The New Music Business Part One

Here’s one for the history books: For ten years, the music industry has been fighting a bloody, multi-fronted, all-out war against its sworn enemies, the music consumers. Now we are at Thermopylae. Music consumers, i.e. the army of Xerxes, have pillaged their way across the Internet, making slaves of every business model in their path, and now, finally, they have shoved righteous Leonides and his 300 music business lawyers into their last corner. Everybody knows that 300 guys armed only with briefcases and well-paid convictions can’t hold off an international host of hundreds of thousands of rabid music fans. Thus Leonides pulls off a couple of sneak attacks amongst innumerable windy speeches. But Xerxes wins.

Hands up who knows what the war between the music business and music consumers is about. Hint: if you think it’s about record sales vs. piracy, you’re wrong. What the war is really about is control: of the terms of production, delivery, consumption, monetization, indeed, the very enjoyment of music. For too long, the music business has been lording it over creators and consumers. How many times have they forced us to go along with new formats so that they could repackage and resell the catalogue? In my lifetime, they’ve come at me with vinyl LPs, singles, EPs, 12-inch remixes, 8-tracks, cassettes, DAT, CDs, minidisks, and a panoply of DRM-encrusted AACs, WAVs, AIFFs, WMAs (weapons of mass audio?), FLACs, TAKs, tethered, non-tethered, ethereal, fixed, aargh! How about the collusion between the record business and the radio and retail industries, which resulted in a very few artists being jammed down our throats while a universe of stuff you might like better got no support at all? The music industry treated music like any other product to be manufactured, boxed, and shipped. They could do it because the technology gave them control of all the means of production and distribution.

But for most people music isn’t just a product. It’s an experience, a part of being human. It’s emotional and personal. We sing when we’re happy or afraid; we play music at funerals and weddings. We don’t just want music: we need it like we need love and human companionship. In the days before the modern music business, everybody controlled the means of production and distribution. Everyone could have music — if they couldn’t make it themselves, they would find/hire a musician to provide it. In those days (all of 100 years ago) music wasn’t a product that came in a box with an infuriating cellophane wrapper. Music was an experience that came in a person.

As soon as consumers had the chance, they rose up and started sharing music files on the net, taking back music as an experience rather than a product. In addition to file sharing sites, buckets of businesses have sprung up that all capitalise in some way on consumers’ desire to access music both old and new anytime anywhere. Some of these are essentially just retailers, like iTunes. Others are variations on the radio station. There are scads of social networking sites beyond Myspace and Facebook. And there’s a growing sector of businesses that provide promotional, marketing and other services directly to musicians, like imeem and Sonicbids. Finally, there are the musicians themselves, who through their own websites and the zillions of blogs and retailers can now directly access and sell to audiences worldwide.

All of these developments have gobbled up territory once exclusively held by the "music business,” a term which used to mean major record labels and publishers "[m]any of which were never originally music companies or had no real interest in the music,” says music futurist Gerd Leonhard (see Meet & Greet). "Sony, Matsushita [and] Seagram were selling stuff because it was an easy thing. Now they are going to drop out of this business. As EMI was sold to private equity, the very same thing is likely to happen to Sony BMG, because without the easy way of making money off of selling products, music doesn’t appeal to large corporations. This will lead to a trend to where I think the global business will be 75 percent independents.”

Thus "music business” will mean everybody in the value chain — musicians, content aggregators, marketing companies, managers, booking agents, record labels, merchandisers, publicists, file-sharing sites, retailers, internet service providers and consumers. They are all market forces, and none of them is necessarily in the business of moving a piece of product along a supply chain. Each is involved with a service rather than product-based transaction. It’s an important paradigm shift. The music business, having lost the war to consumers, cannot survive by packaging and selling music as a product any longer. This doesn’t mean everyone in the old model will go out of business, but it does mean the music industry must undergo a fundamental, and likely to be quite painful, transformation in which the game plan is no longer "discover artist, plan first album, record album, manufacture album, ship album, promote album, sell album.”

What does this mean for musicians? "The creators are rising to be the most important players in the value chain, apart from the user,” says Leonhard. "The creative output, whether it’s a song or an ad campaign or a comic or a remix, the things people are trying to make a living off — the creative impetus is becoming more important than anything. Everyone else in the middle gets into a situation where they have to prove their value.”

Established artists with a demonstrable fan-base have more leverage than ever before. Whether you’re signed or not, communities create revenue — in sales, yes, but also in performances fees, merch sales, synch fees, bigger advances and so on. New artists have the ability to generate a fan base faster than ever before, through social networks, digital self-distribution and good old gigging, and can kick-start their recording careers at comparably much lower cost without sacrificing control to a label. On the downside, musicians can no longer afford to be ignorant about the business. In the past, many a green young band went willingly to the slaughter — I mean, what could be wrong with a deal where the label pays for everything, dude, and all you have to do is rock out? Many an artist remained blissfully ignorant about how the business works, right up until the label decided not to release their experimental third album and it sat in the can until the lawsuits faded away. The old model was expensive patronage indeed. Now, artists have an unparalleled opportunity to drive their own damn bus, but they have to know what they’re talking about. That means that the best move you can make as an up-and-coming artist is to educate yourself and stack your team with people who know how to find you an audience.

Oh, there is another bit of a sticky wicket that everyone in the new music business faces: Now that we’re not all about selling records, how does anyone get paid? The old business was a one-sale, one-dollar business. You sold a unit, or got a play on radio, and the revenue would get split up to everybody and his dog. But now, the music is going to be generating lots of little pieces of revenue from all over the digital and terrestrial maps. How are we going to work out, equitably, who gets what share? That minor detail is currently the subject of much scurrying and debate in the business. Tune in next month for the New Music Business, Part Two: What Happens Now? Allison Outhit