This journal is devoted to the entertainment industry, and to the challenges that technology and the web pose to it.

Monday, May 25, 2009

The New Music Economy (hyphenate wherever you like)

I recently met with the founders of a startup record label. I'm 44 and they're in their twenties. Their view of how musicians use the internet is radically different from mine. I'd heard that musicians were all hyped on MySpace. I figured that they used MySpace because it was easy, and that the look of the page was secondary to the ease of posting content. I was wrong about that too. I wasn't giving the kids enough credit. Their thinking's more sophisticated than I'd given them credit for. (Sorry for having ended that sentence with a preposition. See? Old School.)

I still think that most of MySpace looks like a slum full of row-houses with the style and quality of the graffiti being the only difference between one house and the next.

Facebook is neat, clean, uniform, and overall, has content more relevant to me. That doesn't mean it's better for everyone. The kids want a means of expression, and Facebook allows less of that.

Okay, fine. I'm capable of admitting I was wrong, and hopefully I'm capable of learning and changing my view of things.

They also explained that, in their view, MySpace is a great way for the bands to publicize their material. They said that MySpace gives them free exposure to a lot of music, so they can determine (without paying for it,or working too hard to find it) whether they'd like to see the band live.

There's a much bigger issue in Gen-X and Millenial kids' view of intellectual property (and of how to publicize music). The current twenty-somethings have become accustomed to stealing music, and have found rationales for stealing which have insidiously crept into their culture. The rationalizations seem so deeply ingrained that they almost don't see it as stealing.

They appear, as a group, to be more okay with pirating music than previous generations had been. With Limewire and many other "services" it becomes so easy to steal that the kids don't see it as wrong. [Limewire is so evil and full of harmful things for computers (viruses, spyware, malware) that I won't even link to it.]

Not like I'm so holy myself. I don't mean to come off as holier than ..whoever, but this is one area that's important to me because I create things, and would prefer that people not steal them.

Perhaps many bands want fans to spread the word through whatever means possible, including the music-stealing sites and "services". Perhaps some bands say on their websites "Feel free to download and spread our stuff. We want to get our stuff in as many ears as possible.". I've not seen that type of notice on any band's website. Doesn't mean no one's doing it. But, you can be sure The Rolling Stones don't say that. Their stuff gets pirated as much as any other music.

The rationale these kids gave me was that the artists already know there's no money in making records any more, which is why most of them spend less on production today than they would have twenty years ago (if they were even old enough to have been in the business then). Production and distribution are much cheaper now, after all. Tools for making a high-quality record are available for only a few thousand dollars, and someone can put together a "great" studio for very little money today. (Of course, your definition of "great" may vary from theirs.)

Electronic distribution costs "nothing", and it's available on the "file sharing" networks. So.."What are we (the kids) doing wrong?"

The kids I met with believe that when a band releases a new record/CD, it serves as the basis for a new tour. There is a lot of money in touring, and the artists make their "real money" on tour. As such, by spreading the music around, the twenty-somethings help the artists to sell more seats, thus increasing tour profits. Tour profits lead to merchandise sales; so, again, helping to "promote" touring helps to increase merchandise and ticket sales, which is ultimately where the artist makes money anyway.

They also posed a social justice rationale. The big, bad evil record company charges $17 for a CD, and they keep majority of the $17. Very little goes to the artist, and the artist must use their piece of the record sale pie to pay back advances made by the record company. The kids I met with believe that, more often than not, the record company treats an artist's advance as a loan, and charges interest on it..

Helping the artist get out of debt is not too high on the kids' priority list. The kids say they'd rather pay iTunes for the one or two songs they might want from the CD, than buy the whole CD. Also, the artist sees approximately 70% of the recording sale by iTunes, versus a smaller percentage than that which they'd get from sale of the big bad record company's release.

[The (original) last word of the following sentence was censored by Facebook. So, I changed it both here and on Facebook:] That's a load of hooey.

I respect the kids who are starting the record company. I'm sure they have a lot of talent, and an understanding of the record business as it exists today. But I take issue with their positions. I figured that maybe I got it wrong, that I misunderstood. So I asked a few teenagers about their music consumption habits. The ones I asked tell me that they do buy songs individually, or that they listen to songs on MySpace without ever buying them. I think that's fine. If an artist puts a song on MySpace, but did not mean to distribute it beyond MySpace, and the kids go where the music is, that's just a sign that the band's getting popular. By having put the song up on the internet without a price tag on it, the artist is encouraging people to listen.

