Future Of Music

Tonight (Wednesday, July 1), join Berkleemusic business instructors Dave Kusek, George Howard, and Mike King, along with Berkleemusic Dean Debbie Cavalier, on Twitter for a conversation about the state and future of the music industry and their online business courses. Dave, George, Mike, and Debbie will be taking your questions from 9:00-10:00 P.M. EST.

To join, just post a tweet with your question or comment and add the tag #bmusic.

Please join us on Twitter by using the hash tag #bmusic to track the conversation. You can follow the conversation live here at hashtags.org

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My co-author and friend Gerd Leonhard was recently interviewed by Carter Smith of Rollo & Grady. Here is the interview:

R&G: How did you become interested in writing about the future of music?

Gerd: I was involved in various online ventures during the Internet years, in the late 90s. I was trying to reinvent the music industry, so from 1998 through 2001 I ran a company called licensemusic.com. It was a real dotcom venture. Because of the work I had done, I saw what was going on. While I was recuperating from the dotcom craziness, I figured that since I had looked at it so deeply that I might as well write about it. I wrote “The Future of Music” from 2003 to 2004, and it was published in 2005. Ever since then I’ve written and blogged about the future of music, the media business and the content business in general.

R&G: In the book, you focus on the concept of music being like water. Can you describe that?

Gerd: I had a co-writer, Dave Kusek, who you might know. He teaches at Berklee College in Boston. The concept of Music Like Water wasn’t entirely ours. David Bowie once said in an interview with The New York Times that music would become like water, flowing freely. That stuck with us and we built this whole theme around it, saying that digital music needs to be as available as water. In other words, there has to be a licensed pipeline, just like licensed connections for water or electricity. Everybody pays for electricity and water, but nobody feels it’s a big effort to do so. Of course, people are up-sold with Evian, Pellegrino, or filling the swimming pool. It is very much the same logic. You have a license to use. You’re all in. Then you do an up-sell towards other variations. The principle fits pretty well with the idea of content distribution on digital networks. It’s a blanket deal – a big deal rather than a unit sale.

R&G: Is that similar to the labels backing Choruss? [Note: Choruss is a proposed plan that would build a small music-royalty fee into university tuition payments, allowing students to legally access and share music.]

Gerd: Yes, totally. A friend of mine, Jim Griffin, is doing that. Jim and I have talked about this for the last ten years, pretty much since Napster came to light. It’s a very similar idea, even though they’re thinking of this as more of a “covenant not to sue.” I don’t think that is taking it far enough. One has to be realistic. I think that the major labels are reluctant to give up control of the ecosystem in a flat out strike, so they will probably take a bit longer to get used to this.

R&G: If I understand this correctly, it’s a university tuition tax?

Gerd: It’s not so much a tax as a way for universities to say, “Whatever people do here, we can legalize it.” It’s fighting against the criminalization of sharing, which is great. And for the students it’s not a tangible expense. It’s wrapped into their tuition. It’s like 911 calling on your phone bill; nobody is going to complain about it. Then, I think a completely new ecosystem could pop up that would essentially be part of the way to access and up-sell to people. I would be against any such tax, levy, or any of those things, but if it can be made to feel like it’s free, which is what it is, I think that is an ideal solution that gets the ball rolling.

R&G: Once a digital network customer pays a fee, how are funds distributed to the artists?

Gerd: It’s very much like traditional radio. Every action on a digital network is monitored. Whether it should be is a different question, and, of course, there are privacy issues. But whatever action people are doing on the network, it’s captured in some anonymous way and then the revenues are paid pro rata. When you click on a song and share or download it, whatever network you’re on can say, “Okay, this was downloaded. This was streamed.” Artists are paid out strictly by popularity. So if your band is busy doing lots of gigs, you’re very popular and you get 100,000 people following you on Twitter, they will click on the song, download it, and you get more money. It’s just like radio.

R&G: Can the labels regain the trust of “people formerly known as consumers?”

Gerd: They may not be able to, and this is the Number One problem. I think it’s a very tough road. The only chance they have – and that goes for everyone, not just the majors, but also the indies – is to drastically open up, put their cards on the table and start doing business like everybody else. This means being transparent, sharing, putting deals on the table and making them public. They need to create real value rather than pretend to do so.

R&G: You’ve previously mentioned that music blogs are the new record labels.

Gerd: Yes. Music blogs have enormous power because people trust the blogs not to pitch them stuff that they’ve been paid to pitch. If they can keep it up, they will be the next BBC. When you look at mechanisms like Twitter or Facebook or FriendFeed, these people become the default recommenders for us. They are the ones who say, “You should pay attention to this band, to this artist.” That’s what radio used to do.

R&G: Serving as filters.

Gerd: Yeah. You have to keep in mind that the biggest problem we are having is not that music isn’t available, because even though it’s not legal it is available. The biggest problem is that once the legal issues are solved, everything will become available. Our problem will be that we have to pick, and nobody has time to pick through 62 million songs. That’s the total universe of currently published music, and it’s going to increase. We don’t really need to solve the distribution problem. We have to solve the attention problem. That’s what Amazon does for books.

R&G: You’ve talked about how the record industry should adopt Twitter. Can you elaborate?

Gerd: Twitter is a mechanism of micro communication, like RSS feeds. Therefore, it becomes something that is completely owned by the people who are doing it, rather than by the people who are making or receiving it. It’s a completely viable mechanism that is cost-neutral, at least to us. It becomes a very powerful mechanism for peer response and viral connections. That is the principle of what music is all about. It’s word of mouth, connecting, forwarding and sharing. A musical version of Twitter would be a goldmine. It already exists to some degree in blip.fm, but the music industry should use that mechanism to broadcast directly to fans. They’re starting to do that, but the problem is that many music companies perceive their primary mission as gatekeeper for the artists rather than getting the music out. That is a big problem today, when you’re in an economy where everybody wants a snack before buying a sandwich.

R&G: What other technologies do you think are necessary for the do-it-yourself artists and managers of the new music world?

Gerd: Widgets and syndication have made YouTube the world’s leader in video. 60% of videos are not played on YouTube.com but on blogs and other people’s sites. Music has completely overlooked that very powerful tool. That is this whole idea of syndication – getting people to transmit music to each other and then reaping the attention on the other end.

R&G: Many of the kids who grew up with Napster are now in college. They’ve never owned a physical CD and only know how to click and download music. They think music is supposed to be free.

Gerd: Yeah, and it can be free in the sense that it’s not as painful as paying per action. The question is not so much about the payment or the fact that people may not be willing to pay right away. It’s about controlling the marketplace. Who gets to listen to what, where, when and how much money do I get? We have to get back on the same page we were on a hundred years ago. We’re all on the same boat. Everyone wants an audience. Until we have that, we have nothing.

R&G: When do you foresee the end of the CD?

Gerd: I think we have another 18 months maximum for CDs to become a Step Two rather than a Step One. They have a 25% decline for 2008 pretty much around the world. How much steeper can they drop? In 18 months, the CD isn’t going to be the cherished moneymaker anymore. And this year people in the music business are going to be forced to say, “Okay, what is the next model? Do we have to loosen up to actually participate in this, or are we standing in our own way?”

