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« 8 reasons to release a follow-up EP | Main | How to use iTunes to drive up your iTunes revenue »
Tuesday
Apr212009

Defining the Music Industry Crisis

To every problem there is already a solution whether you know it or not.

-Grenville Kleiser (1868-1953)

With this in mind, I would like to attempt to identify the main problems that have threatened to destroy the vision that was born on the streets of Tin Pan Alley. I urge readers to add to the list and help me begin this journey towards resolution.

11 of the issues that make up the current Music Industry Crisis.

1. Internet radio is the future yet providers can not sustain growth due to growing taxes on streaming music and a lack of clear revenue models.

2. 360 deals strain everything and everyone causing countless problems yet they are a necessary evil for struggling funding partners (Labels, publishers, Management, etc. . ).

3. Social networks and other web 2.0 outlets provide easy and personal access to fans yet the growing number of networks dilutes the overall message and dramatically increases the time spent marketing.

4. Apple has been an incredible innovator in the quest to a brighter music industry. We owe them a great debt. However, their unprecedented high market share in digital music sales mixed with their stubborn and controlling business models leave no bargaining room for funding partners (labels, publishers, etc..). Growth and innovation in this important industry sector (music retail) is therefore stifled without the ability for competitive trials. In addition, Apple’s 30% take on each track sold leaves little for the artists and song writers.

5. Physical Retail stores have lost the ability to turn a profit unless attached to a one stop business model (i.e Walmart, Hastings, Best Buy, etc.). As a result the true music pushers, independent music retail stores, are almost extinct.

6. Traditional radio, though still an important promotional front, has lost much of its glory to the on demand world of iPods, satellite radio, and Internet radio. It has therefore become increasingly more difficult to predict market trends without a standard radio format to follow. The result is a much higher risk/return ratio for funding partners (Labels, Publishers, etc..), which in turn limits the number of acts that ever see a major market entry.

7. The RIAA in an attempt to combat the growing number of music pirates, proclaimed war on piracy by means of civil suits with individual copyright infringers. Many average American citizens were made an example of with outrageous and bizarre settlements. The music industries’ minds were in the right place. They had intended to create the perception of risk for stealing music and in turn, change consumer thinking. In the end however, it only generated a false image of a “Greedy Recording Industry”. This wall between the consumer and the industry has instead furthered the cause for this viral pirating trend.

8. Video and audio sharing networks act as a breeding ground for the spread of illegal music in the form of audio and videos. These new networks cut into the profits of funding partners (labels, publishers, etc.) yet act as a wonderful way for independent artists and major artists alike to receive viral promotion. In addition, simple mathematics states that all of the illegal media sharing portals can not be shut down. Lawsuits cost money, and the recording industry doesn’t have much. Instead, the industry goes after the major outlets one at a time. But for every 1 that is shut down, 7 more are built in its place. Let us just say that this fire is out of control.

9. And let us not forget, stealing music is still more convenient to the average consumer than buying music. In addition, the only way to fully shut down music piracy would be to turn on “Big Brother” and violate very important privacy privileges. Therefore, it can never truly be stopped as long as we live in a democratic society. The solution must lie in connotation and change. Though it may appear that the RIAA is doing more harm then good, they have it right. The battle ground is in the mind.

10. (Addition) The music industries, both production and business, are now intimately and infinitely tied to digital and to the Internet. The systems that govern digital music across the web are not yet fully realized by the core of the music Industry. A clear vision for the future of these newlyweds (music and Internet), has not yet been defined. The marriage is still rocky and working out its kinks. The solution can be found in the collective mind of the industry. To quote our motto, “We must unite to restore.”

11. (Addition & Invitation) The Live Scene

The first round of comments from the Linkedin music business network laid claims to a crisis within the live music scene. The live scene has been neglected by this article. I invite anyone who works in live sound to help me analyse this market niche for problems. Your collective wisdom will greatly aid me in future editions of this article as I seek to once and for all define the music industry crisis.

