BlackBerry's Love for U2 Comes With Budget No Label Can Match

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By Kristen Schweizer, Bloomberg

Oct. 8 (Bloomberg) -- Irish rockers U2 will step on stage tomorrow in Tampa, Florida, helped by BlackBerry's sponsorship of their world tour in a deal no record company could offer.

Research In Motion Ltd.'s "BlackBerry Loves U2" advertising campaign is part of a trend where brands are stepping into the breach as plummeting sales shrink music labels' marketing budgets. Once reluctant to be seen as selling out to corporate sponsors, artists are keen to sign up.

"BlackBerry made the TV commercial with our music and then spent many millions of dollars on media and TV worldwide," U2 manager Paul McGuinness said by phone from the Toronto leg of the group's multi-city tour. "They provided a budget that no record company could have possibly matched."

Record labels have cut marketing budgets as they contend with dwindling revenue from CD sales and piracy rates as high as 95 percent for downloaded music. North America-based companies alone will spend a record $1.08 billion on music sponsorships this year, 8 percent more than in 2007, according to the IEG Sponsorship report. That makes such sponsorships the second- biggest revenue earner for artists after live shows.

"Record companies are more desperate for money because of what's going on and they are trying to do broader-ranging deals with brands," said Ian Maude, an analyst at London-based media researcher Enders Analysis.

The practice is becoming widespread. Bayerische Motoren Werke AG's Mini brand, celebrating its 50th anniversary, hired Paul Weller to pen a song, while beverage company Bacardi Ltd. lined up Groove Armada concerts and released an exclusive EP. Next month, Michael Jackson's concert promoter AEG hosts a forum in London for brand managers on linking with musicians.

Pearl Jam

Corporate sponsorships are providing much-needed funds to record companies, with Sony Music Entertainment and Universal Music Group setting up units to link up musicians with the likes of BlackBerry and Marks & Spencer Group Plc. Research In Motion didn't respond to a query on details of its U2 sponsorship.

Still, mega-artists may start bypassing music companies altogether. Pearl Jam signed a contract in August with Target Corp. to release its newest album "Backspacer" on Sept. 20 in the U.S. and via Apple Inc.'s iTunes Store. Target previously partnered with The Black Eyed Peas, Prince and Christina Aguilera on such releases. AC/DC, Kiss and The Eagles have done release deals with Wal-Mart Stores Inc.

"These types of deals will ultimately force reform at record labels and they have to make themselves more appealing to artists," said Mark Mulligan, a music analyst at Forrester Research Inc. in London.

Retailers give musicians more money and greater flexibility on how to release and distribute albums.

Madonna, Paul McCartney

Record companies have traditionally focused on discovering new talent, recording music and handling the marketing and distribution of albums and artists.

While contracts vary, a typical deal allows the musician to earn a royalty between 10 percent and 15 percent on each album sold once the costs of recording are covered.

Madonna, Paul McCartney, Radiohead, Nine Inch Nails and Prince have freed themselves from major labels in recent years.

"As the music industry has started to break down, the stranglehold labels had over artists and the marketing of artists is loosening," said Natasha Kizzie, chief executive officer at KLP Entertainment, a unit of ad agency Euro RSCG. KLP created the Bacardi/Groove Armada campaign.

Fleeing artists have compounded lower sales of CDs. Sales fell 15 percent last year to $13.8 billion, according to the International Federation of the Phonographic Industry. They were $25.8 billion in 1999, according to Jupiter Research.

Skeptical View

Warner Music Group Corp., the only publicly traded music company, has fallen 82 percent from a July 2006 high in New York trading amid sliding sales. Universal Music, the largest record company, is owned by Paris-based Vivendi SA, EMI is closely held and Japan's Sony Corp. owns Sony Music.

Granted, most brand money ends up in the hands of top acts such as U2, Beyonce and the Rolling Stones, said Steve Mayall, a director at Music Ally, which researches digital music.

"We've taken a skeptical view because we haven't seen anything beyond high-profile brand partnerships," he said. "Advertisers today need to find people on the Internet, and one key way to do that is using music. When everything is aligned, the music business could double or triple the money it makes."

Music-marketing agencies have sprouted up in a bid to grab more of the corporate sponsorship dollars. Sony Music started SBX late last year to build "artist brand equity," in Europe, according to Managing Director Marcel Engh.

'Selling Out'

Universal Music Group joined with ad company WPP Plc in 2006 to form brandamp, which developed campaigns including TV commercials by U.K. male group Take That for Marks & Spencer. France's Publicis SA this week unveiled a branded content division.

"Ours is a business not to save the music industry, but to change its role and transform the record label into a music- service provider," said Sony's Engh.

Before signing an artist, or marketing a new album by an established artist, SBX determines what kind of endorsements may be possible, Engh said. It linked T-Mobile with the singer Pink for an outdoor sing-along at Trafalgar Square in London.

"When I was in the record business, you wouldn't work with advertisers because most of the artists saw it as selling out and it wasn't needed," said Steve Stoute, the former president of Interscope Records and executive vice president of Sony Music. "When the money started drying up because of the digitization of the business model, it created the need."

To contact the reporter on this story: Kristen Schweizer at [email protected]

Last Updated: October 7, 2009 19:05 EDT

© 2009 Bloomberg L.P. All rights reserved.

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