R&G: Are you saying they need to recognize any revenue stream they can generate from their content? Sell CDs, subscriptions, etc.?

Gerd: The flat rate is the next CD. Its simple mathematics. If you charge or indirectly earn one dollar from each user of a network, that dollar can be ad-supported. It can be supported by bundling, so the user won’t feel it, so to speak. If you look at the total number of people who are active on digital networks, which is somewhere in the neighborhood of 3 ½ billion people, they’re not all going to pay a dollar because they’re in different countries. But the money that comes in from such a flat rate is humongous.

R&G: You are currently working on a new book, “End of Control.” When is it coming out?

Gerd: I’m working on it right now, and it’s kind of a painful process because it’s always changing. The first couple of chapters have already been published at endofcontrol.com, and people can download those. It’s a free book, so I’m working on various ways to make that more powerful. The control issue is key. It used to mean that if you had more control you would make more money, especially in the music business. You control distribution, radio stations, marketing, everything. Now all that is completely falling apart. Artists are going direct. Radio becomes useless to some degree. It’s all on the web now. People are doing their own thing. Control is a thing of the past. The question is, “What is the next business model?” That’s what I’m working on.

R&G: Who are the current music business visionaries?

Gerd: This is one of the most unfortunate things. There aren’t very many. I always say we need an Obama of the music business, or at least a Steve Jobs, even though Steve is kind of egomaniacal, but brilliant. I see a couple of people, like Terry McBride from Network Records in Canada. I firmly believe, however, that the biggest innovation will come from people who are not in the music business.

R&G: Is this the year we will see considerable change within the music industry?

Gerd: I thought it was going to be 2008, so I’m quite disappointed. I think we’ll see new things emerge in 2009 that will be completely disruptive, like the iPhone and mobile applications of music, new kinds of broadcasting, people sharing stuff through mobile networks and high-speed, broadband, wireless Internet. I think 2009 will be a key year because the current economic crisis will make it worse. People will stop buying content the old-fashioned way.

Read more great interviews here at Rollo & Grady

I was recently interviewed by Carter Smith of Rollo & Grady on The Future of Music.

R&G: What was the reason behind writing “The Future of Music?”

Dave: Gerd [Leonhard; co-author] and I became friends at Berklee. He did a few projects with the music business department, which is how we got to know each other. We started talking and found that we had a lot of common ideas about what was happening in the music business. I ran Berklee Press, so I had a way to publish the book. We just started putting ideas down on paper. There wasn’t as much blog action then as there is today. It was probably 2002 or 2003 when we really started to write the book, so we figured, ‘Okay, we’ll publish it in book form.’ Our motivation was, ‘How can we help people understand what we think is going to happen?’ Both Gerd and I had done lots of panels and music shows – South by Southwest, all the digital music ones, Billboard and many gigs like that. We thought, ‘How can we pick some of these ideas and package them in a form that would be digestible and widely available to people at a reasonable price point?’ That was the genesis of it all. Honestly, it all happened so quickly that I kind of wish we could do it all over again. It was fun. It was a very condensed period of time. There were a lot of things that obviously were changing and happening, and there were a lot of things that weren’t so obvious. For example, I don’t think there was an iPod when we first wrote the book. That happened during the publishing and editing process. There was no iTunes music store, no MP3 blogs to speak of and no Amazon.com selling downloads. eMusic might have been there. It was all so early. Everything was happening so rapidly. We just tried to gather up as much as we could that was obvious and make some stabs as to what might happen.

R&G: Can you discuss the process of writing the book?

Dave: I learned a lot from Gerd during the process. I was more on the ground with the musicians. My whole career has been helping musicians and artists create their art, take their art to market and most recently teaching them about it. Gerd was more in the consulting end of things, talking to the likes of Nokia, Apple and Sony. I learned a lot about what was going on in the corporate world that I hadn’t been exposed to. I think we pushed each other because I would often argue that, ‘Man, we’ve got to talk to the artists and writers and managers, not to your consulting clients, because most of these people aren’t going to understand what the hell you’re talking about.’

R&G: “Music Like Water” the David Bowie quote meaning music becoming a utility. Do you still believe in that?

Dave: I think it’s inevitable. Music has always been free. It started off as a live performance. You’d go to a party, to a friend’s house, to a show, to the theatre or an event and music would be there. You’d be dancing and laughing and happy and singing. There was no idea of a business other than maybe the performers wanting to get paid. Throughout the technological phase of the last seventy or eighty years, there was always a free form of music, such as radio. The single most influential technological phenomenon in music was radio. It brought music to everybody, and it was free. Now we have gone through this pre-packaged, packaged phase of music, with vinyl, cassettes and CDs. That was a way for labels to control distribution and squeeze profits out of people wanting copies of the stuff they heard on radio. But once that leapt into the Internet, music became free again.

R&G: By free, do you mean file-sharing and uploading CDs onto your computer hard drives?

Dave: Both. People have been trading files for years. It started out on Usenet, which predated Napster. You remember Apple’s “Rip, Mix, Burn” campaign? It was really all about enabling the digitalization of music and unlocking it from the plastic that it was bound to. I don’t see it as a big deal that music is free again and in a higher quality format that is randomly accessible to the file-sharing networks or the services that we have now, some of which are “legitimate” and some aren’t. It’s not a very big deal to me. It just seems normal. The utility idea already exists on your TV. I have Comcast service here on the East Coast. We have Music Choice, which is essentially digital radio on your TV. There are 30 or 50 channels of music that are programmed and streamed to my house constantly that I pay for on my cable bill every month. I’ve been doing that for fifteen years. I have no choice about it. I just do it. It comes with HBO and the basic cable service. So there already is a music utility that millions of consumers in the U.S. have paid for many years. Why can’t that service just get a little bit better? If you add a random access mechanism where I can select what I listen to at a finer level than just picking the channel that Music Choice gives me, the service becomes better. I think it’s inevitable. I don’t understand what all the teeth gnashing is about. That’s a personal opinion.

R&G: What role will labels play in the future business models?

Dave: The major labels are going to be able to sign new artists, so they will have influence. But I think the indie labels and the no-labels that artists are forming – their personal labels – are going to be just as influential. If you get a super-hot band that decides they’re going to help pioneer a new format or a new distribution vehicle, and people love the band, they’re going to pick that up. They’re going to inherit that into their life. If enough new bands do that and connect with their fans, that will matter way more than what the four big record labels do. Eventually, they’re going to come around and say, ‘Oh man, we’ve got to get on this bandwagon,’ as opposed to doing it deliberately. You can see in the last four or five years, and particularly in the last two years, that labels are willing to abandon DRM, experiment and take a little bit more of a risk in how their music is put out there, which they absolutely, categorically refused to do four or five years ago. The rest of the music world is pulling them along. The fans and the new music are pulling the bigger labels into the future, as opposed to the big labels setting the pace. I think those days are over.

R&G: The majority of people I talk to feel that the next killer app is a filter that will enable users to find music they enjoy.

