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SA ROCK DIGEST INTERVIEW
Alexander Gregori (MD Mothermix Records) speaking to Stephen Segerman (SA Rock Digest co-editor), November 2002.
Every now and again an idea comes our way, which is so logical, so clear, so easy to grasp and so necessary that it touches the hearts and minds of people and changes their lives. And sometimes such an idea can lead to a revolution. As South Africans, we can pride ourselves to have been part of a
relatively peaceful revolution, which culminated in us having one of the most advanced democracies this world has ever seen. And yet, much work still needs to be done, many "revolutionary" ideas still need to be thought out and put into practice to help our country grow economically and socially.
The music industry is no exception, with its industry captains frequently complaining about waning CD sales (mainly due to piracy and a multitude of different entertainment available, they argue) and its independents, artist, songwriters and producers forever laying blame on the "big players" for exploiting them. In a time, when the Recording Industry of South Africa (RISA) calls for new ideas to make up for losses in CD sales (a world-wide phenomenon, the reasons for which are hotly debated by record company executives), a new idea has been introduced by Alexander Gregori, founder of Mothermix Records. If he is right, and if people listen, his idea could possibly revolutionise the South African music industry. I spoke to him to find out more, see what you think….
SS: Alex, thanks for talking to us. Tell us about your background.
AG: My background is in marketing and entertainment, with a focus of making "impossible things" happen by the use of innovative ideas. That's really what I've been doing for almost 20 years now.
SS: Can you give us an example?
AG: Yes, sure. In Hamburg, Germany I was MD for an agency that marketed boxing bouts for RTL television. We conceptualised, marketed and organised the events. With a time slot of 11 PM on Saturday nights, we weren't exactly in a prime time position and the only crowd you would see at a bout were pimps and prostitutes. Over three years we pushed TV ratings from 300 000 to over 18 million viewers per fight. We had the highest ratings of all programs year round and celebrities like Boris Becker, Michael Schumacher, Ion Tiriac graced the ringside.
SS: Surely this was also attributable to a considerable marketing spend.
AG: Actually not at all. Yes, RTL spend money on televising the fight and the box promoters spend money on putting the fight together. But we as an agency had acquired the marketing rights, which means we paid for them, and had to actually earn money to recoup the investment and make a profit. The task was to raise the profile of the events to such a level, that television viewers, celebrities and of course the media took notice. That is something you cannot buy. You have to be innovative. }
SS: So how did you get connected to the music industry?
AG: I came to South Africa in 1980 and have lived both here and in Germany ever since, so I had the chance to experience both worlds. My work in both countries involved the music industry, first on an agency level, brokering artists such as Sarah Brightman, Jose Carreras or the Scorpions for events, then on a legal level and also as executive producer for music and music videos. I also brokered South African artists to German record companies. What I couldn't quite grasp was that South Africa, given the talent, which we have in music terms, was not on an international agenda.
SS: Are you saying South African artists are unknown internationally.
AG: No, what I'm saying is that, if you look at the Billboard charts for example, you don't see South African artists who still live in South Africa. Or you don't hear about them, or they don't get the credit they deserve. Almost the entire score of Disney's 'The Lion King' is South African but we only hear about Elton John. Many of Whitney Houston's hits are produced by a South African and an entire album by rap superstar Lil'Kim was written by a South African. When you look at our local industry, it's just too small to have any measurable international impact. No matter what anyone claims, we are not being taken seriously because South Africa, as a music market, is regarded as negligible.
SS: But you cannot compare South Africa to the US.
AG: Why not? The question is only on what criteria you are comparing. Take the exchange rate of the dollar to the Rand. Here, the Rand looks weak. Take the inland buying power of both currencies. Here the Rand doesn't look so bad at all. Take the number of people living in the US: 250 million against a
population of 400 million in the SADC countries, so we definitely have a large market at our doorstep. And if you compare the musical talent in the US to what we have, South Africa is arguably better. So why don't we feature heavily on the international music front?
SS: Do you have an answer?
AG: I have a comparison. In the 70's there was virtually no generic German music industry. All you could buy were records from American or British bands. Even the Netherlands had more stars. In the 80's the "Neue Deutsche Welle" changed peoples perception of "local music". '99 Red Ballons' by Nena even became an international hit. From there onwards there was no stopping the development and Germany is one of the strongest music markets world-wide today.
SS: Aren't you comparing apples and oranges? After all, Germany had the financial resources for the growth.
AG: That is an interesting point. I believe that this is where the real problem of the South African music industry lies. However, it is not a lack of financial resources, it is a lack of accessing them. We need to turnover much more money to grow the industry from within.
SS: What do you mean?
AG: Well, look at CD prices. Everybody feels that CDs are too expensive in South Africa. Likewise, everybody feels that this must be so, that it is "natural". But if you look at the actual manufacturing prices you see, that a CD is a mass product and South Africa is the only country in the world that I know off, where CDs are priced as luxury items.
SS: Record companies will tell you that is because the market is so small. Hence, if you don't sell large numbers, you have to make your money via the price.
