4 Steps To A New Music Business
February 2, 2011
Bobby Owsinski in Business, Music as a Business, music industry, piracy, subscription

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.

Article originally appeared on Music Think Tank (http://www.musicthinktank.com/).
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