The social justice argument runs counter to the "recorded music is a promotional item for selling tour tickets.". rationale, but let's come back to that.

My research indicates that many artists' advances are interest-free., and that a good lawyer can make any such clause go away. Also, since production costs have come way down (part of the kids' argument), artists don't need advances as much as they used to. Any contract with a record label that doesn't involve an artist's advance, negates at least half the social justice rationale.

Let's look at the kids' rationales from another perspective:

John Lennon ain't touring. I doubt his estate agrees with the philosophy of "benevolence" espoused by the kids.

Billy Joel is 60. I don't think he's too thrilled about having to tour as much as he does at his age. Maybe he's not recorded (in part) because there's no money in it any more. His last studio album (River of Dreams, CBS 1993. Available on Amazon, iTunes, and lots of other places) sold in the tens of millions. Yet he tours with Elton John a lot. Elton is still recording. He's in a different position than most recording artists today.

I grew up Orthodox Jewish. A lot of Orthodox Jewish culture looks down upon the less observant variants of Judaism, and jokes that they have "Turned 'The Ten Commandments' into the Ten Suggestions."

Let's not ignore the obvious: The artists are charging for the recordings of their music. They're outright telling their fans that this recording costs $10 or $15. Do the kids think that's just a Suggestion? Do the kids think "Oh, the artists don't really mean that."?

Billy Joel wrote a great song called Christmas In Fallujah. The proceeds from the song are going to an organization called Homes for Our Troops —a not-for-profit organization that builds and adapts homes for injured veterans. Are the kids saying "Oh, no problem. We, the kids will tell all our friends about it, download it, spread it around, and somehow, Homes for Our Troops will make the money back on tour."?

Back to the slightly less obvious:

A band/recording artist can only tour so many days in a year, and can only sell so many tickets per performance. As such the revenue potential is much more limited. With digital distribution, manufacturing costs for recordings are down to almost nothing. The profit margin potential for the artist is substantial enough that stealing deprives them of more income today than it would have before digital distribution existed.

Concert tickets are $50 to $300, versus $10 for the digital version of the original recording. So the twenty-something rationalizes they'll spend $50 to see the concert (risking the possibility of not getting tickets) versus spending $10 for the record. Hmm..something doesn't fly.

The Grateful Dead (see reference below) used to have a "taping section" at their arena shows. They encouraged fans to tape and distribute shows. They believed that spreading the word among "the faithful" of the "Grateful" would increase sales. They were right. But that worked for THEM, and THEY authorized the taping.

There's a joke: "How many Grateful Dead fans does it take to change a lightbulb?....Grateful Dead fans don't change lightbulbs. They wait till the bulb burns out, then follow it around for twenty five years.".

The Grateful Dead had groupies on a par with few other bands. The "faithful" of the Grateful would buy the records. The "Dead", and their music-sharing marketing strategy were a phenomenon before file sharing, and before piracy became as easy as it is today. But again, "The Dead" authorized people to tape the live shows. They never authorized people to tape the records they (the Dead) made for sale.

I do NOT long for the days when record companies had an iron grip on the industry. I believe that "big corporate" is not out for the interest of the recording artists (except perhaps the interest it charges the stupider among them them on recording contract advances). That doesn't take away from the companies' right to demand money for their product.

The kids starting the record label told me that the only real means of directly making money from recordings is via synchronization licenses–the licensing of a recording for use in a movie or television show. There are also Performance Rights Organizations such as BMI, ASCAP , SESAC, and (most recently) SoundExchange, which distribute money to artists and publishers whose works are played in broadcast media and public forums (such as performance spaces, and as background music in clubs).

Needless to say, I disagree with the kids BIG time. I respect their passion and entrepreneurship, and realize that their rationale IS changing the record business. But I believe that this change is working to the detriment of recording artists. If record sales were through the roof, the fears would be less founded. There are fewer platinum (million-selling) records today than there were a few years ago.

So, to make money, today's record companies have to retain a large majority of publishing income. (Publishers are song pimps. They are the agents representing a musical work, and try to promote it for use in movies, television, performances by artists, and anything else that will get the work to generate income.).

