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4 Steps To A New Music Business

By now everyone has read a string of thoughtful predictions by many great music industry minds regarding the future of the music business, and most of them certainly have merit. Let me propose the 4 steps that I think would help thrust the music business truly into Music 3.0. Some of these you’ve no doubt heard before, but some you may have not.

1) New Blood For The Industry - The music industry was creatively at its best when the pioneers of the business (Berry Gordy, Ahmet Ertegen, Mo Ostin, Jac Holzman, etc.) were actively running their companies. They were fans first, businessmen second, and they intimately knew their audience well because they were part of it.

Everything changed in the 80’s when the increasing music industry revenue became so attractive that these entrepreneurs were bought out by multi-national corporations. From that point on, the quarterly bottom line was king, not the music. Where previously a label could wait as many as 4 or even 5 albums for an artist to break (as in the case of David Bowie, Alice Cooper, Fleetwood Mac and Red Hot Chili Peppers among others), soon the policy became one and done if sales were not immediately up to expectations. To make matters worse, MTV became a primary music promotional tool, so the development cycle soon spun around image, rather than music, which further depressed creativity.

But that’s beginning to change as we witness a big shakeout in the music industry right before our very eyes. With the music industry no longer the cash cow that it was, the big business that controls the industry will soon drop away, as will the old guard who ran it. In their place will be a new crop of music entrepreneurs who, like their early predecessors, love the music that they sell just as much as their customers do. They’ll nurture talent because they believe in them, just like before, and music will become vital and exciting again, and with that, will come back healthier (though probably not as profitable) than ever.

2) Micropayments Makes Sales A Snap. 99 cents per song download is a barrier. Even 69 cents is a barrier that gives a consumer pause before purchasing, which takes the impulse buy away. That’s because consumers are more keenly aware than ever that those amounts add up quickly, so as a result, there’s a built-in incentive to download the same file illegally or not buy at all. But what if the cost of a track was mere pennies, like a dime or a nickel, or even less? Would you be willing to purchase it then? And what if it could be easily charged to your phone bill or an online account like Paypal so the transaction was so easy, or even automatic, that you didn’t have to think about it? Would you go through all the trouble of finding it on a torrent and illegally downloading a file that might be corrupted?

I think the answer is that you’d take the easiest way and pay the few pennies. History has shown us that when the consumer is given the choice, convenience nearly always wins. 

OK, there are a number of problems with this scenario. The first is that the transaction fees with banks are so high (supposedly 10 cents of every iTunes transaction, and even higher in other online purchases), that transactions in cents are currently not feasible. This barrier seems like it will be broken soon, as rumor has it the new iPhone 5/iPad 2 will feature a new mobile payments system from Apple that will allow low cost direct transactions directly with your personal bank account.

But other barriers exist as well. A deal still has to be worked out with publishers, as mechanical royalties of 9.1 cents still apply to every download, although it’s way lower ($.0019 or even less) for a stream. And you can bet that a major label will never go for a low price transaction with any of their artists unless it can be proven that it’s driving the piracy factor down and sales number up.

That being said, if you’re an indie DIY artist, micropayments can be a great way to make at least a little money on your work.

3) Subscription Is The New Download - This seems like a contradiction to #2, but it’s not since I believe they’re complimentary, not mutually exclusive. Music subscription has been talked about to death, but the bottom line is still true - consumers are beginning to see the value in subscription music, and their interest will only grow. There’s both a lot of hope and a lot of record label resistance to subscription music. On the one hand, everyone likes the idea of a steady monthly income that $10 a customer (the reported target price) might bring. On the other hand, how that money gets split up has labels, publishers and artists all wringing their hands in simultaneous anxious hope and fear.

But consumers are seeing the value of not condemning 20+ gigs of hard drive real estate to a library that provides you no discovery options, and where you only listen to a few hundred songs anyway. An all-you-can-listen-to, anytime, anywhere option that subscription promises is beginning to make more and more sense to more and more people. Someone will get music subscription right, and the world will beat a path to their door.

4) A New Approach To Piracy - To date the RIAA’s approach to piracy was to punish the hell out of anyone caught indulging in illegal music downloading in order to make a nasty example that would deter all others from even thinking about participating in such a heinous crime. Didn’t work, did it?

Let’s try another technique instead. How about taking the same approach that countries often take when they catch a spy?

When a spy is caught they’re given the option; come and work for us as a counterspy, or be prosecuted. What if the industry used the same mindset? Register with a music subscription service (assuming that a widespread subscription service is in place) for a minimum number of years (say, like 5), or be prosecuted. I bet you already know which one everyone would take. This way, you turn illegal file sharers into customers, you take the incentive out of illegal file sharing in the first place, and the artist, publisher, and labels get paid. Everyone wins.

