Future Of Music

British Music Rights survey on music consumption of people aged 14-24. The average age of respondents was 22. This is the largest UK academic survey of its kind.

* 14-24 year olds love music - arguably more than any previous generation.

Well I am not quite sure about this one, but lets move on.

* But their consumption of music is changing significantly - the perceived value of sharing, recommendation and copying have all increased.

The world has changed for the digital kids.

* The upshot? Emotional importance does not correlate with spending - especially compared to other entertainment sectors.

* Around 90% of respondents now own an MP3 player. They contain an average of 1770 tracks - half of which have not been paid for.

IMPORTANT TO NOTE - the MP3 player is only about 8 years old.

* 58% have copied music from a friend’s hard drive to their own, and 95% copy music in some way.

* 63% download music using P2P file-sharing networks.

* 42% have allowed P2P users to upload music from their computer. Much of this behaviour is viewed as altruistic.

* 80% of current P2P users would be interested in a legal file-sharing
service - and they would pay for it too.

* The CD is not dead. Even if a legal file-sharing service existed, over 60% say they would continue to buy CDs.

* Money spent on live music exceeds that spent on recorded music

This is all very good news for the music industry.

British Rights Survey

These days there are hundreds of options for acquiring music from free legal download and streaming services. Many of these sites offer streaming and/or downloading options. Some are up there for the love of music, some are driven by advertising and some are building business models behind the scenes. They are alternatives to paid services like iTunes, Rhapsody and Napster.

There are an ever expanding number of these services that offer great music from both established and emerging artists. Free Geekery has compiled an interesting list of 100 of these sources for your music enjoyment. Happy listening.

An article in Portfolio by Kevin Maney describes the current music industry as “This flurry of experiments is painful but probably necessary, like a teenager’s goth phase. The endgame is clear, however. Sometime in the next decade, ‘free music’ will win. Artists will give away recorded music and consider it promotional, just like music videos. All of the revenue in music will be generated in other ways.”

Read the whole thing here.

Great coverage from Rolling Stone.

While up-and-coming bands may find most of their licensing offers in the $2,500 range, established bands can make much more: from $30,000 at the high end for TV shows to $100,000 for movies and $250,000 for commercials. To introduce last year’s Sky Blue Sky, Wilco licensed six of the album’s songs to Volkswagen for ads. And the veteran duo They Might Be Giants, who have been releasing recordings on their own for the last six years, made a deal with Dunkin’ Donuts for around $1 million to create original music for over two dozen spots, according to industry sources.

Perhaps no band has been more aggressive — or creative — with its licensing than OK Go. When the group treadmilled its way to YouTube stardom in 2006 with the no-budget video for “Here It Goes Again,” it was having the kind of careermaking hit that bands dream about, just as the commercial record industry was tanking. So OK Go manager Jamie Kitman sought licensing opportunities for the group — making deals for its music to be used in everything from TV commercials and video games to corporate seminars and cable TV “bumpers” (the music that’s used to come in or out of a program). Kitman estimates that when all the uses are tallied, OK Go will have granted more than 200 licenses and made old-fashioned hit-record money. “The accepted wisdom now is that no one is selling records,” Kitman says. “So how do you keep the wheels on the bus? There’s a person in my office who spends half her time fielding licensing queries.”

Ian Montone, whose Monotone Management handles the White Stripes, Vampire Weekend, the Shins, M.I.A. and the Raconteurs, says his bands no longer make most of their money on CD sales. “A lot of artists are looking toward touring and merchandising sales at shows, because that market is still vibrant if you grow it methodically,” he says. The Shins have licensed songs for use in commercials for McDonald’s and Zune. Still, Montone says the Shins turn down 90 percent of the licensing deals they’re offered. So why McDonald’s? “Why not?” says Montone. “They have kids and want to own houses.”

By comparison, the White Stripes have focused on touring and coming up with creative merch: The band sells limited-edition CD singles on the road, as well as unique posters created for each show. “We do that because it’s something special for the fans, but it’s also a way to make money,” Montone says. “I think you’re going to see artists doing more direct-to-consumer sales.” The Stripes have already been able to reapportion the record-company pie to their advantage: The band owns its masters and strikes distribution deals with the major record companies on an album-by-album basis.

Those kinds of partnering relationships are also being sought by the major record companies, who are offering artists better money if they sign deals that include more than just recording rights. Generally referred to as “360 deals” because they seek to cover every facet of an artist’s career, including publishing, touring, merchandising and licensing, the new deals are a way for record companies to hedge their bets in a declining record market and to recast themselves as music — rather than just recording — companies.

