Weekly - Film Music Magazine

FEATURE ARTICLE
TuneCore: Record Royalties Reinvented?
TuneCore is a
unique service
that both allows
artists to get their
music placed
on iTunes and
other online
music stores
and provides a
detailed reporting
interface for
artists listing the
royalties earned
from online music
store sales. Artists
Jeff Price
can monitor their
online music store royalty earnings to the penny,
and can easily withdraw accumulated royalty
earnings from their TuneCore account. TuneCore
currently boasts over 318,000 songs delivered
to the online music stores and over $3 million in
earnings by TuneCore customers.
Please tell us about your background
and experience in the music business.
For 19 years, I co-owned and operated a record
label called Skin Art Records, which released
somewhere in the neighborhood of 220 albums.
Over those two decades, we were in label deals
with Sony, BMG, Warner Music Group, Universal,
Polygram Publishing — the whole gamut. In 1996
or so, I had the good fortune to meet Gene Hoffman
and Bob Kohn, the two founders of EMusic,
and contributed toward its original business
plan along with assisting them in raising venture
capital. I began to do licensing deals and master
acquisitions for EMusic as well as business development,
eventually moving from New York to
San Francisco. Once EMusic was sold to Vivendi,
I returned to New York. That’s when I came up
with the concept for TuneCore. We went to market
and live with TuneCore in January of 2006.
Tell us about the TuneCore business
model and its relevance in today’s record
market.
To really get the value of TuneCore, it’s important
to understand what the record business has
been in the past 100 years or so. Let’s equate
a commercial music release to a wristwatch,
and that you want to sell your watch in a Boston
shop. So you say to the shopkeeper, “Hey, I
wanna sell my watch in your store.” They say
okay and ask you how much you want for it if it
sells. You say 10 bucks, and they tell you to come
back at the end of the month. When you return,
if the watch is still there, you take it back. But if
the watch is gone, the shopkeeper hands you a
ten spot.
For the purposes of your illustration,
what did the shop sell it for?
That’s just it — you have no idea. They could’ve
given it away or sold it for hundreds of dollars.
Under that deal, it doesn’t matter what the
shopkeeper sold it for as long as you get your
wholesale price of 10 dollars. But you are selling
watches. So one day, you get a call from Joe
Smith in Chicago, and Joe says, “Hey, I heard
about your watches selling in Boston. Tell you
what, ship me your entire inventory and I’ll put
‘em in my giant warehouse. The minute I receive
them, they’re gonna be insured — and I got
a whole staff of people running around taking
orders, packing, and shipping watches all over
the country. Here’s the deal: when your watch
leaves my warehouse, you’re gonna get paid. It
doesn’t matter if the order comes in low, I’ll still
guarantee your price. If it gets busted in transit,
I’ll take the stuff back and make it all good at no
cost to you.”
That beats the original deal in Boston.
“But wait,” Joe says. “There’s more! I got an
even bigger staff running all over the country
at places where the watch store buyers get
together. My people meet with the buyers — you
know, the folks who are responsible for putting
stock on the shelves. We dazzle ‘em with pitches,
catalogs and free samples. We got a built-in sales
force for ya.
Okay, so now our “watchmaker” is really
moving product.
That’s right. But Joe’s sales team is fighting for
a finite amount of retail shelf space in those
stores. That’s the crucial fact. The store can’t carry
everything, they can only carry what fits. So Joe’s
people will fight to make sure your watches get
to the shelves over the watches of other people.
And further, Joe’s folks will monitor sales reports
and replenish the inventories of the stores so you
can sell even more watches.
How else does Joe, the distributor,
sweeten the deal with our watchmaker?
On top of all that distribution, Joe promises to
work with the retailers to advertise your watches
within the store premises — which is sure to
boost sales. Maybe have special signs or displays
By Mark Holden
to put the product out front for the buyer to see.
That takes money, of course, to pay the retailer
for all the special treatment, but Joe promises to
advance all the necessary funds.
Let’s make sure we’re all up to speed.
Our watchmaker is getting his wholesale
price from Joe, the distributor. How is
Joe making money?
Remember, all the stock that’s in these retail
stores is on consignment. Just like the store in
Boston — if the stuff doesn’t sell, people come
to take it away for a full refund. So Joe deals with
collecting all the money, processes the returned
product, the whole nine yards. Of course, Joe
wants something for all the effort he and his
people are expending. So Joe makes a deal with
the store to receive 25% of all the sales. For
every dollar of sales, Joe will receive a quarter
and the retailer keeps the rest.
So now you’ll correlate this business of
watches to the music industry?
Oh, yes. Only the “watchmakers” in this example
are really the record labels, not the people
who actually create the watches or the music.
The labels go out and hire people to make music,
obtain the rights to conduct the business at
hand, manufacture copies of the music and hand
them off to Joe, the distributor, in Chicago who
puts the music in the stores. To the makers of
the music, the label typically pays the artist $1.35
to $1.75 per unit.
So the age-old question emerges. Is the
artist truly benefiting from the record
label and Joe’s distribution machine —
or is the artist at the mercy of it?
Any way you want to look at it, when you replace
watches with music, the record industry — outside
of the service sector — has been about distribution.
Record labels generate their revenues
from the exploitation of master recordings, and
that’s the intent of the contractual language. We
take this ephemeral thing, these sound waves
captured from the air, and find ways to place
them into a contrivance that can be made available
for purchase in a store so a customer can
take it home for use in a device that allows them
to hear the sound waves.
So on a purely transactional basis, putting lemonflavored
Pepsi and Mariah Carey recordings on
store shelves is a very similar process.
(Continued pg 8)
FILM MUSICweekly
ISSUE 42 • DECEMBER 4, 2007 7