Pretty Independent Machine: Songs as Promotions

TechCrunch vs Profy.Com This Tuesday’s post about NIN and Radiohead going independent has been on my mind. So here’s a part 2.

Now, I’m not the biggest fan of current CD prices. I don’t think anybody is. So when I read TechCrunch articles like Michael Arrington’s “The Inevitable March of Recorded Music Towards Free“, I’m filled with glee.

He’s basically arguing that the economics of recorded music will eventually drive all music to be free.

His argument has been met with some criticism, however, most notably from Paul Glazowski of Profy.Com. Glazowski argues in his post, “TechCrunch’s Founder Says Recorded Music To Eventually Be ‘Free’; Here’s Why He’s Wrong“, that there is still a cost to recording music, which will prevent it from being completely free.

This discussion got me thinking. If digital songs become free, how will that effect musicians? Listeners will love it because, hey, who doesn’t love free stuff? But how will it effect the livelihood of professional musicians?

As I understand it, a musician makes money from:

  • Album & song sales (CDs, iTunes, etc)
  • Live performances
  • Merchandising (t-shirts, posters, etc)
  • Commercial licensing (using your songs for commercials)

Not all of these provide income at the same levels. I don’t think there’s a common ratio, but album sales generally account for a small percentage, while the others offer more, according to Chris Arnold’s NPR article, “Band Tries to Make It Big Without Going Broke“.

So if songs become free, that shouldn’t gravely effect their livelihoods—since paid songs don’t effect their livelihood much already.

Also, if song distribution is no longer a means of revenue, its value changes. It becomes… perhaps… a new marketing channel?

Such is already the case in China, where music pirating has made profits from CD sales drop to zero, so writes Kevin Maney for USA Today in the article, “If pirating grows, it may not be the end of music world“, written in May 2005.

Yu Quan, like every music act in China, gets almost no income from CD sales, even though millions of its CDs have been sold. As soon as a CD is made, the pirates are on the street, offering them for a fraction of the retail price. Stores sell pirate copies. Legitimate CDs all but vanish.

So artists have to regard CDs as essentially promotional tools, not as end products. Yu Quan makes money by performing concerts, getting endorsement deals and appearing in commercials. If people hear and like Yu Quan’s songs on pirated CDs, at least they’ll be more likely to come to the concerts and buy what the duo endorses.

The primary revenue vehicles are now live performances, merchandising, commercial licensing—and even commercial endorsements and corporate sponsorships (though only the most popular acts can tout those).

So I agree with Arrington that the price of digital songs is being driven to free. But I don’t believe it’s just the economics of the situation.

My guess is that piracy and P2P networks figure larger in the equation than he thinks, especially since teenagers (and younger) are such prolific users. They are the audience of tomorrow; their habits now will lay the foundation for the landscape we’ll soon be facing.

A paradigm shift from looking at digital songs as promotional vehicles instead of income sources will also precipitate the drive to free. And this, in my opinion, is a good thing—especially for musicians, though maybe not record labels. If musicians don’t need a record label to package their CDs and market them anymore, what will they need them for, if they need them at all?

I think I have an answer for that, which I’ll write about tomorrow. (Ah, the suspense.)

Pretty Independent Machine

NIN and Radiohead So it begins.

Trent Reznor from Nine Inch Nails just announced that they are now an independent entity, apart from any music label or recording contract:

Hello everyone. I’ve waited a LONG time to be able to make the following announcement: as of right now Nine Inch Nails is a totally free agent, free of any recording contract with any label. I have been under recording contracts for 18 years and have watched the business radically mutate from one thing to something inherently very different and it gives me great pleasure to be able to finally have a direct relationship with the audience as I see fit and appropriate. Look for some announcements in the near future regarding 2008. Exciting times, indeed.

This is the second A-List band to do this. Radiohead‘s recording contract expired after their last release in 2003, and they never sought to get another contract. Then, just a week ago, they announced that their next album will be released as a digital download only. In an interview with Time Magazine, Singer Thom Yorke said:

“I like the people at our record company, but the time is at hand when you have to ask why anyone needs one. And, yes, it probably would give us some perverse pleasure to say ‘Fuck you’ to this decaying business model.”

You can download their new album, In Rainbows, anytime after October 10. Also, you only have to pay whatever you want. That’s right: You name the price.

(Another small independent artist, a female vocalist, did this first, about a year ago. I can’t find her site or any info about her though. Anyone know who she is?)

