“Things are pretty fucked up in the world of the music industry at the moment. But I like it,” says Steve Morell, the owner of Pale Music, a record label which operates out of the ground floor of a Gründerzeit building on Böckhstraße in Kreuzberg. Morell, a wiry and gothic figure, has moved into everything from online music publishing to distribution, scouring the nation’s record stores and sending CDs for them to stock free of charge to ensure his business survives and grows.
“There is a way to make money in the music business at the moment. But you need to be able to stand on three or four legs,” he says. Morell’s mind is alive with ideas of how to navigate the music industry’s new terrain: he even talks about expanding his business with a new office in London. Notably, though, he declines to reveal his business’ financials. He did not have a stall at Popkomm, the music trade fair which formed part of Berlin Music Week (Sept 6-12), an event that included the all2gethernow Congress and the Berlin Festival, and at which approximately 70 bands played.
There appears to be some money being made in the Berlin music industry at the moment. For example, BMG Rights Management, a joint venture between Bertelsmann, the global media company, and KKR, the US-based private equity firm, has its headquarters in Mitte and had an annual turnover of €10 million in 2009, according to figures published by the Berlin government.
Berlin’s Berghain – widely recognized as the preeminent techno nightclub in the world – does not make public statements, or announce the revenue it earns. But given that its 3,000-strong capacity is filled every weekend with clubbers who each pay around €15 at the door, an annual income of more than €2 million is assured. The Friedrichshain venue – which, with a staff of more than 100, is the local club scene’s largest employer – is able to pay DJs (no matter how famous) a flat fixed rate, such is the privilege of appearing there. According to sources in the Berlin music industry, Berghain has this year also been the recipient of more than €1 million in funding from the local government to finance an expansion of the club’s capacity, and such is its importance to the local economy. Business is also good at other major venues, ranging from Astra and Lido to Watergate and Bar25 to Wuhlheide, the outdoor stage in the far east of the city.
But Berlin is a cityscape littered with the debris of music businesses that have failed to meet the challenges of a new digital age or found themselves ‘swimming naked’ after the tide of economic fortune went out with the recent financial crisis. Louisville, a record label featuring Jeans Team and once based in Mitte, became one of the latest victims when it went bankrupt earlier this year.
Easyjetsetters and gentrification
While the city remains a magnet for the so-called “easyjetset” of twenty- and thirty-something weekend nightclub travellers – an estimated 80 percent of Berlin’s clubbers come from outside the city – a fiercely competitive club and live-venue music scene has kept typical entrance prices at many night spots down to between €5 and €10, according to Joerg Heidemann, a project manager at Verband unabhängiger Musikunternehmen, a local music industry trade body. “We have more clubs than there are people willing to go to clubs,” he says.
According to Daniel Meteo, a director at Random Noize Musick, a music business on Petersburger Straße: “The peak time [for Berlin nightlife] should be over pretty soon, because the biggest, most successful clubs have too high a percentage of tourists. When all the flights were grounded earlier this year because of the volcano, Berghain was pretty empty.”
As well as the tough economic climate, the city’s live music venues are threatened by the increasing gentrification of the city. The famous Icon club in Prenzlauer Berg, a mainstay of the city’s legendary post-Wall nightlife, finally announced in August that it will close when its license is withdrawn by the local authority on January 1, 2011. “A new apartment block has been built next door – modern living in Prenzlauer Berg being chic and expensive. Having a club as a neighbour doesn’t fit into that picture. There have been too many complaints from the new residents,” says Lars Döring, the club’s joint owner. SO36, the legendary music venue on Oranienstraße in Kreuzberg, is also facing the threat of closure as a result of complaints from local residents who have bought apartments nearby.
Walter “Wally” Potts, the American owner of White Trash Fast Food, the king-sized restaurant-club on Schönhauser Allee, says his business faces a similar threat. “Probably next year, they are going to build luxury apartments right next to us. Maybe we will have to close down in a year. [The owners] are not going to be happy seeing these freaks hanging out and drinking beer outside their posh town houses – it’s not going to be fun,” he says. It is economic survival that is the subtext of our conversation. “If you find out who is making money in the Berlin music scene, please tell me so we can hire them,” he says. “People in the business are facing a lot of obstacles now and trying to survive. It has been getting a bit tougher for the bands and they are making less money.”
