The Future of the Music Industry - Part II
Click here to read Part I
"It's not show friends. It's show business. " - Bob Sugar (Jay Moore): Jerry McGuire (1996)
What will happen to the major labels?
The labels were only ever going to survive as long as they remained the powerful gatekeepers between the artists and a mass audience. To the artists, they are like bouncers at an exclusive nightclub on a January night in Manhattan; you suck up to them while you seethe at them for making you stand out in the cold. The longer you wait, the more resentful you get (yeah, been there).
As I discussed here before, technology is making it possible for an artist to post their song on the Web and immediately make it available to everyone. However, there are still no great solutions for making "everyone" aware of your song and motivating them to go get it -- even if you're giving it away. The labels are still much better than anyone else at mass marketing music because they still have the necessary money, relationships and other resources to do it. Music consumption is on the rise but music "sales" are faltering, so over time the labels are draining their coffers and soon won't be able to even mass market effectively. They will be relegated to making money on the value of their legacy catalog of music -- licensing The Rolling Stones and U2 to film and other similar opportunities.
The label groups aren't resting on their laurels however. They see the inevitable endgame approaching and they have decided to address the situation with a multi-pronged strategy in hopes of delaying the end of their traditional business model as long as possible.
1. They extract multi-million dollar fees from music start-up companies that want to license their catalog.
Over the past few years a lot of venture capital firms and angel investors have poured money into music start-up companies that either stream major label music over the Web or offer it for download. Just to get started, Warner Music Group, SonyBMG, EMI and Universal demand millions of dollars from these start-ups upfront. So, the money has been flowing from the venture capital firms to the start-ups right into the pockets of the major labels. In many cases, it then turns out that these start-up firms pay more money than their business models can support and they're going belly up long before ever turning a profit. A high profile start-up in this space called Spiral Frog was the most recent victim of this type of death. An interesting article about that can be read here.
2. They take an equity stake in new music companies.
Sometimes the labels will forgo a multi-million dollar advance and will even invest money in a new company if they believe enough in the new business. Warner, for example invested $20 million into a music start-up called Lala despite previously having sued the company for copyright infringement. All four major label groups have taken a stake in MySpace Music. However, even these companies' business models are considered to be flawed and headed for what the popular TechCrunch blog that covers this space calls the "dead pool". Although it's more than likely MySpace Music will figure something out before getting there due to being backed by NewsCorp.
3. They do 360 deals with artists
As discussed previously, this is where the labels take a much larger stake in the artists' revenue streams than they used to. Not only do they collect when the artist sells music. They also collect when the artist sells concert tickets, does product endorsements and sells T-shirts and other merchandise.
Between these strategies and the strength of their catalogs, these companies will survive. But in all likelihood they will promote fewer new acts with new music. The risk to return ratio just won't be as attractive as their catalog businesses.
EMI is a good example of how bad things have gotten for the majors. In 2007 it was purchased by a capital firm called Terra Firma, headed by Guy Hands. The company brought in former Google chief information officer Douglas Merrill to head up its digital strategy. This past month both Hands and Merrill exited after Terra Firma had to write down a $1.78 billion loss on their investment. Now, EMI is trying to right itself and figure out what to do going forward.
So this all boils down to the question; what do artists and songwriters have to do today to increase their prospects of making a living -- if not a killing?
The good news is there are a lot of things artists can do. The bad news is that the days of exploding stardom are going the way of the CD and the major labels. Sure, they can get their 15 megabytes of fame doing something that gets lots of attention on YouTube or by getting caught up in a prostitution scandal with a sitting governor like Ashley Alexandra Dupre did. Then, she sold a bunch of her music on a DIY music sales site called AmieStreet. But that didn't last. Her music wasn't appealing enough to enough people to sustain a career in music. Of course, that's not the path an artist will take if they're serious about building long term fans and having a real career.
