The RIAA: No Longer Suing

According to this article posted on Current.com, the Recording Industry Association of America (RIAA) has officially announced that they will no longer sue civilians for sharing of copyrighted music over the internet. According to the article, over 35,000 people have been sued by the RIAA since 2003, with an average settlement amount equaling about $3,500 per case. The RIAA started its campaign to stop copyright infringement of recorded music over the internet during the Napster years (1999-2001). Subsequent file sharing services have all come under fire by copyright holders backed by the RIAA, and civilian users of these services (the file "sharers") have been primarily targeted. Now the RIAA says it will focus on the Internet Service Providers (ISPs), mandating that the service providers warn users to stop the infringing actions and to block repeat offenders' access to the internet.

Essentially what the RIAA is saying is that it is now attempting to stop being the bad guy that it has quickly become over the past few years in the minds of digital music consumers. Thanks to Apple and iTunes, the music industry has found a way to legitimately sell digital music online. Further, due to an agreement by the RIAA and other industry associations, songwriters and music publishers are now going to get paid a royalty for the streaming of songs online, a development that has been under heavy debate in recent years. Whether or not one agrees with the actions of the RIAA and its constiuents, the fact is that the industry is slowly shaping itself to fit the digital and new media world, which is very exciting indeed.

Selling Music in a Digital Age: Recent Developments

Following up on my last post, I would like provide updates on some recent developments within the digital music retail world. First - and quite a personal dismay - is the new website Made Loud, which is a digital online music retailer for the independent artist / social networking site. Obviously, the developers of Made Loud read my most recent post that covered this exact business opportunity and stole the idea from me (wink, wink). Despite my personal resentments, after perusing the Made Loud site, its apparent that they have put a lot of thought into the project. Artists can create a page, upload their music and set a price-per-download rate, and then commence with reaching out to fans. It is a win-win situation for the artist who owns all of his or her own master recordings. In fact, according to the FAQs section of the site, "Artists keep 80% of all digital download sales and 85% of all merch sales. Artists also choose their own pricing." (par. 3). Purchasing is made almost too easy through Pay Pal. In a music world that has been dominated by conglomerates and umbrella corporations for decades, Made Loud and sites similar to it are paving the way towards the future of this industry.

The second exciting development that caught my attention is the new digital music retailer LaLa, which offers 10 cent downloads of songs as well as a full, free preview listen of the whole song prior to purchasing. The catch: one can only listen to his or her songs via a web browser, meaning an internet connection is required at all times during use. At first, this sounds like a major annoyance, but in a tech-obsessed world dominated by internet phones and computers, the idea makes a lot of sense. With all of one's data stored electronically on the company's servers, there is no need for the information to be stored on a personal hard drive; all one would need is a phone or computer with an internet connection. According to this article by Michelle Quinn, a staff writer for the LA Times, the company also offers an MP3 download for an extra 79-89 cents, which of course can be store on a hard-drive. Quinn further states that, "Lala has a deal with labels that lets it scan a user's music library and offer the user those same songs via any Web browser [...] That gives Lala information about a person's tastes so it can target music suggestions" (par. 15-16). Additionally, according to the "How It Works" section of LaLa's site, the service can "quickly match the songs on your computer to Lala's licensed catalog [...] Songs you already have and playlists you've created are instantly added to your Lala collection for free" (par. 2).

It is important that these sites continue to develop and spawn multiple imitators. For too long, the music industry and its consumers have had only one option for the purchase of music - the record store. With these recent developments, the industry and its constituents are finally adapting to new, simple methods of e-commerce, albeit light-years behind other industries. With the major setbacks brought on by the pirating of digitized music and the state of the U.S. economy in general, things for awhile were looking quite bleak. Yet, these exciting new websites prove that there is light at the end of the tunnel for the music industry.

Myspace Music: The Good, The Bad, The Ugly

A recent music industry blog article caught my attention the other day. It is written by Dave Kusek, the Vice President for the Berklee School of Music, and it features his thoughts on the recent revamping of "Myspace Music". Without going too deep, essentially Kusek shuns the new addition to the site claiming that this new music section is just a copy of the existing social media sites, and has therefore lost sight of the indie artist. In his exact words, the new addition "falls short of the comprehensive one-stop online music store" that most people were expecting (par. 5). In order to paint a more complete picture, I am attempting to build upon his remarks, and by offering my own insight into the matter, ideally provide some sage advice for the music industry gurus out there.

