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TURKEY'S MUSIC INDUSTRY

Analysis and Investment Proposal
By Diana Dickey

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Contents:

Executive Summary-3

Background-4
History
EU Accession
Geography
Economy
History of Music Business

Recent Trends-11
Music Investments:
Artists
Hip Hop
House
Domestic
Foreign
Performance
Rock n Coke
Radar Live
Efes Pilsen One Love
Phonem

Income Streams-21
Recorded Music
Touring
Ancillary

Other Drivers-27
Economic
Demographic
Technological
Institutional
Competitive
DMC
Pozitif
Legal
Taxation
Immigration
Copyright

Conclusion-38

Bibliography-40

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EXECUTIVE SUMMARY

The Republic of Turkey is a young and emerging nation bridging together the cultures of

Europe and Asia. It is at a crossroads both physically and politically as it attempts to

become the newest member of the European Union and assimilate into a Western style of

economy and governance. The Republic is experiencing great change, but also great

opportunity.

This report is prepared in essence to take advantage of the climate of positive change and

modernization that permeates the country and is inherently expressed in the artistic forms

emerging from its depths - specifically, music. The music business in Turkey is relatively

under-developed at this stage in time and open to investment from outside sources of

funding. A wide range of topics have been covered in order to analyze the industry as a

whole and identify both opportunities and pitfalls in the course of investment.

Discussed here are political and cultural circumstances that must be considered to start

any type of business in the country - including Turkey's contentious EU bid and

economic fluxuations. Delving more into the meat of the topic is an in-depth analysis of

emerging genre types in the country that have not yet been fully exploited or realized -

hip-hop and house music being of special interest. Other sub-industries such as touring,

festivals, recording, and licensing are investigated to varied conclusions and a core

understanding of the country's legal bounds - in the form of taxation, immigration, and

copyright, all topics of great importance when looking to work from the outside in - is

provided.

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A summary of the findings and a prescription for investment follow.

TURKEY

History

The Republic of Turkey was founded in 1923 by Mustafa Kemal Ataturk after the coup

de grace of the Ottoman Empire and currently claims a population of 73 million people. It

is officially a unitary, secular republic (first free elections held in 1950) but the recent

election's placement of the Islamic-leaning Justice and Development Party (AKP) as the

ruling majority (Abdullah Gul as president and Recep Tayyip Erdogan as prime minister)

has led many to question the continuation of secular policies. Despite suspicions, the

government appears to merely be moderate-conservative with few of the propheted fears

being realized. A NATO member and supporter of the US invasion in Afghanistan, ties

with the US have been seriously strained over disagreements on the invasion of Iraq and

as of 2007 ony 9% of the Turkish Republic view the United States favorably (Pew

Research Center, 2007). Despite these differences, the US supports the Republic's bid for

EU membership, and the two members of NATO, OECD, OSCE, and G-20 continue to

work together on many issues such as nuclear energy and regional stablility.

EU Accession

In 1999, at the European Union summit in Helsinki, Turkey (associate member since

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1963, officially bid in 1987) officially became a candidate for EU membership -

reversing the decision the council had come to just two years prior in Luxembourg.

Official accession negotiations began in 2005, with Ali Babacan, cabinet member with

control of the Treasury and economic policy, as chief negotiator for Turkey. Negotiations

are expected to last until at least 2013 - and Turkey faces two major external hurdles in

the forms of France and Austria who vehemently oppose their membership bid.

Proponents of the accession cite geography, growing ecnomy (discussed below), and

power as major reasons for their consideration. The UK's Queen Elizabeth, upon a 2008

visit to Turkey was quoted as saying: "Turkey is uniquely positioned as a bridge between

the East and West at a crucial time for the European Union and the world in general."

Turkey's position as a bridge between the West and the East would lend the organization

strategic precense in the East as well as gain a position on many areas of contention that

the country borders, promoting peace and stability for the union and its neighbors.

Additionally, Turkey possesses the second largest military force in NATO. The EU's

acquisition of this force would lend it much credence and and build its deterrent force.

Major internal policy issues standing in its way include issues with Cyprus and Greece

(although progress has been made in the month of November and the issue could be

resolved in the next 6-9 months {O'Day, 2008}), human rights, freedom of speech

(particularly article 301 of the penal code which punishes anyone found guilty of

insulting "Turkishness" - translated text: "a person who publicly insults the Turkish

nation, the State of the Republic of Turkey, or the Grand National Assembly of Turkey,

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shall be punishable by imprisonment of between six months and two years"), freedom of

religion, and military presence in politics. Currently, further progress is expected to be on

hold until after the 2009 local elections which will represent a challenge for the AKP

when it comes to staying in power - so attention is being focused on more local issues of

public welfare.

Geography

Bordered by Georgia, Armenia, Iran, Iraq, Syria, Greece, Bulgaria, and the Black and

Mediterranean Seas, Turkey has both a beneficial and potentially dangerous position.

First, the bad news. The area it covers represents an intense zone of conflict. Struggles in

the Middle East, the Balkans, and the ex-Soviet republics can all easily spill over Turkish

borders. Should this occur it would most certainly create a new surge of terrorism from

the PKK in attempts to form a Kurdish state amidst the chaos. These fears create a sense

of instability among many businessmen, who often choose to stay away from large parts

of the country when considering investments.

Despite security issues, the location is also beneficial in many ways. Turkey serves as a

conversion point between Eastern Asia and Western Europe, the country spans them

both. This unique position allows the country to rely on cultural, linguistic, and

institutional ties on two entirely different planes - vastly expanding the potential scope of

business. It's also worth note that the location gives Turkey a great advantage over the

issue of energy. Oil is easily accessible from the Medditerranean and Caspian areas and

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natural gas is abundant in neighboring Central Asia.

