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Music's New Trickle Up Economics |
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For years, the music industry has operated using top-down economic structures. A&R men recruited bands for labels, who in turn asked artists to sign away the rights to their creations. The bands recorded albums using label money and these albums were promoted through mass media to the American public. Label executives played public taste-maker, deciding what kind of music was "in" and what wasn't worth recording, let alone promoting. Labels controlled the means of record distribution and collected the vast majority of the profits. Bands were lucky if $1 or $2 of a CD's purchase price made its way to their wallets. Money in the record industry flowed from the top and was collected at the top, while quality seemed to largely decline.
At one time, there was good reason for this structure. Creating and marketing an album was expensive. Recording studios, filled with esoteric gear operated by highly skilled professionals, were expensive to build and operate. Albums reproduced on vinyl, cassette, or CD were expensive to manufacture and package. Radio and television stations, as well as other mass media outlets, charged premium prices to promote musical products. Courtney Love put the cost to a label of recording and promoting an album at $4.4 million dollars. Steve Albini of Nirvana fame puts it at almost $1 million. No matter what numbers you use, that's serious cash.
As Albini and Love point out, the artists themselves didn't need to invest a lot (at least up front) to be signed to a label, but they didn't realize the majority of the profits either. Love estimates that a band that sells a million records makes $45,000 a year, or about as much as they would have earned working at 7-11. Albini is more pessimistic, arguing that a band who sells 250,000 records (a more reasonable number) actually owes the record company $14,000 when all is said and done. Meanwhile, the label grossed $6.6 million or $710,000 respectively.
This kind of numbers game reminds me of the debunked theory once called trickle down economics. Money is collected and concentrated at the top of the economic food chain (the record label) and as these titans of industry reap enormous profits, the money will eventually "trickle down" to the lower rungs (the artists), enriching everyone. As JFK (unfortunately) once said, "A rising tide lifts all boats."
Of course, this kind of business friendly, supply side economics hasn't resonated well with the working class, and it certainly fails to light a fire under artists as it provides them no incentive to produce great music. More importantly, the artists are the ones who create the music in the first place. Without them, major label profits like the ones described above would never be possible.
For decades, musicians put up with this unfair system. Why? For one, it was the only game in town. You could either play ball with the labels or be legally blacklisted from the music business, as Albini ruefully points out. Second, musicians needed the label to put up the capital. After all, making records wasn't cheap.
Today, as many realize, this is all changing. Basic economics are working against the established record industry because the product, the records themselves, are now much cheaper to record, reproduce, and market.
On a basic level, the cost to record a decent album has plummeted in recent years. Where once recording an album meant booking studio space, renting enormous and esoteric analog gear, and paying by the hour for a small army of producers and engineers to record, mix, and master your tracks, today's albums can be made for under $10,000. In fact, a band can buy its own computer based recording studio software, mics, and effects for under $5,000 (or even for free). If they mix the album themselves (all it takes is a little education and good ears) they can produce a finished master that sounds almost as good as an album that cost half a million to record.
Reproduction costs are plummeting as well, seeing as most new bands are turning away from physical formats as the main audio medium. Instead of paying $0.50 - $1 per unit for professionally pressed CDs, complete with jewel case, printed insert, and shrink wrap, artists can distribute their music digitally via mp3 or more high quality audio formats, all at little to no cost.
Marketing costs next to nothing as well. When was the last time you bought an album because you heard a song on the radio? Or saw the band on TV? Or, even less likely, saw an ad for the band in a magazine? If you're like me, your answer was, "Never!" Instead, like most music fans, you purchased an album because a friend recommended it, or because you saw the band live. Word of mouth has always been the most powerful marketing tool in music, and the Internet has made this type of marketing incredibly cheap. Want to get the word out about your band? Make a MySpace page. Offer your album for sale as a digital download on iTunes or other online music stores. Make a clever YouTube video. Go out and play live. You don't need major label style promotion budgets as all these things barely cost anything.
