Future Of Music

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My friend and Berkleemusic student David Sherbow posted this list of income streams on his blog and it got picked up by Hypebot as well.  This is a pretty comprehensive list of the different ways that musicians can make money.

The artist music business model has been in flux for years. The record deal dream that most artists sought is no longer the viable alternative that it once was.  The leveling of the music distribution playing field by the Internet is virtually complete.  Terrestrial radio is on a path towards destruction that even the major labels can’t compete with.  People now access and download music from multiple sources, usually for free.  D.I. Y solutions are everywhere, but for many artists hard to integrate into their daily lives.

Where does this leave the average independent artist? At the beginning. Every artist wants to know how they can make music, make money and survive to write and play another day. Here, in no particular order, is a list of possible income streams.

• Publishing
• Mechanical royalties
• Performance Royalties from ASCAP and BMI
• Digital Performance Royalties from Sound Exchange
• Synch rights TV, Commercials, Movies, Video Games
• Digital sales – Individual or by combination
• Music (studio & live) Album – Physical & Digital, Single – Digital, • Ringtone, Ringback, Podcasts
• Instant Post Gig Live Recording via download, mobile streaming or flash drives
• Video – Live, concept, personal,  – Physical & Digital
• Video and Internet Games featuring or about the artist
• Photographs
• Graphics and art work, screen savers, wall paper
• Lyrics
• Sheet music
• Compilations
• Merchandise – Clothes, USB packs, Posters, other things
• Live Performances
• Live Show – Gig
• Live Show – After Party
• Meet and Greet
• Personal Appearance
• Studio Session Work
• Sponsorships, and endorsements
• Advertising
• Artist newsletter emails
• Artist marketing and promotion materials
• Blog/Website
• Videos
• Music Player
• Fan Clubs
• YouTube Subscription channel for more popular artists
• Artist programmed internet radio station or specialty playlist.
• Financial Contributions of Support – Tip Jar or direct donations, Sellaband or Kickstarter
• Patronage Model – Artist Fan Exclusives – e.g. paying to sing on a song in studio or have artist write a song for you
• Mobile Apps
• Artist Specific Revenue Stream -  unique streams customized to the specific artist, e.g Amanda Palmer
• Music Teaching – Lessons and Workshops
• Music Employment – orchestras, etc, choir directors, ministers of music, etc.
• Music Production – Studio and Live
• Any job available to survive and keep making music
• Getting Help From Other Artists and Helping Them -  Whatever goes around come around. – e.g. gig swapping, songwriting, marketing and promotion

Here is a list of 9 trends and challenges that were recently published as part of an overall report on Digital Music by Redwood Capital.  You can download the entire report here.  What I find most bothersome about all of this is that it is a very backward looking, rationalization and justification about the collapse of the recorded music business and the fantasizing about protection of the label’s assets and proliferation of the traditional business model.  While it may be a good snapshot of some of the major issues the industry has faced and a good way for people to orient themselves, this is hardly the way to think about the future.  No wonder the investments made in music startups over the past decade or so by the VCs and Investment Bankers have not panned out.  If this is the way VCs and investors look at the world of music, I got to tell you, we are all in a lot of trouble.

I have pitched and have had many deep discussions with investors over the years about the music industry and have learned one thing that is holding the entire industry back.  Investors say they care about the music business, but when it comes right down to it, they don’t care about the musicians.  Not one of them would bet on a new label or artist driven business model.  They all wanted to back technology or distribution, but not musicians.  Pathetic.

I have taken the liberty of annotating some of these “treneds and challenges” below:

1) Rampant Piracy Continues

Despite a decade of aggressive attempts by the industry to reduce illegal downloads and peer-to-peer file sharing and preserve what remained of the old model, the biggest challenge facing the industry is still the fact that consumer attitudes towards paying for music have been forever changed, especially amongst the ever-important younger demographic. This places tremendous pressure on industry players to provide the consumer with an experience that exceeds that which can be achieved illegally and for free. The solution likely lies in packaging music with other products and services that consumers expect to pay for, such as mobile phone service, Internet connections, ringtones, concerts, merchandise, etc., and taking advantage of improvements in broadband speed and access to provide a service that can’t be replicated for free. - Certainly this is true for recorded music and something that we predicted nearly 8 years ago in our book on the Future of Music. However you cannot expect a healthy market when you have to “package” what you are trying to sell with something else as the primary means of distribution.  New forms of music experiences would certainly trump “bundles”.