Economy

Much of the economy is still controlled by the state despite recent liberalizations and

privatizations (mostly encouraged by the IMF, World Bank, and EU). The country has

been known for its high rates of inflation for a long time now due to problems with fiscal

defecits, bank bailouts, and the devaluation of the Turkish lira to remain competitive (the

country is highly dependent on outside oil). However, under current IMF reform

programs, the ruling AKP has managed to begin turning the country around showing real

GDP growth in recent years and a clear decrease in inflation (despite a small setback in

2006 that was largely due to soaring oil prices globally). The IMF program involved a 3-

year stand-by loan in the amount of $4billion (USD) in 1999. In 2001 Turkey

experienced its most massive economic crisis in recent history - mainly due to a huge

consumer boom, exploding oil prices, increasing interest rates, and extremely weak

banking institutions; government debt was at 100% of GDP, the Turkish lira was being

devalued at unprecedented rates, and the country was clearly in the grip of recession. The

IMF offered another $8billion (USC) to help bail the country out, sent in a representative

to help restructure and privatize, and has since then renewed the 3-year plan twice - to

generally succesful results.

GDP is forecasted to drop in the immediate future from 4.6% in 2007 to just 3% this

year, 1.7% next year, and then begin to pick up again in 2010 (The average for the past 5

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years was 7.4%). Inflation has risen sharply this year but is largely attributed to external

issues (re: world economic crisis) and one-offs like food and energy prices. The rate has

been dropping slowly since August and the trend is expected to continue (from 12.1% in

July to a forecasted 7% by the end of 2010 {O'Daly, 2008}).

Currently, the IMF programs have expired (in May 2008) and Turkey has not asked for a

continuation of the package despite recent rises in inflation due to the global economic

crisis, nor has it asked for another precautionary stand-by despite criticism from the

business circle who believe the government has largely ignored the international financial

crisis. The reasons for this lie in the upcoming local elections. Without the program's

demands the government is free to invest in additional spending in infrastructure to

appease voters who are more pressed about issues like unemployment, unequal

distribution of income (discussed below), and issues with the PKK in the southeastern

provinces. The AKP is faced with growing dispopularity and the upcoming elections are

crucial.

Because of relatively unstable domestic demand curves, due in large parts to the factors

mentioned above (inflation, fluctuation of the Turkish lira, and additionally price and

trade fluctuations), exports have become a major part of Turkish business. This, in turn,

has widely increased the presence of Turkish companies in international markets. In

addition continuation of this trend bodes well for the future of the economy, protecting

against crises that may occur at home, and helps establish Turkey as a legitimate

European force (especially since about half - 56% in 2006 - of all Turkish exports are to

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countries of the European Union).

The country's economic standing is highly variable based on location as well. The

Eastern, rural, and remote southeast of the country averages only 10% of the income per

head as the Westernized and industrialized northwest regions. Much of this is attributed

to a lacking in government policies in the fields of education and wealth distribution.

Even where the government actively tries to promote economic activity in the region they

tend to fail. For example, in 2005 the government approved a package of special

incentives for private investment in 41 southeastern provinces but the policy largely

failed due to continuing violence in that region regarding the PKK and the Kurdish

conflict (recent examples of acts of terrorism include PKK attacks in Hakkari on October

4th and 8th, leaving 36 dead and many more wounded). Many investors avoid this area

for security concerns.

History of Music Business

Because of its location Turkey's traditional music pulls upon many different cultural

influences, including Central Asian, Persian, Greco-Roman, and Arabic. In the early

years these influences developed into very distinctive classical (gaining the respect and

influence of the likes of Mozart, who featured the style in his Symphony Number 9) and

folk traditions. The use of bells, cymbals, and bass drums in many symphony

compositions can be traced back to the early Turkish use of these instruments.

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More recently, these influences have compiled themselves into a uniquely Turkish genre

called Arabesque - hugely popular beginning in the 1960s, the style still claims a cult-like

following, fiercely devoted to the traditional sound and the cultural space it provides

them. It combines all of the traditional aspects that defined the pre-Republic state and

lends its listeners a paradigm in which to imagine and define themselves and their values.

Arabesque music is defined by many as melancholy. Its focus is very lyrical and uses

everyday language to convey something much deeper. A constant theme in arabesque is

that of love - defined as love between two people, soul mates, family love, love of

country, etc... The genre is an expression of the Turkish people's history and of their core

identities.

Post-Arabesque there has been a distinctive move in the Western direction - especially

amongst younger demographics. The import of a more modern and Western sound has

led to a fledgling pop and rock (Antalyan Rock, as it is called by some) dynasty and, in

reaction, an export of those creations. "For about a decade, there had been no mistaking

that Turkey has a lively pop music industry, as singers such as Tarkan, Sezen Aksu, and

Sertap Erener herself have won a growing reputation across continental Europe and made

some inroads into even the Anglo-Saxon world" (Barchard, 2003). Most artists in these

genres can be found residing on the recording labels at Dogan Music Company and

Sony's Turkish branch

Besides these two behemeths, there are 51 different music industry companies operating

in Turkey - all banded in union by MU-YAP (Union of Turkish Music Makers) (Barchard

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2003). Sony, DMC, and, additionally, Pozitif, are the three largest companies operating in

the Turkish Republic and the two domestic companies (DMC and Pozitif) are profiled

further on in this paper.

RECENT TRENDS

Referred to in the music industry as the "sleeping giant of southeastern Europe"

(Koranteng, 2008) here is a rundown on Turkey's current musical happenings.

Music Investment

Artists

Genre

The following represents a close analysis on the two burgeoning genres of music that

may be of investment value in Turkey.

