Land of the Emu(sic) Presents: Facing the Music

It has been a long time since I (or anyone) has made an entry into this blog. In this case, it's the result of a conversation I had this morning with a roommate about the future of the recording industry, sparked by an announcement that you may have read in Slapnuts' Epic Drop last week. Under pressure from the recording industry, henceforth referred to as the LOLRIAA, the price of most MP3s is set to increase from 99c to $1.29

As a business student, I first find myself thinking "what the **** are they doing?" as I can't possibly see whatever market research they did (or didn't) do indicating that this would actually be a profitable venture. That they had a sizable number of people paying for something they could have got for free is miracle enough, and with the lawsuit against The Pirate Bay failing they only seem to be heading for disaster. The real problem is that these companies haven't changed their business models to meet society. The record labels want their millions of dollars, even if it costs them millions of dollars to sue for it. But where did they go wrong?

Everywhere. The RIAA is the Palm of the entertainment industry. Remember Palm? They made the handy dandy Palm Pilot, Tungsten, and other Personal Digital Assistants. They were a staple of modern business, until Blackberry came around and offered handheld, wireless e-mail. Palm felt themselves switch from being an industry innovator to a company making second tier smartphone offerings using another company's operating system. Only now with the Palm Pre are they finally offering up something competitive.

The Pirate Bay is the Blackberry and the RIAA is the Palm Pilot, except the The Pirate Bay isn't really even trying to make money. And therein lies the RIAA's fallacy - you can't compete and make money against a competitor who doesn't want money. It's like The Dark Knight, where the protagonists are facing a villain who doesn't care about any of the things a villain is meant to care about. Imagine if Palm was trying to maintain a profitable business by only offering the same products they did back in 1998. We would laugh, so why aren't we laughing at the RIAA?

The record labels of old found their place in two ways:

1) Means to production.

Okay, so you're an unsuccessful artist who wants to make an album. Where do you get the modern day equivalent of $200 000 it would cost you to make a recording that would sound reasonably professional? Enter the label, who has the money and is willing to front it so long as you offer something that they can make money off.

2) Means to distribution.

You have the record, but what do you do with it? How do you get it to the radio stations and play it? How do you get the record into stores so people can buy it? Artists long made their money off live performances, and radio play/album sales were your best promotional tool.

Enter the information age. Means to production? Anyone with a computer and some recording equipment can make an album that sounds as good as it did 30 years ago. Take that record, get it on iTunes, and every single person in the country can have your album in 3 minutes while sitting in their chair. The means to production and distribution are now in the hands of artists and consumers in a way they never have been before. The response of record labels to the introduction of the digital age and increased competitiveness of the market has been to steadily increase marketing expenses, going to great lengths to create the next big artists, rather than to find them.

And thus, the recording industry had lost it's purpose as a value-added business. They brought something to the table that artists couldn't, resulting in a mutually beneficial relationship. With so many artists out there fighting for a way in, they could pick the cream of the crop and inevitably make money. Album sales meant profit for the company, touring revenue provided profit for the artist, an things were great. In short - demand for good music was high, supply was fairly low, and the winnings were to be had in between. The recording industry now creates the product from start to finish - pick the artists, hire the writers, record the album, market the song and book the tour. The artist is a pawn, they no longer have to strive to succeed, and thus the labels bear the entire risk.

If they accept that the fight against media piracy is impossible to win, then they accept that their business model - one built entirely on marketing a product that can be had for free - is finished. They try to enforce the laws, but do they really think that they can fight an entire cultural evolution? The model is finished, but the labels don't have to be.

There is a solution.

At their roots, the labels were a value added business. They have moved away from that, but why can't they come full circle. There is still money in the music industry, but it's up for grabs by hard working artists who can actually produce the product people want to buy, and offer it in the one medium the digital age can't touch - live recordings and merchandise. The amazing thing about the music industry, from the artists perspective, is how lopsided the demand for labour is. How many musicians are there vs. how many make a substantial living? Demand for a music career far exceeds supply, and this is where the money is to be had.

The death of the major-label music industry is, in this writers humble opinion, related less to musical piracy than to competition. The more artists there are, the less room there is for the Rihannas and Britneys of the world. Exposure via the internet lets more artists tour than ever before, and free downloads of music give them more money to spend on concerts and merchandise.

Labels need to move toward a business model that capitalizes on artists' will to succeed and the number of them that exist, by making use of their current expertise and access to channels of marketing and promotion. Rather than labels pick up artists, why don't artists pick up labels? If labels acting as consultants for artists sold their services as agents - offering advice, access to promotional/marketing tools, and a full range of services, they could sell their existing expertise for a set fee, and capitalize on the hundreds of thousands of start-up artists with plenty of talent, but no experience or knowledge about how to capitalize on it.

This low risk business model can be expanded to include extending lines of credit to get artists in the studios. The difference is that this is all billable work, and while the odds of success should play into decision making, lending should be done on the same basis it is for other purchases. Low-risk is the key term, and artists should be supported not based on what they might be able to make, but what they can provide. The synergy created by the labels' ability to offer a full product line is what creates the value. Obviously as an artist grows, the potential for profit grows, but this money comes out of the pocket of the artist and not the company. If a product shows growth, you continue to develop it.

If this were a perfect solution, then I would be a millionaire - so obviously it has faults, but I believe that the future of the music industry lies in selling services to musicians, not product creation. As the RIAA claims massive losses due to declining album sales, many of their artists are touring on the publicity created by label marketing. They need to be the first to initiate change by moving existing contracts towards a new platform... and maybe the industry will prosper.

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