Dave: I think that’s certainly a critical element of whatever system of music delivery we evolve into. Findability, discovery are going to be critical features. I don’t know that there’s going to be a technological solution to that problem. Again, various forms of word-of-mouth have driven the popularity of all music through the years. So, to the extent that we can supercharge that word-of-mouth that’s happening in blogs like yours and services like Last.fm and Pandora that are kind of aggregating the opinions of others, uncovering and making those available, I think that’s going to be very important. But again, I don’t see how that’s any different than my telling friends in 1963 that I heard this cool band on the Ed Sullivan Show. It’s the same thing.

R&G: What do you think of blog aggregators such as The Hype Machine and Elbows?

Dave: I frequent The Hype Machine. Elbows, I’ve looked at a couple times. I think it’s a great thing. The more somebody can make it easier for people to find music they’re going to like, the more value that entity will gather. I don’t know that a computer-based search is going to be the ultimate winner. I tend to doubt it. I think it’s going to be more in the mobile space. It still blows my mind that people sit in front of their computers and listen to music on these absolutely shitty little speakers. They’re listening to crappy files in an uncomfortable chair. When I grew up, having a killer stereo was all that mattered, other than a car and a girlfriend. The stereo/audio business has completely gone away and been replaced by shitty ear-buds from Apple and MP3 files. It blows my mind that people tolerate that. I think it’s impacted the experience of listening to music, how you listen to it, how you enjoy it. So I’m not sure that a computer-based model is going to get enough traction to supplant other ways of acquiring, listening to and finding out about music. I think it needs to be easier, better sounding, portable and more integrated into your life. It needs to get outside of your bedroom or den.

R&G: I read on your blog that Douglas Merrill, President of EMI Digital, said he agreed with data that suggested file-sharing is good for the music industry. I found that interesting, but he also came from Google and didn’t have any experience in the music business. Do you see a trend in technology guys coming to the labels and figuring out how they can make this work; a technology guy versus the old-school music guy?

Dave: Not necessarily. I think the great labels of the past were run by music people who understood what the artists were all about and how to create great product, great songs and how to put great people together. I don’t think we can wave a wand and put a bunch of techies in the driver’s seat, and everything will suddenly be good. You need educated people that understand the technology, the music, the creative process, the marketing and the relationships with fans. As those skill sets get implanted in the people running the companies that matter – not just labels, but publishers, touring companies, marketing companies and distribution companies – then things will get better. I’m pretty confident of that, but I don’t see technology solving the music industry’s problem.

Read more great interviews here at Rollo & Grady

I have know Terry McBride for many years now and have had the privilege of working with the entire Nettwerk team on overall strategy a while ago. I am very proud to see some of what we worked on taking shape. What I love about Terry is his ability to act on ideas very quickly and make things happen one way or another. He is not afraid to experiment. He is also not afraid to take risks and transition his revenue model to something that makes more sense and is sustainable.

He got out front very early on in forming a “network” of companies to manage artists, promote tours (remember LillethFest), create merchandise, distribute both physically and digitally, publish writers and integrate the marketing. He tried memory sticks, free downloads, free stems for people to mash up, artist-owned labels, viral and crowd-based marketing.

I met with him in Vancouver a month ago and am preparing a video interview. In the meantime, here are some excerpts from a fine piece by Mark Glaser at PBS.

“At the vanguard of the movement of crowdsourcing music and putting the fans in control is Nettwerk Music, a record label and band management service in Vancouver, BC, that has become synonymous with digital music and alternative revenue streams. The label completely revamped itself in 2002, putting digital music and Internet promotion at the forefront and downplaying physical CD sales. Fans have been able to remix albums by Barenaked Ladies and rapper K-OS — even before his new album comes out — and Avril Lavigne has racked up millions of plays and possibly millions in revenues on YouTube.

The driving force behind the digital makeover of Nettwerk is CEO Terry McBride, a man who has helped pay legal fees for people sued by the RIAA for sharing music online. After McBride took such a strong stance for digital music — and away from CD sales — he started speaking more at conferences and talking to the media to spread his vision for a “digital valet” service. He thinks we will all end up paying $5 to $10 per month for access to all music, TV and movies, with a digital valet that knows our tastes and finds media for us.

While most music labels have been squeezed by the shift to digital music, Nettwerk has had growing revenues, McBride told me, and he expects 80% of the company’s 2008 income to be from digital and alternative revenues — and not CD sales.

“In 2007, about 70% of our sales on intellectual property was all digital, and this year it will be around 80%,” he said. “A lot of physical sales comes from our bigger artists and we do print-on-demand for our smaller artists, for their mail order or for touring…My stance on file-sharing did not match what my brethren in the music industry believed. I remember giving a keynote speech three or four years ago, and having a lot of pissed off people.”

When did you realize how important digital music would be vs. physical music and CDs?

Terry McBride: We started our whole change internally in spring or summer of 2002. We did it really quietly. We had one of these executive team summits. We looked at where everything was going. We looked at the fact that 25 million [CD] sellers would be 5 million sellers. The fact that million sellers would be quarter-million sellers. And how our existing model would work within that. Would we take the same stance, to protect the castle and fight, or was there a different way of doing it?

The interesting thing then was that we had the initial digital data to look at. We saw a lot of what was happening. And we said, ‘Where will all this be in five years, and will we be ready for it?’ There was a conscious decision made at that meeting to get out of the physical music business. So we decided to retool our whole company and over the next two years, that’s what we did. For a company that had had an attrition rate of 1% or 2%, a company of 120 or 150 people, over the next three years we had a turnover of almost 25% a year as we changed almost everything.

Rather than have a marketing team with marketing meetings, and promotion team with promotion meetings and sales team with sales meetings, we got rid of all that and created silos. We created three teams that had everything from Internet to traditional marketing to sales to IT to promotion — all in one group, and got rid of the meetings. So everything you needed for an artist was in that group. There was no heads of marketing. We shifted from 12 traditional marketing people to 3 traditional marketing people and 8 or 9 Internet marketing people.

Then we aggressively went after every DSP [digital service provider] that was interested in music that we had, and we set up a team to deal with the programming of metadata behind what we were actually doing…All of our marketing is not around albums but around bands and brands. Our marketing is about understanding the social elements of songs, of music, of emotions.

Fortunately we’re a growing business right now. We didn’t protect the castle. We also made the switch at a very good time to make the switch. Avril had broken, Coldplay had broken, Dido was doing amazing, Sarah [McLaughlin] was doing amazing. The Barenaked Ladies were doing amazing. We were flush with cash. If we made those changes now, it would be very very difficult because money is much more tight.

You have been pushing many bands to start their own labels. How did that start?

McBride: That came from a point of view of how do we get collapsed copyright. How do we get an authentic relationship between the artist and the fan? How can we remove everything that we possibly can from the relationship — or between the relationship — of the artist and the fan. Artists owning their own copyrights and being able to be in direct communication is a far more authentic relationship.

There’s a risk and reward to that. If an artist is signed to a major label, then the manager has no risk, but then you’re only getting a commission from publishing and master royalties combined, maybe a maximum of $2 [per CD sale]. With an artist [label], we had to finance it, but we were commissioning off a $5 or $6 net [per sale]. So obviously we get a much better commission, but it’s a much higher risk. With these artist imprints, it takes two to three albums for them to work.

