Issue 18 Volume 1
January 2009
January 2009 Page 2
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Issue 18 Volume 1
January 2009 |
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MAKING PASSION PROFITABLE "I'm a gut player, I just go with what feels good to me. When I started I was very naive, very passionate, very hobby based. I was doing what I loved. It was a blast, I was a kid living a dream. I had to learn the business, to be responsible and be accountable." Pavlovic now strongly believes that the affective character of music is the key to its commerce success. Unlike marketing other products, he believes that you need to operate on the basic understanding that the appeal of recordings is purely emotional. "I think music is all based on feeling. Whether you consume it, whether you make it, whether you play it, it is something that makes people feel. When you hear a song that is very emotive it can make you feel a certain way. I don't think you can manufacture that in any real way. There is obviously pop music that is schlock but real music has never had to change and never will. "More and more people will want a unique experience delivered directly to them. You will see more of the marketing geared directly at people as opposed to throwing stuff out there. You will see a lot more direct sales and direct marketing, data base stuff. Artists will have the ability to communicate directly with their fans. I think that will grow stronger and stronger til the point where a lot of traditional retailing will become obsolete. I think it will become a very digital based, direct to customer kind of service." Pavlovic started the Modular label 10 years ago. In 2005 he sold a half share to Universal Records. Modular now operates in joint ventures with three Universal subsidiaries: Universal Australia, Interscope Records in America, and Island Records in Britain. He says the economics of producing and selling recordings has fundamentally altered. He says he puts between $200,000 and $500,000 into "an average kind of band". After marketing expenditure, he says there needs to be sales of at least 100,000 CDs to make a return. "If you get above 100,000 sales plus you are starting to get a return on your investment. We would wholesale it to retailers for $15 then they would have a myriad of discounts. It would average out at about $12 a unit by the time it comes back. Then the artist, the publisher, distribution, manufacturing and marketing all get their share. It gets eaten away but at the end of it you would hope to retain around a quarter of that. "In the past getting into a recording studio was not something that was accessible to everyone, because you needed to have some income or budget. These days people can make records at home with their computer relatively cheaply and relatively easily. You have the ability for anyone to record so it is much more accessible and affordable than it ever was in the past. You can make records cheaper than you could ten years ago. "You also have the ability to market a lot of things on line and virally so you can reduce what you spend on marketing. The other difference now is that people can get their music for nothing so whilst you can reduce your overheads and your costs you are actually seeing less and less sales because of piracy, downloads and the digital era we live in. "It is a changing landscape. I think what you have now with most of the record labels is a mad scramble to diversify - to create and participate in other income streams that in the past were only available to the artists. In the past labels would only generate income from artist’s record sales. "When a label spends money on marketing a band, let's call it a brand, the band then has the opportunity to secure a number of income streams from live touring to merchandising or publishing. So what you are now finding is that a lot of labels are saying 'We can't afford to put money into your record and band if we don't participate in these other income streams'. Which seems very obvious to anyone outside the music business. More and more record labels are diversifying and becoming involved in managing companies, marketing companies, merchandising companies and touring companies." Pavlovic says such practices have been common in Australia for a long time. "Look at what Michael Gudinski has done for his whole career. The market here is very small compared with what you might have in the US or Europe or the UK. I think people in Australia almost had to be involved in all those areas. I was a promoter, that is how I got involved in this business, so promoting was not foreign to us, whereas the major labels were always able to exist on selling records, on purely, exploiting their catalogue. Now they are exploring getting royalties from different areas. " Pavlovic says the number of big labels is shrinking and he believes the business of recorded music will soon change profoundly. "We are basically down to Sony, BMG, Universal, and then you’ve got Warners and EMI who are on the smaller end of things and have been trying to join forces or buy each other out. Over the last three years the landscape has changed and what those companies are finding out now is actually what works and what doesn't work. Guy Hands (the new owner of EMI) comes from outside the music industry and when he looked at his company and he said, ‘this is ridiculous. What other company on earth would invest in a brand and only participate in one income stream?’ As a result he has brought a very different approach to that company. It will be interesting to see how it moves forward now that they have made some of the initial changes implimented. They are cutting down on their catalogue, cutting down some of their staff. They have a new model for the way they work with their artists." The industry may be changing, but some things will remain the same according to Pavlovic. "I don't think the majors are finished- their catalogues are too vast. But I think what will happen is they will become more like entertainment companies as opposed to a specific recording companies. I think the people who survive in those companies are going to be the more entrepreneurial people. I think you will see them diversify their interest over the next four or five years - they are diversifying right now. They then have to integrate those companies into their existing businesses. That will be the interesting part. At the end you should be left with what is a pretty diversified entertainment company. Then you will probably see things like partnerships with bands and artists where these entertainment companies represent all their rights." Music as an industry is increasingly subject to superfluity - too much stuff. Another probability, according to Pavlovic, is that attention spans and business returns will have a shorter time frame. Turnover will increase, and success will be more transient. "There are not many of those super groups left. I think more and more now people will have a shorter shelf life. That is more reflective of the time we are living in. People have a very short attention span. There is a lot of information around, there is a lot of music available and there is a lot of media. It is all becoming very disposable. Whilst music can last a long time, I think you will see less and less of those super bands "
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