EVENT TRANSCRIPT ARCHIVE. UK MUSIC INDUSTRY BUSINESS.

Covermounts: Profile, Profit And The Value Of Music

Production of covermount CDs has rocketed in recent years.

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Covermounts: Profile, Profit And The Value Of Music

Event Summary:

1. KEYNOTE – HELEN DOYLE
The purpose behind the report was to assess whether or not, covermount CDs give rise to increased music sales. Additionally, at a time when RIAA in the US is taking some file sharers to court, the prominence of free giveaway CDs in UK newspapers and magazines serves to reinforce the perception that music is free or available at little cost, and its worth by association is devalued.

There are two copyrights to clear in order to produce a covermount –
1) The musical works
2) The sound recording

Niche magazines/publications will typically approach a label directly, whereas, a national paper will use licensing consultants. A mechanical licence must then be obtained to clear the use of musical works.

Currently, 2 licenses exist, which are controlled through MCPS:
1) AP7 If the CD/DVD is given for review purposes
2) AP PREMIUM if the production of the covermount incorporates sponsorship.

There has been widespread abuse of the AP7 licence where the promotion is clearly not for the purpose of review, in order to take advantage of the vastly cheaper AP7 rates.

Larger press organisations are able to go outside of the UK to exploit cheaper licensing and production costs, typically going through SABAM in Belgium. This hampers the ability of the publishers/MCPS to negotiate new licence criteria and greatly reduces the income for publishers/composers. Additionally, there is evidence that mechanical fees received by the publishers are, in some instances, returned to the licensee under prior agreement in order for the promotion to go ahead.

There is an overwhelming need for the music industry to do some meaningful research. In 2001, covermounts accounted for 10% of annual UK distribution, and this figure is rising at an unprecedented rate. A BPI report conducted in 2001 demonstrated negligible increases in sales for labels participating in these promotions.
A few high quality magazines such as Uncut, Q & NME were considered to be high quality and possibly influential in music purchases. However, their readership comprises keen music enthusiasts who would most likely buy albums anyway.

The danger is that CD covermounts can replace sales, particularly with themed compilations, sought-after track listings and increasingly high-quality packaging making them virtually indistinguishable from product on sale.

With the advent of newer technologies enabling links to webstreams, there is no justification for giving away music in its entirety, conceding only a case for 30-second song samples, or CDs that time-out after a set number of plays.

Covermounts are an absolute contradiction to the ‘Respect the Value of Music’ campaign. The issue of artists not getting paid is hugely relevant in an environment where it is increasingly difficult to survive in the music business.

A one-stop licensing department comprising the major representatives of the music industry could monitor, evaluate and licence the use of Covermounts in a more beneficial manner.

2. PANEL RESPONSE
(MJ -ODS)
His experience with client, the Mail on Sunday (MOS), leads him to conclude that the undesirable strong arm practices of coercion, labels being asked to pay for covermount inclusion, and licence fees being returned to the media publisher ceased to operate some 3-4 years ago. Mass circulation papers have moved away from these and other practices. He disputes that covermounting results in a decline in further sales.

Replacing CD sales? A large part of MOS readership no longer buy CD’s. It is simply a case that the newspaper has become a distribution point for their music which they clearly love as the increase in circulation figures demonstrate. It’s just another way of distributing a product, which is paid for, and some labels do view it as new revenue stream.

An example of an imaginative and successful campaign was MOS & Universal. Their Classics & Jazz division only came onboard provided Universal could front the CD with a new artist. 6’000 copies of the album were sold subsequently. Sony & EMI are looking to do similar deals.

The UK is a unique publishing market, with 14 national papers competing with sizeable budgets for production and licensing of music. A distinction must be made between those getting tracks on the back of editorial support through music magazines and national dailies who realize their readers love classic tracks for which the papers are prepared to pay for.

(SF – MPA)
Publishers abhor the thought of giving money away, and the MPA is not aware of licence money being returned. There is concern about other countries licensing rates, and print media publishers should pay for country of CD destination, not point of manufacture. The MPA see it as a B2B operation and that music should always be paid for. Why should print media not pay for this content when broadcasters do? The public perception that music is free is cause for great concern. The Respect the Value of Music campaign should be made clear on all packaging.

(NR – IPC)
Reinforced MJ’s comments and agreed that previously, labels, retailers and publishers were not open about the deal. IPC pay £350’000 per year to MCPS. It has unlocked back catalogue and boosted sales. IPC argue that this very much is a case of music being paid for.