Hip Hop

Turkish hip-hop is quickly becoming a genre of interest. Currently, hip-hop is still

considered to be an underground, or in Turkish terms, yeralti, art - that means a large

percentage of the repertoire is being recorded and distributed without help from any

recording label or company (an example of the exception would be Germany's Hammer

Muzik's Hipnetic Productions label - a very minor Turkish company that mainly imports

Western heavy metal and hardcore). The term yeralti in hip hop signifies more than

simply functioning outside of the corporate realm - it also indicates a style of lyric that

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often operates outside of what is formally allowed by the government, participation in

illegal activities, particularly the act of creating graffiti, a definitive distinction from

popular and mainstream music, and, most importantly, an authenticity of being dedicated

to the art regardless of financial benefits. In all, it is very similar to the American ideal of

musical underground scenes (the most significant difference being that yeralti in Turkey

does not gain credibility from any ethnic or socio-economic classification of its

participants). However, it's important to note that while the underground's opposite, the

sell-out, has a negatively defined connotation, yeralti's opposite, yeryuzune cikmak

("come out to the surface"), is spoken about with pride as many yeralti hip-hop artists

desire to have their music picked up and developed by major recording companies

(Solomon, 2006).

Hip-hop is also presenting itself as a financially reliable genre as well. The environment

in many of the urban centers in Turkey closely resemble the political and social

circumstances that were present in New York at hip-hop's birth. A major factor that

helped birth the US hip hop craze was the decline in the then-current popular music

embodied in funk, disco, etc... Right now the same condition holds true in Turkey.

Arabesk (as discussed in the History of Music Business section of this document),

Turkey's home-developed genre, was immensely popular in the 1980s and 1990s but is

beginning to lose ground to Western music. Once the country's musical voice it is less

and less relevant and has begun to lose its position on the forefront (Barchard, 2003). Hip

hop and its deep politicalization and nature of social consciousness in the country is in a

position to fill the gap that Arabesk has left in its wake. It fulfills the duel need of cultural

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identity/place and of modernization which the people of Turkey seem actively seek out.

Additionally, hip hop is a relatively inexpensive genre of music when it comes to creation

at the grassroots level. As exampled by the American birth all thats needed is a power

source, some relatively unsophisticated equipment, and perhaps at emcee.

There is already a small pool of minorly successful Turkish hip-hop artists. That list

includes Nefret (including Ceza and Dr. Fuchs), DJ Mic Check (of Silahsiz Kuvvet and

Sagopa Kajmer), and Turbo (real name Tunc Dindas of group Statik). Most influential

(and successful) of these names is Ceza (real name Bilgin Ozcalkan, in Turkish ceza

means punishment). Ceza is creditted with being the pioneer in transforming hip hop into

a unique Turkish experience. He is cited as being the artist who took hip hop and threw

out the traditional American samples and replaced them with Turkish arabesk samples -

reaching out not just to music-enthusiasts in Turkey, but also greatly affecting the

Turkish diaspora - especially in Germany. He is also known as being very socially

conscious when it comes to his lyrics - one who may sound good (indeed, many who

have listened to his body of work feel comfortable proclaiming him to be the best rapper

in Turkey, and maybe even the world {Aktay, 2008}) but is more interested in the

message he is sending - his music is not for the sake of entertainment. In this sense Ceza

very much appeals not only to the youth generation, who prefer Western styles of music,

but also the more traditional listeners whose cult-like following of Arabesk is being

called to.

Ceza's social conscious and mutation of the genre has been commercially successful too.

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After two albums with Nefret, which fared well but weren't stellar sellers, he began a

collection of solo albums. The second of these, Rapstar, produced by DJ Mic Check, is

the most financially succesful rap album in the country, selling almost 150,000 CDs -

definitely making Ceza a Turkish superstar.

House

Turkey is not immune to the wide-spread phenomenon of the musical mash-up either.

This is most evidently captured in the country's embrace of traditional Arabesk songs

being mixed with modern house beats. For example, in 1998 Cuneyt Ortan began to

dissect old Turkish pop songs and getting his friends in London at Sperm Records to mix

them in with acid-house beats for club tracks. Once released on the airwaves Turkish

audiences responded positively in great numbers and Mr. Ortan, now heading his own

production company called Kiss Music, had a dozen new artists signed up for the

program within a week (Pope, 1998).

The club/house scene thrives in Turkey just as much as it does everywhere in Europe.

There's a clear delineation, however, of tastes geographically. There is a noticeable move

from electro sounds in the western part of the country with a slop towards trace in the

eastern sections (Aktay, 2008). The most noticeable artists from Turkey in this market are

Erol Alkan (who is more based out of Germany than Turkey) and Murat Uncuoglu.

Alkan is an example of a great Turkish artist who has tamed the international audience -

his remixes are in demand everywhere, he even has a clear presence here in the United

States.

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Uncuolgu is titled as the most renowned DJ in Turkey. He began his music career

working at a record store in Istanbul, travelled to Europe to study at the heart of

electronica, and came back to DJ at the top two Istanbul clubs and found Radio 2019.

Under a variety of aliases he has remixed the songs of some of Turkey's top popular

artists. Part of the reason he is so successful is his understanding of the unique needs of

the Turkish market. In a country where tradition and identity are so important (as

discussed above) Uncuoglu has made sure, in his electronica, not to lose site of what it is

that moves Turkish music audiences. In an interview with Soundplanets.com he noted the

following: "Because we have our own traditional music that is highly graded... it makes

them dig through the style and find the best and compare the qualities. The important

thing is they care about the melodies and vocals in electronic music and I think it

originally comes from their sight of traditional origins, which is why I believe in using

eastern melodies mixed with modern beats" (Nasseri, 2008).

Domestic

Turkish music makes up 93% of the market in Turkey.

National laws have been passed to help boost the domestic music industry. In the 1990s a

national TV law was passed that evicted MTV from the millions of households it had

found a home in. The results of this policy made it so that Turkey has, essentially, 30

national TV channels and five of them are, more or less, the Turkish version of MTV.

