841XR – Assignment #3 – Annual Report

Presented by Jana BorchardtOctober 19, 2002

Jamambo MUSIC

CEO/chairman: Brian Borchardt

Member: NMPA, ASCAP

Net Worth: 75 Million

29 East Broadway, New York, NY 64056 USA

www.jamambomusic.com

Music Publishers since 1969

Our success in 2001 hinged upon:

Letter from the Chairman

Dedication – Staff Teamwork Expansion - A&R Division Experience - Tech Specialists Explosive Creativity & Sales!

“Our company is on a mission to break the sound barrier of the 21st century. Jamambo MUSIC exists to expand audio production techniques and musical genres, as well as encourage the growth of the music industry through creative initiatives, a knowledge of technology and the people who utilize it. As in the past, we will accomplish this mission with integrity.”

Music Publishing Timeline – U.S. History

1450 - Johann Gutenberg’s Printing Press

1640s - Harvard University prints “Bay Psalm Book”

1830-1880s - Minstrel shows, family pianos, Civil War tunes, & Vaudeville

1877 - Thomas Edison’s invention of the phonograph

1890-1920s - New York, America’s publishing capital, and “Tin Pan Alley”

Late 1920s - Network radio makes hits over night, forever changes publishing

1950-1980s - Publishers change their strategy with the advent of R&B and Rock in Roll

Late 1980s - Record companies begin purchasing small & local publishers

1990s - Multinational corporations begin acquiring record companies

Music Industryin Review

“The authorized availability of music on the Internet will be a victory for copyright owners, Internet services, and consumers alike. Achieving that goal is of vital importance to the entire global music business.” Edward Murphy President National Music Publishers Association - 11th Annual International Income Survey 2001

Recording Companies lost 1.3% of profits,

going from 38.5 billion to 36.9 billion from 1999 to 2000.

Unit sales fell by 1.2% to 3.5 billion in in 2000. In 2000 the U.S. alone had a 9.4%

decline in CD unit sales to 950.6 million

units sold.

Recording 36.9 billion

Publishing 6.8 billion

While the Recording Sector has seen shrinking sales in the last five years, the publishing industry has done fairly well with increased profits in most sectors: performance, mechanical, & synchronization revenues.

Global Music Publishing Revenue

Top 5 Markets U.S. 2

billion Germany

834 million Japan 821

million U.K. 667

million France

601 million

Music Industry Royalties as collected by NMPA’s 11th Annual Report for 2000

Royalty Income in Billions of Dollars

6.16

6.436.22

6.44

6.88

5.8

6

6.2

6.4

6.6

6.8

7

1996 1997 1998 1999 2000

Music publishing has experienced an annual 10% growth from 1982 onward due in part to increased collection of performance rights from agencies such as ASCAP, BMI, and SESAC.

Publishing Industry Profit Royalty Income by Type

Performance ↑2.7% - 3.08 billion

42% Live performances and public performances of recorded music ↓3.4%

TV, Cable & Satellite ↑8% Radio ↑7%

Reproduction ↑4.1% - 2.74 billion

72.8% Phono-mechanicals ↑5.8%

24.5% Synchronization ↑3%

Distribution ↑4.8% - 768.78 million

Sales of printed music & rentals

Royalty I ncome by Type

Reproduction 40%

Distribution11%

Interest2%Miscellaneous

1%

Performance46%

Trends & Developments

PIRACY & INTELLECTUAL PROPERTY ISSUES Piracy, either through mass

production or MP3 file sharing and downloading, is especially hurting profits in the Global Recording Industry. For Publishers CD-R’s hurt mechanical royalties the most.

Economic & Intellectual Property problems in Latin American, Africa & SE Asia

• 1998 FIGURES - SE Asia ↑12% although Indonesia ↓45% & Taiwan ↓22%; Latin America ↑6%; Africa not reporting at all.

MERGERS

Both Warner & BMG tried to merge with EMI & failed. The EMI & Warner deal would have merged the top two music publishers.

BMG acquired Zomba Music Zomba had been the largest Independent label with 1% of market sales.

