By Kristen Schweizer
Jan. 22 (Bloomberg) -- Musicians and managers are turning to BlackBerry phones and YouTube videos to solve a problem that just won’t go away: illegal downloads of digital tracks.
At a time when 95 percent of music downloads are pirated, with few signs it will let up, artists are finding alternative ways to profit from music online, sometimes bypassing music companies such as Universal Music Group, Sony BMG Music Entertainment, EMI Music and Warner Music Group.
“YouTube is a conduit between artists and fans,” Brian Message, the co-manager of Radiohead, Faithless and Kate Nash, said at the annual Midemgathering of music executives in Cannes, France, this week. “These days an artist can be a global brand and record labels are no longer the only option.”
Digital music sales via the Web and mobile phones climbed 25 percent to $3.7 billion last year, making up a fifth of the global market, the International Federation of the Phonographic Industry said Jan. 16. Handset makers are providing a new source of revenue for artists by signing deals with music companies to boost sales of smartphones that can download tracks legally online. Artists can also get payments from YouTube for hits on their videos.
“Because of broadband, wireless and the Internet in general, consumers are much more empowered to seek out the music and media they are interested in,” said Aram Sinnreich, co- founder of music industry consulting firm Radar Research in New York. “The reality is there isn’t going to be a single business model.”
“The smartphone is changing the music industry because of its platform and I predict most consumption of music will be through a smartphone in the future,” McBride said in Cannes.
Total shipments of smartphones, which have computer-like capabilities allowing fast music downloads and Internet access, grew 12 percent in the third quarter to 36.5 million units, accounting for more than a tenth of total mobile-phone sales, according to researcher Gartner Inc.
The music industry will be increasingly managed online, without the main backing coming from record labels, according to music managers at the conference. That includes online ticket sales, getting per-play licensing payments from YouTube or creating personalized music Web sites on MySpace Music.
YouTube is the video-sharing Web site acquired by Google Inc. in 2006. MySpace, the second-most-popular social networking site behind Facebook Inc., was bought by News Corp. in 2005. Another new source of revenue is licensing fees for songs used in music video games such as Activision Blizzard Inc.’s “Guitar Hero.”
Shift in Taste
Apple’s iTunes store, one of the few successful legal download services, is part the Cupertino, California-based company’s strategy to sell iPod players and iPhone handsets. The iTunes store competes with The Pirate Bay, a Swedish file-sharing Web site that has been sued by IFPI, the U.S. Motion Picture Association and the Swedish Anti-Piracy Agency for helping others violate copyright laws by downloading music and movies.
Illegal downloads are part of a shift in consumer tastes that resulted from high-speed Internet connections, said Sinnreich, who also teaches classes on media at New York University. Deals with mobile-phone companies are one way in which record labels are adjusting to the new playing field, he said.
An estimated 70 percent of business at McBride’s Nettwerk Music Group label is from digital, he said. McBride said he went after YouTube for payments for Lavigne’s “Girlfriend” video, the most-viewed video of all time on the site at more than 100 million hits. He said YouTube pays 0.08 cents a hit.
The four major record labels negotiated their own video payments two years ago. Last month, Warner pulled thousands of its videos from YouTube after it was unable to reach new licensing terms with the site.
Warner’s move may have little effect on traffic to YouTube. An estimated 15 hours of video are uploaded to the site every minute of the day, said Patrick Walker, director of video partnerships at YouTube for Europe, Africa and the Middle East.
Walker declined to comment on how much YouTube pays for licensing agreements, saying only that some people “are making a killing on YouTube, based on the traffic.”
Espoo, Finland-based Nokia Oyj, the world’s biggest mobile- phone maker, has signed deals with the top four music companies under which some of its handsets are sold with access to the Comes With Music service, which lets the owner download an unlimited number of tracks and keep them.
Research In Motion, based in Waterloo, Ontario, is expanding into digital music with BlackBerry products to rival Apple and Nokia.
The Canadian company was a main sponsor of the Cannes music conference and co-Chief Executive Officer Jim Balsillie said he was there to promote the device’s “open platform” for digital music applications.
The music industry is undergoing “radical transformation” and is now “embracing Web services to create rich new applications,” Balsillie said in an interview.
Research In Motion plans to open an online applications shop for BlackBerry users in March where it can showcase content deals with Slacker, an Internet radio device, or Shazam, a music recognition service. The company’s plan is “the future,” McBride said, adding that sponsorship from application developers is one way to earn revenue for artists.
Popularity on YouTube has become a career springboard for some. Dutch singer Esmee Denters, who Walker said has tens of millions of hits on her videos, became the first singer signed to Justin Timberlake’s label.
Julia Nunez was asked to open for singer Ben Folds on his summer tour last year after a video of her singing his single “Gone” was watched 1.9 million times on YouTube.
Many YouTube viewers will watch music clips before deciding to pay for a download of the song or purchase a CD, Walker said.
Kate Nash, the U.K. singer-songwriter whose “Made of Bricks” album reached No. 1 in Britain last year, uploaded her music to MySpace before being discovered by a record label.
“She drove the process,” said Message, Nash’s manager. “You no longer need to focus on the record deals as the first step.”
To contact the reporter on this story: Kristen Schweizerkschweizer1@bloomberg.netLast Updated: January 21, 2009 19:01 EST