There’s not a single person even vaguely educated on the current state of the music industry that doesn’t know that CD sales are at the end of their death spiral and are just waiting for the digital undertakers to finish digging their grave.  Digital Music News made this great .gif to show us exactly how music revenue sources have changed over the past three decades.

Record execs are still sweating the small stuff because of their lack of response to the digital evolution of music, and it’s pretty clear to see that they should have just looked at the numbers from 2002-2008 when CD sales went from a ridiculously dominating 95.5% of the market share, to below 70%, with digital music taking out CD sales each year by as much as 10% between ’07 and ’08.

I know I’m preaching the same sermon to the same choir, but it’s always easier to see the errors of one’s ways through a visual aid.  What I do find interesting though isn’t how digital music destroyed CD’s the same as CD’s destroyed Cassettes, and cassettes destroyed LP’s.  No, it’s how it’s being done.  You can look at the graph and see clearly that it’s not one source of revenue that’s taking the CD’s place, but eight.

And that’s where the main problem with our current music industry lies.  It was always clear cut what was replacing what.  LP’s to cassettes to CD’s to…um, digital singles/albums/streaming media/subscription services/kiosks?  Hell, even I wouldn’t be able to tell heads from tails as to what the next dominating source of music industry revenue will be.  And unfortunately, this is the same thinking of people actually in charge of the industry.  You know your industry is doomed when its leaders are scratching their heads.

I have faith something solid will come about digitally in the next five years that becomes the new dominating revenue stream in the industry, that will gather the eight parts and make them a cohesive whole, but until someone figures out what that is exactly, let’s just cross our fingers and hope the current execs don’t damage the industry irreparably as they scramble to make their last batch of cash from the physical CD sales cow.

“I really don’t understand Netflix’s business philosophy. If it wasn’t for the fact that it makes no sense whatsoever, I would swear that Netflix was literally and intentionally trying to drive away their customers.”

“I just cancelled the streeming option. So I will only pay 7.99. Their streeming selection is not that good!!!  I think that was a bad move from their management.  That is their problem.”

“Really Netflix….REALLY. You have decided to just take away the plans that we are paying for, change them and add 60% to the price. Are you trying to make sure Blockbuster comes out of bankruptcy?”

I’ve been reading A LOT of reaction to Netflix’s new price hike announcement.  I’m sure you’ve heard about the new pricing model, if you haven’t, basically starting September 1st, if you had unlimited streaming and 1 DVD out combo, that’s now split into two plans.  Gone is $10 for both, and now enters $7.99 for each.  So, $15 for both.  An unfathomable, unimaginable, terrible business move to rival the worst business moves of all time apparently if I got the gist right from the general complaining public.

Before I go further, I have to post another comment I found before I go crazy and lose my cool here in the coffee shop.

“Reading through the comments about the Netflix price increase, one thing is incredibly clear: WE ARE A NATION OF SPOILED BRATS.”

OK, now I feel better.  I’m not here to attack our fine American citizens, but let’s all shake our heads and agree that as a country there is some unwritten rule, for some reason, that allows us to speak out without needing even one bit of knowledge on why whatever one’s complaining about happened in the first place.  But hey, that’s what makes our nation US I guess.  So, here’ s my feeble attempt to help some of you understand Netflix’s move, if you’ll be kind enough to listen.

I’m no expert, and I wholly agree this move by Netflix had to have been made in desperation, because the timing couldn’t have been worse.  No one likes change.  Especially when it’s drastic like this move.  But where Netflix really pissed people off is in the fact that they raised prices by 60% with no advanced notice to its consumers, and have literally left nothing to be gained for agreeing to pay the new price hike.  The streaming section is just as lacking in content as before, and the 1 DVD out plan requires a lot more planning of free time to make it worth it, which, if you’re like me, isn’t really worth it because my one DVD out just sits on my tv stand all month as I stream the entire series of Damages whenever I spontaneously have the time.