It’s interesting to see these large acts go the way of smaller, independent musicians, such as Jonathan Coulton, who is one of the larger independent acts on the web. He’s most known for his songs Code Monkey, Baby Got Back (a Sir Mix-a-Lot cover), and Re: Your Brains. Coulton has a significant cult following and sells his MP3s for only one US dollar each. This, plus his live performances and various other projects, haven’t earned him a gold-plated Rolls Royce yet. Though, according to an interview with Quick Stop, Coulton says “…in some parts of the country, I’d be making a decent living.”

So being an independent musician without a record label or contract, what does Coulton think about all this? In regards to the Radiohead move, he writes:

I think this is a great move for them, and at the very least it’s an experiment the rest of us can learn from – I hope they’ll be forthcoming about the numbers they get. If I had to guess I’d say this plan will get the music to more ears, possibly generate less gross revenue on digital sales, but vastly improve their bottom line – their profit margin is going to be a lot higher than it would be with a label/distributor, plus this is likely to drive plenty more people to live shows and merchandise.

Exciting times, indeed.

Globalism and Racism

Mister Wong There’s been some drama over the German social bookmarking site Mister Wong lately. If you’re in the US, you may be able to guess the controversy. If you’re not, you probably have no idea what could be wrong.

The controversy is over the branding of the site: it’s name, illustration, and slogan. 8Asians, a group blog of Asian American & Asian Canadian bloggers (of which I am a member) was the first that I know of to publicly decry Mister Wong. As written by Ernie, one of the founders:

Maybe people aren’t as sensitive to political correctness as they are here in North America. But seriously, one of their web badges has the slogan “ping pong, king kong, Mister Wong.” Which I, of course, interpret as “ching chong, Mister Wong” and get INCREDIBLY FUCKING ANGRY.

The first few comments were sympathetic. One commenter expressed some confusion though. “Enlighten me. What on earth is offensive about the Mr. Wong website?” he wrote. After a few back-and-forth explanations, the issue died.

Two months later, Kristen Nicole of Mashable wrote about how Mister Wong was launching a US version. In her review, she wrote, “Despite the questionable name, Mister Wong has a lot going for it…” A commenter there also expresses some confusion: “Kristen, can you explain why you think the name is ‘questionable’?”

Another commenter replied, “It’s not so much the name that is questionable, more the cliched stereotyped image of Mr. Wong that comes along with it. I really hope they get rid of that on the US beta at least, otherwise there’ll be some angry Asian Americans out there.”

Then Kai Tietjen, the founder of Mister Wong, removed the illustration from the logo.

It was never my intention, nor that of my company, to hurt anyone with the use of the illustration. We are extremely sensitive to this issue and the feelings of others. We removed the original illustration off the top of the page some time ago, when the issue first arose, in hopes that no one would be offended by it any longer.

Apparently the 8 Asians article and angry comments on Mashable’s articles led to this decision. A short time later, a German newspaper picked up the story and Germans flooded the 8 Asians site. Some politely expressed their confusion and defended Mister Wong. Others haven’t been as polite, unfortunately.

Pete Cashmore from Mashable followed up on the story and succinctly summed it all up:

These kinds of clashes seem inevitable when companies launch globally: what’s culturally acceptable in one place is a hanging offense elsewhere. Often, as in this case, people are puzzled by the fact that they caused any offense at all. The “racist” label, however, is one that all startups will want to stay a million miles away from, even if they don’t fully understand their infraction.

That’s the real takeaway here, especially for any business going global. You may not agree with the controversy, but once you operate in the global arena, you have no choice but to respect the sensibilities of all the societies with which you want to do business. Even if you don’t agree with or understand those sensibilities.

Remember the Jyllands-Posten Muhammad cartoons controversy? That’s probably an extreme example, but you get the point. A less extreme example is the Chevorlet Nova and how it didn’t sell in Spanish-speaking countries because “Nova” translates to “doesn’t go” in Spanish. This is actually an urban legend, but it’s a commonly cited example of going global.

Ernie, in my opinion, may have saved Mister Wong quite a bit of heartache and money by expressing his views at the early stages of their entry into the US market. For better or worse, the US society is relatively much more politically correct than other societies of the world. Denounce that all you want, but I guarantee you that if Ernie hadn’t spoken up, someone else would have.

