Michael Scott points us to one of the best summaries I've seen of the state of the music business today -- published in the ABA Journal. It's an incredibly balanced piece, that really does carefully present both sides of the story on a variety of issues, and presents actual evidence, which suggests the RIAA is blowing smoke on a lot of its claims. The piece kicks off by highlighting that the music industry appears to be thriving, and then noting that it's not the same as the recording industry, which has been struggling.
Much of the piece does present the RIAA's viewpoint on things, such as the idea that the legal strategy the labels have taken has been a "success." However, it follows it up by questioning what kind of success it has been when more people are file sharing and more services are available for those who want to file share. From there it segues into a discussion on "three strikes" and ACTA, which includes the jaw-dropping claim from an RIAA general counsel that "three strikes" was "never even put on the table." I've heard from numerous ISP folks who say that's not true at all. However, the article does a good job (gently) ripping apart the RIAA's claims, with evidence to the contrary, and does a beautiful job digging deep into ACTA to show how the text might not explicitly require three strikes, but is worded in such a way as to make it hard to qualify for safe harbors without implementing three strikes.
The latter part of the article then focuses on how the music industry really is booming, and how more people are making music, and there are lots of opportunities for musicians to do well these days, even without relying on copyright law. The arguments made (and the people and studies quoted) won't be new to regular Techdirt readers, but it really is a very strong piece, targeted at lawyers (many of whom may not have realized some of these details). For example:
If the ultimate goal is to promote the creation of new works, then perhaps it isn't really necessary to take stronger legal actions against illegal file-sharing because the evidence does not suggest that it is hindering the creation of new works by musicians
I certainly don't agree with everything in the article, and there are a few statements from the RIAA folks that could have been challenged more directly. But, on the whole, it's definitely one of the better articles I've seen looking at the music industry from the perspective of the legal profession that doesn't automatically drop into the "but we must protect copyrights!" argument from the outset.
Yesterday I attended the always worthwhile SF Music Tech Summit. This has to be the fourth or fifth time I've gone, and I always find that after it's all over and I've had some time to think about it, I recognize one key theme that kept hitting me over and over again throughout the event. This time it was the increasing irrelevance of the major record labels. I've been to a lot of music industry events in the past few years, and there's no doubt that the presence of the majors at various events continues to decline (though, they still seem to have no problem wasting ridiculous sums of money on lavish parties at some events). While the decreased presence at Music Tech might have been a result of the overlap with another industry event, NARM, which the labels almost certainly deem more important, what was more telling was the audience's reaction to the major labels.
The "big draw" at SF Music Tech was certainly the panel in the morning that had Ben Folds (who you hopefully know), Michael Tilson Thomas (again, who you hopefully know, but if not, from the San Francisco Symphony), Jack Conte (from the viral sensation Pomplamoose) and Glenn Otis Brown (from YouTube and Creative Commons). That panel was certainly entertaining, but tragically there wasn't very much time for any of the participants to speak, and with each one showing a video (often kinda long), the whole thing felt kind of rushed. But what struck me wasn't so much what anyone on that panel said... but what happened as soon as the panel ended. The very next "panel" was a discussion between a guy at Warner Music Group and someone at Cisco about the "direct to fan" artist websites that Warner Music has set up using Cisco's Eos platform.
Not so long ago, you would think that a new technological offering via a major label would be something of interest to this crowd. But, the audience had no interest at all. While the organizers tried to keep people around, lots of people flooded the previous panel's speakers while many more quickly evacuated the room. Probably one-third of the people were still there by the time the next panel actually began. That says something. In the past, the only way to be successful in the music business was to go through the major label gatekeepers. These days, almost no one believes that any more. In fact, many have realized that the path to success often means getting as far away from the majors as possible. Even if what Warner was doing was interesting (and, honestly, what was presented was full of buzzwords and hype, but little that seemed particularly innovative) just the fact that no one even seems to care says a lot about what people think of the major labels these days.
The final panel of the day, on "Music & Money," included both Michael Robertson and Tim Quirk -- both of whom have long been critics of the record labels and their business practices. It gave them a chance to (accurately) gripe about the record labels and how they've spent the last decade (or longer) shooting themselves in the foot time and time again by basically killing off every innovative new startup that popped up by demanding ridiculous fees just to operate. Honestly, that panel could have been a bit more interesting if it had included a representative from a major label to absorb some of the punches (and even to punch back), but one audience question summed up the whole thing:
"If the major labels are such a pain to work with, why work with them at all?"
The guy pointed out that there are tons of independent bands more than happy to embrace innovative new services. The real answer, of course, is that it's not that simple. While there are tons of bands that are innovative and willing to work with new services, the music business is still (even if it's changing a bit) a hit driven business. A music service without the hits doesn't do well. That's just the facts, right now. If you're offering a streaming music service or a music locker and major label content is blocked, you've cut your potential audience down by a ton.
But, still, the question -- and the answer -- is telling of the major label's stature in the industry these days. Their position now is back catalog filler. That's more or less how people view the major labels. There's a lot less interest in working through the old gatekeeper system. The labels will last for a long time (though, perhaps in different forms and under new ownership...) due to their back catalog and the need for music services to have access to those songs. But I don't think there's anyone left out there who looks to the major labels to lead the music industry any more (except, perhaps, some out-of-touch politicians).
Over in the UK, on Thursday evening, there was a music industry panel discussion that involved a massive number of panelists (ten -- which seems a bit too many) covering a wide variety of viewpoints from the music industry. Mostly they came from the traditional parts of the music industry, but the interesting participant was Peter Sunde Kolmisoppi, aka brokep, from The Pirate Bay (and now Flattr), taking part in the discussion with a group of folks who regularly call him all sorts of unfriendly things. Stuart Dredge, over at Music Ally, ran a nice live blog of the conversation, which mostly went down about as you would expect. Dredge noted that it was mostly an "industry" audience, and he worried that "there’s a bit of a kick-the-Pirate-Bay mood bubbling" in the audience.