”BMG is unlikely to benefit from the proven

A&R mgt expertise of Zomba’s senior

executives” (Bertelsmann) and in 2001 BMG’s

profits fell 1%, confirming idea that

increased size didn’t lead to great profit.

Trends & Developments

INDUSTRY RESTRUCTURING Publishing company A&R Departments are taking

the place of Label A&R departments.

Creative Services Departments are being recast as Artists & Repertoire (A&R) Departments. (Similar to the early music industry, acts like Backstreet Boys, ‘NSync, Britney Spears, & Celine Dion don’t write their own songs.)

Publishing Companies are now producing albums, sometimes only finding a Record Company to sign a contract and distribute the product, or even skipping the Label and doing it all themselves.

“Niche companies, with strong artist and repertoire oriented managements, such as . . . Zomba, which specialize in a few genres and only operate in big-to-medium markets, with a low cost base, have more chance of success in a declining market than the majors”(Bertelsmann).

Only Christian & Country Music Albums

experienced growth during the first half of 2002. Specifically, Christian

music rose 18% and overall CD album sales fell 7.9%.

Market retailers increased their sale of Christian

Music to 55% of total sales.

While Recording Companies fight against the new technology in terms of mp3 infringements, Publishing Companies are finding new opportunities. In 2001 $50 million was generated globally from mobile telephone ringtones. Half of this was from Japan, and as the U.S. adopts the technology profits should only rise.

Legal Issues WPPT Treaty

World Intellectual Property Organization’s (WIPO) Performances and Phonograms Treaty www.wipo.org

“The WPPT grants record companies exclusive worldwide rights to reproduce and distribute repertoire via the Internet, while also assigning labels legal backing to use such technical measures as encryption to curb unauthorized exploitation of CDs.” NMPA, 2001 Annual Report , 18

In force 5/20/02 after Honduras became the crucial 30th nation to ratify it.

The Digital Millennium Copyright Act implements the WPPT treaty.

IFPI Internet License International Federation of

Phonographic Industry Addresses Webcasting Royalty Issues

via a blanket performing license available from any participating country

24 Nations have already signed off Sonny Bono Copyright Term

Extension Act 1998 Life of author +70 Work for hire, publication date +75 Recordings +50 after production

Digital Performance Rights in Sound Recordings Act 1995

Record companies given performance rights for digital audio.

Publishers have to allow “digital phonorecord deliveries”

Upcoming Legal Issues

Entertainment Industry vs. Technology Industry Legislation next year includes

Digital Media Consumers’ Rights Act Digital Choice & Freedom Act

Both favor extending fair use for consumers allowing:• Saving of digital TV broadcasts• Selling or giving away original copies of digital works• Allowing manufacturers to sell devices that make non-

infringing digital copies Proposals this year favored Record Labels and Publishing

Companies by requiring built-in copy protection for digital devices and allowing Copyright Owners to search hard drives of those using peer-to-peer services for illegal files.

Competition/Global Multimedia Giants

#5 Japanese Company (Sony) Expanded European presence to emerging markets in Czech Republic, Hungary, Poland, Russia although still seen as having a “limited local presence” and signing fewer local artists than others.

#2 American Company (Warner Chappell Music) Strategy has followed EMI & UMG in tightening relations between Publishing & Recording divisions in London office. Signing local writers has also increased sales.

#1 UK Company (EMI) Over 1 million song copyrights, with chart success and more synchronization fees. Success has partly hinged on having a lower staff overhead in its publishing division.

#4 German Company (BMG) Most diverse catalog, largest music club, 3rd largest classical collection overall & highest among global “giants.” After EMI, BMG has most local European writers.

#3 French Company (UMG) Profits have relied more upon mechanical royalties in part because of company’s early association as publishing arm of PolyGram Records.

Global Publishing ProfitsPie charts shows the profits by each of the major Companies, Jamambo MUSIC is the slice in brick red.

