Yet Another Music Business Model: Label Signs With A Band

from the fantastic dept

One of our regular critics here claims that part of what I talk about is killing off the record labels. Nothing is further from the truth, of course. I've spoken repeatedly about how I think there's still a tremendous space for smart record labels that get it to help musicians out in enabling these new business models. Some musicians may be able to do everything themselves, but I think most will end up in a partnership of some kind. That's also why I've discussed some newer labels that I think are doing unique and powerful things to enable artists to better connect with fans, and give those fans a reason to buy.

When I've pointed that out, however, some have responded that this just means I want the same status quo as before. But, again, that's incorrect. The way things used to be, was that the major record labels had all of the power. You basically had to sign a major record label deal to get anywhere, and since there are just a few majors, you were pretty limited -- and all of them took advantage of artists. They could do that because they had all the power, and they had a business model that only worked by putting ridiculous and oppressive terms on most artists, guaranteeing that few ever saw anything beyond their advances.

The big difference today? Thanks to new technologies and new avenues for both connecting with fans and transacting with them, the major labels don't have the same sort of power any more -- and artists can actually take back many of their rights, whether it's retaining the copyright on their songs, or negotiating deals that don't seem quite so much like indentured servitude.

And, in fact, we've been seeing more and more of that lately, with newer labels taking a much more innovative, musician-friendly, fan-friendly approach to things. Ian Rogers has a fascinating post that shows at least one situation, where the power structure has certainly shifted, as he read about how a label, Duck Down, had signed to Blue Scholars, a band. Note the direction. It wasn't that Blue Scholars had signed a label deal with Duck Down. Instead, Blue Scholars figured out a unique way to finance, promote and distribute its latest album. First, they did a deal with Seattle's Caffe Vita Coffee to finance the album, and to handle local distribution. The band is retaining all the rights to the music with control over how it's marketed and sold (and, they note, "given away"). Duck Down, though has been "hired" to help with the marketing.

This makes a lot of sense. Certainly record labels have a lot of experience and connections when it comes to marketing music and musicians. So leveraging those relationships makes a lot of sense. Giving up all control and rights just for that marketing expertise, on the other hand... makes less and less sense. So, no, I don't think record labels are going away. I still think there's plenty of room for them in the wider music ecosystem. But their role is changing, and the power shift is moving much more to artists and away from the labels. Some of the smart ones get it. But a few of the major labels certainly don't like this, which is why they fight so hard against the technology that's making this happen.

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So Why Can't Major Record Labels Provide Accurate Accounting To Bands?

from the because-that-would-mean-paying-them-accurately dept

The more you learn about the way major record labels work, the more ridiculous it seems. Unlike pretty much every other creative deal making situation, musicians who sign major record label contracts basically hand over all their rights to the label. The label gets the copyright. It gets to determine the type of music the musician plays. It handles much of the marketing and promotion. And... the biggest thing of all is that it handles all the accounting and payments (if there are any). Over the years, that's resulted in many, many accusations from artists that the labels are flat out lying about how much an artist actually earns. That's why you hear stories of artists selling millions of albums and never seeing a dime in royalties or of artists suing record labels because of sneaky accounting tricks to hide how much an album has earned.

Dave Stewart, from the Eurythmics, has written an article for Billboard where he points out that any retailer in the world has access to amazingly detailed technology and tools to track transactions and settle details with credit card company merchant accounts. He notes how ridiculous it is that such systems have been available for nearly thirty years... and he still can't get an accurate transparent accounting of what a record label has sold.

In the past, the major labels could get away with this, because they were the only real game in town, if a band really wanted to get big. But that's changing. This, of course, is the major labels real concern over new innovations and technology. It's not piracy. It's that new technologies take away the biggest scam they've had going for ages: the ability to keep tons of money that never belonged to them. And that's changing. As Stewart notes:

In the future, all incoming revenue streams will be reported in real time, with transaction costs pre-defined and competitive with the market. In the old model, content distributors have been slow and/or reluctant to adopt new media. Distributors frequently take significant portions of creative control out of the hands of the artist, placing restrictions on format, functionality, interactivity and other components. Copyright controls inherently limit the models and methods of release and distribution of artist products. Digital distribution and rights management methods have failed to leverage technological and business advancements to serve consumer, artistic and corporate interests. With many distributors, the feedback loop on consumer usage is also limited. Buyer profiles, habits and usage patterns are not shared with artists, who are then forced to use other means (surveys, focus groups) to determine how their content is being received by the fan. Especially troubling is that, in many cases, artists are not entitled to any control over precisely what happens with their creative work, or to apply some of the new and innovative ideas in the digital landscape due to restrictions from rights holders. Digital media technologies for distribution, asset management, security and monetization have matured to the point that an easy-to-use, scalable, fully featured digital media gateway and financial tracking system is now possible and should be demanded by all artists.

