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Volume 1: Issue 7.1 | The B# Newsletter | August, 2000
Publisher: N.M.A. (National Music Agency)
http://www.kennylove.net
Editor: Kenny Love
P. O. Box 1404
Crockett, Texas 75835-1404
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Copyright © 2000 N.M.A. (National Music Agency)

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IN THIS ISSUE

1. Editor's Blurb

2. "Online E-Music Retailing"

By Chris Knab

3. "Taking Care of Business"

By Joy Butler

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1. Editor's Blurb

Based on the current climate of the online music
environment, following are two articles of which I felt
the information would be better served distributing to
you now, instead of waiting until next month.

Chris Knab provides the article on "E-Retailing," which
could not have a more appropriate timing. Additionally,
he provides an extensive listing of E-Retailers at the
end of the article, many of whom I'm betting you haven't
heard of.

Music Attorney Joy Butler's article, which actually
should have been included within the main "B#
Newsletter" sent out earlier today, reviews just how
serious the music business can quickly become
"legally," even at its most basic state of assembling
and operating your own band.

Her article, "Taking Care of Business," is one of
those "must-reads" that, as a musician performing
with others, you can't afford to miss. After reading it,
I can see the Music industry dramatically increasing
with more artists in the capacity as "soloists." :-)
Enjoy...

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2. "Online E-Music Retailing"

By Chris Knab


For bands and artists who are releasing their own
records, the Internet offers many new and exciting
opportunities. But! Getting online retailers to pick
up your CDs (and other music related product) is
as much a business as getting offline distributors,
or brick-and-mortar stores, to carry your records.

Online Retail Shakeout

CDs, tapes, vinyl, videotapes and DVDs are now
available at over 100 locations on the Internet, and
new online stores pop up all the time. Many of these
online retailers, however, are still developing their
presence on the Internet. And, not all of the stores
listed below will be around a year from now.

For example, CDNow.com, once a leader in the field,
has been struggling. As of mid-year 2000, they cut
expenses by turning over fulfillment of orders placed
on their website to Buy.com. Also, CDNow has
recently been bought by Bertlesmann, one of the
leading media corporations in the world.

It is yet to be determined how this will affect the selling
of independent product through this online retailer,
since Bertlesman also owns the BMG roster of major
labels and may want to concentrate on selling their
affiliated label releases through CDNow.stay tuned.

A wise independent label, or independent recording
artist with their own release, will carefully research
each and every online retailer they're interested in.

Like any good record store, e-music stores look at
all the new releases that have come out each week.
Every store uses different methods to decide what to
carry, but basically they will decide to buy your record
if they feel it's a potential seller.

When they're re-ordering your record, they check
their stock on hand to decide if they should re-order,
and how many they should buy. Their goals are to
monitor what their online customers are buying, and
to get them the music they demand.

Each copy of a CD, record, or tape, is called a "unit."
The more units a title sells, the more units an online
store may keep in its inventory. The more a record
label "works" its records, (actively promoting and
marketing their releases by securing airplay, putting
the act out on tour, and getting publicity for them), the
more likely e-music retailers, like their brick-and-
mortar cousins, will find it necessary to carry the record.

Brick-and-mortar stores use "POPs" (Point of
Purchase) advertising items like posters, cardboard
stand-ups, and counter display materials. Online
music retailers have their own version of POPs.

If "action" occurs (increased sales of a record, usually
a result of a label or independent artist's marketing
activities), the label or artist will need to supply extra
album cover artwork and track listings to the online
music retailers who are carrying the CD. You can
contact the company listed below to learn about their
services to labels. You will need a UPC bar code in
order to work with them.

