Majors to New Bands: No Use For You!

Here’s a little epiphany I had yesterday that I don’t think many musicians are thinking about, or maybe so many acts are just resigned to an indie existence that it doesn’t even really bother them.

My idea is: the industry no longer needs to invest in new talent in order to be profitable. Due to plummeting album sales (check this out from the New Music Seminar) they don’t have the budgets anyway, but even if they did, it probably wouldn’t be the most profitable option.

The argument resides mainly in the ideas put forth by Chris Anderson in his book and blog “The Long Tail.” The pre-digital, pre-web markets of yesteryear were based on limited shelf space. Anderson explains how a Tower Record store in NYC paid rent, and that rent was divvied up so that the rent for each little shelf space that held a CD had it’s own fraction of the rent. In this model its easy to see whether it’s profitable to stock a CD by asking, “is it losing money, breaking even, or making money after the rent cost to shelve it?” The result of this business model was a trend towards stocking the biggest hits of the day. Sales for a new CD generally peak at or near the release date, so new releases had the highest return on the rent cost to shelve them. Once sales started to tale off the standard dogma was to replace the CD with the next big hit, and thus maintain the highest profit margin. This drove the whole industry towards “New Releases.”

As Anderson points out, we now have entered a digital web-based market that has unlimited virtual “shelf space,” and basically no cost of rent for that shelf space. What this has revealed is that residual markets for music are actually pretty darn good, even if they can’t compete with the huge temporary peak in sales that follows a new release, the new dogma of today is, aggregate enough good residual earners and it can be just as profitable as the “New Release” market of yesteryear. For instance Rhapsody boasts nearly half its sales from music that is not available in physical stores. And this sector of the market is growing fastest.

What this means for the major labels is they are sitting on a goldmine. Their enormous back-catalogs of music have a huge hungry market that is waiting to consume it. Maybe no single title will rival the latest Gaga release, but wait long enough and eventually they rival her residual sales. How many strong residual earners (eg Michael Jackson, Pink Floyd, The Beatles-Amazon and iTunes STILL don't offer downloads of the Fab Four!!) do you need to equal one temporary hit? Probably not that many, and major labels are sitting on 1000s of titles, many still unreleased digitally, that in aggregate have astounding earning potential.

If I was working at a major label I would be thinking about how to license my enormous back-catalog that already has a built in market. I would not be thinking about which unknown band to take a costly risk on next. To the unsigned bands and musicians of today, major labels just don’t need us!

Does this mean give up? Hell no! Unless we all want to see a huge reduction in the new music that comes out, we need to band together to create the future of the market, converge on curated streams of music, and together we can define where people hear new music, and find out what’s good. It is most certainly up to us to do this in 2010.

In closing I’d like to show you this (hilarious) graph offered up by LiveNation, apparently in all seriousness, at one of their latest conferences. Bless you for your optimism LiveNation, if not for your completely unfounded, unsupported, “New Model.”

Technorati Tags: New Music Seminar,Long Tail,Chris Anderson,Tower Records,digital market,Rhapsody,Lady Gaga,back-catalog,Michael Jackson,Pink Floyd,The Beatles,Music Industry,Record Labels,Record Label,New Release,Live Nation,New Model

Squeeze: “Whatever Worked”

The saying used to be “whatever works,” but in the 21st century music industry it is more like, “whatever worked.”

Squeeze, a band that you probably don’t realize you know, played Radio City Music Hall on Tuesday as part of a big comeback tour of 2010. To refresh you memory on who the heck Squeeze is, here’s a Youtube of their classic, “Tempted” from 1980.

Pretty cool stuff huh? Yes, there is certainly nothing wrong with Squeeze. They have style, talent, and creative songs. But buried below the headline there’s a story that gives major insight into the state of the music industry today.

You’d think that with a big new tour in 2010 Squeeze would have a big new album to go with it right? Well…sort of. Actually, they have been spending their time in the studio re-recording their hits from the early 80s. Universal owns the originals of these recordings and won’t give them up, forcing Squeeze to re-record them if they want to sell them on tour. So you have a 30 year old band selling 30 year old music in NYC this week. It’s as if the whole industry is just stuck.

When Mp3s took over, and the industry tanked, the money for record deals and development of artists tanked with it. Apparently it is more profitable for Universal to engage in legal battles over the fate of 30 year old recordings than it is for them to help develop and promote a new album for Squeeze. And the flip side is, Squeeze knew that if they wanted to make any money this tour they were better off re-recording the hits than pushing something new. Without big record contracts and marketing budgets, its very hard to make new trends for listeners. So for the time being, I guess the mantra will be “whatever worked” for musicians and labels.

I hope we can one day get back to “whatever works!”


Squeeze Tempted

Technorati Tags: Squeeze,Music,Music Industry,Radio City Music Hall,Tempted,Labels,Universal,Music Labels,Record Contract,Listener,NYC,2010,Tour

Why did the record industry crash?

