Monday, November 12, 2007

The Questionable Future of the Music Industry

Have you ever seen the Tom Hank's movie, "That Thing You Do"? It was about a 1960's pop band of teenagers that came up with a song by that name, and it told about their rise to fame as they were discovered by the major record label, turned into overnight stars, and toured around the country.

In those days a band could be 'discovered' like that and then they would sign up with a record company and suddenly the record label could turn them into stars by arranging promotions, concert tours, advertising, billboards, radio airplay, television spots on the Ed Sullivan show, radio interviews, etc.. They would saturate the advertising channels, send the records out to all the record stores, the artist would become famous, and the record company becomes rich, and in the process the artist would eventually become wealthy. This is how people like Michael Jackson could amass their fortunes of hundreds of millions of dollars. That was how it used to work in those days, and many people who are not involved in the industry might even think it still works that way.

But that was then and this is now. Those days are over.

Those big record companies became increasingly greedy and began writing contracts that completely cheated the artists. They knew that the artists mostly wanted the fame more than the money, and so the record companies essentially took most of the money. They took all the rights to all the music and then paid the artists a pittance and controlled everything. There was an ever-increasing list of things that the artist would have to pay for out of their advance. Promotional copies sent to radio stations, returns, even advertising - which was the whole point of going to a record company in the first place. But because the record companies had a stranglehold on the distribution of CDs to the retailers, they were in a position to leverage that for an ever increasing share of the revenues. Often the artists reached the point where having a hit album might even mean going into debt because of the associated costs - even as the record company was raking in the profits. I did see one accounting sheet for a band based in Seattle which had a complete breakdown of revenues and costs, and the bottom line was that after selling $3 million dollars worth of CDs, the record company was ahead by over $900,000, but the band was $14,000 in debt. They ended up having to work off the debt by touring for the next 4 months. In the end, the bandmembers would up making less than minimum wage for their highly successful album.

The major change element could be summed up as being digital media, the internet, Napster and CD burners. Once music left the analog world and became digitized in handy mp3 format, then the internet connected everybody to everybody else, then Napster and other sites came along to provide a mechanism to share all this music for free, suddenly the fancy restaurant food was free out the kitchen back door, so no one was paying to go in the front door anymore.

Success is defined differently now. In the 70's and 80's, a hit record was one that sold a million copies. Sales of two to five million was quite common. But now, it's been more than a decade of people downloading for free and sharing and burning CD copies for friends, not to mention the iPod (which means they don't even have to burn the copy anymore. The friend just borrows it and loads it into their iPOD and then hands it back.) Buying a CD seems so last century to the kids today. In this current distribution model, 75,000 units actually being sold at retail is considered a success.

Therefore, the profits for record companies have shrivelled to a fraction of what they once were, and with fewer dollars to spend, predictably, the record companies became more and more selective about who they would promote. They have now reached the point where you already have to have become regionally famous on your own with your own recordings, and selling them yourself to a significant volume before they will risk a dime on you. They won't even bother to come see you play unless you already have a following and CD's that are selling well.

Now, for the latest generations of young people, they have come to assume that music is free, like a nursery rhyme, or the Happy Birthday song, or a math equation. "Hey I get the Pythagorean Theorum for free, why shouldn't I get the new Yellowcard CD for free, too?". There is little appreciation for intellectual property of copyrights. There has been lots of resistance to this from the record labels, obviously, because they don't want to see their industry collapse. But they are unable to turn back the hands of time. Time has moved on, and their old business model has been rendered obsolete. And so every month for the past 12 years there have been new horror stories about how profits are crashing in the record industry. Therefore artists have switched over to making their money from touring instead of selling CD's.

Various people have tried different ideas to try and find a way for people to survive and make a living from making music. Apple has come up with iTunes and changed everything. Now they sell songs one at a time for 99 cents each, and this allows people to download them quickly and legally and cheaply. Rather than forcing people to get in their cars, go out to music stores and hunt dow the CD they want and maybe not find it available, AND also have to pay $20 for 12 songs when there is only one on the album that really interests them, iTunes allows them to just buy that one song they like, and they never have to leave their house.

This has sucked the remaining life out of the record companies. They no longer have the money to promote the artists properly anymore, and then they have no means to really make profits from them even if they do. As a result, record labels now demand a percentage of the concert tour revenues as well as 99% of the CD sales. They are struggling to survive.
Everyone is looking for new ways to sell music and keep the industry alive, and keep musicians going.

One idea is to have all the songs sold separately like iTunes, however they are sold for a penny at first, and then as they become popular, the price starts to go up, based on the volume of of sales, until it eventually reaches 99 cents then stays there. So if something is not as popular, it's not as expensive to buy. Since it doesn't cost anything to distribute, this is a possible working model.

Some prople are talking about other schemes and plans. Some think all music should just be free. There are some people who think that you should pay for the service of accessing music, rather than buying a copy. So you pay $xx per month to belong to a service like Rhapsody for example, but then you can download all the music you want as much as you want. The idea here being that they pay the musicians out of the service subscription fees. Some see huge profits for the music industry that way.

But I can see certain problems with that too. How do they decide how much to pay the musicians then? How much do they pay beginners? Who decides who to admit into the paying scheme? Who gets rejected and based on what criteria? Which ones earn more and which ones earn less? Do some artists earn a higher percentage than others, or is it the same percentage, but their income varies based upon volume of downloads? As an artist, how do you promote yourself to get people to download your music? Advertising is extraordinarily expensive. With such minimal returns, where does that invenstment come from? Also, with the barriers to entry lowered as they are today, there are now millions and millions of new recording artists. How many millions of hopeful young budding musicians are out there on Myspace and facebook with websites full of new music? How do you rise above the general noise level of all that is now out there in order to be seen and noticed? How do you become well-known in that kind of industry?


At 11/16/2007 8:51 PM, Anonymous igor said...

Val, check out this one ! Or here.

At 3/21/2012 5:09 PM, Blogger Cilla Casey said...

love this !


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