Chris Anderson and the Economics of 'Free'
Chris Anderson, the forward-thinking editor of “Wired” and author of “The Long Tail,” talked about his new book, “Free: The Future of a Radical Price,” at Peter Guber’s house on Thursday evening.
The book addresses the seemingly-frightening economics of the Internet, where all kinds of content – music, news, community, data – wants to be free.
How can our economy be sustained in a world with infinite shelf space, he asks?
How do you determine value when scarcity becomes impossible?
And where everything continues to decline in price over time?
“The world is inflationary,” he explained.
“The world of bits is deflationary.”
Anderson, who has proved himself a thought leader with his previous best-seller, “The Long Tail,” talks about the emergence of a 21st century business model oriented to the
Internet: “freemium.
"What this means in short, is that
“you give away 80 to 90 percent of your product,
and
sell a premium version,” he explained.
“Free is the best form of marketing.
People sample, and they buy.”
This may be the way forward for newspapers (or rather, text-based media, like this one), for music, movies, books – his own book is free on Kindle, but $26.99 in hardcover – and the like.
“Digital is different,” he argued.
“Free is a force of gravity –
it’s water,
and it wants to run downhill.”
Turning Music Into Dollars at Sony/ATV
Michael Falco for The New York Times
Martin Bandier, chief executive of the music publisher Sony/ATV, is always on the hunt for new music catalogs.
Published: August 22, 2009
MARTY BANDIER, 68, chief executive of the music publishing giant Sony/ATV, is leaning back, hands locked across his midsection, as he takes stock of Mike Posner, a 21-year-old college student sitting in front of him in a black T-shirt and black jeans.
Mr. Bandier is deciding whether the time has come to cut a deal with him.
Mr. Bandier with Randy Jackson from "American Idol" and Ben E. King at a book signing for "Hound Dog: The Leiber and Stoller Autobiography."
Sony already has a recording contract with Mr. Posner, and Mr. Bandier is weighing whether he should lock up publishing rights as well, which would allow the company to collect fees every time Mr. Posner’s songs are played on the radio, in movies or in commercials, or are downloaded as a ring tone on phones.
Mr. Posner yanks a computer from his backpack, plugs it into Mr. Bandier’s stereo system and hits “play.”
A deep, pounding bass shakes the floor and the windows vibrate.
Mr. Posner sings along and waves his hands in the air while Mr. Bandier bounces up and down in his chair.
“I’ve been singing for a year and a half,” Mr. Posner says when the music ends.
“And I recorded that song in my mother’s basement.” Mr. Bandier, beaming, signs Mr. Posner that very day.
Constantly courting and corralling talent, Mr. Bandier — tan, stout, carefully coiffed, and, it must be said, a gray-haired senior in a notoriously youth-oriented trade — is a music industry veteran at center stage in one of the business’s few bright spots these days:
... music publishing.
It’s no secret that the music industry has been in a tailspin for the better part of a decade.
After peaking in 1999, music sales have dropped steadily, thanks in large part to consumers freely downloading and sharing songs and albums.
So it’s come to pass that after decades of playing second fiddle to the much bigger and brighter stars in the industry’s recording business, music publishing is on a roll.
It is, as its executives like to say, a business of pennies and nickels,
but that small change generates $3 billion in annual revenue,
throws off enviably predictable streams of cash and has caught the eye of private equity firms and large institutional investors who are snapping up catalogs of stars like Frank Sinatra and Madonna.
Trying to decide whether an album will be a huge hit or a major miss is expensive and risky for record companies.
Music publishing, on the other hand, is reliable, tethered to the constellation of tunes that envelop us — on radio and television, and in movies, malls, elevators and greeting cards.
Sony/ATV Music Publishing is a joint venture created in 1995 between the Sony Corporation and trusts formed by the late pop giant Michael Jackson.
But it also has deals with the likes of Neil Diamond, Bob Dylan, Taylor Swift and Bon Jovi’s Richie Sambora.