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These channels, it is worth noting, are not limitted to the nation. They are also widely

viewed in the Middle East, southeastern Europe and are available in Western countries as

well (Barchard 2003). They additionally are designed to service the recording industry in

that air time is given only sparingly to international artists and programming tends to

focus on locally grown and produced talent

An important aspect to remember about the Turkish population when "domestic"

repetoires are discussed is that "domestic" does not necessarily mean "sell domestic." The

Turkish diaspora is numerically strong and still closely tied with Turkish culture in many

aspects. "With a population of more than 70 million, there's considerable room for

expansion of international repertoire sales in Turkey and, with an estimated 1.8 million

people of Turkish descent in Germany alone, there are also opportunities for trade in the

other direction" (Koranteng, 2008).

It's also not sufficient to assume that a domestic repetoire would only appeal to those

living in the country or with close ties. Live, international touring is most definitely an

option for large Turkish pop and rock bands. It is not uncommon for them to headline

their own tours throughout the world, even in the United States, many do not need the

help of a festival or other assortment of acts in order to draw large crowds and make a

desirable profit (Aktay, 2008).

Foreign

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It's important to remember that Turkey's domestic repetoire has, since the beginning of

Arabesque, widely depended on modern international music. Ziya Gokalp, a leader in the

Arabesque movement summarizes the sentiment nicely: "We have seen that Eastern

music is both morbid and non-national. Since folk music is the music of our national

culture and Western music is the music of our new civilization, neither should be foreign

to us... If we collect [our folk music] and rearrange them in accordance with the Western

musical style, we shall have a music that is both national and European" (Ziya Gokalp,

quoted in Ustel 1994).

The post-Arabesque imitation of Western pop and rock could not have happened without

their import into the country. Acts from these parts that travel to perform in the country

and market their records here see a lot of success: artists such as Roger Waters and Sting

easily see crowds of 17,000 when they perform in Turkey, Metallica sold out an entire

arena (twice), the headliners of major festivals (discussed below in detail) are almost

always international stars and perform in front of tens of thousands of eager fans.

Additionally, a quick perusal of Billboard's Turkey edition clearly shows the dominance

of international acts over local ones when it comes to sales. A few Turkish talents are

occsaionally sprinkled into the Top 20 but the cake clearly goes to the Britney Spears' of

the world - proving the demand is clearly there, the supply just doesn't happen to stop by

the neighborhood too often.

Performance

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Now, more than ever, is a time to become curious in Turkey's performance industry. At

this year's Popkomm conference, held in Berlin at the international music festival of the

same name - Turkey was the partnering country and was largely focused on in rounds of

discussion as well as featured in many of the clubs and venues during the week's

festivities.

Festivals are fast becoming a very prominent source of income and of the distribution of

musical wealth and knowledge. Below are listed a number of the more prominent

festivals held in the country's borders with performances by both local and international

talents.

Rock n Coke, presented by Pozitif (discussed below), in Istanbul is considered to be one

of the biggest music festivals in Europe. Previously the event has featured Franz

Ferdinand, the Smashing Pumpkins, Erol Alkan, Muse, Gogol Bordello, The Cure, Korn,

The Offspring, and 50 Cent. This year the festival did not go on - officials cite the

unavailability of appropriate artists as their reason for not installing the 6th segment.

Realistically, the cancellation was due to a decrease in ticket demand experienced last

year in 2007 (Aktay).

This actually may not be a negative indication. Rock n Coke's birth triggered a small, but

powerful, movement within the Turkish rock music industry. Many rock fans did not

believe that big corporate sponsorship and rock music should mingle so casually and

actively protested the Coca Cola sponsored festival by creating their own. Barisarock

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(which translates into Rock for Peace) is that festival and it is scheduled every year to be

at the same time as Rock n Coke and is a FREE festival. Since 2003 (both its and Rock n

Coke's birth year) the audience attendence level has been increasing. Which means the

audience for rock festivals is not disappearing, it's just gone someplace else. For those

few days in the summer the choice is to either pay for a festival featuring a few

international acts amidst local talent (the headliners have been widely regarded as

becoming less prominent over the years) or attend a free festival packed full of local

artists and stars.

Radar Live, presented by Dinamo FM, features over 100 acts per festival and is held at

Kiyos Solar Beach in Istanbul. Last year, its second year, it featured Marilyn Manson,

Kelis, The Rapture, CSS, Peter Bjorn & John, The Rakes, and The Horrors on three

different stages over the course of three different days. That's a major increase of

production over its first year's 1-day 1-stage gig which featured only a few relatively

unknown UK acts as the international fare. The entire event was covered by MTV Turkey

as part of promotional deal.

Efes Pilsen One Love Festival is another Pozitif production. Now in its seventh year, the

festival featured performances by Gogol Bordello, Hot Chip, and Yelle as the

international attractions to rave about. The term "rave" here was used intentionally as it's

important to consider the festival's obvious move to more of an Electronica festival (as

indicated above, electronica and its various subgenres are spreading widely across the

country). Unlike its label-mate's performance - the turn out at One Love was very

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encouraging. This is due to a number of factors including the prestige of the headliners

and their status as young and up-comers instead of established repeat performers, the

more unique genre of music and the culture that type of event tends to attract, and the fact

that it has no direct competitors (like Barisarock).

Phonem, presented by Miller with Istanbul Foundation for Culture and Arts (IKSV), is

another electronica festival. It takes more of the form of a city festival as its performances

are spread out over a number of venues in Istanbul rather than at a consolidated and

manufactured venue. This is an interesting twist on the familiar festival as it allows

concert-goers to pick and choose their performances more consistently and only pay (at

the door) for those they really want to see. It seems to be working - the festival certainly

had a large outpouring in 2008. This year it came in the fall rather than the summer and

featured performances by British Sea Power, Annie, Digital Playground, and Robots in

Disguise.