Today, artists and their managers have to do it all. They have to be their own promotion and marketing team. They have to network, build relationships and nurture their fans.
Most of all, they must come to terms with the fact that no one is going to invest their time and money into the artists' music and careers unless they can see a path to getting a return on that investment. That path is still taking shape in the new music landscape; often referred to as Music 2.0. It's still called show business and not show friends so investors have to have a stomach for risk. Artists can't afford to be bitter about having to do it all themselves and I speak to many who unfortunately are. Artists and their managers have the most to gain in today's business models and they get to keep a lot more of their rights and income than ever before. So, if they are diligent and their music is good they can earn a very decent living.
Online tools that artists can use are changing the landscape very quickly. Radiohead left their label and released their album on their own and used many online tools to track their own progress. A few weeks ago Counting Crows announced they too are leaving their label to go it alone. Granted, these are established bands with brand names. Few artists get to start out on their own with the same advantages but soon we are going to start seeing bands "breaking" all over the Web and bands and their managers need to especially make friends with analytic tools that will help them find their market and then focus like lasers on it.
These analytic services are going to be absolutely key to their future. They can't get where they're going if they don't know where they're starting from and they can't correct their course if they aren't able to see how (or if) their promotion and marketing efforts are working.
Nothing can replace good music, charisma, playing lots of gigs, having a good street team of fans who help artists spread the word and nurturing a growing fan base. However, there are so many tools now directly available to artists to help them do even these things that didn't exist just a few years ago that leveraging them is a must if artists are going to succeed in the new landscape.
I'll leave it here for now, but for good measure I'm throwing in a list of things artists should be doing and if you know any you can pass this list along:
First, they must get attention. Money will follow.
1. Artists should sign up to as many online social networks as possible where they can post theirs or their band's profile and music. They need to network with fans and similar bands on those sites. They include but are not limited to:
a. MySpace
b. Facebook
c. iMeem
d. Broadjam
e. Mog
f. Reverb Nation
2. They need to get valuable feedback and analytic information on their music from focus groups and real industry professionals
a. SoundOut
b. Music Xray (my company)
c. They should use Google Analytics to measure activity on their website
3. They should submit their songs to real industry opportunities, song contests and gigs
a. SonicBids
b. Music Xray (still my company)
c. Great American Song Contest
d. International Songwriting Competition
e. John Lennon Songwriting Contest
4. They should distribute their music to all digital retail outlets
a. TuneCore
b. The Orchard
c. IODA Alliance
d. Reverb Nation
5. They should consider "pre-clearing" their music for sync licensing (like Getty Images but for songs)
a. Pump Audio (actually owned by Getty Images)
b. AudioSocket
c. Sir Groovy
6. They should consider placing their songs on sites that enable their fans to "pitch in" to fund their recording and marketing.
a. Sellaband
b. SliceThePie
7. Especially they should stay up to date on the new music space. There are some very good blogs and newsletters they should be reading.
a. Music Think Tank
b. Hypebot
c. Mog
d. Lefsetz Letter
e. MI2N
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More powerful than anything else in internet relations is the development of a good official fansite. The most addicting fansites aren't necessarily the most sophisticated or the best looking. A good fansite should have an interactive forum, or at least some place where fans can track the band and share interests. Fansites can add a very personal touch to music when friends connect.
Another idea that I'm experimenting with is a music blog. Some blogs are more for browsers interested in feature stories of an artist that they are curious about, but others are for steadfast fans that want to share their videos from the latest concert.
My conversations with an Indonesian record company manager that has a terrific jazz swing band wanting to go international led to this news blog. I also like to imagine we're turning the business inside out, but it's all in fun.
http://moccasworld.blogspot.com/
"The Internet doesn't develop 'fans' ... Music has become disposable "
That's crap and it also denies a certain historical reality of the record business.
