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.

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).

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.