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One of the savviest labels is Fueled by Ramen, which boasts Fall Out Boy, Panic at the Disco, Paramore and Cute Is What We Aim For. “A lot of people hear about 360 deals and think it’s a land grab, but when you own the content, there are so many interesting things you can do,” says John Janick, who started the label in 1996 while going to college in Gainesville, Florida.

Unlike conventional labels, Fueled by Ramen, which has a partnership with Atlantic Records, does everything in-house: from building Websites that sell merchandise and recordings to producing the T-shirts it sells at chains like Hot Topic. In fact, Fueled by Ramen uses T-shirts to introduce fans to new music — both Panic at the Disco and Paramore placed tags on shirts with PIN codes that enabled buyers to download advance singles at home. “We’re creating a culture for each artist,” Janick says. “Obviously everyone is still looking for new ways to monetize recordings, but our company is growing into many other areas, and that’s great.”

Read more here.

If you look at how people are getting their music these days you see that the companies fighting for the people who pay for music are battling over an ever-smaller piece of the pie.

NPD Market Research’s annual survey of Internet users, which is some 80 percent of the population these days, found that 10 percent of the music they acquired last year came from paid downloads. That is a big increase from 7 percent in 2006. But since the number of physical CDs they bought plummeted, the overall share of music they paid for fell to 42 percent from 48 percent.

Most people are getting music from their friends — either burning CDs or ripping digital files. And despite the record industry’s crackdown, there is no reduction in the number of people of peer-to-peer file sharing service.

“The number of people who do peer to peer in 2007 versus 2006 has been stable,” said Russ Crupnick, who runs NPD’s music service. “The number of files taken per users has increased significantly.” This is because of the shift of many users from Limewire to BitTorrent, which makes it easier to download whole albums.

Quite surprising is the continued strength of AM/FM radio. People listen to music on the radio more times per week than any other method. Listening to music on a computer has the third largest number of people, followed by listening on a portable device like an iPod.

The music labels will look at this data and say, “If we just stick with the CD and the Apple model we are in deeper trouble,” Mr. Crupnick said. Yes indeed.

Read more from the New York Times.

“There’s a set of data that shows that file sharing is actually good for artists. Not bad for artists. So maybe we shouldn’t be stopping it all the time.”

–Douglas Merrill, EMI’s newly appointed president of digital

As reported earlier this week, EMI has hired Douglas Merrill from Google to head up its overall digital music group.

“I’m passionate about data,” Merrill said during a phone interview Wednesday with CNET News.com. “For example, there’s a set of data that shows that file sharing is actually good for artists. Not bad for artists. So maybe we shouldn’t be stopping it all the time. I don’t know…I am generally speaking (against suing fans). Obviously, there is piracy that is quite destructive but again I think the data shows that in some cases file sharing might be okay. What we need to do is understand when is it good, when it is not good…Suing fans doesn’t feel like a winning strategy.”

The hiring of Merrill, Googles former CIO, who has no background in music sales, represents an acknowledgment of how important digital distribution and technology is to the future of the music industry, and to EMI in particular. Merrill says he’s all about applying what he learned from Google about the Internet, digital distribution, and innovation. Expect to see EMI experimenting with different business and distribution models.

“You must do experiments and follow the data,” Merrill said. “That’s often hard because we all have intuitions. The problem is our intuitions aren’t always right and Google has shown that over and over again. We’ve had internal discussions about ‘Oh I believe the site should work this way.’ We go into the experiment and we’re wrong. And you have to be willing to say ‘I thought it was X, I was wrong. It was really Y. That has to be OK. You have to be OK failing because most of the things we try won’t work. That’s why it’s called an experiment. Those things are very deep in my soul.”

More specifically, Merrill said he would see whether a Google ad model will work for music. But he’s willing to try music subscriptions and even an ISP fee. Certainly, what came across about what strategies Merrill intends to use is that he’s not married to any one idea.

“I think there is going to be a lot of different models,” Merrill said. “Those are two (subscriptions and ISP fees) you can imagine. I’m not sure that either one of those will be the most dominant model. But they are both interesting. We should try them and see what the data says. Other options will be things like you can imagine supporting music through relevant targeted ads, the Google model. There is a dozen of other things…we should try them all. We should see what the data says and whatever it says, we should follow the data, and follow our users and let them help guide us. We should engage in a broad conversation about art.”

“I think it’s important to figure out where can record labels add value,” Merrill said. “I don’t know the answer. I think Nine Inch Nails’ experiments have been really interesting and enlightening. We need to step back and say what is the process of artist creation and helping fans find what artists create.

“Given that as a system we need to understand how record labels fit in there,” Merrill continued, “I think the Nine Inch Nails’ release of Ghosts experiment was fascinating. What a great problem to have: people are trying different things. If everyone tries the same thing you’ll never learn anything new. Instead we’re in a situation where people are trying things. How cool is that? Some are going to work. Some aren’t going to work. But we need to try them.”

