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Tuesday
Jun102014

Counterfeit Merchandise: The Music Industry’s Unspoken Challenge

For all the talk about illegal streaming, takedown notices and royalty rates, the amount of counterfeit music related merchandise available on websites like Amazon is almost hard to comprehend.  This situation is holding back new revenue opportunities and damaging the artist-fan relationship.  So, where is the outrage from the industry?  How come artists, suppliers and management are so quiet on an issue where there are millions of dollars at stake? 
 
In a recent survey of merchandise availability for the top 100 U.S. artists, we found while 51 of the artists had merchandise available on Amazon, 47% of these contained nearly all unauthorized items, and a large portion of the remaining 53% contained some questionable items.  Similar surveys substantiated these results, and we confirmed our findings with some of the world largest licensed suppliers.  The deeper we dug, the worse the problem appeared.  It is not just music merchandise, and it is not just Amazon.
 
Unfortunately, policing counterfeiters is a perpetual game of whack-a-mole. Just like a DMCA Takedown notice, Amazon leaves it up to the copyright and intellectual property owners to determine what is listed for sale on their site.  A notice can be filed, objecting to a listing, but as soon as a product or supplier is removed, they surface again under a new name, and the process starts all over.
 
The 80/20 Rule
Artists generate the bulk of their merchandise revenue from live events, 80% perhaps more.  There may be a few bootleggers trolling outside the venue, but for the most part, the venue is a controlled sales channel.  Basic supply and demand is why they can charge $30-$50 for a t-shirt.
 
Like record labels that made the bulk of their revenue on CD sales, the merchandise suppliers of today are satisfied making the bulk their revenue while on tour.   So, for now at least, it seems as if they have thrown in the towel. They just don’t feel it is worth the time and expense to pursue a problem that only impacts a small portion (20% or less) of their business.
 
What Is The Problem?
Historically, merchandise revenues peak, then trail off quickly once the tour ends.  It is not a consistent source of recurring revenue for most artists. In contrast, maintaining the fan relationship across billions of songs, videos and other digital access points has become a 24/7, year-round effort, and a chance to fill in the drops in merchandise revenue between tours.  In speaking with music services, developers, and fans, there is an obvious opportunity to fill this gap. However, for many artists, and the merchandise suppliers that represent them, are not yet incented enough to adapt. There will need to be a disruptive change in market conditions, which may in fact, be already under way. 
 
As digital media and commerce converge across multiple platforms and devices, where will Apple, Pandora or an increasing number of developers go to access a controlled source of authorized consumer products, matched by musical artist, that engage users across their various platforms?  How will the copyright owners and suppliers tap into this market, and control access to their brands and other related goods on laptops, mobile devices, TV screens, gaming platforms and automobile entertainment systems? 
 
With Amazon as the world’s leading online retailer, and perceived ultimate source of merchandise, the current “flee market approach” with a mix of fake and authorized products will increasingly become a problem for the industry.  Brand owners have no control over what is presented through a product feed like Amazon’s.  All marketplaces like Amazon or eBay want to do is sell something, anything, even if it fake or completely unrelated to the artists or their music.  We can accurately correlate musical artists with tickets, song downloads, concert listings, even connect friends with similar interests, but there is no predictable stream of authorized merchandise to coincide with fan discovery and listening experiences that is controlled by the brand owners. 
 
The problem isn’t just fakes or bootlegs; it’s novelty items that play on a term, lyric or theme from an artist or song, which is further perpetuated by ads on Facebook, and Google search results that point to the fake products on Amazon.  For someone that has looked at tens of thousands of artist’s websites and their stores, it is even hard for me to tell if items are authorized or not. For the average fan, or grandma buying as a birthday gift, it may be next to impossible to tell.  For unsuspecting fans like these, who do they blame if they have a bad experience?  While the monetary impact of these counterfeit sales to major touring acts like Bon Jovi or Aerosmith is minimal, the impact to their brand and fan good-will could ultimately be more costly than the lost revenue on a $20 fake t-shirt.  
 