We’ve found in the digital space, that you will sell anywhere between 25% to 50% of your volume from your catalog upon release of any new albums. So you are layering intellectual property. In the digital space, where you don’t need to buy shelf space, if you create the right metadata behind what you’re doing, and market it in an effective way — you’re not marketing the new album, you’re marketing the brand. By the time you make it to album three, you are selling as much of the catalog as the new album, but you don’t have the cost with the catalog and everything starts to make sense.

So I had to get people here to believe in this, and stop people from having a heart attack over the equity we were tying up, which we had no ownership in. But proving the model that you have have an artist like State Radio, which is a great example of an artist who makes a couple hundred thousand dollars a year from intellectual property, which will help finance the next album.

Chad [Urmston of State Radio] just played to 2,800 people with a $25 ticket price in New York on the weekend. He’s marketing a brand, he’s not just marketing intellectual property. Now it all makes sense. He’s happy, he owns his future, his audience has grown with him really well. Now everything makes sense to him, where initially he was unknown and had to work from the ground up.

The Internet marketing team and his manager did a spectacular job of understanding who his tribe is and would be. Out of the eight artist imprints that we launched, seven of them are very profitable, but it took time and selling the managers on the fact that there were no commissions to be made to a certain point. If they signed an artist to a major label there was instant commissions. And it took the lawyers years to get their heads around it because they just didn’t believe in it. It’s taken time, but now the managers are looking at a very steady cash flow, and the artists aren’t fighting for their creative freedom but actually using their imagination — and those are two very different things.

For the marketers of music these days, how has their job changed? It used to be about talking to radio and retailers. Now is it about search engine optimization (SEO)?

McBride: Search engine optimization, the ability to write basic code, understanding how social networks and blogs work together, how to connect that interaction back to the sale of music or monetization of behavior or crowdsourcing music. It’s understanding all of those things, and having a very imaginative marketing plan around the artist vs. around a product. It’s really brand marketing. What are the artists’ causes? Are there cause alignments? Are there other brands we can hook up with to align our causes? And if the other brand is bigger, can we give them free music and get exposure to their audience because it’s like-minded tribes?

It’s basically social marketing. It’s understanding social tribes and peer-to-peer interaction that the social networks have taken from a small group of 20 of your peers to 250 of your peers. And not focused on recommendation engines, but the social aspect of recommendations. So it’s not a computer making the recommendation, but social groups doing it. Looking at the technology but not using it for what it was meant for. That’s what the creative arts do. The technologists build something with a certain purpose in mind, and then the creative people take what the nerds have done and take it in a completely different direction than what people saw coming.

You’re doing a lot of crowdsourcing of music, where you put out pieces of music and let people remix them. Is that about engagement and interaction more than business?

McBride: Well it’s both. We started initially with T-shirts. We found out that the T-shirts that the fans designed — even if the artists didn’t like them — the people who went to shows liked them more than the ones that the artists designed. That was consistent whether it was Barenaked Ladies, or Avril or Sarah — the fans’ T-shirts always sold more. The fans would do the designs and vote up the ones they liked, and filter them to the top, and we would take the top 3 voted designs and put them in production. And they were consistently the top sellers out there.

In 2005, we took it a step further by releasing Barenaked Ladies songs in stems [pieces of the music tracks]. That sparked the idea for the guys who created Rock Band. That was more of a remix. Now I’m more about the mix; to hell with the remix! We have an artist named K-OS, and we released all of the stems two weeks ago, and the fans have not heard the album. It’s not due out until March, so they are actually mixing the album. So we will release physically and digitally the artist version and the fan version. And when we go to radio, we will service the artist version and fan version. So we are taking it the rest of the way.

You can even take it beyond that. With K-OS, we’re thinking about having the audience vote on which 10 to 12 cities he plays in Canada. We might even take it one step further: pay as you go not as you enter. And maybe when you leave you get a copy of the fan mix for your donation, so there’s karma pricing on the exit. Let’s take this whole tribal/social interaction the whole way. Everyone including Nettwerk has dabbled with it. We have probably dabbled more than any company with a wide assortment of artists, so we have a good idea of what works and what doesn’t work. But with K-OS it’s the first time we’ve gone all the way with it.

Read the whole PBS Interview here.

Artists will kick off about digital rights

Several artists have already clashed with their labels over digital royalties – for example the Allman Brothers Band suing UMG – but expect more rumbles in 2009. Not least because artists are potentially getting stiffed when it comes to the raft of new deals being signed by labels for unlimited, subscription-based or ad-supported music services. Expect managers to be pressing for fairer remuneration from these deals, with new bodies like the UK based Featured Artists Coalition to the fore as well.

More unlimited music services

Comes with Music (UK) and TDC Play (DK) were just the start. There’ll be many more examples of unlimited music being bundled with other products or services around the world in 2009. The unique aspect of these new models is that consumers appear to get the music for free; and ISPs, handset companies and brands are all taking an interest. We also expect to see DRM-free files becoming a selling point for these services if they can persuade the major labels that they won’t spur piracy.

ISPs under more pressure

One of the reasons ISPs are so keen to launch branded legal music services is the pressure they’re facing from the music industry to do more to combat file-sharing. And by that, we mean more than send out ‘educational’ letters scolding persistent file-sharers for their naughtiness. We predict more filtering at ISP level, if they can find filtering technologies that actually work. Meanwhile, we wonder if the recent Danish lawsuit in which an ISP was ordered to block access to The Pirate Bay will set a precedent for other markets.

The industry will wake up to web-based piracy

We wrote about the growth of Rapidshare and other online locker services last issue (27th Nov 2008), as well as the ecosystem of blogs showing people where to find copyrighted music on them. Web-based piracy – including browser plug-ins as well as these locker sites – will be much more on the music industry’s radar in 2009, even though industry bodies may prefer to keep focusing on P2P and BitTorrent in their public utterances on The Fight Against Piracy. There could be more GEMA-style legal action against the Rapidshares of the world, though.

The Torrent tipping point

BitTorrent is still a bit geeky, even though plenty of consumers are using the technology to download free music, films and TV shows. But in 2009, there’s something of a perfect storm building, with more users sitting on super-fast broadband connections, and more inventive ways of helping them find copyrighted content. If you think BitTorrenting is about downloading individual tracks or albums, think again: nowadays, people are downloading artists’ entire discographies at the click of a button.

Streaming and downloading to converge

You’ll hear a lot of blather in 2009 about The Cloud – the idea of accessing stuff stored online from any device you like. The impact on music next year will be to accelerate the blurring of the boundaries between streaming and downloading music. For example, iTunes might evolve into a cloud-based service, allowing people to stream their iTunes library to whatever device they’re using at the time, over whatever network it’s connected to. Third-party software already allows this, of course. The point is that consumers increasingly don’t care whether their music is stored locally or remotely, as long as they can listen to it right now.

Comes With Music to grow slowly

Nokia’s unlimited music scheme won’t definitively succeed or fail in 2009, but we will get a good sense of just how sustainable it is as a business model. It’s no secret that Comes With Music will roll out on more sophisticated handsets than the launch 5310 XpressMusic, and likely with at least one large mobile operator. However, we sense that Nokia may push the scheme more in emerging markets than in, say, the US. Watch for developments in Latin America in particular. We also have a mischievous thought that Nokia may ‘sign’ its first band in 2009, becoming a pseudo-label.