The labels have always treated music as disposable. That's why they often had songwriters on staff to crank out tunes they could then put on singles (later albums). The Brill Building anyone? And country music still does that. There was initially no attempt to make music relevant to anything until the artists and the hippies of the 1960's essentially did that for the industry.
I have found tons of bands on the net that have gotten no radio exposure and bought their cd's as a result and I'm not alone in that. It has enabled bands from europe to tour the U.S. on occasion as they see that there was an audience there and it has given music cultists an ability to network and put more information about otherwise obscure genres out there for the larger public.
Now music has gone back to being disposable because that is what the labels are releasing, garbage such as the Britneys and Jessicas and American idols.
Anyway, as it stands right now, finding new music on the internet tends to be kind of a lonely exercise. Artists haven't yet found a cohesive way to galvanize diffused audiences using the net like labels can in print and radio with their big advertising (and payola) budgets.
"Anyway, as it stands right now, finding new music on the internet tends to be kind of a lonely exercise. Artists haven't yet found a cohesive way to galvanize diffused audiences using the net like labels can in print and radio with their big --- budgets."
That's exactly right ... and, when labels finally suffer their ultimate demise, lonely surfers may still be able to find some music they will like ... but, hardly anybody else will care ... and that's why the concept of becoming a musician and/or songwriter as a career choice is toast.
A story today, makes that point I have been trying to make ... the new middle men are getting rich, the artists are getting pennies ...
CD Baby Payouts Cross $100 Million...
http://www.digitalmusicnews.com/stories/040509cd/view
... in the case of CD Baby, artist payouts have now passed $100 million. ... The critical question now is whether avenues like CD Baby can generate serious artist salaries, instead of just impressive aggregated payouts. So far, a limited number of artists are finding success, defined by earning enough to make ends meet (and quit the day job).
Consumers have to care enough about artists to understand that it is important to support them.
Wayoutleft, legends are NOT born exclusively onstage. Tell that to Brian Wilson or Phil Spector or XTC ... or the post-1966 Beatles, for that matter. Musicians shouldn't have to become touring machines in order to get their music heard. And they also shouldn't have to get an MBA in marketing, no matter what Mr. McCready advocates.
Record labels, in theory anyway, serve a useful purpose. They're supposed to weed out the good stuff from the crap and then get that good stuff into the public consciousness. And when they succeed, both the label and the artist should make money. The fact that record labels stopped achieving these goals doesn't mean there's something wrong with record labels, it means that the people who ran the labels screwed up royally when it came to doing their jobs properly.
Is it too late for old fashioned major labels to succeed? Maybe. But at some point people will get tired of searching the Internet for those needle-in-a-haystack bands and want someone to do the legwork for them. And at that point, hopefully the right people will be in the right place at the right time.
"But at some point people will get tired of searching the Internet for those needle-in-a-haystack bands and want someone to do the legwork for them."
Ah, give me convenience or give me death. Unfortunately, what you say has a great deal of truth there. Artists have to get together and find a focused way of getting their stuff out there for the public to hear.
"legends are NOT born exclusively onstage. "
The examples you cited are good ones, but the fact remains that most of the great bands did accrue popularity with live shows, especially as regards hard rock (Kiss Aerosmith, ZZ Top, Metallica, Iron Maiden, Rush, the Eagles, Jimi Hendrix, etc).. And the Beatles did earn their audience base with live gigs that gave them the freedom to experiment.
Unfortunately, with clubs closing or undergoing corporate ownership, there are fewer and fewer places for baby bands to cut their teeth and it is hurting the business because it makes fewer artists available for A&R guys to see and evaluate. So the internet thus becomes the only avenue for many bands to promote themselves and get seen.
By the way (and not that I'm done moderating here) but I want to thank you all for your comments so far. This is an interesting discussion. I will come back to music in future posts but I think my next topic is going to be related to how to go about getting funding and how to bootstrap a startup company in this economic environment. If you're interested, sign up to be alerted to future posts or follow my Twitter feed (@mjmccready). Music again in a month or so.
