Our dynamic industry continues to evolve at a rapid pace, and Rethink Music will give you access to critical thinkers looking to explore problems and find solutions for tomorrow’s music industry.

Presented by Berklee College of Music and MIDEM, in association with Harvard University’s Berkman Center for Internet & Society and Harvard Business School.

Rethink Music will examine the business and rights challenges facing the music industry in the digital era and will formulate solutions to promote the creation and distribution of new music and other creative works. The conference will bring music industry stakeholders together with legal, business and academic experts to discuss business models for the future. Rethink Music will also examine potential changes to existing government policy and legislation in order to help the creation and distribution of musical works.

“Berklee is focused on inspiring the creation of new musical and business ideas,” says Roger Brown, Berklee College of Music President. “Part of that equation needs to be innovative models of commerce and policy that work in the 21st century era of immediately available digital information. How we accomplish these goals will have much to do with the quality of innovation we inspire. Like Berklee, Rethink Music is designed to incubate ideas that lead to breakthroughs for supporting a music industry even more vibrant, astonishing and creative than last century’s.”

“We are particularly excited to help organize the conversation around legal and policy changes to promote the interests of music creators, fans, and other stakeholders” comments Terry Fisher, Faculty Director of the Berkman Center for Internet & Society. “Technological disruption often creates room for new business models, new ways to capture value,” says Felix Oberholzer-Gee, Professor at Harvard Business School. “The conference is an important opportunity to think about ways to harness the new creativity and build novel business models that put it on a sound financial footing.”

As part of Rethink Music, the conference will solicit white papers from educators, students and the public, dealing with the economic systems and business models for music copyright and copyright policy. Berklee College of Music will award $50,000 to the best business model, with the runner-up receiving a $5,000 prize. Simultaneously, the Berkman Center will manage a call for papers seeking policy proposals that recommend changes to existing U.S. law to help those who create and distribute music cope with the challenges facing the industry.

Program
Fostering art in a world of technology
Amanda Palmer
Ben Folds
Damian Kulash, OK Go
New Big Sound
RootMusic
Licensing
Global Registry Database
Microfunding
Access and “in the cloud”
Future of Music case studies
Conversation with Joe Kennedy, Pandora
Conversation with Metric and Matt Drouin
Artists and managers
The next generation record label
The current state of copyright law
Alternative compensation schemes
Live and in your face
The future of copyright law
DIY and ancillary revenue streams
Creating a middle class of artists
U2 Manager – Paul McGuinness
Conversation with Lyor Cohen, Warner Music
Business model competition
Songwriting and Publishing
Technology, data, and music
Concerts and more

Find out more about Rethink Music :

http://www.rethink-music.com

http://www.twitter.com/rethink_music

http://www.facebook.com/pages/Rethink-Music/171541336212505

Making a living as an artist has never been easy — whether in film, music or publishing. But the digital revolution — and to a lesser extent, the global economic crisis of the last two years — is transforming the business of content creation. One of the biggest shifts is in how filmmakers, musicians and writers are compensated. There is an evolving relationship between creator and publisher in which the artist bears a larger percentage of the upfront costs for the production and marketing of his or her work. In this new world, artists’ pay is based to a greater degree on how their product sells in the marketplace, a change that has major implications for the content creators themselves, large firms like Hollywood studios and music labels, and consumers.

“In the past, it used to be the case that content creators got paid the bulk of their salary in advance and whoever made that payment — whether it was the music label, the book publisher or the studio — would take on the risk of marketing and distributing that product,” says Kartik Hosanagar, a Wharton professor of operations and information management. “If [the project] was a success, [the publishers, studios, etc.] kept the upside, and if it was a failure, they bore that failure. Now the upside — or downside — is shared with the content creator.”

This shift is largely driven by the move away from shipping physical products toward increasing digital distribution. In music, the threat of digital piracy has made the business of selling songs more challenging, even as the shift from album sales to digital singles has further undermined traditional revenue streams in the music industry. In film, the decline in home entertainment revenues as consumers switch from DVD purchases to online streaming video has also put pressure on profits. And in book publishing and journalism, the move toward e-readers and online news platforms where revenue models are still in flux has created additional uncertainty. The difficulty in predicting the profitability of these products, Hosanagar notes, means that marketers are trying to shift their cost base. “A lot of firms are asking, ‘How do we move from fixed costs to variable costs?’” he adds. “That makes a lot of sense when you have unpredictable returns.”

