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?