"Between these strategies and the strength of their catalogs, these companies will survive. But in all likelihood they will promote fewer new acts with new music."
The fact of the matter is that the labels put very little into 80-90% of their acts beyond the initial production costs of their albums. Basically, the strategy was, like a chimpanzee at the zoo, just to throw tons and tons of stuff out there and hope that some of it stuck. Only when an act began to gain traction among music fans would they then start putting money into them.
The truth is that too much of the promotion dollar by a record company goes for established acts who already have a large fan base rather than putting it into fostering a stronger, broader core of acts.
Finally, missing from McCready's list of recommendations was for artists to become involved in a bigger way with internet radio. Terrestrial radio is dead as a promotional vehicle for new artists. So it is very much in the interest of the musician community to see that internet radio succeeds.
You are right RobinSeattle. Let me add to the list:
Pandora
Last.fm
Slacker
There are others but these are the leaders.
Live365 is better than any of those.
A very nice article with good information.
I notice the red herring of file sharing has popped up again.
There is a decent discussion of the issue http://whatsinmyipod.blogspot.com/2008/04/music-blogs-are-killing-music.htmlic.html
The important point, from writer Cory Doctorow: "David Blackburn, a Harvard PhD candidate in economics, published a paper in 2004 in which he calculated that, for music, "piracy" results in a net increase in sales for all titles in the 75th percentile and lower; negligible change in sales for the "middle class" of titles between the 75th percentile and the 97th percentile; and a small drag on the "super-rich" in the 97th percentile and higher. Publisher Tim O'Reilly describes this as "piracy's progressive taxation," apportioning a small wealth-redistribution to the vast majority of works, no net change to the middle, and a small cost on the richest few."
The paper can be found here...
http://www.katallaxi.se/grejer/blackburn/blackburn_fs.pdf
Click on my profile if you want to hear my works for free. Donations ARE accepted, of course. It is a blog on blogspot called Pen & Mallet...penmallet
another "expert" promoting theft....nice...yeah yeah...stealing is actually beneficial to the industry...
why don't you go into your local drugstore and walk out with an arm full of merchandise and use that logic on the police when they arrest you...see how far you get...
Yeah, don't let a careful analysis shake your conviction.
Your gut reaction FEELS right, so it must BE right.
This is a good road map for things unbranded artists can take advantage of in today's music market place
The most important take away, however, is the lowing of expectations for musicians and songwriters contemplating careers in music: "... the days of exploding stardom are going the way of the CD and the major labels..."
The reality is that if new artists can't find a way to jump from the internet to traditional exposure - radio, TV, magazines, newspapers, etc. - they will never build an audience large enough to sustain a career and earn a living.
Thanks to the endless quantity of freely available music on the Internet, the relationship between artists and 'fans' has changed dramatically. "Fan" is short for 'fanatics' ... people obsessed with someone ... The Internet doesn't develop 'fans' ... Music has become disposable ... There is no artist loyalty ... There is no brand building... The relationship today is artist to delete key ...
The bottom line? There is no serious money to be made from the Net for artists... unless they have been branded via traditional means ... There is good money, however, for those who aggregate the offerings of many unknown artists... These new middlemen get rich while artists get pennies. Many of the companies named by Mr. McCready are aggregators.
Thanks to the Internet and the carnage consumers have reaped on all artists - branded or not - new artists must understand that the brass ring has been removed from music's
No, no no no no... that is not what I'm saying.
Many more artists than have done so historically will make a very decent living as musicians. Mass stardom may be more elusive but many more artists will be able to reach their core constituencies and their REAL fans. Even a very niche band that may only have 10,000 "potential" fans all over the world will likely be able to effectively reach 60% to 70% of them eventually, thanks to the Web and tools that will help the fans and the niche artists find each other. Those fans will support their artists by buying enhanced digital products (yet to be fully developed and introduced but that will emerge), buying artists' endorsed products & services and buying exclusive access - (perhaps access "webcasted" concerts / recitals etc). A lot of these revenue models haven't been developed yet but where there is a demand there will be business.
