Mathieu Drouin: If you were to draw a graph, right? And draw a curve like this. And this was the music market. That’s obviously not a very good illustration.

Francoise: (Laughter)

Mathieu Drouin: But this between here and the curve, that’s the music market. If you were to draw a line like that, that top half is what the major labels focus on. And we’re talking volume of business, let’s say. The space in between that curve and the axis represents dollar figures. If you draw that diagonal line and you take the top half, it’s a very small percentage of artists that are generating the bulk of the revenue in the industry.

And that’s what the major labels focus on because they wanna get a couple of projects that they can put through their system. As soon as a major says yes on assigning, right now in the US it’s a minimum of $2 million. And they basically have a horrendous hit ratio in terms of what they sign that actually succeeds or sometimes even comes to market. But when it hits they make so much money off it, in terms of volume, that it pays for all the other mistakes.

Well the profit margin of those types of artists, the return on investment, is relatively small. By comparison to indie artists, for example. But the volume of sales that you can make is such that even if you’re making only a dollar a record, let’s say, when you sell ten million records, that’s $10 million. On an indie artist you’re maybe making three or four dollars a record, but you put out a Death from Above record and it’s gonna be really hard to sell more than a 200 thousand units, especially as an indie.

So the return on investment is really significant in terms of percentage that there’s a ceiling on the volume. Which makes it really less interesting for a major ‘cause of how they’re set up. They prefer a few projects that are gonna make millions and millions of sales. Than trying to monetize a slew of little projects that could be more profitable on a project by project basis but you’d have to do thousands of them to get up to the same level of revenues that you can achieve when focusing on the Nickelback’s and 741’s and Avril Lavigne’s of the world.

That made a lot of sense in the old world. But right now if you talk to Google, for example, they’ll tell you it’s all about the long tail. The fact of the matter is, the niche market artists that are way more profitable on the return on investment standpoint are actually just as big a market, in terms of potential dollar sales, as the rest. Except there were no channels through which to expose that music to these people effectively to actually monetize a niche.

But a niche on a worldwide level can be huge. And as the online environment continues to develop for music and the ability to make records inexpensively, to distribute them around the world and make them available—including through major storefronts like iTunes—online without having to go through a physical distributor and without having, even if you have a physical distributor, the problem of getting into retail. Because if you look at an HMV lately or go to a Tower Records, look today how much of that space in that store, which hasn’t grown in the last ten years, is now devoted to DVDs. The real estate, the square footage for every store available for music is shrinking consistently. These music stores are turning into entertainment software retailers. They’re already selling DVDs, they’re talking about selling video games, and they wanna diversify out of just music because the sales are declining and the profit margins are slimming.

So where you really needed a major label before, or a major distributor, today it’s even more difficult to get into the stores without them. Which makes the plight of these niche artists or the independent artists that aren’t moving a lot of product, really, really grim in a physical bricks and mortar world. But online that goes away. You can make records less expensively. You can distribute them—not just make them available, but actually make them available through a destination, an online destination like iTunes, instantaneously with no problems. You can market them virually in really inexpensive ways. And on that level, potentially these niche markets, in the long tail is a huge future market. And so we do wanna focus on those types of artists as well.

And then Equator also probably in the context if we did CanWest thing, let’s say, we bring on – a lot of independent artists, for example, would love to be on a major label or have the clout that a major label brings to the table without having to deal with the culture or the association, per se. So one of the things that we wanna try and build underneath this Equator personality is an infrastructure that brings to the table a lot of the advantages that a major label used to, or would have, in the past context.

So if we do through Equator a joint venture with CanWest, let’s say. Which will have an outside partner and will be run separately and will have an objective of more commercial mainstream music, that doesn’t have any negative affect on the culture that we’re building for Equator or the mentality or the personality of the company. But it does create a situation where on some level we can still use the benefit of that network of media properties or the infrastructure of a major label distributor that we have for Equator, et cetera, in order to break these artists.

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