Muze, Inc.
Attn: Label Liaison
304 Hudson St., 8th Floor
New York, NY 10013
(212) 824-0321

You may also need to supply online music retailers
with RealAudio sound clips. You can contact
Discovermusic.com to check on their policies
regarding sound clips. Again, please remember that
you must have a bar code to consider this option:

Discovermusic.com
1000 Denny Way, Suite 700
Seattle, WA 98109
(206) 336-3103
fax: (206) 336-3167
http://www.DiscoverMusic.com

A Tip

My recommendation for the most effective online
music retailer is Amazon.com. Go to
www.Amazon.com/Advantage, and read how to get
your CDs sold through their system. It's a simple, yet,
powerful way for an independent label or artist to sell
their music over the Internet.

You will get your own "page" which you create. You
will detail everything you want a customer to know
about your release: include a thumbnail of your CD
cover and the song listings, as well as audio
samples of selected songs.

Over the last year, I've spoken to dozens of acts that
have used Amazon, and I have yet to hear a negative
word about them. Remember though, Amazon is not
a record label - YOU are your own record label and
YOU have to steer people toward them with your online
and offline marketing ideas. They will help you get
started, but you are on your own, like any other label,
to get the word out about your release.

Online Distribution

On my below list of online e-music retailers, one
listing, in particular, is for an online company called
TheOrchard.com. They're not a store, but an online
distributor of sorts. For a small fee, they can get an
indie label's releases into all the major online retailers.

They function much like a brick-and-mortar "one-stop
distributor," meaning they can make it possible for
an independent label to get their music to many online
stores at once.

Please be advised that since it takes time for them
to ship product to all the different online stores, and
each store has a different buying and inventory policy,
it will take them longer to send you or your label the
checks you are owed (By the way, if you use them
without setting up your own Amazon.com Advantage
program, you will NOT have that "page" on Amazon
created by TheOrchard.com. You have to do that on
your own.)

At TheOrchard.com, artists and independent labels
are paid 70% of the wholesale price of each unit.
Online e-music retail list prices always fluctuate, just
like offline retail list prices, whereas wholesale prices
are fixed. A store may want to compete by slashing
their retail prices, but the wholesale price never
changes.

If the wholesale price is $7.18, the artist would receive
$5.03. In addition, they withhold a 25% reserve, again,
just like in the brick-and-mortar retail business,
because some product may/will be returned. After two
quarters, they will settle up on what you are owed.
hopefully.

TheOrchard charges a 30% distribution fee. As a
distributor, they sell wholesale to retailers so that
retailers can mark them up. You should also know
that TheOrchard.com charges a fee of $40 to join.
They pay quarterly for records sold and accumulate
monies paid to them each quarter, then pay 30 days
after the end of each quarter.

As a distributor, they do not get paid the moment
someone buys your product at an online store, so
they can't pay you until they receive the money from
the accounts they deal with. They accept your product
as consignment merchandise. They do not buy
product outright.

Your Own Website Sales

I feel that all serious cybermusic marketers should
consider selling their product on their own websites.
Many fans of independent music still like the idea of
as much money as possible going directly to the artist.

Let's face it, direct sales have the best royalty rate
going, don't they? For the novice cyber-seller, a
primitive, but still valid alternative, is to simply post a
P.O. Box where your fans can send their checks or
money orders. Then, you send them back a CD.

When you become too busy to handle all the orders
coming in from your own site, there are many
secure-server e-commerce companies around who
are eager to take you on as a client. One such
company is www.ccnow.com. However, the options
discussed earlier are a more professional way to go.

Since you are in control of your own 'music store' at
your site, give serious thought to putting more than
just Real Audio samples of the songs from your CD.
Try putting 1 or 2 mp3 versions of your song up at a
time, then take them down after a few weeks and
replace them with a couple more.

This can increase return visits to your site, and
research is showing now that giving away songs (even
through Napster,) does not hurt sales. In fact, as I
suspected from the start, it actually is increasing sales
of CDs.

A Final Note

At this time, the business of cyber-selling
manufactured CDs, tapes, etc. over the Internet, is
still a business of shipping physical objects to the
customer.

