Not A Blog™

It is with ever increasing fascination that I watch the collapse of the traditional music distribution model. How often do you get to see an entire industry fall apart? It only happens once every few decades or so, which makes this time in our technological history so much fun to be living through. I hope it will be an even better day when people read this and wonder what all the fuss was about.

Yes, I’m harping on the sluggish and dim music labels again—mostly because I just keep running into it. I read an article/interview with Doug Morris, CEO of Universal Music. Most CEO’s are relatively adept at BS; they have to be, or they wouldn’t get to be CEO in the first place. But this guy pulls out a few lines so incredibly dense, I’m not sure why he even bothered. Can they sound any more desperate?

He said that the reason music labels were “slow” to catch up was because they didn’t know what to do or where to turn. They didn’t have the people around to evaluate the technology.

(Best quote: “Is it correct that people share their music, fill up these devices with music they haven’t paid for? If you had Coca-Cola coming through the faucet in your kitchen, how much would you be willing to pay for Coca-Cola?” Well I don’t know about coke, but we do have water coming through the faucet—and yet people are still willing to pay for water. Does that count?)

I would like to point out for the record that if there’s new technology on the horizon and you have to make some important business decisions as to how this may or may not make a difference to the shareholders—if all these things are needing to be done, and you happen to be the CEO, taking care of this is your job.

What the hell else does a Chief Executive Officer do? He organizes teams of people and provides them with the tools they need to figure out what to do in situations like this. Then they make recommendations back to the CEO so they can make decisions on the direction the company should head. It’s the CEO’s job to be educated enough to figure this out. In essence, Morris just told everyone that he is an ineffectual CEO in any circumstance but the typical, and thereby unfit for the job that’s been entrusted to him. Ignorance is not an excuse.

But I’m getting off the topic that I wanted to discuss, which is the obsolescence of labels and artists taking matters into their own hands.

Back in the day, labels did one very important function: financing. Any individual band or act was generally too small and poor to 1. create their own physical packaging and music container and 2. market themselves well enough to cover the cost of packaging, etc, not to mention turn a profit. The label would sign hundreds of bands and put up the money to do the marketing and packaging and distribution, pay the band their portion (which is more than the band could have made by itself), use a portion to pay for costs, and keep some as profit. Quite literally, artists looking to make a living with their work had no other choice.

There is only one reason that record labels are having trouble today. It is not piracy. The reason is because the costs of everything that the record labels were needed for has fallen to (almost) zero.

The cost of burning your own CD is so low that I won’t even hazard a guess. Fractions of a penny. Marketing on the internet takes time, but it only needs to cost as much as your internet connection—which you would be using for other things, anyway. You could buy ads on sites, but you can effectively reach people without doing this, too. The largest cost a band would conceivably have (outside of the equipment and possibly studio time, if that’s even necessary any more) is printing up some nice CD labels and covers. Just about any digital print shop can do a beautiful job for a hundred bucks.

“But wait a second,” say the bigwigs. “You don’t seriously believe the internet can support musicians this way, do you?”

I do, and I have the back-o’-the-envelope math to prove it. Or at least sound plausible.

Everyone’s current favorite case-study is Radiohead releasing their album In Rainbows for “free”. (It wasn’t really free, it just cost no money; important difference.) The marketers wouldn’t release the specific numbers, but it was like 1.5 million downloads in a month or so. That’s great. How many people paid for it? Again, no specifics, but I heard estimates of around 20% paid an average of £5 each, or about 1.5 million total. You can fudge the numbers back and forth all day, but the fact remains: t’ain’t no shabby gross.

Except Radiohead is an exception because they already had the music label springboard. They were starting out with a strong fan base, so the project was pretty much a guaranteed success.

There have been failures of this nature, though, too. Douglas Scott Adams released a book for free, God’s Debris, a few years ago, with the same instruction: if you like it, pay for it. He reported that sales were dismal, and it destroyed his belief the “pay what you want” model would ever work. The main criticism with his approach, however, was that the book sucked. (It did. Probably one of the worst books I’ve ever read.) The cases aren’t exactly parallel, but it raises a very important point: if you’re going to succeed on the internet, you have to make some kind of effort to not put out crap. At least do your best. Adams’ book was very clearly not his best.

Seeing these kinds of things happen, I’ve been thinking a lot about what this means for artists in general. The labels are obsolete because bands no longer need their help paying for the service they’ve offered in the past. But there is still one things they’re good at: reach. Labels still have enormous reach and influence. They control almost all music on the radio. (Does anyone even listen to the radio anymore? I haven’t listened to the radio at all in the past two years.) They can get their product into music stores and book stores, and it’s a guaranteed iTunes listing.

Reach is helpful to the artist, but before we can determine whether or not it is worth it to the artist, we need to ask an altogether different question. How much money does the musician need to live their life and make their money? There is no single answer that works for all, but I can tell you this much: not 1.5 million.

