The Warner Music Group is making money.  The publicized loss is due to accounting, having to do with amortization and other issues Wall Street understands and lay people do not.  But what is the future?

You can read the transcript of the Warner earnings call here:

Warner Music Group Earnings Call Transcript

And if you trudge through it, you’ll learn some fascinating things.

Like Warner is not about to authorize Spotify in the U.S.  That’s big news on the Interwebs today.  Edgar Bronfman, Jr. said no free streaming.  Hell, let me quote exactly what he said:

"Well, first of all we don’t know what consumer behavior is going to be in the cloud and whether we can correlate purchase to sort of subscription or other kinds of models. But we do a lot of sort of modeling work here to talk about what – to think about what kind of scale is necessary at what pricing and we do see that the opportunity to expand music consumption and music purchase, whether that’s by track, by album or simply by service across a vastly greater number of consumers is net extremely positive for the industry. That having been said, free streaming services are clearly not net positive for the industry. And as far as Warner Music’s concerned will not be licensed. So this sort of get all the music you want for free and then we maybe we can – with a few bells and whistles move you to a premium price strategy is not the kind of approach to business that we will be supporting in the future."

Actually, it’s not as bad as it appears.  Because Bronfman is for licensing at the ISP level, or bundling the cost of music into a mobile device.  This is not a bad strategy, one that Spotify itself is trying to employ.  Maybe you get music with your Internet access.  Might seem free to you, but someone’s paying Warner and other rights holders for that content.  Is this imminent?  One would hope so.  And a far better strategy than Bono and his manager beating up on the ISPs.  Better to come up with a business solution than to jawbone someone into accepting a responsibility they don’t think they have.  But we see how long it took Nokia’s Comes With Music initiative to launch, and it was a bust upon final release.  Speaking maybe to software.  Which augurs for a relationship between music companies and third party software companies, allowing streaming and possibly downloading of music easily.  This could come tomorrow, but will it?  Every day there’s no reasonable solution is another day people steal music.

Then there’s Vevo.  Which Universal is trumpeting as a savior and Warner refuses to join.  Bronfman says there’s more value to be extracted by monetizing individual bands on Websites.  I like that he believes in his acts, but is the future about aggregation or individuation?  About subscribing to everything or cherry-picking?  I’d say the former, which makes me wonder whether Bronfman wants to keep Universal at arm’s length, whether that’s the real reason he refuses to join the Vevo consortium.  That’s an excellent strategy, for Universal is both a bully and old school.  It’s Warner that’s pioneering digital initiatives, it’s Warner that makes the highest percentage of revenue via digital, not Universal.  Vevo is a minor step by a rearguard company.  You don’t want to be pulled down by a slow enemy.

Which brings us to 360 deals.  Warner wants ’em.  And will pay dearly for these rights.  But they won’t overpay for the flavor of the moment without them.  Bronfman says they’ve lost acts to competitors who are willing to make these deals.  But, without 360 degrees of revenue in the future, the company cannot thrive.

And Bronfman says that 360 rights are not always tied to the length of the recording agreement.  In other words, you can make five albums and be free to record elsewhere, but you might be paying a percentage of touring and merch for years thereafter.  Smart on Warner’s behalf, good for an act?  Try selling your recording rights to another company without these other rights…  Probably difficult.  Meaning that you will probably be signed to Warner for the length of your career.  Because in order to release more records, you renegotiate the entire deal, extending it even further.  That’s how renegotiation works, you get more money for more time, for a greater commitment.

So should you sign a 360 deal?

This is where the call gets truly fascinating.  Bronfman is asked about the Live Nation/Ticketmaster merger:

"Yeah. Look, I think we think of Live Nation-Ticketmaster largely as a complimentary business to the business that we’re in. I think Live Nation-Ticketmaster is a business of scale, it’s a business of consumer relationships and venue relationships, and it deals almost entirely with artists that have proven that they have a significant ticket purchasing capability.

Our business, on the other hand, is essentially a venture capital business where we’re betting on a bunch of unknown artists who have yet to develop that opportunity. And when we sign those artists we sign, as I said, essentially all of them to expanded rights deals which means whether they go through Ticketmaster-Live Nation when they’re eventually touring or through some other form, we’re going to partner with the artists in the revenues derived from their tours. So our sense is that these are largely complimentary businesses, not really competitive businesses. I think Live Nation-Ticketmaster has the opportunity to be a very strong and powerful company, but in an area of the business where we do not currently compete, although we do expect to derive significantly increased revenue over time."

