September 10, 2013
The continued evolution of record business retail continues to evolve at a fascinating pace. The brick-and-mortar chains continue to see their clout decline. Digital retail outlets such as iTunes and Amazon took the lead, but now they are being threatened by the growing popularity of Pandora, Google Play, Spotify and the like. Emmanuel Zunz may not be a major player now, but he started his career in the digital retail realm and through his research and efforts, may have found the biggest retail revenue potential in ... YouTube. Here's how he's planning on cashing in on the New Retail World Order.
Why did you decide to get into the music business?
I always played and had a love for music but I was also interested in social entrepreneurship, so I stepped away from music for a while. I went back to grad school, then worked in a consulting firm that did a project about social entrepreneurship.
I decided to create a label called Verge Records in 2005. It had a social mission; it was a small label that focused on Brazilian artists from impoverished areas. The idea was to put some money back into the communities where those artists came from, as well as to help with music education programs. I did that for a couple of years and we had some great releases while supporting areas in need. It was my first entry into the music business. I came back to the States and using what I learned from Verge, won a Business Plan competition at NYU in 2006, and that later evolved into ONErpm.
What made you decide to come up with that kind of business plan?
One, I wanted to do my own distribution. I was really stubborn about delivering music directly to iTunes. I was a small label that got a direct deal with iTunes, but that doesn't happen anymore.
So I wanted to move into music distribution with a more scalable type of business. When I first did this, I couldn't get the technology right. It took two years to get a website up and running and to get a successful project launch. If you don't have the right tech partner, you'll have huge setbacks. I had to plug away and get more funding. I learned from my mistakes and was able to grow the business slowly. By the time I got it right, focusing on Brazil, the digital market had evolved in the U.S. With our ever-changing business, you keep learning every day.
Was there a turning point, a specific project, when you finally felt confident you have a workable business model?
Getting the right tech partner was key. The first two I worked with didn't work out, but once I got the right partner, it started to come together. I started working with an experienced programmer, Matt Olim, who was the Co-Founder of CD Now. He's currently our CTO -- and having his experience helped hugely.
It's one thing to have an idea for a website, but it's a whole other thing to actually build and create it effectively. At first, I had no experience coding it and didn't understand the whole methodology in building a website. The second time I tried it, I had a little more of a clue. By the third time, I had studied how to do it the right way. Everything was planned ahead of time, with the process delineated in flow charts. It was pretty scientific.
So when did you feel comfortable about distributing product to digital platforms such as iTunes and more recently, Facebook?
I heard about people making money on different platforms; I had to find out which were the right platforms to be working with. A lot of companies and music services come and go. One of our first partners was Amie Street, a music downloading site started up by students I knew at NYU. It had lot of traction at first, but eventually the owners shut it down. We continued to do deals with other companies; some went out of business and some companies survived.
That's the thing, a lot of this is trial and error... and this industry is still in an experimental stage with all these new streaming services. For most of them, you don't know if they're going to pan out. Nobody is making that much money yet because there aren't enough users. Based on the current situation, you need hundreds of millions of users to make the pot big enough to generate enough money for everyone to make a good living. The biggest service right now is Spotify, with 20-30 million users globally. That said, I'm pretty happy with most of our partners. We're doing better and earning more money.
So how does ONErpm work?
It's digital distribution -- using technical and marketing components -- for independent artists and labels; we can directly deliver audio to the digital music services; that's our technical component. Then there's a promotional aspect, where we try to get our artists featured on these services. There's a lot of volume coming through them and the goal is to get our priority releases prime exposure for that particular week. We work closely with the labels and artists to get extra visibility on the services.
Describe your marketing services...
Our role in marketing is all about getting more visibility. Anybody can deliver music to these services, but it doesn't mean the music will be seen or heard. We have to convince services such as Rdio and iTunes that this music is going to sell and is worth a feature or favored placement. In that light, we have to choose the tracks or albums that would have the best chance of sales success at that particular service. Suffice it to say, there's a lot of competition for those slots.