Music is alive and well and more money will be made from it than ever before. "Middlemen companies" will absolutely NOT survive unless they are creating value. The Web provides transparency. Chat rooms, blogs and community policing will expose the companies and professionals that do not provide substance and value. Much more fraud and "advantage taking" is committed in the traditional music business than will EVER be tolerated or than will even be possible in the new landscape.
As a listener, I think music services will the model that ultimately wins out. Rhapsody is currently the only one worth it, but once competitors emerge, I believe most listeners will get their music from service-based portals. Rather than owning music, listeners want to listen to music (ignoring, for now, collectors - for whom the physical object is important). Whether this takes the form of customized digital radio stations or large archives of music that you pay to have access to (like Rhapsody), I can't predict...but the music services will be the gate-keepers. The major labels would be wise to move to this model soon, imho.
Mike, I'm sorry but you are engaging in 'sales pitch" rhetoric.
For instance, please define what you mean by a 'decent living' and what the true cost in terms of time, effort, and dollars will be to achieve this so called 'decent living."
Also, it would be interesting to know how long you believe artists will be able to maintain this 'decent living' before they get bored with busting their chops for little return, or their audience gets bored with them and abandons them ... or until everyone in the band realizes that they are getting too old to be fooling around for peanuts and figure it's time to get a real job.
Newbie would-be professional artists will put up with the joyful pain of starting out if there is hope that they have a chance to 'hit it big.' Consumers, via the Internet, have removed that hope. The era of the super star is - as you point out - over. Once potential artists embrace that reality, fewer and fewer truly talented people will opt for the musician's life.
That won't hurt the new middleman's business, but it will be devastating to talented musicians and to consumers who will have brought it upon themselves.
Create a song. Upload the song to a repository, such as archive.org, which is mirrored by the Great Library of Alexandria. This ensures there will always be one address where the world community can find the song.
License the song under a Creative Commons license. This ensures the world community will be able to understand the terms for use.
Create a channel on Miro.com. This will ensure an archive of shows that the world community will always be able to access in a television mode, as well as from archive.org.
Choose a cause. Any cause. The artist will now have a path to world travel as she "champions" the cause, in return for travel expenses.
Enjoy your new career, and don't forget: sell 20,000 CDs a year at $10 a piece from your web site, and you'll die rich.
oh...cool...thanks...it's so easy to sell 20,000 cds a year...now i know what to do...
I use archive.org. It is a nice option (example: http://www.archive.org/details/Chokeeponymous).
I'll have to check out miro.com. Thanks for the tip.
To hell with downloading. It has killed the romance of music. Go sell beans.
Bob Lefsetz (of Lefsetz Letter mentioned in my post) has often said that music has lost its place as the heartbeat of social relevance (to paraphrase). He's pointed out that video games and other sorts of interactive entertainment, even Mac computers and iPhones are more exciting today as a social pace-setter than is music. It's not because of downloading so much as due to so many musicians going after the quick buck through a meaningless pop song instead of writing Dylan-esque socially moving music. However, I think there's always room for a great pop ditty.
I think Silvanus is onto something by saying that downloading has "killed the romance of music." I'm convinced that part of the current problem with the state of the industry is that there is no longer a physical product that one can hold in one's hand and savor. Think of almost any music buyer you knew 10 years ago: their "jewel cases" were typically turned into a shrine. This was partly due to practicality (i.e., the need to store them). But it also involved the joy of collecting and displaying--for self and for others. Billions of dollars have also been spent on DVDs during the last decade. Was that only because people wanted to watch movies and not pay late fees on rentals? No...they wanted to own and display the DVDs. Status symbols mean very little to most people if they cannot be seen by others! Without a physical product, the "record" (or movie) is abstract and diminished in value. Why? in part, I suspect, because it is hidden (i.e., on my ipod where nobody but me can see it).
