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Music Industry Class Is In Session – An Interview With Alex Gregori


20 June 2003 No Comment

I recently spoke to Mr Alex Gregori to find some really useful info on the music industry. If you are an artist, producer or an entrepeneur you should really read this interview. Ever wanted to know where to get a bar code for your cd? Want to know how to copyright your music? Want to know why cd prices are so expensive? Peep it

Hello Alex how are you doing these days? 

Superb, thank you. After the phenomenal success of Mothermix Records’ first release, KGB’s “The First Born”, which had 2 number one hits, is play listed on all major radio stations and sold over 1 500 copies in the first four months, I was able to close deals with Pick ‘n Pay and Musica. Both accepted my price strategy 
(read interview on www.cd.co.za/interviews/mothermix.html), and are retailing KGB for R 45.95. I then developed our network distribution system further, creating a business opportunity, where you can earn R 2000 – R 3000 a month part time and R 10 000 to over R 30 000 a month full time. The business opportunity is open for anyone who wants to make some extra money and you don’t need to have any qualifications, except to be teachable. The real cherry on top is that this network distribution allows Mothermix Distribution to offer a distribution deal to every artist, band and record label. Our back catalogue grew by over 1500% in the last couple of weeks.

The reason why we wanted to interview you is because you are a walking talking music industry library. So can we begin by asking you: 

a) How do you copyright your music? Where do you get the forms from, how do you fill it in? 

In The Mothermix Group we have a separate division, Mothermix Music Publishing. This is a company registered as a music publisher with SAMRO. Our songwriters have a publishing agreement with Mothermix Music Publishing and our work is simply to do all the administrative stuff, register the songs with SAMRO, and make sure the songwriter royalties come in. Whenever you have recorded a song, either on paper, tape or CD, you can get song registration forms from SAMRO, fill that out and send it back to them. Then your song’s copyright is registered world wide. You can sign up with a publisher to do all that for you or you can do it yourself by calling SAMRO at 011 – 489 5000 and speak to Victor Mampane.

b) How does the royalty system in South Africa work? 

There are three royalty streams: for the artist, for the producer and for the songwriter. While you can be all three in one person, it helps to differentiate by “wearing different hats”. 

If you wear the artist’s hat, your royalties come from your performance. If you record a CD, you perform, and your record company will pay you royalties either in the form of an advance or as percentage points from sold CD’s or both. If you perform live, you will get paid for your performance by the concert promoter, or your record company might expect you to perform free of charge as part of your duties to promote the CD. If you wear the producer’s hat, your royalties come from producing the album only, and are paid by the record company either in the form of an advance or as percentage points from sold CD’s or both. If you wear the songwriter’s hat, you don’t have anything to do with the record label, the artist or the songwriter. You get paid from the royalties, which your publisher collects on your behalf, e.g. from NORM and SARRAL for replicated CD’s or from SAMRO for public performances of your song, e.g. radio airplay. In terms of how much you actually get, this is really completely open to negotiations. A guideline would be 5% – 10% of PPD (price per disc, i.e. the price at which the record label sells the CD to the distributor) each for the artist and the producer and 6% of PPD for the songwriter. It is important to understand that this is a business and, as in any other business, it’s a question of supply and demand. This means that Eminem obviously gets a better deal than a completely unknown artist.

c) If I am a South African artist and my music is being played in the UK or USA how do I collect royalties from that? 

As an artist you don’t get royalties from your music being played, no matter where it’s played. This is seen as promotion for your CD sales, from which you make your money. As a songwriter you get paid by your publisher. If your song is played in the UK or the USA, your publisher would probably have a sub-publishing deal with a publisher over there. The royalty collecting society in that country would collect the royalties just as SAMRO does in South Africa, pay the sub-publisher, who pays your publisher, who pays you.

How do I publish my song? 

If you as the owner of the song, or your publisher, decide that a particular song is published, then it is. Full stop! However, publishing usually means that the song is available to the public, so you would either have a printed edition of the song or a recorded version available for the public.

What is the difference between publishing my music and copyrighting it? 

Publishing means making it available to the public. Copyrighting means, you make sure that you are registered as the owner of the song.

What is a mechanical right? 

Mechanical rights, or mechanical reproduction rights, refer to the right of mechanically reproducing the song, e.g. on a CD. Before the record company can release the song, they have to obtain the mechanical reproduction rights of the artist (mechanical reproduction rights to the performance), the producer (mechanical reproduction rights to the master tape) and the publisher (mechanical reproduction rights to the song). The record company would obtain these rights as part of the artist- and production agreement (which they have signed with the artist and producer), and from NORM and SARRAL (who will issue them, after the publisher has agreed to this and has received the 6% PPD from the record company). 

