Now let's get into the record company operations.
And I really want to ask some questions about the 360 degree deal,
which has become pretty common in the music industry.
And many,
the knocks on doing 360 deals with particularly major labels, such as yours,
is that many people feel that the record labels are passive and many of
the activities beyond recording like touring or merchandising, or sponsorships.
Can you give me an idea of how your label and
others are becoming more involved in the non-traditional revenue streams as far
as being actively involved in making things happen for
their artists in these other areas besides recordings?
>> You are voicing a position.
That sounds like somebody that may have had a bad experience with a record label
or they may have felt like their label just wedged on and
leeched off their other revenue streams.
>> Well, that's exactly why I asked this question, because I think that that is
the attitude that you hear that's projected most in this industry.
And that's why I wanted to speak to you and other people.
Because I certainly know of situations where it's been very beneficial
to artists and-
>> Well- >> Go ahead.
>> Let me say this.
Again, I give you long-winded answers, but follow me.
I'm gonna bring around in a circle.
>> All right.
>> The future of the music business is about four years away I think.
I think around 2017, 18,19, that's when the great golden,
the new golden era, of the record business is coming.
I think it's the gold rush for 1849 and it's like 1845 right now.
And that gold rush is going to be precipitated by ubiquitous wi-fi.
General broadband.
The idea that when I open my laptop I'm going to have 20 options for internet.
I'm going to have Verizon, Google, AT&T, Time Warner Cable, CableVision.
Five companies that haven't been invented yet that are gonna get into that business.
But providing super broadband is gonna become
sort of the next frontier I think in digital technology, and I kinda know.
I have a lot of friends in this world.
>> Right. >> And compression technology takes
a certain number of years to take hold, et cetera.
But, in about four years,
when this new super Wi-Fi gets offered, everybody that opens their laptop and
logs onto one of their streams, that they either, A, they either
pay it for monthly, they get it for free and it's advertising supported, or
there's like a super luxury version that's even faster than your monthly
version that gives you internet at speeds you can't even imagine.
>> And you're talking about music services.
Not even the music services, I'm talking about just Internet.
>> Got it. >> This is just, this is basic.
First Google or Verizon,
they're all at war right now trying to see who's gonna get this magic stream.
It's gonna be a multi-hundred billion dollar play.
But once you have this super Internet, even
your monthly subscription model,
which is what most of the middle class america is going to use.
This monthly 49 dollar internet is going
to be 100,000 times faster than your home internet cable right now.
And once that really kicks in,
that's when you're gonna see the death of the personal hard drive.
That's when you're gonna see the true cloud kicking in, and people saying,
sure I could download it for free but who wants to download anything?
I don't have a hard drive.
What a pain in the butt.
I have server farms everywhere, and my cloud is Instant.
It'll make your iPhone feel like a 200 terabyte hard drive.
And this cloud and this monthly cable bill that you're gonna pay,
or monthly wi-fi bill, there's gonna be a box that you're gonna X off,
just like you X off your HBO right now.
>> Right. >> And that box will be for Spotify or
Beats Music or one of the future music subscription services.
But that box will be about thirteen dollars or ten dollars a month or
15 dollars a month, and it will offer you every song in the history of mankind,
every live performance uploaded every Tuesday with curated playlists, your own
playlists, your Pandora type radio, all of those options are going to be there.
And they're going to be seemless everywhere you go, on airplanes,
and you're going to have this reception in subways, and when you're
walking into your car they're is going to be ubiquitous Wi-Fi and ubiquitous music.
And when music becomes ubiquitous the product that they are going to offer for
$13 a month is simply going to be so much more convenient than pirating or
bit torrenting, no one's going to want to do it., what a pain in the butt.
And you have to throw it in your, make your own play,
no one's going to want to do it.
And they're just going to say screw it, I need my internet.
Because everyone needs internet, it's gonna be like cable is now.
Kids in college have cable that can barely afford it and
still they know they need it.
And when people start spending money on music in that capacity cuz it's gonna
be so convenient and you scale it to India, China, Europe, Australia, Canada,
the aggregate amount of money in the music industry is gonna be massive.
In 2001, we were a $40 billion business, which was music and publishing combined.
That was always the RIAA quote for the general aggregate music industry.
And I could be wrong, and you may show this to somebody in five years and
say that Jacobson guy couldn't have been more off,
but I think that conservatively it's going to be a $50 billion business in 2020.
And that's only because people won't believe me when I tell you
I think it's going to be a $70 billion business.
The reason I'm telling you all of this.
This is important for you to follow here.
>> Alright.
>> Is that until we hit the tipping point,
until we hit critical mass in this new subscription service,
which is going to depend on ubiquitous wifi in order to happen,
until we hit that number, record labels don't have money.
We have cash flow problems.