Meanwhile, major record labels across the globe are haemorrhaging cash as they watch CD sales plummet. Seemingly clueless as to how to act in these changing times, label executives’ only meaningful response appears to be to line the pockets of corporate lawyers, commanded to launch multiple lawsuits against websites and individuals publishing the music of their artists for free. GEMA, a body representing 60,000 artists in Germany, has made YouTube block videos from leading German artists.
Universal Music Germany, which moved its headquarters from Hamburg to Berlin in 2002, declined our request for an interview. Pale Music’s Morell isn’t surprised that Universal did not want to speak. “All the major record labels are afraid of what is going on in the industry at the moment. They are all losing money and do not want to speak to anyone.”
Morell argues that smaller labels are better equipped to survive the rapid flux of the industry at present than the large global conglomerates. “Unlike the majors, it is quite easy for us to change our business model and try different things to see what now works,” he claims.
A good example of this is BPitch Control, the esteemed Oranienburger Straße-based techno label run by DJ and producer Ellen Allien. BPitch Control has diversified to become a professional booking agent and artist management firm; Allien even set up her own fashion business in 2006 in collaboration with designer Markus Stich, though she says this component of her business is not profitable. “We actually don’t make any turnover with it. I don’t want to build it in a capitalistic way. It has to be entertainment. Music always has the first place,” she says.
But Allien does feel that smaller record labels have the capacity to better withstand the current economic adversity: “We are more mobile and can quickly obtain access to those who are important. We have found the tools to succeed and our distribution networks have grown strong.” But again, Allien declines to say how much money she is making, though sources in the industry say it is an annual six-figure sum. “2010 especially has been extremely positive in terms of revenues from music,” says Allien.
Random Noize Musick GmbH (RNM) – which was formed out of the merger of the labels Shitkatapult, Musick and Meteosound in 2006 – has also diversified and innovated to survive. RNM refuses to disclose its annual revenue but, in a similar vein to Pale Music, the business has diversified its business model to meet the current challenges of the industry. “We are also a publishing company, we do events, we sometimes act as a consultant for our artists, and we have some kind of presence everywhere all the time and that is what is important. If we were only a record label, we could not have survived,” says Marco Haas – aka t.raumschmiere – director of Random Noize Musick. “But a little bit of everything keeps the cup full.”
While the Berlin music industry may at the moment be poor but sexy – in relation to industries in rival global metropolises such as New York or London – the city’s place as a hub for Europe’s avant-garde start-ups could make it a blueprint for a future new world order in music. This has not escaped the gaze of the men in sharp suits. Financial speculators have already placed a big bet on one Berlin-based music technology start-up.
Technology: the future?
SoundCloud, a file-sharing online social network for musicians based in Mitte, is being funded by Doughty Hanson Technology Ventures, a private equity firm based in London’s ultra posh Mayfair, a global centre of the hedge fund industry. Doughty Hanson made a €2.5 million investment in SoundCloud in April 2009, near the very trough of the global recession. The private equity firm says it made the investment because it believes SoundCloud can “revolutionise the production and distribution process for digital music”.
When you meet him at his offices on Rosenthaler Straße, SoundCloud’s founder and CEO Alexander Ljung does not look like a man who feels the burden of such expectations resting on his shoulders. “The companies I see that are doing well and not struggling like crazy at the moment are usually those that are making tools to enable people to make – and not consume – music,” he says. “You are seeing more people than ever actually involved in making music. This is the really unique growing area.”
When Ljung and SoundCloud’s co-founder Eric Wahlforss dreamt up the idea for the site in 2007, the Swedes had a handful of European cities in mind – including Barcelona, London and Vienna – but the pair decided to move to Berlin on the evening of their return to Stockholm from a visit to the German capital. They booked their Ryanair flights the following week. Ljung says the decision to base SoundCloud in Berlin was influenced by the city already being a hub for music technology companies such as Ableton, the music production software company, and Native Instruments, which creates hardware and software for musicians and DJs.