Remember - just as it takes time to get a record from
the manufacturer to a brick-and -mortar distributor,
and for the distributor to get those records into a store,
and for the store to sell them, (possibly returning
product to you later), it takes time for the online
version of that process too.

You'll need patience as you wait to collect money
from online retailers. We're not talking about
downloading music files here, folks. Online e-music
retailers at this time in history are still selling good
ol' plastic storage devices wrapped in paper and
plastic.

They face many of the same challenges as brick-and-
mortar stores: dealing with payments on records sold,
return policies, and lots of rules and regulations.

But stay tuned, for who knows.before you finish
reading this, there may be a downloadable e-music
retailer opening up shop at a URL near you.

============================

Here's a list of the major E-Music retailers as of
Summer, 2000

Amazon.com
Atomicpop.com
Barnes&Noble.com
Bestbuy.com
Blockbuster.com
Borders.com
Buy.com
CDBaby.com
CDNow.com
CDconnection.com
CD Explosion.com
Cdhut.com
CDPoint.com
Cdquest.com
CDUniverse.com
CDusa.com
Cdwarehouse.com
CDWorld.com
Checkout.com
EveryCD.com
Getmusic.com
Harmonyhouse.com
Insound.com
Internet lab.com
Ktel.com
Massmusic.com
Mediax.com
Movie gallery.com
Netradio.com
Rock.com
Shopping.com
TheOrchard.com (dist)
Ticketmaster.com
Towerrecords.com
Tunes.com
Twec.com
Valueamerica.com
Video.com
West Coast.com
Wherehouse.com
________________________________________

Editor's Note: In regard to Amazon.com, the Editor
can attest to its solidity in paying in a timely manner,
as Amazon has carried and successfully sold his first
Fiction novel, "Millennium Eve," on its site for over two
years.

Chris Knab is one of the most influential individuals in
the commercial music industry. His company,
FourFront Media & Music, provides a unique
consultation and education service for independent
musicians and record labels that combines advice with
instructions on how to establish a music related career.
See his web site at http://www.knab.com.

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3. "Taking Care of Business"

By Joy Butler


You and a group of friends form a band, and manage
to make some extra money playing at parties and
local clubs. What's the relationship of the band
members?

A. We have no formal relationship unless we have
signed a written agreement

B. We are partners in a general partnership

C. We are informal employees of the band leader

Keep reading for the answer.

When the band members got together and decided
to play music for money, the members started a
business. Every business falls into one of several
categories. Although you may not realize it, your
band is already classified as a specific type of
business. That's because if you don't select a
category for your business, the law will place you in
one.

Partnerships and sole proprietorships are business
entity forms that require no formal action on your
part. That means if you are the only owner of your
business, and you have taken no steps to organize
your business in a particular form, your business is
a sole proprietorship.

If there are two or more owners, and you have taken
no steps to organize your business in a particular form,
your business is a general partnership.

I bet you know the answer to the pop quiz question
by now. It's B. You and the band members have
formed a general partnership - unless you have taken
steps to organize as some other business entity.
While partners can have a written agreement, one is
not required for a partnership to exist.

WHAT IT MEANS TO BE A GENERAL PARTNERSHIP

A. Management and Ownership

Being a general partnership, means you will be
governed by the general partnership law of your state.
If the band members don't have an agreement, your
state law will impose certain conditions on your
working relationship.

First, each member of the band is deemed to be a
partner and, accordingly, has a right to an equal vote
on management of the group and the right to share
equally in the band profits.

Each partner may bind the partnership and each of
the other partners to contractual obligations. So, that
means if Harold the horn player tells Club 99 that the
band will be in to play on Tuesday evening, all the
band members are committed to show up at
Club 99 to play on Tuesday night - even if Harold
made the commitment without consulting any of the
other band members.

Finally, your state's partnership statute assumes that
each partner owns an equal share in any partnership
property. When a member leaves the group - either
voluntarily or involuntarily, the remaining partners
must pay the leaving member for his interest in the
property of the partnership.