More DIY social media campaigns from artists

We expect artists and their managers to take social media by the scruff of the neck and dream up some really good online viral campaigns in 2009, alongside the efforts of their labels. Artists will be using the web in innovative ways because they’ve grown up with it, not because they’re following some kind of Web 2.0 marketing template. Although there’ll be plenty of people following Web 2.0 marketing templates too, in an effort to copy the (inevitably) more successful grass-roots stuff.

More high-end physical product

People don’t want to buy $15 CDs, but they are happy to buy an $80 luxury box-set collectible… things. Radiohead and NIN showed that, while US country-pop singer Taylor Swift has recently been doing great business with her own $60 luxury box set (sold off her own widget, incidentally). Labels will spend 2009 trying to shore up their physical revenues with more imaginative collections, whether it’s five albums bundled together, or an entire artist’s discography in a Blu-ray box-set.

Microsoft will launch a ZunePhone

It may or may not have the Zune brand attached, but we’re confident that Microsoft will get into the mobile handset game early in the year, likely at CES (January) or Mobile World Congress (February). The rumours are pointing to a consumer-focused handset with an emphasis on music and messaging. We also predict hundreds of ill-advised claims that whatever comes out is an iPhone-killer.

More mini-albums and live EPs

The album isn’t quite dead yet – indeed, Amazon is actively promoting the idea of buying whole albums from its MP3 store. But we predict more mini-albums following in the footsteps of Coldplay’s Prospekt’s March, filling the gaps between major releases. Although whether that’s a positive trend or an example of fleecing fans for songs not good enough for the album is a matter of some debate. Meanwhile, intense competition among digital stores will see more exclusive live EPs and remix packages, thrown together to get homepage promotion.

Subscription services are dead

At least in the form we’ve understood up until now. The only way for services like Napster and Rhapsody to survive is by being bundled into the price of other products – home streaming systems, maybe, or mobile handsets, or computers. In short, they’ll shift to being unlimited music services akin to Comes With Music or TDC Play, as part of a bigger offering. The only company that can make subscription work in 2009, we predict, is Apple. If it chooses to.

Streaming startups thin out

Can you really turn a profit from ad-supported streaming music? If you can, why are so many of the popular sites up for sale? 2009 could be a harsh year for the iLikes and Imeems of the web, despite their millions of VC dollars, millions of users, and seemingly firm partnerships with major labels. We see many of these services selling up to larger companies who can afford the royalty payments, in the face of competition from CBS-backed Last.fm and Murdoch-backed MySpace Music.

The next Radiohead won’t be Radiohead

But at least one big-name artist will do something innovative in the digital space, probably after leaving a major label at the end of their contract. But it won’t be the same honesty-box offering as with Radiohead’s In Rainbows. We’ll be keeping an eye on firms like Topspin Media or Mubito and the artists they’re working with to try and figure out what the innovation will be.

The next Rick Astley won’t be Rick Astley

There’ll be another forgotten artist revitalized by The Power Of Viral Internet in 2009, following the rickrolling craze this year that led to Rick Astley being named best artist ever at the MTV Europe Awards. Who it’ll be is another question. Our suggestions include Tiffany, Jive Bunny, Ted Nugent and Menswear. Or all of the above.

Labels will intensify their Direct to Consumer efforts

The majors have been notably unsuccessful in selling digital music direct to consumers in the past, but EMI’s launch of a D2C website this month show that they haven’t given up on building direct relationships with fans in this way. However, the interesting aspect here isn’t huge all-encompassing portals selling a label’s entire catalogue, but more the slicing and dicing of this catalogue and monetizing it better.

The growth of emerging markets

We’ve already mentioned how Nokia may target emerging markets next year; but with the recession biting in the west in 2009 we expect to see stronger performance coming from Latin America; the BRIC countries (it’s an acronym you’ll need to know in 09) and Africa where mobile is seeing huge growth.

From Music Ally, a great digital music information service.

Our book is available in various forms.

You can listen to the book on iTunes as a podcast for free. Go to the iTunes store and search “Future of Music” podcasts and subscribe.

You can buy the book on Amazon for $11.53 or less.

You can purchase the audiobook from Audible for $7.49.

Here are a few of the reviews.

Publishers Weekly
Two innovators in music technology take a fascinating look at the impact of the digital revolution on the music business and predict “a future in which music will be like water: ubiquitous and free-flowing.” Kusek and Leonhard foresee the disappearance of CDs and record stores as we know them in the next decade; consumers will have access to more products than ever, though, through a vast range of digital radio channels, person-to-person Internet file sharing and a host of subscription services. The authors are especially good at describing how the way current record companies operate - as both owners and distributors of music, with artists making less than executives - will also drastically change: individual CD sales, for example, will be replaced by “a very potent ‘liquid’ pricing system that incorporates subscriptions, bundles of various media types, multi-access deals, and added-value services.” While the authors often shift from analysts into cheerleaders for the über-wired future they predict - “Let’s replace inefficient content-protection schemes with effective means of sharing-control and superdistribution!” - their clearly written and groundbreaking book is the first major statement of what may be “the new digital reality” of the music business in the future.

5.0 out of 5 stars THE FUTURE OF MUSIC IS NOW
Gian Fiero (Hollywood, California)
This book is so brilliant that it makes the vast majority of music industry books that are being published seem irrelevant. It discusses in detail, the reasons why the future of the music industry is headed into the digital/mobile entertainment era. It also provides statistical information that professionals, marketers, entrepreneurs, and educators can use constructively. Both Dave and Gerd (the books co-author), have their fingers firmly planted on current music industry activities and trends. They also possess and display a clairvoyant eye toward the future that offers beneficial insight and foresight to those who may not be aware of what this whole digital (i.e. independent) revolution is about, and most importantly, what it will entail to prosper in it. The book is easy to read, easy to understand and simply brilliant. If you buy just one industry book this year, this should be THE one. Buy it now!

5.0 out of 5 stars Indispensible
Stephen Hill “Producer, Hearts of Space” (San Rafael, CA USA)
A stunningly candid source of concentrated, up to date insight about the music business and its turbulent transition into the digital era. This book tells it straight and will make the dinosaurs of the music industry very unhappy.

Like Martin Luther’s ‘95 Theses’ nailed to the door of Wittenberg Cathedral, Kusek and Leonard drive nail after nail into the sclerotic heart of the old-fashioned music business. Their rational vision of the future of music rests on the idea of unshackling music from the hardcopy product business in a yet-to-be-realized era of open content licensing, facilitating sharing and communication among users, and growing the business to its full potential.

It provides as clear a vision of the future of the music industry as you will find, from two writers with a rare combination: a solid grounding in the traditional practices of the music business, an up-to-the-minute knowledge of the new technologies that are changing it, and the ability to think through the consequences.

I’ve dreamed about a book like this, but thought it would be impossible in today’s hyperdynamic environment where every week seems to bring a breakthrough technology, device, or service. But by digging out the underlying trends and principles Kusek and Leonard get under the news and illuminate it. Along the way they provide a brilliantly concise history of the evolution of digital media.

I can’t think of any book more important for artists to get the full re-orientation they need to survive and prosper in the digital era. It’s no less critical for members of the music and broadcasting industries who need to consolidate their thinking into a coherent roadmap for the future. In a word: indispensible.