2) Strategy of Major Labels

Despite numerous attempts to cut out the labels as middlemen, and the potential damage they have done to their relationships with the public after years of suing their customers, the major labels still have tremendous clout in determining the fate of the various new distribution models and emerging companies. While backing by the major labels by no means guarantees any degree of success, opposition from the labels is an obstacle that is extremely difficult to overcome. That being said, many of the larger players today began without the blessing of the labels, but once they became too big to ignore the labels were willing to make a deal. – Again I would argue this perspective assumes that the existing music, the existing catalog is more important than the new music, or the music yet to be created.  Tens of millions of dollars have been wasted and countless hours of negotiation sunk into trying to secure licenses to existing major label content by many companies trying to recreate the distribution model for an asset class in severe decline.  I will go out on a limb here and say that the new music matters far more in the future than the existing music, and that licenses from the major labels are far less valuable than the labels think they are.  Perhaps an order of magnitude less.

3) Legal Complexity

Many US copyright laws were written when the only form of music distribution was printed sheet music and as such, obtaining the proper licenses from all relevant content owners is extremely complex. Given the relative youth of the digital music industry, the law is being written and applied haphazardly and has been difficult to interpret. International differences make it difficult to offer consistent products on a global basis. For example, currently Pandora is legal in the US, but illegal in the U.K, and vice versa for Spotify. Developing a business plan in this environment is extraordinarily difficult. – Of course this is true if you are building a business based on catalog.  New labels and music companies that are forming to support new artists can completely eliminate this issue by creating licenses for their content that bundle all the rights in one global license that can be easily acquired.  By using this strategy, new content businesses can outrun old content business and begin to take over the landscape.

4) The End of DRM

The recent decisions by the labels to finally eliminate digital rights management for many applications should represent a landmark change for emerging growth companies in the music space. This greatly reduces a longstanding barrier by allowing compatibility of content and devices across platforms. By decoupling content and devices, consumers can now download a song from their choice of providers and listen to that song on their choice of devices. - Excuse me but the labels had nothing to do with the elimination of digital rights management.  That was eliminated long ago when people began trading MP3 files while all the attempts to distribute “legitimate” digital music failed. This is just the labels saying uncle.

5) Mobile Strategy is Critical

Whereas it has been extremely challenging for content owners across all digital media sectors to monetize online content, consumers do not expect mobile content to be free to the same degree because they have been conditioned to pay for such services. Therefore, we believe that online models that don’t have credible mobile strategies will continue to struggle, and killer mobile apps will prosper. We believe that one of the primary reasons for MySpace’s acquisition of Imeem was Imeem’s mobile capabilities. - Here I agree with the basic premise that a mobile strategy is critical, although have yet to see one that works.  Do people really want to listen to music on their phone?  Is that the killer app?  I expect that something far better is around the corner, more integrated into your life at the moments where you can and want to listen to music.  The damage being done to people’s hearing by the “Ear Buds” sold with the iPod and nearly every other mobile listening device is limiting the experience and holding back the growth of mobile music more than anything.  MP3 sound like crap.  Ear Buds are destroying people’s hearing.  No wonder hardly anyone wants to pay for digital music.  Anyone who focuses on improving the sound quality of mobile listening will find a explosive opportunity.

