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« Just say NO to putting an end to illegal music sharing. | Main | Songwriting Tips: Create Psychological Distance »
Tuesday
Aug252009

Investing in the music industry...

If you are interested in reading my thoughts about the pitfalls and opportunities pertaining to investing (time or money) into anything connected to the music industry, Hypebot has an exclusive three-page PDF that I wrote over the weekend. Click here to find the post on Hypebot.

Here’s the summary take-away thought: Even today, just about every investment (from small to large) connected to the music industry runs into the major label wall. There is barely a single company that has built a substantial ($20M+ annual) and sustainable business that exists completely outside of the influence of the major label ecosystem.

I believe it’s possible (read the paper). However as of this minute, I don’t see any company that is seriously challenging the establishment. What are your thoughts? (Krzysztof - I already know yours…) Note - the paper is not a book or an instruction manual; it’s simply fodder for debate.

Reader Comments (6)

I completely agree with you about a consumer-facing, indie-friendly service that can scale to infinity and beyond, but I think we're still a little too early to operate on any meaningful financial level fully outside "the cartel". Until a revolving door of really big acts decides voluntarily and consistently to bet it all on the music and the loyalty of the fan base that the labels helped them build, the labels are going to continue to be where the superstars, and therefore the money, live. Besides, there are still a ton of very smart people there who have very good relationships with the talent, and most of them not only know each other but now know most of the musical digerati as well.

The money hasn't left the music business - some of it has just followed the bitten apple to new formats, devices and partnerships. I don't see any reason to suppose that it won't continue to pool in the few places that have been dug deeply enough into the well of music's future to realize that only a strategic, multi-step process that involves as many existing players as possible will give them the possibility of one day having the luxury of swimming in it.

August 25 | Unregistered CommenterGreg Nisbet

Hey Bruce, how do you know when I'm scanning through my reader? Get out of my computer this instant!

Seriously though, your paper begs a number of questions that I'd like to ask:

1. One could argue that there are a lot of opportunities for "immediate and upside returns outside of the existing publishing/royalty system" - there are tons of companies providing at least digital distribution (not to mention powerhouses like CD Baby) for the DIY artist. Is there a lot of scope for differentiation in this sphere, especially since established companies already have the leveraging power of scale? If not, is there enough unexploited market to warrant investment in this sector? You yourself seem to argue this isn't the case.

2. Is "[e]nabl[ing] a far bigger ocean of unknown songs to receive maximum exposure" possible? This, I'd argue, is a matter that is external to any business. Is there any way to ensure mass exposure, other than "force feeding" the audience? Is there an alternative to the outlets that are - as you point out - being "sponged up" by the major labels? The mere availability of music won't cut it, as we've seen happen in both the legitimate and infringing markets: audience interest is firmly focused on the popular, heavily marketed releases. Is there any way to change this, without assuming an undocumented (and, in my opinion, unlikely) shift in consumer habits?

3. With regards to "[e]nabl[ing] qualifying songs/artists to go from production to mass-market
exposure in hours instead of years" - isn't that how a major label release push is supposed to work? The best case release scenario is supposed to encompass heavy promotion in all available media - airplay, press reviews, ads and whatnot. As far as getting mass-market exposure goes, it's pretty effective (if costly) and certainly doesn't take a long time. The long lead-in period tends to be associated with determining which songs/artists qualify, in view of the costs involved. Is there anything more to be done in this respect? What can be done to reduce the lead-in time needed to qualify the artist/song?

4. How can one create a fee-based artist services company that is simulatenously consumer-facing? Wouldn't that be trying to serve two masters?

5. When saying that the company's "marketing/promotion costs are minimal to none", do you mean the costs involved in promoting the company or the artists/songs? In the latter scenario, how are we to assure mass-market exposure without incurring considerable marketing costs? Or do you mean that these should be covered by the artists? With regards to the former scenario, won't the company require at least some initial promotion in order to secure involvement of the best talent available? How is the company to obtain its stock-in-trade, unless it can secure interest from the best artists out there? Won't that at least require letting the artists know? What about convincing them to start working with the company? That's bound to cost quite a bit, surely?

6. Will the primary revenue stream be service fees charged to artists? If so, aren't you in fact suggesting we replace a system of middle-men who are investing in artists for a system of middle-men who are charging artists for their services as middle-men?

7. Since the company isn't selling music (and not necessarily selling music-related product), but is capable of producing songs (which implies cost), how is it to sustain itself as a business? If the primary revenue stream is artist-paid fees, isn't this business model shifting its emphasis from artists who have the best songs to artists who can afford to pay the company's rates?

8. Similar to the above: how is a company that exists on service fees paid by artists to assure improvements in the artists' cash-flow? One could argue that an artist would be better off strictly DIY, since the company's services would be another cost against possibly small revenues. Isn't the business model at odds with one of the "pain reduction" mechanisms it is supposed to provide?

9. Is there any way of eliminating what you refer to as the "lottery method"? This would imply (near) perfect knowledge of the market - both in terms of the songs being written/performed and consumer demand. Is the vast amount of information processing required feasible for anyone who isn't Google? Where is this information to come from, anyway?

I hope these questions aren't seen as being churlish on my part. I feel, however, that they are fundamental to the discussion (if quite elementary). I understand that you may not have all the answers (as you make clear through declining to provide a road map), but I'd appreciate if you made an attempt at answering them. I feel we could all benefit from a closer examination of the proposition you've laid before us.