I could go on and on why it’s a bad move in theory, but that’s not my point in writing this.  My point is, just like the music industry, the big wigs in the movie industry have shrugged their shoulders for years, wondering what the big deal was with Netflix as they watched us join it and demand our friends join too like it was some new form of movie crack or something.  There’s no money in “streaming” they’d say.  And, like both these industries have done EVERY SINGLE TIME, they ignored the potential of new technology in favor of the usual models of distribution.

Where Netflix screwed up wasn’t in raising the prices, it was in their explanation.  They told us the new split packages were something we’d love and passed it off as some sort of new benefit when it clearly isn’t.  All they had to say was, “Hey, so the studios are really killing us with streaming licenses so we have to raise prices to making the streaming catalog better.  Sorry guys, but stick with us and it will get better we promise.”  That wasn’t so hard was it?

Now that the big TV and movie studios have started taking notice of streaming’s potential, the game is truly on, and Netflix has officially hit the big time.  I’m not talking about in terms of popularity.  I’m talking about hitting it big time when it comes to paying for streaming licenses.  You only have to look at the numbers to see why Netflix had no choice but to “jack up prices” a whole 60% out of nowhere.

The studios may have ignored the fact that Netflix’s stock prices have risen from $3 a share to $193 a share since 2002, and Netflix got away with some pretty ludicrously cheap licensing deals with companies like Starz, which sold most of its catalog to Netflix for a measly $30 million.  That’s 40 times less than bigger providers like Comcast had to pay (I’m stealing most of these fact from this great article written back in January, in case someone rats me out for stat theft).  So, that right there irked quite a few people.  Now that the Starz contract is up, you can bet they aren’t going to renew that cheap next time around.

Can you see where I’m going with this?  Starz isn’t Netflix’s only problem.  The renewal for Starz this year will most likely be around $250-300 million, but on top of that the company struck a deal with Disney for content that will cost around $200 million, that is broken down somewhat like this, plus a few more titles:

• All six seasons of LOST – $45 million
• Scrubs – $26 million
• Hannah Montana – $18 million
• Desperate Housewives – $12 million
• Wizards of Waverly Place – $12 million
• High School Musical – $1 million
• Camp Rock – $1 million

(Source for above)

It’s pretty obvious studios are now willing to start talking to Netflix, but plenty of companies won’t budge.  HBO refused to license out their shows so they could keep exclusivity, and we’ve seen that lead to HBO Go, their own streaming service.  TBS simply hates Netflix for some reason, which is funny, but you won’t see shows like Modern Family any time soon on Netflix.  That’s rooted from the fact that studios made so much money, and still do, from cable charging customer $50 on up each month for various packages.  We never complained about paying way more for cable and dish, which don’t even let you pick what you want to watch, just give you access to channels you have to rearrange your schedule to if you want to watch exactly what you want like Netflix allows you to for a fraction of the price.

So, complain all you want.  Netflix’s streaming catalog sucks, and we all know it.  I understand everyone getting up in arms at how Netflix raised their prices.  Without notice and so drastically.  But when you look at the numbers, this move, in the end, can only mean good things for Netflix subscribers.

We’ll get much better content (Hannah Montana anyone?!), over the next couple years, and get it faster.  Netflix does have a man, in Ted Sarandos, whose only job is to take his army of 80 workers and acquire licenses for the streaming Netflix database.  Add to that Netflix’s new spending spree, and you can’t deny Netflix is doing what they can to get their catalog much, much better.

People will always complain when someone makes them pay more, but I couldn’t help but feel sympathetic for Netflix as an army of the misinformed denounced Netflix for the recent price hike.  It’s funny reading comments on all these articles I’ve been gathering numbers from, which were written earlier this year, where the majority of people said they’d be more than willing to pay $20/month if Netflix showed them something and gained more content for streaming.  Hopefully these people stay true to their word once all the grumbling dies down and Netflix unveils all this new content they’ve spent our subscription money on, and Netflix returns to it’s former, respected self.