CNBC’s Million Dollar Portfolio Challenge: Results

CNBC It’s been a while since I checked up on my CNBC’s Million Dollar Portfolio Challenge account. And oops, the contest ended a couple of weeks ago. I can’t view my last standing anymore. Bummer.

If I remember correctly, at one point I was at the 2% mark. Not bad. Not good enough to get onto the leaderboard, but not bad.

How did my stocks do, though? Hmmm, let’s take a look. Here are the prices as of last Friday’s close.

Symbol % Gain
AEIS 23.64%
AKAM -9.79%
COG 19.51%
CTSH -11.44%
NTE -4.63%
VCLK 30.67%
YHOO -5.71%
Total 5.20%

Eh, not bad for a few months. It was diversified enough (relatively speaking) to weather the volatility of these growth stocks.

I should note that I changed my strategy halfway through the contest. Instead of keeping this portfolio, I created a total of six accounts, each holding just one of these stocks. The AEIS account is what got me to the 2% mark. VCLK didn’t pop until after the contest. COG also split, giving me some nice gains.

What does this all mean? It means I’m not going to become a day trader any time soon. But 5.20% ain’t bad. At least I beat the banks by a few tenths of a percentage.

CNBC’s Million Dollar Portfolio Challenge: Kinda Lame

CNBCMany others seem to agree too: CNBC’s Million Dollar Portfolio Challenge is kinda lame. Here’s why:

The contest’s primary audience, I believe, are individual investors who watch CNBC’s investor productions, like Mad Money and Fast Money. They’re probably hoping this contest will strengthen the community behind such shows. However, their contest is not an exact replica of the market. It sets artificial restrictions, which are probably meant to prevent contestants from gaming the system (even though it still happens). These restrictions are (straight from their FAQ):

  • “There are two ways to earn bonus dollars in this contest.” Trivia Questions & Refer-A-Friend.
  • “To be eligible for trading in the Contest, stocks must have a market capitalization of at least Five Hundred Million Dollars ($500,000,000) as of the close of the markets on March 2, 2007.”
  • “Limit orders, open orders, short selling, margin buying, and the trading of derivatives, options, bonds, mutual funds, exchange traded funds or other securities is not permitted.”
  • “Participants can enter trades seven days per week, at any time except during the period each day, if any, when maintenance is being performed on the Site.” (And maintenance seems to occur rather frequently on their site.)
  • “No commissions will be charged for trades.”
  • “Each participant can make a maximum of fifty (50) trades per day.”
  • “Trades submitted on trading days (Monday through Friday, other than market holidays) prior to 3:59:59 p.m. will be priced at the stock’s closing price for such day.”
  • “Dividends, whether stock or cash, will not be processed or reflected in the Contest.”

And probably one of biggest and most influential deviations from reality is how success is measured:

  • “The Participant with the highest percentage gain in his/her total portfolio value during such week will be declared the weekly winner for that week.”

What does this mean?

You don’t have to make the most money, you just have to make the highest percentage gain. According to Jon Markman of MSN Money, this can be done “by simply picking the 10 lowest-priced stocks that the contest allows, with absolutely no other criteria.” Then, according to Project Stocks: “Only buy 1 or 2 stocks at a time. Put a million bucks in 1 stock or put $500,000 in each of 2 stocks.” (Project Stocks also includes more great tips on playing this game.)

After you’ve done that, create a bunch of accounts, a la the Nancy Beamount Controversy. While this was denounced as cheating, CNBC’s official stance is that it’s perfectly acceptable. Says CNBC’s Mark Koba: “I can tell you all that–YES–it is perfectly all right and within the rules to have multiple portfolios, and that no one is breaking the rules by doing so.”

Does this contest speak to their core audience: the individual investors? Though it’s mostly ancedotal evidence, it seems that many individual investors started playing the contest the way I did (trading as if it’s a real market) and aren’t doing well – or at least aren’t up on the leaderboard. Which is probably why many of them are unhappy & complaining right now.

So what am I going to do with my CNBC portfolio? Consolidate all of my money into one or two stocks, then create a bunch of other accounts. This contest isn’t about real investing & trading, it’s just a betting game: Which low-priced stock do you think will increase the most week-over-week, percentage-wise?

P. S. Rats, where did that Refer-A-Friend link go? Anyone know?

CNBC’s Million Dollar Portfolio Challenge: Gaming the System

CNBC Uh oh, looks like someone’s gaming the system. Nancy Beaumont from California is all over the Leaderboard this morning.

