I started this site in 2002 to provide information about distributing music for DIY artists. At that time big record labels were suing people who made file players and anything that moved online. They routinely dissipated 90% or more of their income (and still do) making almost no profit. Their plans for the future were limited and based on safeguarding record sales.
2007 was a watershed for recorded music. The changes begun by the web (1991) and MP3 (1995) finally went mainstream in spite of rather than because of the record industry. There is still some way to go before they take full effect but this was the year it became obvious. Nobody seriously thinks subscription sites will replace iTunes any more. In 2008 DRM and the major record labels are less relevant. An update is overdue.
It is now generally accepted that the failure of the big labels to license Napster in July 2000 was a fatal mistake (there were negotiations but the labels couldn’t agree). The greed and hubris of their alternative strategy—selling SDMI copy-protected files and subscriptions through their own online shops—was doomed to failure. They were badly advised and not smart enough to see it.
Today the record business is stagnant. CDs provide about half their income and the other half is roughly split between licensing and digital sales. Since 2000 they have done little except cut costs and piggyback on the growth of other businesses. Mainstream CD sales decline every year. The decline in physical sales is particularly painful because they had such big margins.
CD copy-protection is dead and DRM lingers only for subscriptions and technical blind alleys. Even Apple, who had the most to gain from proprietary file protection, campaigns for and sells DRM-free music. But the record industry no longer has a universal format like the CD—the tracks you buy online won’t play everywhere.
The big labels make frequent announcements for shareholders and Wall Street but they are out of commercial ideas. Their main ploy is to get revenue from related business: touring and merchandising with 360° artist deals; hardware royalties from file players (e.g. Zune); “all-you-can-eat” licenses from mobile phone users (e.g. Nokia); sharing advert revenue (e.g. Imeem).
The record charts tell us all we need to know about today’s record industry. The biggest artists are from past decades and megastar income is from world tours rather than hit records (footnote).
The once-Big Four are a shrinking force in a shrinking market. Apple Inc is bigger than the major record labels put together. The record industry is smaller than the electronic games industry. It’s a minnow in the entertainment sector. The only major label group asset that retains value is publishing.
(The crisis in High Street record retail is deeper than the decline in physical sales. For some years record sales and big discounts have been moving to supermarkets. Most chart CDs are now bought with the groceries or online at unbeatable prices. High Street retail would be in trouble even without the CD sales crash.)
Indie labels have always been sharper than the majors and better able to move with the times. They are more in touch with their audience and exploit new technology effectively, but the downturn in record sales has hit them too. 360° or general profit-sharing deals are more convincing for indie artists but the desire to get on a label is not what it was. Their future includes promotion and management but at least they have the skills and they aren’t afraid of the Internet.
For every musician, writer and performer the obvious first step is now DIY. Recording and distribution are within reach for everybody who has a computer. For many artists DIY is all they ever need, and many ex-big-label acts also find the flexibility of DIY compelling. Corporate middlemen still dream of rounding up the best talent and milking them like they used to, but they can’t compete with the freedom and low overheads of life in the wild.
This century began with the Dot Com Crash when a stock market bubble driven by anything and everything online finally burst. It was no longer enough to have a web site, a slideshow and a string of buzzwords. For a while financial common sense returned and investors sought real income and viable business but the Dot Com frenzy is back. Now they call it Web 2.0.
Web 2.0 theory is that social networking tools (blogs, wikis, forums, podcasts, etc.) and user-provided content will create a new world where the rules of commerce are re-written. But the poster children of Web 2.0 (Wikipedia, YouTube and Facebook among others) are unremarkable functionally and enormous black holes for cash. It’s as though the Dot Com Crash never happened.
(To give credit where it’s due, fortunes have been made siphoning venture capital and equity from gullible investors but that’s not relevant to the entertainment industry and it doesn’t have a long term future.)
The predictable apology of Web 2.0 projects is they can’t “monetise” their virtues. In other words they aren’t businesses but someone hopes they will be. I mention them because their babble and speculative value are everywhere in online entertainment today.
Think tanks, media consultants and futurology gurus have spawned numerous reports, blogs, seminars and books (The Long Tail, The Wisdom Of Crowds, Wikinomics, etc.). Let’s look at the boffins’ current plans for music.
Peter Gabriel’s We7, SpiralFrog and others offer free downloads subsidised by embedded adverts. Advertising isn’t popular, it’s distracting. People don’t like it. The first thing people did with TV recorders was skip embedded advertising. The idea that artists can replace sales with advertising revenue is a pipedream. No one has made this work.
Embedded advertising is also “protected” by some kind of DRM, and that’s not popular either.
The big idea of Facebook and other communities is to build consumer profiles of users for advertising or viral messages. This model has two big weaknesses. People rarely provide accurate information about themselves online and they actively take steps in public places to conceal who they are and what they’re doing. Online privacy is a major concern. Facebook has been forced to remove several intrusive features (like Beacon) and Phorm is under threat for covert ISP customer profiling.
Making money from tracking third-party customer behaviour is unproven. Every business on Earth tries to expand and exploit their own customer data but the idea that complex data can be abstracted and sold-on is fraught with obstacles.
If that wasn’t enough the Internet casts doubt on ratings as a basis for advertising. On TV eyeballs meant money but online a viral message can reach millions of “viewers” without generating any significant demand for the product.
