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Warner Music waits for Godot

You really can’t stress this point enough: We’re a decade past Napster, but the music industry still runs on CD sales. In Warner’s case, digital now accounts for 25 percent of overall revenue.

via Warner Music Renews Spotify’s European Deal, Waits for Google | Peter Kafka | MediaMemo | AllThingsD.

What’s even more amazing is that after ten years not a single industry participant has found a new job for which its product can be hired by consumers.

The music companies wait for Apple, Google, Spotify to  ”invent” some new consumption model from which they can extract a rent.

  • dchu220

    What 'job' do record companies do for artists that they can't do themselves?

  • gdig

    Can the OP explain what you mean by this "What’s even more amazing is that after ten years not a single industry participant has found a new job for which its product can be hired by consumers"?

    • asymco

      I'm using the concept of music as a product that is hired to do a job. Recorded music is hired for many jobs but somehow they don't pay well or at all. The market participants (i.e. value chain) around music have to think of what unmet jobs exist that music could fill and build the music into a product that can be hired to do that job.

      For example, music could be used to make youtube videos more compelling. Anyone who has done video editing knows that the audio is a very critical part of the experience. Yet instead of figuring out how to repurpose music to make YouTube user generated content compelling, the industry is hard at work trying to prevent that same thing.

      The "job to be done" for music could change from "make me feel good" to "make my stuff look good". That subtle shift in job description could have huge implications but experimentation is being effectively constrained.

  • famousringo

    I don't have any hard data on it, but I suspect that the rising tide of digital distribution is leveling the playing field between indie labels and the big publishers, with many artists choosing to go it alone. Just look at this infographic:
    http://www.informationisbeautiful.net/2010/how-mu

    For a renowned artist with lots of leverage over the label, a digital album sale earns him almost as much money as a retail sale. But the label collects five times as much revenue on a digital sale! An independent artist could put that album up on iTunes himself and earn more than six times as much revenue per sale! His costs and risk would also go up, but his creative freedom would also remain completely intact.

    It gets worse for an unestablished musician considering signing up with a label. It takes 20 retail record sales with a label to balance out a single digital record sale sold independently through iTunes. Scale is a wonderful thing, but if somebody offered me a 95% pay cut per album, well, I'd find that a pretty hard pill to swallow.

  • MattF

    The music companies have a tried and true business model, and they are sticking to it. Specifically, they are all parasites, they have always been parasites, and they will always be parasites– if you doubt this, just ask any musician.

  • FalKirk

    Wow, so far, I vehemently disagree with the comments made. I'm no fan of the current strategies being used by the record companies but I do think that record companies have had and may still have a huge role to play in the distribution of music. These cynical cracks aimed at the record companies are beneath the level of discussion usually displayed on this blog. Let's try to see things as they are and as they could be rather than to childishly dismiss the record companies as useless, or worse, parasites.

  • Steko

    I would say ringtones counted as a new job.

  • Alexkhan2000

    I work in the music industry (more on what we in this industry refer to as the "hardware" side that provides musical instruments and music-producing equipment and not the "software" side that can be viewed as the recording and music distribution side) and am a long-time casual musician myself, so I think I can offer an insight as I'm fortunate to work with some world-class artists and musicians in my role as a marketing and artist relations director at the company I work for.

    It's easy to vilify the record industry but what has transpired over the past 10~15 years has not only decimated the record companies (as well as the brick-and-mortar retail outlets) but the musicians themselves. The music industry is a very peculiar one that someone can't quite grasp unless he/she has worked in it for a certain amount of time. Music is a very abstract medium and cannot be compared to the movie/TV industry or other creative mediums such as publishing or photography.

    The record companies weren't any greedier than companies in any other industry. They were simply pricing their products like anyone else would do: pricing it at what the market can bear. Yes, it can be argued that the artists and musicians got the short end of the stick but I can vouch that most musicians aren't in the business for the money. They're in it for the love of their art and craft and because it's the only thing they know how to do. When it comes to the business end of things, I can say that it's something they are not very good at.

    Now with rampant file sharing or even casual copying and distribution of mp3 files ripped from CD's to friends and relatives, the meager share that musicians were getting before has fallen down to virtually zilch. Typical "pro" musicians can now only hope to make money to put food on the table by selling merchandise like T-shirts or home-pressed CD's at live shows which are also increasingly difficult for them to book.

    I read somewhere that the US record industry's revenue was around $14 billion in 2000. Now it's at around $6 billion. The music "hardware" business has also been shrinking and has been hit severely by the recession, free-falling from $8 billion in wholesale revenue in 2008 to $5.9 billion in 2009. Yes, in the big scheme of things, it's like a little cottage industry. But music does matter a lot to many people. The entire music industry is just an unfortunate victim of the digital age where people now feel entitled to get music for free.