By having a good product, a close relationship with fans, and smart online marketing, a band can make a comfortable living, as many are already doing. With enough success, the money can start to flow up the music industry hierarchy instead of down, with indie bands signing distribution deals with small record labels, record stores, and online retailers. Quite simply, with the cost of doing just about everything in the music industry plummeting, large record labels with vast amounts of capital to invest are no longer a necessary evil. Consequently, they are in crisis, as evidenced by declining record sales and the closing or merging of major labels and recording studios.
Meanwhile, artists are more free than they ever were under big label tyranny. It's not an easy road to success, doing it everything on your own, but then again, it never was. The upside? Artists are able to experiment and to put their experiments out into the marketplace in a way never before possible. And with the long tail power of the Internet, these experiments can find numerous audiences. It seems to me that this process will lead to better music in the long run, and even that this process is already starting to happen. There is good music out there, as we all know, but when was the last time you enjoyed something you heard on commercial radio? It's been a while, you say? Yeah, it's been a while for me too.
Comments? Perhaps I'm being a bit obvious here, but so many don't seem to get it…
This just goes to show that the ball is now in the hands of the musicians and they no longer have to rely on the record companies to get their music out there. With the rise of the internet and like you say, cheaper ways to get their albums made — very exciting time right now for musicians.
I'd like to add that bands will continue to rely on the other sleazebag operators (no bias in me - haha) in the music biz like managers, PR people, live agents/ promoters and fashionable taste makers. I am guessing that managers will superscede labels as the major players since they have the moolah to create the buzz and get the band onto an agent's roster and into the press.
The examples you cite of musicians running their own carreers are all acts that became established with the help of labels.
Whatever the outcome, I am sure we will all be happy to dance on the graves of the major labels.
It's time for artists to take back control of their own work.
Media CEOs are among the richest on the planet but it's not just about money. It's about control. Look at how the big publishers have abused even big name artists who refused to roll over for them! Magnify that by 1,000,000x for all the little people who never make the news.
Two of the most successful software companies, iD (Quake, RTCW, etc) and Epic Megagames (Unreal series) both started as shareware. They put it up on the net for people to download and then pay if they felt it was worth it.
Do your best and have a little faith in your fans and you don't need a Pimp, I mean, Publisher at all.
Um, in what world does a 7-11 worker make $45,000 a year? Seriously? That would mean they're making, what, $22 an hour?
I'm a hard working college graduate with good skills, and to think that I coulda made nearly $1,000 a week with no education makes me want to kick myself.
I think you're not taking everything into account.
For example, you mentioned "a little education" and "good ears". I'd add to that time. Good music production takes a lot of time (potentially more time than a trained professional doing it, but let's leave that discussion aside). Add education, practice and time… all that in one way or another translates to cost.
If music is your hobby, you are in essence donating that cost. However, if you're a music professional, your cost needs to be covered. That ties into my next point: publishing and distribution.
Sure, publishing and distribution are very cheap or (almost) free now… but on the same token, it is very hard to actually make money. More often than not, people are just not paying for downloads (vis a vis the recent Radio Head experiment). So how do you recoup your costs? How can anyone sustain themselves as a professional musician?
My last point is editorializing. Since publishing and distributing are so easy, there's a flooding of content. But how to find good quality content unless you have editors sifting through the crap? How do you find those editors? Again, if they're professional, they need to get paid… if they're amateurs, they're donating their costs… if they're automated social sites, someone needs to cover costs for developing and maintaining…
Take for example YouTube. 99% of the content is crap. Of the 1% remaining content, 90% (of 1%, or 0.9%) is professional content ripped-off from professional media (SNL skits, Music Videos, Will Ferrel's landlord, etc). 10% (0.1%) is random inspired bits or a lucky shot like an Ok Go, or a YouTube David Blane, sources that most likely (with exceptions) cannot produce good content consistently.
That's where Record labels, Radio stations, etc. used to come in… they were the editors with expertise to recognize who was worth investing on and promoting. They shot themselves in the foot by various bad decisions, but I still think there's a place for the editors and investors. A professional musician wants to make and play music, not market themselves.
Music should be free (as in speech). However good, consistent music production costs money, so it cannot be free, as in beer. Free the music, but support the musicians.
