Musicians Don't Need Venture Capitalists Any More

from the do-it-yourself dept

Mon, Oct 8th 2007 1:53pm — Timothy Lee

I just heard Tyler Cowen, one of my favorite econobloggers, on the public radio program On the Media discussing Radiohead's name-your-own-price model for its latest album. (The segment starts around 38:20 in this MP3) He makes a number of good points, but I think he overestimates the importance of the recording industry in the coming years. He says: "When you go back to this core function of discovering new music, lending the money to the people who produce that music, taking the chance, and then getting the product out there and publicizing it, the labels offer very important value, and the Internet is not a substitute." In the pre-Internet world, this was a reasonable description of the recording industry's role. Publishing a new album was a risky endeavor because you had to cover the fixed costs of recording the album, pressing several thousand copies, shipping them to retail stores, and undertaking an expensive nationwide promotional campaign. If an album fell short, the label risked losing tens of thousands of dollars.

The Internet changes all that. Online distribution costs almost nothing, promotion can be done at very low cost using a variety of online tools, and even recording has gotten a lot cheaper thanks to digital technology. As a result, there's little or no up-front cost to releasing an album. (Beyond the costs of writing songs and practicing them, which most bands do long before they get their first contract) That means there's no longer any reason to have record label executives picking and choosing music on behalf of fans. Instead, every band's music can be made available to everyone, and the fans themselves can "discover" the bands they like.

The labels may still have some valuable expertise finding and promoting good bands. But that's the role of an editor or agent, not the quasi-venture-capitalist role they played in the pre-Internet world. And it's a role in which they're going to have a lot more competition than they're used to, because lots of people enjoy finding and promoting good music; many of them even do it for free. Cowen says that new acts will be hurt by this trend because they won't get "big-dollar support from the major labels" to promote their albums. But as the Internet gives bands and fans a variety of new and sophisticated ways to find one another, "big-dollar support" simply won't be as important as it used to be. (Indeed, some musicians are already finding that television exposure matters more than the support of a big label) People will find new music via online word-of-mouth, the recommendations of trusted music reviewers, and a variety of sophisticated recommendation algorithms. "Big-dollar support" never hurts, but truly talented bands will have no trouble building a fan base without it. And a lot of bands will choose to go it alone so they don't have to give up creative control or a share of their revenues.

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Filed Under: business models, economics, music, venture capital

16 Comments

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Crosbie Fitch (profile), 8 Oct 2007 @ 2:25pm

Difficult to confront
Perhaps Tyler Cowen wants to break things to the industry dinosaurs gently?

"Oh well, whilst the new fangled internal combustion engine will prove very popular, there'll still be a big place for steam engines, such as for rolling tarmac. These new light and nimble vehicles are so pitiful when it comes to heavy duty traction."
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Adam Singer, 8 Oct 2007 @ 2:30pm

nine inch nails...
finally free of the recording industry now too - small artists and big artists alike realize how absolutely greedy and rediculous belonging to the recording industry is

why bother

they are anything but music and creativity

check http://nin.com:

quote trent:
Hello everyone. I've waited a LONG time to be able to make the
following announcement: as of right now Nine Inch Nails is a totally
free agent, free of any recording contract with any label. I have
been under recording contracts for 18 years and have watched the
business radically mutate from one thing to something inherently very
different and it gives me great pleasure to be able to finally have a
direct relationship with the audience as I see fit and appropriate.
Look for some announcements in the near future regarding 2008.
Exciting times, indeed.
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RJD, 8 Oct 2007 @ 2:38pm

Bye bye EMI
The music companies really have never done much more than make super-stars out of mediocre artists. The truly good artists will be found (assuming they want to be). So, assuming the companies and their advertising power drop off the face of the earth, artist's (and I lose the term loosely) such as J Lo, 50 cent, will never see the light of day. Not such a bad thing.

Now if American idol would go away, things would be good.

It is worth noting however, that most bands that are having some success as non-label bands, were a product of the media industry before striking out on their own.
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- Anonymous Coward, 8 Oct 2007 @ 4:42pm
  
  Re: Bye bye EMI
  There are more music companies than just the big, behemoth assholes. They still do valuable work in incubating and promoting musicians.
  