Kusek's discussion overlooks a key fact that is important to this discussion - the fact that Myspace is a corporation; one which essentially makes its money though advertising. Since its inception, Myspace has been focused on one goal: get as many users as possible and then hit them with advertising. Trent Lapinski, a blogger and internet "techie" discusses this point in his article The Business of Spam 2.0. He states that Myspace (since its beginnings), was a "site created by a marketing company known for viral entertainment websites, pop-up advertising, spam, spyware, and adware", utilizing clever marketing tactics to give it a friendly, so-called indie feel (par. 2). Most people can plainly see through that friendly facade, however, especially considering the fact that Myspace has always been a free service. The notion that its creators ever cared for more than anything than advertising dollars is absurd, with the music portion being one of the most clever marketing tactics used to cover up that fact. Consequently, while the site did have an indie feel to it and appeared to appeal to the upcoming/indie artist, that perception was always entirely overshadowed by advertising. Now, with the addition of the new, revived music section, Myspace is further bolstering its ad revenue by allowing for the hottest and biggest artists to be featured on the site. It is easy to see how one of the best ways to gain advertising revenue is to have the biggest/hottest artist as a part of your media, (much like how TV network affiliates pay a license to use the hotter network TV shows to generate greater revenue for themselves).

Kusek also purports that the new music section merely copies the other existing sites such as Imeem, Last.fm, and a host of other music and social media sites (par. 7). Is it to their disadvantage? Probably not - the added advertising revenue created as a result of having access to the four major labels' content will be realized in a way that meets all prior expectations. Om Malik, founder and senior writer of Gigaom.com, recently stated in this article that -according to Myspace CEO Chris DeWolfe - Myspace is not trying to establish itself as an online retailer because there is really no point in competing with iTunes (par. 2-3). In essence, Myspace is establishing itself as a social-networking site that allows one to search and discover new music and then go and buy it from Apple. In a way, its simply another marketing tactic on the part of the 4 major record labels who - according to Kusek - own a 40% share in the new venture (par. 12).

One might be asking, where is the entrepreneurial business opportunity in all of this? The answer is already in existence and it is called CD Baby. CD baby has been focusing on the independent and upcoming artist for years now, and has been hugely successful within that smaller, niche market. There exists only one shortcoming, however, and that is the fact that there is no social-networking aspect to CD Baby. This is most likely a result of a conscious decision on the part of the owners and is therefore a key to their success as a highly differentiated online music retail site. That said, however, think about the possibilities if one were to create a site much like CD Baby, which also included a social-networking aspect, allowing for artist-to-fan interaction through email, message boards, and the like, all under the online music retailer umbrella. This would make it easy for upcoming artists to control their own interactions with fans, promote their own music, and then provide them with an easy method of purchasing their music. If you take CD Baby's already stellar track record and tack on a social-networking aspect, it is easy to see how one could make a healthy profit from sales commissions and advertising with the coupling of social-networking and online music retailer.

How to Sell an Artist: New Methods of Generating Revenue

With the onslaught of internet downloading, iPods, and the ever-decreasing price of home recording technology, artists these days are facing new challenges and are being forced to adapt the way they make money for themselves. One of the ways in which they must adapt, and a common theme within many of my recent posts, is that artists and musicians of the near future must learn to sell things, (live concerts, merchandise, publishing), rather than solely their recorded music. In the past the roles were reversed: traditionally musicians have used their concerts and merchandise as tools to enhance the sale of their audio art (as the image to the left suggests). Yet the internet and other digital music technologies have specifically caused popular music to lose its once inherent monetary value. The remedy to this problem is to sell the artist, rather than the art. With this in mind, it is important to examine some of the ways in which artists and their affiliates can create alternative revenue streams.

An excellent, time-tested method of generating profit is through live concert appearances. The one thing that the internet cannot make more cheap or convenient for consumers is the magical connection that arises from seeing an artist one admires up close and personal. By playing concerts and interacting with fans, artists can generate serious profit from ticket sales alone. According to Jeri Goldstein, a long time artist agent and manager and author of the award-winning book How To Be Your Own Booking Agent: A Performing Artist's Guide To A Successful Touring Career, "typical percentage splits are 65-70 percent to the artist" of net ticket sales. That is a lot of money! Even in small venues (say 100 seats with an average price of $30 per ticket) the artist will take home $2250! Split between four members that is around $560 per person. If one factors in the number of hours (setup and performance) it takes for an artist to put on a production, (from personal experience it is around five hours for a small venue), that is over $100 an hour for each member of the band. According to Rolling Stone magazine's Money Makers column, which lists the top fifty money-making artists each year, Alicia Keys, (who ranked in last at number 50), made a minuscule (I joke) $10 million. Looking at these trends, if an artist can tour and play enough shows, the profit can and will be immense.

