Music in an Independent Key:
    Nettwerk Productions and eMusic  (6/2006)

    by Douglas Dixon

Nettwerk Productions: Developing Artists
eMusic: Discover Independent Music
References

If conventional wisdom says that record sales are declining, and the physical CD business is giving way to electronic distribution, then what hope is there for the music business?

From the consumer's perspective, the major labels are focused on the hot top-selling acts, promoting the new album from the latest American Idol, rushed to the retail shelves for the big release day. And the other public perception of the industry is driven by the ongoing torrent of lawsuits filed against music fans, with some highly visible collateral damage to grandmothers.

So is this a time of doom and gloom, or are there alternate approaches to making a good business in music? Beyond the majors are some interesting alternate views of how to run the business -- for example, Nettwerk Productions is a artist management company and record label that is focused on developing artist careers for the long term (without suing customers), and eMusic is an online retailer of independent music focused on music fans (without restricting music with DRM).

Nettwerk Productions: Developing Artists

With an alternate view of how to develop artists, Nettwerk Productions is Canada's leading privately owned record label and artist management company (www.nettwerk.com). Based in Vancouver, its clients include multi-million selling artists Avril Lavigne, Barenaked Ladies, Dido, Sarah McLachlan, Stereophonics, and Sum 41.

Founded in 1984 by three partners including CEO Terry McBride, Nettwerk now has major corporate offices in Vancouver, New York, London, Boston, Nashville, Hamburg and Los Angeles. The Nettwerk Music Group includes Nettwerk Productions (Canada's largest independent record label) and Nettwerk Management (artist, DJ and producer management), plus music publishing, Web and DVD design, and graphic and fashion design.

Nettwerk Productions has been responsible for the release of over 400 albums, with worldwide sales of over 100 million albums. In 1996, Nettwerk and Sarah McLachlan founded the "Lilith Fair" all female headline concert tour, which ran from 1997 to 1999 and raised over 10 million dollars for woman's charities.

McBride describes Nettwerk's role as developing artist's careers -- he wants artists with passion, who write, record, and perform their own music. His goal is long-term, to build "heritage artists" with a brand and enthusiastic fans. As the major labels have focused on near-term hits, Nettwerk has expanded its role into more of what labels once did, including promotion, merchandise, and events. As a result, its artists are able to get significantly better rates from the labels to distribute their albums.

In McBride's view, artists no longer need to follow conventional wisdom -- you don't need radio to sell records, and you don't need new records to sell tours (as demonstrated by the Rolling Stones). Instead of fighting the Internet, Nettwerk uses it as a tool to develop new artists.

For example, Brand New, a new band that grew out of the Long Island, New York, independent music scene was able to leverage fan promotion to sell some 1.5 million albums in 2004 and perform 200 shows. Nettwerk organized fans online into street teams, and then designed concert posters and posted them online for the fans to print and post to promote the events (with inexpensive tickets, down to $10). Two years later, the band's site on MySpace lists almost daily concerts across the U.S. throughout the summer, still with ticket prices under $20 (www.myspace.com/Brandnew).

And counter to the desire to lock up music, or the complaint that releasing a song on the Internet would kill its sales, Nettwerk instead offers multiple versions of songs for electronic downloads. For example, the Barenaked Ladies record almost every live performance and make them available along with studio recordings -- including 20 to 30 different versions from four tours in 2004 and 2005. 

        Barenaked Ladies Audio - Downloads of Featured and Live Recordings

The music is sold online as unprotected MP3 files, or in higher-quality FLAC format (www.bnlmusic.com). Tracks are available for 99 cents, albums for $13.99, and physical CDs for $20.

eMusic: Discover Independent Music

With a different approach to online music sales, eMusic is the world's leading digital retailer of independent music, second only to iTunes in the number of downloads sold (www.emusic.com). It is focused on music fans, with on-staff music experts helping to share and discover new music. And it does not encumber the music with DRM restrictions -- all downloads are in the universally compatible MP3 format, totally free to copy and download to portable devices for personal use.

Based in New York, eMusic's focus is on independent music, not current mass-market hits. It carries more than 1.2 million songs (compared to some 2 million at iTunes), from more than 100,000 albums, from more than 4,000 labels, in every genre, including rock, jazz, hip-hop, blues, classical, country, folk, electronic, world, and reggae. The eMusic catalog includes both classic and new artists such as Johnny Cash, Ray Charles, Miles Davis, Bob Marley, Credence Clearwater Revival and Lucinda Williams.

This is a big business: eMusic sells an average of 4.5 million downloads per month, and has sold more than 54 million songs over the past two years - more than Yahoo!, Napster, MSN, Musicmatch and Real combined. Its largest-selling genres are alternative/punk, rock/pop and jazz; and best-selling labels include Naxos, Koch, Rykodisc, and Concord Music Group and Beggars Banquet.

eMusic is geared to music fans interested in exploring and discovering new music. It provides its members with editorial features, personalized recommendations and a variety of community features that promote discovery, based on its staff of industry veterans and actively recording musicians. These include the online eMusic Magazine with daily updates from a staff of more than 100 music journalists, and eMusic Dozens, with personal picks of the 12 most significant albums in each of more than 60 sub-genres. 

And to help members share their own recommendations, the website offers eMusic Playlists from subscribers and staff, eMusic PowerCharts based on preferences from more than 100 attributes, and eMusic Neighbors and Message Boards with ratings and reviews.

Even better, eMusic customers really own their music -- it's not "rented" only while the subscription is active, or locked to a specific machine, or playable only at the discretion of a licensing agency. eMusic delivers music using the open MP3 format, playable on the widest variety of systems and devices. As a result, eMusic is the only service other than iTunes that works with the iPod. 

Purchased music files are the owner's personal property in the full sense -- free to back up, burn to CD, play on other devices, and move to a new system.

eMusic is a subscription-based service, allowing members to download tracks for substantially less than they would pay for other download services. To help encourage new subscribers, eMusic offers 25 free downloads at sign-up. Subscription plans include US $9.99 per month for 40 downloads, $14.99 / 65, and 19.99 / 90, plus annual and two-year plans.

eMusic is wholly owned by Dimensional Associates, Inc., the private equity arm of JDS Capital management, Inc. The Dimensional Associates portfolio also includes The Orchard, the leading distributor and marketer of independent music in the world, which represents thousands of labels spanning 73 countries, with more than 700,000 tracks, supplied to all of the leading legal digital music retailers and mobile operators.

References

Nettwerk Productions
    www.nettwerk.com

Brand New
    www.myspace.com/Brandnew

Barenaked Ladies
    www.bnlmusic.com

eMusic
    www.emusic.com).