I’ll leave you with my favorite comment of the bunch.  One that could soon be said the same for music streaming sites like Grooveshark.  Studios take note.  The mind behind this comment represents the new generation of music and movie consumers.  Ignore them (and the technology they grew up immersed in) and you’ll just be shooting yourself in the foot.

“Dear whoever: I’m a pirate, unless it’s on Netflix. So please put your stuff on Netflix so I can cease my seafaring ways.”

Long story short, our record label kind of stalled out, with most bands moving on to grad school, or one man white rapper world domination attempts, and we morphed our label into a non-profit art and music collective that is still thriving today.  But with that change, I lost touch with Jack and the Grooveshark gang.  Little did I know they’d explode into one of the largest music streaming sites today with 30 million unique visitors a month and over 7 million songs in their database.  I mean, really?!  Good for them though.  They’ve truly turned heads in the music industry and proved streaming could really work if done right.

And now they’ve taken yet another step in proving they’re much smarter than your streaming music company by teaming up with Rocket Science, a digital do-it-all group formed in 2004 that has provided bands that major label experience in the digital world, without ever needing a major label in the mix to pull it off.  It’s a no brainer a company like this should exist in our new digital music industry, as the importance of physical labels has diminished, they were the ones that were just smart enough to actually make it happen.

It is an interesting collaboration that I’ll be following closely over the next year as they start to take on more and more bands.  What I enjoyed most about it initially was the fact that they’ll be mainly choosing bands from Grooveshark’s database.  Bands that have proven themselves on Grooveshark by doing something different and making a name for themselves in the digital world.  They aren’t necessarily taking on bigger, already established bands who have decided to break away from major labels and try the digital route.  They’re instead taking on bands that have started with the digital route, been creative enough to be successful in the digital music realm without a label, and who are now being rewarded by being taken in by Grooveshark, who can give them major exposure, and by Rocket Science, who have proven to be digital marketing gurus, accomplishing everything a label would, without all the clutter of signing song rights away or needing whole departments to do something one person could do.

Just thinking about what this collaboration could do for a band, I’d be first in line to have my music thrown around the net by this collaboration.  And any band/musician reading this should be just as excited as me.  Your feeble attempts to contact Jack and get Grooveshark to feature your band may end in temporary failure, since I imagine they’re going to be super selective with who they first represent, but where the first few find success, many other copies shall follow.  And for this dying industry, who are desperate for a solution but too stubborn to listen to suggestions, it’s up to forward thinking companies like Grooveshark and Rocket Science to take the lead in the new digital music revolution and prove we don’t need labels for a band to succeed.  And how sweet it is to see the emergence of great ideas and business models, which major labels initially rejected, now rapidly gaining traction.  Replacing those very labels and proving them to be oh so gloriously obsolete.

Sources and Links

I don’t necessarily hate Apple, and when I say I almost respected them above, that didn’t mean I don’t respect Apple’s business sense.  I mean, I was a music business major, so the majority of that consisted of learning the best business tactics for success.  And Apple obviously dominates most in everything from business structure and how it is run internally, to its every move in the external world, creating an army of consumers that don’t just enjoy their products, they Need them.

In my quest to find new content for the site, I occasionally run across articles that spark my fancy and get me really thinking.  Zach’s write up was one, because I enjoy disagreeing with him, and a “Music Labels Are Still Apple’s Slaves!” article at The Music Void was another.  While I don’t like the scathing articles against the industry writing style per se, it still had plenty to scratch your head at.

Think about the main point The Music Void article brings up.

“The global digital music retail market is divided up as follows Apple/iTunes 70% (average global market share), Amazon 10%, and eMusic/Spotify about 5% with the remaining 15% left to over 500 different retailers…Monopolies serve no industries long-term interests other than the actual monopolist itself.”

Well, that’s pretty much common business sense right?  Why do you think smaller companies risk so much time and money lobbying and fighting companies like AT&T once they become a huge monopoly?  Because splitting AT&T up into seven smaller entities allowed the smaller companies to compete again and market competition breeds everything from lower prices to new, and much more creative products.  It’s a win win for consumers.

