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Digging Into The Reserves: Worth Losing The Best Ones First?

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Sony has had much reason to celebrate this weekend as Michael Jackson’s rehearsal documentary “This Is It” pulled in $101 million worldwide in its first five days. “This Is It” certainly has a shot to break the record of most successful concert film in the US, currently held by Miley Cyrus’s “The Best of Both Worlds” which has a total gross of $65.3 million although it earned less in its opening weekend ($21.3 million versus Cyrus’s $31.1 million).

Billboard reported, “Sony hopes for a longer shelf life for ‘This Is It’, which drew older crowds that catch movies on their own schedule, with less regard for the opening-weekend frenzy [than Miley Cyrus]” (http://www.billboard.biz/bbbiz/content_display/industry/e3i26911e62ce1ee0f75c1b19060e2e1bbd). “This Is It” was originally scheduled to run for a fortnight but the studio has already decided to extend through November in the UK and US, and “at least one to three extra weeks in most territories” (http://www.billboard.biz/bbbiz/content_display/industry/e3i26911e62ce1ee0f75c1b19060e2e1bbd).

Sony paid $60 million for the film rights of the footage, a wise investment for a full recoupment in its opening weekend. More good news is the film gave yet another boost to Michael Jackson’s back catalogue. Mashable posted a study on Jackson’s Amazon sales and they are “once again rising to the top at a fast pace. For example, the 25th Anniversary of Thriller album took a big dip in October, but is now surging again, currently ranked 48th on Amazon” (http://mashable.com/2009/11/02/jackson-amazon-sales/).

Sony is also releasing a “This Is It” soundtrack; estimates on sales are balancing optimism with realism. Silvio Pietroluong, director of charts at Billboard magazine put it best that “it’s very hard to pinpoint what it will do, particularly due to the fact that a lot of these songs have already sold well this year. Talking to the labels and industry insiders there is a huge sweep of opinion of anywhere between 200-300,000 and 500,000 albums sold in the first week” (http://www.billboard.biz/bbbiz/content_display/industry/e3id86c4bbb8dc2dcc7b121eb8a00f98171). Regardless, there is a high chance of it topping the charts in the US, and it reached number 3 in the UK.

As for the rest of Jackson’s albums, since his sudden death in June sales have nearly topped six million. His “Number Ones” has already taken the throne for best selling album of 2009 with two million plus sales. But how has this all fared for Sony?

When Sony released its third-quarter revenues on 30 October, it was its fourth straight quarterly loss with 26.3 billion yen ($289 million) for the period. However, the silver lining according to Silicon Alley Insider, “this figure is far better than expected, as consensus projections had the company losing well over $400 million” (http://www.businessinsider.com/sony-posts-fourth-consecutive-quarterly-loss-2009-10). Music Week reported, “Sony Music did manage to turn a profit for the quarter, reporting an operating income of 8.6bn yen (£57m). This, it says, was thanks to the sale of Jackson catalogue and reduced overheads.” (http://www.musicweek.com/story.asp?sectioncode=1&storycode=1039048&c=1)

Looking at it in comparison to last year’s sales however, taking into account the full acquisition of the label from Bertelsmann’s 50% stake, on a pro-forma basis year-on-year sales are down 3% from Q2 2008 (http://www.sony.net/SonyInfo/IR/financial/fr/09q2_sony.pdf). So thanks to Jackson, revenues were up but sales were down, a typical case of back catalogue fatigue.

Quoted in a Billboard article, Rory Bruer, head of distribution for Sony remarked, “He’s just loved everywhere on the planet. It doesn’t matter if it’s Asia, Africa, Australia, Europe, South America. Every continent in the world loved him and his music” (http://www.billboard.biz/bbbiz/content_display/industry/e3i26911e62ce1ee0f75c1b19060e2e1bbd). Who else can claim that? The Beatles? Yep they were the other band whose back catalogue was given a massive push this year.