Even though I was hoping you were the other Mike McCready (Pearl Jam), I have to say I was not disappointed. Brilliant analysis, people would do well to listen to you
yeah...amazingly brilliant!!!
and musicians can go to his website and pay $10 - $40 or more to get their songs reviewed or entered into contest...boy that's sure the future of the music industry...i've never seen anyone try that racket before! oh...i mean "new business model"....
StuCop, please read this: http://www.musicxray.com/our-commitment/
Yeah. I get a the Pearl Jam confusion from time to time. No one makes that mistake however after hearing me play guitar ;)
Thank you for the kind comment.
this article does not address the real reason for the demise of music...piracy...illegal downloads...
it's not about artist v. labels....i think at some point in the very near future artist will look back and say...remember the good ol' days when labels were around...
it's artist v. thiefs...thiefs, not fans. fans actually understand that if they don't support the artist they love by paying for their music then chances are that artist wont be able to continue making music...the quality of music and artistry of music will decline...and soon music will all be created as a marketing vehicle
illegal downloads will be more than just the death of record labels...it will be the death of music...
just b/c a technology makes it easy to steal...it doesn't make it right...
There are other reasons. The highest rated radio stations are either talk-radio, "classic rock" stations that have hardly changed in 20 years, or "easy-listening" stations that provide a workplace palliative. In those cases, they provide no incentive for anyone to buy music.
There are stations that play new music - they tend to college or small community stations. They can drive some sales due to exposure of new bands, but the audiences are necessarily small - and with the variety that is there, the market gets diluted between those that are available.
Concerts can also drive music sales. But if the big concerts run in the $75 to $200 range, the market is naturally limited - if it's a small band playing with $10 tickets, the audience is limited. In either case the ability to derive significant sales is diminished.
The availability of a wide range of material is also very high - as are the means by which to buy it. This dilutes how much any one outlet can control the market.
Finally, most of the pop acts that are pushed and promoted by big media are so dismally horrendous that there is no reason to be interested in them.
I buy CD's very sparingly - I've bought perhaps 10 or so ever. I've never pirated or downloaded anything because I'm not interested enough to do so either. Those that do seem to do so for the sake of collecting them: those sales would never have happened anyway.
"I buy CD's very sparingly - I've bought perhaps 10 or so ever. I've never pirated or downloaded anything because I'm not interested enough to do so either. Those that do seem to do so for the sake of collecting them: those sales would never have happened anyway."
if you've only ever bought 10 cds and don't care to buy more then I don't understand why you are commenting in the first place...you don't seem to be interested enough in music to have an opinion.
as far as the claim that those who download music wouldn't have bought it anyway...that's pretty weak...they definitely won't buy it...b/c they've just stolen it...and they've made it available for others to steal...there is no such thing as a "no impact" theft...
just b/c technology makes it possible to steal does not make it right...
it's pretty easy to steal a car or pick a pocket...actually probably quicker to steal a car than to download an album...just b/c it's quick and easy doesn't mean it's okay to do...should those that own cars and sell cars simply have to "get with it" and move on to other revenue streams b/c it's easy to steal a car? maybe we can all just make money off of selling t-shirts....b/c the people that steal our products say we have to...
the legends are born in one place only- the live performance stage. musicians have to figure out how to market their stage performances. although maybe the vast majority of musicians' fans have never seen their idols on stage, most of their exceptionalism is rooted in a legendary stage performance and has grown from there. maybe this is more true in rock than hip-hop/rap, just not sure. arcade fire is fairly recent example.
can a live event at a great venue be simultaneously shaped into a compelling, commanding online or tv event? music product with no visual element may have carried music culture about as far as it can commercially. so far, european progressive trance has the strongest live presence and live product on the globe.
http://video.google.com/videoplay?docid=894572661884665330
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