6) Dominance and Importance of the iPhone

With iTunes’ almost 70% US share in digital downloads, and the iPhone quickly taking market share in the smartphone category, alliances with Apple and/ or apps on the iPhone have become critical to success. Rhapsody, Spotify and Sirius have all launched iPhone apps in the past few months, and MOG’s is expected shortly, and this should give each an important boost in marketing their products. Without the iPhone app, customers would have had to spring for another device to use those services. With customers hesitant to even pay monthly service fees, adding a hardware requirement would have been an insurmountable obstacle in reaching a large customer base. We believe that Apple has been smart in its willingness to approve apps even from services that compete with iTunes. – I love my iPhone, I think it is the coolest thing ever invented.  But I also know that worldwide, the iPhone is just a speck on the landscape of mobile phones.  Will Apple really dominate this space over time?  I doubt it very much.  The vast majority of people cannot afford to buy Apple products.

7) Importance of Wireless Broadband

The widespread availability of broadband in the home and the office in the past decade has enabled computer-based downloading and streaming to develop entirely new methods of discovering, purchasing and listening to music. Many of the previously mentioned business models revolve around this experience. However, the next frontier for the developing models is to take the experience mobile without frustrating consumers. Now that consumers have accepted that cell phones are also music players, the market for mobile music has dramatically expanded, given that 139 million smartphones were sold worldwide in 2008 (Source: Gartner). To date, while streaming services such as Rhapsody and Pandora are a great way to listen to music at one’s desk, the experience on a mobile phone is mediocre at best, given dead spots and dropouts, and in the case of Rhapsody, low bitrate streaming. We suspect that many early adopters have tried these mobile services, only to get frustrated and go back to listening to MP3s on their iPods. Spotify’s and Slacker’s ability to cache playlists may prove to be a good workaround until wireless broadband availability and quality catches up. – I am a firm believer that you do not have to worry about storage and bandwidth, that they will always expand faster than you think they will.  Agreed.

8 ) Consumers Remain Willing to Pay for Exciting New Technologies and Products

Consumers have proven that they are indeed willing to pay for new products and technologies that enhance the music experience or provide new uses for music. The tremendous initial growth of the ringtone market is one example. US ringtone sales grew from almost zero in 2002 to a peak of $714 million in 2007, before dropping 24% in 2008 (Source: SNL Kagan) as consumers ultimately figured out how to create ringtones on their own for free. iTunes has created new value added products that sell at a premium, such as iTunes Pass, which automatically delivers all new product, including exclusive extras, from a specific band to its fans, and iTunes LP, which adds album art, videos, and other extras to an album purchase. Shazam is another good example. Shazam is the second most popular music app on the iPhone and claims 50 million users. Shazam is a unique technology that enables users to use their mobile phone to identify and tag any song they hear in public or on the radio and immediately purchase the song. The app is so popular that Shazam is now charging customers $5 for the premium app, and is limiting free users to five tags per month, and its usage is accelerating. - Completely agree.  This is in line with my basic premise that the new stuff matters far more than the old stuff, and if you can deliver a unique experience to a fan, especially one that is fun and sounds incredibly great, they will eat it up.

9) Convergence of Models

Most streaming services also offer the ability to purchase tracks either with their own ecommerce model or with links to others, most often iTunes and Amazon. To date, most ecommerce models have not offered streaming services, likely out of fear of cannibalization as well as licensing requirements. We believe that as streaming catches on with a broader audience, the e-commerce players will have to offer both. Apple is now more likely to move in this direction with its purchase of Lala, and increases our level of confidence that the streaming model is the wave of the future. - I believe as we wrote about in the Future of Music, that a utility model is the only way to make money with recorded music in the future.  Until music become always on and always available and feels like it is free to you, the market will continue to decline.  It is not so much the convergence of models but the ascendance of a model that will work.  The broadband mobile carriers are the ones that can make this happen.  It is a winner take all business strategy for the company with the balls and commitment to bake paid media distribution into their basic business model.

Comments anyone?

Here are 10 recommendations for strategies that can lead to success in music, and in life, which are excerpted from the Online Course taught at Music Power Network.  Take them with a grain of salt.  With this new decade comes the promise of digital music, the power of the entrepreneur and the tools to connect with an audience and deliver the goods.  Here are 10 Strategies for Success in Music from Music Power Network.

