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« If I had a record label, would you be signed to it? | Main | 1,000 True Fans - Another Perspective »
Thursday
Apr242008

Looking Ahead Into The New Music Business (aka What I Learned From Terry McBride, Again)

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Terry McBride & Ariel Hyatt 
I had a distinct honor and privilege to be in the audience where I saw the unflappable music business icon Terry McBride of Nettwerk Music Group (Avril Lavigne, Dido, Sarah McLachlan, Barenaked Ladies), be interviewed as the keynote for the Le Recontres conference in Montreal last Thursday.

Terry was, of course, engaging, interesting, and controversial. I have long been following his career, and was moved deeply by his profile in Wired magazine in 2006 which got many music business entrepreneurs like me really thinking…

This talk was so perfect and it so succinctly summed up this point and time in the music business, I don’t think I need to insert my opinion here, I for the record agree with everything he said.  I would also like to point out that during this time of complete music business turmoil Terry McBride’s company is doing extraordinarily well.  So without further ado:  Here are some highlights from his interview, I think most traditional record industry people probably find Terry a bit on the radical side he is outwardly pro artist and anti mainstream industry mentality. It is my genuine hope that all independent artists and music business professional take a page out of Terry’s insight and apply just one nugget –

On why Nettwerk was structured the way it is:
“Artists are inherently lazy, so we had to do everything for them.”  

On the 360 deal & The Barenaked Ladies:
“To control aspect of an artist’s career of a 360 deal is a disaster. It’s not a solution. It’s a paradigm created by fear.”

Terry says he thinks he’s got his artists somewhere between 180 and a 270 deals, but he believes that a 360 deal is fraught for disaster. He talked about his experiences with Sarah McLachlan. “At first with Sarah we had a 360 deal, but as she grew, we gave her publishing back, and she owns half of her merchandise company. There is no business without the artist.”  

Barenaked Ladies started their own label called Desperation. They own the masters and publishing, and so far they’re on $10M in sales using only Nettwerk as their label and management firm – Nettwerk’s team manages all of the aspects of their career and leverages them through their own management company and connections.  

Bands are brands and emotions
Terry talked a lot about artists being both brands and emotions. Consumers attach their own life experience to every song. These songs become the fabric of the people’s lives who listen to the music. With the advent of the CD and computer, we went from pushing to pulling, and it created a change of behavior with having the “repeat” button on all CD players and listening to the same track over and over, which was something that was not possible with cassette tapes or LPs  

Music is free
Terry has always believed that music is free. Back in the 1930’s, music companies were terrified about radio and it took an act of Congress to get music played on the radio. His question is: How do you monetize free now that the fan owns the song, and the fan is part of a tribe?

Wherever there is fear, there is always opportunity
You will never change the behavior of tens of millions of teenagers, but you can monetize that behavior. If you shut down one avenue of dispersing free music another opens. Terry asks: “How many tens of millions of songs are being sent via IM?” and points out that we are so focused on suing the kids that we forget that they’ll just go around us, and I’m not about that type of negativity. Litigation is an awful thing to do.  Terry also made a great point: There are millions of hackers versus thousands of programmers.  Kids will always find a way around the system.

The consumer does not understand copyright. They never have and they never will. So, educating the consumer on “why it’s wrong” will get us nowhere.

Bury the suing paradigm and figure out how to monetize.

The new paradigm = more profits
A CD in the old paradigm of traditional printing and distribution used to cost something like this: $3 for the disc, $2 to get it on the shelf, $1 for marketing, $1 for the publishing royalty, and maybe $2 went to the artist, then you get 20% to 40% of those CDs returned on top of all of this.

In digital, there is no manufacturing, no distribution, and no return. The profit on digital is so much higher. When you go digital, you will be more powerful and more profitable.

Digital profits are currently up 300%.

Controlling intellectual property worked for between 30 and 40 years, and it does not work anymore. All of his peers disagree 100% with his philosophy. Terry thinks from their standpoint, they are right. Trying to control music is right. However, Nettwerk has another vision.  They see a lot of opportunities and they are having a lot of fun.

If a share of the profit from cable companies could go directly to artists
music industry profits would double overnight

Terry is always looking at who is making money from this and are they sharing it?  Cable companies, tool manufacturers like Apple and iPods, blank CD manufacturers — that’s where laws and litigation should be pointing their fingers. Litigation and legislation should work in the realm of business to business, but litigation should not be business to consumer.

Now kids are getting sued for something that we’ve been doing for years. I used to make mix tapes and share them.

Terry also thinks there should be a compulsory license, and if there was, the music business revenue would double overnight.

So where is the music business in 10 years?
Terry thinks music will be available everywhere. You won’t pay for it
10 years from now, music will be in the clouds. You will be able to audit one company to get all of the numbers. It’s not going to be Bell, it may be Google. Consumption of media knows no borders.

I believe the price of music has to come down. The millennium generation looks at value, and the value of music is not 99 cents a track.

Music is the connective glue between the fans and the artist.
People love artists, they love what artists stand for. They don’t love all of their songs. We need to re-evaluate free.  We need to understand that music is the connective glue between the fans and the artist.

