Future Of Music

“In a digital world there’s no up-front cost to have infinite inventory that replicates itself on demand as a perfect digital copy and it only does that after it’s been authorized to do so, which is usually with a purchase. It has really been a shift from having infrastructure and access to distribution to just having access to distribution.” -Jeff Price

My friend Charlie McEnerney recently interviewed Jeff Price of Tunecore. Here is an excerpt. Listen to the complete interview here.

“As anyone who buys music knows, the way we are finding it and buying it has changed radically over the last 15 years.

For musicians, it used to be that if you wanted someone to release your music, you’d have to get the attention and approval of an artist and repertoire (or A&R person) at a label, work to sign a deal either big or small so that the label would then press up your product and work with distributors to get your vinyl or 8-track or cassette or CD to ship them out to record stores where the music fan could have access to them.

Now, all you have to do it is get some audio files online and instantly be able to have your music available to the current online global audience of 1.5 billion people, which is still just about 23% of the world’s population, so the potential for reaching new audiences continues to grow. As mobile devices get smarter, it’s inevitable that consumers will be downloading more music and playing it without a desktop or laptop computer even being involved, too.

As a result of the rise of digital download stores such as iTunes and Amazon mp3, the need has come for new companies to aggregate songs and distribute them out to all these growing online stores.

That’s where TuneCore comes in.

After SpinArt, Price went on to work with eMusic.com, first as a consultant, then as interim VP of Content Acquisition, and finally as the Senior Director of Music/Business Development. He contributed towards the creation of eMusic’s initial business model and created and implemented the first subscription-based music sales and distribution structure.

In 2005 Price started TuneCore, which is an aggregator which helps get digital music into online stores such as iTunes, Amazon mp3, eMusic, Rhapsody, Napster, Amie Street, Groupie Tunes, ShockHound.com, and lala.

TuneCore has also been in the news in recent months as some very mainstream acts have used the service to get their music direct to consumers, including Nine Inch Nails and Paul Westerberg. Just a few weeks back, it was announced that Aretha Franklin would be using TuneCore to distribute her version of My Country Tis Thee that she performed at the Obama inauguration.

TuneCore’s competitors are services such as IODA, The Orchard, and CD Baby and I discuss with Price about what makes TuneCore different from these services.

This episode includes music from a variety of independent music that has been submitted to be for Well-Rounded Radio.

Listen to the interview here along with some great new music.

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.

Want to know what’s up with new music startups? Read on. Great coverage by Paul Bonanos from The Deal. So good to see mainstream financial coverage of our music industry.

Striking a chord

A decade after Napster, a new crop of Internet startups is challenging the music industry’s dominant companies. Their instruments of choice: social networking, discovery, ad-supported streaming, marketing and other tools that change how business is done.

Source: Tech Confidential

U.K.-based We7 Ltd., which has drawn funding from British musician Peter Gabriel, along with VC firms Eden Ventures and Spark Ventures plc, both of London, offers free songs that contain short advertisements that vanish after a few weeks. We7 recently added songs from a third major label, while SpiralFrog signed up only two of the four majors, meaning that finding free songs can still be something of a wild
goose chase.

Nashville’s NoiseTrade, a bootstrapped startup, provides a way for artists to give away music in exchange for the e-mail addresses of prospective new fans, while angel investor-backed TrueAnthem Corp. of San Francisco connects brand advertisers with musicians, who introduce tunes with short, personalized ads.

Consumers less inclined to possess a virtual copy of a song also have more options. That includes subscribing to libraries of music content and Web sites that allow streaming songs on demand and limited downloading. Publicly traded RealNetworks Inc. of Seattle has emerged as a clear leader among such products with its Rhapsody service, while the existing Napster, which purchased its trademark from the original bankrupt startup, has lost subscribers and remains far from profitable. Both companies offer several tiered plans, ranging from roughly $10 to $15 per month, that provide access to millions of songs from all four major labels, as well as “tethered downloads,” or DRM-restricted files that expire once a customer cancels his subscription.