Partnership property includes any equipment
purchased with band income. Partnership property
also includes what may be the band's most important
asset - its name.

B. Personal Liability

Running your business as a general partnership does
not offer limited liability. Limited liability means that
your creditors (including someone to whom you owe
money as the result of losing a lawsuit) can only
pursue the assets of the company to satisfy that debt.

If there is no limited liability, a creditor can also pursue
the personal assets of each owner of the company.
Running your business as a corporation or a limited
liability company (usually referred to as an LLC) does
offer limited liability to the owners.

C. Benefit of Having a Written Agreement

Having a written agreement allows you to avoid being
governed by any assumptions in your state's
partnership law that aren't suitable for your group. A
written agreement also serves a number of other
purposes.

It records the understanding of the band members as
to how they'll manage the business of running the band.
It encourages you to find solutions for disputes before
they arise. That way, there's less chance that a dispute
will lead to the break-up of your group or to a costly
lawsuit.

OTHER FORMS IN WHICH TO ORGANIZE YOUR
BUSINESS

I've already mentioned two other common forms in
which to organize the business of your band - the
corporation, and the limited liability company (or "LLC").
Forming a corporation or an LLC requires filing certain
documents in the state in which you are organizing
your business.

As already discussed, one big advantage to these
forms is the limited liability they offer. However, there
are other consequences - such as tax implications - in
addition to liability that come from the form in which
you operate your business.

Similar to sole proprietorships, the revenue from a
general partnership is reported on the personal tax
returns of each owner. In a corporation, the owners
must file separate tax returns for the corporation, and
then report any money they take out of the business
on their personal income taxes.

Depending on the situation of the band and its
members, one particular form of business may lead
to significant tax savings. When deciding on how to
organize your business, you should consult with an
attorney or an accountant to determine the most
advantageous form for your particular circumstances.

CHARACTERISTICS OF BUSINESS ENTITY FORMS

The chart below summarizes some of the major
distinctions among the ways in which your business
can be organized:

1. Sole Proprietorship:

Number of Owners: One

Formal Action Required: No*

Limited Liability: No

Tax Filings: Profits/losses reported on owner's
personal tax return

===========================

2. General Partnership

Number of Owners: Two or more

Formal Action Required: No*

Limited Liability: No

Tax Filings: Profits/losses reported on owner's
personal tax returns

===========================

3. Corporation

Number of Owners: One or more

Formal Action Required: Yes

Limited Liability: Yes

Tax Filings: Owners must file separate corporate
tax return

===========================

4. Limited Liability Company

Number of Owners: Minimum or 1 or 2, depending on
your state

Formal Action Required: Yes

Limited Liability: Yes

Tax Filings: Choice of reporting on personal tax
returns or separate company tax return

* Footnote to Chart: If operating a sole proprietorship
or general partnership under a name other than that
of the owner(s), you must file a dba (doing business
as) or fictitious name statement with your local
government.
________________________________________

Editor's Note: Joy R. Butler, Esq., is a principal and
the general counsel of Sashay Communications, LLC,
a publishing and media production company located
in the Washington, D.C. metropolitan area. She is
also author of "The Musician's Guide Through the
Legal Jungle," a 3-hour audiobook offering a faster,
easier way to understand music law. Visit
<http://www.legaljungleguide.com/musician.htm> for
audio excerpts and a detailed outline of "The
Musician's Guide," and for free music law resources.

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Got Questions, Issues, Answers, News, or anything of
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you to please feel free in contacting us at:
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how well we are serving you through our information
presented each month.

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Thank you for reading us...until next month.

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Publisher: N.M.A. (National Music Agency)
http://www.kennylove.net
Editor: Kenny Love
P. O. Box 1404
Crockett, Texas 75835-1404
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Copyright © 2000 N.M.A. (National Music Agency)

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