We must ask: What causes that artist is related to? What causes is that artist supporting? What does that artist stand for? Who is this artist? Using those pieces of information, we can put ads on websites and links on websites to monetize the fans’ behaviors. Everything you do around or about needs to be directed back to a lifestyle and back to that artist.

Last Advice?
If I were a long-term investor, I’d buy servers and the buildings that all the servers are going in.  The millennium generation does not care about ownership. They go where the data is.
http://www.digitalmusicforum.com/mcbride_bio.html

And, if you have been living under a big rock and did not see the article on Terry Mcbride in Wired:
http://www.wired.com/wired/archive/14.09/nettwerk.html 

Reader Comments (10)

An absolutely staggering comment :

I believe the price of music has to come down. The millennium generation looks at value, and the value of music is not 99 cents a track.

Wow. A shame, really. But who's fault is that if it's true?

April 24 | Unregistered CommenterDaniel Holter

GREAT article. And thank you for the link to the Wired article as well, that was an eye opener. I am, for the first time in years, feeling very optimistic about the future of music, and excited to get my feet wet in this new environment... Resisting change results in creative death, so I'm ready to swim with the tides and see where it takes me. Here's to an artist-centered future, with more guys like Terry McBride helping us to further our musical vision!

Sweet post. I love you Ariel!!!

April 24 | Unregistered CommenterMatt @ Kurb

There is so much opportunity right now, for artists and promoters and studios - everyone has the ability to take advantage of the music business more now than ever. Everyone in the old regime are floundering, while the new kids on the block is making a living and enjoying it.

April 24 | Unregistered Commenterevolvor

"Cable companies, tool manufacturers like Apple and iPods, blank CD manufacturers -- that's where laws and litigation should be pointing their fingers. Litigation and legislation should work in the realm of business to business, but litigation should not be business to consumer."

In Germany where I live, the GEMA (publishing rights organisation) gets a small percentage of all sales of computers, CDrs,DVDs, audio and videorecorders.
That is distributed among the members. The problem is how to distribute that money. For the GEMA, distribution is related to the overall income a composer has from publishing rights. If you are really big you get a lot. If you are not big you get just a few € per year from that pool.

I think it is possible to collect money from manufacturers and providers, but fair distribution among artists/labes can be a problem. Who takes care of that process?


April 24 | Unregistered CommenterPeter Blue

Ariel, maybe you can clarify something for me. You said, "Now kids are getting sued for something that we've been doing for years. I used to make mix tapes and share them." I agree with that - music sharing is nothing new. And yet we blame it for the supposed downward spiral the industry has taken (although I think that's truer for the majors than the indies). But if nothing has changed other than the format, why the paradigm shift? I don't necessarily disagree with you; I just don't see the connection.

All the forward-thinking music industry theorists are arguing for "free" as the new paradigm. I'm not convinced this isn't group-think though. I sell music in CD format and digital, and I'm doing ok. Why would I start giving away my music? We may be in the only industry in which we're all discussing the idea of giving away our products! And I'm just not sure why!

By the way, I'm of the opinion that the major label industry went downhill not due to file sharing, but due to bad music. They weren't releasing albums worth buying. Perhaps the exiting new model for the music industry that would help us monetize our music is to make good albums!

April 24 | Unregistered CommenterZane

Please take a look at my article “Redefining True Fans” which is very relevant to this conversation - http://musicin2d.com/?p=36

April 24 | Unregistered CommenterClif Johnston

Zane,

Hallelujah! I totally agree - make good albums!

Actually, I did not say the thing about mix tapes... Terry Mcbride did (my blog post is all of his words paraphrased by my note taking at his keynote. I, as a person who has spent my entire adult life as a music publicist have ALWAYS given away music in the name of promotion - if you think about it, that's what publicists do and that is what my digital PR firm continues to do (of course I "give" music away to podcasters, bloggers and Internet Radio stations in exchange for potential coverage for my artists). And I agree with you 100% that you should not give your music away - you should sell it and make a living off of it. I do believe that it does not hurt to giveaway a few tracks in the name of promotion in order to stimulate sales and new fan loyalty.

April 26 | Unregistered CommenterAriel Hyatt

Cool, thanks Ariel for your response and clarification...

April 28 | Unregistered CommenterZane

Great Post Ariel!

Terry is definitely a truly positive force in the industry. I think the idea of "free" music with a compulsory license for ISPs could be a good thing. If they (ISPs) didn't have to pay up front, received a a set commission off a set standard rate (per consumer), they could promote music, pay artists/labels, and profit from it as well.

They could get creative in the way they bundle packages. They could use it as a loss leader to gain market share, or to sell other premium even more profitable products.

If they have an incentive to grow the number of users (aka taking a cut from subscribers or profiting in other ways indirectly), the new model/industry will grow (maybe even rapidly) with the help of the labels and artists. It would also be up to them (ISPs) to deliver the best online environment to download. They will all have access to the songs, but it will be a competition for who can deliver the best total value to the consumer.

Artists and labels will still have to market their music so they get downloaded more often (and get a larger piece of the pie).

There are challenges with it, but I can see it being reality very soon.

I hope that all made sense.It's late. I'm tired.

Cheers everyone,

Hoover

P.S Downloading without any fear of Viruses or crap quality is a good thing.

The New Rockstar Philosophy

May 2 | Unregistered CommenterHoover

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