New Artists Face The Greatest Threat
By limiting the bulk of merchandise sales to live concerts, the counterfeiters meet the external demand with fake products on places like Amazon.  It is the new breakout artists, Indies, DJs and Rap/Hip-Hip artists that get hit the hardest.  For up and coming artists, merchandise is not even on their radar, and the Indies don’t have the bandwidth to keep an eye on everything.  On the other hand, DJs and Rap artists frequently do not incorporate merchandise into their business, so when a new song hits the charts from one of these artists, the trolls are watching and waiting to fill the demand with counterfeit merchandise.
 
How Do They Get Away With It? 
It used to be that music merchandise like t-shirts were considered insulated from endless digital redistribution of song files that plague digital music.  T-shirts have been often too difficult and expensive to copy, especially in color, and in small quantities.  However, with the rise of the cheap desktop apparel printers, access to blank t-shirts from Target, an endless supply of images from the Internet, and a seller’s account on Amazon or eBay, you too can be in the business of selling counterfeit music merchandise.
 
To their credit, there are many legitimate retailers and reputable music merchandise suppliers selling on Amazon.  Rockabilia, Old Glory and HotTopic are some of the best known retailers in the business, and increasingly, licensed holders like LiveNation, Bravado, and FEA are selling direct on Amazon as well.  The problem is these legitimate sources are mixed in with the fakes, and often listed as the alternative supplier to a counterfeit one, with fans having no way of knowing the difference.  Suppliers like these are in a tight spot. They deal with it every day, but question whose job is it to police the problem and expend the resources to confront the counterfeiters?
 
Is Artistlink The Answer?
From the very start, Jimmy Iovine and Ian Rogers of Beats Music often spoke of incorporating merchandise as part of the core platform and user experience.   Some of this capability presumably came with Artistlink, which Beats acquired from TopSpin.   It is a small start in the right direction; however, we found Aritstlink’s use to be limited, and perhaps even languishing.  For the Ultimate 100 Artists from BigChampaign during the week of April 24, we found only 14 artists using Aritistlink on Spotify.  Of those, three of the links where either broken or pointing to non-merchandise pages.  We haven’t heard much about the fate of Artistlink in the pending Apple deal, and interestingly, Spotify continues to use a platform that will be presumably one day be controlled by Apple. Or will it?
 
What Can Be Done? 
For starters, artists, bands and their suppliers should start thinking about merchandise as part of their ongoing marketing effort rather than a one-time event focused on the tour.  Concerts sales are forever, but there are tremendous efficiencies to be gained in product selection, manufacturing and distribution by taking a look at opportunities to sell merchandise outside of the venue.  After all, this is about making money right?  The fans are online, and on their phones; artists need to give them a reason to buy merchandise, bundled with other offerings like digital goods or special access to increase the perceived value.  
 
Ultimately, we need something analogous to an online advertising network, where information about merchandise inventory is centralized, managed and delivered to users when and where it is most impactful, and most importantly, where counterfeiters do not have access to the channel. Artists should also have the ability to “claim” their brand on places like Amazon, so even if fake products are sold, they get a slice of the action, similar to ad revenue on YouTube.
 
The unspoken challenge of counterfeit merchandise will eventually need to be addressed by the industry. It means unlocking new revenues for the entire supply chain and delivering compelling user experiences.  The question is if the merchandise marketplace will wait for disruption to occur and be caught flat-footed like records labels were with Napster, or will they respond proactively and realize there is much to be gained by embracing new opportunities and squeezing out the counterfeiters.  
 
About the Author:  Andy Young is the CEO & Founder of Tunipop, which is a platform that connects authorized merchandise with streaming music, he is also the inventor of a patent pending for in-stream contextual commerce.  He can be reached @tunipop

 

Counterfeit Merchandise: The Music Industry’s Unspoken Challenge

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