What Bronfman is saying is Warner invests in its acts, Live Nation does not.  Live Nation wants to tour established acts, Warner establishes them.

But does it have to be this way?

Make no mistake, Live Nation is strapped.  Is it willing to invest in artist development?  Is it willing to pay to build artists who can play its venues?

It all starts with the manager, and in this case, Live Nation has the largest management company, Front Line.  If you’ve got a manager, do you need a label?

Managers today have radio promotion departments, marketing departments, but they’ve always looked to deep pockets to fund their acts.  Should they step up and risk money themselves?

Boutiques will not, they haven’t got access to capital, the risks are too heavy.  But Live Nation?  Can Live Nation build acts, that will tour their buildings, make exotic merch and distribution deals, leaving out the major label completely?  It takes money, will Live Nation/Front Line pony up?  And will Live Nation require said acts to tour its buildings?  Its own 360 deal? Are we robbing Peter to pay Paul, or is Irving Azoff going to save the artist from the big bad labels, keeping all the money for the talent?

This is the big question.

Warner has attempted to enter the promotion sphere.  We see whenever the company ventures from its core capabilities there’s trouble, whether it be Bulldog or LaLa.  I don’t think Live Nation has much to worry about here.

Whereas Azoff knows every element of the business.  He’s run a major label and has been a manager, to say he’s familiar with live entertainment is an understatement.  But is Azoff in for the long haul, or does he want to get another paycheck and ride off into the sunset with Don Henley?

If Azoff wants to continue to play, watch out.  Sure, he’ll make a major label deal on exorbitant terms.  But really, it all comes down to what’s best for his artists.  And why pay a third party if you can do it yourself?  Anyone can distribute one’s music online.  Anybody can hire a radio promotion and marketing team.  But are Azoff and Front Line willing to risk, signing unknowns and investing in them?  Hell, managers always sign unknowns, but are they willing to pay for development?  If they are, Warner should be very afraid.  Warner will have its catalog, and..?  Live Nation might be able to offer an act more, a hell of a lot more, the act giving up less in the process.

In other words, are we on the verge of a revolution, or are managers just too cheap and will continue to make onerous deals with deep-pocketed labels?

We’re gonna find out.

There’s a war going on in the music business and rights holders are afraid they’re going to lose.

The public is clueless, it barely sees the battles while it steals music.  But the future is subscription, which doesn’t involve only music, but products ancillary thereto, maybe even completely virtual.

If you’ve been following the Amazon/Macmillan story you know that the whole e-book pricing system has been affected by the iPad.  There’s a shift to the agency model, wherein Apple gets 30% and renders the remaining 70% to publishers. Unlike Amazon, Apple doesn’t really care what price books are sold for, they’re in the hardware business.  In other words, they want to sell iPads.  Whereas Amazon wanted to sell e-books below cost to increase the company’s market share, hopefully into a dominant position.

That game’s up.

But the fascinating conclusion is that the winner is Apple.  You need an iPad to read that book.  You’re not going to buy a Kindle, certainly if the books cost the same, the Kindle just isn’t a good deal.  As long as e-books are not priced exorbitantly, Apple wins.  And the publishers, smiling triumphantly, don’t even know what hit them.

What hit them?  Well, a writer can make the same 30/70 deal directly with Amazon, the online merchant already announced that.  And with publishers signing fewer authors, conceding the landscape to upstarts, it appears to be just like the music business, wherein the major labels lost control.

The labels feel they’ve lost control to Apple.  And they don’t want that to happen again.  So they’re fighting Spotify, not even knowing what this platform and other similar companies are selling.  They’re not selling music, that’s just the come on, they’re selling the accoutrements, not only concert tickets but social networking, they’re creating an ecosystem, that will rain down dollars.

There’s a fascinating story in today’s "Los Angeles Times" entitled "Free Online Games Moving Up A Level" (entitled "Digital Sales Poised As Game Changer" online)

Two video game publishers are contrasted.  One that sells discs and another that gives the games away for free.  The seller of physical media went out of business.  The virtual goods company is thriving.

Don’t think about this as giving away music for free.  Think bigger.  If you can get someone hooked, what else can you sell them?

Start with a subscription.  To an online video game service.  Maybe $15 a month for World Of Warcraft.  That’s just like your ten dollar a month subscription to Spotify.  Or your five dollar a month subscription to MOG.

