Future Of Music

In this presentation I take a look at the music business from the perspective of the creative people working in it, the artists, songwriters and producers and how it works for them.  After all that is where music comes from.  I also highlight some case studies of what is working in alternative business models and approaches to commerce and where the areas of innovation are for the years ahead.

Your comments are welcome.

I ran into Jim Griffin this weekend and as usual, he got me thinking about music and it’s future. We talked a little bit about Chorus, the new controversial Warner Music backed company trying to create a music utility service for colleges. I’ll tell you the guy is like a bolt of lightning and his fever can leave you doubting what you know yet somehow I always come away with something new to think about and ponder. I listened to him speak briefly and then found a transcription of a similar speech he gave at Midem last year which I wanted to share with you. The complete speech is here: Jim Griffin Speech and a brief excerpt is below. Enjoy!

“It sort of struck me once, I was reading Marshall McLuhan, and I recommend Marshall McLuhan to everyone here who has not already read some of McLuhan’s work. McLuhan is a terribly influential person in media in the 1960’s, so much so that if you’ve seen the movie Annie Hall you may recall that he appears in that movie with Woody Allen in a line outside of a movie theater, and he’s very well known for having said that the medium is the message. I always wondered what that meant. And now that we live in a time of MP3, I think all of us can acknowledge that McLuhan had it right, that in some ways it’s more about what format something comes in these days than it is even the music itself.

But McLuhan said something else that escaped my notice until say five years ago. He indeed said that you will never understand the media of your time. He said that the media of your time is like the air that you breath. You’re unconscious of it. It’s like the water in which a fish swims. He said that you would only understand your media through the rearview mirror of history. And so it is that it led me back to the library to look through microfiches and so forth from the 1920’s and around that time period, because it was around that time period that electricity started to spread around the world. Before electricity spread around the world, for the most part, it could be said that an artist was in complete control of their art. Especially in the sense that, you know, they controlled it with their feet because if they weren’t in the room you couldn’t see them or hear them. Then in rapid succession over several decades we have the spread of electricity around the world, and loudspeaker systems evolve that make the crowd bigger than you can count. And then very very quickly radio broadcast, and now sounds are traveling many thousands of miles beyond their source. Then television is proven out in 1928. And so now your sound and your image can travel thousands of miles. Now, look, I get how we feel special living in this time that we do of the net. We think, wow, we are beset with change unlike we have ever seen. But I would say that that is absolutely untrue. The 1920’s, the spread of electricity, this was a far more savage time to be an artist. This was a far more difficult time.

Our changes, that we are seeing, are merely a gradation of change by comparison to what happened when electricity spread around the world. And so we have something to rely upon that they did not. We have something to look to, which is: what was their experience; how did they handle this dramatic change. I think that without question the way we handled this dramatic change was with collective licensing. In other words, loudspeaker systems, hotels, restaurants, wherever there are performances of music that are so powerful, we have a collecting society that would like to monetize this, and can and does, monetize the anarchy of music moving through say loudspeakers. And equally true of radio, and television broadcast, and cable, and satellite, and as recently as this past decade, we now monetize webcasting over the net in America in just this same way. And so I don’t think it is a great stretch, or that you have to think too far into the future to realize that it would truly be an anomaly if collective licensing did not extend itself further. It does not require a crystal ball to figure this out.

I think it is just about looking back into history and realizing that the way we have dealt with the loss of control, the loss of actual control, has been with the introduction of actuarial economics. And I know actuarial is a big word, you know, but it’s really simple. It’s just a pool of money and a fair way of splitting it up: a pool of money, a fair way of splitting it up. And that is how we have dealt with the loss of control in the past and I suggest to you it is likely that that will be the way we deal with loss of control now and into the future.”

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.

Great coverage from Rolling Stone.

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

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

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

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

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

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

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

Read more here.

Great coverage from Rolling Stone.

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

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

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

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

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

Advertisement

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

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

Read more here.

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

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

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

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

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

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

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

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

Originally published in Forbes on January 31, 2005.

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

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

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

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

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

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

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