An additional method of generating revenue is through the sale of merchandise. The most direct method is when artists enlist someone close to them to setup an area at the venue and sell everything they can-tee shirts, stickers, posters, etcetera. Donald Passman, a music lawyer, states in his book All You Need to Know About the Music Business, that tour merchandise is quite profitable because “people are all pumped up by the show, they want a souvenir” (page 349). Selling merchandise at a concert adds to the total amount of money an artist can make at a performance, but there are additional methods of selling merchandise as well. The internet provides the greatest amount of exposure to consumers and can therefore be a profitable merchandise selling medium as well. Additionally, artists, their managers, and their other representatives should do all that is in their power to get artist merchandise into mall outlet, shopping center, and online retailers. Websites such as BandMerch and Rockabilia.com are great online retailers of merchandise. Passman states that an artist can get "25% to 35% of the wholesale price" when dealing with retail stores, and that "internet sales [...] are treated just like retail sales" (page 361). By allowing the retailer to withhold a portion of the total profits in exchange for their part in selling the merchandise, a profitable business deal can be achieved rather effortlessly.

In terms of ease and efficiency, the absolute best way to generate revenue is through the retention of song and sound copyrights and licensing an artist's music to third parties. In the music industry these actions are collectively known as music publishing. Through effective marketing, an artist can generate huge profit by licensing its music to television, film, and radio producers; cell phone companies (ring tones), and literally anyone else who is willing to pay for the use of the song in a public environment. The beauty of this method is that the cash flow from the artist's standpoint is entirely positive – it costs the artist nothing, (other than what it cost to create the song), and usually yields great profit. For example, synchronization of a song to a major film can generate, according to ASCAP's Music, Money, Success and the Movies article, "usually between $15,000 and $60,000." Normally, however, that amount is paid to the publisher, (who would normally split the money 50/50 with the artist), but if the artist publishes his or her own songs, then he or she retains all 100 percent of the profit. Ringtones as well are extremely profitable in today's world of MP3 playing cell phones. The Register, a computer technology review website, states that, "[A]ccording to Jupiter Research, ringtones generated $6.6 [billion] dollars in global revenue in 2006." As one can see, the licensing of music to others can be immensely lucrative.

In order to survive the changes in the music industry, adaptability and perseverance are needed. Today's artists, managers, record labels, and publishers need to subject themselves to a drastic overhaul of their traditional ways of doing business. By implementing new sales tactics, the profits one can reap will be colossal. Yet, at the same time, these alternative methods of generating revenue are dependent on one crucial factor-the quality of the music. Without great music that enriches people's lives (as the image to the right suggests), these people will never pay to see a concert, buy merchandise, or to use the song within some other creative medium. Therefore, while changes should occur in terms of what the music industry sells to consumers, the art of creating great, timeless music should never change.

Selling Tickets in a Digital Age: Why Ticketmaster Will Fail

A recent court case involving the ticket distribution giant Ticketmaster (TM) and internet technology firm RMG Technologies, came to a completion two weeks ago as the judge involved in the case ruled in Ticketmaster's favor. The ruling grants the ticket-selling giant an injunction that, according to a personal statement on its website, stops “RMG Technologies from facilitating access to [their] ticketing system.” Digital Infrastructure, an internet technology website, claims that RMG systems was responsible for developing software that circumvented security systems, that the software was rented out to scalpers, and that this software allowed these scalpers to “barrage Ticketmaster's computers with requests for tickets to perform automated purchases, crowding out other buyers.” This is not the first time that the ticket seller has been compromised by scalpers who have the technology to obtain a large number of tickets from them illegally, and subsequently sell them at higher prices on online auction websites. In fact, the article by Digital Infrastructure further asserts that internet scalping is quickly becoming a major bane; an impedance that hinders honest fans from obtaining the tickets they deserve. A colleague of mine recently posted a blog post about Ticketmaster and the scrutiny it has come to face from many unhappy ticket buyers, such as the person who created the image to the left. She states that the ticket seller has “not done enough to keep its customers happy,” and that, “[c]onvenience fees on top of base ticket prices are getting steeper and steeper.” High convenience charges, comprised security ... is the ticket seller doing anything right these days? All of the facts suggest that, no, they are not providing a beneficial service to anyone save for making immense profit for itself and its affiliates. With the music industry in its current state and as people grow increasingly less fond of the ticket giant, it is important to find new ways of distributing and selling tickets in a fair manner in order to save the economic value of the live performance.