But the jewel in Mr. Bandier’s crown is Sony/ATV’s ownership of the rights to more than 250 Beatles songs.
Next month, the digitally remastered Beatles albums will be released the same day as the introduction of “The Beatles: Rock Band,” an interactive video game that will allow players to relive some of the group’s greatest performances.
“The fourth quarter will belong to the Beatles,” Mr. Bandier predicts.
Less clear, however, is what will happen to the Sony/ATV venture itself.
While Sony executives and lawyers for Mr. Jackson’s estate say they see no changes afoot, the structure of the partnership would be altered if the estate put its stake on the block.
Sony would have first-refusal rights if that happens, and company executives say they would be interested in increasing their holdings.
In the interim, the playing field is still Mr. Bandier’s, which his supporters say they find comforting.
“I didn’t think guys like him existed in the industry anymore.
The reality is, it used to be about the songs, and the time we’re living in now, it’s more about a quick hit,” says Wyclef Jean, the hip-hop producer and musician.
“For Marty, it’s more about the music.
He’ll come to your show, see the vibe that you’re on.
He actually studies every artist to see the range of what they can do.”
Doing business the way Mr. Bandier does requires a fat bankroll.
And some in the music industry wonder whether Mr. Bandier — who has a reputation for paying top dollar for talent — still has room to roam, given financial woes now facing the Sony Corporation.
Sitting in his Manhattan office, Mr. Bandier waves his hands in the air, dismissing that thought, as well as naysayers who complain that he has turned Sony/ATV into a stable of proven talent that avoids taking risks on lesser-known musicians and singers.
He acknowledges that it’s easier to sign proven acts than unknowns because, after all, “at the end of the day, music publishers shouldn’t be in the business of risk.”
But he’s always willing to roll the dice, he says.
“The most difficult part of the business today is deciding whether I should commit the dollars to signing an unknown or wait until the artist has a hit,” he offers.
“Then there are guys like Mike Posner.
I would bet on him for the future and today.”
First he tries “I’m Coming Out,” which was a chart-topping hit for Diana Ross.
Everyone in the room nods in approval.
Then he subs into the video another Diana Ross song, “Upside Down.”
Another good fit.
“Diana Ross works really well in hair commercials,” Mr. Campanelli says.
Perched on a nearby couch, Mr. Bandier suggests “The Sweet Escape” by Gwen Stefani and Akon, who is one of Sony/ATV’s writers.
The song comes on the screen and it’s clear that Mr. Bandier likes it but doesn’t love it.
On to the next song.
Finding the right tune can mean money in the bank, but the fees that publishing companies charge for music threaded into movies and TV shows vary widely.
A local nightly news program may pay $1,000 to $4,000 for some horn-and-drum opening music and use it whenever it wants.
The same goes for background, mood-setting music on a daytime soap opera.
But using a song just once in a major motion picture can cost $25,000 to $1 million.
Companies like J. Crew even pay fees for music played on their Web sites.
Several years ago, the Gap brand did a deal that gave it the rights to use music from “West Side Story” in three 30-second commercials featuring dancers on a rooftop, said Freddie Gershon, an entertainment lawyer and a music industry veteran.
For the use of the music for 90 days, Gap paid “substantially over a million dollars,” he said.
Gap declined to comment.
When Mr. Bandier arrived at Sony/ATV in 2007, the company was more passive about the publishing business than some of its rivals, says Rob Wiesenthal, chief financial officer of the Sony Corporation of America.
It was Mr. Wiesenthal and Sony’s C.E.O., Howard Stringer, who hired Mr. Bandier from EMI Publishing, which Mr. Bandier had built into a giant music publisher.
Pointing to a gray, four-inch-thick binder on a coffee table in his office, Mr. Wiesenthal says that this is how Sony/ATV used to market its songs — by sending the binder, which listed every song it controls, to advertising agencies.
After that, publishing executives pretty much sat around and waited for the phone to ring.
Mr. Wiesenthal credits Mr. Bandier with taking a much more aggressive approach in bringing Sony/ATV’s songs to a bigger, broader audience by dealing directly with television and film producers and ad agencies.