What are the rights to the performance and what other rights are there that we should be aware of? 

The rights to the performance are the rights of the artist to whatever he or she performs. For example if you stand on a stage and rap or if you do that in a studio to record a CD, then you own the rights to this performance, and no one is allowed to exploit your performance without your consent. You would give this consent in your artist agreement with the record company against whichever remuneration you agreed on. Other rights I have already referred to above.

Can you explain to us how the Record labels in this country price their product. Can you break down the entire price of a cd for us? 

This is a very contentious issue world wide, because artist always tend to believe that they are exploited by record companies. The important thing to remember here is, that while both the artist and the producer invest their time and talent, and don’t incur any third party costs, the record label spends time, know how AND real money. Obviously they want to recoup this money and make a profit. Problem is, they have very little to go by to ascertain whether they ever will. Last year there were 35 000 different CD titles released in the USA and only 5000 sold more than 1000 copies. So the record company has to foot the bill of the flops. After the producer has delivered the master tape to the record company, they spend money on the production of the cover (photographer, make up artist, location scout, graphic designer etc.), the replication (about R 10 per CD), promotion and marketing people, advertising, possibly a music video, possibly advances for the artist and the producer and 6% of PPD for the publishing rights. All these costs are incurred before a single CD is sold. So the record company must make sure that they make enough money to recoup these costs and make a profit. In 9 out of 10 releases they don’t. But the one artist who makes it, only sees what he earns from his CD in relation to what the record label earns, which is obviously more, since the record label has to cover all the above costs. This is why record labels sell to the distributors at a very high PPD. I believe however, and our market research has also indicated this, that we could sell 3 – 5 times as many CD’s, if the retail price were between R 60 and R 70, and that would mean a total turnover for the South African recording industry of R 1.3 billion – as opposed to the current R 600 million. You would then make less money per CD but more money in the end.

Ok so let’s take it from the artists point of view, somebody who has no recording contract but somebody who wants to protect their work. What steps must the artist follow to ensure that nobody can mess him/her over? 

You can’t really mess the artist over, because the artist has only rights to the performance (remember the different “hats”!), and if anyone exploits the performance, e.g. by selling CD’s with the performance recorded on it, they would have to have some sort of agreement with the artist. If they don’t have such an agreement, than that’s what the artist can base his case on.

Ok, secondly, if I want to start a record label what do I need to do? Do I register a CC? What do I do? What steps must I take and what documentation do I need? 

There are no legal requirements to have a record label. Just as you can call yourself an agent for XYZ, you can trade as “Milk Daddy Records”. It makes sense however to register either a Closed Corporation (CC) or a Propriety Limited (Pty LTD.), because you enjoy certain legal rights and privileges, e.g. towards debtors. But you also have responsibilities and registration can set you back between a couple of hundred Rand to a couple of thousand Rand. Anyway, having the record label doesn’t solve your number 1 challenge to sell CD’s, and that is distribution. The strength of the record labels is 1) their legal- and industry know how, 2) their capital to pay for all release related costs (see above) and 3) their connection to a distributor. If you can meet the first two challenges successfully, you can have your own label and must just find the right distributor. Once you have done that you register a CD prefix for your releases (e.g. MMCD for Mothermix Records) by calling EMI at 011 – 406 4083.

How does a record label get a bar code for their cd’s? What are all the things the label has to do?

You can register a bar code with EAN, the South African bar code association. Call them on 011 – 789 57 77. Once you have a bar code number, your graphic designer can insert the actual bar code in the sleeve design.

You told me about the procedure for when pressing up cd’s, that you have to give the plant a document, can you explain this to the users? 

After you have your master CD and the sleeve design on CD, you would forward this to a replication company. There are a number of those in South Africa, such as Bowline and sonopress. They make a glass master of your CD, then a mould and then they replicate the CD’s from that mould. The most costly exercise here is the glass master and the mould. If you have at least 2000 CD’s replicated, the manufacturer usually does not charge you for the glass master and the mould, so your price per unit becomes much cheaper. They will also send you all information for the graphic designer to keep the design according to print specifications. I have found that Bowline has the best prices. You can call Lindi at Bowline on 021 – 550 9700.

Before we move on to the next set of questions can you touch upon what else might be important? 