Will these 4 steps completely change the music business? Probably not by themselves. But they’re a good start to reinvigorating the industry and finally bringing us into the new music age - the age of Music 3.0.

Reader Comments (12)

I've been a constant supporter of point #1 for ages! I think the music business is getting more and more exciting right now, and there are tons of new small companies leaded by music fans whose main goal is to help artists make a living, develop their craft and so on.

In my opinion, majors may not be condemned but their role will be greatly diminished. I believe a new model is emerging, with the artist in its center, surrounded by a team and supported by these small companies I mentionned, such as Nimbit. Examples already exist of unsigned artists who actually make a decent living out of their music and are able to support the few people that work for them plus the startups that take care of the parts of the business they can't handle.

Because if everything can be accessible to everyone more easlly, it also means artists are able to be more hands on and take an active role in some aspects of the business they couldn't handle before, especially in setting up and carrying out their marketing strategy, or recording their album without the need of a record label.

The artist can be seen as a small business, outsourcing the fields he or she is not an expert in. But this would also mean re-thinking the royalty system, to put the artist back in its right place, in control of his or her music, and not dependant on majors led by the individual interests of shareholders instead of the interest of the music.

PS : point #4 looks great, it's even surprising nobody came up with this idea before.. So simple, but so efficient!

February 3 | Unregistered CommenterLorene

Step number 4 is probably one of the best solutions that I have heard on this issue.

February 3 | Unregistered CommenterTJR

Subscription services have changed the way I listen to music, why fill up my hard drive when I can listen to anything on the go! It's a great new-ish direction.

February 3 | Registered CommenterNick Lowery

I agree on #1 & I find #4 to be interesting, but c'mon people - micro-payments? Subscription service income? That's beer money at best. Let's go totally optimistic & say that on average an artist could net a nickel per play or track. (I know that's way high, but let's use it for arguments sake.) The threshold for poverty in the US, for a family of 4, is about $23,000 according to Sept 2010 info from the census bureau. That means I need 460 thousand plays/track sales to be just above the poverty level! And what if I have to split that income with 3 other band members? Now we need over 1.8 million plays to live in poverty!

I'm not going to get into the "gig more - sell t-shirts" argument here, that's just not possible for thousands of songwriters & other music professionals that are getting hosed by the "new" music business.

What we really need is to see all these people earning money from OUR content share fairly - I'm sorry I don't have the link at my fingertips right now, but I just saw a breakdown of one of these content providers' numbers, it could have been here (MTT) or at Digital Music News maybe, and IIRC only about ½ of 1% of the profits were going to the musicians.

Another thing for which I have no solution is public valuation. How do we get people who think nothing of dropping $5 for a cup of coffee or $2 for a soft drink to see $1 as a fair price for a song? You know it's not the "cost of production" argument thrown at musicians constantly, the pop & coffee cost pennies to produce, yet millions of dollars are spent every single day on these two things. And it ends up in the sewer within hours! Good music will give them enjoyment for years.

So while I find some interesting observations & thoughts in this article, I still see no reason for optimism and no clear way for me to return to being a full-time musician any time soon.

February 3 | Registered CommenterClark Colborn

Billions... not Millions....

We all have to stop using yesterday's industries benchmarks... one million digital whatever is totally meaningless in terms of royalties generated.

We're heading into a streaming world and the current rates set by rate courts and negotiations deliver micro pennies for each play ... .003 for this play .. .0004 for that play

I'm in the midst of creating songwriter royalty statements right now. I just posted a source statement that was 303 pages long and had over 11,000 lines of reported income. The gross payment received? Under $200.00. Payments to most of the writers I represent will be under .15 from this statement.

During this royalty run I've posted many such statements ... If digital income was all my clients were to depend upon, many of them would not reach the $10.00 minimum we require before issuing a check.

Not considered above the cost licensing, collecting or processing that we assume.

Unless you are doing billions of transactions and can handle them in a cost effective way in the digital world ... there's no business in the music business.

DIYers in a streaming world don't stand a chance.

February 4 | Unregistered CommenterTonsoTunez

#4 is great!

February 4 | Unregistered CommenterTy Heilman

@Tonso - Thank you for sharing that information. So that was $200 gross income received for over 11,000 instances of "reported income"? This paints a grim picture indeed.

@Clark - Yeah, hard to feel the optimism if that's our only future. You're right that all this music content is making some businesses very profitable.

Businesses - not artists.

February 4 | Unregistered CommenterCatherine Hol

Streaming payout rates are indeed the pits, but I'd never trade it for the Bad Old Days of the 90s, when my only avenue was radio. I still have the uncashed BMI check for the first -- and last -- airplay I ever managed to wrangle: $3.13. I guess I'm a lot more optimistic about a streaming future.