Thankfully, it doesn't look like things got that far. Mostly it was the typical back and forth. Industry folks whining that they can't compete with The Pirate Bay... even as they were talking about the variety of ways they were competing with The Pirate Bay. Basically, what becomes clear is they would prefer competition that they control, rather than competition that consumers drive. Tragically, innovation doesn't work that way.
Peter made the point that a lot of people were confusing the music industry with the recording industry, and mocked them a bit for not actually talking about culture or music:
"Most of the things we're talking about today are about the record industry, not about the music industry. Everyone is talking about percentages... nobody is talking about music. It sounds like most people here could be selling diapers instead!"
While technically true, the discussion was about the business of music, so I think it's fair to be discussing some numbers and the business angle. But there is a larger point to be made here. With studies showing that more music is being created, the complaints about the "death" of the industry are clearly misplaced. The real complaints from the industry types are that they aren't able to make money off of it any more -- but that doesn't mean the music industry is in trouble at all. Instead, it's thriving. In fact, Peter also made that point:
It's not a right for the record industry to make a profit.... Technology has come that has made most of the record industry less valuable. We need to just move on, it's sort of an evolution... It might not be good for people working in the record industry, but the music industry is better than ever."
The industry folks on the panel still seem to be living in a state of denial at times, talking about how they should milk the 40 and 50 year olds who are still buying CDs, rather than really understanding the changing marketplace. My favorite laughable quote came from Guy Moot, of EMI Publishing, who said:
"The joy of ownership is a very different thing from the joy of a digital download or stream..."
Sure, it is, but the record labels have worked very, very, very hard to make it clear to people that they don't get to "own" anything. How many times have been told "you just get a license." If we really got to own stuff, there wouldn't be so many complaints.
There were so many people taking part, it's difficult to cover them all. Will Page (whose interview we recently posted) made some good points, and Jeremy Silver, from the Featured Artist Coalition (who's also a very interesting guy to chat with about these issues) comes off as being quite sensible in saying that file sharing of unauthorized works is here and not going away -- and the industry should take some of the blame for sitting on the CD cash cow and never innovating. Rather than complaining about it, it's time to look forward.
On that note, it seemed like the most reasonable speaker may have been David Stopps, who spoke from the perspective of an artist's manager. He noted that the it's absolutely possible to "compete with free," talked up the importance of touring to make money and using the music to boost those revenues and also played down the "demise" of the record labels, by noting that "they still have the back catalogue" to milk for a long time and that their job has become a lot easier thanks to technology:
He says A&R is becoming easier for labels, because sites like Hype Machine and We Are Hunted are where A&R guys are looking to see "who's listening to what music". It's less about "taking a punt" than in the old days. "Artists are building up fanbases themselves… and that can be monitored."
He also brings up the band Metric as an example of a band that has "gone all the way" without a record deal, noting that they turned down a variety of major label deals with massive advances to "do it on their own" and that it's working:
"They're doing a fantastic job, they use Topspin to sell their music, and that seems to be very successful for them. We're gonna see more of that..."
Along those lines, he also notes that The Pirate Bay can be a really great way for people to discover new music, and monetize them elsewhere, pointing to Imogen Heap, who discovered tons of people in Indonesia downloading her music in an unauthorized manner... but when she went there, she was able to sell out a 4,500 seat arena, making "a lot of money."
Finally, he also knocks BPI and others in the industry for still thinking that DRM is a reasonable solution -- pointing out that it's totally anti-consumer:
"The problem is, nobody really asked the consumer," he says, about attempts to put DRM on CDs. "They absolutely hated it. You put the CD into the computer and it wouldn't play... In the future, we've got to bring the consumers into the business model. In fact, they already are part of the business model."
Geoff Taylor, the head of BPI (basically the UK's RIAA) comes off as about what you'd expect. He trashes The Pirate Bay repeatedly, claims that it's "destroying national cultures" (with no proof, of course) and says that there needs to be "disincentives" to dealing with unauthorized file sharing.
It's the same story as usual: they're so focused on negative incentives for people doing stuff they don't like, they never seem to care about creating positive incentives for those they should be targeting. That's BPI's problem. Not The Pirate Bay.
Anyway... given the participants, it was about what you would expect, and didn't seem to get quite as nasty as some feared before the event. I doubt anyone's mind was changed about anything, but it still sounded like a pretty good discussion.
While I have some very serious concerns about the way the UK's collection agency PRS for Music conducts its business when it comes to threatening small businesses -- including going after a woman playing music to her horses and woman singing while stocking the shelves at a store -- over the past few months I've been having a series of interesting conversations with Will Page, the Chief Economist for PRS.
Page, of course, put out that famous report last summer, that pointed out that the music industry in the UK appeared to be getting bigger, not smaller (contrary to what you hear from many people). Page is a fun guy to talk with about music industry economics, and we decided to run a little interview with him here. There's plenty that I disagree with him about, but plenty that we agree on too. There's so much in this interview that I'd like to dig deeper on, and I hope to do that in a series of posts in the future -- and some more back and forth with Page -- but I figured at this point it was worth getting our discussion as it stands out there for people to read.
We wrote about your study last
year showing that the UK music industry was actually increasing -- contrary
to most of the headlines were saying. Can you give a quick summary
of why your numbers show a very different story than the popular press
keeps saying?
