Traditional Music Outlets Take a Back Seat to iTunes

The NDP Group (a research company that tracks digital downloads as well as music purchases through retail outlets) has just released a report stating that Apple’s iTunes now sells more music than both Tower Records and Borders. In 2005 iTunes also got 70% of the legal music download business. The big box retailers however still outsell iTunes – these include Wal-Mart, Circuit City, Best Buy, and Target.

Music Industry Ups and Downs

The company Nielsen Soundscan has released a report revealing that while digital music downloads tripled in size by May of this year – to 6.6 million downloads a week – by the end of October, that number had remained relatively stable at 6.7 million downloads per week. This news is alarming for the fact that the digital download business was expected by analysts to offset the fall in CD sales. Global music industry profits have been shrinking for the past six years falling by 6.7% in the first half of 2005.

Shares of Apple (NASDAQ: AAPL) – manufacturers of the iPod – have however skyrocketed – from $9.50 in 2001 to $64.95 at close of business today. Apple shares reached an all time high this week after an analyst at Bear Stearns upped his earnings estimate for Apple based on the thriving demand for iPods and the fact that the holiday gift buying season is coming up around the bend.

EMI Group PLC, (EMIPY.PK) just announced that revenues are on an upward swing for the first time in five years due to an increase in the company’s legal downloads and the fact that the groups Coldplay and Gorillaz released profitable CDs this year. Sales for the six months ended September rose by 5.8% to $1.6 billion.

Virtual Record Deals on Virtual Record Labels

Further to the news in my blog of a few days ago that MySpace.com was launching its own record label, news came out today that Warner Brothers is launching an “online label”. The company, called “Cordless Recordings” will be run by Jac Holzman (the guy who signed The Doors to Elektra back in the Sixties). Groups signed to this label will release music in three song ‘clusters’ that will be available for download at iTunes and Rhapsody. If the music becomes profitable as a download, then physical CDs will be manufactured and released. Cordless Recordings will be employing a person whose job it will be to troll the web looking for popular online bands and music.

An announcement was also made by Lycos, to the effect that they would also be launching an online record label. It looks like the music industry is experiencing a shift in how music and musicians become popular and produce recordings. It’s about time!

A Cultural Shift - The Firsthand Account

In speaking with Dawn Van Zant, the president of Econ Corporate Services, this morning (the owner of MusicIndustryStocks.com and InvestorIdeas.com) she described what she called "a cultural shift" after seeing a Rascal Flatts concert last night. What Dawn described ties in perfectly to the current integration of cell phones into every facet of daily life, including music. All of the major telecommunications companies have introduced cell phones with downloadable music players. What Dawn described from last night's show brings home the point of just how integrated cell phones have become into the mainstream of society.

I asked Dawn to write down her first hand observations for our blog readers:

"Last night I attended the Rascal Flatts performance at GM Place in Vancouver and felt like I was a witness to a cultural shift. I am a 46 year old avid fan of country and rock music and attended concerts frequently throughout my teens and twenties. I now make a point of seeing a concert every now and then when I feel like I can handle the crowds. My last concert previous to Rascal Flats, was Bruce Springsteen's acoustic tour this fall. At his concert, I sat quietly with my peers listening to a legend sing out his life story. There were moments of complete silence as we soaked him in. It did not prepare me for last night's concert at all.

Despite the cheap cowboy hats, drunk girls and too many people, the musical performance was great. The phenomenon that made me stand back as an observer and pause, was that instead of an audience that I remember in my twenties holding up their lighters in the air, I saw thousands of cell phones with cameras being held up by fans.

I had no idea that every teenage girl and everyone under 30 had a cell phone with a camera. I have to say I had one in my purse too, but I don't know how to use the camera.

The wireless wave took on a whole new meaning for me last night as I saw cell phones waving rhythmically in the air to Rascal Flats, taking photo after photo."

MySpace Starts Record Label For Independent and Unsigned Artists

The website www.MySpace.com has launched its own record label in connection with Universal’s Interscope Records. The label will concentrate on unsigned and independent artists as well as compilations by artists from other record labels. The new label’s first release will be a compilation of tracks that have become popular among visitors and users of the MySpace.com internet phenomenon. MySpace Records has already signed its first act called Hollywood Undead, a band that has been listed on MySpace.com since June of this year.

According to the Hollywood Undead’s blurb on their MySpace page, “After 1 day of dropping their sound onto Myspace, their account exploded like TNT. The Hollywood Undead space grew in size in a matter of hours—starting out with an audience of 10 and blowing up into one that included several thousand users just in their first day of entry into the space. Thousands of adds per day on average. Tens of thousands of profile views. Close to 4000 DOWNLOADS PER DAY.” The band reached number one on the MySpace top bands chart after only 1 week, beating out bands like Nine Inch Nails, Coldplay, and System Of A Down.