Total Profits 2001 (millions of dollars)

9% 13%8%

1%

34%

19%

16%

EMI 600

Warner 500

Universal 400

MG 300

Sony 250

J amambo 25

Others 1,000

35% Profit for Independents like Zomba, Chrysalis,

Peermusic, Strongsongs,

Windswept Music & Jamambo MUSIC

Publishing rather than Recording

yields higher profits for Independents, who usually have

no subsidiaries outside their home

markets.

European Publishing ProfitsJamambo MUSIC is barely visible.

European Profits 2001 (millions of dollars)

13%12%

7%0%

27% 22%

19%

EMI 414

Warner 333

Universal 225

BMG 207

Sony 117

J amambo 1

Others 460

•2001 – European Publishing profits 56%

of total market at 3.2 billion

•1999 –

Publishing profits 45%

at 2.95 billion

Jamambo’s Profit Distribution

•Print Music Sales Our strongest asset must not become a liability •Performing RightsCompared to other companies with 47% of profits through this avenue, we have room to grow. •Mechanical RightsWith a downturn expected in the market we need to make up for this loss elsewhere.

Areas not yet exploited:

Synchronization Fees, Cover Versions, &

European Markets!

Misc .261%

Interest .522%

Performing 8.3232%

Mechanical 9.6337%

Distribution 7.2828%

Competition confronts Trends

EMI Current Events• Global anti-piracy chief

appointed 8/7/02.

• Integrated Global Marketing Team formed

• New management structures in various countries

Music Subscription Services • SONY & UNIVERSAL www.Pressplay.com

• WARNER, BMG, EMI, & RealNetworks www.Musicnet.com

• NMPA affiliates w/RIAA www.Listen.com aka Rhapsody™

Warner acquired WORD Music 6/02, one of the largest Christian Music publishers.•Actively seeking the Christian market due to its recent profits

•920 million in sales during 2001 •2.9% of the market in 1987 has become 6.7% of the market in 2001

Jamambo engages Trends

Build Project Studios (Immediately) Gives artists more freedom to create Cuts cost of expensive $75-300 an hour studio fees Allows Jamambo MUSIC to explore a new

Publisher/Producer/Recording Role Launch Film & TV Department (Immediately)

Synchronization is a huge growth sector Plug songs for movies, as well as for tv & radio products 14% of EMI’s revenue over first six months FY0102

Expand Online Presence (During next year) Essential as consumers continue to demand Internet delivery Future goldmine of performance and reproduction royalties

Open International Division in London (Next 2 years)

Necessary Investments for the Future

New Hires Project studios

• 5 Audio Engineers • 2 Writer/producers

Film/TV Department • A&R Networking Guru

Online Presence• 1 Online Marketing

specialist• 2 MP3 file sharing &

Webcasting experts International Emphasis

• 15 more A&R representatives for London Office

Focus on Reputation & Personal Involvement with Artists“Publishers are more &

more the only ones taking the time & money to nurture & develop artist/songwriters” and also “have become more like product managers who provide a necessary link between the creative artist side & the label-business side.” Bessman, Publishing/A&R Interface

Further Readings Bessman, J. (6/16/02). The publishing/A&R interface: Close and

growing closer. Billboard, 113:24, 54+. Burnett, R. (1996). The global jukebox: The international music

industry. London: Routledge. DeBarrism A. (10/7/02). Music in a new light: Christian rockers keep

the faith but lose the label. USA Today, Section D:1-2. Gould, J. J. (2001). Music Publishing: A guide to understanding the

management of songs. Music Business Journal. Retrieved from the www 10/11/02 at http://www.musicjournal.org/01publishingresource.html

Hardy, P. (6/19/02). Bertelsmann to increase its global market share. Music&Copyright. [Electronic Version-LexisNexis].

Hardy, P. (7/17/02). EMI MP the European music publishing market leader. [Electronic Version-LexisNexis].Music&Copyright.

Hardy, P. (7/17/02). Record Industry. Music&Copyright. [Electronic Version-LexisNexis].

Hardy, P. (6/18/02). Winning the music game. [Electronic Version-LexisNexis]. Financial Times, Survey Section, 38.