It's a
'different story' to what people are accustomed to simply because,
for too long, people have characterised the music industry as being
about just the recorded music industry. That's largely due to the
fact that the only data out there for people to discuss is recorded
music statistics. When we published 'Adding
Up The Music Industry for 2008' last year, it was an important step towards showing (i) how much the
whole music industry was worth and more importantly (ii) how it all
hangs together. One of the many audiences we aimed this work at was
Government, who need to understand the broader picture of what the music
industry comprises of, and the value that it brings.
The Insight paper allowed two new pieces of the pie to be illustrated
and properly understood: firstly live music revenues of
£1.4 billion and secondly business-to-business licensing revenues which
were over £900 million. From a total pie worth
£3.6 billion, that implied that recorded music made up a nudge over
a third of the total revenues -- that's a significant sum, but definitely
not the only show in town.
Both of us are
skeptical that the digital music sales market will ever replace the
physical music market. Can you summarize why and what numbers
you've seen about the digital market?
My concerns about the digital market
start with the same word that introduced me to economics:
'scarcity' -- there is little scarcity in selling digital media
goods and that inevitably affects price. I think the best way to illustrate
this is to look, instead, at the live music industry as those folks
are the masters of pricing scarcity
-- they view tickets as 'lots' and want to maximise the willingness
to pay for each. Live music mastered their demand curve a long time
ago; digital music is still trying to discover theirs. Another problem
with this topic is that interpreting digital music revenues is not a
straightforward exercise, especially in Europe. We published a paper
on 'Understanding
and Interpreting the Digital Market' two years ago to help folks try and get their head around this
complex market, and it's not got any easier since!
I'd like to flag two observations
for your readers. Firstly, don't view digital in isolation, when it's
shown that one-in-five albums sold in America were digital, that tells
you more about the collapse in the five, that the outperformance of
the one. Secondly, the UK has really outperformed its European neighbours
in developing a large, and importantly diverse, digital market. UK digital
revenues per capita are twice, maybe three times, that of our main European
neighbours, which is a great testimony to the work that Jez Bell at
PRS for Music and folks like Francis Keeling at Universal have done
on the licensing front as well as the
incredible achievements of the services
like We7, Spotify and 7 Digital which have taken out the licences and
launched here.
Finally, whilst the digital makes
up 20% of recorded music revenues, and 5% of PRS for Music collections,
what I really have learnt to appreciate is that these digital services
are legal 'venues' -- a concept that Eric Garland drilled home
to me -- and somewhere north of four million
folks in the UK are going to sites like
Spotify or We7 and doing their thing
-- now it might not be producing the monies people once wished for
but they are arguably not going to Mininova, an illegal venue, and that's
an important achievement -- especially when Mininova celebrated its
10 billionth torrent download
three months before iTunes celebrated theirs. Engagement with legal
venues is worth more than the top line
revenues might initially suggest.
You mention 'scarcity' in the context of live vs. digital, but live has a real scarcity (seats -- over which they can control access). Digital doesn't have that kind of scarcity. You say that digital hasn't 'discovered their demand curve,' but might the bigger issue really be that without the scarcity the supply curve is the issue? My view has always been that the digital market is a red herring due to the lack of scarcity, but instead the music world should focus on external scarcities that widespread digital music creates (including things like seats at concerts). Is the real issue not the demand curve but the supply and the failure (of some) to recognize that they need to think broader in terms of what they're selling?
That's a very insightful question -- and you're right as one of the many mistakes economists make is to forget about the supply side dynamics of a problem, and instead focus on demand. It's worth citing Jean Baptiste Say, and his Law of Markets which is that "supply creates demand." What this means, with regards to your question, is that "overproduction" in a free economy is actually impossible. That's a controversial proposition though, as I think it comes up against another trade off which we could call the attention economy, where a wealth of information leads to a poverty of attention. Stepping back from the theory, there is clearly more noise in the market place -- more artists, more songs, more places to hear them -- therefore more investment is needed to stand above the noise, to enable the benefits of your 'external scarcities' to kick in. One final piece of twisted economics is this idea of a 'freemium' model, which is cool but has a flaw -- if everyone did it, the less successful it would be. Point being there would be more noise in the free market, which erodes the value of the premium offering -- an increase is supply depresses price, and we shouldn't lose sight of that basic principle.
You call services like Spotify and We7 "legal venues" and things like Mininova as an "illegal venue," which I assume many of our readers may have an issue with -- especially given that Mininova has long had a program for artists to offer up their own content, and there certainly are a small, but growing, number of artists who have embraced those venues for legitimate marketing reasons. Is there an argument to be made that, given the size of some of the userbases of those venues that you (and many) deem illegal, that there may be ways to embrace and engage with them, rather than write them off as such?
The best way to embrace those users is to ensure the services they use are licensed and respect the value of music. Now, we have over a thousand digital music licencees here in the UK, and we've been granting online licenses since 2002, long before iTunes -- a fact often overlooked. The best way to approach the unlicensed services is to think of it this way -- we're all chatting about whether Spotify will sink or swim, right? That's the hot debate at the moment. Well, I would argue that at the margin Spotify would have far more chance of swimming, or up selling the subscription service, had they not had to face this unfair competition of illegal free. That's a powerful argument when you run it through, as it moves away from the old arguments and towards a more plausible observation: what opportunities are being foregone in the legal digital market due to the unfair competition of illegal free? One last thing on Spotify, which is that they went legal before going popular, bucking a regrettable trend. When you explain that to an emerging artist or songwriter, offering a counterfactual of many other sites which have become incredibly popular (and then flipped for incredible amounts of money) before taking out licences -- it really hits the message home.
Both of us are still
quite optimistic that there's still a huge opportunity for the overall
music market to grow. Where do you think that opportunity exists
-- and why is it mostly ignored?
