NET SPECIAL FEATURE: Business model threatens existence of record labels

By Osagie Alonge, Chief Correspondent

New Business Model

Nigerian record labels are facing horrendous times, with the likelihood of most of them packing up, Nigerian Entertainment Today investigations have revealed. If the local business model is not overhauled to accommodate the peculiarities of a chaotic system, at least 10 labels will either close shop or move into other aspects of entertainment before the end of the year, experts told us over the weekend.

The last 17 months have clearly shown that the Nigerian music scene has gone down a path that leaves record labels and the entire recording industry endangered. And it’s quite simple to explain: music labels are spending but the means of recouping investments, ill defined. Artistes on the other hand, are smiling to the bank.

It’s been this way for years now: Take for example, Record label ‘A’ signs Artiste ‘B‘ on a three year recording deal, with a contract stating the artiste has to release two albums during this period of time. The label spends heavily on the signee – from housing to recording, photo-shoots, publicity, marketing the brand, merchandising, video shoots, transportation, A&R development and a whole lot more. Even if the artiste yields success with his/her debut, creating a number 1 hit and bestseller, it is impossible, from our findings, for the label to recoup their initial investment.

How do labels make money? The general notion is that bulk of the label’s profit should come from music sales. Sadly, profit margin from sales is next to nil in Nigeria. With a record selling for as low as N40 in Alaba (the headquarters of physical distribution) and a maximum of N120 (less than a US dollar) on the CD stands/stores, the music has almost become worthless.

One CD unit in the US ranges from $5 to $14. A song on iTunes is around $1. The Nigerian model does not encourage exorbitant jewel CD casing, and singles are rarely sold.

‘The cost of producing a compact disk at mass production is N29. That leaves N21 for the label/artiste. Back then we used to pay upfront for an album but when we aren’t sure of the artiste, we change to ‘pay as you sell’ formula’, a top executive at Okeysonic Entertainment, one of the popular marketers in Alaba tells NET.

Following the departure of the big international companies, and the collapse of what remained of a distribution system, Pirates had a field day, proving to be a big menace to the industry, until the early 2000s when big names like Big Boss Jiggaman, Kev D and co morphed into legit agents, after seeing the possibilities in the industry following marketing deals with 2Shotz and the Trybe Records crew.

The formula worked for a minute. But, according to pundits, the disadvantages that came with it far outweigh the positives. Biggest negative: the value of the music contained in a CD was greatly compromised, as the industry unwittingly gave a critical role and power to a group of traders with no stakes or music business education.

Record Label owners today see music as bad investment due to the monstrous problem of piracy. Pirated works can never stand the test of time because the quality is ever and embarrassingly poor‘, Kenny ‘Keke’ Ogunbe, C.E.O of Kennis Music said in a speech delivered at the Nigerian Entertainment Conference, April 2013.

Record Label owners today see music as bad investment due to the monstrous problem of piracy. Pirated works can never stand the test of time because the quality is ever and embarrassingly poor’, Kenny ‘Keke’ Ogunbe, C.E.O of Kennis Music said in a speech delivered at the Nigerian Entertainment Conference, April 2013.

We’re paying the price now’, one veteran told us. Sales have diminished over the years, quality of music and packaging at its lowest, with hundreds of marketers unable to put out albums.

It’s so bad that a popular marketer T Joe, who once paid up to N20m for a Psquare album is on the verge of closing shop.

Labels don’t make money from CD sales, where else do you want to get back your investment let alone profit?’ CEO of Chocolate City, Audu Maikori comments.

With Alaba going under, will digital platforms step in and save the day? ‘Monetary digital distribution is Nigeria is still at its infant stage. It will take companies like iTunes, Spinlet, iRoking, YSG Hub some years to finally dominate and reduce free/illegal downloads’, Sola Fanawopo of Financial technology says.

And even when CD sales show a glimpse of hope, it’s still downhill for returns. For example, Burna Boy‘s label, Aristokrat Records, we are told received a sum of N10m from Alaba marketers, UBA Pacific for his newly released album ‘L.I.F.E’ which dropped last week and is said to be doing well in the market. But can that amount cover the cost incurred shooting his three high budget videos, recording sessions, photo shoots, album listening parties, etc? NO.