P.S. I'm not affiliated with the music industry in any way and I think they put themselves in this situation.
Promotion still costs money and it has to come from somewhere. We may see private investors being to replace the big labels.
Arpie, I understand your points. I guess my reaction would be things are already this way. Promotion is free now, which means there is a lot of crap out there, but how is that different from the status quo? With expensive promotion, you had a lot of crap anyway! Same thing with editorializing. When was the last time you bought music on the recommendation of the music industry? For the last 10 years, for me at least, I've ignored the music industry's hype, because they hype crap. Instead, it was up to me, friends, and word of mouth to find music. That's how it's really always been, so the change here just means artists can use word of mouth marketing without getting screwed by the record industry.
Personally, at least half of the music I own, I bought because I heard songs on the radio that I like. In fact almost all of the new music I buy (artists not already in my CD collection), I buy because I heard them on the radio. I'm not gonna plop down my $12.95 on a CD unless I've heard a few songs and know I like them. OK, yes, I'm being brainwashed by mainstream media. But because I don't feel like paying for XM or spending time making MP3 CDs of unsigned artists (yes, I'm the last person in the world to not own an iPod), that's how I get my music — in the car on the good 'ol FM radio.
Sure, I'm all about supporting independent musicians. But you are never going to get national exposure without a major record label backing you and getting you on FM radio stations nationwide. I'm not saying big labels are the answer, and yes it sucks how little the musician actually makes from record sales. But recording an album in your basement and selling CDs through your website isn't gonna make you enough money to live on or land you a national tour. So I guess the question is, what IS the answer?
And by the way, as someone who went to school to be an audio engineer (but ended up in computers in order to pay the bills), it takes a lot more than just a good set of ears to make a decent record.
My take on bush's deal is that whoever is the repub nominee will have Jeb bush as VP and voila the bush dynasty continues forever and America is no longer. it will be called "bushica". these are amazing times and very depressing at best.the repubs have this next election sewed up for themselves, so whatever party might be opposing them will not have a chance!!!Giullani as prez, give me a break, it'll be Jeb calling the shots just like cheney only worse. I think Ill be moving to Canada!! Please tell me Im wrong and it'll be better!!
Thanks so much.
I completely agree with you in what you're saying. The music industry has changed a lot this decade and will progress to a decentralized system based upon the artist and content creators. The power will almost completely rely on the person making the music!
I am all for the artist doing everything in his or her power to put his or her music out there. Record labels are greedy, the RIAA is pretty useless now, and there's little to no reason anymore for people to rely on these deprecated entities. However, I don't see them completely diminishing to nothing.
Distribution has become relatively cheap. It involves such facets as putting mp3s online and letting people download music. However, certain methods are not taken into account that actually DO add up in cost.
Digital downloads are not a completely free distribution method for several reasons (assuming you are doing this with no third parties helping you). The costs you incur involve a domain name, a web host account, bandwidth for users to download these files, and licensing fees to use the mp3 format (that's right, it technically is NOT free to distribute mp3s in mass right now since the technology is copyrighted!).
Radiohead lets you download its music for any price you want to pay, whether it is nothing to infinity. They do, however, have to pay for their website, the traffic each download generates, and any licensing fees that must be paid for using the technology they used! These are definitely still minimal for a prosperous band such as Radiohead but for the poor indie artist these things add up quickly.
This is where record labels actually still have a use. Digital distribution could be fronted with certain technologies that these labels could potentially provide for minimal fees. Compact Discs are still a mainstay in this day and the mainstream has not completely moved away from the standard CD. Thus, record labels could provide important and essential facets into the mainstream with distribution schemes that allow an artist to generate more revenue than the older models allowed since most of the production is fronted before replication even begins. As you might have read, Radiohead is supposedly tapping into a record label to distribute their CDs so that the mainstream user can buy their album (which relates the fact that most people still are not online buying or downloading music).