In years and decades past, many record companies required some artists (who compose their own material) to sign over to the record company a percentage of publishing income to which they—the artist—would otherwise be entitled, in exchange for the record company allowing them to record the song, and have the record company get it out to the masses. This practice is abhorrent, but was tolerated for a long time.

The record label owners with whom I met want to write its artists' songs so that they can legitimately retain the publishing rights. That's fine. It's smart business. But if records aren't selling, why start a record label? Why not start a publishing company? Clearly these entrepreneurs believe they'll make money selling records. But with this new "understanding" of sales in the music business, how are these kids going to make a dollar with every would-be music consumer wanting to non-consensually barter their "promotion" services for the stolen music?

I like to think I understand the idea of promoting product versus selling it. Clearly I'm too stupid to understand "the new economy" as espoused by the Millen-Gen.

That's okay. Someone much smarter than me gets it. The great lyricist, author, and visionary John Perry Barlow beautifully and eloquently summarized the REAL new economy in his 1992 essay: Selling Wine Without Bottles . John was also a lyricist for many songs by the Grateful Dead—the SAME band who encouraged taping and distribution of The Dead's intellectual property.

Let's review: A new band distributes their product for free or cheap so that they can gain an audience. Check. Got it. I see the strategy.

Imagine now that the same new band tours, and word spreads about them. They work hard playing clubs for a few years, become bigger, develop a reputation, and they start wanting to charge for their intellectual property and product. They tell fans "Continue to download and spread our first two records, but the third one is for profit. You want it? You pay for it. This is what we do to eat, and we spent months making something from which you'll derive benefit. Please pay us the respect of not stealing our stuff.". What are the chances the fans will abide by the band's will after years of going by a rationale like the one above? Whether the kids steal it or abandon the band because they're charging for their work is, I suppose the kids' choice. But if they download the record when the band says it costs money, is that not stealing?

The new economy should be opening more doors for sales of music—every kind of music, in every imagineable form. CDs, DVDs, Blu-Ray, Sheet Music, MP3s, streaming media subscriptions...They should be thriving more than ever, given how easy it is to promote the work all over the world for next to nothing. But the kids are figuring that by distributing the music across a file "sharing" service like Limewire they might help to make a struggling songwriter in Brooklyn get a "cult following" in India, thus opening up tour possibilities on another continent, is very nice. But...if the guy's struggling and you like his music, you should pay for it unless the artist /owner of that music specifically requests that you distribute his music without compensating him. Stealing the Brooklyn composer's music would be like walking into a pottery shop, taking a nice clay bowl, and telling the shop owner "I'm not going to pay for this thing you made, but I'll tell all my friends about it, and they'll all come in and pay you for some other bowl. Or maybe we can organize some parties at which you can present your pottery. People will buy them there. But clearly you've put out this nice display table so that we could take the stuff.

Radiohead set up a "pay what you want" scheme for their most recent release. The kids with the record company admitted that they paid nothing when they'd downloaded the music. The official Radiohead website encouraged people to donate something, but allowed people to download it without paying. That was Radiohead's choice. They have the money to allow fans to take their music in the hopes that the fans will be come an extension of the band's publicity firm. Most artists who record their music in the hopes of selling it don't have those kinds of resources, and ask fans to pay a set amount.

Last point: Has this ever been done before? Is there a precedent for "come see my live shows, because that's where I make all the money"? Almost. Comedians have traditionally not sold very well. Lisa Lampanelli and Jeff Foxworthy are noteworthy exceptions. (Shameless plug: My company—Dragonfly Technologies—developed Lisa Lampanelli's website) Jeff Foxworthy's You Might Be A Redneck is the best-selling comedy album to date.

Most comics make their money on the road. Most make the CDs, distribute them electronically or in-person after shows, but don't expect the CDs to be a major source of income. I doubt they want their material stolen (either by other comics who use their jokes or by would-be consumers who steal tracks from CDs/DVDs), but it's not as big a source of income for them, and they (comedians) have almost always made more money on tour/performing than they do from CD/merchandise sales.