AG: And the opposite is true too. How big do you think the UK CD market would be, if people had to fork out 150 Pounds for a CD? Taking the inland buying power of local currencies into account, that's about the equivalent to our price of R150. Who can afford that in a country, where the average disposable income is surely lower than in the UK? Even people in rich countries like the US or Europe wouldn't spend that much on CDs!
SS: But if you sell CDs cheaper you also make less money instead of more.
AG: Not necessarily. The art would be to find a price, which is so low that your sales figures go up enough to make more money in the end.
SS: How would that work?
AG: It's simple arithmetic. At the end of the day, everybody who is involved in the industry makes money on a percentage of the turnover: the artists, producers and songwriters get royalties, the distributors buy from the record companies and sell to the retailers at a mark up of X per cent and the retailers do the same, when selling to the public. This percentage X, which everyone gets must cover expenses such as overheads, development, marketing and advertising and of course profits. If that percentage X is, say 10% and the average price for a CD is R150, then you make R10. But if you sell 5 CDs at the price of R50, your percentage X translates to R 25. An increase of 66.6%.
SS: How do you know that you would sell five times as many CDs?
AG: We have done some research by way of interviewing people in the street. In a nutshell, the results showed that people, who currently buy CDs, would buy 3-5 CDs more at R50 each, people, who do not buy CDs because they are too expensive would buy, if the price were R50 per CD and people, who buy pirated copies at between R35 - R45 would buy the original at R50 each. So we can safely assume that you could sell five times as many Eminem CDs at R50 than you do at R150. And I'm sure Eminem would rather pocket R25 than R10. Everybody would.
SS: But do we have the number of potential buyers to support a market, which would instantly grow five fold?
AG: Of course. Again: look at the population of 400 million people living in the SADC countries. I think you don't have to be a genius to understand that to penetrate a market deep and fast, you must have an affordable product. At R 150 CDs are definitely not affordable for the average South African. Ask yourself how many friends you have, who don't buy CDs because they are "too expensive". On the other side, from a record company's point of view, they don't care about the retail price, they care about how much money they can make. So make the price attractive and sell more CDs.
SS: But that would make the record companies even richer. How would the industry as a whole benefit?
AG: It would not only make the record companies richer. It would increase everybody's take, because all players make money from CD sales through a percentage cut. Eventually there would be a lot more money circulating in the industry, more work, more jobs. It's the logical consequence from growing your market. Eventually, when we have a situation where, say a Gold Record means 250 000 sold units instead of 25 000, then we have a strong market to be reckoned with internationally.
SS: What do you think would happen then?
AG: Well, assuming that five times as many CDs would be sold, this would also mean that five times as many CDs would be manufactured. Therefore I think that CD manufacturers could lower their prices per unit. This would further contribute to bigger profits. Then two things could happen. One is that many independent record companies, artists and producers could distribute their products due to affordability of CD manufacturing - further growth! Secondly, the major record companies could invest more in artists, which would grow the local industry as well. Then we could see more South African artists becoming stars in South Africa and actually being able to make a living. The ripple effect would go on forever.
SS: What about exports?
AG: Sure, exports are intriguing because of hard currency earnings. But the basis must be laid here at home. With a financially weak industry, in international standards, all that happens is that we export raw material like many other South African industries do. Look at artists like Danny K and TK, who I believe have record contracts with EMI in London. What happens is that not only the money for the production is spent in London, but all the revenues also go there because of the licenses. So South Africa looses out twice. Why can't we launch such an international career from EMI South Africa?
SS: Why can't we?
AG: One explanation could be that the artists make more money with an international record deal, for example in the form of advances and that EMI in London can put up a much bigger marketing budget, which is necessary to break the artist. Therefore it is absolutely necessary to have a financially powerful local music industry that can take on international markets.
SS: So the South African music industry must grow and only then start looking at other markets?
AG: Yes. Internationally, sales growth in markets seems to be driven almost entirely by the strength of local acts. Show me an American or British artist, who comes to South Africa to record and release an album through our existing structures. But our artists think it's the biggest break in their career to be snatched up by an overseas division of a label, which does business in South Africa as well. And from a financial point of view they are probably right. We must change that. Our own industry has to invest in
our own talent and I'm saying they cannot do that to the extent they should at the moment, because their market is too small. We're sitting on a gold mine and do very little to exploit it.
SS: And you say that if the South African music industry would be financially stronger, we could make our own acts strong and internationally competitive.
AG: Definitely. We have to do it ourselves. BMG headquarters in Germany are not going to fund the development of artists signed to its South African operation. Only after we have build our market financially strong, we can export.
SS: You mentioned pirate copies and that people who buy pirated CDs would buy the original at R50. Are you saying that this price strategy could eradicate piracy?
AG: I don't think that piracy can be eradicated. To begin with, I don't even think that it is a major problem for poor or declining sales. Look at artists like Elvis. Then show me someone who hasn't pirated his music yet. I did, on cassette. Yet his re-re-re-release of hits just recently topped the sales charts world-wide. So the piracy issue didn't stop the record companies making money from Elvis even 20 years after his death. The same holds true for stars like U2, The Rolling Stones, David Bowie. But if Celine Dion is available at R50 instead of R150, I'm sure many "pirates" would buy the original.