It’s not often that you hear the word “data” come from the mouth of a record company executive. One thing for sure is that Merrill will either have a significant impact on the way that EMI proceeds to develop it’s overall music strategy moving forward, or he will be ejected from the Capital Records building in a few months. The clash of culture and thinking between an ex-Google exec and the traditional music industry mavens will surely be entertaining to watch and learn from.

As my friend Gerd Leonhard has said many times, “when the pain becomes great enough, the labels (if they are still in business) will have to change their path.” Apparently the pain at EMI is considerable. Lets wish Mr. Merrill the best of luck!

People should pay for their music the way they pay for gas or electricity.

More people are consuming music today than ever before, yet very few of them are paying for it. The music recording industry blames file sharing for a downturn in CD sales and, with the publishing companies, has tried its best to litigate this behavior out of existence, rather than try to monetize the conduct of music fans. These efforts are fingers in a dike that is about to burst. Digital media are interactive, and people want music that they can burn to CDs, share and use as they wish. The music industry should instead look at turning this consumer phenomenon into a steady stream of cash–lots of it.

The industry ought to establish a “music utility” approach to the distribution and marketing of interactive digital music, modeled after the water, gas and electricity utility systems. It should be done voluntarily to work best for all parties, or it may eventually be legislated through a compulsory license provision.

Under a plan colleague Gerd Leonhard and I propose, consumers would pay a flat music licensing fee of $3 to $5 a month as part of a subscription to an Internet service provider, cellular network, digital cable service wireless carrier or other digital network provider. This fee would let people download and listen to as much music as they care to, from a vast library of files available across the networks.

These fees would result in a huge river of money. With approximately 200 million people connected to a digital network in the U.S., the potential annual revenue stream for a music utility model could be somewhere between $7 billion and $12 billion for the basic service. That is already comparable in size to the existing U.S. recorded music market, which in 2003 was $12 billion at retail, according to the Recording Industry Association of America. This basic service would be augmented with various opportunities, including packages of premium content, live concerts, new releases, artist channels, custom compilations and more. The revenue potential of these premium sources is enormous, too.

How would this money be divvied up? We propose that the industry voluntarily establish a “music utility license” for the interactive use of digital music. This license would compensate all rights holders, including the record labels and artists (for the master recording) as well as publishers and composers (for the underlying composition), with the license fee to be split in half between the owners of the sound recording and the owners of the composition, after deducting a percentage for the digital network providers. This license would be available to anyone willing to implement its terms. The digital network companies would be required to track and report which music had been used, by employing existing digital identification and tracking technologies.

There is already precedence for such a flat-fee system in cable television and in the utility-like models of public broadcasting in Europe. Streaming digital music is already provided in basic cable plans. Cable television itself at first resisted this model, but its economics eventually led to a larger market, providing more consumer choice and more revenue streams overall. Old media almost never die. Cable television did not replace broadcast television; instead, it expanded the market dramatically, by letting video flow like water into new revenue streams–instead of down the drain.

Certainly a music utility would be a radical and complex undertaking, and there are many important details to negotiate, such as the exact nature of the license, how the funds would be administered, the specific tracking method, what collection of technologies would be employed and others. Yet there are inventors and technologists outside the mainstream music business hard at work trying to figure out how to make this happen. It’s time for the main players in the music business today, namely the large record publishers, to cooperate with the inventors and jointly create a future for music where the money really flows and the global market for music can grow from $32 billion to as much as $100 billion.

Originally published in Forbes on January 31, 2005.

Sometimes it takes a while for ideas to spread and become perceived as good ones. The “Music Like Water” metaphor where for a low monthly fee, people would have access to all the music they want in a kind-of music utility is one such idea.

In a variety of recent announcements, the once mighty major labels have begun to accept the idea that maybe, the old way of squeezing cash out of consumers for music - might need to be replaced with another model.

Emusic has been pioneering a hybrid subscription/download models for many years and is currently the #2 supplier of “paid for” digital music behind iTunes. Now both Sony/BMG and Warner Music are speaking publicly about subscription and utility models that they intend to explore.

Warner has gone so far as to hire Jim Griffin to head up development of a new business to bundle a monthly fee into consumers’ Internet service bills for unlimited access to music. Whoa!

The plan—the boldest move yet to keep the wounded music industry giants afloat—is simple: Consumers will pay a monthly fee, bundled into an internet service bill in exchange for unfettered access to a database of all known music.

Bronfman’s decision to hire Griffin, a respected industry critic, demonstrates the desperation of the recording industry. It has shrunk to a $10 billion business from $15 billion in almost a decade. Compact disc sales are plummeting as online music downloads skyrocket.