Istanbul Foundation for Culture and Arts (IKSV) manages many international events

including two festivals and hundreds of concerts, reaching a yearly audience of 100,000

people. Gorgun Taner, its Chairman, notes that most problems with the festival and live

music industry in Turkey deal mainly with infrastructure problems that come hand in

hand with the country's relatively new position in the spotlight. Additional consideration,

he believes, for any problems deals with the diversification of artists performing. While

the number of headling acts that travel to perform in Turkey have seen a sharp upturn,

with over 100 performing yearly, many of these acts are not considered to be "up and

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coming" and are repeat visitors. An initiative that would send rising stars to perform at

the country's top festivals and headline arena concerts (which seem to be coming back

into vogue as per the 2008 sold out Metallica arena concert) could revitalize the sector

and push margins upward indefinitely (Aktay, 2008).

INCOME STREAMS

Recorded Music

Turkey can be considered somewhat behind the times as the transition away from

cassettes is still a relatively new thing for the country. It was only in 2000 that Turkey

started making definite strides away from the cassette and towards the CD. However, this

move also coincided with the first waves of digital files and piracy. CDs in Turkey are

generally priced around $21.79 (representing 8.21% of the average amount of monthly

disposable income in the country)(EIU, 2008). Definitive numbers were not extractable

from Turkish companies at the time of this report, but the bandrol numbers presented by

MU-YAP, the Turkish organization that monitors copyright issues, are as follows:

International CD Domestic CD

2008 606,404 2,963,966 (through April 2008)

2007 1,452,421 13,495,433

2006 197,973 1,493,250

2005 153,984 1,587,500

2004 1,562,010 13,562,880

2003 1,091,406 11,310,743

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Bandrol

One major hinderance to the monetization of recorded music is bandrol. Bandrol is a

small notice identifying manufacturer (and ensuring they have paid all necessary taxes)

required on all commercially sold music products and are issued by the Turkish Ministry

of Culture. Without this sticker the product cannot legally be sold. Tight controls by the

Ministry effectively eliminate all music that is not favored by the government, including,

but certainly not limitted to, any lyrical content that encourages a perception of the

government that is not popular within the party, that incites violence, or uses swear

words. As was briefly touched upon in History of Turkey section of this paper, recent

political trends indicate that these control will only continue to be tightened - the country

is perceived by many, both in and out of the country, to be heading to non-secular Islam-

centered governance... which only spells trouble for artists wishing to express themselves

outside of the religious guidelines put forth by the ruling Justice and Development Party

(AKP).

However, with time such stringent limitations on freedom of expression may be lifted. It

is no secret, as has been discussed, that Turkey strongly hopes to become the next full

member of the European Union. The AKP is in line with this sentiment - in fact it

considers it one of its two main purposes, the other being economic stabliity (EIU 2007).

In that regard, censorship must be rolled back at some time in the near future as

guaranteeing the freedom of expression to all citizens is at the core of EU policy. The EU

22
takes no back seat in continuing to pressure Turkey to lift its bandrol standards as is

evident in their 2006 report on Turkey's accession which stresses the importance of

eliminating these barriers (Eurling, 2006). Although recent trends report the country

moving in a direction parallel to the EU commands (Jenkins, 2008), it must be noted that

continuing to forbade Turkish artists from swearing, accusing, or sharing sentiments of

governmental dissatisfaction will block their membership entirely - which is most

certainly not an acceptable outcome for the AKP.

Touring

The country has a well-developed road system with 1,900 km of motorway around major

cities - the longest of which stretches from Istanbul to Ankara. Rail transport is not

suggested due to decrepid rail lines and inconvenient routing. Air travel has increased

rapidly in the last few years and there are 40 aiports in the country with a number of

competitively priced airlines operating between them.

Festivals

Tourism averages about 5% of Turkish GDP (and a major source of foreign currency on

the invisible balance). Many of these tourists are "package holidaymakers" who come to

the coasts during summer for vacation. A second large group are the 8.2 million (in 2006)

people who represent part of the Turkish diaspora (mainly living in Germany) who come

to visit the country for holiday or family reasons. In recent years, due to this trend, many

23
companies involved in tourism (ie: airlines, hotels, restaurants in highly trafficked areas,

tourist attraction owners, etc...) have consolidated efforts to maximize revenues and new

sources of business in this sector are popping up all over the place. Concern over the

global financial crisis need not be an issues when considering the tourism industry either

- indeed, all research informs the country benefitted from the credit crunch earlier this

year and the crisis has only stregnthened this position. In October 747,000 people visited

the country - a 21% increase from last year. Ibrahim Acar, the country's Culture and

Tourism Directorate director is quoted as saying: "Although the economic crisis has hit

various industries across the world, that is not the case for tourism in Turkey’s

Mediterranean province of Antalya, which experiences an annual increase of 19 percent,

with the number of tourists already amounting to nine million" (Hurriyet, 2008).

Combined with a strenghening festival scene, in 2007 hitting the $150million mark - with

expected revenue of $1billion in the next ten years (Tuncay, 2007) - this is the perfect

setting for a festival package. Indeed, Yonca Temizocak, Marketing Manager at Dinamo

FM, notes that for the 2007 Radar Live Festival, over 1,000 tickets were sold to people

coming from abroad and represents a major tourism opportunity (Tuncay, 2007).

Any number of combinations are imagineable. An already existing festival could partner

with a number of tourism companies to offer a complete accomodation and entertainment

package or an entirely new package and accomodation construction could be created - a

destination for music lovers in the region and around the world. The present represents a

perfect time for this opportunity as well. Turkey was the partnering country at Popkomm

24
in Germany this year - with two major conference sessions focused on their music

industry - representing a large international interest in what the country has to offer.

