How The Music Industry Can Immediately Increase Profits By 30%

Earlier this year Tom Silverman of Tommy Boy Entertainment presented a popular plan titled Building The $100 Billion Dollar Music Business.  Silverman laid out a compelling perspective about how the music industry could exploit existing bright spots: music synch licensing, increased ad venue and the booming subscription services.  The later focused more on the potential growth within the smart phone and automotive industries.  In addition to Silverman’s plan, people in the industry salivated at the potential expansion Len Blavatnik’s investment into Beats Electronic may bring to the marketplace.  Others discuss growing the industry by creating film documentaries to create resurgence in old catalogues, or maybe by focusing on movie soundtracks following the chart success of Pitch Perfect, Les Misérables, etc.  All are good plans but what can the industry do right now?  We need immediately growth, not predictions rooted in circumstance and market trends.  I would like to propose an alternative growth plan, one based on existing law, the global market and a turnkey approach that can increase music industry profits by 30% immediately.  Can this be done?  Certainly, but it takes utilizing options from another hemorrhaging industry do achieve it.

Ten years ago Canada made a valid attempt to attract movie productions away from LA and NYC by offering tax rebates.  In a continuation of the trend, individual U.S. States began drafting legislation to lure video production business within their borders.  In an apparent arms race, States drafted unique legislation, often offering tax incentives, rebates and tourism packages. With increased production options for filmmakers, lower budget projects ($5- million) ventured away from LA, NYC and Canada simply due to economic efficiency. Lobbying conversations morphed from “come to our State and produce a $15+ million movie and we’ll give you a State tax deduction of X amount” –into – “come to our State and spend only $50,000 and we’ll give you a 30% cash rebate.”  Additionally as the U.S. States silently battled for business, the international film industry became stronger and more relevant, developing their own legal infrastructure and incentives to generate business.  Currently, film business has exploded on a global scale.  Nearly every country in the world offers incentives (dictated by their laws) to drive movie productions into the area, which in return, boost the local economy and tourism.

What does this have to do with the music industry? With hundreds of different laws and incentives available, it’s impossible to address the details in a single blog post, therefore I’ll be brief – film incentive legislation boils down to three concepts: (1) spend, (2) incentive, and (3) production.  Spend – Pending on the country or State, local legislation will identify the monetary amount which must be spent on “movie production” (i.e. local spend) in order to qualify for the incentives.  For example, California may have a spend amount of $15 million+, while Finland may have a spend amount of only $50 thousand+.  Should an Applicant spend the minimal monetary amount and meet the local spending requirements, they may qualify for an incentive.  Incentives – Again, pending on the country or State, legislation will address what incentives apply based upon the local spend amount.  Many apply tax breaks, while others apply rebates.  What countries and States offer has become so competitive that the incentive programs continuously grow more attractive.  “Rebates” will remain the primary focus of this article because they often mean a cash payment based upon the amount spent.  *Production – Perhaps the most crucial component of film legislation boils down to the definition of “production.”  Larger movie economies (e.g. LA) may define “production” as a motion picture financially supported by a studio release, or a motion picture containing global distribution.  Other areas may be less stringent, defining “production” as any project containing a film component (i.e. music video, documentary, etc.).

Again, how does all of this apply to the music industry?  Legislation changes almost as rapidly as technology, however, currently, several countries and U.S. States have drafted (or drafting) legislation to attract music related projects.  If implemented, it could create widespread growth within music for majors and indies alike.  Even without new laws, music projects already fulfill many of the requirements existing under the incentive structure. If applied correctly, every dollar spent on recorded music, marketing content and/or music video production within the music industry could qualify for a film incentive.  EXAMPLE – Pending on the location of production, Warner Music Group (WMG) could spend $100 million annually in recorded music, music video production and online marketing content; and the mere inclusion of a video camera (during any project) could qualify as a “production” – therefore triggering an “incentive.”  It doesn’t matter if a majority of the expenditures may be allocated towards recorded music, as the recording becomes a production expense (same as the cost of a movie set).  Additionally, think of the added content value of capturing the visuals and the advertising price tag that could be generated.   Many countries around the globe offer upwards of a 30% rebate, pending the local spend amount.  Additionally several countries loosely define “production” allowing any captured visual element to fulfill the legal definition.  Therefore it is plausible the music industry could increase profits by 30% by doing nothing except applying film incentives to their business model.  Even an indie group on tour for eight months could feasible document the experience and qualify their total tour expenditures as a “production” expense.  The film incentive doesn’t apply to only major, or only indies, it applies to everyone. The scenarios are endless

Is it really that simply?  Yes and No.  Legislation already exists on a global scale, dictating what options are available for filmmakers from Idaho all the way to Nigeria.  The legal structure has been developed (which is usually the hard part). However, make no delusion; film incentives are no easy handout.  Although law(s) exist which provide these incentives, the application process is daunting, requiring experience, local contacts within film offices, detailed filings, paperwork with the relevant Department of Revenue, audits and meticulous production planning – all prior to actually making a project.   However, the payoff for the music industry as a collective unit is obtainable and awesome.  Obtainable to the extent that potentially every dollar spent on recorded music, online marketing content and music video production from 2012, could generate a 30% increase (via global film incentives) in music industry profits during 2013.  What a 30% increase could do for the music industry is so transforming that it doesn’t even need to be specifically addressed here.

While lecturing on this topic at MIDEM during a closed door session for Label Executives, I was asked the blunt question, “Why hasn’t anyone heard about this?”  Allow me to address this question: (1) Industry Executives have become fixated on the slow bleed caused by piracy, downloads, and streaming.  (2) Industry Executives rarely explore “the globe” for solutions, rather they remain fixed on their specific country.  (3) Music Industry Executives don’t understand movie law, film incentives, or movie productions – nor should they be expected to.  (4) Should any applicable law exist to boost music sales, Music Industry Executives naturally rely upon their respective In-House Legal Counsel to educate them on the options available. However, In-House Counsel only focuses on “internal” label issues and administering contracts – therefore exploring film incentives doesn’t fit the job description.  Additionally, I was asked, “This sounds like a great theory, but practically speaking it can’t work – right?”  Practically speaking it does work.  We exploit these possibilities for clients (both labels and artists) all around the globe on a daily basis.  Frankly, it’s somewhat disturbing that more industry business/labels/professionals don’t capitalize on existing legislation.  Global film incentive is a big business, and only now has the legal profession taken notice.  Many attorneys at our firm (myself included) will be contributing to a new publication for The American Bar Association (ABA) exploring this very topics – additionally, how it applies to music.

What’s wrong with the music industry has nothing to do with downloading, streaming, piracy, etc.  What’s wrong with the music industry is a total lack of collaborative and creative thinking.  As an industry, we need to become less concerned with our individual roles and how we profit personally, and more concerned about how we can all grow as a unit.  Growth has to plotted, strategized and managed within a communal effort.  Tom Silverman’s plan of growing a $100 Billion Dollar Music Business is absolutely correct. However, we can have even larger growth.  Total up the amount of music industry expenditures in regards to recorded music, music videos and marketing content – now add 30%.  It’s available right now.

If you haven’t read Techdirt’s Mike Masnick report about why the sky is rising (not falling) within the music industry – Read It. Now more than every opportunities exist around every corner.  Sometimes it takes opening your eyes and exploring a different viewpoint to find the path.  That path for music is with movie rebates – it’s literally raining free money.  The music industry has an abundance of growth options – a potential 30% increase to be exact.  Let’s all wake up and take advantage of the opportunity.

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