(CC – Sanctuary)
The Classical genre has suffered greatly. Covermounts that produce no music revenue streams are damaging. Cheap covermounts devalue music – he’s concerned that music is so freely available and has become so disposable.

He cited the Daily Mail Christmas Carol CD campaign as a successful example, which was sponsored by Debenhams. An interactive music CD, (containing specially commissioned recordings of public domain music), enabled consumers to click thru to the sponsor’s website, enter a competition to win money, and buy online etc. The store got TV & media advertising, newspaper circulation increased, Sanctuary made money and the CD will be commercially available in the coming year. Everybody benefited from the campaign.

(JH – Beggars)
A vociferous opponent, he cited Badly Drawn Boy as an example of a covermount failure – poor album sales ensued. There is nothing to support the argument that valuable promotion is to be gained from giving away music for free. Beggars don’t agree in giving away music, and have yet to have a serious offer from a print media publisher. Labels should be paid as well as the MCPS.

(AC – Spin Music)
A collecting society formed to administer on behalf of labels would not work. How can you value each track?

News Intl. & Coca Cola are his examples of creating partnerships between brand & labels. The Month on the Sunday Times previews 6 x 30 second clips & reviews. The brands share data with the labels, and the paper has not gone through European collecting societies.

The Sun CD 20-week promotion with HMV provided an opportunity to put out an extra single free. R1 & R2 acknowledged singles were in decline and were prepared to playlist the track – but the labels didn’t follow through. The record industry has still not woken up to this promotional avenue.

He is trying to work on a model that benefits all. If badly put together, he agrees that covermounts do devalue music. In their defence, when brands run big promotions, 7% of the brand’s budget is spent buying the gifts to giveaway. Comparatively, papers argue that their music promotions see 35-40% of the promotions budget going back to the copyright holders, and that many of the tracks used are those which have stopped selling.

However, Spin are looking to break an act through the tabloids press.

(HD)
It is defeatist to argue that something’s better than nothing. If anything is free, shouldn’t it be the magazine not the CD?

What encourages people to buy music CDs? Research has shown that peer recommendation is far more influential covermounts. Infact, my research showed that magazine reviews and articles are more influential than covermounts, so the magazines are already doing their job of bringing music to the attention of the public without using covermounts.

3. QUESTIONS FROM THE FLOOR
Are there examples of print media charging labels to be on covermounts?

(NR) Between 1998 – 2000, there was such confidence in print media of their ability to influence CD sales that some media publishers were going to market requesting money from labels. Record companies and music publishers resisted it, and this practice has now ceased.

Album sales have increased by 5% in 2003. Since the covermount report was researched, the distribution of covermounts has gone up approx. five-fold. This would appear to be counter-intuitive. Why have album sales gone up if covermounts have gone up 5 times. These figures surely demonstrate that the premise of the argument, (that covermounts are bad for business), is not true.
(KH) Although the number of album sales has increased by 5%, the value of music sales has only increased by 2%. Although the number of albums sold has risen, the unit price of CD’s has reduced dramatically.

(AC) The covermount market is quite different to typical traditional album sales market. Therefore, they do not compete with traditional sales. The covermount market consists of compilations that would struggle to sell at prices far below typically usual album price. The industry won’t give away music that will directly compete with the album market. The two worlds co-exist quite happily.

The Classical market has shown almost the complete opposite (KH).
(CC) A certain major classical publication with a large readership regularly prints 80 – 100’000 units of complete works of classical music. Universal Classics has withdrawn from advertising within it, as its sales have been badly hit. The classical industry opposes full works appearing on covermounts – time and again, there is a demonstrable drop in album sales following covermount publication.

Gramophone and classic FM do not issue full works, introduce people to new works, artists and repertoire that helps to guide people to purchase albums.

(HD) The UK is an exception with regards an increase in album sales in a climate of increasing covermount distribution. In the absence of research, there is no way of knowing whether sales would have increased to a greater extent in the absence of covermounts altogether.

(HR) This is possibly the first year in which supermarkets have impacted on album sales – driving down price. Print media has made, possibly, ten times more investment in covermounts, yet the supermarkets are engaged in a price war. This is just one example of other factors at play, and not considered in the report.

(MJ) Covermounts should be considered sales of music. Record company product is bought by consumers by way of covermounts – the music has been paid for and licensed. Conceding that covermounts can be seen as a threat to traditional retailers, it is nonetheless an opportunity to allow people to consume music, which is paid for at every level. Covermounting with the majors, (in his experience), is viewed as a positive, valuable addition to their sales. Labels see it as a way to generate considerable revenue from back catalogue music.