If you're getting anywhere close to 460K streams annually and still living at the poverty line, well, I don't see how that's a "business." You're probably not utilizing that listener base as well as you could. You're probably not offering anything besides the music, which we all know is only one facet of a career -- and not always the most important facet, like it or not.

I don't particularly care about money from streaming. I see it as part of the cost of access to new fans, each one potentially worth far more in the long run than the fractions of a cent I get from streams.

All the more reason that artists should be focused on growing the fan base first and foremost.

February 4 | Unregistered Commenterscottandrew

#4 is awesome. Yes, let's create a whole other network of informants and snitches, what a brilliant call. It worked so well in the War on Drugs, right? Let's replicate that ASAP, and then we'll really put an end to music piracy!!!

February 4 | Unregistered CommenterJustin Boland

The thing with streaming is that the whole economy of playbacks is different. So you got played on the radio, You'd get perhaps 100 plays a month. Which is loads! 100 youtube or Spotify plays a month is nothing.
Ok, so one spin on the radio reaches thousands of people and pays you a decent amount. Divide the radio royalty with the amount of listeners, and we're starting to get to similar figures of "pennies per listener" as the streaming services do.
My point is that it's a completely different model and you can't really compare them one to one.

As for the #4 it's an interesting mind game, but not very realistic. What is the service these offenders should sign up for? Spotify? Rhapsody? Pandora? Tunited? Napster? eMusic? A minimum downloads from iTunes, Nokia or 7Digital? All of them? Which one is the preferred partner of the RIAA?


February 6 | Unregistered CommenterMusic on the Make

EVERYONE IS MISSING THE POINT!!!! IT makes no sense to try to make money from consumers on an individual basis, since they don't see music as something they should pay for. Artists should be paid by ADVERTISERS who place their marketing on these streaming sites in order to sell products people do want to buy, A hamburger, A Soda, a T shirt, whatever. The service then splits that money amongst ALL their artists. If an artist doesn't get any plays for a certain amount of time he or she simply doesn't get paid or gets dropped all together. That encourages artist to get off their asses and market them selves, and gets rid of the clutter of shitty music that should be there in the first place. So basically the streaming service gets a set percentage of the advertisers money, and the rest goes to the artist who provide the content in the first place. Which begs the question how would the funds be divided? Well you establish a system of money, for example, if you get from 1 to 100 plays you make 10 dollar a month, if you get 1000 to 2000 plays you get paid, 10$ per month, etc. I'm using those amounts as an example, don't quote me. And there you have it, would it work or not, who knows but hey its worth a shot.

February 6 | Unregistered CommenterChris

I'm sorry, but none of these options really helps the music creator eat.

1) I think there is plenty enough new blood in the industry, but not enough of the right skill set for a technical age.

2) Micropayments are a solution to yesterday's problem, you're looking backwards, not forwards. They would have really helped 10 year ago. It's 2011, digital music sales have stalled.

3) Subscriptions are the opposite direction musicians should be thinking about, unless you're planning to own the service. It's really the ultimate devaluation of music. Owning music should be about scarcity and enduring value and not about being a commodity like toilet paper.

4) It'll never fly and it's not the right solution anyway. Besides, the next generation doesn't even care enough about music to steal it! They can get it legal and free on YouTube right on their ipods. If file sharing is your problem, then dump the mp3 and the CD and switch to a different format.

Why do we let radio play our music for nothing? Because they have legions of repeat listeners. That's of huge value to us.

If you want to make money from music in the digital era, then stop listening to software developers pitching crappy services in exchange for your most valuable business assets for
free. Just stop doing it.

Musicians need 2 things: cold hard cash and legions of listeners. Music services should either pay a minimum amount for legal access to a track (say, $200+ a year per million listeners) or an equivalent amount in listeners (say 1 million per track) in lieu of that payment. Force companies to see and pick value. Make them deliver something of value to you. Create some scarcity.

Got a YouTube video? Got listeners? How come Google's software engineers get paid for that and you didn't? It's because they put ads on your page and you didn't! Get paid for that video. Click on some ad links, contact the owners and make them a better deal. Put 'em smack in the middle of your video and explain why you're doing it too.

Invest in app development. It's currently where a ton of activity is and potentially a new stage for profitable artistic value. Apps are digital T-Shirts. You can never have too many kinds. And unlike mp3s, they are attached to devices, stores and sometimes servers and by nature are much less likely to be stolen. The folks who made "The Daily" figured it out. This is an area where Labels could invest and create value for their bands.

February 6 | Unregistered CommenterCathy

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