I recently interviewed Ian Rogers of Topspin Media for a new project I am working on the - “Future of Music Toolkit”. More to come on that later…

Ian brought me up to speed on the development of the Topspin platform for music promotion. They are creating very cool marketing software and services to help artists and their partners build businesses and brands. This is clearly part of the future. Here are some comments from Ian and a link to his presentation to The Recording Academy at the GRAMMY Northwest MusicTech Summit 2008.

“The lamenting we read in the press is not the story of the new music business. Continuing to talk about the health of the music industry on these terms is as if we’d all been crying about the dying cassette business in 1995. The difference is that when we moved from cassette to CD the winners were the same (big companies who owned access to cash, distribution, and marketing) and the definition of winning was the same (more units sold for these big companies).

Music consumption isn’t declining: iPod sales up 59% Y/Y (source: Apple), P2P filesharing volume up 35% Y/Y(source: NPD), audio streaming up 25% Y/Y (source: Accustream). And despite the endless discussions about the “pirates,” there isn’t an unwillingness to pay for music, either: 1.6B decisions to buy music in 2007, up from 1.3B in 2006 (source: Neilsen Soundscan), 40% Y/Y increase in worldwide digital music sales (source: IFPI), 8% Y/Y increase in North American concert revenue — an all-time high (source: Forbes.com), 40% paid an average of $5 in Radiohead’s pay-what-you-want model, Nine Inch Nails self-release generates $1.6M in first week sales, includes sell out of $300 box set in first 48 hours (source: NIN.com).

IMHO the only perspectives that matter, that of the artist and the fan. I see news about the health of the music industry as defined by the stock price of WMG or quarterly earnings of UMG, Sony, and EMI every day. What I don’t see, apart from a few articles on Radiohead and Nine Inch Nails, is an update on how the world is changing from the artist point of view. But I tell you, when I talk to managers and artists they feel it, they feel an ability to take their careers into their own hands, to redefine what success means for them, and that is the emergence of the new music business.

I say this with all respect to our friends in the existing music business. We all know smart people who are busting their asses trying to solve the Innovator’s Dilemma those companies are facing.

Again, there are only two players in the music business that matter at the end of the day: the artists and the fans. The rest of us either add value or get in the way. Don’t get me wrong, over the years labels have added a tremendous amount of value through financing, A&R, marketing, promotion, etc. I’m just saying that every player needs to either understand how it truly adds value or it needs to get out of the way, Topspin included. Our business does not operate on lock-in, ownership of copywritten work, or long-term contracts. We either add value today with a compelling service or we die. And I’m perfectly happy with that.”

See Ian Roger’s complete presentation here.

From the Business Innovation Factory Summit, my presentation on the Past, Present and Future of Music.

Here is the story they wrote about me for the Summit.

Back in the seventies, David Kusek walked from his freshman dorm at the University of Connecticut, down a long hill to the music department for classes several times a week. When the routine got a little stale, he began taking other routes. One detour took him past the computer science building where he quickly noted the “hot” cars in the parking lot. Naturally, he began taking computer science courses.

Great ideas are born in such serendipitous ways. When Kusek melded his deep-rooted love of music with his newfound affinity for computers, he opened up unchartered territory in the music world by inventing the electronic drum. His company, Synare, took a relatively unfamiliar technology (computers) and combined it with an indigenous musical tradition that tuned percussion to the key of the song. Kusek also knew how to start a business, develop products, and take them to market. Having the right price point added to the appeal of the electronic drum and attracted the attention of fledgling artist Donna Summers who took a chance on the new sound and propelled her career.

“For better or worse, we had our part in the disco age,” Kusek says. “We helped to define the sound of the era.”

Taking another detour for curiosity’s sake led Kusek to study animal communication in California with noted biologist John Lilly. They were trying to use sound to communicate with dolphins when the Apple II computer came to market.

Kusek was already synthesizing the sounds that dolphins make, so he devised a way to do the same with musical instruments, to “put the Apple II between the instruments.” He explains that his new company, Passport Designs, “broke music down into a language of expression, which we mapped to simple computer code and connected it to the instruments. We created a computer language for music.” Witness the birth of Musical Instrument Digital Interface (MIDI), developed by a group of companies including Passport, which has left an indelible mark on the music industry by becoming the prototype for all music interface software.

If only they had patented it.

Kusek, along with Dave Smith and the other people responsible for creating MIDI could have made millions with MIDI, but he remains philosophical about this missed opportunity. “Maybe the reason why it took off was that it was absolutely free,” he says. “It was a compact way of representing music in a simple and cheap format.”

Kusek has learned to appreciate and even extol the benefits of free and open access to music. He helped create musical notation software and was instrumental in developing enhanced CDs for the commercial market. He supports the creation of a music utility to “monetize” the immense wave of file-sharing that has become standard operating procedure in the industry. He reasons that Internet users already pay for access to a network that supplies the music, so why not add a nominal fee to the ISP bill and allow for legal trading? With approximately 80 million households using the Internet, a monthly music utility fee of $3 would generate almost $3 billion in annual music sales from households alone.

“If you tracked what was downloaded,” Kusek says, “you could create a system where the money flows exactly to the people who are listening. It could be a 30 to 40 billion dollar business again, as it was in the nineties.”

Admittedly, this system would spread those billions among a larger base of artists, establishing an unfamiliar sense of parity in the music industry. But Kusek says that the megastar is gone, anyway: “In the last four to five years, new artists coming to market are not making anywhere near what artists like Madonna made. I think that happens because of file-sharing, but also because the music industry was taking its eye off what was important. In the mid-nineties, the record companies thought their customers were WalMart and Target. They had no connection to their audience at all.”

File-sharing may have killed the megastar, but not the art, Kusek insists. “I think it’s a great time to be an artist,” he says. New performers may have smaller audiences, but they also have a more efficient way of finding that audience and staying connected to it through online chats, newsletters, and blogs. And instead of the record industry’s marketing machine pushing music at fans with an $18 plastic CD case and the elaborate promotion attached to it, word of mouth is shaping the musical tastes of the rising generation.

As it should, according to Kusek. He has brought technological innovations to the music industry by accepting such change and using it to open up the possibilities of sound. He envisions music flowing in a clean stream wherever people communicate, allowing artists and fans to express themselves freely.

I recently did a presentation for the Business Innovation Factory on music. When they post the video I will provide a link. In the meantime, here is the presentation:

This is a story about the past, present and future of music.

There is a lot of discussion these days about free music and the decline of the power and influence of the major record labels. However, I would argue that music has always been free in one form or another, throughout history and that the relationship between the artists and their fans - the artists and their patrons is what really matters.

Record labels are a relatively recent phenomenon in the history of music. Perhaps they have seen their useful life as a component of the music business, perhaps not. They have been helpful in injecting capital into the marketplace and promoting artists on a scale never before seen. They have provided a vehicle for artists to go to market that was quite effective in its day.

But music at it’s core is entertainment and a form of creative expression that transcends language and cultural barriers and always will. If we focus on music as a cultural phenomenon, perhaps we can find some answers to the questions about the future.