Well it’s been a while since a post huh? I’ve received some good advice that if I want to make a go at this blogging thing, I’m going to have to put aside my tendency for editorializing, and just get to the point…regularly. Looking down at this monstrosity it seems I may have failed at the “not editorializing” part, so lets hope I can succeed with the “regularly” part in the future…

Why did the record industry crash? Simple. Flat-out refusal to modernize to the digital era until way too late. Instead, the industry chose to fight tooth and nail against any service designed to distribute Mp3s, a fight they were absolutely destined to lose.

Why? Because Mp3 technology is absolutely amazing! (all you audiophiles out there I hear you gagging, but hear me out…) What many people don’t remember is that audio, previous to the advent of the Mp3, was very data rich. If you wanted to copy a CD to your computer you had to have around 500mb of free space available. Consider that my Mac LC2 that I owned in the 90’s, only had a hard drive that could hold 275mb, so in that era I could not have even fit a single CD’s worth of music on my hard drive!

Mp3 technology came along and all of a sudden music took up 10% of the space. Consider what an amazing technological feat this is that Mp3s retain only 10% of the data of CD quality and yet 99 out of 100 people absolutely cannot tell the difference when listening! When video is compressed we can immediately tell by the fuzziness, pixelization, and frame-rate, but due to the psychological nature of Mp3 encoding that leaves the mid-range (the part of the music that has the voices and the guitars) relatively unscathed, most people simply don’t hear the loss of quality.

The Mp3s tiny size made it easy to send and receive on the internet, guaranteeing the demise of the CD. It was sort of a Harry Potter-esque situation: “…neither can live while the other survives.” Major labels fought extremely hard to suppress all Mp3 distribution platforms, which made it a bit harder to find music online at times, but didn’t help declining CD sales one bit! Let’s face it the whole world was in love with Mp3s. If the recording industry succeeded in shutting down one site or file-sharing platform, we just moved on to the next. We loved that we could find any song imaginable, and be listening, almost instantly, for free.

The miscalculation of the industry was their belief that they could and should try to fight the Mp3. Inside the industry, Mp3s were initially synonymous with piracy, and there was blanket refusal to even consider online digital marketplaces for fear that Mp3s purchased would immediately be illegally dispersed. The reality is Mp3s were, are, and always will be illegally dispersed, there’s just nothing anyone can do about it and it certainly didn’t mean that the industry shouldn’t condone, promote, and sell them.

The recording industry had the chance in the settlement with Napster in 2000 to convert the illegal service into a legitimate vendor of music, and instead chose to shut it down. The stupidity of this decision is overwhelming.  How long did they think they could push a vastly inferior product (CDs), to a consumer base that had already tasted the forbidden fruit? Piracy was beside the point!

Instead of fighting so hard against Mp3s, what the industry should have done was realize that “free” was really only half the allure of the digital music marketplace from the consumer perspective. The other half is the huge searchable catalog of instantly downloadable music. As iTunes (now the biggest music retailer in the world) has proven, many consumers prefer to spend $1.27 at good ol’ reliable iTunes than wade through the murky waters of bit-torrent to get the same song for free. By the time the industry came around to iTunes it was too late, CD sales had plummeted leaving the industry in shambles.

There are lasting effects as well: Due to the industry’s initial failure to modernize they now have a gaping hole in their sales. My generation was used to buying CDs before Mp3s came along, and many of us, after downloading pirated music wildly in the early part of this decade, are back to buying music. iTunes customers are about 75%  25yrs old and up, so iTunes has not created a new market, it has mainly just salvaged the old CD buying market. The younger generation that is now 18-24 yrs old , basically grew up thinking music was free, and not surprisingly, they are buying music at a historically low rate- a huge problem in the very demographic that the industry depends on for massive consumption.

Technorati Tags: record industy,iTunes,CD,Mp3,music,music business,free at any price,recording industry,downloads,music downloads,free music downloads,record industry crash,iTunes sales

The Comcast Ruling, Net Neutrality: What's Really Best For Musicians?

Last week, the courts ruled that Comcast answers to no one. Comcast, which owns the fiber optic cables in the ground that bring the internet to our computers, can now legally limit, deny, slow down, or speed up web content as they see fit. Here's an example of why this is a terrible ruling: Comcast is in the process of acquiring a majority stake of NBC. It would not be surprising then, if NBC web streams were to speed up dramatically, and while they're at it, why not slow down Youtube, and block CBS entirely? I hate the idea of powerful entities controlling what I have access to, and the miracle of the internet is that I have come to expect something different. 20 years ago, we chose between radio, newspaper, and network TV. Now we choose between those things and countless other resources that all stream to us at lightning speed over the internet. Youtube competes directly with NBC for our attention.