I want so badly to say that it’s beyond me how such a simple business idea is completely overlooked by the current big wigs running the music industry, but in all honesty, I’m not surprised at all.  It’s absolutely true that a monopoly really serves no good to anyone but the monopolist, but the problem with the music industry is that the current model is dying.  Not sometime in the future.  Now.  And that freaks those at the top of major labels the heck out.  So, even though it’s obvious business sense not to cave into Apple’s demands that give them 70% of the digital download market and near complete control, the major labels still allowed it.

So, who’s the bad guy then?  I think it’d be more than safe to say equal blame goes to both Apple and the major labels.  Apple has a monopoly on the digital download market and stifles competition, but as Zach pointed out, major labels get 60% of profits from the download profits.  It may sound like I’m an Apple hater, but I dislike major labels that much more.  I absolutely loved Zach’s take on what role modern labels even have today when it comes to digital downloads.
They’re basically just middlemen, and in this case, completely unneeded.

“The artist makes the music, records it, and tours the nation promoting it. iTunes pays for the server space to store the music and writes the software that allows for customers to find and buy it. The labels…well they…um…act as the middle man?…It appears 60% is the fee to hold back an army of lawyers these days.”

That really is the case.  It’s like going into McDonald’s and as you get ready to order, some guy in a suit shakes your hand, tells you he’s going to help you order, and when you tell him your order and give him $5 to pay for it, he keeps 60% of your money, gives the rest to the cashier, then eats the majority of your Quarter Pounder meal, leaving you two bites of the burger and a couple fries.  You look at the cashier and tell her, “What was the point of that?  I could have just ordered and given the money to you myself and avoided getting ripped off?”  To which she replies, “We know.  But that was our agreement, and we make most of our money on other things than the Quarter Pounder meal so we’re not too worried about it.”

So, the entire process is started by the musician when they create a song.  Zach proved there’s no real good way to make money from streaming your music, making only $0.09 a song and needing to sell 12,000 downloads a month to make minimum wage, when going through a major download site like Itunes.  And things get even worse if you’re signed to a major label contract, where you lose all control of how your music is marketed, distributed, and sold, seeing hardly any money from your song, while you travel the nation busting your butt for the label.

It’s a funny world this current music industry.  The people running it act like nothing is wrong while it burns down around them.  The people at the head of innovation refuse to share and stifle progress.  And the producer of the industry’s main product, the musicians themselves, are left driving around the country surviving on their few bites of burger and a couple of fries.  Take it from musicians like Jonathan Coulton, who made plenty of money on his own last year.  You don’t need a major label to be your middleman, and honestly there’s plenty of options besides Itunes to get your music out there digitally.

Unless you’re just desperate to become some famous musician on MTV and sell out Madison Square Garden (which gives you odds worse than winning the lottery), then I recommend doing as much as you can solo.  We’ll start compiling resources to help you and have interviews with musicians that have proven themselves successful without labels, so keep checking back.  In the mean time keep working hard on your music and if your songs are good, they’ll gain a following and allow you to enjoy your entire combo meal, not just the few bites you were contractually allotted when you signed your life away.

• 15 billion songs

• 130 million books

• 14 billion apps

• 100,000 games and movies

Assuming every song is only 3mb in size; iTunes has transferred over 45,000 terabytes of information. iTunes internet bill may be just a little bit on the extravagant side. The cost of running iTunes doesn’t actually seem all that outlandish when you look at the numbers and despite the large upfront costs; surely iTunes is raking in the profits. At $1.29 a song and with fifteen billion songs having been sold, that is quite the they have going on, but wait, what’s that Peter Oppenheimer?

The CFO of Apple has stated over and over that iTunes barely breaks even. Peter Oppenheimer claims that iTunes primary function is to help promote sales of their iPhone and iPod. So with Apple only charging the minimum they need to in order to in order to maintain their system, where is the other $13 billion plus going? It’s certainly not the artists. Information is Beautiful put out one of the best charts there is on the subject. For every dollar spent on iTunes, 9 cents goes to the artist, 30 cents to Apple, and the rest to the record labels.