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So Only When Piracy Gets Really Bad Will Record Labels Change Their Act?

from the just-wondering dept

Google is today launching a free, ad-supported music service in China, with the backing of more than 140 record labels, including the Big 4. The service sounds like exactly the sort of thing that people have been calling for since the Napster days: a search engine linked to a trove of music files, supported by advertising. Google's wanted to add some sort of music search to its Chinese product for some time, as it's been at a significant disadvantage to rivals like Baidu, which have the feature to thank for much of their success. The record labels say this is the first attempt to monetize online music in China, and mirrors moves by some movie studios to compete with piracy there with new products and services, rather than through lawsuits and lobbying. These efforts always give a nod to the rampant piracy going on in China -- acting as if it's a completely different environment than the rest of the world. So is the lesson here that only if piracy, or at least the labels' and studios' perceptions of it, gets "bad enough", will they do something positive, rather than sue people or try to get laws strengthened in their favor? Or is it only because those aren't viable options in China that companies try something different there? The fact that the labels are moving forward with this plan in China, given its reputation as the wild west of copyright infringement, undermine their contention that they can solve the supposed piracy problem with legal or technological means elsewhere. Furthermore, it exposes the reality that what's staring them in the face is a tremendous opportunity, not a problem.

Carlo Longino is an expert at the Insight Community. To get insight and analysis from Carlo Longino and other experts on challenges your company faces, click here.

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Terry McBride: Songs Are Not Copyright. Songs Are Emotions

from the getting-there... dept

Last year we wrote about a fascinating interview with Terry McBride, the CEO of Nettwerk Music, a Canadian record label that has proven to be quite innovative with its business models (and quite successful). He's really focused on helping musicians build up valuable brands, and then being able to make money off of those brands by being consumer-friendly, rather than consumer-antagonistic. One of the examples mentioned in that interview was a new album coming out where before the album was even released, the raw files were put online for fans to download and mix themselves. As he said, it wasn't "remixing," it was "premixing." And, the plan is to take the best of those and release the actual album in two formats: the official mix and the best fan mixes.

There's now another interview with McBride at the Future of Music site where he talks more about his vision of a music future where people effectively pay not for the music, but for the convenience of a "music valet" that does a better job organizing and finding the music you want when you want it. I'm still not convinced this is how things eventually work out, but it's certainly worth thinking about.

However, there are few statements McBride makes that are worth highlighting. First are two statements I agree with, and then one I don't:

People have always been sharing music. Why would I want to stop them? Why would I want to tell them what to do? The way to win was to get them to support my artists, not to force them to do it a certain way. I know I wouldn't like anyone telling me that.

This is a huge point that is so often missed by those in the industry who are focused on "protecting" and "control" rather than recognizing how people want to interact with musicians. The thing that I find most ridiculous from those complaining about file sharing is that they always make some statement along the lines of, "people who are sharing my files aren't fans, because real fans spend money." Of course, if that's true, what's the problem? The people who aren't fans aren't paying and (based on that statement) the real fans will pay. So, there's no problem at all...

Songs are not copyright. Songs are emotions.

Indeed. And that's the point. Do people pay for emotions? No. However, emotions will impact what people will pay for. However, despite agreeing with McBride on so much, I think he goes a bit off-track with the following:

Out of all of the sharing of music, who's making an economic return? Whoever is should then share that with all the people that allowed it to happen, creating a nice alignment of interests to grow any business. A lot of the providers have viewed music as free content, while at the same time paying for the cable content to grow their networks. They've been making money off the backs of the artists without any compensation for the artists at all. I think that's fundamentally wrong. I've also said it's fundamentally wrong to go after the consumers that are using that opportunity. That's not the right approach either. The phone companies and the cable providers have gotten away with murder in this whole situation.

This is the blame game and it's missing the point. The ISPs haven't "gotten away with murder." They've simply put in place a reasonable business model based on fundamental economics -- and there's nothing stopping plenty of others in the music business from doing the same. Demanding those who have figured out how to make money share with those who haven't isn't the answer either. There are business models that work just fine for those creating the music that don't require demanding anyone else share their profits. You just focus on coming up with real scarcities that give people or companies real reasons to buy and there are tons of business models that work.

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Terry McBride Explains How Nettwerk Puts Fans In Control

from the consumer-models,-not-business-models dept

Mark Glaser has an absolute must-read interview with music label Nettwerk's CEO Terry McBride. Nettwerk, of course, has been one of a few record labels that really understands how the market has been changing, and has moved aggressively to take advantage of that. The label, which represents some top artists like Coldplay, Barenaked Ladies, K-OS and Avril Lavigne, got a lot of press a couple years back when it agreed to pay for the defense of some folks who were sued by the RIAA for file sharing. But, much more interesting was how it was actively embracing the changing market while other record labels were trying to hold back the tide. I don't agree with everything McBride has to say, but he's a lot closer to understanding where the music market is heading than pretty much everyone else we've seen in the recording industry.