  For every superstar made out of a mediocre artist, there are then more very skilled bands that make the cut and get their chance to achieve their dreams of making a living doing what they love.
  
  Try not to universally dismiss music companies as evil. Theyre as crucial as immune system cells to the overall organism of music, and just as dangerous when a handful of them get out of control and metastasize.
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Michael G, 8 Oct 2007 @ 4:37pm

Everything is different now...
The internet, and computers, has changed the recording industry completely for those exact reasons. Have owned a recording studio I can't help but wonder why it took this long for it to happen. The recording industry will prevail in their own way in whatever it takes for them to still keep it an industry but without a doubt it's never going to be the giant it one was. One of the few things keeping it alive is R&B and that's in a big part due because they still have the buying public in that market not downloading like most other markets but even that's already shown change these last few years with the sudden decline in market shares.

What took so long...good job Radiohead
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STFM, 8 Oct 2007 @ 5:01pm

No cost?
As a result, there's little or no up-front cost to releasing an album.
Maybe for established bands but the costs of studio time, hiring recording sound engineers and mixing the album not to mention the purchase of instruments and equipment are large obstacles for young bands and artists.
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Jacob, 8 Oct 2007 @ 5:42pm

Producing isnt cheap
Distributing an album may have gotten cheaper but its still a pretty penny to produce one.
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RE:No costs?, 8 Oct 2007 @ 6:18pm

In their living rooms.
Any musician can tell you that it only takes a few hundred dollars to produce a digital quality recording at home. All you need is a computer, a cheap interface, and some decent software. It's never been cheaper to record a great records at home and in the end its the musician that matters. Hence the birth of the Rap age.
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Overcast, 8 Oct 2007 @ 7:06pm

Yeah, with a good soundcard or two, backed by a good PC and the right software, I'm sure it would sound good enough for distribution, considering you can easily record at higher than CD quality without putting a real strain on a good PC.

I took a quick peek at some 8 track recorders and with a 40 GB hard disk and 16 bit/44.1 khz... heck a sound blaster can record better quality :O

It's no big deal to pop in a few sound cards and the right software will do the trick. But if you like the traditional 8 track recording, you can get one for $400 or so.

A google search for 'PC Multitrack recording' gives quite a number of hits and a ton of information to any interested. The software available for PC's can do more than traditional recorders anyway... a lot more in many cases.

http://www.fasoft.com/download.shtm

The thing about this is that since it's done in your home using digital data, you can try and re-try it as many times as you want until you get the results you want. See then after that - once you do make a name for yourself, you can look into professional assistance with producing a recording. Any band now can risk very little to get their name out there. Heck - the instruments are more expensive now..

Then a P2P network and/or a Web Server...
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4-80-sicks, 8 Oct 2007 @ 10:00pm

Yes! Before I moved to Chicago, I was hooked up with such a band. I worked with one of the guys, who told me he was going to buy a Mac mini ($600+) so he could start recording with his brother. I told him don't bother, I had a machine he could have free in my closet. Obviously not everyone has this resource, but it was a late-model Pentium 3, and you can get a comparable computer for a couple hundred dollars if you know where to look. We started production, using some excellent shareware for multitrack recording and editing (REAPER). A few instruments and software packages were purchased with money saved from working a full time job (imagine that!) Dedication to a regular practice and recording schedule took care of the rest. I produced art for the album using freeware (Paint.NET), and they went from nothing to everything needed to create a full album's worth of material in under six months. Had I stayed in Sacramento, I would have made a video and other promo materials. Getting the word out has been done through MySpace, and when they have finalized enough material, they'll start playing local clubs.

Here in Chicago, where there is enough of a "scene," there is at least one show every month of 5-10 bands held in someone's basement, kitchen, or backyard. It's hell in the summer, but these shows are always completely packed at $6 a head. A lot of these bands also appear at festivals and more "legitimate" venues. Many others are on tour from far and wide.