If we pick up on
'Business-to-Business' revenues, or licensing income, this makes
music free at the point of consumption with compensation taking place
elsewhere. This part of the music industry is likely to make up an increasing
part of an increasing pie, and that by default presents opportunities
However, what's frustrating is that music licensing is an area of
the industry that's often least understood by emerging bands
and songwriters -- the MySpace generation --
who are trying to get one foot on the ladder to success. To realise
those opportunities, the first thing artists and songwriters
need to do is protect their rights by joining PPL and PRS for Music
in the UK, or their equivalents in their respective territories. Secondly,
it's very important that the licensing bodies
around the world get involved with the artists and songwriters. Here
at PRS for Music, we've got Myles Keller leading our membership development
and we're getting increasingly involved with our songwriters through
programming events like The
Great Escape on the 13th May, whereas in America you have
'walking encyclopaedias' like Todd and Jeff Brabec who are very
accessible on the panel circuit and their bible 'Music Money and Success' is required reading. I guess my point is
that the best way to realise the licensing opportunities that exist
is to get involved. Passivity doesn't pay.
You stress the importance of getting people to sign up for collection societies/licensing organizations -- which isn't surprising, given your employer -- but myself and many of our readers are concerned about the incentive structures when musicians rely on such organizations (even when-- as in many cases -- they're non-profits). With such organizations, you can take away some aspect of market-pricing, especially when there are issues of compulsory licensing and/or only one provider in the market. It also creates situations where those organizations constantly push for greater rights, or the ability to collect from more places for more reasons-- often upsetting other aspects of the market (for example: bars and restaurants no longer letting bands play live or hosting open mic nights to avoid having to pay licensing fees). While I agree that, given today's setup, it makes sense for musicians not to pass up revenue that's there for them via these organizations, isn't there a risk that these types of organizations distort the market from a purely economic viewpoint?
Each collecting society is different, so firstly -- let's be wary of generalisations. In America, for example, you are absolutely unique in that you have competition within collecting societies with ASCAP, SESAC and BMI -- the latter which is owned by the broadcasters! Similarly, the story behind SoundExchange is unique too -- and in many cases the US is playing 'catch up' with the rest of the world when it comes to neighbouring rights. So, I just want to be clear for a predominantly US Techdirt audience, the US experience with collective rights organisations will be unlike anywhere else in the world. I really mean that too -- it's such an exception to the rule.
Now to your question -- let's start by asking what is the rational for collecting societies. I would argue that the answer is three-fold: (i) reducing transaction costs for both rights holder and user, (ii) preventing fragmentation and (iii) solving co-ordination in many-to-many markets. The bottom line is this: PRS for Music enables start ups to start up, and songwriters to get paid. If you wiped the board clean and tried to devise a new model, which can hold together a blanket licence and balance the needs of unprecedented digital services, you would probably end up with what PRS for Music is doing just now. It's not an easy task, and armchair critics would do well to consider the complexity in this two-sided market and the trade-offs that we face every day, but to read that We7 now feel that add funded music can add up is heartening as it suggests we're getting this delicate balancing act right.
You've noted that the UK music
market appears to have again gone up in
2009 over 2008 and appears to be growing faster than other countries.
Why do you think the UK market has been different than elsewhere?
Firstly, The UK is not alone in bucking
the downward trend as Sweden, Denmark and Australia can also claim to
be outliers in some form. However, these are the exceptions as
opposed to the rule, and it's a stark contrast to the downbeat sentiments
I'm hearing from the US, and chalk-and-cheese to the situation in
Spain which really is frightening on many levels. I'd offer three
exceptions which have bucked global trends rule. Firstly, the live music
industry has continued to exhibit robust growth in the UK even in the
middle of a credit crunch, whereas other territories suggest the market
might have matured. Secondly, UK labels have arguably done a better
job of diversifying their revenue streams , due in part to the success
story that is PPL, and I doubt that level of diversification is being
reflected by labels in many other regions. Third, the UK really values
music. It's a simple point, but it really matters. Think: the role
of the BBC in championing emerging bands, the explosion in music festivals
in every corner of the country, the insane amount of work of Feargal
Sharkey at UK Music has put in to get all the stakeholders (including
ISPs) to banging heads together to face up to the challenges -- all
these ingredients help illustrate that this thing called "music"
actually matters to the UK. Conversely, I'm spending an increasing
amount of time in Spain now, and what you see there is that music doesn't
matter as much...if at all. It's one of the few western countries
that can claim a thriving digital AND physical piracy problem and investment
in domestic talent is drying up as there simply no return. It's actually
kind of eerie when you compare the quality of debate and level of activity
being had in the UK to that of other countries, it's not that we've
solved all the problems, far from it, but it's more about not dodging
them and actually doing something about them.
On Spain, I know the IFPI's recent report said the industry is in trouble there, and you do the same here, but we keep hearing from people who claim otherwise -- that there's a renaissance of music in Spain due to more widespread ability to promote and distribute musicians. Anecdotally, in the last year, I've actually picked up (yes, legally bought, on CD) albums from a few Spanish bands. Do you have some numbers for Spain -- since between the two of us, we seem to have very different anecdotal experiences? Could it just be that the business models haven't adapted yet?
Neither of us is from Spain, nor do we currently live there -- so we have to work this one out based on our own anecdotal experiences. What I've noticed is that trade revenues of record labels have halved in less than a decade, in nominal terms. I've also noticed incredible resentment to 'paying for music' in Spain, there's a real 'stick it to the man' attitude which is puzzling. I come back to the point on domestic investment -- given the situation there, would you (and that could be a label, publisher, manager or third party) invest in developing domestic talent in Spain, or would you invest somewhere else with a lower risk profile and then import into Spain. I'm sure there are lots of opportunities down there on the ground, but how many of those opportunities lead to a sustainable living for professional artists and songwriters. For me, Spain's situation is like a tipping point which other countries should take note of.