In the music industry, the pressures on the business model have been even more intense. Ed Pierson, a Seattle-based attorney who represents musicians, says the 1990s were the heyday of big advances for musicians. According to Pierson, easy credit and a war for talent led labels to pay escalating upfront fees to musicians. But as music sales began declining, in part due to piracy and digital downloads that allowed consumers to buy just the songs they wanted and not the entire album, the flush times came to an end. The result these days, notes Pierson, is that labels are making fewer advances and the upfront money they do dole out is smaller.

Artists have responded by taking greater control of their business. “The risk is shifting away from the label and toward the artist,” says David Kusek, chief executive officer of online music school Berkleemusic.com and a digital music technologist. Some big names, including the Dave Matthews Band or the Eagles, have created their own recording labels. Lesser known artists have been forced to become entrepreneurs of sorts. Kusek points to firms like ReverbNation and Top Spin Media that have sprung up to help artists sell their music on platforms like iTunes, to promote a group or artist, or to help sell merchandise. Those firms, in many cases, will charge a small upfront fee and then get a cut of the sales the act generates. “It is a different gamble now,” adds Wharton’s Whitehouse. “The corporate players may be gambling a bit less and the artists may be gambling a bit more. But those artists can now have more control over their work than they did before.”

Read the whole article here.

Listen to the podcast here.

Your comments are welcome.

Kusek keynote

Finally someone (Eminem’s production company), challenged Universal Music Group in the way that artists and labels split the money generated by iTunes transactions and won an initial ruling in their favor.  Just this past week Universal Music Group’s inevitable appeal was rejected meaning that the industry giant may now have to split its digital music royalties from money earned from ringtone sales and iTunes.

San Francisco’s US 9th Circuit Court of Appeals decided last month that all royalties made by the record label from such sales must be shared in higher proportions with producers. The recent court rejection will result in this case proceeding in a lower level court which will then determine exactly how much Universal owes Eminem and his producers, taking into account both damages and royalties.

This could be a very significant development for the entire recorded music industry.  When Steve Jobs and his team negotiated the original iTunes deal with the major labels, the economics of what iTunes would receive from transactions was roughly 35% of each download, a similar number as a  distributor/retailer of CDs would receive and the remaining 65% would flow to the labels and be split as with a traditional CD sale.

This was a masterful negotiation by Apple, effectively granting itself amnesty from claims of copyright infringement or inducement to infringe copyright on the part of the major labels and publishers in exchange for the promise of digital cash flow, potentially reigniting the recorded music business for the labels.  Even if most of the music contained on iPods was pirated, now the labels would have a new revenue stream and Apple would be safe from litigation.  This move paved the way for Apple to become the dominant company in the music business and one of the most valuable brands on the planet.  A transformational revenue shift was underway whereby Apple would effectively eat the labels lunch.  The ultimate iCon.

But what artists and writers failed to question at the time, was the way the 65% label share would be split.  The labels assumed that these downloads were “sales” of copies of the songs and that artists would receive their royalties based on traditional accounting practices.  In the early days of payments from iTunes, labels often continued to deduct fees from the artists share for “packaging” and “marketing” and “coop” often when there were no actual costs being incurred.  No one questioned whether iTunes downloads were “licenses” versus “sales” which would have tipped the accounting in favor of the artists.  Indeed Steve Jobs himself referred to his deal with the labels as a “license” in his rare and open “Thoughts on Music” letter posted February 6, 2007.

Now fast forward to 2010.  Although not directly listed in the UMG suit, Eminem could benefit from the results, as he could get a much larger share of the payments. The case is being touted as a landmark decision for the music industry as it could determine a precedent that could see 90 per cent of contracts signed before 2000 change for the benefit of the artists and songwriters.  If this ruling holds up and is widely interpreted, it will destroy the traditional record labels.

The ruling will hinge on the standard record deal contract, which predates the digital era and changes that have come with it. New rulings will most likely govern how digital royalties will be accounted for.

In the most recent decision the court has defined record companies’ deals with such firms as Verizon and iTunes as ‘licensing’ contracts as opposed to music sales, meaning the 50/50 split would apply.  This will be devastating for the labels and great for artists.

When I commented on this issue in an earlier post, one of my readers wrote “if Eminem eventually prevails it will be the end of discovering and nurturing new talent by record companies and will throw the music scene into more disarray that P2P ever did.”  While this may be true, I am completely convinced that the old record company model must change, will change, and will eventually be replaced by something more clearly aligned with the times and the new digital reality.  There is no doubt that these times are truly wrenching for the music industry – but music will prevail and the interests will realign into something sustainable.