But let’s start with Spotify.  In every market the company has launched, the service is free.  But if you want it on your mobile device, you’ve got to pay.  Not everybody wants this portability, but you’d be surprised how many do.  And will in the future. Because by paying the monthly fee, you don’t only get the ability to tote your tracks around, but knowledge of what your friends are listening to, access to the band, a first crack at concert tickets, maybe even virtual concerts.

You start with free.  That’s the come on.  Just like with video games.  Then you sell bits and pieces, not music, but items ancillary to music, the ability to go to a party, maybe even virtual.  What works is unknown, but the first step is getting people hooked.  If you saw how much money is made in virtual items online, clothes for avatars, ability to unlock doors for exclusive access, you’d be stunned.  This barely exists for music, because rights holders are afraid.  They believe in selling physical music, an album at a time.  And they’re so busy protecting that model, they’re going out of business.  Hell, just ask EMI.  Instead of realizing it starts with the music, and instead of focusing on people stealing it, the question is how can you entice them to pay for it?

Certainly not by castigating them for theft, by threatening them with prosecution for copyright infringement.  Instead, you entice people, giving them a free taste, just like a drug dealer, and then sell them everything surrounding the music.  You can’t steal an experience.  And if we make your life easier…

That’s Apple’s plan.  To get you to overpay for what you didn’t even know you wanted.  In the future, it won’t be about owning music, it will be about being a member of the club, of the tribe.  With evidence of how long you’ve been a fan, what shows you’ve gone to, the number of times you’ve spun each and every track.  People will PAY to play in this arena, to publish evidence of their devotion, to compare and bond with others.

This is the future.

But the rights holders abhor the future.

Techies, people of the age the labels have fired or never hired, know all this.  But they won’t get involved in music because they just can’t get the rights.

The future of music will look nothing like it does today.  It won’t be about ownership, it will be about belonging.  You can play the video game at home, alone, or you can go online, where you’re a member of the club, connecting with millions. You’ve got to pay for this experience.  Which gamers do gladly.

The future is imminent.  But only if the rights holders get out of the way.  Only if innovation is unlocked.  Copyright shouldn’t be abandoned, but it’s blocking the future.  Just like rap blew up by stealing old tracks, new music platforms will be built on sampling the wares of rights holders.  And like the owner of those old sampled records, the key is to say YES, to get on the bandwagon, to collect some of that new money.  Instead of arguing with Activision over Guitar Hero license rates as the franchise fades away and doesn’t radiate.  Stay two steps ahead.  Or face extinction.

Just because you’re old, that doesn’t mean you’ve got to be imprisoned by your past.  It’s a choice.  Do you want to play it safe, giving people what they want, or do you want to explore?

Steve Winwood left band after band, and then truly made his name when he went solo.  Who expected "While You See A Chance" to become a mainstream hit?

Then Steve repeated the "Arc Of A Diver" formula to diminishing returns with "Talking Back To The Night".  It wasn’t bad, it just wasn’t new, it was a replica, of a previously successful blueprint.

Then Steve reinvented himself once again.  1986’s "Back In The High Life" was a smash, with "Higher Love" featured on both MTV and Top Forty radio.  Combining his blues roots with modern sounds, Winwood stumbled on an elixir the public just couldn’t get enough of.  And then he delivered three more albums just like it and just about lost his audience.  We want someone who roams around, experiments, tests the limits.

Winwood joined the jam band crew.  After all, the young players weren’t only inspired by the Dead, but Traffic, others who used the song as a jumping off point, not a rigid formula to be repeated endlessly.  After gigging around, Steve cut an album, released it on his own label, it was not a smash, not enough people heard it, but it’s EXCELLENT!  No, that’s too soft a word.  "About Time" was a journey into a land unknown, jazz-influenced, that you didn’t even know you wanted to visit, paying further dividends with each spin.

We create our best work when we’re unfettered, following our instincts, reaching for our own brass ring, our own Holy Grail.

To get an idea what Winwood concocted, I want you to dial up this live video of Timmy Thomas’ "Why Can’t We Live Together".

Steve Winwood – Why Can’t We Live Together (Live)

Everybody wants to live together.  Why can’t we live together?  We want to go to the gig and mesh with not only the music, but the crowd.  We want our energy to inspire the musicians to new heights.

And it is music.  Catch Mr. Winwood’s recent outfits.  If he has a stylist, he should fire her/him.  But Winwood’s been through that crap, he lets his music speak for itself.

