The Inevitable Rise and Liberation of Music 2.0 [Abridged]

[Updated February 17, 2008. Comments #1-3 are in response to the original full-length post, which can be found here.]

I’ve been marinating on this post for a few weeks now, but haven’t gotten around to it because of some other events I’ll blog about soon. However after only being reminded that the Grammys were tonight by the fact that two people I know were looking to give away their tickets, I felt this was an appropriate night to dig in and get ‘er done.

<snip>

That the music industry is currently undergoing a profound transformative change is not news by any means. And, the retrospective analysis of the whys and the hows of this change is well-trod territory at this point. But, I don’t feel there is much clarity, let alone consensus, around what the future of the music business will look like, which I believe is a much more interesting conversation. My personal view is that it will look a lot like Saul Williams, in honor of whom this post is titled.

Saul Williams, Photo by: nsdesigns via Flickr Saul’s latest album, The Inevitable Rise and Liberation of Niggy Tardust, was produced by Trent Reznor of Nine Inch Nails and quietly released in October in a manner very similar to Radiohead’s In Rainbows — with consumers being able to choose between downloading an inferior version for free or paying to download a higher quality version (both DRM-free). Not many people noticed until a few weeks ago when Reznor, unlike Radiohead, posted the sales figures on the NIN blog (which for some unfathomable reason doesn’t have publicly visible archives — but, you can read the original text here) and said he found them “disheartening.” His subsequent interview on the subject with CNET provides a view into the mind of someone who looks at the Internet and digital distribution as basically new tools to propagate the legacy record industry business model.

If that had been all, I would have just chocked it up to music business as usual. But, then Saul jumped into the mix and pretty much blew my mind. In his own interview with CNET in response to Trent’s, Saul basically defined the archetype of my vision of the musical artist of the future, and in so doing illustrated where IMHO the music industry is headed. In contrast to Trent, Saul characterized himself as “extremely optimistic” based on the results of the online promotion. This polar opposite reaction is illustrative of a fundamental difference between the two artists that is best summed up in Saul’s own words:

I think Trent’s disappointment probably stems from being in the music business for over 20 years and remembering a time that was very different, when sales reflected something different, when there was no such thing as downloads. Trent is from another school. Even acts that prospered in the ’90s, you look at people like the Fugees or Lauren Hill selling 18 million copies. That sort of thing is unheard of today. But Trent comes from that world. So I think his disappointed stems from being heavily invested in the past. For modern times, for modern numbers we’re looking great, especially for being just two months into a project.

Williams goes on to talk about the importance to his livelihood of what the record industry has historically characterized as secondary revenue streams, like concert ticket and merchandise sales. The record industry has generally viewed these revenue streams mostly as promotion for their recorded music/packaged good business, in no small part because the artists and their management keep the bulk of the touring revenues and the labels keep the bulk of the record sales. However, touring has now become such a profit center for artists that Madonna now has an event company as a label. And just like how in the late 80’s and early 90’s artists started making songs with the music video in mind to take advantage of the emerging promotional power of MTV, you now have “ringtone rappers” overtly writing music to maximize the extremely profitable mobile revenue stream. By locking out emerging artists and ripping off established ones, the record industry has forced them to make money from sources other than recorded music, thus sowing the seeds of its own destruction. As a result, the new breed of artists now sees recorded music not as a primary revenue stream but as promotion for other revenue streams that go (more) directly into their own pockets.

At the end of the same interview with CNET, Williams also talks about how, even with Reznor’s backing, they couldn’t find a label that could wrap its head around what Williams was trying to do. It basically boiled down to the fact that none of the labels’ marketing departments had a promotional formula set-up for a black alternative artist. While defying the ability to be pigeonholed into a particular genre is to be admired artistically, it’s apparently not so desirable in the record industry. Because it’s a packaged goods business with high fixed costs (advances, studio time, sample clearances, mastering), relatively low variable costs (pressing and shipping CDs), and extremely high opportunity costs (promotion and shelf-space could be going to that Rihanna record that’s a lot more likely to sell), the model only works if you can aggregate a substantial audience around any given product. The marketing formulae the labels use are designed to predict and maximize the probability of aggregating the largest possible audience. And black alternative acts just don’t cross that bar.

