Is The New Music Business Model About Joint Ventures Between Musicians And Labels?

from the maybe-sorta dept

Thu, Jul 15th 2010 6:33am — Mike Masnick

Wired is running a very interesting interview with Tom Silverman of Tommy Boy Records, where he gives his vision of the future of how the music industry works. You may remember Silverman from earlier this year, when he looked at the Nielsen Soundscan numbers and pointed out that it didn't look like very many non-label bands were breaking out. Of course, it turned out that his numbers were very suspect. Part of the problem is that Nielsen isn't very good at counting what's going on in large parts of the industry today. The folks over at TuneCore totally debunked Silverman's claim about a lack of artists breaking out, by showing how their numbers (which aren't counted by Nielsen) show many artists selling an awful lot of music.

In the Wired interview, Silverman brushes off TuneCore and its results as mere "hobbyists," but I think he's making a big mistake there. Ignoring the hobbyists who are making a living is to ignore what's actually happening in the industry. In fact, later in the interview, Silverman points out the obvious point that we've been making for years: "It doesn't matter if you don't have a top ten record anymore -- it just matters that you make enough money." If that's the case, why dismiss those on TuneCore who are making enough money?

The other big problem is that Silverman is measuring the wrong thing in his initial example. Again, at the end he says all that matters is if you make enough money, but all of the numbers he presents before that to push forward his thesis are record sales. He ignores all the other business models that are making many artists money these days, and I think that's where some of his analysis goes offline.

That said, the second part of the interview is a lot more interesting. In it, he suggests that a better model than the ridiculously adversarial model of record label deals, is to set up a joint venture between the labels and the band, owned 50-50, so that the relationship is more of a win-win relationship. This is definitely the right general thought -- creating solutions where everyone benefits. And it sounds quite a bit like what Terry McBride from Nettwerk has done for years, where it helps bands set up their own record label.

However, before everyone sings happy campfire songs together, it has to be pointed out that the details matter a lot. Silverman, in describing this new setup, compares it to the movie industry:

The model that looks most promising is to set up an LLC, just like a movie company -- they set up an LLC for each movie. Every artist is a business, and has its own corporation under this model, and all of that artist's creative equity goes into that -- not just music, but everything they do.

Bad comparison. As we recently discussed in great detail, the whole reason that Hollywood sets up those LLCs for each movie is to play accounting games, to make sure that each of those LLCs lose money. So, just watch as these new "joint venture" LLCs just happen to include some huge "distribution and management fee" to the record label, that makes sure that the corporation itself (i.e., the musicians) don't make much money.

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Filed Under: business models, music industry, predictions, tom silverman

22 Comments

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Anonymous Coward, 15 Jul 2010 @ 6:39am

"Ignoring the hobbyists who are making a living is to ignore what's actually happening in the industry." - this is rather false. there have always been hobby types who actually do make a living playing music, they are often very talented cover bands, "party" bands, and so on.

there has always been this layer, there will always be that layer. the only difference you are seeing at this point is that they can now also distribute their music (mostly freely) on the internet, which gives them some minor presence. that would be no different from the thousands of acts every year that would record two songs, and put out a 45 single in the past, trying to get airtime (and using it as a sales pitch for potential show bookings).

it is misleading to point to this small part of the music industry (often large in numbers of people, but usually small in actual income) and say "look what is happening to the music industry" because it has always been there. you guys may have just woken up in the last couple of years and figured it out, but it has always been there.
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Solomon Linda, 15 Jul 2010 @ 6:51am

Re:
People like you let me die in poverty in 1962.
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Mikecancook, 15 Jul 2010 @ 7:01am

I have a hard time making it through any of Wireds articles on any media but especially music. They never EVER challenge anything anyone says. The articles almost sound more like advertisement.

As for Silverman, he seems to admit that mistakes were made but but as usual it was the 'other guy' that made them and now he knows what to do. But he doesn't. It will be more of the same.

I especially liked the part about how the Recording Industry wants to share in the merchandise and the touring though. Basically, they want to get a hold of any place that artists are making money now. And that will be because the artists are working their butt off connecting with fans to buy that merch and tickets.

The latest Wired article - http://www.wired.com/epicenter/2010/07/tell-all-author-discusses-music-industry-in-crisis-part-1-of- 2/2/ - has a nice line at the very end: "I really think that and not 360 deals is the business that the record companies should be in: finding out what people want to own that’s worth owning."

Too bad they still think that's the packing the music comes on.
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Hephaestus (profile), 15 Jul 2010 @ 7:03am

He knows the record labels are failing ..
He knows the record labels are failing and is trying to present his assets in the best possible light to attract artists. With CD sales and sale of music slumping, his goal is to get a cut of what the labels never profited from in the past, touring and merchandising. This line describes his motivation and his goals "all of that artist’s creative equity goes into that — not just music, but everything they do."