The concept of a “super-star” is a byproduct of record labels’ existence in the first place. Labels sign on many more bands then they can realistically popularize. I’ve heard the main reason for this is to “buy out the competition”. If the band owes their next three albums to the label, some other label can’t come along and potentially invest the money to make them a real class act. At that point, the label that signed them couldn’t care less how popular the band is, unless, by a fluke or some fortunate press, they take off.

However, the loss from taking on a lot of small, whiny bands that don’t produce has to be made up somewhere. This is where the label’s marketing machine kicks in. The record labels have never had great finesse in marketing. They use the brute force approach: get some singer on the top 40 playlist of every radio station in the country. It doesn’t matter if they’re in a bona fide top 40 list or not; getting them on the radio puts them there. It’s kind of like a self-fulfilling prophecy.

The labels need huge, mega, superstar acts to fund the rest of the lame bands that don’t go anywhere. This fosters a culture of stardom (which keeps more bands singing on), with the byproduct of seeing individual acts making millions. The reason shows like American Idol are so popular isn’t just schadenfreude; it’s the rags-to-riches factor. Over the course of a nice, tidy television season, the audience gets to see a new star born, but without being exposed to the rather unpleasant machinations of the record industry’s typical inner workings.

Unfortunately, after a few decades of this nonsense it has become the expected norm. Being signed on to a label nets respect, but there’s no guarantee of cash. Many are the stories of one (or none) hit wonders who end up more broke then they started.

Which brings us back to our original question: how much money does an artist need to do their work? Sure, everyone wants millions. But how much do you need?

The answer? Approximately $48,201.00.

That number is the median household income in the US for 2006, according to the US Census Bureau. I don’t make this much in my current job, but after the higher tax rates on the self-employed, and the necessity of paying health insurance, et al, out of one’s own pocket, that amount is just about what I would need to make to maintain my current lifestyle—which is most certainly not lacking in necessities.

I would argue that musicians and artists should be able to expect to live on their income the same way anyone else can, which means making around the same amount that everyone else is. Today, artists tend to fall into two main categories: the super-rich super-stars, and the rest who are too poor to support themselves with their art, and need to take on teaching or customer service jobs on the side. The third smaller category are artists such as myself who have a job somehow tied into art, usually in a marketing capacity. My job and my art don’t overlap for the most part, and I still consider my job as the support for the rest of my work, but it sure beats waiting tables.

More to the point: the internet is smoothing out this disparity. No, the internet will not necessarily support super-stardom. There isn’t even a guarantee for existing stars, who often were artificially inflated in popularity for reasons other than talent. There will always be talented folks everyone loves, and we have seen—and will continue to see—major internet celebrity success stories. But the internet as a distribution medium focuses almost exclusively on talent and almost not at all on marketing (except for the personable factor, i.e. the artist isn’t a jerk to their fans; I would argue that’s a form of marketing). This changes the dynamics of the system.

But the internet will, I believe, create a greater number of independent artists who can live on their art alone. Consider the $50k figure. How many people would need to download my music at a dollar a pop for me to maintain my current lifestyle, quit my job, and make even more music, full time? Well, only fifty thousand. In one sense, this is a lot, but in another sense, it’s not, compared to the size of the internet in general.

How many people in the world are online? Like three billion? And out of this potential audience, I only need to interest 50k people in one song to live for a year?

Heck, independent artists could do better than that. They could price songs at twenty-five cents a pop. Sell them in mini-albums of four (no, five) for a buck—same deal. Any given individual can hugely undercut the record industry and still live a successful life because they don’t have enormous amounts of support staff and dead wood to maintain. What they won’t necessarily have is huge popularity. I think that’s why some mainstream artists are coming out against digital distribution and “free” music: because they’re afraid they won’t be able to maintain their current level of income. Well, they’re right. They won’t.

No one should ever have the expectation of making megabucks off music—or any sort of art, for that matter. The only reason so many people do is because of the artificial market perpetuated by record labels. It’s been happening so long that there is nobody still living who remembers the days of the bard, where they made enough through their music to live like any other worker in any other trade. If you consider what music is and everything that goes into it, even if it’s really good, the amount some people are making off it today is still absurd. And most of it’s not even good.

I’ve thought about this in terms of writing, too. If I charged 25 cents for a blog entry (note: I don’t think I’ll ever do this), that comes to about $43.75 for the year. (Assuming about 175 blog entries, although if I were writing full time, it would be more.) At that rate, I only need 1,250 people to pony up for a year for me to make roughly the same amount (in my pocket) that I make now. This is peanuts to the collective financial power wielded by the internet.

So my argument is thus: When an individual artist develops a small fan base, microtransactions and ultra-low pricing schemes make a lot of sense. What they don’t make is a lot of money. But they don’t need to. The artist should really only need to make as much money as it takes to live a decent life—and small, inconsequential amounts from even just a few thousand people creates sustainable amounts of income when it all goes to a single individual.

This is just the first part of what I wanted to say about the future of music sales. Friday I’m going to look at piracy and what I believe most people are really paying for when they buy music. (Hint: it’s not the music itself.) Hopefully we can figure a few things out and do a better job in the future than the labels have done in the past.

-Ted

[Friday’s follow-up to this article is: The Birth of Millions.]

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