One way to avoid its unfair ticket sales is to flat out boycott Ticketmaster altogether and buy tickets from a ticket broker or reseller. A great resource for alternative ticket-selling websites is Concert Tickets.com, which has a list of all of the best brokers and resellers. The benefit of buying from one of these companies is that, through the networks of licensed brokers that each company operates under, one can potentially obtain high-demand tickets that sell out quickly, or that were never available for sale from TM due to their pre-sale giveaways to concert promoters. Consequently, true fans have a better chance of obtaining these high demand tickets through a reseller or broker than through the ticket giant. Through my own research, however, it appears that the ticket prices offered by these resellers are drastically higher than those offered by TM. For example, floor seating tickets for the November 8th Hannah Montana/Miley Cyrus show in San Diego are offered on TM for $66.00, while Ticket Liquidator offers a comparable ticket for $893.00! Therefore, while fans benefit by avoiding TM's low inventory and high convenience charges, the price of obtaining that special ticket from a broker or reseller may not be worth the effort. That said, however, according to its About Us section on its website, TM, believes that it is still the "world's leading ticketing company", and that because of this, high demand tickets sell very quickly and are often hard to obtain. For this reason, the ticket giant created Ticket Exchange, "the event-authorized ticket resale service provided by Ticketmaster", as noted by this press release on its website. The article further claims that, "fans looking for tickets may visit TicketExchange to purchase tickets that might not otherwise be available." Consequently, although fans are increasingly wary of the ticket giant, if one chooses to believe that they are sincere in their efforts then the corporation is taking steps to lessen the burden on ticket-buyers.

A very exciting, revolutionary way of selling tickets was recently brought to my attention by another music industry colleague. Her recent post focused on the band Led Zeppelin and its reunion concert taking place in London next month. In this post she mentions how Harvey Goldsmith (the band's concert promoter) devised a new method of selling tickets to fans for the concert. Essentially, Goldsmith's aim was to avoid using what he refers to in his blog as “parasite businesses,” who, through increased ticket prices, “prevent fans from supporting their artists.” The basic principle of his new ticket system is based around a lottery, which chooses winners at random. There is also a strict limit on the number of tickets one can obtain (two per person), and the credit card used to pay for the tickets must be under the name of the person chosen by the lottery. If these conditions are not met, then the ticket is withheld from the buyer. The benefits of this system are apparent when compared to the traditional Ticketmaster model-it makes ticket buying more fair by choosing winners at random, and it also blocks potential internet scalpers who are trying to automate purchases for large numbers of tickets.

With the increase in the number of unhappy ticket-buying consumers, a market for cheap, easy-to-obtain tickets is slowly being realized. Forward thinking people such as Harvey Goldsmith are taking advantage of this opportunity and are making better businesses by learning from others' mistakes. Taking it a step further, one can envision a future where artists, record labels, and their appointed promoters will set up private event websites that specifically cater to fans by offering cheap, fairly distributed tickets, much like Goldsmith's lottery. In this way, artists, concert promoters, and venue owners/operators will work together to produce concerts by bypassing the corporate giants such as Ticketmaster, saving everyone a lot of money and bringing back the magic of the live performance to whom it belongs-the fans (see image to the right).

Comments: Reactions to External Blogs

This week while exploring the blogosphere, I discovered two posts that piqued my interest and that I subsequently commented on. The first post I commented on is by Marketing Pilgrim staff writer Jordan McCollum and is a follow up of sorts to my recent post on the band Radiohead. In this post, McCollum discusses the success Radiohead has achieved since the release of its "free" album to consumers online one month ago. While McCollum points out that Radiohead has achieved some monetary gain, its much less than what many people had originally predicted. In response to this, I point out that McCollum and others are expecting too much too soon. The second post I commented is written by Brad Linder, an audiophile, freelance journalist and blogger for Download Squad, Green Daily, and TV Squad. Linder discusses the new Mbox Micro, the latest installment in popular audio recording company Digidesign's Mbox 2 arsenal. I build upon Linder's comments and suggest ways that Digidesign can improve its product. My comments can be found on the external blogs, as well as below.