1.  Living a life in music is a privilege. Earn it.

There is very little more satisfying then spending time making music.  If you make this your life’s work, then you can be truly joyful.  However, the chances of being successful are extremely low and the only people who are going to get there are going to have to work hard and earn the right to be a musician.  Respect the privilege of being free enough to have this choice (if you do) and honor the opportunity.

2.  No one is in charge of your muse but you. Be happy and positive.

People can be their own worst enemy.  Countless times I have heard artists tell me the reasons why their career is not working out.  Most of the time they are putting blocks in their way and pointing fingers at people and things that are holding them back.  Stop whining and blaming other people and make the conscious decision that you are going to be successful and that things are going to work out in your favor.  You are creating your own reality every day, so make it a good one and excel.

3.  Practice, practice, practice – then go for it. Over prepare.

You can never be ready enough for opportunity.  Your live shows can always be better, your songs can be more amazing, and your playing can only improve.  As the CEO of your own musician business, you can learn how to run the company more effectively, reach out to more fans and be an more effective social media marketer.  Don’t hold yourself back by not being ready.  Be a professional.

4.  If you suck, you will never make it. Find a way to be great.

Lets face it, it is really hard to be amazing.  Some people have the natural talent and you can see it in the first 5 seconds of meeting them.  They are truly blessed.  The rest of us have to find our niche, our passion, our calling and then reach for it.  Ask people around you for feedback.  Find what you are good at and focus on that.  Get other people to help you.  If you don’t stand out and rise above the pack, you will struggle forever.  Be amazing.

5.  Learn how to breathe and keep your focus.  Stay calm.

There is nothing more pleasant than working with someone who knows who they are and what their goal is.  Remember the old adages of thinking before you speak, and taking a deep breath before you lay into someone.  Most of us have a lot going on in our lives and we can all benefit from staying focused on our goals and remaining calm in most situations.  Learn yoga, exercise, run, meditate, sit still, breathe, learn who you are.

6.  Don’t take yourself too seriously, no one else does. Have fun.

I am amazed at how many people spend so much time looking backwards and trying to understand what people think of them.  This is worrying about the past and not embracing the future.  Reviews are important, but don’t run to them or let them ruin your day.  Not everyone is going to like you, but more people will if you are having a good time.

7.  No matter how difficult things get, move forward. Don’t give up.

The only thing that will help your career take off is forward momentum.  That is how you are going to reach your goals.  A lot of people are stuck in their own mud.  Take action, make a move and then see what happens.  Don’t spend time procrastinating or worrying about how hard it is, just do something positive to advance your cause.  You will feel much better by acting instead of waiting or worrying.

8.  Find a way to make money. Start small and grow. Avoid being in debt.

This is probably the most important strategy of them all and why so many artists have gotten into trouble in the past by taking label advances.  All that is, is a big loan.  Get some kind of cash flow happening right away, no matter how small.  Sell merch, play for the door, license your songs, play sessions, teach, write, start your musician business.  The biggest mistake you can make is to borrow a lot of money and then spend it on things that don’t matter.

9.  Be unique and true to your vision.  Say something.

The people that we remember are the ones that are unique, exciting, special, provocative, fascinating, original, inventive, interesting.  Music is a basic form of communication.  The really successful artists have something to say and work on delivering their message.  Your chances of success go up exponentially if you have a unique position and message and create a following of fans who really listen to you because you have something important to say.

10. Work and play with people you like every day.  Collaborate Often.

Music is a tribal experience.  You cannot make great music alone.  Surround yourself with talented people, write together, play together, try new things.  Bounce inspiration off of each other and learn.  Listen to each other and let the music weave it’s way around you.  Find a producer, songwriting partner, other musicians and dive in together.  The whole is greater than the sum of its parts.

Wonderful things are waiting to happen to you.

Happy New Year Everyone.

Dave Kusek

Learn more at Music Power Network