Guitarchitecture.org

Yesterday, Daren Burns was kind enough to tweet about an article he read on how control of EMI appears to be going to Citigroup.  The short of it is, even with “massive cost cutting” EMI would still need a cash influx of some 200 million to stay solvent.  If  Citigroup takes control – they would probably try to immediately sell off EMI.  Since  interested investors – like BMG – are primarily interested in publishing, this would lead to further fracturing of EMI.  More layoffs, more downsizing, less artists etc.

Yesterday, I also finished reading Andrew Keen’s, The Cult Of The Amateur- a rather sobering take on the cultural and economic ramifications of web 2.0.  Keen brings up some really good points about the effects of online file sharing and the web on the music industry, but he also got some key issues wrong.  As they’re the same key points that most people seem to miss entirely, I’d like to examine them.

But first we need to go back in time…back in time…back in time…

…Stands for Artist and Repertoire

Back in the day, there were A&R people that worked for major labels.  The A&R actually stood for something –  Artist and Repertoire.  These people were generally people with really good ears – they would pick songs that fit well with label artists to record (sometimes even arranging those songs) – and a lot of passion.  If you were signed to a Major label – your A&R guy was the guy who went to bat for you at the label.  The A&R guy was one who made sure you got the optimum release date, the good tour slots, the label support so that you could develop your act.

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A&R people were in the business of developing artists because developing artists was good business

Bruce Springsteen’s first album bombed when it came out.  But the label believed in him, and they kept investing in him.  Because the idea was that when Bruce Springsteen did finally break –  his fans would want to go back and get other recordings that he did.  And the fans did.  And all of his records ultimately went platinum.

By investing in the artist’s career as much as the artist him or herself, the label was banking on past, present and future returns.  And for the artists who broke through, on the fans that bought the new recordings as well as the back catalog, this was enough money to keep the labels afloat.  This was important because the old music business model was a difficult thing to keep afloat.

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Just in case you don’t know – here’s the old Major Label Business Model

• Sign dozens (if not hundreds) of acts.  Know that the label can’t really support that many acts but signing multiple acts is as much of a possible investment (Living Colour’s break though CD  only got the push when nothing else was ready from larger artists on the roster for a particular cycle.  Their cd had already been relegated to the bargin bin in some markets when it broke on MTV)  as it is an investment that prevents another label from signing an act and making money (i.e. – if my competitor makes money – I must make even more money to be stronger than my competitor).

• Make everything the label needs to pay to the artist recoupable against label costs (real and imagined – Just read Moses Avalon’s book for a detailed analysis of how much artists and labels can get bilked on the recording process).

• Identify which of the recordings of the acts have the most market potential.  Put the biggest push behind those products.

• Drop non money making acts.  Push money making acts even harder in the public eye.  Bankroll tours (also recoupable against artist revenue) and promote the artists more.

• If there are one or two bands with the sales of a U2 on the roster – the profits from sales – will float all of the financial losses from the other acts.

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File sharing isn’t the real reason why the industry is hearing a death rattle

To be sure, file sharing isn’t helping the industry keep the old business model alive – but for most musicians signed to major labels - the old business model really wasn’t worth keeping.

Can you imagine operating a restaurant where you premake a hundred meals a day with the hope that if you can make a thousand dollars off of one of them that it will pay for all the one’s that didn’t sell? It’s the business model in place for betting at a racetrack – but no other business runs this way.  The old record industry was a dinosaur business model that made most artists on labels indentured servants.

The RIAA will tell you that this is not the case.  They will say this is a serious issue and that people’s livelihood’s are at stake…and this is 100% true.  Your record company VP is going to have a hard time justifying his or her salary if the label is tanking.  The RI – stands for recording industry.  When they talk about loss or the dangers of piracy – what they really mean is the impact on the labels (with a trickle down effect on artists).  They don’t give a damn about independent artists.  They want to maintain the status quo and have everything to go back to the way it was.  But before you go crying your eyes out for the labels – here’s a little secret:

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The record industry was offered an opportunity to get into mp3s on the ground floor.

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When mp3 technology was first getting developed, the developing company went to all of the major labels and said something to the effect of, we have this new technology.  We don’t know how it’s going to change things for your industry – but we’d like to meet with you to talk about licensing so we can work out the revenue information now.

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The number of labels willing to meet with the MP3 developers?  Zero.

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They wanted it to go away.

To the labels, it was another thing that was going to kill the industry.  When cassette tapes came out – they said that would ruin the industry because people wouldn’t buy music anymore.  The same with DAT tapes, and blank compact discs.  By the time mp3s came up on the horizon, these dinosaurs really couldn’t wrap their head around what was happening – so they drove their heads in the sand and hoped it would go away.

And in the meantime the labels made a business switch – that allowed them to drive a nail through their own foot into their own coffin.