Unless she’s discovered the key to cloning or has sisters all over the state (with, um, the same name), Nancy has created multiple accounts with a bunch of different strategies. 800 accounts, apparently. With 800 different stocks (one stock to an account).

Just who is this Nancy Beaumont? I don’t know, but if you make some anagrams of her name, you get:

  • Mean Bunny Coat
  • Anyone but Cam N.
  • Bouncy Tame Ann
  • Bum-acne Antony


CNBC’s Million Dollar Portfolio Challenge: Initial Picks

CNBC I just made my first trades on CNBC’s Million Dollar Portfolio Challenge. Unfortunately, I didn’t have time yesterday to make them. This means I might have missed yesterday’s price movements. Though, according to a comment from B. Hopper, this may not matter, because the prices aren’t yesterday’s prices. Oh well.

My stock selection strategy here is not what I use for my own real-world portfolio. Since this contest is only measuring the total portfolio value up until May 25th, only short-term growth stocks matter here. So my entire selection is based on quick and (hopefully) big wins. They are mostly in the technology sector, where I have the most domain knowledge.

My initial picks:

  • Cognizant Technology Solutions (CTSH)

    CTSH is an IT consulting firm located in India and competes against IBM, Accenture, etc. They reported strong Q4 2006 earnings, just opened their 8th location in India, and are making successful investments in employee retention & recruitment (which is a key business driver for consulting firms).

  • Advanced Energy Industries (AEIS)

    AEIS develops power conversion & control systems used in plasma-based thin-film processing equipment, such as semiconductors, flat panel displays, and solar cells. Solar cells alone grew over 200% YoY in 2006. They have strong sales, high margins, and high insider ownership, all very positive traits.

  • Akamai Technologies (AKAM)

    AKAM provides Internet content delivery services, notably speeding up the download time of websites. They’ve been acquiring competitors and grew their customer base faster than expected. They now have the capability to serve applications and video (against YouTube’s provider Limelight).

  • ValueClick (VCLK)

    VCLK is an online marketing services company. One of their offerings is Commission Junction, their affiliate & search marketing division, which offers services similar to Google’s AdSense & AdWords.

  • Nam Tai Electronics (NTE)

    NTE is a China-based electronics manufacturing & design services provider for OEMs of telecommunications & consumer electronics. They have a low P/E, a high market cap, and is highly rated by many investors, despite being a little-known company.

  • Cabot Oil & Gas Corporation (COG)

    COG is a natural gas producer with operations in the US and Canada. On March 30th, they’re doing a 2-for-1 split and raising their dividend payments. That alone is worth a buy, even though consumers don’t use as much natural gas during the summer.

  • Yahoo! (YHOO)

    YHOO is an Internet search and media company. I’m an employee at Yahoo, so hey, I gotta support my peeps!

CNBC’s Million Dollar Portfolio Challenge

CNBC The email read: Do you have what it takes to compete in’s Million Dollar Portfolio Challenge? Ooo, a challenge!

This started when two buddies and I made a bet to see who could earn the most money out of one dollar, after one year. We started the challenge last December 2006. If I can appreciate that dollar significantly by December 2007, I’ll win!

(We’re just playing for bragging rights and are going by honor that each of us will keep track of just that single dollar’s earnings accurately.)

With all that talk of investing bets, entering the Million Dollar Portfolio Challenge was a no-brainer. Here are the rules:

On March 5th we’ll give you $1,000,000 CNBC Bucks to play with. Make your picks on NYSE, NASDAQ, or AMEX and see how big a return you earn on your portfolio. Make up to 50 trades per day.

Each week one player will win $10,000. After ten weeks, only twenty players will make it to the finals for a chance to compete for the Grand Prize – $1,000,000!

You can earn bonus dollars to grow your portfolio. When you register for the contest, you’ll have a chance to refer 5 friends. You’ll receive an additional $1,000 CNBC Bucks for each one that signs up to play.

Ah. So that’s why he referred me. Dammit, he’s already $1,000 CNBC Bucks ahead of me.

If anyone else would like to enter this challenge, let me know! C’mon, it’ll be fun! Plus, I get an extra $1,000 CNBC Bucks!

Every once in a while, I’ll publish my trades & holdings on BizThoughts, so you can see how poorly I’m doing. I’m an amateur investor at best (and am nowhere near as good as someone like, say, a Playboy Playmate). But, heck, it’s only CNBC Bucks. And who doesn’t love a good challenge?