Sad Songs Say So Much for the Music Industry

Year end music industry sales totals look set to be about 7% behind 2004 numbers. This disappointing result has been blamed on poor album sales, which has in turn been blamed on both legal and illegal downloads, and competing entertainment delivery systems. The truth is that 2005 hasn’t had any blockbuster sellers like 2004’s LPs by U2, Shania Twain and Eminem (and what a sad state of affairs when Eminem is considered a blockbuster… but that’s another article entirely).

Time Warner Increases Share Buyback, Posts 80% Increase in Third Quarter Earnings

Time Warner announced today that the board of directors had voted to approve raising their stock repurchase program from $5 billion to $12.5 billion. This news was hot on the heels of a third quarter earnings report showing an 80% increase over the same quarter last year. The increase in earnings was attributed to strong cable TV business – especially with syndications of “Sex and the City” and gains in advertising. Time Warner shares have been on the decline – share prices are still 75% lower today than they were in 2000 prior to the company’s agreement to be bought out by AOL.

October Music Industry Update

RealNetworks Inc. (RNWK) shares rose 44 percent in October after reaching a $761 million settlement with Microsoft Corp. (MSFT). The settlement closed RNWK’s antitrust case against MSFT and created a new partnership to distribute Real's music and digital-game services through the MSN network.

Clear Channel (NYSE:CCU) recently reported that their third quarter profits were down by 21% to $205.5 million. Lower third quarter profits were stated to be the result of shorter radio ads – the company is focusing on 15 to 30 second ads - and CCU’s restructuring costs.

Canadian company, Corus Entertainment Inc (Toronto: CJR-NVB.TO) announced that their fourth quarter profits were down to $9.7 million (22 cents per diluted share) from $14 million (33 cents per share) at the same point last year due to new copyright costs and the integration of several of its radio stations. On the TSX, shares in Corus fell 50 cents, or 1.51 per cent, to $32.69 in late afternoon trading.

Activision, Inc. (NASDAQ: ATVI), worldwide developer, publisher and distributor of interactive entertainment and leisure products, announced on October 26 a four-for-three stock split. Activision posted net revenues of $1.4 billion for the fiscal year ended March 31, 2005.

Two Terminated At Clear Channel Following Payola Investigation

Clear Channel (NYSE: CCU) announced today that two individuals had been dismissed following allegations of illegal ‘pay-to-play’ activities. The company also uncovered other instances of inappropriate conduct and those employees have been placed under disciplinary action. Clear Channel did not reveal the names or the positions of the terminated employees. The illegal activities were uncovered during a legal settlement between the New York State Attorney General Eliot Spitzer and the music company, Sony BMG.

Music Download Market Triples

The International Federation of the Phonographic Industry (IFPI) released a report on Monday stating that the digital music downloads market has tripled in the first half of this year. Downloads now account for 6% of total record industry sales, rising from $220 million at this time last year to $790 million today.

The increase in downloads neatly offsets declines in the retail sales of physical CDs and DVDs, which fell by 6.3%. The decline in physical sales was reported to be due to illegal downloading, CD burning, and lower retail prices for CDs and DVDs.

The increase in downloads is a result of faster broadband internet connections and more and better portable music players, including 3G mobile phones.

Apple’s iTunes accounted for 82% of the legal download market having sold more than 500 million single track downloads and 22 million iPod players. The recording industry is aggressively attacking illegal downloads, having pursued litigation against over 14,800 individuals in the US.

‘Thanks But No Thanks For The Music’ At Microsoft

Stating that the major labels want too big a cut of digital music sales revenues, Bill Gates and Steve Jobs have announced that Microsoft has “postponed indefinitely” plans to launch their own subscription based music service.

The industry's decline in physical CD sales has been bolstered by the increased popularity of digital music downloads, sales of which have more than tripled in the past year (to $790 million) which amounts to 6% of the industry's total sales of $13.2 billion.

Chinese Search Engine Baidu In Illegal Music Download Battle

China’s biggest search engine, Baidu.com, was today in the first day of mediation in a copyright trial brought against the company by seven global music corporations. The music companies (including Warner, Universal, EMI, and Sony BMG) allege that the search engine provided links to sites that allows users to illegally download music. The search engine Baidu has of course stated that their service does not provide the illegal downloads, but merely points users towards the illegal sites. In an attempt to come to a mutually beneficial resolution, Baidu has agreed to proceed with mediation, if the mediation however is not successful then the case will go to trial. MP3 searching accounts for 22% of Baidu’s traffic. Netease, another of China’s major search engines recently stopped their MP3 search facilities in order to curtail similar legal action against them.