The most important thing to remember if you want to release a CD, with our without a record label, is to get started. You WILL make mistakes, so don’t wait until everything is perfect. Learn from your experiences. Information collecting is a very powerful, destructive force, if you never act on any of the information. Many talented artist, songwriter and producers have their little home studio. Use it, put together a CD, burn it at home and sell it for R 10. See what the reaction of the people is, then do the next one, a little more professionally. When African Dope Records released their first title a couple of years ago (Krushed & Sorted “Acid made me do it”), they themselves admitted that they didn’t have much of a clue. If you’d analyse everything that was not 100% with that release, you’d probably be busy for quite some time. But who cares. Today, they are one of the leading independent labels. And try to become involved in distribution. That’s where the real money and the real power lies. That’s why I have developed the Mothermix Distribution network for everyone to participate and benefit. It gives you the opportunity to cash in on the distribution side, making R 2 000 – R 3 000 a month part time and R 10 000 to over R 30 000 a month full time. And it can distribute your CD too, no questions asked such as: have you got radio airplay, how much are you spending on your TV advertising campaign etc.

Ok here we go, once you have your product, you can either sell to a distributor/retailer, sell direct to a customer or sell on consignment. Can you explain what consignment means, and can you also explain what kind of deals happen between the label and the distributor/retailer? 

Again it is supply and demand, which regulates the deals. It is obviously in the interest of the retailer to offer as many different titles to the end-consumer as possible. But it is not in the interest of the retailer to spend lots of money on stock, which lies around stores as dead capital. So therefore the retailer will tell the distributor that they stock CD’s on consignment (obviously if we’re talking about artists like 50 Cent, this doesn’t apply; because of the demand, the distributor will get paid up front for the order!). Consignment means they put your CD’s in store, but they only pay you after the CD’s have been sold. The distributor passes this on to the record company, paying only after he received the money from the retailers, and the record company passes this on to the artist and producer, paying only after it received the money from the distributor. One has to remember, that the retailers, distributors and record companies make available their complete infrastructure on risk: renting floor space, paying employees, shipping product etc. If you’d have to do all that yourself on a national or international scale, you would have no more time or money to produce CD’s. However, Mothermix Distribution successfully broke this mould with our distribution network concept and price structure.

Okay, so you have proposed an alternative pricing structure. Can you explain that to us. I also made an observation that in your breakdown structure the label actually walks away with less but you hinder on the fact that if the cd is cheaper they will sell more therefore making the label more money in the end. Is this based on research and has this concept been proved? In addition won’t public perception of price vs quality make this risky (i.e. if the cd is cheap it must be crap?)? I’M PLAYING DEVILS ADVOCATE HERE 

It has to be remembered, that a product is never “too expensive” or “too cheap”. It is the “value for money” perception of the customer that makes it so. So if you have R 100 to spend on entertainment today, you will look at the various available options (eating out at a restaurant, seeing a movie, buying the latest video game or cell phone, buying a CD), and then make your choice. With a price of R 150 or more for a CD, the value for money is not very appealing, especially with free downloading from the internet as one alternative way of getting your music (this does not fully apply in South Africa yet, where only 1 million people are online, as opposed to e.g. the USA, where every second American is online = 125 million). We did extensive market research, interviewing people on the street. This has indicated that the majority of people would buy 3 – 5 times more CD’s, if they were priced between R 60 – R 70. In addition, people who don’t buy CD’s at all because they are perceived to be too expensive, would start buying again, and piracy could decrease, if you get the original product for only a couple of Rand more than the pirated one. Last year’s turnover of the South African recording industry was R 600 million. That translates into 4 million CD’s at R 150 each. If you multiply the 4 million with 5, and the result (20 million CD’s) with R 65, you get a turnover of R 1.3 billion. An increase of over 100%! Since everybody involved in the industry (artists, producers, songwriters, record labels, publishers, distributors and retailers) make a percentage of turnover, everybody’s cut would increase considerably. In addition the price for replicating CD’s could decrease per unit, if 5 times as many CD’s needed to be replicated. It’s really common sense. Sales of our first release, and the fact that both Pick ‘n Pay and Musica jumped at our price strategy, are enough proof to me that this system works. We might be the only company in South Africa to argue this, but in Europe and the USA there are record companies who do the same, i.e. sell their CD’s cheaper than usual, and they all report excellent feedback from the consumer. What we have to achieve is winning back the trust of the consumer, who basically felt like being taken for a ride by the industry, because they had a monopoly on price and choice. That’s why there are so many music downloads: dead cheap, major choice. Our products (CD’s) have to be perceived as value for money again. What happens in South Africa at the moment is that CD prices rise, and I have heard industry professionals argue that this is the way to go, because our year on year sales of South African music increases. This might work in the short term, but eventually the South African consumer will follow the international trend (CD sales down 9% – 13% and more, year on year). Our research has shown that even today we are killing the industry with overpriced CD’s. Sales worth R 1.3 billion are the potential. Sales worth R 600 million are realised. You draw your own conclusion!

Ed’s Note:  Still got more questions?  Post them here and we’ll get Alex to answer them for you!

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