To succeed, the main thing is to plan ahead. We tell artists and labels that we need their music at least three weeks before release. That's the absolute minimum that services require for features; that's when we start discussing with them and choosing a date. You can't deliver content to us on the same day of release and expect to get a feature on a music service next week because there's a logjam of music. We also have to limit what we can do because we're going up against bigger companies with a lot of resources. But bottom line: The real key for us is giving them a good new song.
Do all the music services attract the same kind of music consumer, or are certain services better for certain types of music and marketing?
Interestingly, the latter. Some services are more open to certain types of content. Obviously, the bigger ones like really popular music, what they think are mass-appeal hits, while others serve a more niche audience. Initially, many music services initially wanted to promote indie music before they landed deals with majors. The services have their own editorial teams and own tastes; some of them take more risks musically than others, but at the end of the day, they all want music that's going to sell.
So, while each service has its own specialty, and the different services do different things, we try to work with all the ones with traction - either being popular or having the potential to be. Some are newer or just getting started; we'll still give them a shot. The big players like iTunes, we'll obviously be active with. We want all of them to succeed; the more that do and the more the industry grows, the more money there will be for everyone to make a living.
Yet considering the fact that few services are even profitable, do you think that more than a few of them might not survive after an inevitable "thinning of the herd?"
It is a crowded field, that's for sure. But there's a lot of stuff out there and it's a big world. Certain services are much stronger in particular geographic territories. But to answer your question, I wouldn't be surprised to see some of the current services not around in two or three years, but it's way too early to tell who they'll be.
Most recently, ONErpm announced a new service that could optimize revenue from YouTube play. How does that work?
Because so many people are posting artists' music there, YouTube has created a content ID system that can identify every video on the site. You submit your music to this automated system; once your audio is scanned, it will find videos whose audio matches yours automatically, which generates ad revenue on your behalf. In other words, they've been able to turn the piracy of people posting your music on YouTube into a way to make money that comes from the ads shown before or during all the posted videos.
In other words, if someone uploads a smartphone video of, say, Paul McCartney performing "Hey Jude" at some concert, Content ID will identify the song and automatically remit a piece of the advertising pie to McCartney and/or his label, every time a YouTube consumer clicks on it?
Pretty much. It depends on the quality of recording, or it being a live version vs. a recorded version. Basically, it would be good for artists to upload all of their recorded music to YouTube, as well as an entire performance from a current tour
If Content ID reaches its potential, could YouTube be the premier digital cash cow for the labels?
I can see its potential, but I'm not an expert on their business plan. We've been working to participate in this program since January. It has lot of potential, because there are so many users on YouTube - something like a billion users. That's a lot of people clicking on content with video ads. A channel or network of videos could bring in a lot of money, but right now it's complicated in how they calculate the revenue. It depends on what kind of ad is shown and how much ads were going for on that day. Ad rates on certain months may be lower than at other times of the year. I believe that ad rates spike up during Christmas and go down during the times when fewer people use the site. It's a complicated ecosystem that should still be able to generate good money.
So where do you see ONErpm's future in all of this?
We are growing in the U.S. right now, but we are a major player in Brazil, which is one of the bigger emerging markets. I think our future is very much tied into the growth of digital music in emerging markets and other emerging countries. We're very excited about the potential of distributing in these areas.
We'd like to work with more indie artists even though there's a lot of competition for them. Our growth in the U.S. will likely be tied to the growth of YouTube. We're already doing a multi-channel network on it to promote our content; our goal is to create even more for those channels. To succeed in that way, we have to act less like a distribution company and more like a broadcaster, while raising our number of views.
Again, the better the content, the more money we'll make on advertising. We're definitely investing a lot into content to get more U.S. customers. Down the road, we're looking at maybe changing some things in how we approach the business offerings and different options. Currently we charge a onetime fee for distribution and a commission on sales for marketing work.
This is an exciting time to be in the music business. YouTube is forcing people to think differently about music, how it's consumed and how artists are compensated.