“Today, it has become purely voluntary to pay for music,” Griffin told Portfolio.com in an exclusive sitdown this week. “If I tell you to go listen to this band, you could pay, or you might not. It’s pretty much up to you. So the music business has become a big tip jar.”

Nothing provokes sheer terror in the recording industry more than the rise of peer-to-peer file sharing networks. For years, digital music seers have argued the rise of such networks has made copyright law obsolete and free music distribution universal.

Bronfman has asked Griffin, formerly Geffen Music’s digital chief, to develop a model that would create a pool of money from user fees to be distributed to artists and copyright holders. Warner has given Griffin a three-year contract to form a new organization to spearhead the plan.

Griffin says he hopes to move beyond the years of acrimonious record industry litigation against illegal file-swappers, college students in particular.

“We’re still clinging to the vine of music as a product,” Griffin says, calling the industry’s plight “Tarzan” economics.

“But we’re swinging toward the vine of music as a service. We need to get ready to let go and grab the next vine, which is a pool of money and a fair way to split it up, rather than controlling the quantity and destiny of sound recordings.”

Read more from Portfolio here.

Attention indie musicians and marketeers. Digital Music News reported on a recent industry panel at UCLA on the importance of using video, controversy and good content to build buzz and promote your band in the digital age.

“Video is key,” said David Dorn, a senior vice president at Rhino Records, speaking to a group of students, executives, and reporters at UCLA on Wednesday. “Right now, online, video is what everybody is interested in. And if you are working with a new band, you have to make sure there are enough video assets.”

Well, what is particularly new about that? After all, MTV built an empire on the backs of major label produced video content for nearly two decades. Remember Michael Jackson, Britney Spears, and thousands more? Now YouTube, MySpace and other sites are doing the same thing on the back of major and indie artists and individuals. Today it is Avril Lavigne, Beyonce, Shakira, MCR.

During the session, Dorn also pointed to the importance of other types of content, including images and MP3s. Fans are simply ravenous for fresh content, including video - and that is a demand that must be satisfied. For artists and labels, that means filming the band on the road, offering live clips and interviews, and uploading studio outtakes. “Document it, because that’s what the fans want,” Dorn assured.

Most motivated artists are already saturated within a number of online and video-specific outlets. But what is the secret to winning the seemingly hopeless attention game on YouTube? “Anyone can get 5-10,000 views,” explained Larry Weintraub, chief executive of Fanscape. “But if you want to get into the hundred-thousands or millions, you’ve got to court some controversy.”

That often includes a combination of “sex, killing, drugs, and violence,” something few would argue with. Of course, the content involved must be aligned with the image of the group, though edginess and controversy are great viral lubricants. That will cause more fans to embed the videos into their profile pages, share links online, and boost rankings on YouTube.

Ok, again - nothing new here. Any good marketer knows that getting into the minds of potential customers is much easier if your product or service is controversial or surrounded in mystery. Remember “Paul is dead” for the Beatles? Madonna’s “like a virgin”, Public Enemy’s comments, and Elvis’s hips. All propelled by controversy.

The discussion happened within a class conducted by longtime industry executives Lenny Beer (Hits), Jeff Jampol (The Doors), and Jeff Sturges (Universal Music Publishing Group). The class, “The Music Business Now,” held its final class on Wednesday before adjourning for the semester. More information at myspace.com/233962706.

Read more here at Digital Music News.

The lesson to be learned is that good music marketing works. The times have changed, the methods are more varied, the channels have exploded - but many of the tactics are the same - superimposed on the new digital landscape.

For more info, check out these new Berkleemusic marketing courses here and here and programs here.

The state of the music business is obviously in transition, but new models are beginning to work at various levels that shine a very positive light on the future of the music industry. For example, some of the predictions made in the Future of Music Book and in other places are beginning to come to pass, such as the abandonment of DRM, music subscription and licensing services, ad supported music and the ascent of the Indie artist and Indie label. Take a look at these examples:

You can now purchase MP3 files for download without DRM from all four major labels on Amazon.com, emusic and a growing list of music destinations. The predictions that an unprotected format would kill sales have simply not been true. These businesses are exploding.

Early proponents of the subscription models Napster and Rhapsody have survived and are growing.

There is active discussion of a flat-fee structure for music at major labels where once we were laughed out of the offices.

Indie Labels now account for upwards of 30% of total music sales, up from the low 20’s just a few years ago. This is a profound shift in the powerbase that favors the independent artist and innovator.

Social music sites such as LastFM, Pandora, iLike and many more are making the fans into tastemakers with the ability to promote and share great new music at the touch of a button.

This is all very good news for musicians, writers and artists who want control of their destiny and their careers.