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The real death of the Music Industry is due (in part) to the Stockholder

In the 80′s and 90′s the economic focus of the labels went away from satisfying the consumer and shifted toward satisfying the stockholders.  Additionally, labels started consolidating.  In doing so, there was a responsibility to the stockholders to make as much money as quickly as possible to increase the quarterly returns.

Internally – this meant cutting costs.  Cutting artists.  Cutting A&R people. Cutting artist’s support.

Externally – this meant that potential hits had to be hits faster.  The new business model was product saturation.  Have the song and the artist everywhere and go for maximum exposure.

The problem with product saturation – is that once a product is over saturated – people go from feeling excited about something, to passive, to aggressively anti-product.

As a thief – it’s the smash and grab ploy.  It works once – but you can never go to the same store again.

As an artist – the consumer won’t give a toss about what you do once they’re sick of you.

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Perceived Value Part 1

The record industry shifted their values.  Where before they saw an artist’s career as an investment now they only see the quick dollar.

If Bruce Springsteen was a new artist, he would have been dropped like a hot cake after his first release and never given the chance to build an audience fan base.

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As an artist there is nothing more important to your long term economic survival than building and maintaining your fan base.

Your fan base starts with those around you.  Your friends and family.  The people who support what you’re doing and are there for you in times good and bad.

After that I’m reminded of a David Lee Roth era Van Halen story.  At one point early in their career the band was frustrated with slugging it out on the club circuit and apparently Roth said something to the effect of, “Hey all we need to need to do is make 10% of the crowd fans by the end of the night – and we’ll be all set.”

Salient advice – and if he didn’t come up with that figure – I’m taking it for myself.  If there are 50 people at a show and (your draw is 20 of those, you only need to make 3 of those 30 people fans.  If you can do that –  the number will increase exponentially over the year (provided  you gig consistently and improve your set).

Your fans will buy a new cd (or download) – just because it’s yours.  They will buy merch because it’s yours.  They will come to shows because it is you playing.

Think I’m overstating it?  Here’s a list of the top grossing tours. Notice anything?  Most of them have careers that are 20 years or older!

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To neglect your fans is to take money out of your pocket and set it on fire. on fire.

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To artists getting the push from a label – they never get to develop a fan base.  They never get to develop fan loyalty.  At BEST – they get dropped from a label continue on and take fans with them for new projects they work on.

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Perceived Value Part 2

The labels operate on the concept that if millions of people are downloading free songs – that they’re loosing millions of dollars.  Itunes had its ten billionth download at the beginnng of this year.  It’s not that people aren’t willing to pay for music – people are downloading songs for free because they don’t perceive that the songs they’re downloading are worth paying for.

I think there are several reasons for this.  First,  music IS everywhere and there is value in scarcity.  People go to a concert because they feel like they’ll really miss something if they don’t go – or because they have a connection to the artist which brings me to point 2.

People have no loyalty to artists if they have no emotional investment in the artist.  If it’s just a fun tune to listen to at they gym –  Next week – it’ll be a different tune.

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Perceived Value Part 3

Another thing Keen has wrong is equating everything not on a label (publishing or recording) as being amateur.  This is not a universal truth.  The A&R guy went from being a skilled professional to a 20 year old who surfs the web for acts with good buzz.  Does Keen honestly expect me to recognize this person as the gatekeeper for artistic merit?

While there are a lot of hacks making music (nothing new there) more and more artists are self-releasing product because it’s economically viable for them to do so.   If I sell a $10 CD through a label – I might make $1 a CD.  If I sell a $10 cd on my own – I make $10 (minus costs).  It’s a better return.

But this does lead into the best point that Keen makes – and one that people are loathe to examine.  Namely:

where is the money?

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The problem is that if artists are willing to work for free – their services will be perceived as having that value.

For all the talk about internet money – most of it isn’t real.  A handful of people do well and most other people make little of any money.

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The new internet business model for bands – for the most part is a Yugo engine in a BMW shell. It looks good on the outside – but you will pay dearly to maintain the beamer parts for a car that doesn’t go anywhere.

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Artists signed to labels never made money from cds by and large anyway – so the “losses” from online streaming are really difficult to measure at the end of the day the revenue streams – remain with live performance (and merch sold at those performances).

You can down load an mp3 and stream a cell phone video – but if you really want to get the feel of it – you’ll have to go in person.  Great live shows give fans an emotional attachment.  And that attachment gets people looking for when you’re playing again.  When the new cd is coming out…etc.

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There’s very little new about the new music business in that it always has been – and continues to be about building a fan base.

The industry asks – why would people pay money for your cd – if they can get it for free?  The answer is, “Because they’re fans.”

Because fans do crazy things like buy copies of cds they already own at shows to give to their friends because they’re just that excited.

And if they’re not fans?

Now you know why the industry is crying.