The market for free music “streamed” on a Web site is more complex, with some startups relying on subscription services to supply songs through their own user interfaces. Most streaming services are married to some other Web utility, whether a social networking site, music discovery service or
paid-download store.

With investment from VC firms Sequoia Capital and Morgenthaler Ventures, both of Menlo Park, Calif., as well as from Universal Music and Warner, social music site Imeem Inc. of San Francisco has built the fastest-growing free streaming service. All four major labels now supply music to Imeem, which lets users play songs on demand.

Imeem’s growth highlights the pressure on “old music” companies, like other old media firms, to change with the times. And the legal battles between upstart music firms and incumbents have been no less intense than the fights in other quadrants of the media industry, such as the ongoing court dispute between Google Inc. and Viacom Inc. over the search giant’s use of protected video on YouTube. Warner sued Imeem in 2007 over alleged copyright infringement, only to later buy a stake in the startup after settling the case.

“Sometimes a lawsuit is foreplay to a licensing deal,” says Norwest Venture Partners principal Tim Chang of startups’ path to legitimacy in the age of free music. “They infringe so that users get what they want and advertisers pay attention, scale so that you have some leverage against labels, get sued and then settle.”

The digital-music business is entering a phase common to many emerging high-tech sectors. The land rush of startups that follows any significant technological shift, such as file sharing, is already starting to thin out as winners stake their claims and losers get consolidated, if they’re lucky, or simply disappear.

For example, Last.fm rival Pandora Media Inc. faces a fight for survival despite having attracted prominent venture investors and a slew of good publicity. The Oakland, Calif., startup employs music experts to create a recommendation “engine” for Internet radio. But an upcoming regulatory change that will result in a doubling of streaming royalty rates for Web radio companies could spell the company’s doom unless it elects to charge users a subscription fee or finds a way to add advertising that its audience will accept.

Like Pandora and Last.fm, music discovery site iLike Inc. of Seattle has become popular, if not consistently profitable. One key to its success in attracting users has been its availability over Facebook Inc. of Palo Alto, Calif., through which more than half of its 30 million users connect to the service. Through a partnership with Rhapsody, iLike allows users to stream as many as 25 songs per month and download selected others for free while examining their friends’ tastes and recommendations. The startup has raised $15.8 million in two rounds of funding from former Time Warner Inc. executive and MTV co-founder Bob Pittman, star venture capitalist Vinod Khosla, and the Ticketmaster unit of IAC/InterActiveCorp of New York.

“There’s a natural propensity for social networking and music to go together,” says MySpace founder Brad Greenspan, who left the social network in 2003. “When you’re surfing people’s profiles and everything starts to look the same, the only way to differentiate among them is their individualization. And if you add an image of an artist on a site, you will bring in people who want to be close to that musician’s energy, whether by blogging, chatting, befriending or following them.”

Drawing on such desires, music-blogging hub MOG Inc. of Berkeley, Calif., wants to tap into fans’ efforts to spread the word about their favorite artists. Universal and Sony BMG joined the Angels’ Forum of Palo Alto in putting $6 million into the startup, which compiles the musings of volunteer bloggers writing on given musicians and bands. MOG, which also offers on-demand music, represents a one-stop version of the musical blogosphere, where songs are commonly shared without compensation for content owners.

Also harnessing the power of the blogosphere are music-focused search engines such as the bootstrapped Hype Machine Inc. of New York and angel-backed Seeqpod Inc. of Emeryville, Calif., which index thousands of music blogs where MP3s often reside for a few weeks so users can sample them.

Another area where Internet startups are encroaching on the record labels’ turf is marketing. Launched this summer, Los Angeles-based Topspin Media Inc. enables artists and fans to communicate directly, offering a sort of customer management technology package for musicians that allows sales of songs, albums and merchandise. Under one subscription option offered through the company, a fan can pay a flat fee for a musician’s entire recorded output over the coming year — income a musician might otherwise have to share with a label. Venture investors are on board, with Topspin having raised funding from Redpoint Ventures of Menlo Park and Foundry Group of Boulder, Colo.