Very real cash flow issues.
If you're an artist and your signing on to a record label, you have to know that your
label, as a machine, doesn't have as much cash flow as it will or as it used to be.
Back in the 90s we had enough cash flow that we could handle all versions of
the artist development on our own without having to share publishing or touring,
because we were making enough money off of recorded music.
Recorded master was valuable enough that we could handle that side and
use that to invest in the artist development.
Artist development costs money.
Hit records costs money.
Coordinating a global radio campaign around the world, making sure that there's
an advertising campaign that is supporting your record at radio.
It's not enough just to have a hit at radio, you've gotta have money being spent
on the advertising around that hit so people know what the song is.
Otherwise it becomes what's called a turntable hit,
a record that's big on radio, but doesn't sell.
In order to connect those two and to bridge all of that,
it takes thousands of people and millions of dollars.
I wish that there was some utopian world that didnt have to happen.
But even in situations where there's an independent artist who owns his own
rights, like a Macklemore, who is a wonderful story,
there was still a multi-thousand person campaign,
a radio campaign, that pushed to get those records to number one.
He absolutely created the buzz on his own and created enough buzz that he had enough
leverage in his negotiations for a record deal to be able to maintain his rights.
But I wish that everybody worked that way, and maybe they'll do that in the future,
but in the mean time if you're gonna come to me, and maybe you're moving at 30, or
40, or 50 miles an hour, but you wanna go to 150 miles an hour, costs money.
>> Right.
>> The 360 deal provides us with an opportunity to be able to,
in the short term, create a cash flow, to
create some cash flow to continue to market these records.
Because we're not making enough money off of 700,000 albums and a million singles.
That's ten million dollars gross which is a lot of money.
But when it costs us eight million dollars to get to that ten
million dollar gross number we're not making enough profit.
If we had a business that operated off of a two million dollar profit for
an eight million expense, it's just not sustainable.
It doesn't exist.
It's math.
I wish it were different.
Maybe it will be down the line, but in the meantime
if somebody on that ten million dollar worth of records sold right,
singles plus albums, can add three million dollars between publishing and
touring contributions to the bottom line, that affects everything.
That makes it so that we can run our business.
We're a public company.
We're owned by Vivendi.
Vivendi is a stock ticker.
We have to make profit in order to maintain our existence.
I know that people can get upset and feel like they were
extremely profitable but now, and other people weren't.
I mean I've heard it all.
Not that it doesn't matter but
be realistic about the fact that we have a business to run.
>> Right. >> And if you
want us to continue to invest in your project,
which we want to do, we have to have ways to be able to support ourselves.
>> Great, now let me ask you this, Neal.
Because in that regard then are you actively involved,
and I'm saying this because I think you guys purchased Bravado, is that correct?
>> Correct. >> While before merchant and
that's the thing are you bringing in other areas?
Are you partnering with management companies that are gonna assist you
in this 360 degree effort?
>> Think of it a different way, stop thinking about it like that.
It's not about you don't no business operates in the specifics of
exactly who does what, where they do it, and what they're doing.
>> Okay.
>> That's not the nature.
By the way that's not the nature in our business.
It's not how Nike does business.
It's not how global branding companies that deal with mass initiatives handle
their things.
We're not, there's a million different ways that I might help out with something,
and there's a million different ways that other things that I am at the core of
making happen will happen around me without me directly making it.
That's not what our business is.
What we're saying is, I'm going to invest our label's time,
money, initiatives, our focus, we're gonna invest our resources,
our connections, and we're gonna invest in your property and
developing this property, and as this property develops and
we make a hit record, or a hit video, or a hit advertising campaign, or
whatever it is that we're doing as a team that is helping take your copyrights and
make them more valuable, we are gonna share In the value of those copyrights.
>> Right. >> When we make a record and
it's a number one record around the world.
It's not that hard to get a merch deal.
>> Right. >> It's not that hard
to get a big promotion deal.
We're the ones that are spending the money to help make your hit record and
your hit record is going to be what you need to sell tickets.
>> Right. >> You know a lot of people
have a utopian view.
There's a lot of acts that sell without radio and that's fine and
I have a lot of acts that are succesful without that radio.
But there's no acts that are successful without marketing themselves.
And we're helping market you.
And if we help build this brand, we need to share in all the revenue streams.
Otherwise, we can't spend enough money to help make you the star that you wanna be.
>> That's fantastic.
>> It doesn't exist.
>> That's great Neil and how's that working for you?
All these other revenue streams, are they actually starting to generate income?
>> Sure, sure. >> That will help meet the bottom line.
>> Buddy, not just for us, for our artists.
You know when we're getting paid our ancillary revenues, if we're at
a point where we're getting paid ancilliaries, the artist is getting paid.
>> Got it. >> Aand that's great for everybody.