 

Chris Purifoy can be found at www.restoringmusic.com.

Reader Comments (25)

Great post!

I adm definitley looking forward to hearing you rdeep analysis on internet radio dilemna. I have a radio background and worked for the devil (Clear Channel) so I know how messed up that situation is.

best,
Daniel "Danny Dee" Aguayo

www.digipendent.com

April 1 | Unregistered CommenterDannyDee

Here in Germany the GEMA (= german RIAA) is limiting the musicians as well. Artists are not allowed to stream their own music, they have to pay for their own concerts a 8% GEMA fee.
Newcomer artists don't want to pay the rent of german major stars anymore by this GEMA taxes. The GEMA is bonded to many major labels, so many artists just quit.
And concerning live gigs, here the GEMA wants to increase it's gig-fee untill 2014 at about 10%. So many live locations and artists are not willing to pay any more.
But after all, all points you mentioned are true.
I work for a local independent, non commercial radio station (there are about 20 in whole Germany), we are the only stations that promote and broadcast independent artists and newcomer-bands. The established radio and TV stations all have the same playlists. The point is, people want to listen to different music and they want to buy it, to go to the gigs and so on. The music industry and the mass media neglect this fact totally and wonder, why consumers choose alternative media, business models and the internet in general.

The "live scene" problems would mostly vanish if artists were willing to start naming names and talking openly about being ripped off. We've had the tools for an artist-sourced, nationwide music industry Black List for years now, but when I bring this up -- mostly in the genres of hip hop and rock -- artists only agree in principle. They think it's a good idea, but wouldn't want to risk involvement for fear of losing future gigs.

This is pretty rational, considering venues are not collectives with democratically elected leaders: they are owned outright by people who are mostly only interested in making money. For most venues, shorting the artists is a timeless, proven business model.

There's also obvious opportunities for abuse with a Black List system, but attempting to game the system would only backfire on the artists -- maybe I'm being naive here? If a good promoter gets falsely accused, I'm guessing other artists would stick up for them. I know I would -- good promoters and honest people are the most important endangered species in the business.

April 21 | Unregistered CommenterJustin Boland

Great points in this blog.

My only point is this: Fans are customers to every artist in the world. What I think needs to be done is a global poll by country to ascertain what the customers (fans) would settle for in creating sharing of music.

Plus, I have purposed a mandatory annual music license for each person or address in the world. This is much like the current mandatory license venues are now required to purchase wherever live or recorded music can be seen & heard. Individual licenses would cost $250 or less/year & would make most all downloads legal, plus, it would generate a ton of revenue for those in the music market.

---end

April 21 | Unregistered CommenterKSE

What are you basing this on?

"And let us not forget, stealing music is still more convenient to the average consumer than buying music."

With p2p networks full of junk, the biggest outlet for piracy is torrents and byzantine searches through message boards and blogs. For a dedicated pirate, it might be 'more convenient', marginally, but it's way easier and faster to go to iTunes.

April 21 | Unregistered Commenterjodru

The favorable way in which you present the RIAA here is unfortunate. Almost every one of their decisions since 1999 has worked to stifle innovation, prohibit new revenues and alienate the consumer.

Its in no one's benefit to prop them up as some kind of benchmark for productive change.

April 21 | Unregistered CommenterTaylor Trask

I have been working in "live" music for several years now on the production side of things, with a focus on multi-platform content distribution.

I think the short version of the troubles in live music comes down to a few things, two of which are follows.

1. The labels openly talk about how they "built" Mtv, "built" the ipod, and now refuse to "build" social networks and online music based companies. As such, the labels are demanding control that may have been effective when dealing with the problems that gave rise to Mtv and the Ipod, as both have a focal point that can be attacked, but in todays decentralized, dynamic and immense internet based music industry, attempts to control and restrict content do not work. The music industry needs to learn that content will flow freely, but the value resides in the information of the users and networks that surround and support that content.