A Sign Of The Times

Is it a sign that classic rock is back in the spotlight when Oprah Winfrey opens her season with classic rockers Bon Jovi? I'd say so. And the worldwide success of shows like "Rockstar: INXS" makes so much more sense than the whole American Idol craze - finally singers with soul, showmanship, groove, and more importantly - who ROCK! Eagle eyed viewers of Rockstar: INXS will have noticed that the PA system used on the show comes from manufacturers SLS International (SITI.OB) - who just started selling their Q Line speakers in WalMarts across the country.

And for those of you who have unrequited Rock & Roll aspirations - check out www.RockAndRollDream.com - the classic rock themed digital recording facility whose goal is to help you, "Live Your Rock And Roll Dream".

iTunes Captures 80% of UK Digital Downloads Market

iTunes just released news that in the UK they have captured 80% of the downloadable music market. This feat was accomplished in less than 18 months of being in business. The news was released on the heels of a report by the Official U.K. Charts Company which stated that the UK had generated 13 million digital downloads so far this year, compared to 5.7 million for all of 2004.

The Dream Is Over For DreamWorks Nashville

It has now been officially announced that DreamWorks Records Nashville (DRN) is to be shut down by its parent company, Universal Music Group (UMG). DreamWorks SKG was purchased by UMG in 2003 for $100 million, and part of the deal was that UMG would have one year to use the DreamWorks name before being required to phase it out. Another factor in the company’s closure is that artist Toby Keith has left the label to form his own record company, Show Dog Records. Label mate and artist Scotty Emerick has also left DRN to sign with Keith’s new label.

Toby Keith has had great success in his music career up to this point selling 25 million albums, with 10 going platinum, and 21 No. 1 singles. Keith has sourced help in running Show Dog Records in the form of former DreamWorks Nashville executive, Scott Borchetta, who will also be running his own label, Big Machine Records.

Music Industry Update

In his opening remarks at this year’s NARM (National Association of Recording Merchandisers) convention, President Jim Donio spoke about his concern over poor CD sales, the growth of the digital music industry, and the effects of piracy on the industry. His concern over CD sales centered on the fact that at the same time in 2004 sales had grown by 9% over the previous year, while at the present sales were down by 7% over last year.

The International Federation of the Phonographic Industry provided a quantitative snapshot of the worldwide music industry in their August report. The report revealed that over 100,000 album titles were released in 2004. The UK had the highest per capita album sales with an average of 2.9 albums purchased annually by every man woman and child in the country. The US was reported to have the highest percentage of households with DVD players, at 94% of the population. Canada had the highest broadband uptake in North America, and Singapore placed first for the country with the highest number of CD players per household (390%). The US placed second in this category with 257%.

The growth of digital services reached a landmark as over 180 legitimate musical download services launching in 2004. The total number of legitimate services now totals over 300, with over 200 of those located in Europe. In the world of record companies, Vivendi Universal was the biggest with a worldwide market share of 25.5%, followed by Sony BMG with 21.5%, EMI at 13.4%, and Warner at 11.3%. Warner’s highly publicized IPO at the beginning of 2005 was overshadowed this past month by the release of the company’s third quarter results. Warner reported a net loss for the quarter of $179 million, or $1.41 per diluted share. This compares to a net loss in the ‘same time last year’ period of $91 million.

Also in August, FCC Chairman Kevin Martin began an investigation into allegations of ‘payola’ violations (the practice of bribing radio stations to air specific songs from major label catalogues – historically bribes have consisted of cash, drugs and prostitutes) between record companies and radio stations. Sony BMG, the second largest music conglomerate, recently made a $10 million settlement with the New York Attorney General Eliot Spitzer for their alleged involvement in ‘payola’ violations. It has been reported that EMI Group, Warner Music Group, Universal Music Group, Clear Channel Radio, Cox Radio, Infinity Broadcasting, and Entercom have been subpoenaed in the industry wide investigation. It is expected that fines to each company found guilty of violations will follow the Sony BMG example and will also be based upon the company’s market share.

Clear Channel Registers For Spin Off IPO

Clear Channel’s plans to spin off their outdoor entertainment division as well as the concert division were officially announced yesterday as the company filed with the SEC for IPOs. Clear Channel Entertainment (CCE Spinco, Inc.) will be a completely separate entity from Clear Channel, while Clear Channel Outdoor (Ticker symbol “CCO”) will still be 90% controlled by Clear Channel.