After the baffling news that US-based company Bluebeat is selling the Beatles’ entire catalogue online, it would seem appropriate to check in on the other band whose back catalogue has been rehashed and repackaged this year. (For those of you who haven’t heard, Bluebeat.com has been selling all of the Beatle’s albums and its remasters as 160kbps MP3s for 25 cents apiece since Friday. The Telegraph reported Monday “Last night a spokesman for EMI, which is owned by Guy Hands’ Terra Firma private equity group, said that the company had not given its permission for the tracks to be sold and was “looking into” the situation” (http://www.telegraph.co.uk/culture/music/the-beatles/6488485/EMI-angered-by-US-website-selling-Beatles-songs-for-15p.html)).

But yes, EMI released new remastered editions of all of The Beatles’ albums (including mono and stereo boxsets) and helped with the limited-edition Beatles Rock Band video game.  First, the Rock Band game has garnered much praise for being the top selling music video game (2nd overall) for September. Philippe Dauman, chief executive of Viacom, which owns MTV Games and Rock Band developer Harmonix reported that “sales have exceeded our internal projections and we’ve sold 25 per cent of our inventory in the first week” (http://www.ft.com/cms/s/0/a81eefd8-a301-11de-ba74-00144feabdc0.html?ftcamp=rss&nclick_check=1).

According to an article on 23 October on Gamasutra it has so far sold 595,000 copies, missing the million-mark some were expecting, but what has to be considered is the high cost to the consumer. According to the NPD Group, “the average price of a copy of The Beatles during this period was approximately $100. Total revenue for the title was around $59-$60 million or more than 9% of all software revenue for the month” (http://www.gamasutra.com/php-bin/news_index.php?story=25739). This is quite an impressive figure, but it is unknown how much will be going to EMI after Harmonix and The Beatles take their cut. One positive for the industry as a whole is The Beatles success is prompting bands like Queen, U2 and The Who to look into their own music games, but with the lengthy development period revenues could be a long way coming.

EMI reported the remastered albums and boxset sales totaled more than 2.25 million copies in the first five days on sale (http://www.billboard.biz/bbbiz/content_display/industry/e3i7c69fb437bbee15e1c093b8fc4c3c45c) which is also impressive because they were strictly vinyl and CDs, not MP3s. There was rabid speculation Apple’s 09/09/09 conference would announce a deal to finally bring The Beatles online to iTunes but there still isn’t one. Many constantly speak of the possible goldmine of digital revenues that could come whenever a deal can be made with iTunes for The Beatles, but how can the industry bank on something that very well may never happen?

There isn’t recent financial information for EMI so we can’t justify The Beatles’ success for the company, but how about the rest of the industry? All Things Digital reported, “U.S. sales dropped 11.1% in Q3, compared to a 14.5% drop in Q2” (http://mediamemo.allthingsd.com/20091005/musics-sales-slumped-slowed-but-not-stopped-by-michael-jackson-and-the-beatles/?mod=ATD_sphere). Many justifiably credit The Beatles and Michael Jackson for slowing down the decline, but the same Billboard article noted, “the industry is still on track to fall for the eighth time in nine years…Music retailers are hoping that the continued performance of Jackson and Beatles albums and a strong fourth-quarter release schedule will continue to make up lost ground” (http://news.yahoo.com/s/nm/20091005/media_nm/us_sales).

That’s quite a burden for EMI and Sony to push one artist above all else to help the industry! Even though the timing was coincidental for Michael Jackson and The Beatles to be given extra attention, it’s happened and we seem to have prematurely shot our wad on these reissues. The only thing we can plan for is where is that money going to go? Does it make more sense to put these new revenues into more remasters or investing it in new talent?  The answer seems straightforward given just how well the remasters have done, but it’s obviously the worst thing the industry can do for any chance of surviving the next five years.

Focusing attention on one or two artists will in the short-run boost revenues, but sales will sink like Sony’s already experiencing. Putting these new revenues into a perpetual cycle of remasters of older artists for the older album-buying public takes a lot of marketing money and oversaturating the market with higher-end reissues will only bring diminishing returns. The constant talk of the Cocktail/iTunes LP project as well is also banking on squeezing the back catalogue for all it’s got. It’s great news for Sony and EMI to have had a mini gold rush this year but next year there won’t be anywhere near these kinds of sales bumps, only more piracy and an ambiguous economic situation. Here’s to hoping those labels quit while they’re ahead, cease putting hopes into external “projects” that may never come to fruition and appropriately keep this creative industry…creative.

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