So, what changes in the next few months or years for artists? Copyright ownership returns to the artist, production (recording, engineering, mixing, mastering, producing) is the responsibility of the artist. Licensing fees become no issue for personal sales and contracts for manufacturing music disappear. Distribution (physical CDs and hardware/paperwork) and A&R (word of mouth, mainstream promotion such as TV, radio and movies), however, can still be offered from third parties (record labels).
User centric worlds are a reality and preference in this day, giving the power to the artist and/or content creator. But, with these new models forming, survival of the fittest (musically and ambitiously) means many will never make it. If you don't have the skill, the funds, or other essential qualities, you won't go anywhere. People such as Ashlee Simpson and Britney Spears (who are products of the people who promote their voices and abilities) will fall into the wayside over dedicated musicians who do nothing but go for it.
Some nice cordial discussion going on here, kudos to everyone involved.
> Arpie, I understand your points. I guess my reaction would be things are already this way.
My point is I think this is still not ideal, and it is unsustainable. At some point there will be diminishing returns, and the ratio of crap to enjoyable music will be too much to sift through… the absolute worst case scenario is no more professional recording artists. That's where it seems to be going.
I guess things were like this back a few dozen years ago, but we'd probably never have seen Janis Joplin, Hendrix, Pink Floyd, Talking Heads (never mind my taste, these are just examples).
> Promotion is free now
Again, not quite. There's an inherent cost involved as exposed above.
> there is a lot of crap out there, but how is that different from the status quo? With expensive promotion, you had a lot of crap anyway! Same thing with editorializing. When was the last time you bought music on the recommendation of the music industry?… the change here just means artists can use word of mouth marketing without getting screwed by the record industry.
I agree. That's why I said the industry shot themselves on their foot, doing things like: producing albums that are essentially a single+filler; curbing artistic creativity for marketing pressure; switching from marketing over an auditory appeal to a visual appeal; and so on.
That's the beauty of the new model, Arpie. The likelihood of crap music making it mainstream is much less likely since the bar for exposure has been raised in most ways it takes to produce and promote music! We'll get to bypass all of the so-called musicians who can't follow through on anything, can't hold a tune, and can't write decently.
I agree there will be much more noise to sift through, but as we all know word of mouth is and has always been the most effective tool for marketing new music. So I guess the question now is: how do you find good, new music ?
An obvious and intuitive answer to that question is actually pretty simple! How do artists in this day and age get their music out there? By touring! If you want the most exposure and chance for new people to hear your music, you have to put yourself and your music out there. Countless, 10s or 100s of bands, have made it big simply by being in a tour with a band of more notoriety!
There are also plenty of other outlets such as commercial licensing (TV, Movie, Radio, and similar media outlets). I've actually discovered some good new music just from watching iPod commercials (Feist, U2, Steriogram just to name a few). But the most powerful method of getting your name out there, getting your music into the hands of new fans, is to go out there and play your heart out. Travel the world and show it what you have to offer. If you don't, you'll die with the rest (Britney might suffer this exact thing if she doesn't go out and promote her new album, which she currently seem completely uninterested in doing).
I agree wholeheartedly with this statement, from your previous comment, Arpie. Basically, I see musicians moving from making most of their money off albums to making most of their money off live shows and other kinds of engagements. In fact, this is already happening. So, the album, which right now is the main product of the music industry, will now be more of a promo. Because it is so much cheaper to record, replicated, and promote, this can be done.
Then, the artists goes out and tours. Or monetizes his/her connection with fans. Or sells merchandise. Or gets their songs on TV or in movies. Or any other money-making scheme they can think of. That is how they make most of their money, and that is how fans will (and do) support artists.
So yeah, you'll probably have a bunch of crappy free albums floating around, but you'll know who's the real deal by their shows, and by word of mouth, etc…, which is essentially how people sift through culture today anyway.
Now, one caveat. I certainly don't know exactly how this is going to all end up. as Micah points out, there is a lot of change right now and a survival of the fittest mentality is often present. I think we're seeing competition among the new revenue models too, and not just among artists. Will the album hang on as the main product of the record industry? Will people give albums away? Will they put out tip jars like Radiohead did? Will they tour more? How about digital downloads? Or ringtones? Or will something new come along?