But, the cost structure of digital distribution (mostly the even lower variable costs and the diminimus opportunity costs) lower that bar considerably. 154,449 people downloaded Niggy Tardust (of those, only 28,322 paid) in the first 3 months with no paid promotion, that’s almost 5x what Williams’ self-titled first album has done in nearly 4 years since its release. So it’s not the fact that no audience exists for a black alternative artist, it’s the fact that audience isn’t big enough to make money from CD sales. But it’s apparently plenty big for Williams to make a living from touring, merchandise, and other revenue streams. Last weekend I was over at Ian‘s and we were talking about the Yeasayer album, which I only recently discovered but Ian told me was a blog favorite of 2007. We agreed it was an album that probably wouldn’t have even been made 10 years ago (or if it was, would have resulted in the sacking of whatever young A&R exec snuck it through). But through the magic of the interwebs, these guys are now going on tour and selling out shows in LA and SF.

As we all know, the Internet has the power to unite people around a common interest, creating substantial audiences where little to none was thought to exist before. The result of this is that the tens of discrete genre-based marketing formulae Hollywood has relied on to program popular culture through mass media for the last 50 years are being atomized into a spectrum that represents the fluid reality of cultural tastes. For those of you familiar with calculus, it’s like the labels’ marketing departments are trying to do integrals by adding up the area of boxes under the curve and the web has just shown up with a graphing calculator.

Yes, Saul Williams isn’t even a blip on most consumers’ radars today, and artists like Trent Reznor, Ghostface Killah, and Robbie Williams, whose management has publicly objected to EMI’s stated aim of cutting the conspicuous excesses for which the record industry is infamous, are still dominating the charts. But at this point, there are more and more Saul Williamses and fewer and fewer Trent Reznors coming up everyday, and so the shift in the balance of power is only a matter of time. While Doug Morris is frantically trying to figure out how not to be the Shmoo (and Rio Caraeff is frantically trying to keep Doug Morris from sounding like a moron), the artists the labels wrote off as not viable in the legacy system are out there pioneering a new system in which they are. Back in the day, Overture decided to ignore small “tail” publishers because the margins sucked and Google decided to instead find a way to make the margins better, which resulted in AdSense and Google ultimately being able to come after Overture’s core “head” publisher business with margins that were that much higher. Christensen calls it the low-end disruption, and it’s an economic force of nature. Like Ian sez:

Environmental forces are easily ignored. Do so at your (or your company’s) peril.

So, what will the music industry of the future look like? I think it will be many more artists individually making less money on average than today, but collectively making a ton more for 2 reasons:

  1. The diversity of choice that will be available to consumers means more of them will find more things they enjoy more passionately and engage with more deeply resulting in them being willing to spend more money
  2. The decreasing importance of the recorded music revenue stream will spur innovation in exploitation and business models in a way that was impossible with the labels trying to protect their packaged goods cash cow

I firmly believe music will be a profitable business in the future, just not as profitable as it is now (but a hell of a lot more sustainable). If you love making music and you’re good at it and work hard, you’ll be able to make a good living — not an MTV Cribs living, but an upper middle-class living — and your music will touch more people who will identify with it in meaningful ways. If you love making music but don’t want to work as hard or aren’t that great, you’ll still be able to get some recognition and maybe even some money on the side of your day job. And most importantly, if you love listening to music, you’ll have an exponentially wider variety to choose from, a greater chance of finding artists you really like, more opportunities to engage with those artists in myriad new forms, and a real feeling of value from the time, energy, and money you spend. Sounds like a pretty bright future to me.

In case you couldn’t tell, this is an area that really fascinates me and one I will continue to explore on this blog. In the meantime, those interested in following my research in realtime can check out my ‘media 2.0’ del.icio.us stream.