Read more here and stay tuned to see how this all turns out.

>As physical sales decrease, how should the music industry be monetising its content?

Record companies believe that music is about selling bits of stuff to people in a retail environment. They always looked on the internet as a potentially huge retail environment and it’s actually a service environment. The record companies should be working out what services they can provide.

They should also be talking to ISPs instead of fighting them. The key thing is people are going to want music as part of what they get on their digital connections. The ISPs are going to have to invest more and more to develop better services, and in that context they will have to start charging for content, whether they charge for content directly with a meter or whether they bundle it or use advertising or sponsorship.

Another way to go would be to look at statutory licensing for different types of usage. It would be incredibly bureaucratic but it would be one way. So let people access whatever music they like and pay a set rate. The same with commercial businesses.

>Do record labels still have a role to play in the music industry?

Yes absolutely, particularly for investment and promotion and marketing. And they could become very good at licensing, at helping artists to develop their website. But they have to get away from this idea of control and instead become partners of the artists. Many of the record and film companies are very enamoured with the idea of control because it’s how their model has always worked, with in-house lawyers and copyright advisors. There is huge inertia in the way the industry licenses and administers content. We have to fight this.

>How have the sources of revenue in the music industry changed?

Until the CD came along I think artists overall got a better deal and more control and a better bite of the money. After they invented the CD the record companies increasingly fought back, decreasing artists’ revenue share and increasing their control. That’s just got worse with the advent of the internet because there is less money available. You used to be able to sell 5,000 albums, now that is incredibly hard so the industry has to look at digital options, but a lot of web services don’t pay properly. Google will pay you a share of the revenue you generate for them, but if you don’t make them money you don’t get money.

>Has social media changed the way bands are marketed and content is discovered?

Yes, but it has huge potential to do more. At the moment, because it isn’t licensable, it isn’t doing the job that it ought to be doing. But what it can do is alter the value chain. With less money available in the music business we have to instead look at what we do have. And what we have is lots of data on music fans. Marketing has always traditionally been more expensive than recording but we can cut these costs by using social sites and viral links. And maybe we can cut out advertising costs because acts can just directly email their fans.

>Can music-streaming services support the music industry?

They are good, but they don’t have all the music. I manage Billy Bragg and there are a hundred versions of his tracks online. I can get a recorded version but a lot of the times on these services there are no live versions. And globally there are billions of tracks so the problem remains of how people find a particular piece of music or if they like something how they find similar bands. People aren’t just looking to buy the music, they are looking to buy a service which is personal and recommends music and enables discovery and which saves them time. I’m not sure anyone is really offering this yet.

>Is there a future for physical music?

Yes, but its role in the industry will become less. Probably physical music, like CDs, will become very expensive and luxurious and they will be like hardback coffee table books and people will only buy maybe one or two a year. The music industry’s job is to make as much money as it can from a track or album, and that includes physical sales alongside digital sales, access services and anything else they can come up with.

>What do you think the music industry will look like in 10 years?

Probably very similar. But what we might look on as broadcasting income will hugely increase. Most revenues will come from users paying to access the content. You won’t notice that you are paying for recorded music so much.

I think the artists ought to be much more powerful, whether they will get it together is another matter. There will be record labels, but whether they will be labels that own content or just be agents I don’t know. They might be more like the Performing Rights Society and less like Universal.

Read the whole interview here from Sara Vizard at Strategy Eye

To survive, musicians and their managers need to innovate and break out of the old ways of thinking about the business.  The oft quoted conventional wisdom that artists can survive on touring and merchandise income is simply not going to work for most bands.  Instead, real blockbuster success in the future belongs to those ready to break the rules and create new engaging musical experiences, and unique products and services that cannot be duplicated.

Music is an inherently social phenomenon and we are already seeing the impact of social media on the way that music is marketed and consumed.  We are connecting fans and artists enabling a broad spectrum of musical search (pandora), concert (songkick) and ticketing innovations and direct to fan engagement (topspin and nimbit).  But most of what has been developed thus far is in support of the way it used to be, instead of the way it needs to be.

Perhaps the next musical breakthrough will come from some sort of interaction between creators and consumers fueling a unique experience that you just have to be there to enjoy.  Nothing to download, just an experience with a limited audience.  A creation of value that appeals to the thumb twiddling electronic generation in ways their parents never even dreamed of.  A way of engaging with artists that true fans will fight to get access to.