The Artists

The music business essentially began with the live performance of music at the symphony, opera or chamber ensembles for wealthy patrons of the arts. People experienced music directly with the artists in the room with them.

Music is a social art form, and artists were driven by their passion to make music and connect with people who would enjoy it. It’s a lot of fun to make music, but the greatest joy comes from delivering it to other people who appreciate what you have created.

For many artists, making music is all they know how to do.

But like many aspects of modern life, music has been profoundly impacted by changes in society and by the rise of technology - indeed music has been driven by technology.

Radio

The music industry began back in the early 1900’s with the invention of amplification and radio. With radio people could listen to and enjoy music together in the comfort of their homes. It transformed time and space and made it possible for huge numbers of people to enjoy music that they might never have heard otherwise. Huddled together were our grandparents and parents, listening to music over the airwaves - together, enjoying it all.

And the greatest part about it - IT WAS FREE.

VINYL

In the 1950’s Vinyl LPs were introduced into the marketplace and along with radio - crystalized an industry. Vinyl records changed the very nature of how music was enjoyed. Recordings fixed a musical performance in time and stamped it onto a piece of plastic. They made it possible to shift both time and space for people, so we could now enjoy music anytime and anywhere.

They also fundamentally changed the way music was delivered - no longer was a piece of music played live, with different players and interpretations every night making the music more dynamic. Instead, the songs were played exactly the same - over and over again - turning music into a product instead of an experience.

This was a profound shift in the way people experienced music.

Elvis

Television was the next technology to impact the music scene in the mid 1950’s. In 1956 Elvis appeared on the Dorsey Bros “Stage Show” and became an nationwide sensation. This was the beginning of music marketing to the masses.

The Beatles

In 1964, a new band called the Beatles appeared on the “Ed Sullivan” show - and from then on, the music business would never be the same. Like many kids my age, when I saw the Beatles on TV - I knew that I wanted to be a Rock Star.

The Music Industry

Business structures were formed and expanded to address the booming opportunities in the music industry.

Record Labels - brought recorded music to market and became the engine that drove the entire music industry.

Publishing Companies - found ways to exploit the “song” through licensing.

Radio Stations were finally forced by congress to pay a Performance royalty to the publishers for playing the songs over the airwaves -

The songwriters got paid, but not the labels. The legislature argued that radio airplay was in effect massive free promotion for the record.

Music started to become a very big business for the companies involved. Music was marketed to young people and the growth was fueled by new artists and new songs.

Technology continued to march on.

The Audio Cassette made music more portable. The Sony Walkman became the best selling consumer electronics products of its time.

Synthesizers changed the way music was produced, adding a lot of new sounds to the palette. At the same time synthesizers put a lot of traditional orchestral instrument players out of work.

And then the Personal Computer raged into the marketplace.

I can tell you that Apple had its eyes on the music industry from the very start because I was there. They were actually forced to stay out of the music business for a while, by the Beatles record label “Apple Records” - over a conflict with the name “Apple”. This was a healthy foreshadowing of things to come.

Compact Disc

In 1982 Sony and Phillips introduced the Compact Disc. The CD was the first digital format to hit the marketplace. CDs were intended to deliver pure digital sound quality. CDs were originally marketed as “Perfect Sound Forever”. The labels wanted the public to go out and repurchase their vinyl music collections all over again on CDs and make billions more dollars in the process. It worked. Sales soared for over a decade.

However the record companies failed to realize that they had digitized their entire catalog and put perfect digital copies into the hands of the public - at $18.95 a disc. Before long the computer companies were offering devices that could copy CDs in seconds. This failure to understand technology would come back to haunt the labels in a big way.

MIDI

In the early 80’s I got involved in a project with Dave Smith and others to encode music in a compact digital form. The idea was to make music easier to store and edit, and network instruments together. We worked with a bunch of different companies including Sequential Circuits, Yamaha, Roland, Korg, Casio and Passport Designs to create something called MIDI - the Musical Instrument Digital Interface. We created an open and free standard that anyone could use - royalty free.

As a result of MIDI many new music companies were formed, thrived and exploded in the 1980’s. There was a profound transformation in the way music was produced, mixed and distributed - and millions of people got involved in recording and creating music at a very high level. MIDI was a revolution in music making.

Ironically, MIDI is in every cell phone you have - and the reason we have ring tones.

World Wide Web

Here is something that I want you to think about for a minute.

The World Wide Web came to market in 1990 - just 18 years ago. The web made it possible for anyone to create a home page for whatever they wanted to say or market. If you are under 25 years old in the US, it is hard to imagine life without a digital network. And this just happens to be the target age group of the record companies.

In 1998, MP3 files were developed to send music over a telephone line. MP3s made it possible to compress the digital music files on a CD into a small file that could be easily copied. The Internet made it possible to transmit these files around the world in seconds.

Technology made taking music even easier that making music.

Napster and the iPod

It was the combination of the Internet and the MP3 file that sparked a young college student named Shawn Fanning to invent the first Napster software that allowed people to trade and share song files. Almost overnight, kids around the world were tapping into Napster and trading songs and discovering new music using the Net. A huge community formed.

This was followed shortly by the invention of the MP3 player and the iPod in 2001 by Apple - which would soon dwarf the sales of the Sony Walkman and become a multi-billion dollar business.

Trading files online became an instant success and the MP3 became the new format for music delivery - mandated by the consumer.

Something very different began to happen to the music industry. The power began to shift from the record companies to the tech companies and the music fans.

Record Companies - Orgy of Success

The record labels enjoyed an orgy of success with the CD.

But they really missed the ball in identifying their customers. They thought their customers were Wal-Mart and Target and other record retailers. Instead, their customers were people like you and me who actually buy music.

When the labels realized people were trading MP3 files online, actual customers interested in music - they decided to sue them. This was not and is not a great business strategy, to sue your own customers. What were they thinking? Or maybe they weren’t thinking at all.

Future of Music Book

In 2004, I wrote a book on The Future of Music with my friend Gerd Leonhard. Unfortunately a lot of what we predicted to occur has become true. Sales of recorded music have fallen some 50% already from their peak in 2000. Thousands of bands have been dumped from their recording contracts by the labels. New artist signings have fallen to an all time low and labels are no longer investing in artist development.

And Apple has become one of the most powerful companies in the music business.

New Artist Model

The record business has never really been good for the vast majority of musicians. A dirty little secret of the music business is that 95% of artists never recouped their royalty advances. Labels have been notoriously unfair to their artists.

Artists have always had to make their money some other way - through touring and performing - from songwriting - or selling t-shirts, hats to make a living in music. Or working at Mickey D’s.

But everything is changing. Today artists and their managers sit in the middle of a musician enterprise and can make things happen on their own. This is redefining the music business.

Technology has shifted the power base from the record labels to the artists and mangers, and the music fans. Performer and patron are meeting again with direct relationships between artists and their fans enabled by technology.

Mobile Music

The Universal Mobile Device (UMD) that we wrote about in the book has already hit the market. It is called the iPhone. - providing communication, sharing, maps, music, pix, video, games, phone, text, email, web, the internet, hundreds of other applications, and connectivity. Nokia has similar devices and there are lots more coming. Digital media is invading our lives. Imagine what these devices will be like a few years from now.