The answer, while I don't know it, will undoubtedly be a combination of one or all of these things. I do firmly believe, however, that musicians will diversify their incomes, relying less on one source (albums and record labels) and more on a lot of different projects. As any good investor will tell you, this makes the revenue stream more stable, which, hopefully, should lead to better music and happier (and richer) artists.
It seems Micah and I are on the same wavelength today. Agreed.
> Then, the artists goes out and tours. Or monetizes his/her connection with fans. Or sells merchandise. Or gets their songs on TV or in movies. Or any other money-making scheme they can think of. That is how they make most of their money, and that is how fans will (and do) support artists.
Ok. This is (apart from luck and/ or good networking) marketing their product. From the perspective of the artist, although some artists may have a knack for being marketers too (e.g. The artist formerly known as the artist formerly known as Prince), I believe most don't. So, someone will be hired to do it for them… and we're back to managers, record labels, etc. Essentially that's what they do.
Here's what I think it boils down to: this whole discussion and problems only happened because an industry that is (supposed to be) an accessory/ service to artists and consumers of art became bloated, self-serving and thinking too highly of itself as a money-making industry, not a service industry. The whole revolution is really just getting rid of an industry that became parasitic.
Food for thought: I think Apple is doing the exact same thing, on an analogous path. Think about it. They're using the music to sell their hardware and make a killer profit, and not forwarding any of the profit to the musicians who originated the music (except a tiny little margin on the paltry amount of music sold through iTunes). Even pirated music is an indirect money maker for them… What do you think?
I agree with you on your reasoning, Arpie. And I would also agree on your conclusion. Some musicians will be good marketers. Some won't. This will probably increase the influence managers and PR people have on artists, for better or for worse.
As for Apple…
I don't think they owe musicians any money off the ipods they sell, if that's what you meant. But there are analogies. They make money off the hardware, not the music. Musicians, in the future, will probably also make money off something other than the music. It seems like just about everyone wins here. Musicians can make a living playing music. Consumers get the free music they want. Win-win. Oh…well, the record labels don't win…
I think we're on the same page, except I'm less optimistic in general, especially about Apple's role in all this.
I don't think Apple should pay a commission on all devices sold to the music industry as some sort of preventive reimbursement. That strikes me as a stopgap measure that may benefit a minority a little, while probably not benefiting at all a vast majority.
I do think, however, that their whole model will lead to the same sliding slope as the record industry went through, if they continue to be a virtual monopoly on hardware and legal download sales.
Let's back up for a second here to the emerging artist who wants to make it. What needs to be done to get the music into the public's hands? Everything we've already established: touring, merchandising, licensing to media, donations, sponsorships, etc. There are many ways to do this and they don't all require much skill.
What's one of the biggest marketing tools out there? The Internet. Sites like MySpace, PureVolume, Virb, Facebook, Youtube, Revver, Vimeo. I could go on and on with hundreds of sites that could be used for promotion. Being a marketer in this age is almost as simple as putting up audio and text (writing content, recording music in the most basic sense) on different sites. In a sense, you set up shop in several locations to maximize your audience base. It takes little to no skill (just time and commitment).
Now, as Arpie pointed out, there will come a need for help as artists continue to grow in fame and get face time amongst more audiences. The money will come in through different facets and this will fund people to help you out (managers, agents, etc). But, the difference between yesterday's model and tomorrow's model is where the power and control lie. No longer does everyone else continually call the shots! It's all in the content creator/artists hands.
The more control we give to the artist, the more sincere and genuine their agenda is. It becomes more about the music, the experience and less about fueling the corporate fire that is the record label and RIAA. I currently will do anything I can to not support the RIAA, realizing however that it's almost impossible for some of my money to trickle through their system. As more artists take on models like what Radiohead and Saul Williams are doing, I will be much more likely and probable to support their efforts monetarily. This is one of many reasons why iTunes and record stores in general are a joke to me. I'm over giving money to the wrong people; it's about the artist and should always have been.
Wow! I thoroughly enjoy this dialog! What a great resouce!