Some entities to be aware of include Antalya (the region of Turkey where most festivals

take place), Aspendos Theatre (the most tourist frequented concert venue according to

Euromonitor International - with 538,900 visitors in 2006 it is Turkey's third largest

attraction).

Ancillary

While Turkey may be considered by some to be behind the times when it comes to

computers and internet technology, there is definitely one area that the country has

excelled in and that is mobile phones.

Consider the following: The penetration rate of cell phones into households is currently at

95% and it expected to go over 100% by the end of 2010 for a total of 81.7 million

mobile phones active in the country according to Research Markets' "Turkey Mobile

Forecast, 2008-2010" (Turkey Sectors and Companies Today, 2008). Also, the market in

Turkey is not yet considered to be saturated like the rest of Europe. The reasoning behind

this is that the average age for mobile users in Turkey is dropping (12 years old now)

creating new customers and many Turkish citizens also purchase more than one mobile

phone - sometimes as a replacement for "land lines" (whose rates are generally not as

competitive) - and that these trends will continue and will help growth (Euromonitor).

25
Top mobile operators in the country are Turkcell, Vodaphone, and Avea (57%, 25%, and

18% respectively). All three offer competitive rates and right now are competing to get

their services on the most up to date phones. As newer models of mobile phones are

introduced, with more capabilities and 3G technologies, the Turkish customer base is, on

average, buying new phones every 1-1 1/2 years - with the introduction of music

capabilities being a major motivational factor. Imfred de Jong, the chief of Nokia's

Turkish branch, notes that: "Turkish customers mainly prefer models with music and

demand radio functioned into the device, and increasingly request MP3 players, Jong

informed" (Oguz, 2008). With this information in mind it is only a matter of time before

licensing deals are struck with these companies, which could represent a lucrative stream

of income (indeed, unconfirmed reports suggest that Warner Brothers is already in

negotiations with Turkcell over just this).

In addition to cell phones that play music - applications and ringtones/ringbacks make up

a significant pool of income as well. Music application downloads for cell phones in

Turkey has reached 1 million a month, and 1.5 million per month on the internet as of

2008 (Das, 2008). Also, over seven million ringback tones were sold to the more than 61

million mobile subscribers in 2007 alone (Koranteng, 2008). With the number of cell

phone subscribers increasing in leaps and bounds - even past one per person as cited

above - these numbers can only continue to grow.

26
OTHER DRIVERS

Economic

Turkey is considered to have one of the most liberal policies for foreign direct investment

in the OECD due to their view of FDI being vital to their emerging economy (which is

not to say the process is easy - in fact it's often challenging due to political climates and

economic instability discussed earlier in this paper - but things are looking more positive

as the country begins to conform to EU structure).

Demographic

Turkey has a unique market make-up in Europe - primarily due to the young age of its

population:

"The Turkish market is potentially enormous with 40m people aged less than 25, but at

the more affluent end of the market, many young Turks prefer mainstream western pop

and rock, while in rural Anatolia and the lower income sections of large cities, traditional

Turkish music holds sway, along with a brand of sentimental modern Middle Eastern

popular music known in Turkey as Arabesk." (Barchard, 2003). Sixty-five percent of

Turks live in urban centers (EIU).

"Behind the growing impact of Turkish pop music lie a number of factors. They include a

strong and varied musical culture; Europe's largest population of under 25 year olds; and

the rise of satellite TV, private sector FM radio, and, to a lesser extent, the internet."

27
(Barchard, 2003)

Technological

Many entertainment companies in the music business are actively involved in electronic

commerce. TV commercials are an effective means of advertising (there are 16 national

TV channels).

As the number of internet users increased from 200,000 in 2004 to 5 million in 2007, the

number of CD sales dropped by half - from 43 million to 21 million (Das, 2008). Some of

this

Institutional

Recently, many of the limitations placed on non-Turkish business entities have been

lifted in favor of encouraging international investment and interest in the area and more

cooperation in information gathering. Foreign companies, as of 2003, no longer need

apply for governmental permissions or approvals to establish an office in Turkey, register

license, "know-how," royalty or technical agreements, or meet a minimum capital

requirement, and are now capable of forming any type of partnership in Turkey instead of

only limited or joint stock companies and are treated equally with local companies.

Additionally, there are no performance requirements, source requirements, or export

requirements placed on US companies doing business in Turkey.

28
Importers do not need a license or a bank authorization to import anymore - only a tax

number.

Turkey has signed free trade agreements with the EFTA, is a leading member of the

Black Sea Economic Cooperation (BSEC), the Economic Cooperation Organization

(ECO) with Pakistan and Iran, and a founding member of the Southern Europe

Cooperative Initiative (SECI).

While US investors retain full access to Turkish courts in any matters of disputes it is

worth noting that the judicial system is notoriously overwhelmed with cases and is

therefore slow in making decisions. It has also been warned by the UCS that judges in

Turkey may be swayed by outside forces and seem to generally side against the foreign

investor.

Competitive

DMC

The Dogan Music Company is owned by the Dogan Holding (DYH - $1.6billion in

annual sales), known as the largest of all media groups in Turkey. This is the company's

main edge on the industry as it is connected through Dogan Holding to all aspects of the

entertainment industry and additionally to all advantages the company is utilizing in the

29
area of technological and digital revolution.

Dogan Holding has a licensing agreement with Bertelsmann Music International Service

allowing it utilize international music and also make domestic repetoire available

worldwide and an agreement with Universal Music. Dogan Holding also owns Dream TV

which, in a word, can be descibed as the Turkish version of MTV. It commands a 15%

market share in music and 20% in GSM and internet channels. Additionally DYH owns

Kanal D, Star TV, and CNN Turk channels on traditional television broadcast and D-

Smart (incorporating a number of different themed channels) on the digital platform. In

radio it owns four channels: Radyo D, CNN Turk Radyo, Slow Turk and Radyo Moda. A

plethora of newspaper publishing is in its posession (TME, Hurriyet, Milliyet, Referans,

Turkish Daily News, Radikal, Posta, Fanatik, and Vatan), a news agency (DHA), and a

few magazines as well (Dogan Burda Dergi and Dogan Egmont). D&R is DYH's book

and music retail stores that take advantage of both physical marketing and an advanced

digital portal store. It is the market leader in the sector and in 2005 expanded its number

of physical locations to 43 stores and increased retail space by 28%.