Native Instruments has grown over the past 15 years from a small home office in Kreuzberg to a business employing about 180 people. The business will not disclose how much money it makes, but states that annual revenue is in eight figures. Native Instruments enjoyed a 60 percent growth in revenue in 2009, and expects a similar rate of growth in business this year, despite the recent financial crisis. Daniel Haver, CEO of Native Instruments, describes the business as a “quintessentially Berlin-ish company”, despite it now also having an office in Los Angeles, which is, according to him, currently the focus of a major expansion: “We directly tap into the vast pool of creativity in Berlin and work with many of the forward-thinking artists who have sprung up or relocated here, especially in the electronic music scene.”
Haver says that while their products are typically aimed at professional users, the increasing affordability of digital tools – which is enabling more people to get into the “creative side” of music – has resulted in the company putting a bigger focus on serving “music enthusiasts” as well as artists. “In Berlin, you have companies creating all sorts of crazy software and artists creating all sorts of crazy art,” claims Ljung. SoundCloud launched its service in October 2008; it now has 1.3 million artists and record labels using it as a platform, including Kylie Minogue, Domino Records, Zero 7 and Snoop Dogg. The company employs 24 full-time staff members, with two in London and one in Los Angeles. While Ljung says the business is not yet profitable, he describes last year’s growth as “phenomenal”.
Mark Mulligan, vice president and research director for consumer product strategy at Forrester Research (a technology and market research company in London), says: “In Berlin, you have a new generation of technology-enabled content providers, an area where a lot of the future growth in the music sector will be.” He describes SoundCloud’s business model as “very robust”, pointing to its capacity to build applications that provide artists with a “private music utility” – something he says is “absolutely fundamental” to the future of the music industry. Mulligan envisions SoundCloud playing an important part in a new age where music is seamlessly distributed via iPhone applications and social networking websites such as Facebook, enabling listeners to create their own “music mash-ups” which can be shared with their friends.
Mulligan says Ableton is also at the vanguard of the music production industry, which until very recently had been dominated by Apple’s Logic and Avid’s Pro Tools: “Ableton has single-handedly changed the way electronic music is created with its Live software, which enables a DJ – or any live musical artist – to interact with an audience during a performance.” Ableton already generates annual revenues of between €10 million and €15 million, with 120,000 paying subscribers to its flagship Live product. When Baptiste Grange, Ableton’s business development manager, joined the company in 2006, it had just 35 people, but it has now grown to a staff of 100. “There is a whole ecosystem [in Berlin]. You have artists, clubs, record labels, media, and then you have technology,” says Grange. “It is a virtuous circle, artists and creative minds want to use new tools so they are going to help, and try and make the technology go forward.”
From his vantage point at Forrester Research, Mulligan sees SoundCloud and Ableton as pioneers who are shaping what the music industry will look like in five or 10 years time, and playing a key part in the “resurgence in the relevance of electronic music”. “These companies are creating a new paradigm, a new construct in the way people use music that is enabled
by the internet and digital technology,” he says. While it would be impossible to produce a monetary figure to quantify the value of the financial potential latent within these businesses, it could be huge. “Modern music production and DJ technology have opened up a new creative approach to music, blurring the lines between music producers and music consumers,” says Haver of Native Instruments. “With the worldwide market for these products, [Berlin music technology companies] are definitely an increasingly significant element of the wider music industry, not only in Berlin but also on an international level.”
The fallout from the global recession continues to breed resourcefulness among Berlin’s record labels, live music venues and artists, though the money-making businesses are loathe to talk about it. “No one is going to crow about how much money is being made today. They know things could change overnight, and it will all be over,” says Morell of Pale Music.
Berlin remains the pre-eminent party city in Europe. But it is not in the saturated clubbing and live music scene that future growth in the city’s music industry can be found. Rather, it lies among the trailblazers in Berlin’s music technology start-ups: they are making computer code sing and dance in ways that enable professional and amateur musicians alike to create new sounds as social networks and smart phones become the new front line in the musical experience of the masses. If they get it right, these music tech guys could be making some very serious money indeed.