One point that you've noted is
that the live music market has grown and actually
surpassed revenue from recorded in the UK. Critics dismiss this,
claiming that the live numbers are dominated by "heritage"
or "legacy" acts. Is this true? You claim that
the revenue for live covers "more bands, more tickets, more seats,
more events." Who's right?
You're right to pick up on the changing
of the guard observation from last year, and it's incredible to think
that five years prior, live was less than half the size of recorded
-- which makes you ask three questions: (i) how has live captured so
much value, (ii) how has recorded lost so much value and (iii) is there
a link. However, read beneath the top line and you can consider the
distribution of those revenues: who got what share of the spoils.
As with recorded music, in live we're witnessing a hit heavy skinny
tail distribution, and that intuitively makes sense. The bigger you
are, the more forms of revenues you're able to exploit and the distribution
skews to the head naturally. When Take That played to over a million
people, that's an example of more tickets, more seats and more events
but it's just one band. Down in the tail, the picture is less clear
-- with worrying stories of support bands having to pay to play needing
to be balanced with the fact that the explosion in festivals gives more
opportunities for acts to get wider exposure. There's some interesting
signals coming out of the market place though, for example I was told
that there was noticeably less record label A&R presence at SXSW
this year, with agents and promoters filling up the bars on Sixth Street
-- perhaps that's a sign of the times.
You've noted in the past that
60% of the UK population don't buy music anyway and that "you can't
cannibalize zero" when it comes to things like file sharing "taking
away" revenue. Do you believe there's evidence that the 60%
of people who don't buy music are helping to contribute revenue elsewhere
-- and if so how and where?
It's a vital observation that needs
to be rammed home as the rights holders are understandably obsessed
with cannibalisation, but sometimes blinkered to the wider problem.
The legendary Rory
Sutherland remarked on
that "Can't Cannibalize Zero" phrase as a masterpiece and
told me that it reminded him:
"Of working with
ATOC, and First Great Western. They were obsessed with the risk of Revenue
Abstraction -- the rail phrase for cannibalisation. In other words, any
special off-peak offer was viewed with terror, lest it attract people
prepared to pay full fare. But, just like music, 60% of people don't
use trains - ever!"
Rory makes you think about the problems
differently -- and here, the problem is how can we re-engage the lost
majority? I collaborated with Spotify on a piece of research called
"How
to dance to ARPU" which
allows rights holders and users to approach that infamous acronym with
more clarity. At the back of my mind, though, is this: most of the folk
of my parents generation love Spotify and none of them ever bought music
...ever. Engagement is the horse, and monetisation is the cart -- if
services like Spotify are helping re-engaging those who gave us nothing,
there's a better chance of getting something going forward.
Following up on the B2B side
of the market, some also point out that this part of the market may
also be dominated by large legacy acts who can score big sponsorship
deals. Do you think that's true and if not why not? What
opportunities are there for less well known bands in this area?
To quote from the paper, 'brands
investing in music trough sponsorship are drawn to it through the potential
audience affinity and reach; this means that much of the major expenditure
is biased towards the larger priorities and artists, which provide larger
fan bases.' That means that it's tough in the tail for bands wanting
to strike sponsorship deals. That said, there is a lot of scope to use
initiative to innovate in this sector. Here in the UK, we have organisations
like Music Ally and FRUKT who are doing some great work in this sector,
especially in terms of offering training and workshops for artists and
managers -- their material is well worth tracking as opportunities
in this sector don't find you, you have to find them.
Lots of people have suggested
that even if live is now outpacing album sales, it was still the record
labels that really financed tours and the growth of live. Are
there mechanisms to support and nurture live if the record labels continue
to decline? Where might it come from?
The kicker is this -- the money is
live is centred around the head, and much of that head is heritage in
status -- so the question I always ask is who's going to offer the
tour support for new bands to build the sort of fan bases that provide
the live industry with the heritage acts of the future. That's a legitimate
question to ask, and not an easy one to answer, but you've got to
look forwards not backwards, and I'm really hype on the company Songkick it's basically Facebook for folk who
love going to gigs with full functionality for ticketing, recommendations
et al. I think that what Ian Hogarth has done there is a real game changer
when you fully think it through -- and it also helps level a heavily
tilted playing field as emerging acts can benefit as much as the established
bands from Songkick's functionality. You have to manage expectations
as it won't make touring across a country in a bus sitting next to
a drummer with an odour problem any less unpleasant, but it does have
the potential to lead to more bands performing to more fans, and importantly
more data to build upon that success.
Notably absent from your discussions
on these numbers is anything (outside of live) having to do with direct-to-fan
opportunities that we've discussed on Techdirt. These numbers
may get mixed in elsewhere as they sometimes include
album sales and sometimes include live, but do you have any thoughts
on that market? Do you have any numbers on how those efforts are
doing?
Firstly, I've recommended your excellent Trent
Reznor case study to literally
everyone and their dog. What's really good about that is that you
echo what I've stressed every time I've explained 'In Rainbows, On Torrents' case study which was that this was a solution
for Radiohead, and was NOT a solution for the music industry. That said,
what Radiohead and NIN did were 'experiments' and we've got to
learn from these experiments. You got to ask the right questions --
so 'of what worked, what's transferable?' Second, whilst Topspin
was behind your Trent Reznor case study, there's another Toronto based
company worth checking out called Official
Community. They're providing
direct artist to fan infrastructure which allows for disintermediation
of the value chain, more empowerment of the artist and faster cash flow.