It also owns Dogan Online which has the largest Internet infrastructre in all of Turkey. It

holds 25% of the dial-up market and its advertising branch, Medyanet, has 50% of the

online advertising market. Dogan Telecom

Pozitif

30
Pozitif Muzik is an all-encompassing independent music industry entity. The company

has five main areas of the industry in which it performs. First, as discussed earlier in the

research, Pozitif runs a competitve Live Concert and Festival branch. Besides Rock n

Coke and Efes Pilsen One Love Festival, it runs a blues festival (Efes Pilsen Blues

Festival) and a jazz festival (International Akbank Jazz Festival) in their 18th and 17th

year respectively. This section of the business was founded at the beginning of Pozitif's

life in 1989 and appears, in most respects, to have a very strong marketshare.

The company also runs a small venue called Babylon in the heart of Istanbul. It opened

its doors in 1999 and has held over 1,500 concerts in that time. Babylon is a much

smaller venue than large US companies are used to working in - its standing capacity is a

mere 450 people. However, the tight limit has not prevented major acts from performing

there including Patti Smith, Of Montreal, and Norah Jones. Additionally, Pozitif has just

last year opened up a lounge (Babylon Lounge) to enhance the services provided by its

venue. The lounge mainly serves as an attached eatery to entertain concert-goers both

before and after shows next door. However, it also features a small private second floor

(capacity: 80) for private events and small primarily DJed shows.

Pozitif incorporate two recording labels as well. The first is the very successful

Doublemoon Records operating out of, and being inspired by, Istanbul. The label is

known for its efforts in fusing together international and traditional styles of music to

create new genres and sounds that are unique to Istanbul. The label carries a very

impressive repetoire including Mercan Dede, Taksim Trio, and Replikas and was

31
recognized as a Top 5 (#4) World Music Record Label by WOMEX in 2008 as well as

having the #1 World Music Record (Dede's "800") for the year. In many respects it is not

out of the question to call Doublemoon partly a lifestyle brand - as it tries to incorporate

the entire city into its music. The second label is called Voltaj and is still in its infancy.

However, its focus is rock music. This is a bit of a departure from the non-mainstream

route Pozitif had been taking with Doublemoon and its other investments - so it is yet to

be determined how long this label will last.

In connection with its recording labels, Pozitif has an in-house artist management

company too. Pozitif Music Management's main responsibilities include artist

representation and booking of live performances both at home and abroad.

Finally, Pozitif Edisyon is the publishing branch of the main company. The Edisyon is a

full service company representing the rights of domestic and interntional artists. It also

participates actively in the following areas of the publishing world in order to represent

its catalogue adequately: music production, consulting, clearance, record label support,

and special projects for companies.

Legal

Taxation

When it comes to performances of foreign artists in the United States or Turkey the two

countries have operated under a bilateral tax treaty since 1996 that follows all three

32
paragraphs of the OECD Article 17 suggestion (the artiste clause). That is to say when a

US musician (among other things) travels to Turkey and receives income derived from

his or her trade that income is taxable in Turkey regardless of where the employer is

based. However, the US-Turkey agreement follows the limitted approach to the second

paragraph and does not allow Turkey to tax the income of employees who consider the

artiste their employer nor does it allow the income of those employees to be added onto

the artiste's tax liability. Additionally, were a US resident artist to travel to Turkey to

perform and be "wholly or mainly supported by public funds" from either country then

the US would get to tax that income generated by the artist in Turkey.

When it comes to establishing any sort of business in Turkey there are other taxation

issues to keep in mind - especially when deciding what type of business entity best suits

your venture. Operations as a Limited or Joint Stock Company incur tax liability on

worldwide income while operations as a branch would only be liable for income sourced

inside of Turkey. Also, in 2006 the corporate rate of taxation was lowered from 30% to

20% and the withholding rate was lowered to 15%. Additional withholding taxes of 10%

are charged for all royalty, license, and service fees paid to non-residents (defined in

Article 3 and 4 of the tax law to be those who do not have a permanent residence in

Turkey and do not stay continuously for more than six months in a calander year). Other

pertinent withholding rates for those wishing to involve themselves in the music business

in Turkey include: Copyright payments to limited liability tax payers (25%), sale,

transfer, or assignment of intangible rights (25%)

33
In general, Under the Bilateral Investment Treaty (BIT) effective in 1990 with the US,

the countries are to treat each other as a "most-favored nation." That includes, but is not

limitted to, the following provisions: no performance requirements for establishment,

profits, fees, and royalties are guaranteed to have free transfer status at market-clearing

rates, and investors from one country have the right to utilize the other country's courts to

the same degree as nationals should a dispute arise from investment there. An additional

treaty guarantees freedom from double taxation between the two countries.

Other taxation issues to be aware of while conducting business in the country are as

follows: Turkey is a GATT member and follows all guidelines prescribed by the group;

Local production is the route to go for any product sales - as there is a mandatory

customs duty on all US imports while European imports face none - however, due to the

political aim of joining the EU, Turkey has adopted the group's common external tariff

which has dropped the duty rate from 10% to 5%; a VAT is imposed on all foreign and

domestic goods (with a 26% ceiling however most intellectual music products are

charged 8%).