Comment to McCollum: It goes without saying that what Radiohead has done with this experiment is truly revolutionary. Furthermore it is nice to see that Radiohead is making some profit, despite the fact that it is much less than what many people expected. One must keep in mind, however, that it has not even been one month since the album was originally released to consumers. Greg Sandoval, an author for CNET's News Blog points out in this article that it is probably much too early to determine whether or not Radiohead has been successful (monetarily speaking) in its endeavors. Sandoval quotes Chris Castle, (scroll down to see biography), a long-time music attorney and record executive for A&M Records, with the statement that "the money-generating lifespan of an album can last as long as two years. It starts when an act releases a record and continues when the performer goes on a concert tour." Traditionally, performers have released albums and then immediately afterwards toured to support the sales of their album. As Mark Ellen, editor of "The Word" magazine and music journalist, points out in this article, "[f]ive years ago people toured in order to sell records." With this in mind, Radiohead's limited success can be partially attributed to the lack of live performances this far into the experiment. Not only this, increased touring will undoubtedly lead to greater revenue generated by the sale of tickets, as well as the sale of physical merchandise and other paraphernalia that consumers cannot simply download for free. Therefore, your suggestion that people should find a more effective business model is premature. With the addition of touring, some marketing and promotion by the band, and simply time in general, the figures might change drastically, turning this experiment into a highly effective business model.

Comment to Linder: It is ironic how Digidesign releases the Mbox Micro as well as Pro Tools version 7.4 immediately before the big holiday season is it not? At first glance the Mbox Micro does seem really cool (see image), but as you pointed out, it is not - technically speaking - an audio interface as it provides no audio input to the computer. This is a drawback for true audiophiles who would like a small interface for recording "on the go". Yet it also makes sense that a true interface with a decent preamp and analog to digital converter would be significantly more bulky, diminishing the Micro's novelty miniature size. That aside, I might even consider purchasing the Micro for "on the go" mixing, but I feel that purchasing another $250 copy of Pro Tools LE software is a waste of time because I already own a copy. It might be more beneficial to Digidesign to offer the Micro at full price with the software bundle, as well as at a reduced price without the software for those of us who already have the latest version. You do bring up a good point, however, that as the number of high quality, hand-held flash recording devices increases, people interested in home recording are going to be doing less and less multi-track recording sessions, and therefore using Pro Tools as purely a platform for mixing imported audio files. The question then is whether or not the microphones in these hand-held devices can produce audio that is comparable to the traditional microphone and preamp combination. If so, then this could be the death of the large, multi-track audio interface market.

Radiohead: More Than Just Musical Geniuses

Although sometimes it seems like television, corporate power, and media attention are the sole forces at play when it comes to people finding out about new trends and ideas, a recent event has reaffirmed my belief that word-of-mouth is the most powerful means to finding out new information. The recent event I speak of is a short encounter I had with my roommate last week that lead to my discovery of a revolutionary thing occurring in the music industry today. He (my roommate) told me that popular English rock band Radiohead, are releasing a new album online to their fans entirely own their own accord, without the help of a record label. I did not think much of this news because plenty of artists (namely artists of the “indie” genre) have released music in a similar fashion online, without the help of a record label. Moreover, Radiohead have plenty of leverage when it comes to promoting material in the industry because they are a highly established band, making their feat seem even less impressive at first glance. Therefore, it was not until this weekend when I decided to delve deeper into this event. What I discovered shocked and impressed me – Radiohead is asking its fans to pay whatever they want for the download of their new album, which will be released on October 10th.

This is a genius move for the band and for the music industry in general. In searching for online commentary on this event, I came across an article on Clipmarks.com aptly titled Radiohead's Nail in the Music Industry's Coffin. Thinking about this further, however, it becomes apparent that rather than nailing the coffin shut, Radiohead is prying the coffin open in that this could be the move that saves the music industry from its current demise. While it is true that this move will destroy the traditional model of the record company having exclusive control of an album, if successful, it will simultaneously open up a new world of commerce for artists and consumers. Consequently, not only will this be a fool-proof experiment to find out how much consumers are really willing to pay for the download of an album, it is foreseeable that Radiohead is setting a unique precedent with this move. In essence, Radiohead's move will function as what Topper Smith – one of my music industry professors – calls the “bell-cow” for the industry. Topper believes that the bell-cow is a person or event that attracts others to a particular cause or course of action, and if Radiohead is successful in selling this new album, it is plausible that many artists will follow suit.

