Page last updated at 23:36 GMT, Thursday, 13 September 2007 00:36 UK

Music giants change their tune

By Clare Matheson
BBC News, business reporter

Robbie Williams
EMI's deal with Robbie Williams proved to be a money spinner

With Universal announcing the closure of Sanctuary Records' UK music arm, it is easy to think the fat lady has sung for the recorded music trade.

"It's hit a bad patch for retail and CDs at the moment," says Peter Thompson, managing director of record distributor Vital Distribution.

"Commercially it's getting a bit of a kicking, while music itself is having a great patch."

But the music industry is cutting its cloth accordingly.

Looking ahead, the music industry will make most of its money from selling T-shirts and other music-related stuff, with recorded music making up just 30% of its earnings, predicts music business consultant Ger Leonhard.

New artist model

One way of exploiting all these money making avenues - including tours, management and publishing - is through so-called 360-degrees deals, such as the one singer Robbie Williams hit the headlines with back in 2002.

CDs are by no means the only way to monetise
Alison Wenham, AIM

And while many observers have blamed his 80m deal for EMI's recent misfortunes, one industry insider believes it was a great move.

"EMI made the advance back within two years," he says. "It was the best deal they ever did. Their problem was they couldn't find another Robbie."

In fact, by snapping up Sanctuary, Universal has now got its hands on a whole new set of artist services, effectively grabbing a bigger slice of the music pie.

Record companies "never traditionally had a slice of all of the cash an artist made - just a share of their recording revenue", says Andrew Gemmell of Big Print Music.

"The label generally created the artist, therefore that's a bit unfair."

Rethink

Industry talk suggests that Universal's takeover of Sanctuary will force rival majors EMI, Warner and Sony BMG to actively seek out new revenue streams.

"CDs are by no means the only way to monetise," says Alison Wenham, head of the Association of Independent Music (AIM).

Amy Winehouse
Amy Winehouse is one artist Sanctuary provides services to
"The future is less reliant on purely music. AIM has been advocating this since 1999 - we've been pushing companies to look at the rights and licencing business."

And Universal's change of track is somewhat similar to the example being set by leaner independent labels.

Big Print itself is one of a number of independent labels taking up the 360-degrees model.

"It's a holistic approach to recording, licensing and publishing," says Mr Gemmell, who re-mortgaged his home to set up the firm with business partner Jeremy Marsh in order to launch new artist Laura Critchley.

"With the Laura deal the investment is recoupable from other revenue streams," he says, "although publishing is still big, as is live performance and so on."

Universal will now be following a similar path.

The Sanctuary takeover gives it management control of artists including Elton John and James Blunt, while it also organises tours for 350 live acts, including Red Hot Chili Peppers, Avril Lavigne and Amy Winehouse.

Last but by no means least, Sanctuary also runs merchandising for a number of bands including Oasis and The Who.

Live revival

And merchandising is an area not to be ignored, particularly with the resurgence of live music - another revenue stream in the 360-degrees deals.

According to IFPI figures, in 2006 the live music industry was worth $17bn globally - up 16% on 2005, with growth driven by large arena shows and the boom in music festivals across the US and Europe.

In the UK alone, rock show attendance rose 11% in 2006, ticket prices are on the up, and there has been an explosion in the number of music festivals.

Bravado's Iron Maiden T-shirt
Demand for Iron Maiden T-shirts has soared

And as gigs grow in popularity, so does merchandising, which now runs the gamut of products from knickers to DVDs, from dolls to books.

Bravado - part of Sanctuary - manufactures 4,000 different merchandising lines from badges to jackets and last year sold more than two million garments.

It has also just had a busy weekend dealing with the majority of merchandising for the V Festival.

"Depending on what's going on with a band depends on how well merchandise does - for example if they're touring a lot," says Bravado's head of retail, Peter Palmer.

"Our biggest selling brand is Iron Maiden, they have everything. They were on tour, released a new album and were everywhere internationally."

But merchandisers also have to be ready to pounce on an opportunity, he adds.

David Beckham sent merchandise sales soaring recently after he was pictured in a vintage Maiden shirt. The snaps led to Bravado re-issuing the top, Mr Palmer confides.

So according to Mr Palmer, Universal's new strategy can only be positive.

"Universal can now credibly sit in front of an artist and sell to them," he says. "I think it's just based on joint venture relationship."

Artist advantage

And it's not just the labels who are recognising the declining importance of CD sales versus alternative revenue streams.

Enter Shikari
Enter Shikari have bagged several awards and a top 10 album

Newcomers Enter Shikari have taken control of their own destiny, with the help of "bespoke label development company" Integral.

Rather than sign to a label, the group launched their own and sold their music through a licencing deal with Pias.

"The reason we started was that the majority of labels were one, two or three person operations and where an artist could cross over the label needed the experience, infrastructure and money to do it," says Integral's general manager, Ian Dutt.

"We provide elements of this and that is - putting it simply - that by plugging into Integral a two or three person company can become a six person one."

Instead of charging royalties like the majors, Integral works on the basis of a fixed term contract.

And Integral's plan has proved successful for a number of artists such as The Gossip, Jose Gonzales and Go Team.

"A label grows from an initial set-up strategy. A team for press, a team for live rights through to marketing partnerships," adds marketing manager Luke Selby.

"Artists and fans want to get closer and the large, weighty structure you get with a major is not needed in the digital age. To get closer you need to be fluid and flexible."

And with global recorded music sales dropping to just $19.6bn (9.7bn) last year, from $25.8bn (12.8bn) in 1999, perhaps Universal's deal will prompt major labels to change their tune.

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