2. The monopoly of Live Nation. With the control that they have, they are the defining force in live music. Whether they are doing a good job or not is up for debate, but what is not is that they have so much control of the venues that right or wrong, it is their word that is final in the rules for performers. We see this creeping into their rights demands they are making for events in their sheds, and in their resistance to allowing artists the freedom needed for artists and live music in general to adapt to the changing landscape of fans that demand more.

April 22 | Unregistered Commenterandrew

This is another non-article full of recycled half-truths and a dearth of original thought.
What, exactly, is the "vision...born on the streets of Tin Pan Alley", and why should anyone care about it?

1. "Internet radio is the future"...of what? Says who? The problem with Internet radio has nothing to do with "growth"or "taxes" and everything to do with conflicting interests and technology outstripping existing copyright law. A more interesting or thoughtful article would investigate the good and bad points of continuing to refer to it as "radio" when it is clearly not.

2. Why are 360 deals a "necessary evil"? What's necessary about them? How can you lump management in as a "struggling funding partner"?

3. "Social networks...dilute the overall message and increase the time spent marketing". Uh, what message? And shouldn't most acts spend more time marketing their music?

4. The points made about Apple are weird, wrong, and uninformed. There are many different Mp3 stores available to content owners, who are also free not to take Apple's deal. Apple's "take" is not always 30%, and has absolutely nothing to do with how much songwriters get paid (that's a mechanical royalty and set by Federal law) or how much artists get paid (based entirely on the artist/label deal).

This site has tremendous potential, but these types of "articles" are extremely disappointing.

5. This is a shallow and fundamentally incorrect analysis of music retail. Most "independent record stores" aren't and weren't "true music pushers" in any way.

6. Again, this is just wrong. Even cursory research beyond "conventional wisdom" into the radio business over the last 20 years will reveal that massive consolidation due to relaxation of FCC regulations combined with extensive leverage to fund those acquisitions is the root cause of radio. And all it's ever taken to get artists airplay is cash - either over or under the table.

7. Why is the image of the "greedy recording industry" is false? There are many stories of straight-up exploitation of artists by the recording industry. The industry has been repeatedly investigated by the Federal government and repeatedly found guilty of collusion and other legal violations.

The reason most people are stealing music isn't "the record companies are greedy". It's because most people can't find what they want at a price they want, and/or the differences between the "legal" and "illegal" services are imperceptible for the average person at the present time.

Etc.

Nothing about this article "defines the music industry crisis".

April 22 | Unregistered CommenterJinsai

Chris,
Thanks for your thorough and non bias approach to this critical matter. I disagree whole heartily with Jinsai in the previous post. I think his main issue with your article is what makes this article brilliant. You do not place blame on any one party and keep everyone involved in the solution process. Obama said it himself, "Unity of purpose, over conflict and discord." I think you are on the right track. Keep the focus.

I rarely voice strong opinions, however I would like to speak in response to a few of Jinsai's points as I find many of them uninformed responses and suspect he has little true experience in the industry. I am also a glutton for stomping on weak opinions backed up by overplayed ego. So here we go. Read further J-inzee. I have a few things to say to you.

1. Internet radio has nothing to do with growth or taxes? What in the hell are you talking about. It is completely rooted in these issues. Do your research J-dog.

2. I agree with J-dizzle in sentiment here, however I also know the other side of it. Publishers are being forced to be managers and agents as well as song pluggers, and labels are becoming full entertainment groups to make up for losses. The industry is like a heard. The core will not leave proven models until the whole herd comes along. For now 360 deals will have to aid in the transition. With any luck a new model will come along soon and abolish this system.

3. Right on point Chris. To quote the great American philosopher, J-dizzey, "Uh what message?" Really? Take a marketing class. You will learn about this in the first two chapters of your text book.

4. Right again Chris (though Apple's recent move to open price range trials up to label partners is a great step forward and is going a long way to renew the industries faith in Apples vision for digital music). However as a point of fact, Apple does take around 30 percent or more on avg and they are the most stubborn company in the technology industry. END of story. Steve Jobs throws a fit and we all shut up and wait patiently for him to change his mind. It is frustrating.