What artists need to do now is to train themselves to be the ultimate business people. Radiohead's move, whether commercially successful or not, is a cue to artists to learn how to not only create great music, but to manufacture, distribute, and market their music entirely on their own as well. They need to know how to record their music at home, how to create and run a simple website, and how reach out to fans in new and creative ways. The resources are out there for artists to take advantage of. There is CD Baby which provides artists with a friendly distributor of their physical albums as well as digital sales to iTunes and other online music stores. Or in contrast to this there is eMusic, which provides independent artists a means to selling their music online in the intangible realm, without DRM and at a low cost to consumers. And above all else, and as the image to the left suggests, the often overlooked method of word of mouth is a powerful tool for artists to utilize at their discretion.

One question remains: will Radiohead achieve success and revitalize the music industry? Only time will tell. In a later discussion, I asked my roommate how much he plans to pay for the album. “Nothing,” he starkly replied. Maybe Radiohead's attempts are futile.

Digital Rights Management: Can We Sell Music Without It?

Steve Jobs, Apple's visionary CEO, published an open letter in February of this year that addresses the hotly debated topic of Digital Rights Management (DRM) in digital music downloads. His main focus of the letter was to inform readers of a pressing issue between what he calls, “the four big record companies” (Universal, Sony BMG, Warner, and EMI), and online digital music retailers such as iTunes. The issue is centered around DRM and why Steve Jobs thinks music companies and online retailers need to collectively agree to abolish it. Jobs' primary reason for seeking such a drastic change is that, based on Apple's market research, most of the music that people have in digital music libraries on their computers or digital music players is DRM free. He claims that under three percent comes embedded with DRM and that “the remaining 97% of the music is unprotected.” Based on this he believes that if all of the parties agreed to abandon DRM altogether, music would be more compatible across digital music players, computers, and people.

Ultimately though, one must speculate - who does this benefit? As the satirical image above suggests, consumers are sick and tired of DRM. Jobs purports that his proposition is “clearly the best alternative for consumers” as it will allow them to purchase music from any online retailer and listen to that music on their computer or digital music player of choice. And since Apple's market share of digital music players as of the end of last year was the highest at 57 percent with their iPod, it is easy to say that Jobs is hoping that the more music people buy due to a lack of DRM software, the more iPods will sell as well. Furthermore, since iTunes dominates the digital retail market with a current share (if you can call it sharing) of 88 percent, Jobs probably does not have much to worry about at the moment in terms of future competitors.

The real question is whether or not digital music will sell without DRM. It is highly unlikely that the four big record companies will license their music without the assurance of DRM to any online music retailer. Therefore, while this could be damaging to iTunes, (a lack of licenses will presumably limity Apple's content), other companies have thrived in this so-called “indie” environment. Take eMusic for example, which has proved to be a huge success since its inception in 1998. Nate Anderson, an author for Ars Technica, discusses eMusic's uncanny success in his post "Making money selling music without DRM: the rise of eMusic." He states, “the answer was simple: you offer songs as high quality, variable bit rate MP3 files instead. DRM is removed, consumers are happy, and the vast white fields of the iPod are ready for harvest.” The idea behind eMusic is to play to iPod users who enjoy a low price and the interoperability (see image to the right) associated with DRM free music, and as Anderson points out, this business model has proved to be quite practical and profitable. In this light, Steve Jobs' proposition holds a lot of merit – make music more accessible to canny and educated consumers, and it will sell.

The big four record companies need to be put to the test – can they recoup the loss of what little copyright protection DRM offers at this point by appealing to consumer demands and provide licenses for the sale of DRM-free music? Many people, (such as Thomas Wilburn – the author I wrote to last week), seem to agree that this is not only a feasible decision, but a smart money-making move as well. Or as Greg Sandoval, staff writer for CNET news, relates in an article interview with an industry talent scout Elise Malmberg, "'Ultimately I don't think digital music will be a primary product,' Malmberg said. 'I think it will be a value-added thing that's used to sell other products.'" Essentially the idea is to make music less of a marketable commodity and more of a promotional one; something that promotes the sale of other more profitable commodities such as artist merchandise and/or concerts. If record companies reduce their costs in creating and marketing music to nullify any losses incurred through licensing DRM-free music, it seems plausible that everyone could benefit through the shared creation, distribution, and sale of music. The big four record companies could argue this concept and say that they have a right to utilize DRM as a form of copyright protection of their most valuable asset. Even Sandoval admits that it is hard to tell if this "is the way to cure what ails the record industry," and that record companies "may be right to tread lightly here." The important thing to take away from all of this is that music should never be simply handed-out for free as the interests of artists and record companies are very much at stake. Yet the overall idea of adapting business models to fit the current technology and consumer demands is one that should be taken seriously.