Too Legit - Legal Downloads Grow Faster Than Illegal Ones

A new study done by the International Federation of the Phonographic Industry (IFPI)revealed that the number of legal music downloads tripled to 180 million in the first half of 2005 compared to the same period last year. The IFPI credits part of the surge to an increase in availability and affordability of broadband connections, faster computers, and an increase of ownership of portable media players. Illegal downloads rose by just 3%, from 870 mullion in January to 900 million.

According to a study by American market research firm, The NPD Group, which was released last month, U.S. residents downloaded 243 million songs from illegal sources and bought 26 million songs from online music stores. The reports stated that the main reasons for the decreasing growth of illegal downloads are fear of prosecution and the likelyhood of computers getting loaded up with spyware and viruses.

Munch Music Launches Classic Rock Themed Studio Targeting a Rapidly Growing Teen Fan Base and a Generation of Rock and Roll Dads

Rock & Roll Dream Machine Launches – Munch Music Grand Opening Celebration Features Recording Artists ‘White Noise’ and South Delta Pop Idol Winner Mackenzie Snape.

Delta, B.C., July 19th, 2005 - Munch Music, Inc. - www.MyMunchMusic.com and www.RockandRollDream.com. On July 15th Munch Music, a rock themed recording studio and music facility opened its doors in Delta, B.C., Canada, to rock and roll fans and performers aged from 13 - 54. Munch Music launched with a VIP/Media event attended by avid followers of White Rock based recording artists "White Noise". The successful event proved that music has no age barrier and that rock music is on a "roll", further evidenced by the fact that rock singers had a face and voice at G-8 meetings and through their efforts to change the face of poverty at the Live 8 events.

Before the White Noise performance, Mackenzie Snape, the recent South Delta Pop Idol competition winner, took to the Munch stage. Mackenzie was backed musically by her brother Patrick Snape and Munch Music’s founder and President: Taylor Van Zant.

White Noise followed with a powerful, rockin' set comprised of songs from their latest CD, “Listen”. The performance was very well received by the Munch crowd, who then had the opportunity to have copies of “Listen” autographed by the band. “Listen” will also be available for sale at Munch Music, as well as online through the website www.MyMunchMusic.com.. Munch owner, 16 year old Taylor Van Zant said, "This band is exactly the kind of music my friends and I love," as he smiled for the first time in many weeks, following weeks of stressful preparations for the opening launch. Click here to view White Noise’s site: www.ThisIsWhiteNoise.com

The opening weekend allowed residents of Tsawwassen to tour the Munch premises; make musical purchases; book studio recording time; sign up for guitar lessons; and a number of young musicians brought in their instruments leading to impromptu jam sessions on the Munch stage. A number of “Rock & Roll Dads and Moms” also toured the premises, and were excited to hear that Munch Music will feature special evening events for them to strut their musical riffage. The Rock & Roll Moms and Dads events will be in addition to regular Jam Nights which will be open to musicians of all ages.

The concept behind Munch Music is simple: “You have a Rock & Roll Dream and we provide the means for you to live that dream”. Life at Munch Music is never boring, and here you're never too old or too young to be a bona fide 'Jukebox Hero'! Munch Music provides the fulfillment of musical dreams through a state of the art digital recording studio, the opportunity to promote your new CD both in-store and online, and a staff of experienced lifelong musicians who are available to instruct and guide you through your musical journey. And to top it all off, we are able to offer our services and expertise at extremely affordable prices that should suit the budget of even the youngest new chart toppers.

The Munch Music website features an extensive list of music industry links from classic rock to copyrighting your own music for avid music fans. Click here for more details: www.MyMunchMusic.com/music_links.htm

About us: “Live Your Rock & Roll Dream” at Munch Music – CD recording, music lessons and live performance experience are now within the grasp of all musicians: www.MyMunchMusic.com/About_Us.htm. Check us out online at www.MyMunchMusic.com and www.RockandRollDream.com where you can view a complete description of our services, facilities, price list, menu and merchandise.

Contact:

Brian Noer or Taylor Van Zant
bnoer@investorideas.com
604.948.1811
Unit 11 - 1835 56th Street, V4L 2L8
Delta, BC - Canada

Guitar Center Opens 150th Store

The Guitar Center (Nasdaq NMS: GTRC) retail chain reached a milestone on July 14th as they opened the doors of their 150th store in Greenville, South Carolina. The 9,500 square foot facility is toouted as a state of the art instrument and technology center.

"The opening of our 150th store, in Greenville, is a landmark moment for Guitar Center and for our customers nationally," said Marty Albertson, CEO and Chairman of Guitar Center in a company press release. "Our success in reaching this milestone reflects how well our strategy of bringing the best technology and products to the widest number of people in cities throughout the U.S. has been received. The new store in Greenville, like all the Guitar Center stores, underscores our ongoing commitment to music and the people who love it."