That there's a precedent doesn't excuse the kids' behavior or justify their position. Stealing music is just wrong, and taking food out of the artists' mouths (or a record company's coffers) isn't good for anyone. John Perry Barlow got it right. The real New Economy is about making it easier to sell intellectual property by not requiring it to take physical form. However well-intentioned the proponent of the opposite view may be, by promoting the idea of giving away the "wine" in the hopes that the gifts may some day promote trips to the vineyard, they'll perpetuate the old "starving artist" paradigm, leaving the artist drunk with only their own wine and AA to keep them company.

Rant over!

Comments?


10 comments:

Pesky Settler said...

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Well worth the time methinks.

Devo

Anonymous said...

Sorry, Dana, but I can't disagree enough. Yes, it's true that sharing files will result in less money being paid for the content in those files, but that's simply the nature of the technology. You can't ban automobiles because the makers of buggy whips will lose money. When things change, you change with them. Artists need to find new business models. Or maybe stop thinking of music as a way to make lots of money.

Movie theaters lost out when VCRs were invented. A lot of them shut down. Even today, they can't survive on just the movies. Instead, they have to charge insane prices for food and drink (which is totally their right, btw) in order to stay open.

Messengers lost out when the telegraph and telephone were invented. The live theater took one in the throat when movies were invented.

This is how history works, Dana. You can't hold back the tide and call something theft that isn't. When I buy a CD, it's mine. Mine to do with as I wish. If I want to make a copy for a friend, that's my perogative. If I want to put it on a file sharing site, that is as well. The only thing that isn't legitimate for me to do is to make fraudulent claims about who wrote or performed it. I can't take credit for it myself, for example. But that's an issue of fraud, and not theft.

God, can you possibly imagine if science ever comes up with replicators, like in Star Trek? Where you can have a machine create exact copies of food? Would you think in such a case that chefs should have a right to prohibit someone from copying a dish they cooked? Could a farmer sue because the steak I get out of one of those machines was originally copied from meat taken from a cow he raised?

Technology changes. People get left behind. It's sad, but you can't make it illegal. Not for long, anyway.

--Lisa (for some reason, it won't let me log in)

Dana Friedman said...

Lisa:

It took me about 30 seconds to figure out which Lisa you are.

Thanks for having shared your thoughts on this post. I don't believe your analogies of messengers and horse-and-buggy/bullwhip manufacturers is valid in this context.

Messengers provide a particular type of service, and bullwhip manufacturers provided a particular type of product in which people show less interest or different interest today than they did a hundred years ago.

Music is not what's being sold. What's being sold is the physical manifestation of the music. If you bought a CD, that's what you own–the CD. The content is not what's yours. It never was, and the copyright clearly says so. If you'd bought a blank CD with a record store's $18 price sticker on it, that's your choice.

Microsoft will tell you in at least a dozen ways that THEY own the software that's ON the CDs they sell. All *you* own is the physical copy. If you were to make another copy and were to give that copy to someone so that they could use it in violation of Microsoft's intent when they sold you the CD, you'd be stealing their contents.

John Perry Barlow's essay "Selling wine Without Bottles" (link below) says this so much better than I ever could.
http://homes.eff.org/~barlow/EconomyOfIdeas.html .

The artist created the work product so that it might be distributed /SOLD in physical or digital form. The work product–the content of the CDs–is the reason you bought the thing. If you want the right to copy it, you can buy the right to copy it. The record company that owns the music will sell that right. It may cost millions of dollars, but they do have licenses for duplication of their property.

The ability to make copies of a piece of paper has been with us for about 80 years. In that time, billions of books have been stolen. That the technology exists doesn't give anyone the right to use it for illicit purposes.

Here's an analogy that might be more on point with intellectual property. You bought a house. By having bought the house, you own the land on which the house is built. Perhaps, you would rather have an office building on the land YOU own. The city in which you live has the right to tell you that you may not put up an office building on YOUR land. You agreed to live by the city's rules. You don't like it? Move to Utah. Perhaps the city council in Provo will encourage you to put up the cigarette factory next to the kindergarten.

If you housesit for someone while they go on vacation for a week, should you assume that in return for your housesitting you're allowed to have parties at their house, and have guests eat the food the homeowners will have paid for? Nope. Ya gotta ask permission, and the owner of the house has the right to say no. In return, you don't have to house-sit for them if you don't want.

There are hundreds or thousands of software companies that make free software. There are thousands of bands that give away their music. Go, download and distribute that. God bless.