The attraction of these communities as music venues is also limited. MySpace, Facebook, Bebo, Second Life, Imeem and others promise Web 2.0 careers for musicians and other creative disciples but they are all “gated communities” or “walled-gardens”, ghettos with their own micro-audiences. Yes, Facebook has 50 million accounts but it costs nothing to create one. MySpace is the all-purpose music shop window of choice online with hundreds of millions of users. Why would any artist join or spend time on them all? The audience is everywhere and admission is free.
“Music discovery” broadcasters like Last.fm (Audioscrobbler) and Pandora (Music Genome Project) take social networking a step further. Wider audience choices and genre classifications are used to generate custom playlists. Many listeners are enthusiastic but like other Web 2.0 applications music discovery has yet to pay its way, let alone turn a profit.
Once again the supposed silver bullet is advertising or linking would-be buyers to affiliate retailers.
Because Web 2.0 can’t “monetise”, copyright is seen as an obstacle. The best content is copyright. Copyright needs licensing and licensing costs money. A lobby group of academics, bloggers and Internet consultants in favour of free distribution and against copyright welcomes Web 2.0 in an attempt to redefine ownership. Creative Commons, which waives income on content distribution, and other “freetard” schemes abound. But the content people most want isn’t legitimately available free. Communities can and will devise new ways to share content but they can’t make or manage everything people want for nothing. Things of value will always be bought and sold.
An example often quoted in support of copyright relaxation is Open Source where collaborative development builds highly complex and valuable products with some free distribution and support. There’s no question the web has made such things possible and useful but they don’t replace bread and butter commerce and show no sign of doing so. Open Source exists within a commercial world. Would artists and composers willingly provide a free component (their work) for Internet commerce?
PlayLouder is a rare so-called music ISP or MSP. Their broadband fee includes a license for certain tracks through their site. It’s a combination of a music site and an ISP. Some commentators take this idea further and propose a blanket license (effectively a music tax) for ISPs. Other trade bodies (IFPI, BPI and ERA) go further still and seek a copyright policing role for ISPs, with support from the government.
But mandatory royalty collection or copyright enforcement by ISPs is very unlikely. What would it mean for file-sharing? Would file-sharing be legal? What about broadband customers who opt-out? What about content providers who opt-out? What about other creative content (copyright text, graphics, video, film, etc.)? Would everything be available free for a monthly charge? How could the charge be affordable if every content provider was compensated for loss of sales? How would content creators be identified and paid? What about encrypted traffic?
For all its faults the existing commercial and legal copyright system does at least work after a fashion. There is little chance that a practical replacement for Internet music distribution could be designed, agreed and implemented by academics, trade bodies and government officials.
The bad news for the record industry is there’s no new model that puts them back at the centre of the music or entertainment industry. Web 2.0 isn’t the answer. In the past industry middlemen added too little and took too much. If there is a new model it’s defined by efficient labels, distributors and retailers, market demand, and publishing, performance and master rights. These are things the record industry never quite got the hang of.
Water doesn’t need the plumber. The plumber doesn’t create the water.
A lot of fashionable web sites who pay major labels for music are paying from Venture Capital not income. The ride will only last until the money runs out.
Before recording, music entertainment was always a multi-media experience. Music happened live or not at all. Then, for 50 years after World War Two the record industry controlled music entertainment in the service of audio sales. In the 1970s touring was commercially risky, today it’s where mainstream assets really do get monetised. The record industry’s Golden Goose is exhausted. Its erstwhile magic is now commonplace.
The record industry thought music entertainment was all about audio products, and for a while it was. Even the video boom of the 1980s was exploited as a tool for selling records. There are still audio applications: radio, walkman, car and other (often background) uses but the big radio/recording artist is history. Artists will always make records but not mostly records. Records are now the soundtrack for other products. Popularity will be fostered by multi-media exposure: cinema, TV, web and live performances. Radio is no longer king, the role of hitmaker has fallen to advertising and TV “talent shows”. Shy recording artists hoping to launch a career out of sight in their bedsit have never had a high success rate. In future things will be worse for them unless they collaborate with video, Internet or live performers.
Multi-media is not predominantly electronic or digital it’s about the whole experience (or 360° as the bloggers might say). People were multi-media before there was a name for it, and they still are.
Pundits endlessly speculate about the “new model” and discuss the “future of the music industry”. What is the new model? There won’t be any centralised certainty or mainstream monoculture. Nobody controls recording, airplay or distribution any more. The closest thing to the old world is Apple’s domination of Internet retail but anyone can sell things fairly easily nowadays (if there’s a demand). A kind of mainstream still exists but it is bypassed by millions of low volume interactions online. Artists and fans are no longer shut out of airplay and retail.
Major label artists will be restricted for some time by irrational opposition to getting their stuff heard online. But eventually file-sharing—especially the low value audio part of the package—will be an everyday promotion tool. This is unfortunate for artists who learned to make money on records alone but music CDs will inevitably decline (although the CD/DVD format has many uses and a good future) as record sales are replaced by multi-media income.
From The Economist A Change of Tune 5 July 2007
Seven years ago musicians derived two-thirds of their income, via record labels, from pre-recorded music, with the other one-third coming from concert tours, merchandise and endorsements, according to the Music Managers Forum, a trade group in London. But today those proportions have been reversed—cutting the labels off from the industry’s biggest and fastest-growing sources of revenue. Concert-ticket sales in North America alone increased from $1.7 billion in 2000 to over $3.1 billion last year, according to Pollstar, a trade magazine.
The best seats for The Police’s world tour this summer cost over $900; the group’s entire catalogue on CD costs less than $100.