5. Indie music stores were the backbone of the industry. Jinsai, your response to this question is immature and ridiculous. YES they were. Indies store were the life blood of music discovery mechanism before myspace and ipods.

6. On point Chris. The traditional radio model is in the proverbial pooper. Radio promotions follow a format. Without a format that works the whole system falls apart. This is common sense. Jinsazzy has a point with consolidation but it does not out way other identified issues. Both need to be examined to get the the core of this relevant issue.

7. The industry is greedy. Sorry Chris. But again I agree with your stance on keeping things blameless. Subjective rhetoric would only halter your mission. Keep on truckin.

As far as the crisis being defined, I would say a few things may need to be added but this is by far the most comprehensive list of music industry problems I have come across in my experience. Thanks for your diligent work in this field.

cheers

April 22 | Unregistered CommenterTonyRCA

The definition of the crisis is "Devolution."

The means of music production, distribution, and (most importantly) acquisition have splintered into smaller parts, giving smaller actors more resources to interact with the industry. This has had good as well as bad consequences. There is a glut of music on the market, as artists can now record and distribute their work at relatively low cost, while consumers can acquire it for free. Increased supply with decreased demand (if demand is defined as a willingness to pay for something) leads to a decrease in the value of the product. That is utterly inescapable in this Devolutionary scenario.

While there are a lot of negative consequences, its not the end of the world, and there are ways to move forward by making the industry more efficient. Essentially, people need to get out of the way and let this Devolution take its course as quickly and thoroughly as possible, because there are still a lot of vestigial business structures which exist in contradiction to this process, and create significant inefficiencies. Major Labels, Livenation, and Clearchannel are examples of this. As monopolies, they control an inordinate amount of marketing resources, PR people, and other means of promotion. The number of artists that they represent, relative to the newly-empowered independent artists/labels is shrinking. Those agents, managers, marketers, web designers, etc., and the returns that they generate would be better utilized if they were diffused throughout the whole music industry, and not simply concentrated within these hollowing monopolies.

Music monopolies represent a market bubble. There is not as valuable a product to be promoted there as the amount of money spent doing so would suggest. But monopolies are monopolies, and have the deck stacked in their favor. They are able to maintain their inefficient control through their sheer size. This needs to end, and the monopolies need to Devolve as well.

It won't be a perfect music industry after this happens. As I said, the decreased value of music is here to stay. Artists simply can't expect to make as much money in the future. Sorry. What they should expect, however, is a more equal playing field in which to promote (more access to venues, radio, TV, and all the talent that makes that stuff happen). Free market, baby! Bust the music trusts and let capitalism take its course.

April 22 | Unregistered CommenterJustin

While I don't disagree with some of your basic premises here, I would question your conclusions. It seems as if the author is looking for a way all this will shake down and eventually the record industry will settle into a comfortable, predictable model like before. What if the new model is that there isn't a model?

I think it is much more likely that the future of the record industry (making a clear distinction between the music and the business) is not based on any single way of doing things or any single method of distribution. This is terrifying for people who've always done it one way and it can be daunting for people who have to go head first into this era with little or no direction, but technology is not going to stop changing because it's bad for the record industry. We may as well get used to it.

April 22 | Unregistered CommenterJeff

You missed THE MOST critical issue facing the music business: Bad music.

Yes, there are distribution issues, marketing issues, artist-label issues... but without great music the crisis in the music industry will get worse.

Oh, and by the way, Apple IS NOT a problem as you suggest. Artist and labels have the option of not distributingn their music on Apple's site. I would go so far to say that without Apple the crisis in the music industry would be even worse. At least Apple created a new, manageable, legal method for consumers to get the music they want and not have to purchase a CD full of crap to get one or two tracks they love.

The old "golden" days for the music industry is over. It's time for the labels to wake up and find new ways to promote and sell great musicians and great music.