But rampant music piracy continues to dwarf legitimate sales, cutting label revenues by as much as half since the mid-1990s. Meanwhile, work that had long been the province of music companies has been gradually appropriated by newer, fleeter Internet companies or, as with marketing, “disaggregated” out of existence. Other competitors also have emerged. LiveNation Inc. of New York, a publicly traded live music promotion company spun out of Clear Channel Communications Inc. in 2005, has signed top acts, including U2 and Madonna, and has sweetened its deals by letting artists maintain ownership of their material.”

If so, what will the business look like? A dying era of superstar acts may give way to a music scene carved into myriad niches, with proliferating media channels creating room for more voices — the “middle class” of artists, as Rogers puts it. Artists and fans will operate in closer proximity, with more tools in place to help them connect.

How, then, will music derive its commercial value, and where should investors place their bets? The future is likely to include more sponsorship and patronage. Imagine liquor companies, fast-food joints and other advertisers paying the band of the moment for rights to its music before it’s recorded rather than after it hits the charts. Alternatively, rich benefactors — or legions of fans — could support artists in exchange for early access to a new album or even a shout-out in the liner notes. Tie-ins with other media such as video games will also create opportunities: People may not buy the album for $15, but they’ll pay $39.99 for the “Guitar Hero” version.

The old ways, reinvigorated by technology, are made new again.

Read the complete article at The Deal.

Derek is the musician who started CD Baby, the world’s largest online music store for independent musicians. Here are some current stats from the site:

- 242,846 artists sell their music at CD Baby
- 4,574,622 CDs sold online to customers
- $83,590,381 paid directly to the artists

With more than 2 million digitized tracks under management, CD Baby is also the largest provider of independent music for iTunes… and it all started as a hobby. A lot to learn here.

Tim Ferriss is the author of the hugely popular book The Four Hour Workweek.

Here is a recent interview between Derek and Tim. Interesting to see how Derek adopts Tim’s philosophy for CD-Baby. Note that Derek just recently sold CDBaby to Disc Makers and is now a free agent.

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.

Doug Morris on the state of the music industry. The problem, he says, is that “there’s sympathy for the consumer, and the record industry is the Shmoo.”

Oh my God.

Wired writer Seth Mnookin interviews and skewers Universal Music Group Chief Executive Doug Morris in the latest issue, which speaks for itself. You just got to read this interview.

“There’s no one in the record company that’s a technologist,” Morris explains. “That’s a misconception writers make all the time, that the record industry missed this. They didn’t. They just didn’t know what to do. It’s like if you were suddenly asked to operate on your dog to remove his kidney. What would you do?”

Well, for one, maybe - instead of suing the technologists from Napster 1.0 - perhaps you should have considered hiring them. Just a thought…

Unbelievable. No wonder we are in the situation we are in.

Total Music. Hmm… Why do they think they have it figured out now?

For another great history lesson on how the major music labels ignored change and tried to impose their will on the masses, read this. Disturbing and painful. Great work Seth.

Do you think Edgar Allan Poe could have made money if he sold The Raven separately from 30 other poems?

This is a question posed in the U.K. Register article examining the “value gap”, or the amount that sound recording revenue has fallen since 2004. The report suggests that Apple (and others) should take the blame for the woes of the music industry (British) for unbundling the song from the album format.

“The Value Recognition Strategy working group was created last summer - largely at the impetus of the indie labels and collection societies, but backed by all sectors of the industry - to examine alternative revenue opportunities for digital music. The growth of MP3 has seen large hardware manufacturers such as Apple and media companies such as News Corp’s MySpace prosper from music, but returning little or nothing to composers, songwriters, and sound recordings owners.

It’s what economist Will Page, of the MCPS-PRS Alliance, calls a “broken supply chain”. Revenues from telecoms companies and service providers dwarf the revenues from the beleaguered music business.

The conclusion that unbundling is the chief factor is richly ironic. When Apple launched the iTunes Music Store in 2003, it did so with the backing of all four major labels. The labels had failed to see digital music as an opportunity, and launched only small scale and piecemeal commercial offerings. At iTunes, consumers chose one or two songs from a performer’s repetoire for 99 cents a song, rather than pay $9.99 for the CD.”