The Comcast ruling brings to light a massive conflict of interest between consumers and major media. For the most part, I think consumers want fast access to infinite variety, and they don't want Comcast limiting the available options and siphoning them off into "prioritized" websites with greater band width and higher speeds. There is evidence to bare this out. In his book The Long Tail, Chris Anderson notes that nearly half of online music retailer Rhapsody's revenue comes from selling niche and back-catalog music. Stuff you would never find at Tower Records. Major media outlets however, want to corral as many people into one stream of information as possible to create advertising revenue. In the past they have done it by buying radio towers, satellites, and printing presses that only they could afford. Now anyone with an iPhone has access to those things. The Comcast ruling opens the door for major media to once again use massive budgets to buy out the delivery infrastructure.

Musicians are caught in the middle of this. We want free access to millions of listeners via the internet, but we also want to make sure people are actually listening. In a market where listeners have infinite choices and get their music from dozens if not hundreds of sources, how do you reach them? Just uploading your music to every online service does not produce results. Developing artists now have a huge conundrum: no obvious battle to pick.  Chris Anderson uses a nice little metaphor to describe the media markets of the 20th century. He compares them to islands jutting up from a vast sea. An island might represent a radio station with all the hit songs of the day clustered above sea level. What the internet has done with its unlimited storage capacity and fast and accurate search-ability is lower the water level revealing fossilized remains, fresh garbage, a lot of dirt, and the occasional hidden gem under the surface. So this is good, there is exposure now where there wasn't before. But before, the goal was so simple: just make it to an island. In today's market we have to figure out how to leverage the exposure we have. And we are competing not only with those in our immediate community, but with every other band across the country and the world.

When I was 17, touting Shawn Fanning as a hero, I neglected to notice that all my favorite CD's were from major-label artists. The irony of this was lost on me. Like the food on my table, and the clothes on my back, I took a lot for granted in my youth, and just didn't get it that if everyone starts downloading music for free, I could kiss my major-label CDs goodbye. In many ways that's exactly whats happened. Major labels still sign bubblegum-pop-artists, (I put Lady Gaga in this category, yes bubblegum has become a lot more "scandalous" in its old age) but that's pretty much the only thing they take a risk on because it's the only consistent seller.

Major labels used to actively search out, sign, and develop musical acts of a higher artistic standard. Really. (Lady Gaga you're definitely an artistic lady, but your music is the least artistic part of your act.) When the Red Hot Chili Peppers released Blood Sugar Sex Magik in 1991, they were signed to Warner Bros. Records. In terms of labels, it doesn't get much bigger than this. The album peaked at #3 on the billboard and sold over 13 million copies (according to wikipedia). But the Chili Peppers were the farthest thing from pop music. They didn't sound anything like Michael Jackson, or Madonna, or Lady Gaga. At the time they were combining funk and punk, creating a pretty unique sound. An executive at Warner saw what they were doing, thought it was musically awesome, and took a massive risk on them. Back then, labels decided what we heard and didn't hear. If they wanted us to hear a band they would spend millions promoting, getting it on the air, and into record stores. Labels had a choke-hold on the distribution streams, which they have completely lost in the internet era. With the latest Comcast ruling maybe they can get it back.

If you time-warped the Chili's from the early 90's to today, I strongly believe that they would never be signed, no one would ever hear of them, and they would be languishing in obscurity in LA, counting the hits on their Myspace page. This is because it takes a massive industry to take something new and edgy and turn it into a household name.

So the question I'm posing: Where's the happy medium between a massive industry that decides what you hear, and totally free access for both musicians and listeners?

Tags:  Comcast NBC Youtube Chris Anderson Long Tail Rhapsody Tower Records Shawn Fanning Lady Gaga Red Hot Chili Peppers Blood Sugar Sex Magik Warner Bros. Records Michael Jackson Madonna

An Introduction:

When Shawn Fanning, the creator of Napster, was being sued by the record labels some 10 years ago, I heralded him as a martyr and a hero. Napster was the first application to come along and make it irresistibly easy to find and download any song imaginable for free. The battle between Napster and the record labels seemed like an obvious David vs Goliath. I considered record labels to be evil corporate entities, mostly peddling garbage, and was thrilled to watch them be cut down by one nerdy kid with a knack for programming. Now here it is 10 years later. I graduated from college in 2004, and since then I've been pursuing my music career as a bassist in NYC. What I'm seeing makes me wonder if I wasn't completely wrong about Napster. At the very least, I totally missed the significance of what was going on and how it would shape the industry for years to come.

I've been hearing it for years, people saying there's never been a better time to be a musician; that the power of the internet has leveled the playing field and you don't need big budgets to build a career anymore. This blog intends to examine this question in depth. Have things gotten better or worse? Are we experiencing an explosion of artistic creativity or are we being bombarded by crap? Is the new digital marketplace actually working better for musicians, or just for online retailers like Amazon and iTunes? Is it easier or harder to make a living playing music now that labels have lost so much power?

I'm hoping to come up with a plan: by assembling a group of musicians, executives, and enthusiasts through this blog, and discussing these issues, I hope to come up with a model for a modern record label.