Quick Comments: Reactions to External Blogs

This week while exploring the "blogo-cosm", I came across two posts that I found to be quite interesting and deserving of my written reaction. I was particularly interested in these posts because both expand upon the topic that I covered last week in my "Future of Music" post (as the image to the left portrays). The first post is found on the prestigious Ars Technica (art of technology) blog and is penned by Thomas Wilburn, a Washington D.C. based author who is no stranger to the music industry. This post consists of his reaction to and summation of the various viewpoints explored at the recent Future of Music Policy Summit. I found the ideas he relays to be interesting, revolutionary, and at times, even absurd. The second post I commented on is by Stephen J. Dubner and consists of a panel of music industry experts, each offering his own impression of the current state of the industry. Dubner is a New York Times blog contributer to the "Freakonomics" column and an award winning author. I responded to the section of Dubner's blog written by Koleman Strumpf, professor of business economics at the University of Kansas Business School. My responses to these two posts and the links to the original comments reside below.

Comment to Thomas Wilburn:
"I feel frustrated after reading this post because, unlike the subject matter discussed in most blogs, there is almost nothing present here that I can disagree with. It is inspiring to know that so many people see eye-to-eye on this subject and that people are working together towards a positive end result. I must admit, however, that in the last paragraph of your article, the statement quoted by David Harrell irks me. Being a musician myself, it is hard to agree that "musicians should start balancing the loss of revenue with the promotional value of direct communication with fans online." What exactly is the "promotional value" of direct communication with fans? One can speculate and say that increased contact with fans online will lead to more fans, leading to more paying customers at concerts, eventually leading to more revenue for the artist. Yet a musician has to eat, and these speculative values that Harrell associates with artists giving away their music for free are not reassuring in the least. What I am getting at here, is that revenue and promotional value are two entirely separate things. An artist needs revenue to generate great music, which if given away for free, may lead to an inherent promotional value in the art. It is true that greater promotion usually leads to increased revenue, but not always - record companies rarely recoup all of their promotion expenses on an album for newer artists. And there is no guarantee that playing more shows will generate more revenue for an artist because touring is a major expense as well, (think about transportation, food, and housing costs for months on the road). My point here is that if one wants to turn the artist into a small business, promoting itself through free goods to the public, then one will have to find news way to support artists financially. Creating, recording, manufacturing, distributing, promoting, and touring are costs that smaller artists will not be able to tackle on their own, especially if they give their art away for free."

Comment to Stephen Dubner:
"In the article, Koleman Strumpf claims that there is no direct relationship between the pirating of recorded music and the recent decline in CD sales, and that one explanation is that “the industry has failed to find genres that capture the interests of consumers" (par. 12-13). This seems highly counterintuitive because for so many years now, the Recording Industry Association of America has been suing the public on the basis of copyright infringement claiming that this causes a loss of money through a decline in CD sales. I must ask, can so many people have been sued and asked to pay thousands upon thousands of dollars for the wrong reason? Looking at Strumpf's paper, it becomes apparent that he fails to examine one crucial point: the fact that illegal downloads today (and in the last few years) consist mostly of singles rather than albums. People are just not downloading entire albums and this is why their downloads cannot be linked to a decline in album sales. Although it is true that with the recent rise in Bit Torrent technology, downloading entire albums with large file sizes is quickly becoming more common place. Yet, it still holds that the general format of illegal downloads via services such as Limewire and Kazaa is that of the single, not the album. Therefore rather than the consumer being forced to waste roughly eighteen dollars on a new album for a few singles, the intelligent (in terms of saving money) consumer is attaining those singles for free, without all of the filler songs he or she will not listen to anyways. This brings me to my next point which is that I agree with Strumpf that maybe the industry – for some time now – has not found a genre worth selling to the public. I feel that in general that the idea of creating an entire album as a continuous work that tells a story, was thrown out the window long before illegal downloading ever took place. The internet has provided a method for people to not waste their money on music they do not want to hear. This stems from musical decisions rather than promotional and marketing decisions. I believe that if artists and the people who collaborate to make music can create epic stories, (like Pink Floyd did in their 1973 release "The Dark Side of the Moon"), that take the listener on a journey of adventure and discovery, the end result will only be positive and the album will sell once again."