April 22 | Unregistered CommenterHerschel

Herschel, are you a big fan of Britney Spears, N'Sync, and Shania Twain? Do you long for the days when music of that Caliber elevated industry sales? Because thats what was top selling in 2000, at the financial peak of album sales. And Don't forget Linkin Park. This is the "good music" that you think the major labels need to make more of?!

Major labels aren't doing anything "wrong." This crisis is 99% due to file sharing. Major labels built their business model for 50 years on the logical assumption that their product would not, one day, be available everwhere for free. The only place for most record labels (including Indie) to go is out of business.

As I wrote above, the only way to make things better throughout this Devolutionary process is to strive for a more level playing field for artists, in terms of their promotional abilities.

April 22 | Unregistered CommenterJustin

All I would add is that somehow our culture has grown to expect music to be free. Not sure how to solve this -- I have some ideas -- but it's the thorniest issue of all.

How did we get here? I don't know, but fixed pricing hasn't helped (why should all songs cost the same, why shouldn't some music be cheap and other music be more expensive?). Another problem is how music can be bought multiple times. In the past, this made sense, but today, once you buy a piece of music, your purchase should be logged, and you should be able to re-download your copy whenever. Both of these factors, and a whole bunch of others, have created bad blood between music buyers and music sellers. Fixing this bad situation is key, in my opinion.

Jeff
www.cerebellumblues.com

April 22 | Unregistered CommenterJeff Shattuck

Jinsai has testified before the US Copyright judges on Internet radio rates, business models, and technology.

He has been working in the internet music business since 1998 and is one of the people who created one of the major US online music services. Prior to that he was a professional musician and is a member of ASCAP.

I've got opinions like everyone else, but I refuse to resort to name-calling or ad hominem attacks.

April 22 | Unregistered CommenterJinsai

Jinsai,

Although I personally agree with many of your points, I think the tone you presented them in was a bit caustic. For me the TRUE value of Music Think Tank can be found in the comments. If we all take the perspective that we are all hear to learn, then you are one of the teachers. The Author is looking to define the crisis and to create a list. We can choose to be shredders or teachers. You may have far more experience than the author - so teach him and us. I don't expect you to sugar up your comments, but please be mindful that we are all here to learn...

You are also welcome to post here on MTT. Great comment aside from the tone/perspective.

Tony - same thing.. Get some zen.

Cheers,

Bruce

April 22 | Registered CommenterBruce Warila

Jinsai,
I think you made some compelling arguments in your post. I admit it may have been a bit harsh. But I think your insight needs to be examined. It houses sound reasoning in some areas. I'm sorry for RCATony's post. Though I do think he makes some very compelling points as well, I hate that he offended you. I hope you stay involved in the "Restoring Music Discussion". As far as Tin Pan Alley goes, it was the first music business strip in the US. It was in NY and began around 1890 as an alley way with several prominent sheet music manufacturers and publishers finding a residence there. Their vision was the Recording Industry.

For everyone else,
Thanks so much for your comments. I may repost a few of them at http://www.RestoringMusic.com in the articles comments section. I think many of your insights are right on point. Feel free to contact me if you are so inclined. You can find me through my website.

best wishes,

chris
http://www.RestoringMusic.com

April 22 | Unregistered Commenterchris purifoy

I would like to apologize to Mr. Purifoy for my rather nasty tone. It was uncalled-for and inappropriate.

April 23 | Unregistered CommenterJinsai

Jinsai - I don't think you have you apologize at all - your comments were accurate, cut to the chase and were professional.

April 23 | Unregistered CommenterTaylor

Thanks for the apology but I agree with Taylor. No need. You made some very valid points. Thanks for being involved in the dialogue. If you haven't had a chance to check out the movement go to http://www.restoringmusic.com. I would love your continued thoughts there.

Thanks again!

Chris Purifoy

April 23 | Registered Commenterchris purifoy

I did comment on Chris' site but I feel it's worth repeating here...