Unfortunately, with the relative sales failure of "About Time", Winwood signed with a major label and put out another album just like the ones he used to make previously.  "Nine Lives" has got that great Clapton solo at the end of "Dirty City", but otherwise it sounds like a Virgin retread.  Why did Steve retreat?

Was it his label?  Was it his wife?  Why did he go back and play it safe?  It wasn’t like his live business had dwindled down to nothing.  This new music didn’t fill arenas, but he could gig regularly, in theatres, large clubs.  He started a fire, then he blew it out, walked away from it.

Now he retreads the past with Eric Clapton.  Trots out the oldies for the corporate folk.  But not that long ago, Winwood was a king, everybody we wanted him to be.

And make no mistake, we want our artists to take us to places unforeseen, that previously only lived in their heads, that they expose through their music.

Check out some of the samples from "About Time":

About Time

They’re longer than thirty seconds, but not quite long enough, to hear these songs meander, have them worm their way into your heart.

And, they’ve got the three bonus songs from the re-release of "About Time", live covers of "Dear Mr. Fantasy", "Why Can’t We Live Together" and "Voodoo Chile".  The passion on the oldies will truly inspire.  But what will make you feel alive are the ten originals preceding these classics.  We like nothing more than finding great new music, having that eureka moment, turning others on to it.

Just because you’re old, that doesn’t mean you’re dead.

But you’ve got to be willing to live.

Bruce Springsteen may be haggard, a bit worse for wear, but it befits his ethos, I’m just a hardworking journeyman telling the tales of the working man.  He wants to appear vibrant, alive, still in the creative mode.  He even puts out new albums.

Same deal with Paul McCartney.  He dyes his hair, but wants you to believe he could pop out a hit single at any moment. Listen to "Memory Almost Full" recently?  I doubt it.  You probably haven’t listened to "Working On A Dream" either.  But they’re trying.  Just like U2 and the Stones.  They don’t want to admit they’re has-beens, they’re still working it, they’re asking us to still believe.

And some do.

But most don’t.

I thought the Who at the Super Bowl was a brilliant idea.  They killed at the 9/11 tribute concert.  Emanating waves of power that blew hair back across the floor of Madison Square Garden.

But it’s ten years later.  And those songs are ten years older.  Forty one years old in the case of "Pinball Wizard", thirty eight and a half in the case of the "Who’s Next" standards.  The classics have become TV show anthems.  Suddenly, classic rock is our father’s music.  And we’re our fathers.

But Mick Jagger is still skinny!  Still prancing!  Still making new music!  He’s older than I am, he’s young, so am I.  I can put on my leather jacket, go to the gig and believe I’m a teenager again!

But I’m not.
Hell, it’s great that we can still see so many classic acts live.  But, the reality is it’s like going to a museum.  We don’t want them to be alive, don’t want them to be vibrant, we don’t buy their new albums and if we do, we barely listen to them. SoundScan doesn’t lie.  The days of running down to the store on the day of release to buy the new album, playing it over and over again so you know every note of the new material at the show, are done.  You just want to hear the hits.  All anybody cares about the hits.

But we delude ourselves.  If our heroes are young, then we’re young too.

Roger Daltrey and Pete Townshend are no longer young.  If, like Robert Plant, Roger wanted to step his vocals down an octave and do new material, I’m all for it.  But to see him on stage trying to replicate what once was…is utterly creepy.  It was great to see Townshend windmill.  But he gave up on the Who, until we all gave up on his solo material, and then he decided to dash for the cash.  Hell, when was the first retirement tour, 1982?

So, afraid of a titty, afraid of the current acts, the NFL decided to go with the classic rockers.  Not acknowledging that they’re as aged as George Burns and Mickey Rooney and as lame as Up With People were in the old days.  These were cutting edge, vibrant acts.  We all bought into the construct until Sunday night.  When an act that hasn’t eked out memorable new material in decades took the stage looking like the senior citizens they are and mostly played to tape.

Ever see Zak Starkey in concert?  He may not be Keith Moon, but he plays with passion, banging his kit incessantly. Sunday night, he was tapping along to his prerecorded fills.  Sure, Townshend was windmilling, but who were those drab guys going through the motions in the background?  If this worked, it would be a conflagration, everybody strumming like it mattered.

But it doesn’t.

This music hasn’t mattered for a very long time.  It’s truly classic.  But it’s aged.  We want something new.  But we’ve got nothing new.  So we hearken back half a century.  Suddenly, Sunday night, you could see how threadbare the concept had become.  The NFL has run through the greatest acts of rock and roll history.  Now what?

