Recent information concerning the music industry

OCTOBER 29, 2007


OPINION -- MEDIA CENTRIC Leaving Record Labels Behind Musicians are looking for an alternative. Their managers may be the answer


To divine what the record label of the future might look like, keep an eye on the relationship between a band and its management.The creaking and jerry-rigged structure of the major-label music industry continues to sag. Madonna ditches her label for a complex $120 million, three-album pact with concert promoter Live Nation (LYV ). Radiohead self-releases its In Rainbows and makes a digital version available for whatever fans want to pay. (Me-too mutterings from other artists follow.) Radiohead's move netted kudos from writers and bloggers, which, given how many writers and bloggers adore Radiohead and despise the music industry, shouldn't surprise.


But none of this is entirely new. Madonna's move—teaming up with a powerful industry player that's not a record label—was presaged by last year's partnership between the Eagles and Wal-Mart (WMT ) for the band's upcoming Long Road Out Of Eden. That deal gives Wal-Mart, and the Eagles' Web site, exclusive North American and Mexican retail rights. Canadian songwriter Issa, formerly known as Jane Siberry, has long offered pay-what-you-want MP3s on her Web site.To paraphrase Churchill, this is not the end of the music industry as we know it. But it may be the end of the beginning of the end. (Got that?) To sing this reprise again: Physical CD sales continue to tank, and the traditional music retailer is dead. The decline of the CD frees artists to consider primary relationships with nonlabel entities. Savvy management types like Coran Capshaw of Red Light Management (star artist: Dave Matthews Band) and John Silva of Silva Artist Management (star artist: Foo Fighters) have enviable rosters, and skill sets and side ventures worth noting. Capshaw founded record label ATO and fan club/merchandising firm Musictoday—a majority stake in which was, notably, purchased by Live Nation in 2006. Previously, Silva was co-president of Digital Entertainment Network, an ill-fated dot-com attempt at creating a Web-centered video play and record label. Might guys like them eventually outdo the traditional players at, you know, being a record label?In an LP- or CD-centric music world, a label had enormous advantages. It took care of the logistical nightmare of producing, warehousing, and distributing a few million units, and staffing up retail promotion teams to service the beast. That advantage evaporates in the transition to digital. Other market conditions further weaken big labels' grip on artists. Sliding sales and revenues mean labels can't develop slow-building artists, nor can they patiently tolerate stars' occasional slumps. So veteran acts are apt to be labelless for portions of their careers.And often the closest relationship—business, and sometimes personal—that a working band has is with its manager. He or she generally serves as point person to a band's label, and to other arenas in which a band does business, such as tour booking and T-shirt sales. Transitioning to label-like functions is "something managers have been talking about for a long time," says Brian Long of Yes Know Management, which reps disco punks VHS OR BETA. Long, who founded electronic music label Astralwerks, calls such a move "the natural evolution of what a manager already does." In these dispirited times, label executives concede that the guy closest to the band could have the upper hand. "It's a logical place to go," says one.Of course, the grunt work of manufacturing and distribution remains onerous. CD sales are down, but big-deal artists still need to press several hundred thousand. That's a massive capital undertaking for a management firm, and one that could backfire badly if said CD tanks. (Despite all the hype, Radiohead's management made clear that In Rainbows also will be released on an established label next year.)Neither Silva nor Capshaw is known for seeking the spotlight, and both declined to comment. But Radiohead shows that an unusually motivated, successful band can, however briefly, assume the role of a label. Many musicians I know would not want to captain making dinner, much less a complex production and promotion process. The business types, though, are different. Given the chance to solidify their grip on their artists and make everyone richer, why shouldn't they try to do it all?For Jon Fine's blog on media and advertising, go to www.businessweek.com/innovate/FineOnMedia




Universal CEO Doug Morris makes an easy target for the blogosphere.