(Aside: You know me too well. There are other issues I have with your paper, but I'll outline them in my own time and space. Feel free to ignore them. Thank you for giving me stuff to write about, nonetheless. Where would I be without people like you, Dubber or Masnick?)

For Greg and Krzysztof

I am traveling all day today. This is the best I can do today….

The hardest part about blogging is answering the questions. On the one hand, I believe I have logical answers to your questions/doubts; on the other hand, I have to walk the fine line of not giving away the store to sell a piece of candy. When someone like me gives away so much information on a weekly basis, I have to try to hold back something of value - to be valuable to those that need my help. I hope you understand.

I will just use Krzysztof’s questions as a template for answering some unanswered questions..

Question 1) - I was referring to being venture-investment-worthy - as purely an artist services company. If someone wants to consolidate this space or combine consumer-facing propositions into the mix, it’s probably a different story.

Question 2) - You have to think outside of the box on this one. Enabling artists to suspend (most, most, most import term here) their rights opens up a world of possibilities. Piggybacking upon the efforts of other marketers/exposure-opportunity-holders should not cost anyone (artists, marketers, etc) a cent. “Force feeding” - no way. That’s how it happens now. My vision is much more dynamic and elastic. Sorry about being vague.

Question 3) - See the answer to question 2. As far as determining which songs / artists qualify. When the quantity of exposure slots grows, it is perhaps less of an issue. However I don’t want to minimize or dilute the effort it takes to make a song popular. And I do believe I have worked out the best way to combine filtering/funneling songs/artists into a proposition that also delivers an acceptable education to artists. Once again, sorry about being vague.

Question 4) - I don’t think so. iTunes does both. No, I don’t want to be anything like iTunes.

Question 5) - See the answer to question 2 regarding marketing. Also, think frictionless; no complex legal docs and everything occurs dynamically. Bringing 100 million++ impressions to the first batch of songs is important to the execution. Can it be done for nothing? We will see.

Question 6) - When you are squashing the value chain as I propose, I don’t think anyone is going to mind paying for what they get. Once again - this is nothing like what we see happening today. There are other revenue sources. Sorry about being vague.

Question 7) - No, you have this one wrong. Sorry - read the other answers for more information.

Question 8) - You are essentially asking the same good questions in different ways. Sorry - read the other answers for more information.

Question 9) - I just spent 18 months trying to work this one out. Filtering and funneling has to be absolutely trusted for artists to believe in it. It’s the most import aspect of the equation. Just to repeat - I don’t think promotion is going to be a large issue.

Am I building any of this stuff - sort of. It's a fluid situation for me. Thanks for the comments.

-Bruce

August 26 | Registered CommenterBruce Warila

Growing up post-sampling laws has given me a different perspective on publishing than most of my peers. I've long viewed Publishing organizations as an obvious Part of The Problem. Their methods of collecting revenue are blatantly and simply fucked, first of all, and they've also been the biggest, slowest-moving obstacle to re-negotiation of the music industry.

(Today on Hypebot, for instance, there's an article about Universal's radical new platform: 10 years later than the rest of the known Universe, they finally discovered e-commerce. They're providing online stores, variable pricing, and promotional email lists for their artists...and that's news. "Glacial pace" doesn't even do it justice.)

Anyways, I'm curious: what dangers am I exposing myself to by not getting an account with ASCAP and BMI? Is there any actual danger at all? Because it seems to me that I'm only in danger of saving the cost of membership. I won't get a split until I get a hit anyways...and when I get a hit, I'll be monetizing that myself anyway. I don't need some legitimized mafia front collecting money from the venues who are kind enough to promote me in the first place.

August 26 | Unregistered CommenterJustin Boland

Because I have talented musician friends who I'd like to help make a living at this, and because I've invested enough time in the music business trenches to want to see some compensation myself, I've given a lot of thought to all of this.

I see only three sources of money for a music business.

1. Fans. They will spend, but there are limits to how much they will spend overall in music-related products/events and how much they will spend per artist/band.

2. Musicians. They will spend, if you have something to offer them that returns to them more than they have paid you. But musicians have been exploited by so many people promising more than they can deliver that I hate to build a business that depends on the musicians to pay the fees.

3. Corporations. I come from a sports marketing background, so I've always been in favor of sponsorships. Of course, there are more people wanting sponsorships than there are companies to sponsor them, but I think it's a good source of funding for the right artists. On the other hand, we already know that there aren't enough advertising dollars to support music portals, so this kind of funding can't carry the entire industry.

Most people who make music won't make a living at it. There is an oversupply of music. So for them, it's going to be something they do for fun, self-expression, and community rather than income. We already have a model for that in sports. Most people who play sports are just doing it for recreational reasons. They may spend a lot on equipment and spend a lot of time playing sports, but they don't expect anyone to pay them to do it.

August 27 | Unregistered CommenterSuzanne Lainson

Another aspect of music investing that I've been pondering is where the income for the company is going to come from.

Bruce's concept seems to be tapping into current music spending and shifting it into a new model.

I spend more time thinking about consumer spending and shifting what consumers spend in non-music activities and capturing some of that to replace what they aren't currently spending on music. The current assumption seems to be that what fans don't spend on recorded music they will then spend on merchandise and shows. But given that overall consumer spending is down because of the recession and may be heading into a permanent frugal model, I'm not sure we can assume they will have the same disposable income now and in the future that they did in the past. So how do we shift music from an entertainment category (which is likely to be cut in a recession) to another category which is more recession-proof?

August 28 | Unregistered CommenterSuzanne Lainson

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