Not only will the artists make no money off of CD and music sales, but now he is trying to set the artist up as indentured servants, where most of the profits from everything goes to the labels.

(sarc)Sounds like a sweet deal, sign me up I have always wanted to be a slave.(/sarc)
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pauldalen (profile), 15 Jul 2010 @ 7:17am

Old news for some
A number of small and large independent labels have been doing 50/50 profit share deals for years. In most cases the costs paid before profits are extremely transparent and easy to understand. None of the bullshit "packaging deductions" and "new media" reduction of royalties.

The list includes Merge who have sold more than a few records in their 20+ years.

It remains to be seen if some of the larger labels are willing or able to make the transition.
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tom, 15 Jul 2010 @ 7:25am

Make enough money - why?
why is it important to 'make enough money'? Most painters don't 'make enough money' why should musicians? i certainly don't make much money from music, and never have though now i get some from itunes and have thousands of tracks downloaded for free from my site every month. bollocks to money.
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Nate (profile), 15 Jul 2010 @ 7:32am

Re:
the only difference you are seeing at this point is that they can now also distribute their music (mostly freely) on the internet

It's not the only difference. The size of the audience these bands are catering to is much larger. Before the Internet a local band in Maine would surely not have fans in California. Today that is not so far-fetched. With a larger audience to make a fan base out of, a band can make more money (or enough to survive on).

that would be no different from the thousands of acts every year that would record two songs, and put out a 45 single in the past, trying to get airtime

Now-a-days bands can throw their stuff on the Internet and promote their work without the aid of a gatekeeper like the radio was. Bands have more control of their success.

it is misleading to point to this small part of the music industry (often large in numbers of people, but usually small in actual income) and say "look what is happening to the music industry" because it has always been there.

The layer has always been there, but it's the growth of this layer that is noteworthy and why it's not misleading to mention it as a trend that's impacting the music industry. More bands are able to make money outside of the traditional routes. That's a significant change to an industry that relied on a golden ticket model. An analogy for this idea: there used to be only one road to Rome, but now there are several more being built and in use.
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Jay (profile), 15 Jul 2010 @ 7:34am

Magnatune.com is still around

Jamendo.com looks and IS a great site

Dmusic.com was where I first got a lot of my hatred from the RIAA. It's also a place I educated myself on what to avoid from big business deals.

Silverman has been a bad influence on the industry and quite a few artists have had words for him. But if he thinks that a lot more people will fall for his "Messiah" act where he will save the industry, they're sadly mistaken.
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Anonymous Coward, 15 Jul 2010 @ 8:09am

LLC's are great the best legal construct ever devised to shield criminals. I wonder why pirates don't use it too, it is a legal construct made exactly for the purpose of shielding others from liability and it is disposable.

For artists that means a nightmare, they can't sue and get a lot of money out of an LLC, the LLC has nothing and if they get ripped off they are f"#$ and without any legal recourse to recover anything because they are part of it they practically can't complain and any copyright threats will explode on that LLC and they will loose everything that is inside that little bubble, only idiots would put their copyrights rights in an LLC unless they had reason to believe it was breaking the law in some way, wanna bet that the copyright put into the LLC will be controlled by the label and they will find a way to transfer all of them to other company fronts?
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John Doe, 15 Jul 2010 @ 8:13am

What pisses me off the most...
What makes me the maddest in all this talk of the music industry is the entitlement complex that every one has to be a mega star making millions of dollars. Nobody has the "right" to make any money much less that kind of money. If they just make a living, then so be it, most of the rest of the world is only doing that as well.
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Anonymous Coward, 15 Jul 2010 @ 8:44am

Re: Re:
"Now-a-days bands can throw their stuff on the Internet and promote their work without the aid of a gatekeeper like the radio was. Bands have more control of their success." - yes, now instead of being in the darkened abyss of no radio airplay, they are instead buried in the noise of thousands of crappy bands stuffing their home recorded crap onto the internet. all that has happened is that the noise level has risen, which goes a step further towards burying any good acts in a sea of pap.

the growth of this layer isnt all that significant, considering the availability of tools and such it should be flourishing like crazy. but instead, what we are looking at is an incredibly fractured audience, with nobody getting enough attention to truly stand out. there are very rare exceptions, but for the most part, its just more noise. that noise makes things less productive overall.
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Leecifer, 15 Jul 2010 @ 9:09am

Re: Make enough money - why?
And what was the artist name you record/publish as?
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Hephaestus (profile), 15 Jul 2010 @ 9:21am

Re: Re: Re:
"what we are looking at is an incredibly fractured audience, with nobody getting enough attention to truly stand out."

The history is the Record labels have done everything in their power to prevent any internet startup from succeeding in the music business. From outrageous fees, to negotiation by lawsuit. EMI is the most famous for negotiating via lawsuit.

How they have killed start ups is simple. They start by negotiating fees and terms for music on a specific web site. Then file a lawsuit as leverage. As a condition of dropping the lawsuit the website pays huge upfront a and high percent of their profits to the record labels. The financials are set up in such a way to kill the start up.