    I'm not sure what the solutions are but it's a very ailing industry that Apple is propping up with iTunes. What would have become of this industry without Apple, iPod and iTunes and the semblance of order they brought? I shudder to think. The record companies got blindsided by the digital revolution and they are certainly responsible for this critical short-sidedness. They don't have my sympathy in that regard, but I do feel for the vast throng of both aspiring and established musicians who are now in a much worse shape than they've ever been in.

    And what could Google, Amazon, and Spotify possibly offer that replenishes the source of the music, the musicians themselves? Yes, the musicians are mere "slaves" for the record companies but that's just how the reality of the industry plays out. And better the musician in esoteric genres such as jazz/fusion, modern classical, experimental, progressive rock, house-electronica, and dozens of others in a chaotically fragmented market, the smaller the opportunities become to barely survive doing what they do best…

    "The music business is a cruel and shallow money trench, a long plastic hallway where thieves and pimps run free, and good men die like dogs. There's also a negative side."

    Quote by Hunter Thompson

    • Iosweekly

      On the contrary, I think from an artists perspective the opportunities in the new digital area are much greater than before.

      I find it much easier to find, support and converse with a wide variety of Indy artists, and find it much easier to join a community of likeminded fans thanks to the wonders of YouTube, social networks and DIY websites.

      Nothing I mention is in anyway a good model for big record publishers, but let's face it, 99.99% of musicians will never be represented by those parasites (it's what they are by definition, they depend on other people to make content for them to leech and claim copyright over), and for all those struggling Indy artists the news is good because they have easy access to a global audience, where the only limitation is your talent rather than being luckily enough to be one of the few who are 'chosen' by record companies.

      The same thing is also now happening In the film industry. And the book industry. And the software industry. In all these industries, the giant publishes face big losses, and content producers face giant opportunities.

      It's a wonderful moment to experience.

    • asymco

      The growth in DJ and mixing and editing tools implies to me that musicians and the industry are missing something…

      e.g.: http://www.macrumors.com/2010/11/17/upcoming-djay

  • yet another steve

    Being at war with your customers is never a winning strategy.

    Here's something I've not seen anyone comment about in apple's financials: "music related" revenue is relatively flat. But doesn't that include both iTunes sales AND the app store? Have digital revenues peaked?

    Apple is the #1 distributor of music in the US and yet the attitude of the music industry has been to fight them. And raise prices in a recession with a product that has 100% gross margins. Meanwhile Apple has an army of software developers who view every sale as a good thing, not a lost CD sale.

    One problem is that digital music is too expensive: the album is dead because you're pricing every song as if it were a hit. Imagine if the album cost the price of one song more than the two songs you wanted to buy. No one that was buying music in the first place wouldn't buy the whole album. This is the kind of obvious stuff businesses do when they're trying to maximize revenues instead of being at war with their customers: A customer is here to buy a song… how do I upsell them to an extra value meal?

    Rather than maximize the digital opportunity, I think the music industry may have blown it… as the iPod platform morphs into a gam machine with music on the side not creating nearly enough value for anyone under 40 to purchase at retail. Is any single song really worth more than the best-selling game?

  • Jackifus

    As a software developer who wants very much to license music for use in my products, I am astounded at how difficult this is. ( impossible without a lawyer ). Which has spawned a royalty-free music business to fill the gap. Unfortunately, such gap-filling is not of the same or even similar quality.

    Music is remarkably difficult to purchase.

    • Alexkhan2000

      "Music is remarkably difficult to purchase."

      And remarkably difficult for musicians to make money off of… Seems the lawyers are the ones laughing to the bank in this industry as well…

      • Yowsers

        Not quite. Labels and to a much lesser extent artists both employ professional talent to handle certain aspects of their business for them.

        I think of professional talent as efficiency experts in their field, in effect. Agents know how to shop their clients who have earnings power to labels that can pay, and do so for more $$$. Accountants know how to count, track and handle the money. Biz managers know how to chase down bookings and deals. Lawyers negotiate and craft better deals. (over simplifying this a bit)

        The labels tend to be able to hire more professional talent than the artists can, but much of this is dependent on size and resources for both labels and artists. It’s something of an arms race between the two.

        That professional talent expects to be paid. They will make a living wage, and certain segments expect to make 6 and 7 figures doing it.

        But if that business or industry cab no longer support them, they’ll go elsewhere and make their 6 or 7 figures.

        You’re seeing that play out. Look at the layoffs from the major labels over the last 10 years — the body counts are impressive. A fair portion of that is made of professional talent going elsewhere…including many lawyers.

        Look at it as a ‘systems’ function — when professional talent increasingly makes things more efficient, they eventually effiencize (I know, it’s not a word) themselves and many others out of existence. More and more resources goes to fewer and fewer producers, more and more rewards go to those fewer high-producers, while the majority get less and less (that bible quote comes to mind — those that have, more will be given; those that don’t will have what little they have taken away).