The artists do most of the work in creating the album, but have to sell roughly 12,000 songs a month to make minimum wage because Apple had to give into the labels (and that’s assuming there is only one person in the band). The real problem started years ago when Shawn Fanning got the idea for Napster. Napster allowed music to be distributed in an unprecedented way; music flowed from person to person without oversight or regulation. The major labels were not amused. The labels viewed the first major digital distribution model as a threat. Without receiving heavy financial compensation from Napster, the labels could not have hoped to survive so they did what they know how to do best, they sued.

Flash forward a few years to the emergence of iTunes. Napster caused the labels to fear the potential of digital distribution. Instead of embracing digital distribution as the way of the future, the labels resisted as best they could. So when Steve Jobs approached them explaining how iTunes would allow them to make a profit, they were a bit skeptical. Eventually the labels consented, but they no longer simply wanted to make a profit, they wanted a fortune. In exchange for the rights to distribute music, iTunes had to agree to give the absurd amount of 60% of sales to the labels. Thus with iTunes needing at least 30 cents a song to stay viable and labels demanding 60%, the cost per song was set at $0.99 with artists getting the remaining $0.09.

The artist makes the music, records it, and tours the nation promoting it. iTunes pays for the server space to store the music and writes the software that allows for customers to find and buy it. The labels…well they…um…act as the middle man? Given the distribution of work it makes perfect sense that the labels are making the largest profits from music sales. It appears 60% is the fee to hold back an army of lawyers these days.

I'll just take my piece...

Agree or disagree? Do you think labels deserve their cut of the sale or should more of it be going to the artists? Comment below.

Sources

Who is he?

If you’ve beaten the first Portal game, or seen the short-lived G4 show Code Monkeys and heard their opening theme song, then you’ve probably heard a few of his bigger songs.  Coulton gets the honor of being our first featured band because he was one of the first to embrace Creative Commons, and prove that a musician does not need to be signed by a label to make it in the music business.

Why he’s featured

Coulton quit his day job and took the risk to pursue music on his own.  From September ’05 to September ’06, he made a name for himself by starting his “Thing a Week” podcast series, where he wrote and recorded a new song every week for a year.  In the process, he ended up catching the ears of major music bloggers, building quite a rabid fanbase, and by releasing his music under the Creative Commons License, became one of the first musicians to openly encourage his fanbase to be as creative as possible with his music.  Spurring everything from fan made music videos to remixes.

What his music sounds like

They Might Be Giants, Barenaked Ladies, clever acoustic rock that makes the inner nerd in you dance like the wallflower they really are

Fun Fact!

Coulton made $500,000 last year through his various music ventures by cutting out the middle man, music labels, and working his tail off catering to his fans and getting his music out to the masses

How can you support him?

Before I begin with my lengthy, random, and unnecessarily long analysis of a Lady Gaga interview by the Wall Street Journal Zach sent my way, I have to get a few things off my chest.

• yes…I spent longer than the seven minutes the interview lasted writing some of her answers down and ended up watching most of the interview sections more than a couple times.
• I’ll admit that, while laughing the majority of the time, I can’t deny being pleasantly surprised by her attitude towards some key topics.
• get used to lengthy responses by me.  Zach gave me this to watch one answer, and now I’m going way overboard with analysis

The media monster that is Lady Gaga can easily be considered the current music industry’s only hope.  Name even two artists today that come close to her popularity.  If you think you can name more than two, well, you need to stop listening to so much Top 40 radio and listen to some good tunes.

The point here isn’t to bash LG (my nickname for her for the rest of the post).  I actually find it quite funny and admirable how she’s so much better at marketing herself than most members of her music industry family, that they simply let her do her own thing and she ended up building her own army.  When asked in this interview if people needed major labels anymore, her response said a lot more than she probably meant.

“Well I certainly need mine.  But, no.  Not everyone needs a label.  If you have a flashlight, a cell phone, and a good idea, you can make a lot happen with the internet.”