The only option is to go forward.  Just like human beings.  You can’t live in the past.  You can talk to the dead, but they don’t talk back.  You can jerk off to a past love, but they’re never coming back.  You’ve got to march forward.  However scary that might be.

And it’s plenty scary.

The reason everybody weighed in about the Who at the Super Bowl is because they know the Who and their music and they were watching the Super Bowl.  What are the odds another person even knows the music you’re listening to today? What are the odds you even know what new music to listen to?  What are the odds we’re all tuned into the same TV show?

Just about nil.

But to contemplate things being different is just too scary.  Record companies want to sell albums.  Diehards say they love CDs, even vinyl!  But they’re dying, all of them, just like the physical book.  Doesn’t mean you can’t play an LP and enjoy it, it’s just that most people don’t own a  turntable and just don’t care.

I can’t believe the Saints went for it on fourth and one.  But they believed in themselves.  That’s the key to forward progress. You can’t doubt yourself.  You can’t play it safe.

The NFL’s been playing it safe since the uncovering of Janet Jackson’s nipple.  So scared of the future, of the present, that it lives in the past.  It can’t go on forever.  Just like Phil Simms can no longer suit up and play the game.

And the great surprise of Sunday was the onside kick that opened the second half.  Had never ever happened before. Except in the fourth quarter.  When it’s desperation time, when you’re behind and praying.  The Saints decided to take hold of the game.

Are you ready to take hold of your life?

Do you want artists to take hold of their careers?

Or do you just want the same damn thing over and over again.

It’s weird getting old.  The body doesn’t work as well.  You have aches and pains.  But you don’t give up.  The Who gave up. There’s no new music.  They’re afraid no one wants to listen.  But that shouldn’t stop an artist.  You still write,  you still compose, even if you end up playing clubs.

But you make a hell of a lot less money.

The Super Bowl didn’t sell Bruce’s album.  Nor the Stones’.  Because no sporting event has that power.  Especially if you don’t risk playing the new music to begin with.  Especially if you’re playing by someone else’s rules, in this case the NFL’s.

You can say no.  But you leave all that exposure on the table.

But modern artists realize the game has changed.  Exposure doesn’t mean what it used to.  Because only the target audience truly cares.

Rock and roll was about taking risks.  Testing the limits of the audience.  Whether it be the Beatles with "Sgt. Pepper" and a year and a half later "Revolution 9" or Neil Young going on tour after the success of "Harvest" and playing loud rock and roll, alienating his audience.

When did music become about fulfilling expectations?  About giving people what they want?  Wasn’t it always the opposite?  About leading?

Of course.

You could enjoy the Who on Sunday night.  But there’s no way in hell you could say you were inspired, that you were taken to new heights, got new insight from their performance.  They gave you just what you were looking for.  We’ve demanded this from acts.  We want them to stay the same.  We’re the problem.  And the aged acts can’t say no.  They’re on the gravy train, they want the money.

Every year is the same
And I feel it again
I’m a loser – no chance to win

Pete Townshend was an outsider, all the stars of yore were not cool, they picked up instruments to get noticed, to get laid, because they saw no other way.  They were beat up and bullied in high school.  They didn’t play on the team, they weren’t winners.  How ironic they all want to play this sporting event, populated by the people who had contempt for them.

But I am one
I am one
And I can see
That this is me
And I will be
You’ll all see
I’m the one

That’s the essence of rock and roll.  Turning your outsider status inside out.  Letting your freak flag fly and convincing everybody that they should follow YOU!  That you’re the one who’s got it right, not them.

You can’t have it both ways.  You can’t be against the man and for him.  You can’t test the limits and play by the rules.

You’ve got to be able to say no.  You’ve got to be able to turn down the opportunity because it just doesn’t feel right, no matter how many people are watching, no matter how much money is involved.

Or else you’re a parody of yourself.  In a circle jerk with your old fans.  Both believing in what once was.  Which is now long gone.

The NFL could continue to play it safe.  But I think the jig is now up.  Like you and me, it’s time to take a risk, to try something new, knowing that it may not work, but you’ve got a chance of something great happening.  Remember hearing "Baba O’Riley" the first time?  That can only happen once.  It’s time to hear something new, to get that rush once again. Because without that rush, we’re calcified, we’re dead on the inside.

Thank god the NFL is not dead.  They can credit the Saints for that.  They surprised us.  The Who did not.