NET investigations reveal that profit percentage sharing between labels and artistes vary ranging from 70-30 (in favour of the labels) to the mirror opposite in favour of artistes. Nevertheless, labels are not recouping their investments. And here’s the interesting part – artistes are breaking bank; making money from shows, signing endorsement contracts and walking away with the bulk of profit from these deals. The very smart ones are even extending their interests beyond music, using their public image and celebrity status to facilitate deals in government, oil and gas, real estate and other sectors, and securing their future.

Most labels are not part of these deals. In fact only recently did some labels – including Storm and Kennis – begin executing 360 deals meaning they reserve management rights and have the right to share in proceeds from brand endorsements and other career related loot.

There’s not a single record label in Nigeria that can be considered a big business. The Allwell and Tony Elumelu Foundation, headed by the globally respected Michael Porter recently honoured 50 fastest growing businesses in Nigeria, highlighting giant strides in businesses from technology, marketing communications, finance, agriculture, oil and gas, etc. There was no record label or music business on the list.

On the average, each of the top five labels in Nigeria, including Empire Mates Entertainment, Chocolate City and Mavin, attract earnings of N130m P/A covering sales commissions, performance commissions, and earnings from endorsements.  On the average, according to NET investigations, each label will have to spend up to N80m, covering music videos, producers and session fees, accommodation, travelling, transportation, salaries, running cost, PR, styling, payola, etc.

Meanwhile, an average top 5 artiste, like Wizkid, D’Banj could earn up to N500m in one year from shows, appearance fees and endorsements. Label commissions are on the average, around 25%, leaving the artiste with N375, 000. Most artistes (except those who are self-signed) rarely bear executive costs, so they end up being more liquid that the labels. Even after lavishing millions on expensive lifestyles, they still keep a margin at least double what their label has.

Little wonder in the last 17 months, over 20 artistes have fired their labels; most of them walking out of their contracts leaving the labels in debt with some of them closing shop or venturing into something else.

A clear example is Storm Records; run by Obi Asika and Olisa Adibua, the label is the closest to Kennis Music in terms of volume of signings in contemporary times.  Storm has been home to Darey, Sasha, Jazzman Olofin, 2Shotz, Naeto C, Ikechukwu, GT the Guitarman, Alaye, Ikechukwu, Sauce Kid as well as General Pype, Tosin Martins, Ms Jaie, Yung6ix, L.O.S. Most of these artistes have since left the label, with the owners rebranding as Storm 360 and focusing on TV production, content management, branding and other media related businesses.

Kennis Music (which at some point was paraded as the biggest label in the country) now focuses more on its Kennis Music Channel which currently airs on cable network Star Times and terrestrial TV, Galaxy Television.

Another is YSG Entertainment (headed by Obiora Obianodo, son of Vincent Amaechi Obianodo, owner of Young Shall Grow Transport services), the label rapper Vector is signed to. YSG kicked started their digital store ‘YSG Hub’ this August. A rep for the label however says that has been in the pipeline for months.

‘If you have made investment in a business and it’s not profitable, you have to diversify’, A&R and music expert Ayo Rotimi explains but then adds that ‘this is however not a solution’.

Unlike their labels, Nigerian artistes don’t really care if their CD sells or not. It seems like they’ll rather promote their songs (and most times offer for free download) and brand (especially on social network – Facebook, Twitter, Instagram) in other to score a performance or bag an endorsement deal. The bulk of the fees, after management takes it cut, of course goes to them.

‘There are artistes I know that don’t care if the music sells. People are not keen to make albums anymore’, renowned disc jockey and long-time entertainment entrepreneur DJ Jimmy JATT tells NET adding that the system has been ‘unfair’ to labels. The ‘cool’ DJ says anytime he’s asked why he hasn’t started a label, his response is ‘What’s the gain for me?’

Why, how can an artiste be wealthier or even more influential than its label? That’s like saying a can or the brand Bournvita is bigger than Cadbury’, Rotimi says.

In February 2013, Wizkid blatantly walked out of his contract with EME, only returning months later after it became clear taking a walk was not as easy as it looked. Chocolate City’s Brymo and Jesse Jagz are still on the run, abandoning a label that gave them shelter when they needed it most. The label insists they still have valid contracts.

Wizkid and Banky W

In February 2013, Wizkid blatantly walked out of his contract with EME, only returning months later after it became clear taking a walk was not as easy as it looked. Photo: BHM

Part of the reasons the artistes are trying to walk, sources told this newspaper, is because most labels now insist on enforcing the 360 clauses in their contracts. Same reason Eedris, Tony Tetuila and others left Kennis music many years back. They could not live with the fact that apart from benefiting from their show earnings, the label would also retain management rights and get a cut off all their career-related earnings.