When you look into these models though, it's important to keep a balanced
perspective and manage expectations -- it's not going to change the
world, and it might not even change the actors involved in a 'conventional
deal,' but this existence of more options should, if anything, allow
artists and songwriters to negotiate better terms. Third and
finally, I agree with the premise of the question -- what's happening
outside the conventional radar is probably bucking the southward trend,
but because it's not being picked up -- the trend continues southward.
I learnt recently that the annual Cambridge Folk Festival is a massive
player in selling CDs of those folk artists to fans -- literally tens
of thousands of CDs being shifted on location. Now, you may be tempted
to dismiss this as just a niche festival and just niche CDs, but they're
shifting lots of them and there's are lots more similar festivals
up and down the country who are increasingly doing the same thing and
its questionable how much of this is getting picked up on the conventional
radar. That offers optimism for the future as regards the "known unknowns"
which are out there, but also presents numerous headaches for myself
and Chris Carey as we try to calculate this year's 'Adding up the
Music Industry' report together which is due for publication in July
2010.
You mention the "skinny tail" and that some of the success today is from heritage acts, but then we see numbers from folks like TuneCore that show a massively successful long tail. It makes me wonder if -- as TuneCore notes -- the long tail success stories simply aren't being seen in the data because it's the wrong data. We hear so many stories of musicians successfully embracing new business models down the tail that it makes me wonder if what's happening down there is simply not being counted. Thoughts? Any ideas on better ways to measure?
Both Chris Anderson's work on Long Tail, and our analysis since, has suffered a lot of misinterpretation because you can't dive into this topic and expect a simple tabloid headline to explain it all. Statistical distributions of large data sets are not the sexiest topic for the music industry to discuss -- on that we can both agree! But let's roll back to what I've stated repeatedly in our work here -- I loved the concept of the Long Tail, still recommend the book to colleagues and wish it would work the way we all hoped. However, it is a book about the supply curve -- here's what happens when lots of goods can get to market. What I was able to do, thanks largely to the mathematical guidance of Andrew Bud, is derive the demand curve for digital music -- which is like saying "okay, once you're on the digital shelf, who actually wants you." You need two curves to tango in economics, and we've been able to develop an unprecedented understanding of this digital music market place as a result. What's great though, is to know where economics needs to hand over to other disciplines, such as psychology, sociology or anthropology -- basically how do we understand culture.
I can illustrate what I mean by offering your readers a genuine exclusive -- by exhibiting the Lorenz curves for We7 and Spotify side by side, and comparing those with the sort of distribution Chris Anderson's theory predicted:
The red line is to show what a "great example of the Long Tail at work" should look like, where 95% of the niche inventory (reading from bottom left to bottom right) makes up 75% of the streams -- a fat tail. Clearly, neither We7 nor Spotify look like that, with both curves tugging into the bottom left hand axis point and this is what's meant by a hit heavy, skinny tail distribution. However, the curves are different, and that is to be expected -- as We7 has a strong editorial with excellent artist promotional campaigns, whereas Spotify is editorial free and allows the consumer to graze the field at their leisure. Consequently, you can see that We7 (blue line) is more hit centric with a 90/5 rule and Spotify (green line) is more democratic with an 80/5 rule which, when you step back, is common sense made complicated but it's nice to see the math adds up!
The key thing for Techdirt readers is that's what economics can tell us when rights holders and users collaborate to understand unprecedented markets, and it's great that PRS for Music and Digital Music Services are willing to work together like this -- I think it's a important part of the success story in the UK. However, economic analysis can only tell us so much and it's at this point when the baton must be passed on to folks from other disciplines or backgrounds who can bring new insights to the table to work out what that actually means in terms of this intriguing thing called 'culture' -- which also means this is a good point to conclude this interview.
Thanks to Will for this fun discussion... which I fully expect to continue. If you want to see one of Will's recent presentations on the state of the music market, it's embedded below:
The IFPI has put out its latest report on the state of the music business (sent in first by Nastybutler77). There aren't too many surprises. Some of the data in the report (such as the growth in the UK and elsewhere) were already covered a few weeks ago in a presentation by Will Page, the chief economist for PRS in the UK. But there were some interesting points in the report that suggest the industry is still in quite a bit of denial. Thirteen markets saw "a return to growth" in music sales -- though, amusingly, the IFPI chooses to highlight two of them -- South Korea and Sweden -- both of which passed ridiculously draconian anti-piracy laws, mostly due to pressure from folks like the IFPI.
Not surprisingly, the IFPI credits the "improving legal environments" in those countries for the increasing sales. Similarly, it notes that sales declines happened in Spain and Canada -- two of the countries most regularly singled out by the entertainment industry for having consumer friendly copyright laws. Of course, that's not how the industry describes it. They talk about how those countries' laws are "out of touch" or not in line with "international standards."
Of course, what the IFPI totally ignores (not surprisingly, since they only represent record labels) is that while the sales of music directly may have declined in some markets, the overall market for music grew tremendously. In other words, the decline in sales of recorded music has not done harm to the music industry, but just to a few record labels. This new report is really just an attempt to pretend (yet again) that the "music industry" is really "the recording industry." And, of course, what this report doesn't come close to acknowledging, is that in putting in place these "legal environments" in places like Sweden and South Korea, it has cut off many more efficient and effective ways for musicians to create, promote and distribute their works.
That's what this report really shows. It shows that the IFPI wants to be the gatekeeper to make sure that more of the money going through the music ecosystem goes to its labels, rather than to others. It doesn't care if the overall market for music is smaller, just as long as more of the money goes to its members.