To those who say that creative people should find something else to do because someone invented the technology to steal what they create, I suggest they consider whether shooting themselves in the head might not be a bad idea. Gun technology's come a long way, and can really shoot the brain hard and far, giving a nice splattering effect along a wall. But please, don't commit that particular type of suicide while housesitting. It's not nice.

Dana Friedman said...

Wow...I typed too fast. I kept several grammar and punctuation mistakes in there, by not having edited thoroughly enough. SORRY.

Lisa said...

Dana, I still disagree. Yes, people have been claiming that bits and bytes and analog pulses don't actually belong to the people who buy them, but it's not true. It'll never be true.

Let's say I'm a music producer. If I want to allow people to buy the right to listen to the music I produce, I can open theater-equivalents where people can come in and pay for a ticket to sit in a booth and listen. I can sell them a pass so that for one payment, they can come and listen to that music whenever they want.

This is similar to what happened with movies.

But I know I won't make enough money that way. People want to be able to take the music around with them. So I choose (note: "choose") to create disks of vinyl or silvery plastic and put copies of the music on them. I sell those to people.

By my choosing to do this, I've chosen to forfeit full control over that music. I can lobby the government and demand that they pass laws limiting a person's ownership of what they've purchased, but that's just being greedy. I made a choice, and it has repercussions. If I don't like it, I can return to the theater model.

You can't hold back reality by legal fiat. I mean, you can for a while, but eventually, reality always wins.

Artists, authors, content producers, have to find another business model within the constraints of reality, and not complain that "Oh noes! Things are changing and I don't like it!"

PS: No, I won't commit suicide because you dislike what I have to say. But thanks for the suggestion.

Lisa said...

Let me just add that if I were to write a cookbook and sell it and then insist that every time someone makes one of the recipes in the book, they owe me royalties, even you would consider that ridiculous. I hope. My copying a song off of a CD I've bought and giving it to a friend is absolutely no different than my baking a cake out of the Betty Crocker cookbook and serving it to friends.

Dana Friedman said...

Lisa: I wish you'd have left this comment on my more recent blog post.

Nonetheless, your cookbook analogy is also flawed. If you write a cookbook (equivalent: release an album of original music), and I purchase the cookbook with the intention of cooking the recipes, I'm doing what the author intended with it (equivalent: listening to the music). Making illegal copies of the book, without license to do so is the equivalent of music piracy. You don't own the recipe because you didn't create it. The content is what's copyrighted, not the physical manifestation of the work.

Let's say you create software for a living, and a copy of the software was purchased by Business A. Business A, as part of its agreement with you, was told the software was for their use only.

Should Business A be allowed to "give away" your work just because Business A said to their buddy— Business B—that they might like the software? If your answer is yes, the law disagrees. It's fine to say the law is wrong. For now, the law stands. I'm not some kind of preacher or moralist. I just want musicians, comedians, authors, whoever...to be able to make a living from what they do. At this point "the train has left the station", and piracy's pretty much unstoppable. SO, creative artists are finding alternative ways to make a living. The ISPs will hopefully start collecting a download fee for streaming copyrighted works. Musicians, filmmakers, whoever..will share in the ad revenue created by the additional ads served on the streamed music pages. It's a realy kludge, a real workaround to piracy. If it serves musicians well, and this is the "bottle" in which the creative artist's "wine" is served, and the wine can sustain them, I'm ...happier about it than before Mr. Leonhard had put his thoughts out there.

Lisa said...

So we're sitting down to dinner, and one of my guests says, "Mmm... this is delicious! Can I get the recipe?" the proper thing for me to do is say, "Hell no. You want the recipe, go buy the cookbook!"

And yes, the law is wrong. But that's what happens when billion dollar corporations lobby elected officials.

Dana Friedman said...

If the law were taken to an extreme, that'd be it. However, quoting from a work within the guidelines of fair use is allowed. ALSO, cookbook authors, and authors in general, anticipate being quoted. But there's an even EASIER solution. Someone asks "May I have the recipe?" You can very easily, within the law, and probably as a GREAT promotion for the author's work, say "Sure. In fact, you can borrow the cookbook."

There's a difference between attribution in a "home user" setting, and stealing. 'nuff said. On to the next post.

Anonymous said...

quite interesting read. I would love to follow you on twitter.