‘Without a 360 deal, it will be impossible to recoup. I think the tradition has to change’, Audu Maikori says. ‘We’ve made quite some money of caller ring back tunes and other music franchising’, he explains.

‘The label risks everything; it’s 360 or nothing. Another idea is to always push for a long term signing so you’re sure of earning something tangible’, T-Rexx, event manager at YSG says.

Some other label owners have made up their minds about the situation and have developed a tough skin towards the prognosis. Taiye Aliyu of Effyzzie Records (where budding talent Yemi Alade is signed to) says he is worried if any artiste wants to leave. ‘If I’m not seeing growth, I won’t be investing that much’. As per making profit, he seems to be hopeful. ‘No CD sales for sure but since we handle management also, I’m earning, everything from performance fees, caller ring back tunes to revenues from their YouTube page. We got a check on N500k from one of the Telco’s last month, it isn’t much but it’s something’, Aliyu says.

So it’s been established the label is on the losing side. But should the artistes be blamed? Certainly no. Ayo Rotimi says it’s because there is no structure.

NO STRUCTURE, NO SUPPORT

The structure or rather infrastructure the industry lies and has built itself upon according to experts is faulty.

It’s plain to see, it’s not supported’, JATT says.

There’s no traditional structure. It’s like we are operating 25 years backward. Face the fact; we do not have record companies with strong structures or assets, companies that started as natural businesses with strategic alliances’, Rotimi complains.

Music Business Education, Rotimi says, is what is being ignored. ‘It’s not just pumping money into an artiste’s career and watching him blow. Were the right contracts signed? Were the long-term goals conceived? Was the deal structured to benefit both parties?’ he adds.

I’ve seen labels started off with the financier adding the word ‘Records’ to his moniker. You now get mad when an artiste realizes he stands a better chance working on his own?’ a radio OAP told NET anonymously. ‘Apart from the likes of Chocolate City and Storm Records who have offices, these other guys who claim to be ‘big‘ run labels with their mouth’.

Absolutely correct. Of every 10 record label in Nigeria, it’s difficult to find one with a functioning office and structured system. EME (which parades the likes of R&B boss Banky W, Pop star Wizkid, rapper Skales and three other acts) set up a functioning office in early 2012, four long years after launching in Nigeria. We could not immediately confirm if they still work from there. CEO Segun Demuren did not immediately return our calls or respond to our enquiries. As huge as Mo’Hits Records was before it got torn apart in 2012, the label’s office never fully functioned.

NET findings also reveal that Kennis Music and Premier Music (run by Toju Ejueyitchie) are the only two labels in Nigeria registered with the International Federation of the Phonographic Industry.

Same goes for digital distributors Spinlet and Iroking who have been spending some big money but aren’t featured on the list of licensed digital music services in the Pro-Music information resource (www.pro-music.org) which is agreeably the most comprehensive directory of the world’s legal music services. The only services in Nigeria according to the directory are web-based music streaming service Deezer and iTunes.

It’s a misapplication of terminology. It would be more appropriate if labels in Nigeria were referred to as entertainment or management companies because there is no label structure’, Darey, respected recording artiste and CEO at Soul Muzik says.

‘It’s hard for an artiste to trust a label, especially when he can’t just see some structures put in place. I’ve been there before, it wasn’t rosy’, veteran rapper Terry tha Rapman who was signed to Charles Novia‘s November Records from 2005-2007 says. When asked if given the opportunity, he would sign to a powerhouse label or go solo, he chose the latter, explaining that he’d setup his own label with financial backing.

Artistes are now running their own record labels but are making the same mistakes as existing labels. And everyone is going in circles.

Take for example an M.I who setup his very own Loopy Music label in mid-2012 and signed three acts. Barely a year after, one of the signees, rock band Threadstone walked away from their deal, claiming they needed better label support.

If the proper systems are not put in place, even as millions of dollars are being made, implosion is eminent.

THE END GAME FOR ARTISTES AND RECORD LABELS

So what’s going to end this plethora of label exits? ‘It’s a problem that we all have to deal with‘, revered entertainment practitioner and CEO of Now Muzik, Efe Omorogbe says.