The fantastic NPR podcast, Planet Money, interviewed OK Go frontman Damian Kulash, discussing the music industry, record labels and management secrets. In the interview, Kulash reminisces about the success that they had with their now-famous treadmill video -- and then contrasts that experience with the ridiculous policy against embedding forced upon by them by their label, EMI. This battle, of course, ultimately resulted in the band parting ways with their label. Since distribution channels are no longer tightly controlled solely by the record labels, once an artist has established their fanbase, it is now much easier for them to go it alone. This story is becoming increasingly common. From Trent Reznor to Amanda Palmer, dropping a label has become the new reason to celebrate for the latest generation of musicians.
That said, OK Go left EMI amicably, and Kulash is quite appreciative of the music labels. He calls them "risk aggregators" and commends them for funding the initial monetary investment necessary to get his band off the ground. However, with the costs of music production plummeting in recent years, the days of needing huge advances just to cut an album are numbered. Couple this fact with innovative funding models, like what Jill Sobule and Ellis Paul have been doing, and then the opportunity for new bands to find success looks bright. Kulash recognizes this opportunity for new bands to find new paths to success:
There's no known way from point A to point C or D or F anymore. ... There's all sorts of room for people to try new ideas and try innovative things. If people make cool stuff, and people are savvy in the way they deal with their cool stuff, I have no doubt that young bands will continue to rise to the top
The important takeaway here is that the new models of success may yet be discovered. Innovation by savvy people is still paramount. So, to succeed, the music industry needs to cultivate the entrepreneurial spirit and get out of the way of artists, instead of acting as a restrictive gatekeeper.
Kyle Bylin, over at Hypebot, has an excellent interview with Yan, the manager of the hip hop band Jedi Mind Trick, where he talks about how the band has embraced the internet to become much more successful. The interview is chock full of the type of thing we write about here. For example, on the band's response to "file sharing":
For JMT, it has been more of a blessing. Yeah, they've lost sales to illegal file sharing just like everyone else, but the efficiency of those file sharing networks has allowed their music to spread across the world in a way that the physical distribution network never achieved.
Those file-sharing networks are definitely part of the reason why JMT can play a show in front of 2,000 kids in Bogota, Colombia or to a similarly-sized crowd in Bucharest, Romania. They may have lost sales, but they have gained new throngs of fans by playing live in places that their music may have never reached without the Internet. With the improvements in digital distribution, the hope is that file sharers will become supporters.
This highlights a really important point that many of the critics to these ideas often miss. They seem to assume a zero sum world, where those who embrace the free distribution of their work are automatically "giving up" sales. But what JMT has discovered is that by accepting this, they've build a huge fanbase in places where it wouldn't have been possible before. As Yan notes later in the interview:
Over the 14 years of their career, the Internet enabled them to take what started as a passionate fan base in say Philly, NYC, Boston, and maybe a few other major cities like Los Angeles and grow that fan base across the world.
Without the Internet, they may have been relegated to a regional phenomenon or maybe a group that plays 10-15 shows a year in major markets. With the help of the Internet, they've grown from a regional niche into a worldwide niche with a worldwide fan base. They're 14 years into their career and there are still cities that they haven't played where there is a demand to see them play, so they're very fortunate in that respect.
Yan also shows how the band realized early on that the market had changed and (unlike some others) quickly figured out how to use that changing market to their own advantage:
The internet created an opportunity for them to have their music distributed across the world in a way that physical distribution hadn't achieved. They recognized that opportunity and seized it by developing their worldwide touring business. In the early years, they took low guarantees to go play for their fans; they were confident that they would draw a crowd and get invited back. Now, those tour dates are the anchor of their business. Between the creative accounting of labels and depleting sales, they knew that they had to develop their touring business if they hoped to carve out a sustainable career. Ironically, in this digital age, artists are looking to the analog experience of playing a show to a crowd of actual human beings as the cornerstone of their businesses.
Furthermore, Yan talks about the importance of connecting with fans, and notes how that's more important in the long run than how many albums are sold -- in part because they know that they will get support via other means:
The rise of the social networks has been a great asset for JMT as well. Those networks have created unprecedented access for fans to artists and vice versa. Our business is a customer service business; we care about how the fans feel about the music. We're always looking for new ways to interact with the fans, because the fans' reactions to what JMT is doing musically are a better barometer of their success than SoundScan numbers. For a long time now, we've chosen to measure their success in the fans' passion for the music rather than Billboard chart positions.
Not only that, but Yan also demonstrates how fans like supporting the indie bands and artists that they find. We've been hearing from some lately, who claim that no musician will be able to make money in the future because there will just be too much competition. But that assumes, incorrectly, that fans don't want to support bands -- they just need a good reason to buy:
It seems like human nature to root for the underdog. Fans of independent music are typically a different breed of music fan, because they generally have to work to discover you and they're actively seeking out music rather than waiting for it to be spoon-fed to them through traditional radio, TV, etc. outlets, so when they discover you they wear it like a badge of honor. JMT has fans that send them pictures of themselves with tattoos of JMT's logo or lyrics -- they're literally wearing the music as a permanent badge of honor. That type of passion isn't measured by a Billboard chart, but we're fine with that. We've built a business model that exists outside the gates of that hierarchy.
Great interview by Kyle, and it's great to see yet another band that has this all figured out. In fact, they've got it so figured out that they've set up an artist management business to help other artists do the same thing as well.