Do artists and labels get paid? (KH)
(JH) The labels generally don’t get paid. In his experience media publishers do not want to pay Beggar’s for their music. A print media publisher should pay for music, the use of which leads to increased circulation for the publication. There can be no promotional value in giving away music for free. Other forms of 3rd party licensing are paid for, (TV commercials, broadcast etc). Why is print media seen as anything different. Music is devalued when newsstands are covered in CDs being given away for free. Additionally, millions of these CDs never get played.

There seems to be a contradiction in the notion that covermount CDs devalue music. The argument that it’s a bad thing for the industry if the artist and label aren’t paid, but is OK if they are, is lost on the buyer. The purchaser doesn’t know whether the label has been paid or not.
(SF) There is a problem here. The radio listener doesn’t pay for listening to radio broadcasts either, but the music is paid for. This problem of public perception needs to be addressed.

In light of ever-declining sales, is there not a case to be made that magazine covermounts serve as a replacement for the declining singles market in so much that they bring about the same marketing purpose – awareness of an artist/album?
Many music magazines are feature artists who may only sell 10’000 singles, and possibly struggle to sell more than 40’000 albums, therefore covermounting music magazines with a 100’000 circulation to music enthusiasts who will buy music surely cannot be a bad thing? NRS research shows that music magazine buyers typically buy 6-10 times more music than the average person. How can this be seen as a threat?
(JH) That readership may be more disposed towards buying more music, but giving away music for free on a covermount doesn’t make them buy more music. Labels invest money. Without that, music doesn’t get out there. If music is given for free, restrictions as to choice of music to listen to will follow. If a label declines use of a track, what happens to editorial control of the publication?

(Darren Tayor) In the case of Rocksound, it is unchanged. They decide on editorial and then compile the covermount. 81% of its readership would buy having heard a covermount promotion. Such promotion is very valuable to an emerging artist who won’t get exposure on radio or TV and which may lead to an artist eventually securing airplay.)

(AC) The Sun’s 20-week singles campaign was ahead of its time. Although the labels put forward their biggest artists, labels’ promotions departments didn’t treat it as a singles campaign. The culture of the opportunity presented to labels did not filter down. It wasn’t conceived as part of an overall strategy – the labels handled it as a single strand of promotional activity only.

(NR) Magazines are approached by labels requesting collaboration in producing covermounts. Sometimes an artist is so successful on a covermount compilation, the label will decide to run an additional campaign to further promote an artist. Covermounts work when it is a thoughtfully conceived and executed promotion – interactive CDs with added promotions, links to websites, money-off vouchers and such like work to everyone’s benefit. Magazines do contribute to the success of an artist.

E-map survey of Q readers showed that 95% of readership go on to buy albums which are featured on covermounts. Likewise 63% Mojo. Music magazine readers are loyal and enthusiastic buyers of albums and CDs.
(HD) Despite these positive examples, which are few in number, the overall picture is too gloomy to justify covermounts. You don’t have to give the whole track. You can give 30-second samples, links to official artist and fan sites for streamed, timed-out music, without giving away a whole track.

(NR) Some of these methods are outdated. In another year or so, there will be other ways of accessing promotional music – entering codes on a paper’s website, for instance. However…
(KH) What is the damage done in the meantime, whilst these new forms are developed? The industry is slow to react. When CDs came out, sales were buoyant because it was catalogue re-issues selling – the crisis in A & R was not realized until it was too late. The effect of covermounts on the industry may well take another two years to filter down, by which time it may be too late.

What percentage of repertoire is new as opposed to back catalogue? The opportunity for labels to exploit back catalogue at little or no cost, which may lead to increased album sales can’t be a bad thing, provided everyone gets paid.
(KH) There’s the rub. Most artists most likely don’t get paid. Old contracts would not provide for payment of material for such uses – free goods for promotional purposes. Is this the publishing equivalent of payola? (paying money to have one’s tracks broadcast?

(MJ) Moral rights issues stemming from old contracts confuse the issue and are not relevant.

(HD) Radio play generates sales in back catalogue. It doesn’t need promotion on free covermounts to stimulate awareness. In absence of research it is very difficult to give percentages.

Covermounts are part of a marketing mix. To say they boost or stem sales in isolation is a very difficult thing to prove. In the case of music magazines, there is a passion for music not being covered elsewhere. There aren’t many avenues to promote much of the music that appears on music magazine covermounts giving rise to some labels eager to give their music for free.

(Notes compiled by J Robinson, Musictank, February 2004).