Omorogbe explains that nobody seems to have respect for contracts. Until scapegoats are made, things might very well continue to go on the way they are. ‘There needs to be repercussions. Artistes can’t just break laws and feel they can get away with it’.

Omorogbe raises another point: ‘It’s true that labels and companies are notorious for not prosecuting artistes but then again when the label sues, will they ever recoup their expenses incurred from the cost of litigation? The legal process might be too long’.

Despite the long process it could take, some companies are determined to go all out; it’s already coming to effect too, as some artistes who have allegedly defaulted on their contracts are already feeling the heat.

Two examples are YSG’s Vector and Chocolate City’s BrymO. The rapper, we’re told still has a contract with the label ending in 2017, until then YSG is making sure Vector (with whom they are currently having issues) does not function in full capacity as an artiste without their consent and approval. BrymO, Chocolate City has insisted will be facing their full wrath, as they are still demanding he returns to the label to fulfil his part of the signed contract, which includes releasing two albums.

Same goes for Pop act Mo’Cheddah who inside sources tell us cannot perform any songs recorded or released during her stay at Knighthouse. General Pype (whose stage name was reportedly  trademarked by someone else!) is in a similar situation with former Storm Records as well as Soul E who lost the right to use his stage name while battling former label Colossal Entertainment.

Another way labels are going after ‘defaulters‘ is by suing the companies who dare work with artistes still signed to them. ‘A label can wait till their artiste goes behind their back to sign a deal with another record label or company, and then sue them (the company)’, Omorogbe suggests.

‘Any label that wants to sign an artiste should confirm if the artiste has been officially released, make background checks and also ask for an official release form, this is standard’, Ayo Rotimi says. ‘There should also be penalty clauses in contracts’.

Sources tell us when Vector was approached to participate in the annual ‘Nokia Don’t Break the Beat’ as a judge, YSG wrote the show organizers a warning letter to back off. Chocolate City tells NET that Spinlet will be hearing from their lawyers following the digital distribution deal the company recently signed with BrymO.

Brymo and a rep from Spinlet after signing a new deal which will see the Pop singer's new album distributed via the digital platform. Photo:  Twitter/Spinlet

Brymo and a rep from Spinlet after signing a new deal which will see the Pop singer’s new album distributed via the digital platform. Photo: Twitter/Spinlet

Darey offers a suggestion ‘Why can’t artistes have partnership deals instead of walking away? How much of the industry do they understand? Once a label is worthy of offering a 360 deal, the artiste if he/she insists can start his/her label under that parent company and run semi-independently.

What Darey is talking about is called ‘Joint Venture Deals’ (or JV Deals), a viable solution to some of the artiste and label battling creative and/or financial differences.

A clear example is Hip-Hop recording artiste Rick Ross. In 2006, Ross signed to Slip-N-Slide Records (whose parent label at the time was Def Jam). In 2008, he ended his contract with S-N-S and fully signed to Def Jam, then went on to launch his own label ‘Maybach Music Group’ a year later under Warner Bros. In 2012, he then ended his contract with Warner and moved MMG to Atlantic Records. MMG has signed over 10 acts including successful artistes Wale and Meek Mill.

Naturally, a Wizkid could have a Star Boy/EME, an M.I with a Loopy Music/Chocolate City, and an Olamide with a YBNL/Coded Tunes joint venture deal.

Worried about going under, some leading labels are now coming together, plotting a record label coalition with key focus on distribution. NET confirmed over the weekend, that nine record labels are joining forces to stand as one (although they will still operate as individual units). Backed by telecoms company Etisalat Nigeria, the idea, according to industry sources who spoke with NET, is for the labels’ properties to be distributed via a new platform (including the Cloud 9 app recently created by Etisalat). It’s a big budget project, we’re told. And this may be the coup that’ll take the business back from the hands of marauders into the arms of the real McCoy.  Although the label heads have not categorically confirmed this, Etisalat launched Cloud 9 as an independent platform two weeks ago. Chocolate City chairman Hakeem Bello-Osagie is also the chairman of Etisalat. We can confirm that Chocolate City is part of the coalition, as well as EME, Now Muzik, and Storm 360.

With a common goal and centralised method of operation, will come a consolidation that should make it hard, even impossible, for labels to continue being at the mercy of the corporates, marketers, and even the artistes they’re in bed with. Hopefully, this new model will create a new path for an industry desperately in need of direction. And hopefully, the labels not part of the 9 coalition will leave ego aside and align for the good of all.

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