This infographic depicts the number of sales that must be made in order for a solo artist to make "minimum wage" in a month. The graphic is obviously meant to be a bit shocking, but even the slightest bit of digging turns it into more of a shoulder shrug. First of all, it is a bit misleading in that it compares not quite apples to oranges, but apples to apple slices to apple sauce to apple juice -- all in one chart. It compares albums and singles and streams all on the same scale, which is a bit unfair. If you sell 1 album for $9.99 (that had 10 tracks on it), then of course you would expect to have to sell (roughly) 10 times as many tracks for $0.99 to make the same amount of money -- that's not really much of a revelation. By looking at the data, we can compare apples to apples and get a better sense of what is going on:
format
average retail price
musician revenue
sales to earn min. wage
Self-Pressed CD
$9.99
$8.09
143
iTunes Album Download
$9.99
0.94
1,229
cdbaby Album download
$9.99
7.49
155
Retail Label-backed CD
$9.99
$0.30
3,871
Clearly, it's difficult to make a living simply by selling albums, but it's always been that way. Musicians have long known that in order to make real money, they'd either have to be U2 big, or tour. However, it's very interesting to note that in the new, digital era, artists actually make more off of their album sales in iTunes than they did in the old, physical world. And selling albums digitally through cdbaby, without a label, stands to bring in much, much more money for the artist -- and frees them from the headache of distributing a physical product. The band Pomplamoose, for example, is making a perfectly good living doing just that.
Moving on, the data claims that to make minimum wage, an artist would need 4.6M plays on a streaming service like Spotify. While that might be technically true, it's a pretty meaningless calculation. It does not take into account the promotional value of streaming -- and unlike selling 143 CDs, getting 4.6M plays of a digital track would certainly lead to significant revenue elsewhere. Surely an artist would be able to translate that much attention into successful live shows or their own CwF+RtB offering. After all, we've seen time and time again that focusing on something as narrow as money earned per track sold (or streamed play) is a limited way to view a musician's earning potential.
So, while at first glance, this infographic may seem pessimistic, digging a little deeper into the data gives the real story. Exciting opportunities still abound in the world of music for those creative enough to seize them.
A few months ago, we wrote about the band Pomplamoose for its unique way of making a living by selling its music digitally. The musical duo playfully connected with fans, sold homemade soap, and even encouraged listeners to give goats to charity. More recently, the band has gained more attention and was accepted into YouTube's Musicians Wanted program where YouTube offers a 50/50 ad revenue split with independent artists who use Google's video platform. Pomplamoose fan Joseph Johnson also points us to an interview with the band in which they describe their creative process and talk a bit about how they manage without the backing of a major label:
Ms. DAWN: I mean, if you can't just do it all yourself, then you do need help. If, for example, you're somebody who writes songs, like Lady Gaga, and you need everything, you know, that's going to make you Lady Gaga, then you need a big, fat label. But if you're just a band, I don't think we're in an era anymore where you need that sort of major backing.
Pomplamoose admits that the band doesn't cash $10 million royalty checks for its music, but that its two singers make a modest living doing what they enjoy doing. They don't play in clubs too much and haven't gone on tour because it's a lot of work for them to set up live shows. Actually, given the way they record their music videos, they don't really know how to play their own songs in a "normal" linear way without editing and remixing. And interestingly, they seem to be making enough to pay for the mechanical rights for the songs they cover.
Mr. CONTE: ... we make sure that we have all our ducks in a row. We bought mechanical licenses to all of our covers before we put them on iTunes. So it's all legit and legal.
So despite criticism that says bands like OK Go have failed and can't make it without a label, the reality is that more bands are able to create more music -- and are getting paid in a variety of different ways. Selling plastic disks isn't the only way to make a living. Touring isn't the only way to make a living. Selling T-shirts isn't the only way to make a living. And Google ads certainly aren't going to save every struggling indie band, either. In fact, there is no silver bullet for how a band can support itself. Simply put, the barrier to become a famous band has dropped considerably, but that doesn't guarantee success -- however, it makes it a lot easier for a much broader array of musicians to try to become professionals doing what they enjoy.
Here in Sweden, as record stores are closing, shops selling magazines are opening at about the same pace. Therefore, it's an interesting strategy for The Ark's upcoming release to be done as a magazine. In terms of physical distribution, it means that their music is available in 1,100 stores instead of just the 110 record stores that are left in Sweden. Also they'll be able to sell the product with 6% VAT instead of the usual 25% VAT, since magazines and books have that lower VAT in Sweden. That equals 19 Swedish kronors per sold copy in "discount" or markup.
To further understand the band's reasoning, I called The Ark's manager Jon Gray up:
Why did you release a magazine?
For many in the younger generation, music is something that's for free. The idea is to work with another form of packaging, to raise other values around the music. The genius is not the idea, but implementation. That we took this from start to finish.
We have not only created a product but also an extended network of resellers to sell it for us. For us it was about creating a new dealer network in addition to the traditional music trade. The 1,100 stores that sell this product are located everywhere including where people live.
What is the product you created?
When we released the Jesus Christ Superstar album (the singer Ola Salo had the title role in the Swedish production last year and did his own translation), we worked with Johannes Sjöberg at So Music, who previously have done some fantastically special editions release of, for example, Astrid Lindgren's life. When we planned the release of the new album, we asked Johannes if he could come up with an idea.
The result was a 100-page magazine with high-quality images, text and design. Sandberg & Timonen made the design and well known Swedish writers such as Andres Lokko, Jan Gradvall and Hanna Fahl have contributed with the text. Also, for Ola Salo as a lyricist, this format is a dream. Rather than get 4 separate texts stuffed together on a 12x12 cm cd booklet page, here each text has its own full page. It's almost a return to the LP format.
Do you think that others will copy your concept?
Yes. Generally speaking, all other revenues for recorded music negligible. Recorded music is free, there is no other business model that has taken after where the CD left us. Whether it's digital downloads or Spotify. There is no money yet. If we become the best selling album in 2010 and the best-selling monthly magazine ever, as I believe we well, it's obvious to me that others will follow our example.
This text was originally posted in Swedish the media cluster organization Media Evolution's site.