This is the old-school record industry executive who called iPod owners thieves and wanted broad legal enforcement against piracy — enforcement that, in the end, seems to pale in comparison to the revenue generated by actually offering online sales. So, now that Morris has gone up against Wired, the blogosphere can easily see him as a dinosaur.
Universal’s CEO Once Called iPod Users Thieves. Now He’s Giving Songs Away. [Wired News]
But as artists, all of us face a fundamental problem: how do you put value on something that’s ephemeral? It’s an age-old issue that has faced musicians explaining to their parents why they don’t want a real job, and artists to their patrons when affixing a price tag. (And as we’ve seen from veteran software developers and the BanPiracy debate, software “artists” face the same challenge.) Sure, people love to talk piracy, because it’s easier to talk in those terms. Piracy is theft, theft is crime, and crime is bad — including making a mix tape for a friend. Or all music should be free, and never mind that artists need health insurance and rent money. They’re black and white extremes, entirely couched in moral/philosophical terms, neither of which contend with how to solve the actual real-world problem (at least, not if you stop there).
And then I came across this quote from Morris in the interview:
“Really, an album that someone worked on for two years — is that worth only $9, $10, when people pay two bucks for coffee in Starbucks?” Morris sighs. “People never really understand what’s happening to the artists … If you had Coca-Cola coming through the faucet in your kitchen, how much would you be willing to pay for Coca-Cola? There you go,” he says. “That’s what happened to the record business.”
Wait a minute… a liquid that comes out of your faucet for free, but is also sold, in bottles, at retail. How much would you be willing to pay? Hmmm… this sounds familiar.
It’s called water.
And how much are people willing to pay for the privilege of packaging, control over subtle variations of taste, and mobility? Quite a lot, as it happens. More than Coke. It’s not uncommon to see Coke for $1.50 at a grocery, and $2.00 or even $3.00 for water. In fact, Coke might have gone for the running water through the tap idea, as additional revenue and a way to increase consumers’ taste for the stuff.
Oh, yeah, and that tap that runs water music into your home for free … the radio? Not a new invention. None of these things is easy to monetize, mind you (ask your local public radio station during their pledge week), but it’s clear there are ways to make people see value.
If this isn’t a lesson for the music industry in the digital age, I don’t know what is. Find a way to increase consumer perception of value, even if the thing supposedly can be gotten readily. Find a way to sell the packaging, and find a way to make that purchase part of people’s daily routine. (And music, in case you haven’t noticed, is ubiquitous these days whether you touch a torrent server or not.) And maybe the bottled water people could teach us a thing or two.
As it happens, Universal’s digital music schemes seem to be a decent start strategically. They have two prongs: one, distribute music, DRM-free, in multiple stores, breaking up the Apple iTunes/iPod monopoly with music that can be bought and played everywhere. Two, provide subscription music, with DRM, for free, subsidized by hardware manufacturers. Now, if the subsidy makes business sense for manufacturers, I honestly don’t see anything wrong with that. Universal ransomed Microsoft over the Zune, which I personally found ridiculous, but now at least the hardware makers get something in return. And while DRM on music you’ve paid for, on subscription services it actually makes some sense. In fact, usually if you really grow attached to music and want to make it mobile, you’d then buy non-DRMed music. Problem solved.
The only really strange twist: a new breed of Apple iPod fanboys, who get their panties in a bunch over the idea of music being bought anywhere other than iTunes and played on anything other than iPod. (I miss the Mac fanboys who fought for you when IT wanted to install a Dell with Windows ‘98 and Novell. Those were the days.)
Personally, I don’t see the problem. With DRM-free MP3s, any device can be a playback device — iPod included. And as far as subscriptions, if you don’t want them, ignore them and buy the MP3s. If you do want them, you can already play Rhapsody over the Web with a Mac and Linux. Firefox + Rhapsody + Linux works quite nicely, in fact. You can’t use them on mobile devices yet beyond Windows, but that seems like a fixable problem — a technological problem, particularly since these devices should in future connect directly to wifi or phone networks, not your computer.
But artists don’t have to worry about such things: you want your music everywhere. And if, in fact, Universal is a dinosaur, then the question is, can you find someone else who does know how make water thicker than Coke?



Everything in the music industry is up! (except those plastic discs)

At a speech last week I was asked a question that has come up every day since the Radiohead (and Madonna, NIN, Prince, etc, etc) announcement: What's going to happen to the music industry?
To which I answered "Which music industry?" You don't mean just the one that sells CDs, do you? Because it's a big mistake to equate the major labels and their plastic disc business with the industry as a whole. Indeed, when you stand back and look at all of music, things don't look so bad at all.
Indeed, it appears that every single part of the music industry except the sale of compact discs is up.
Concerts and merchandise: UP (+4%)
Digital tracks: UP (+46%)
Ringtones: UP (+86% last year, but probably just single-digit percent this year)
Licensing for commercials, TV shows, movies and videogames: UP (Warner Music saw licensing grow by about $20 million over the past year)
Even vinyl singles (think DJs): UP (more than doubled in the UK)
And, if you include the iPod in the music industry, as I'd argue a fair-minded analysis would: UP, UP, UP! (+31% this year)
Only CDs are down (-18%). They're around 60% of the industry not including the MP3 players, but just around 25% if you do include them.
So the problem with the music labels is not that music is an industry in decline, but that they have a too-narrow view of what business they're in. Madonna's switch from a label to a concert promoter should be a clue. This quote from an excellent article (it's worth reading it all) in Entertainment Weekly says it all:
''Soon a lot of these companies won't define themselves as record companies,'' says Steve Greenberg, the former head of Columbia Records who now runs the independent record company S-Curve. ''They'll define themselves as artist development companies. If you're involved in an entire career with an artist, then everyone's interests can be aligned."
I think most music will soon be free, as artists give away the product as marketing for their performances and licensing, and as a celebrity accelerant that creates more opportunities to make money than just from the sale of a record.
And for those who say that this avenue is only available to artists at the head of the curve, such as Madonna and Radiohead, I'd point out that the other group poorly served by the labels are those at the bottom of the curve, the many thousands of bands who fall below the radar of the hit-driven majors. I'd argue that they, too, have nothing to lose by letting their music go free, nothing to lose but the prospect of becoming indentured to companies stuck in last century's model of monetizing music,