How do we get there?  Where is the strategic thinking that will propel the music business forward?  I believe innovation will come from outside the mainstream music companies, the way it has over and over again across so many different industries.  The automobile did not come from the Horse and Buggy makers and refrigeration did not come from the Ice Kings, so why would the next musical innovation come from Warner or Universal Music, or any other indie label for that matter? Just as theatre evolved into motion pictures, then broadcast television, then video tape and dvds to IMAX 3D emersive experiences, so will music continue it’s transformation, propelled by technology and new nimble entrepreneurs.

Musicians of the future need to face the fact that living a life in music is a privilege that they will have to earn through hard work, preparation, innovation and collaboration.   Young artists need to be willing to take risks and push the edges of creative expression by embracing the reality that nothing about music is normal anymore.

The team that may be most compelling for creative artists to form is a strategic business manager, a social marketing manager and a technologist.

We need fresh thinking and risk capital to fund the next wave of musical innovators.   The Challenge for the Music Business is to create value in the place of falling revenue and to energize the new generation of music fans to really support music.  Do you have what it takes to reinvent the business?  What ideas do you have that could light the way into the future?

We will be announcing a competition to award a prize for the best ideas shortly.

Here’s a pretty telling graph – Recorded music sales over time since 1999.   This is the truth.

If you are trying to make money selling recordings, or producing them you are selling into a market that is auguring into the earth.  If you are a pure-play label – either cash out soon and go home before it’s really too late, or start writing a new business plan.  It is time for you to start over.

If you really want to do 360 deals, then get the capacity, personnel and expertise to actually produce results or you are toast.  Todays nimble entrepreneurs and emerging music service environment is going to eat your lunch.  Specialization is in, generalization is out.

If you are a record producer or engineer, create other products to produce.  Broaden your horizons.   What are you going to be a producer of?  What “insanely great” product can you create?

If you think you can survive in the recorded music business, find something else to sell.  Simple as that.  There is no recovery from this decline.  Sure songwriters and publishers can still make money licensing for film, TV and new media (like ring tones), but the engine that has driven the music business for the past 60 years has run out of steam.

Recorded music as a propellant into prosperity is no longer viable.

Accept this fact, move on and adapt.  Use this as a jumping off point.  Reinvent yourself or your business.

This has been my mantra for the past 6 or 7 years.  If this RIAA graph above is not evidence enough, then I don’t know what is.  If you think being signed by a “record label” is your ticket to ride, then nice to have known you.   Enough already.  I can’t believe how many people still want this.  American Idol?

And if you are the RIAA, and think trying to preserve recorded music as a “business” is a sound investment, I would advise you look for another job, and soon.  Gaming Soundscan to count T-Shirts as a way of propping up the numbers and thinking everything is ok is self deception.  Look around you.

This is the truth people.  Recorded music sales are going to end as a viable business driver ’cause it is just not working anymore and is an outmoded concept of what music was all about.  “Digital” tracks are not going to cut it as they have been conceived thus far because it is just the same thing in a different form.  Fixing music in time makes no more sense.  Music is more fluid than ever.  Subscription revenue and streaming licenses are not going to support anyone when they are optional.  We need something new, something bold.

With this as a background I created Music Power Network.  To help people discover the future of music for themselves, and create a plan to take their careers forward.

We have to dig deep here.  This is a time to be honest with ourselves.  What is your music career all about anyway?  How are you going to survive?  What are your goals and your dreams?  How do you define success?  You can’t eat passion and you can’t spend perseverance.  What is your business plan?  What is your marketing plan?  We need some new ideas.  What are you going to do?

It is too easy to say that a 360 model is the way to go.  360 for who?  You or the “label”? What do you really need?  Who is actually going to provide the services required?  What does the team look like?  Where is the value, talent and capital going to come from?  Who is going to back your vision?

Think you have it figured out?

I am going to put together a team of people to search for the best new music business plans for musicians, songwriters and producers.  In the coming weeks we will put this competition together and announce it officially at SXSW or sooner.  Details will be forthcoming on how to enter, who the judges are and what the prizes will be.  I promise you it will be worthwhile and interesting.

So start working on your strategy and your business plans.  To be notified when the competition is announced, please click here and enter your email on the bottom of the page.

Please leave comments below on any ideas you have for judges, prizes, people to reach out to, etc.

Dave