        This progression of efficiency has taken the better part of 100 years to play out.

        I would disagree that you can’t compare music to other industries because you see this in film, books, art, music, sports and elsewhere. He’ll, we’re even out-sourcing legal work to India now.

  • Alexkhan2000

    Reflecting more on the sad state of the music industry, an old one-hit wonder popped up in my mind: 'Video Killed The Radio Star' by the Buggles three decades ago. Although that song lamented the dawning of the MTV age, it was quite prophetic in how video would thoroughly trample the recorded music medium. In the big scheme of things, music simply became a "soundtrack" that was no longer able to stand on its own. Soon we had the likes of Michael Jackson, Prince and Madonna dominate the music scene with their visual agenda that effectively overwhelmed the music in the pop culture consciousness. Real musicianship got relegated to the position of supporting what's most important: the visual spectacle.

    Just look at the home audio industry with the surround home theater systems that really aren't ideal for taking in Bach or Simon & Garfunkel songs. Music is now just a soundtrack for films, videos and even our own lives – from working out at the gym, driving down the freeway or in the kitchen as we munch on a snack. As Metallica sang on one of their better tunes from '91, 'Sad But True'…

    • asymco

      What's so sad about this? Music in the 19th century was a live performance and great musicians like Sousa lamented recording technology as the end of communal singing and the death of individuals singing (he was right). Recordings disrupted live. Now digital disrupted recording. Time for something new. It's not sad. The music never died. There is more music now than ever. Personal devices mean music consumption is at an all-time high. What's sad is that musicians don't celebrate that their art is more widely consumed than ever. As a blogger, I'd be thrilled if more people read my stuff.

      • Alexkhan2000

        Perhaps I'm part of the old dwindling school that sat down and just focused on the music and nothing else. Whether it's the type of music I listen to or concerts I attend, the visual aspects mean nothing unless the music itself can stand on its own. My commentary is that music is no longer the center in popular culture as it was in the 60's and the 70's when we eagerly looked forward to a new album by our favorite artists.

        But I understand that times change and people need to adapt – including the musicians. I deal with a lot of world class musicians in the fusion, progressive, jazz type of fields (mostly instrumental and improvisational) so perhaps I'm looking at things from a very minority point of view. Such advanced and esoteric music has a very small audience and that audience is getting smaller by the year. It takes too much work to just understand what they're doing.

        Why is the music industry shrinking so drastically in terms of dollars spent? The number of people getting into it is certainly increasing proportionally to population growth but the money isn't there. I live in LA (still the world's capital of recorded music and the entertainment business) and it's really difficult to find any sort of good live music anywhere. It's virtually non-existent.

        The music industry competes with other "recreational" industries – sports, video games, movies, and even the PC and smartphone industries – because they offer activities that take up the consumers' time. They are all competing for the eyeballs and minds of these people. Kids today don't want to put in the time to practicing the piano, a violin or a guitar. Learning to play music in the early stages is a very tedious and frustrating experience. Kids today do not have the self-discipline and the patience to learn an instrument properly when they could just turn on the X-Box and get instant thrills.

        The people in our industry lament about this all the time. And it's a very small industry. For instance, the global market for electric guitars is about 3 million units annually and that includes the $99 guitars that one may see in Costco and other mass merchandisers. Heck, Nokia sells that many phones in less than 3 days. I've been in this industry for 20+ years and it's just not growing in proportion to the rest of the world's growth – both in population and economic growth.

        That being said, there really is more good music out there than there has ever been, but most of it never gets heard. Any guy can record a CD in his bedroom now and *try* to sell it through the Internet but who'll buy music online of someone who they've never heard of. There are literally hundreds of thousands of artists trying to get heard. How does one filter all this stuff to find a few gems?

        I know musicians who hit it big with certain bands in the 80's and they had mansions and drove Ferraris. Now they live with their parents or in a small apartment teaching to just get by. World-renowned fusion virtuosos have to crash at a friend's home's sofa for months at a time because they just don't have the money. It's a very common thing. Oh, I know some quite successful (financially) musicians and producers as well, but they're quite rare and often not a reflection of true musical talent. In sports, one either performs and wins or doesn't. In music, the most talented have no guarantees that they'll be able to pay the rent doing what they do best.

  • Jackifus

    Yet, music is an integral part of a video experience.

    It’s remarkably hard to casually incorporate music into a creation. So many people are making videos, it’s a new market for the industry.

    But, music licenses are all negotiated per work. So there’s no easy predicting for cost and no easy way to purchase.

    Lost opportunity

  • berult

    Music is conversation, …in boundary less infinity. Like light to your sight, it waves its ways through weighed ether only to be objected by metaphoric and parabolic ears.

    How dare one wish to non-commoditize such a brotherly commodity?