Huygens, M. Baden-Fuller, C. Van Den Bosch, & F. A.,et al. (2001) Co-evolution of firm capabilities and industry competition. Organization Studies, 22:6, 971-1011.

Kohn, B. (n.d.) A primer on the law of webcasting and digital music delivery. Retrieved from the www 10/16/02 at http://www.kohnmusic.com/articles/newprimer.html

Lichtman, I. (6/24/00). Publishing gained in ’98. Billboard, [Electronic Version-EBSCOhost], 112:26, 8-9.

Moser, D. (9/01). Copyright and the digital distribution of music. Music Journal. Electronic version retrieved from the www 10/11/02 at http://musicjournal.org/01digitalcopyright.htm

National Music Publishing Association. NMPA International Survey 2001, 11th ed. Electronic version retrieved from the www 10/17/02 at http://www.nmpa.org/nmpa/survey.html

Norfleet, D. M. & Brown, M.R. (12/99). A sound investment, 30:5,107-114. [Electronic Version-ProQuest]. Black Enterprise.

Snider, M. (10/7/02). Balance shifts in copyright battle. USA Today, Section D:3.

PowerPoint available at http://slimlist.emporia.edu/~borch/jamambo.ppt

1450 - Invention of the printing press by Johann Gutenberg in Mainz, Germany 1640s - First printing press sent over from England used by Harvard University to print “Bay

Psalm Book” 1750-1780s - After over a hundred years of English imports, American music publications

begin to spring up by William Billings and a few others. 1790-1820s - European companies based in NYC provide most of their popular music to

Americans, with the first American hit “Minstrel’s Return from the War” appearing in 1827. Also first U.S. Copyright Law fails to protect music prompting publishers to print their musical works in book form.

1830-1880s - Black-faced minstrel shows, family pianos, Civil War tunes, & touring vaudeville shows popularized the songs publishers had provided.

1890-1920s – New York as the music publishing capital of American created a phenomena known as “Tin Pan Alley.” Song pluggers publicly performed songs from the publishers catalogs for performers to purchase. Also a revision of the Copyright Law gave international protection to music. Also Edison’s phonograph is invented in 1877 and by 1929 50% of American households own a record player.

Late 1920s - Network radio changes publishing forever. Income becomes more based on broadcasted types of performance royalties and songs can become instantly in demand rather than through live performances of established performers. Song pluggers become radio performers replacing vaudeville and through performance in the talking pictures of 1927 start a trend toward singer-songwriters.

1930-1940s - Although the Depression hurts sales, ASCAP, formed in 1914, monitors radio airplay

1950s - With microgroove invention of 1978 record sales increase and print publishing separates from music publishing. In 1910 90% of a publishers income was sheet music, but in 1950 it was 10%.

1950s-1980s – R&B and Rock in Roll are introduced and publishers change their strategy to fill the demand for music. They beginning plugging their music directly to Label A&R departments & recording artists, as well as aggressively seek out writers and new singers to promote to the Recording companies.

Late 1980s - Record companies began purchasing small & local publishing companies to acquire back catalogs of music & the copyrights attached to them.

1990s - Multination corporations in multi-media, publishing and consumer electronics started acquiring record companies, including the six companies that represented 80% of global market – Warner Music, CSB, MCA, EMI, Polygram, & RCA

Competition confronts Trends

EMI Current Events• Appointed a global anti-piracy

chief 8/7/02. This position will also “play a major role in helping to define EMI’s digital distribution strategy.”

• Integrated Global Marketing Team formed

• Announcements of new management structures in various countries

Music Subscription Services •Pressplay.com = SONY & UNIVERSAL($14.95 for 50 songs per month, yet loose access once you discontinue subscription. Songs are encrypted.)•Musicnet.com = WARNER, BMG, EMI, & RealNetworks •Listen.com Rhapsody™ = All NMPA affiliates w/RIAA. http://www.nmpa.org/pr/internet_subscription.html

Warner 6/02 acquired WORD Music, one of the largest Christian Music publishers.•Actively seeking the Christian market due to its recent profits.

•920 million in sales during 2001. •2.9% of the market in 1987 has become 6.7% of the market in 2001