Soon you are going to be wearing eyeglasses and jewelry that provide digital media to you anytime and anywhere.

Here are some MP3 sunglasses from Oakley

Artists as Brands

Artists today are more likely to get promoted by major brands than record companies. Their managers are setting this up for them.

Brands like Pepsi, Red Bull, Tag, Bacardi, and Nike are breaking new bands, and TV shows like Grey’s Anatomy, CSI, and House showcase new artists each episode. Getting on a show like this can be like winning the lottery for new artists, not unlike the old record deal.

Many new structures are forming that will help artists develop their fan bases and enable a career in music for smart people.

The New Music Business

At the center of the Future of Music are the creative people, the artists and songwriters along with their business managers. A middle class of musicians is forming where people can make a living or part of a living in music more predictably. They are pursuing a business model that puts them in the center of the equation and gives them more choice about their career path.

And as in the past, It is the New music that will fuel growth in the future. And it is the direct connection between artist and patron, that once again comes around into play in the music equation.

Music Like Water

Music is starting to flow all around us. It is available on the internet, on mobile networks, wifi, 3G and your home. Here are some examples of new ideas in music that are helping to redefine what the future will hold.

Music is going mobile
- hear a song anywhere and get it - can already do this on iphone
- personalized digital radio - just for you - pandora
- social filtering - what’s everyone else listening to?

You will have more chances to interact with artists and writers
- audience picks the set list collectively
- lyrics and songs streamed to your phone during the song
- the entire concert recording available to you after the show

Personalized Interactions
- Digital Living Room - intimate shows beamed into your home
- Interact with the artists and writers, help write a song
- Watch rehearsals and develop your relationship - MTV

Conclusion

It has never been a better time to be a musician or songwriter than it is today. You have a lot more control over your career than you ever did. The future is extremely bright and capital is starting to flow to the creative tech and new artist management companies.

So I am very positive about what is going to happen in music in the Future. We are coming full circle with free music and more intimate fan connection and participation. The patrons are coming back into play.

MySpace had everything it needed to establish a truly revolutionary music model. Loads of indie artists and millions of fans all interacting online on the MySpace platform and the opportunity to connect them and enable commerce. Bands could post their tracks and sell them directly to their fans, all that was really missing was a better way to promote the music. This was the hard work that MySpace failed to do.

As the LA Times reported yesterday, MySpace Music relaunches, tries to turn up revenue volume with loads of major label content and a partnership with Amazon.

“Although MySpace was a pioneer in giving unsigned musicians a voice, the social network struggled to leverage that momentum into a revenue-generating business. (Well actually it didn’t really try that hard. A failed experiment with the defunct SnoCap was about it, because they sure didn’t share any banner advertising revenue with anyone).

Details of the new MySpace Music are now as familiar as the lyrics to any hit pop tune. MySpace’s 120 million worldwide users will be able to create and share playlists, as well as listen to songs or albums in its digital catalog for free. If users want to put the tracks on a portable music player, they need to buy them through Amazon.com.

However, this revamped MySpace Music falls short of the comprehensive one-stop online music store DeWolfe described last spring when he announced the service. At that time, he promised that music aficionados could not only listen to and purchase songs but also buy concert tickets or a band’s T-shirt.

Instead, MySpace went for the basics. Users will be able to search for music by artist, song title or album, then place it on a playlist that can hold as many as 100 tracks. The songs can also be added to a shortened playlist on a MySpace profile page, where others can hear it. Other features will be added over time.

The playlist is hardly an innovation. Other online services, such as the start-up Imeem and Last.fm, which is owned by CBS, offer free streaming and ways for friends to share their virtual mix tapes. These smaller rivals say they’re not worried about the competitive threat from MySpace, noting that they had a head start.

“Retrofitting an older legacy online service is like trying to turn the cargo ship toward the more nimble speedboat,” said Steve Jang, chief marketing officer at Imeem.

“There are 120 million unique users every month on MySpace,” DeWolfe said. “It’s the largest music community in the world.” (Well it is debatable whether slapping major label content on MySpace makes it the ‘largest music community in the world’ - but we will see.)

Most of the revenue for MySpace Music, at least early on, will come from advertising. Music industry executives hope that a global audience will lure advertisers eager to reach a youthful, music-loving demographic. (Oh great - McDonalds here we come).

The music industry could use fresh sources of revenue to supplement traditional CD sales, which have fallen precipitously since 2000. CD shipments in the U.S. are down 46% (that’s right) over the last seven years, and digital sales haven’t come close to making up that shortfall, according to the Recording Industry Assn. of America’s statistics.

All four major music labels — Sony BMG, Universal Music, Warner Music and EMI — together own a 40% stake in MySpace Music, so they stand to gain financially if the venture attracts enough advertising. Moreover, the labels hope that by creating a social environment where people can discover music, they’ll be more likely to buy it.

But by aligning itself with the corporate music establishment, MySpace risks losing its “indie” feel, said Dave Kusek, vice president of Berkleemusic.com, the online extension school for the Berklee College of Music in Boston. “It’s a complete 180 on their part, in terms of where they came from and what made them so cool, and really what attracted their initial audience,” Kusek said.”

Read the LA Times article here.

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Here is an excerpt from an email sent by the indie conglomerate “The Orchard” to their members yesterday, explaining why - once again - the indie artist is excluded from this big media play. Some things never change. Seems to me like the Orchard “got sprayed”.

“The major labels received equity in MySpace Music. Despite our best and ongoing efforts, MySpace Music executives have indicated that independents as a sector will not receive equity. If equity is ever given to independents, The Orchard has assurances that our clients will be included. We will continue to press the issue with MySpace management on behalf of all independents, not just our clients, as we disagree with the decision of MySpace and do not feel it is an enlightened perspective towards the independent sector. And, to the extent we find future success, we reiterate a point we made before, which is: if we ever secure equity for you, it will all go to you;

While we don’t agree with MySpace’s position, we do believe there is bigger opportunity at play and that “equity” can be a red herring when compared to getting fair rates as far as percent of ad sales (which is where we see the real value of this service in the long run). We have secured aggressive commercial terms on your behalf, and we think this is most important;

The revenue potential from MySpace Music, and from this new type of ad-supported business, will take place over the long term. Money won’t start flowing overnight. And, the potential of this service rests in the hands of you: the artists and labels. Like the so-called “Long Tail”, it won’t magically occur, but instead, is simply a possibility. The more you and/or your artists engage with MySpace Music, and get your fans to engage, the more money you’ll make;

We do not believe the service will be cannibalistic to the a la carte download market but see it as an entirely new and complementary form of value creation. In the long term (meaning, more like 5 years, and not 5 months!), we believe it will evolve into a larger industry segment than exists currently in the format-based world.”

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Ok, so here’s the bottom line. MySpace takes a vibrant community of musicians (5 million) and fans (120 million) and sells the whole thing out to the major labels for a 40% cut. No equity available for indie labels or artists. Any be sure of this - the equity owned by the major labels will not find its way to any of their artists. Big media wins again.

Rather than trying to encourage the direct-to-fan model that they once touted as they encouraged indie artists to post their music and develop their friends - MySpace hands it all over to the combine. THIS IS NOT THE FUTURE OF MUSIC.