Consider “American Idol.” When Mr. Bandier arrived at Sony/ATV, he said nobody oversaw how songs were pitched to the show’s producers for contestants to perform.
A huge missed opportunity, he reckoned.
“Every time you have a song played on the show you can get sync and performance fees.
That’s a nice chunk of change,” Mr. Bandier says.
“Plus, there are opportunities for more fees from cast albums, if they perform one of your songs, or if they sing the song on tour.
Those pennies really add up.”
Sony/ATV also had its sacred cow, the Beatles’ catalog.
Mr. Bandier says that when he arrived, the policy was that the Beatles’ songs were off-limits to reality shows.
(Sony/ATV holds the rights to the Beatles’ music and lyrics.
Apple Corps Ltd. — controlled by the remaining Beatles and widows — owns the names and likenesses and has approval rights for the master recordings,
while EMI Records controls the master recordings themselves.
Longstanding disputes have kept the Beatles’ music from being downloadable online.)
Determined to have the Beatles heard on the “American Idol” stage, Mr. Bandier called the show’s producers with an offer shortly after taking the helm at Sony/ATV:
Rather than licensing out one or two songs to the show, would they be interested in devoting an entire show to just Beatles’ songs?
They were.
In early 2008, the show featured not one but two consecutive weeks of contestants belting out songs from the Beatles catalog.
“It’s the Beatles man, come on,” says Randy Jackson, one of the “American Idol” judges.
“For the show, it was huge.”
Still, for all of Mr. Bandier’s moves, Sony/ATV’s publishing business isn’t big enough to move the revenue needle very far for the Sony Corporation, which had $79 billion in revenue and $1.5 billion in operating cash flow in the fiscal year ended in March.
The publishing business pulls in around $500 million in revenue and $100 million to $130 million in operating cash flow, according to individuals with direct knowledge of the accounts who requested anonymity because Sony doesn’t publicly disclose the figures.
But Sony executives say music publishing has greater import to the business than just the bottom line.
After all, Sony is, one of the few media companies that house publishing, recording, film and video gaming (with its PlayStation platform) under one roof.
Last year, for instance, a Sony/ATV-signed band, We Are Scientists, had a song from an album featured in a commercial for Sony’s electronic gadgets.
“We heard they were doing this ad and we said, ‘Have you heard this song?’ ” Mr. Wiesenthal recalls.
“That’s synergy.”
RABID music fans take note: Marty Bandier, even after all of the years behind him, can still be star-struck.
Witness how he shows off a video he took of Paul McCartney in concert in July at Citi Field in New York.
As in most hand-held videos, the image is shaky, the music blurry and the sound quality elusive.
Nonetheless, Mr. Bandier is awed.
He stares at the screen, laughing and pointing to it.
“Wow!
Look at those fireworks.
Can you believe it?” he yelps, glancing over his shoulder to see whether his audience appreciates Mr. McCartney.
“Isn’t he great?”
It is that “kid in the musical candy store” quality that endears Mr. Bandier to his writers and artists but has also played a big role in his success.
“I was recently with him and he was talking about being in the studio with the producer for Lady Gaga, who is with Sony/ATV publishing,” says Del Bryant, president and C.E.O. of Broadcast Music Inc., a royalty collection agency.
“He was so excited to be in the studio and hearing what she and her producer were doing, and he was planning on going to one of her shows that night.
He was acting like a 20-year-old fan.”
Mr. Bandier’s musical roots were planted in Queens, where his mother forced him to take piano lessons — a task he hated because it interfered with his football and baseball games.
His parents owned a business delivering residential heating oil, and he was a good student, skipping, he says, the fifth and eighth grades.
He met his first wife, Denise LeFrak, the daughter of the housing developer Samuel J. LeFrak, at Syracuse University and later attended Brooklyn Law School.
His first brush with the music publishing business occurred in the early 1970s, when a partner at the law firm where he was working walked into his office and looked at his longish hair.