You should really read the entire interview, but a few highlights are things like where he points out that musicians and record labels should be selling the overall brand, not the music:

In the digital space, where you don't need to buy shelf space, if you create the right metadata behind what you're doing, and market it in an effective way -- you're not marketing the new album, you're marketing the brand.... Chad [Urmston of State Radio] just played to 2,800 people with a $25 ticket price in New York on the weekend. He's marketing a brand, he's not just marketing intellectual property. Now it all makes sense. He's happy, he owns his future, his audience has grown with him really well.

Which brings up the second key theme: growing the audience and having them connect more closely with the musicians, even to the point of having some say in what direction the band goes in. For example, he talks about originally letting fans design the t-shirts the bands would sell. While some band members didn't like the fan-designed shirts, they inevitably sold more than the band-designed shirts. So, they started taking that even further: releasing versions of the bands' music online for fans to remix. And, with the latest K-OS album, even releasing all the musical stems for remixing, months before the actual album is released, with a plan to then release both the artist mix and the best fan mixes as both physical and digital offerings:

You can even take it beyond that. With K-OS, we're thinking about having the audience vote on which 10 to 12 cities he plays in Canada. We might even take it one step further: pay as you go not as you enter. And maybe when you leave you get a copy of the fan mix for your donation, so there's karma pricing on the exit.

McBride also talks about where he thinks this is all going to end up, and he discusses a model that might sound sort of like the music tax we've been slamming, but in reality it's quite different:

To me, the future of music is really simple. It's cloud-based servers that have all of the music, TV, movies -- whatever it might be. Very rich application-driven PDAs, whether it's the iPhone or whatever else comes up, that has applications that I have yet to see. Like digital maids or valets, which go out and knows what your musical tastes are and your 20 friends, and finds that music and organizes it -- not the actual music but the metadata so you can pull it when and how you want it. You would have a $5 or $10 per month fee for pulling it down. And that's how it will all end up, because business cannot drive business consumption.

How free loses out is the applications and metadata that makes it really easy. I call it the "hassle factor" -- for $5 to $10 you get all the music you want without the pain of having to find it. So you get the new Killers album without even knowing the new Killers album is out, and it's automatically in your weekend listening folder because your digital valet got it for you. And if you want to know what your buddy Ken's listening to, then the valet checks out his playlist and copies it over for you.

I could see this happening to some extent. The difference between this and a music tax is (a) it's totally voluntary (b) it's about adding value beyond "free" that makes it worth paying and (c) what you're really paying for is actual scarcities: convenience and pointers to good music you'll really like. Of course, in the end, my guess is that eventually this would go one step further, where the service itself would be free, because musicians would find so many other benefits from being promoted through such a system (increased ticket sales, fan club subscriptions, etc...) that it would make even more sense for the whole system to be free.

Anyway, it's great to see real progress being made on business models in the industry, and this actually highlights (once again) why Warner Music/Jim Griffin's music license system just isn't necessary. The market is making things work without it. In fact, the key quote from McBride may highlight why Nettwerk is getting somewhere while so many of the old school labels are having trouble:

It's a business model and not a consumer model. And it's definitely not a psychological model. This is about monetizing consumer behavior and not about trying to control where they go.

He's talking specifically about "ad-supported" music, which I agree is a model that will never get very far, but the same thing pretty much applies to the old record label model, as well. These days, when there are real consumer options out there, you don't succeed by limiting what consumers do, you succeed by enabling them to do more. And, that seems to be exactly what Nettwerk is doing.

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Major Labels Under Antitrust Investigation

from the yet-again dept

Apparently the Justice Department is suddenly worried that the four major record labels are colluding in creating a new online music subscription service. The last time this happened was back when the record labels tried to (wait, this sounds familiar) create online music subscription services -- which were universally panned, rarely used and eventually shut down. So, even if the labels are colluding, given their strategic vision, it seems rather unlikely that they're going to leverage their position to dominate the market. They certainly could hold back other services -- but it seems like they've been doing that for years already, just with their own shortsightedness.

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Next Up To Ditch Record Label: Madonna

from the quite-a-week dept

It's been quite a bad month for the record labels, huh? Kicked off by Radiohead's ditching record labels in order to embrace the new business models that the record labels insisted were dangerous to the industry. In retrospect, it looks like they were just dangerous to the record labels (gee, who could have predicted that?). The latest huge name to ditch a record label appears to be Madonna, who is apparently signing a huge deal with a concert and merchandise promoter instead for over $100 million. She'll still be putting out albums through the promoter rather than the label. There's no indication if she's going to use this to free up some music, but the point should be pretty clear. The money is in concerts and merchandise -- the stuff that the music makes valuable -- not in the music itself. While EMI's new owners have made some noises that maybe they understand what's going on, there's a good chance that it's way too late for the old labels. They had their chance to embrace fans, new technology and the music itself -- and they spent 8 years suing the fans and the technology instead. It's reached the point that college kids are now organizing to protest the RIAA. It's becoming increasingly clear that the labels weren't helping musicians very much either -- and now it appears to be payback time. This isn't the "fault" of piracy. This is the fault of shortsighted recording industry executives who had every chance to understand the economics at play and instead chose to attack everyone (and there were lots) who pointed out to them where the market was going.

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