Since that time Apple has reaped tens of billions in sales of iPods, while the labels have lost tens of billion in sales of CDs. It has almost been a complete one-to-one swap of revenue from the label’s, writer’s and artist’s pockets - into Apple’s. See an analysis I did of this a while back here.

Read the whole Register article here.

It used to cost a lot of money to record and promote new music. Artists struggled like hell to find a patron to support them (i.e. a label). Everything was controlled and only a few artists became stars. That was the major label system. Most artists learned quickly when the recording advance money ran out that they needed other sources of income like performing, songwriting and the sales of merchandise to survive. The new artist model says anybody can make and distribute a recording. It is much less expensive to make a record today and recorded music is only going to become less valuable to everyone over time. The real hard part is promotion. The true nemesis of the artist is obscurity. There is a glut of music out there and the situation is only going to get worse. This is the reality of the future of music, abundance and saturation.

Record companies alone cannot afford to invest in the future of artists. They are like the Detroit auto makers of the mid 1980’s. The business model that drove the music industry for the last 70 years is almost dead. Unfortunately, the economics of today’s popular digital music splits (iTunes) do not make any sense for artists. Why make $0.06 off an iTunes download, when you can make $0.80 doing it yourself? If you don’t own your masters then you have nothing.

Personal connection with a fan base is the hallmark of the masterful entertainer. Truly great artists engage their audience while playing shows by working the room. Today artists can establish meaningful virtual relationships directly with their audience by building an online fan base and answering online posts and comments and taking the time to interact with their fans. The reach of a live show can be magnified with the orbit and power of a networked online community.  To be sure, it is a lot of work to monitor the boards and keep up with the postings, but it is a lot easier than touring 250 nights a year, and the payoff can be massive.

This is just like employing street teams to build buzz and selling CDs out of the back of the tour van, both of which are proven tactics to build audience and create direct relationships between artists and fans. Only now the street teams are virtual and the van is open for business in every city across the globe all the time. The name of the game for bands is to know who your audience is and what they like and where they are coming from. You cater to that and you might just have a chance at a career in the new music economy.

Artists, songwriters and producers of the future need to find ways to break through the noise and stand out without significant recording revenue. That model is no longer going to work. Artists of the future are going to need musician businesses built around them that attract audience without relying on recordings to finance the machine. We have already seen how this is possible today, and it is going to become more commonplace over time.

The recording has lost much of its perceived value and musicians are going to have to struggle with that new reality. Sales of records and CDs will never again be the cash cow the major labels got fat and happy on. But recorded music can play a major part in the promotional strategy of new musician businesses and even make some money.

The future of music distribution is going to be mobile and oriented toward mobile devices. Think Nokia. The culture of payment that exists in the mobile space will support transactional and subscription models for music that will capture people’s attention. It is going to become more about having access to music than actually owning it.

Sales of CDs are falling off a cliff as people find it easier and easier to get music digitally. The value of recorded music is plummeting and not even Apple can make money off of it. About iTunes, Steve Jobs says “Most of the money goes to the music companies, we would like to break even/make a little bit of money but it’s not a money maker.” It has just kept Apple out of court with the labels.

The packaging and sales of recorded music is being ripped apart with full albums and CDs being cannibalized by the new digital single track downloads. New bands are going to have to try new formats for recorded music to extract any real recording related profits in the future.

The broadband Internet, 3G mobile phones and MP3 players have fundamentally shifted the balance of power in the music industry forever, especially for the young. Owning CDs is so last century.

The big money for artists has always come from live performance, sales of merchandise, DVDs, personal appearances, publishing and alternative revenue streams – all promoted and supported by the free and nearly free distribution of recorded music. Live performances and t-shirts cannot be digitized at least at the moment, and the experience of being at a live event is going to have to get more appealing, for many bands to survive in the coming years.

New Artist Model

In reality, this is the way is has been for most artists for the past 50 years. Only now the tide has turned, and the shifting sands of the music business will form around an entirely new promotional model that puts we, the music fans, at the very center of the circle. It’s going to be entertaining to be sure.