So to the doubters: It is 100% possible to work without a label. It may take a little more time, may not make as much money or get radio play on ClearChannel, but with knowledge it absolutely can be done. And if ClearChannel and big bucks are all a band cares about, well, who needs 'em?
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RadioheadFan #47961, 9 Oct 2007 @ 1:51am

You missed the point Tic...
You’ve missed a few points here Tic. First off Tyler makes some weird analysis. First he mentions that the business model was designed to give Radiohead more publicity in terms of gaining a new recording contract. That seems strange, considering a band of Radioheads past would hardly need a bigger profile to attract a better deal from one of the ‘big four’ if that’s what they wanted. Second he goes on to say that Radiohead might get 2 dollars from an album but already get one dollar (45p actually) from this regardless. That’s not profit; it goes on the credit card handling fees. He also bases his analysis on this as a permanent business model, when its clearly been pointed out by the band as a one-off experiment to gauge how much people value music these days.

But on to your arguments of venture capitalism, I think your analysis is flawed on one critical point. Traditional music corporations would do three things;

1) Advertise and Promote Album
2) Manufacture and Distribute the Album
3) Fund the artist through the creative process along with the costs of production/recording

Now it should be clear to anyone who reads Techdirt that artists can now do the first two of those very well on their own. The third is not so easy.

Good quality musical instruments and equipment cost a lot of money. Booking a recording studio in London costs a stupid amount of money. Getting a good producer to master your albums is hardly cheap either, and while all of that is going on you need to feed and support yourself.

Now it may be fashionable to be ‘indie’, and do it all yourself by recording in your mums garage and mastering the album on the college desktops…but even the most ignorant of pop fans is going to be able to tell the difference between that and something done properly. You might be able to get so far by working out of your basement, but this is arguably just to gain enough of a following for a label to invest real money in you. Not everyone wants to spend half their adult life working in a bar while they wait to ‘make it’. Not only that, but the realities of working in a fast-moving industry like this is that you need good managers and producers to advise you on business and marketing. We can’t expect every future great artist to be an internet geek.

Like it or not, in the brave new world of the music industry venture capitalism remains a central pillar.
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- ingiebingie, 30 May 2008 @ 5:52am
  
  Re: You missed the point Tic...
  you cant promote yourself enough without the money. you cant get the sound together without a engineer. playing outside in front of2000 people is different then sitting in your living room with a headphones. how do you get real distribution, its like trying to get moms secreat recipe on the front shelf of the supermarket, everyone has talent..or a favorite recipe..one cabel.1 fuse,you can spent alot of energy going through everything in your gear,or rented gear trying to figure why the sounds fukcd. your recoring sounds great through your stereo but like shit when you play it in the bar. you can make things perfect and people still wont give a shit..i dont need yelling antaginizing rap nuts. a industry that controls distribution,and people controling a industry does. monkey see monkey do,,thats all the choice they have thats what they buy..someone help me .iv tried for 34 years...now i can deliver what no one else can. full moon guitarist ingiebingie acidplanet
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Vincent Clement (profile), 9 Oct 2007 @ 5:49am

Tim: I agree that Tyler overestimates the importance of the recording industry while downplaying the importance of the internet and buying music online.

He may be a smart person, but Tyler seems confused when it comes to the recording and music industries. He called Radiohead an indie band despite having several platinum and multi-platinum records in the UK and despite being on a major record label.
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Ethan Bauley, 9 Oct 2007 @ 10:00am

Techdirt: still overestimating the practical reali
Mike and Tim Lee are painfully right about the medium-term future of the biz.

Still:

We are STRONGLY in an era of transition.

NONE of the historic recording industry value chain is as all-important as it was
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Ethan Bauley, 9 Oct 2007 @ 10:01am

Techdirt: still overestimating the practical reali
Mike and Tim Lee are painfully right about the medium-term future of the biz.

Still:

We are STRONGLY in an era of transition.

NONE of the historic recording industry value chain is as all-important as it was
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finknottle, 26 Feb 2009 @ 8:34am

Problem of discoverability
Great post! However, how is the problem of discoverability solved for the indie artists who want more fans? Myspace and online word-of-mouth goes only so far, but we need to provide tools to the artists and their ardent fans to promote the artists in ways that make sense, with little or no effort.
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