While I have no idea what the hell she uses that combination of objects for in her songwriting process, I can analyze the first bit.  At this point in her career, LG is beyond music.  If it was strictly about selling albums, she could put her music solely on her site and make a very decent living because we’re all smart.  We’d eventually figure out where to buy the albums.

The major labels exist today mainly to put on very big concerts, and subsequently, spend every waking moment marketing each of those concerts because they know, just like we do, that the only money to be made in our current major label system is through touring.

It’s not through album sales, that’s for sure.  Name the last time you were in Best Buy and actually saw someone sifting through the cd aisles.  I know I can’t.  Of course, it is kind of hard to tell with all two aisles left of the cd section hidden in the opposite corner of the store.

The decline of the cd has left labels in a panic, like saving cd sales will somehow change the fact the the internet has changed everything.  I do admire LG’s answer regarding Amazon selling her album for $0.99, and couldn’t help but chuckle at the irony of her follow up statement to clarify things.

“Amazon sold your record for $0.99.  Don’t you think your record is worth more than $0.99?

No, I absolutely do not.  Especially for mp3’s and digital music.  It’s invisible, it’s in space.  I applaud Amazon for equating the value of digital versus the physical copy and giving the opportunity to everyone to buy music.

It also wasn’t really $0.99.  b/c amazon paid the difference on all those purchases as part of a promotional campaign for one of their new services.”

So, even LG finds the exposure these mp3′s bring to an artist being the greatest value of digital music, and not as a money making device like the CD.  Obviously, financially she can pull this off because she sells out Madison Square garden.  And the same goes for Itunes in a round-a-bout way.  They can charge everyone $0.99 a song no matter what, and no one raises their hand in protest because Apple’s a trendsetter and we’ll follow them off a cliff like Lemmings if they tell us to.

I’ll get back to Itunes and their $0.99 a song download monopoly sometime in the future, but I still think it’s funny how she added that last bit to her answer.  The label doesn’t need the download profit either, and welcomes the exposure Amazon brought to them with the promotion, but damn them to Hell if they think we aren’t getting our cut of those sales, they say.  You can do the $0.99 thing all you want, but you still owe us the extra $9 for each download.  Really labels?  Really?

The last thing I’ll rant about (I mean analyze…), is her attitude towards fans.  One thing that I couldn’t agree more on.  While I can’t necessarily stand her music, she knows the importance of fans.  You’ll find us at Music Revolt spreading the Gospel of the fan over and over.  We firmly believe that given a reason to support a musician or band personally, the fan will do so 99% of the time.  Name one artist like Johnathan Coultan, who does everything on his own, involves fans directly, and makes them an integral part of his music community, that hasn’t found his fans more than willing to support him and buy his merch because they know it supports him directly.

Labels simply can’t figure this fact out and it always baffles me.  They scream “Buy This Album!” and wonder why anyone but kids aren’t feeling the pressure to buy a physical product, when smaller bands who talk to you at the show, find supporters everywhere they go.

The current music industry truly astounds me, and I do get a slight bit of pleasure seeing big wigs run for cover as it’s been collapsing around them these last few years, but I guess I can temporarily tip my hat when the industry’s biggest cash cow in LG recognizes the industry needs a change.  Something’s got to give, and when it does, it will be glorious.  As glorious as how LG finds her inspiration for songs, and how I find a way to write crap like what you just read…

“Well like inspiration, like a dream.  Like a big rainbow across my brain.”

As always, leave your comments below or head to the forums to discuss my ramblings, the state of the industry, your secret love for LG, or how much you love/hate me.”

Source

a

Rick gives his thoughts on the where the music industry is headed. Discusses digital distribution, illegally downloading, and how the record industry has changed over the years. The most notable change according to Rick is that, “The labels keep firing people to stay alive…” and those people are having to find new jobs within the industry. Rick also notes that it doesn’t take a label to make it as an artist anymore.

Official Site
Support the band

a