Photo by: nsdesigns via Flickr

3 thoughts on “The Inevitable Rise and Liberation of Music 2.0 [Abridged]”

  1. Well written post Jonathan. Your writing skills far exceed your verbal skills…!

    Generally I agree with your assessment of the “music” industry. I have a couple small thoughts…

    1. I think Rob Lord figured all this out 15 years ago when he started the most pioneering digital music site of all: IUMA. Robertson wasn’t that far behind with MP3.com either… Let’s see some credit where its due. Or were you still in diapers back then and don’t know what I’m talking about? 🙂

    2. Don’t you think the “labels” have (finally) figured this out as well? You mention the Robbie Williams deal but isnt’ that really them actively pursuing the tranformation from packaged media to “music” business? Obviously 10 years too late, but frankly your post makes it seem like it is your vision only. 🙂

    3. Some years ago I read a similar post somewhere (can’t remember) about the film industry which concluded the same way. Something like “would it be so bad if there were no more $100 million blockbuster films?” — very similar to your point about “upper middle class” musicians. Given your background I would love to see a follow-up post with your vision of the movie business.

  2. @Matthew: Thanks for the (back-handed) compliment ;-).

    In reflection, I think I spent a little too much on the why and how of the change (paragraphs 1-4), which I agree is well-trod territory at this point, and lost a bit of focus on the what, which is why I started this post in the first place. I don’t mean to imply by any means that these are particularly new or proprietary ideas (though 15 years ago, I was *12* :-D). The industry has (finally) universally accepted the change agents in their midst. And a lot of people have theories on where it’s all going.

    What inspired me to write all this was the “aha!” moment I had when I read that Saul Williams interview. To me, his tactics and attitude perfectly embodied and crystallized what had been a somewhat nebulous vision in my head of the artist of the future. And I primarily wanted to call attention to what I see as someone actually out there pioneering this new model — someone who can potentially be a template for stopping talking about the next evolution of the music business and actually starting to build it.

    The reason I think the labels, no matter how much they claim to get “it” at this point, will not be able to adapt effectively is epitomized in the expectation gap between Saul Williams and Trent Reznor. As Williams says, success means something very different for this new breed of artist than it did for artists, and thus labels, 10 years ago. If this new brand of success is unappealing to the labels, they will never do what it takes to really pursue it — which is the essence of the low-end disruption.

    Thanks for the incisive feedback. When I’ve had a chance to sleep and come at this again with fresh eyes, I may go back and tighten things up a bit to put a finer point on my key message. As for the filmed entertainment thing, I’m getting there ;-). That ‘media2.0’ del.icio.us stream will contain both music and filmed entertainment stuff. One recent event of which I took note was Jeff Zucker’s statements on how NBC plans to cut costs, which doesn’t sound too far off from the ‘controversial’ moves EMI has embarked on under Guy Hands.

  3. Indeed — I had only read Reznor’s interview on CNET and didn’t catch what appears to be an honest Saul Williams talking about how pleased he is with the sales results. Perhaps these artist of the future has existed for a long time and the Internet is going to let them quite their day jobs.

    Your “artist of the future” description actually brought something to mind..

    Here in Japan and Asia in general the “Music” industry is vastly different than in the west.

    Your “upper middle class” description is actually rather fitting because in many cases artists are signed to a label here and collect a straightforward salary. Rather than having winners and losers, everyone wins a little bit regardless of album sales (a vast simplification, but you get the idea). Additionally, the idea of taking on more than just packaged media is old-hat here and labels such as Sony Music Entertainment Japan (disclosure: I work for Sony Corp. and previously worked on a project with SMEJ) often take on the roll of agent/manager/promoter to offer an end to end solution for their musicians.

    There are lots of other differences (piracy via CD rental shops which are illegal in the US, digital sales via Mobile phone besting PC sales) but we can save those for another time..

    That’s not to say Japan represents all of Asia — take China — a market where 99% piracy is a given — the “music industry” looks MUCH different and perhaps is a signal to the rest of the world.

    Here’s a great write-up on the Chinese music market I highly suggest reading: http://www.theregister.co.uk/2007/11/01/music_in_china_feature/print.html

    And also somewhat related — as an example of how industry works together differently here in Japan — my group here at Sony announced today that we’ve obtained rights from JASRAC (RIAA equiv. in JP) for users to upload videos to our service (eyeVio.jp) with JASRAC music reproduced in the video (such as karaoke singing by the subject in the video, etc.).

    http://headlines.yahoo.co.jp/hl?a=20080212-00000014-inet-inet

Leave a Reply