The Future of Music: How to Save the Business

Rick Rubin, an expert record producer and musical pioneer, believes that he has the key (free sign up to view the article) to saving the music business. Due to recent events, it is apparent to Rubin, (and everyone with an IQ of at least 80), that record companies are currently lost when it comes to choosing a direction for their businesses. The fact is, however, that the traditional business model of selling records as a tangible object is obsolete. The industry has shifted from the tangible to the intangible, with Apple's iTunes leading the way as the new business model; one that is primarily based on the sale of song singles, rather than entire albums.

While record companies insist that the drop in CD sales is due to online pirating of recorded music, and it is certainly true that the decline can be partially attributed to pirating, Rubin believes that the change is the result of something deeper. He maintains that record companies for many years have been signing and developing artists for the wrong reasons, (as the cartoon on the right depicts), and that due to the recent shift in the industry, the “old way of doing things is obsolete.” In general Rubin feels that no matter what happens, the most important thing is to create great music that will influence and inspire people for “ages” and this in turn will lead to consistent sales.

Rubin's ideas certainly make sense, yet in general much more can be accomplished to allow traditional record companies to compete with, or at the very least, survive alongside Apple.

The most important first step is to abandon traditional distribution of recorded music. My personal message to record companies: STOP SELLING CDS! If consumers are not shopping for CDs in retail outlets, do not sell music in retail outlets. Rather, sell music in online music retail stores such as iTunes, music.com, and others.

Jeffrey Webber, another well known producer and professor of music industry at UCLA, spoke to a class I was in last year called “The Record Producer”. He put forth an interesting new business model for record companies that incorporates iTunes and the singles sales model. His proposition, and I am loosely paraphrasing here based on what I remember from a year ago, is that record companies should not only abandon CDs, but abandon albums altogether. For those unaware, recording contracts between record companies and artists, allow for record companies to commit to the funding of one initial album, with additional “options” (usually in the 3-5 range) to record additional albums after the initial release of the first album. Webber thinks it will be to the record companies' advantage to commit to only to singles, say three up front with options for more if the initial three are successful sellers.

In my opinion, this could make things much more efficient while saving money and producing enormous profit for record companies. All the record company has to do is send the singles to iTunes or another online distributor, pay a marketing and promotion fee, and provide the accompanying liner notes and album artwork to satisfy consumer demands.

One might ask, however, what happens for the small number of consumers who want to own the tangible object rather than the MP3? I believe such a consumer will have two options in that case: a) burn the album for oneself OR b) I propose Apple incorporates a service that manufactures and ships out CDs as they are ordered. Kind of like how Jack in the Box does not make its food until it is ordered. This would save record companies the trouble of wasting money on manufacturing CDs that will not sell.

It is apparent that what is taking place is a metamorphosis of an entire industry. The change is brought about by technology and its ability to promote globalization and ease of communication, (anyone heard of web 2.0?). As Rick Rubin so eloquently puts it, “the world has changed [...] the industry has not.” If people do not adapt to the change, the once great record companies will eventually fizzle out and smaller, more genre-specific, so-called “indie” labels will take their place. Not only this, with the recent advance in home recording technology, it is easy to see the artist as not only an artist anymore, but as a producer, recording engineer, and distributer as well. Essentially artists will take the sale of their music into their own hands – a process that has already begun. Due to recent technology, the ability to create and share music with others has never been easier, and if these changes do occur, it is plausible that a diversification and of music will ensue. Maybe genres will cease to exist as styles and attitudes are mixed and shared at an exponential rate. No one knows for sure exactly what will happen, but these are very feasible predictions of future events.

In a way, Rick Rubin is very wise in his claims that music - especially good music - is valuable and it is important to promote the advancement of musical ideas. And no matter what happens to the industry, music will always be present. It is therefore that what we need above all else is continued and lasting support for artists. We must cherish them and cherish their art because music, no matter how it is packaged and sold, is essential to our survival as human beings.