SS: You are saying piracy is not an issue for poor or declining sales?
AG: It is an issue, yes, but it's not the main issue. Read what people like Lyor Cohen, head of Universal'' Island Def Jam Records or MTV Network Europe CEO Brett Hansen say on the issue. Internationally, it is widely accepted that other reasons are far more fundamental for poor sales.
SS: What other reasons?
AG: The main problem is the industry itself. Now I have a marketing background and I believe you can sell anything, if your marketing is right. But in the music industry there are other, almost mystical factors involved. What you really do is try and capture the artist's energy on a technical device such as a CD and then multiply that energy for millions of people to enjoy. If there is no energy, then no marketing campaign can create it for you. Yes, you will have number one hits, but the acts will soon be forgotten and all the money you spend on breaking them is lost. Then you have to start all over again.
SS: What do you think record companies should do instead?
AG: I can understand that especially the "big 5" have to satisfy their shareholders and rather have five number hits in a year from artist XYZ, than spending money on building a real artist over 3 - 5 years. But if you take this longer-term approach, you eventually end up with real superstars who also are loyal to your label. This investment therefore can make you more money in the end. If you have great career artists you can build and sustain a great company. Again: look at Elvis.
SS: What do you think of programs such as 'Pop Stars' and 'Idols' then?
AG: As a marketing man I get cold shivers down my back, because the concepts are really genius. But we must not forget that they do little for the music industry and are, in fact, not designed like that. They are entertainment, giving the sponsors exposure, the TV station ratings and the media gossip topics. The fact that a couple of kids get thrown in the lime light, the "dream come true" notion, really is rather unimportant to the whole exercise, a by-product.
SS: So you are against these shows?
AG: No, not at all. As I said, it's entertainment and good entertainment at that. And it highlighted the talent we have in South Africa. But then again, that doesn't surprise me. I'm more surprised that South Africans in general are surprised that we have so much talent. I see a nation growing their own
identity, having to learn and accept their greatness. Where we have to be careful is when aspiring young talents start to think that the life of a pop star is a soap opera the way it is portrayed on 'Pop Stars' and Idols'.
SS: What would you have to say to these aspiring talents?
AG: I think that one of the most important things we all need to realise and accept is that we have the talent to be a force to be reckoned with in the international music scene. We ARE good! With this realisation and acceptance must come the will to work hard, to sacrifice, to go a different route maybe and always to persevere. This must be coupled with the right economic strategies to grow our industry at home.
SS: Isn't developing the "right economic strategies" the job of the business people, the record companies and not the artist?
AG: Not exclusively. Everybody in the industry has a right to think about how we can grow. I was in Johannesburg recently and got offered a CD by an artist on the street. It was his own work, burnt on CDR with a self-designed, copied cover. He wanted R85 for that CD. He had just accepted this "official" price strategy, even though he knew his manufacturing costs. He apparently never thought about that.
SS: Was he not right to ask a generally accepted price for his work, especially because he hasn't a big distributor behind him and will never sell thousands of copies?
AG: No. Because he also hasn't the corporate overhead. For example, I think that a street musician offers the purest form of "sell and return" remuneration for his work, totally free from any possible distortion by active selling, promotion, marketing and advertising. He plays, you listen. If you like it, you pay whatever you think is just. However, when you enter a market with a product you sell, such as your own CD, you become part of a "corporate world". You must have something like a business plan. I might be wrong, but this kid probably sells his CDs for R85 simply because he can. That's not good enough. That's not the economically- and socially responsible way to grow our industry of which he is a part. It's really there, where it starts, on the grass roots level.
SS: So, apart from all the theory, what do you do on a practical level.
AG: At Mothermix Records we have just released our first CD, Hip Hop outfit KGB's debut album 'The First Born'. And we retail it under R50.
SS: And this is realistic? What's your corporate overhead like? Can you compare your cost structure to that of a big record company?
AG: We calculate in percentages, just like anybody else. We sell to our distribution company Mothermix Distribution, who have a mark up of between 15% - 25% and they sell it to retailers, who have their own mark up of around 25%. The result is a CD with 15 original songs for a maximum retail price of R 49.99. So, whether we are a big record company with large overheads or a small start up operation really makes no difference because, like I argued earlier, the idea is to boost profits in real Rand terms.
SS: Have you sold more CDs, because the album is so cheap?
AG: We sold almost 1,000 CD's in the first four months after its release but I hate to think that's because of the price. Here price is not the question and it couldn't be answered anyway because we have no comparison. The question of price has a far more universal importance, namely for the growth of the industry as a whole. If you want to find out whether my argument on price is correct, you must ask yourself whether you would sell 5 times as many Eminem CDs or Celine Dion CDs or whatever, if they would cost under R50. If the answer to that is "yes", we must act!
Thank you Alex for this interview. Good luck and all the best.
Contact Alexander Gregori at
The Mothermix Group
Phone & Fax ++27-(0)21-8723060
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