Many of your points are spot-on here, Chris. I'd also add that the major labels were greatly to blame for the diluting and commercialisation of the music industry. Not nurturing new and upcoming talent along with forcing the artists into a hit-machine mould and the music fans into a "you must buy the album even though 10 of the 12 tracks are average" purchasing model have kept the industry stagnant and stale over many decades. Playing the big money game with national radio has helped the demise of FM radio as a source of new music discovery too.

I like your point number 5 about the traditional record store. Again, Major labels signing exclusive deals with Big Box stores has not helped, and the independent stores found it hard to align their niche markets, create value and reduce overheads. I wrote a full blog on 'Saving the Record Store' a short while ago you may enjoy.

I could comment much more but I'll save it for future posts here :)

Best,
Lee.

To say there is a crisis for the whole music industry is incorrect. Many artists produce music, give it away, become very popular, and then travel the world playing high-paying live (or dj) performances. They are not "starving artists", they have nice homes, new cars, and are raising families. The current system is working for them very well, and for some, it's working better than it did in the past. They even earn increased money on licensing and merchandise because their work is more widely known. The model for success in the music industry already exists for those who will open their eyes to it.

April 23 | Unregistered CommenterJulie

I don't see a live music scene problem where I live (Wash D.C. suburbs) where there are many live venues which sell out regularly. Independant artists without sales, video or radio play sell out shows all of the time. I see a problem with the growing price of ticket sales, as going to major venues to see corporate rock is now prohibitively expensive for me, but this is a problem for the budget consumer, since these shows still sell out.

April 24 | Unregistered CommenterEric

Great article.

Point #4 features does not include a couple of important details which most music journalists gloss over.

Apple has been rendered incapable of becoming their own label or signing artists directly thanks to the numerous lawsuits by the Beatles. Yet Apple and iTunes have proven themselves to be experts at gaining an audience for a growing number of previously unknown bands over the past four years or more (Jet, Feist, the Ting Tings, etc.) Hobbling an innovator like that is among the dumber things someone would choose to do, but the Beatles estates and lawyers effectively managed to do that. As a result, artists have to pray that they get chosen for another of their ad campaigns.

Also: the "stubborn and controlling business models" you refer to are that way because all of the major labels set so many ridiculous rules in place regarding how they would be able to sell any of the music from their catalog. Their 30% take is due to the fact that they do all the work of getting teh artist's music in there, properly tagged, with proper artwork, etc. and create the infrastructure for promoting the artist's music, and tracking the sales. Again: none of the major labels would do this for them. I believe the 30% take is appropriate as such.

The $0.99 price was also mandated by the labels and is also based on old world physical goods models. Labels actually want to charge more, despite the fact that no physical good is purchased from iTunes.

Their enforced use of DRM was also an enforcement of the major labels and the RIAA. Apple (and Steve Jobs specifically) were unsuccessful in convincing any of the majors over the years that this was a bad idea, and in return it ultimately made Apple look like the bad guy.

The time for labels to fade from power has long passed. I see the recent success of the new Metric album as a step in the right direction. Don't sign to a label: hire a marketing company, preferably one with no ties to the old way of doing things.

Note: I don't work for Apple, nor have I, but I've been following this with some frustration for a while. iTunes is just one good idea. So was Napster. Labels killed that one too.

ad

April 24 | Unregistered CommenterAdam D.

Adam D.
Thanks for the insight. Would you mind getting in touch with me? You can reach me at RestoringMusic.com. I would like to dialogue further on your comment.

Jinsai,
I would also like to dialogue further with you on Internet Radio. Would you mind contacting me when you can. Same goes. You can find me on my website, RestoringMusic.com.

Everyone else,
Thanks so much for your comments. There is an ongoing discussion at RestoringMusic.com. Please feel free to get involved in the process.

kind regards,,

Chris Purifoy
The Author of This Article

April 25 | Registered Commenterchris purifoy

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