A client of the firm was interested in buying a publishing company, and the partners wanted someone who looked as if he would fit in on the music scene.
Later, when he was in-house counsel to his father-in-law’s company, the LeFrak Organization, Mr. Bandier, Mr. LeFrak and Charles Koppelman started their own small recording and publishing company.
It produced songs for Barbra Streisand, Ms. Ross and Dolly Parton and collected royalties when their songs were performed.
WHEN Mr. Bandier divorced Ms. LeFrak in the early 1980s, he and Mr. Koppelman formed their own music publishing company.
The two began acquiring small catalogs and had the inside track to acquire ATV, which held the rights to the Beatles’ music, in the mid-1980s — until Michael Jackson’s lawyers swooped in and nabbed the company with a $47.5 million bid.
Bruised from losing out on the ATV catalog, Mr. Bandier and Mr. Koppelman and a third partner, Stephen Swid, did a deal that put their company, then called SBK Entertainment World, on the map.
They acquired CBS’s music publishing business for $125 million.
“That was a dazzling acquisition because it changed the way everyone in the financial community viewed the value of owning musical copyrights,” says Mr. Gershon, the entertainment lawyer.
The three dazzled the music publishing industry a few years later by nearly tripling their money when they sold their company to Thorn-EMI of Britain for around $337 million.
“I never wanted to sell,” Mr. Bandier recalls, wistfully, as he ticks off some of the songs that he and his partners once controlled.
“You can’t duplicate ‘The Wizard of Oz,’ the ‘Rocky’ theme.”
Once he joined EMI, however, Mr. Bandier carved out a new identity for himself as a solo act and began building his own empire in music publishing.
He excelled at “collecting autographs,” or signing big names onto publishing deals, says David Johnson, the C.E.O. of a competing publishing firm, Warner/Chappell Music.
“He’s charming, he’s smart and he tends not to stop until he collects the autograph,” Mr. Johnson says.
Among Mr. Bandier’s biggest coups at EMI was acquiring the Jobete catalog of Motown hits from Berry Gordy.
“Everyone looked at that catalog, and my recollection was that Mr. Gordy was kind of a reluctant seller,” Mr. Johnson says.
“I would suspect there was a long courtship of Berry Gordy by Mr. Bandier.
But that was a huge prize.”
More importantly, after nabbing the catalog, Mr. Bandier squeezed more profits from it by aggressively tracking down publishing fees, industry analysts say.
“Marty figured out how to generate more publisher performance royalties for each play on radio than what was previously earned by the original publisher,” said Barry Massarsky, a music industry consultant who has done work for Sony/ATV and its competitors.
In late 2005, Mr. Bandier asked EMI to sell him its publishing unit.
The company declined and Mr. Bandier resigned in the fall of 2006.
A few months later, he took over as head of Sony/ATV after striking a deal that gave him a piece of the company’s profits.
In his first few months at Sony/ATV, Mr. Bandier reconfirmed his big-spender reputation with two big acquisitions made at the top of the market.
First, in a widely bid auction, he paid $370 million to acquire Famous Music, which was Paramount Pictures’ publishing group and owned music from “The Godfather” and classic songs like “Moon River” and “Silver Bells.”
Its current writers and artists include Shakira and Akon.
In a deal valued at around $40 million, Mr. Bandier also acquired the songs of Jerry Leiber and Mike Stoller, who wrote and produced “Jailhouse Rock” and “Hound Dog” for Elvis Presley and “Yakety Yak” and “Charlie Brown” for the Coasters.
The acquisitions came just as the broader economy began tanking.
And Sony’s sales declines in its much bigger gaming and electronics divisions have prompted the speculation in the industry that Mr. Bandier’s wings have been clipped and that he’s no longer free to make splashy acquisitions.
Perish the thought, Mr. Bandier says.
“I don’t think the checkbook is closed here,” he says.
“If a great catalog would become available, I believe Sony would step up.
I would trek to Japan myself if that’s what it took to get the deal done.”
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