Immigation

Visiting Turkey, often, is a crucial step to doing business in the country. A high value is

placed on personal face-to-face relationships amongst the Turkish people. In that regard,

knowing the proper immigration procedures is important. Any non-resident (spending

less than 6 months in the country) wish to work in the country must obtain both a work

34
permit from the Turkish Ministry of Labor and Social Security and work visa from the

Turkish Embassy in the US. However, if the non-resident remains under the payroll of a

foreign company need not apply for permits as long as they do not plan to stay in Turkey

permanently.

There are two types of visas available to those wishing to travel to Turkey. There is the

entry visa, allowing for one or more entrances into the country over a 3 month period and

the transit visa meant for those just passing through on their way to a non-Turkish

destination. The former is the one required for those wishing to business in the country

with a few additions. Applications for a work visa must be done at least six weeks in

advance of trip. Requirements include passport, completed form, employment contract,

photo, and permit letter from the Undersecretariat of the Treasury, General Directorate of

Foreign Investment. In order to obtain a work permit, non-residents regarded to be key

personnel employed in special direct foreign investments must submit a petition, four

copies of form, passport and diploma copies translated into Turkish, and curriculum

vitae. The employing company must submit a petition, approved balance sheet, and Trade

Registry Gazette. In order to extend a work permit, petition must be made within 15 days

of expiration and include the following: form, last payroll, original permit copy, notarized

passport pages copy, and documentation that there is no debt outstanding from the Tax

Office. (Ernst & Young, 2007).

Copyright

35
Under Turkish law musical works and all types of musical compositions with or without

words, artistic works of aesthetic, and cinematographic works will benefit from copyright

protection. These rights include: adaptation, reproduction, distribution, presentation,

broadcasting, and moral rights (communicate the work in public, on intellectual and

artistic works, indicate name, prohibition of modification). MESAM is the Turkish

mechanical rights society and MU-YAP is the Turkish performance rights society (and

IFPI representative).

The IIPA considers piracy of intellectual works in Turkey to be rampant and increasing

due to the always ballooning numbers of internet users (now at 21% penetration). Their

current research estimates that piracy cost the Records and Music business $22million in

2007 (IIPI, 2008) - a hefty figure when you consider the industry is only a

$500million/year sector. (Note: digital piracy is only part of the problem - the other lies

in both street sales and the use of burning technology by establishments and the

unauthorized broadcast of musical performances over radio and at venues.)

Turkish parliament passed amendments to the copyright law in 2001 to strengthen and

enforce policies in line with WTO and TRIPS standards. However, in practice enforment

was less than par, with the proliferation of piracy, lack of anti-circumvention laws, and

lack of serious criminal penalties for infringers cited (which led, of course, to many

repeat offenders), and the US placed Turkey on its Priority Watch List in 2004. As of

2008, however, the US moved them off the Priority Watch List and onto the Watch List

in recognition of progress Turkey has made to protect intellectual property. Approved

36
actions include public awareness campaigns, proactiv raids against pirates, increased

penalties by the courts for violators, and seizure of violating material. It has been noted

by copyright authorities that Turkey is "beginning to reap benefits in the market in terms

of decreased piracy" due to these changes (USTR, 2008).

A number of different areas where progress must still be made in terms of copyright have

been pointed out. The courts must take more responsibility and pursue policy more

vigorously including making timely decisions, editting of procedural rules on the issue of

search warrant obtaining, and demanding less burden on the copyright owner to prove

right in case (on a positive note, in 2007 six new special IP courts were created in 2007

specifically to deal with these issues and some owners have found solace in them). The

bandrol system must be revamped and held to be more accountable including decreasing

the supply as the country moves into a more digital world, more careful monitoring of

existing bandrol stickers, and the administration of issuing these stickers should move

from the hands of the government to the rights organizations themselves to create a more

efficient system. Finally, it is highly suggested by the IIPA that Turkey takes measure to

amend their laws into penalzing circumvention of protection technologies - this

amendment is considered common in most territorries and it would behoove Turkey to

follow the example.

37
CONCLUSION

Investment is suggested in the three following manners:

1. Sufficient funds should be provided for fostering the growth of Turkish hip-hop music.

Investment should be in the development of a hip-hop label at Pozitif or other suitably

capable music industry entity for the purposes of A&R, recording, marketing, and live

promotion. All trends indicate that there would be little to no backlash amongst Turkish

hip-hop performers or their fans were the genre to be made into a more mainstream

phenomenon. Possible backlash may occur should the investment involve too much of a

foreign presence in the form of tight international control and decision-making. Instead,

artistic direction and other such considerations should be left to employees inside the

country - hip-hop will be successful as long as it continues to evoke the self and state

pride. Efforts should also be undertaken to ensure distribution to the wide diaspora of

Turkish people residing in other countries

2. Immediate investment into the creation of mobile musical devices on phones should be

a top priority. As Turkey rapidly catches up the most advanced nations in this respect

there is a golden opportunity reserve rights and licenses to a variety of products and

establish a brand name as the first in the game. Mobile phone sales, especially those with

music capabilities, show no real signs of slowing down in the near future and with

additional content provided by your investment the cycle can only intensify.

3. The importation of major international music acts will prove to be a lucrative

38
investment. The Turkish people have proven that they will come out in large numbers to

see the foreign stars and acts that dominate their Billboard charts. The number of Turkish

people who attend festivals, especially in the summer months, has grown at a steadily

increasing rate and has piqued the curiousity of its neighbors as well. Special attention

should be paid to the following categories: a) Type of artist and status as up-and-coming

or established (the former may garner more income as the country remains young as a

people and eager for that which is new - not that which is old); b) Packaging of any

festival or major concert date to maximize revenue on hotel accomodations, restaurant

packages, etc...; and c) avoidance of any highly unstable areas - such as the southeast of

the country - which may be less welcoming to foreigners and a dangerous place to

venture in any regard.

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