This has actually prevented any big artists from coming into existance off the internet, the tools that would have allowed it to happen were killed with the start ups.
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Leecifer, 15 Jul 2010 @ 9:42am

Like hobbyists aren't important?
So, I've been making/recording/producing music of my own for 22 years. I've recorded, mixed, and mastered work for over a dozen bands. For part of this time, it was definitely "paid, professional" work. For my own work, it's always been a "hobby". Two songs got played on two college radio stations in Atlanta back in the early '90s. (88.5 "planet 8" show & 91.1 "destroy all music" show).

I've never been worried about making money from my own music. I love doing it. It's fun. I've published with an online company before and am set up to get royalties with a split if my work is used.

For you youngsters, the song Arab Arabesque was recorded in 1989, so if you're under 21, I've got music older than you recorded, published, and had airtime with it. Neener neener. Not a dime made from it, and I don't care!
(Don't need money from it...got money.)
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Leecifer, 15 Jul 2010 @ 9:46am

Soundcloud for music sharing...
Oh yeah here's a link to another great music sharing site: http://soundcloud.com/hip_knowsis/pain-lean-and-tasty?utm_source=soundcloud&utm_campaign=share &utm_medium=email&utm_content=http://soundcloud.com/hip_knowsis/pain-lean-and-tasty
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Jeremy7600 (profile), 15 Jul 2010 @ 10:02am

Re: Re: Re:
that noise makes things less productive overall

Could you contradict yourself anymore with that statement? That fact that there is "more noise" is a result of the INCREASED production. Things won't be less productive. You're basically saying its going to be tough to compete online. GOOD. Competition is good for everyone. The wheat will get separated from the chaff and the people who create crap will either have to get better at their craft or get a real job. The people who create good music will get rewarded. Oh wait, according to you they won't. Since according to your vision, people can't make money if they don't go through labels or some bullshit like that. Or if filesharing continues to exist. I dunno, you'll come up with something, I have faith in you. (key point is that you will "come up with something." Like, from your asshole.)

And before that you are talking about a fractured audience. Don't know where you came up with that idea, but it must have sounded good at the time. Did the audience for music suddenly split into two camps? Sounds like bullshit to me dude.
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drew (profile), 15 Jul 2010 @ 12:13pm

re: noise level
Nate (#7), the thing is, this is where the labels had the chance to re-invent themselves and genuinely add some value to the process. There's a huge amount of product and it can be hard to find the good stuff*, but the labels could have gone back to getting some AandR men and actually added value by finding and sponsoring the really standout stuff.
Instead they've hidden behind a twisted legal system and kept churning out karaoke-lite crap.
Inventing different ways to screw over the artists isn't the answer.

* Actually i'd argue the problem is that there's so much good stuff out there the real problem is finding it all.
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Jeff Rivett (profile), 15 Jul 2010 @ 10:27pm

The labels will be lucky to get 50%
When this revolution is over, musicians will be - quite rightly - in control. The labels will provide services to musicians, including recording, promotion, tour organization, and so on. Some bands won't use the labels at all (think Radiohead), while others use the labels to do the stuff they aren't interested in doing themselves. Very few will continue to let the labels do everything, but even those artists will still be in control and make more money from their own creativity than the labels. The digital revolution is Pandora's Box, baby. Eventually all musicians will realize all they have to do is tell the labels to take a hike, and the labels will crawl back for any kind of deal they can get. Because the labels no longer control the process. The labels will still be profitable, just not obscenely so.
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Eric B., 18 Jul 2010 @ 12:54am

Re: The labels will be lucky to get 50%
This is pretty much it. "Record Labels" are companies that were formed to manufacture and sell physical recordings. They rarely had a stake in touring or merchandising, and now that the business of selling discs is finished they're struggling to convince artists that they deserve a share in that, too. The whole Wired interview's just another example of the traditional record exec snake oil.
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James Everglass, 28 Aug 2010 @ 8:45pm

This is a terrible terrible idea. If you thought the 360 deal was bad this is way worse.

At least in the 360 deal the label only got a portion of an artists live performance income, merch etc... (some insiders say 20-30%). Sliverman's model is 50%!
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shay (profile), 7 Oct 2010 @ 4:43pm

I have to agree, in many ways it has become 'hobbytime' and there is a FLOOD of noize out there, including the corporate 'main stream' which keeps the true career minded musicians down and out of the picture. Disney rules the day in Hollywood, and the past rebelious 'indie' artists have toned it way down to appeal to a growing dumb down audience. I see and hear it all the time in L.A., everyone is competing for attention, performing for no pay, giving everything away for free. You can't do it yourself out of pocket unless you're independently wealthy. The Beatles, Rolling Stones, Led Zeppelin didn't make great records on little or no budget. Even great musicians back then had to have sufficient funds to produce great records.
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