailed for production, features, business, and computer game products and business events. Industry executives often purchase advertisements and publicity to support the Oscars, Emmys, and other types of award shows and nominations, hoping the buzz in the magazine and website will gather votes. Winning an Oscar, Emmy, or Golden Globe Award usually increases notoriety, professional acknowledgment, and revenues. This in turn means the creative people, writers, directors, and executives will receive more money for their entrepreneurial job skills, knowledge, and studio salaried positions. Job listings are provided, although most of the job opportunities on this side of the industry are gained through word of mouth, track records of success, fame, working relationships with industry insiders, and executives’ experience. On the lighter side, if you have a few extra million, Variety also provides information and advertisements about famous actors’ homes and businesses that are for sale. Sure, that will be the day—right.

In this chapter, we have looked at the various ways artists and entertainment business executives can creatively and strategically promote and publicize their products. Within the advertising channels, from the print trade magazines to the streaming services, there is a good deal of variety, and it is consumer driven. Promotion and publicity campaigns are dependent on the ability of the A&R and Marketing and Sales departments to be on the same page when promoting an act or a product. They have to be well informed and nimble enough to rework their efforts in light of consumer responses to placement and sales. When people talk about the “costs of doing business,” this is what they mean- will the time and effort we put in as an entertainment company to our personality and product really pay off when it comes to show openings, concerts and merchandise sales? If you are afraid to roll the dice, then you need to spend more time with the internal administration of the company to learn how the laws and media can help you plan for success. You may also want to think about the kind of representation you or your act or product will need to reach the market you want. Read on to see how you might just be willing to take that plunge and go for your dream, with the right help from the right people.