Future of the music business

A slide from the keynote addressIan Rogers, CEO of Topspin and former head of Yahoo Music, gave the keynote address recently at the GRAMMY Northwest MusicTech Summit 2008. In his speech, Rogers explains the current state of the music business as he see it.

He explains that the sale of physical product, CDs, continues to decrease, and while digital sales are increasing, they aren’t making up the difference. Further, as the market becomes more single driven than album driven, the value of a unit of music is further decreased.

His response to this situation?

I don’t care.

He’s not just cold hearted toward the business. His reason is that continuing to think about the music business in these terms isn’t helping. He equates it to talking about the death of the cassette tape during the era of the CD.

The difference is that when we moved from cassette to CD the winners were the same (big companies who owned access to cash, distribution, and marketing) and the definition of winning was the same (more units sold for these big companies).

The game has changed though, not just from one physical format to another, but the physics of the media itself has changed. He concludes that the definition of winning cannot remain constant in light of this major shift.

He quotes Chuck D from Public Enemy as saying earlier this year,

There is nothing wrong with the music business, there is a problem with the CD business.

He goes on to argue that there has been no decrease in the rate of music consumption, or an unwillingness to pay for music. 2007 saw an increase in the number of “decisions to buy music” over 2006. Sure those decisions were mostly for single tracks rather than bundled albums, resulting in less music being sold in total, but he doesn’t address that. What he does address is the perspective that should be taken when evaluating the industry.

I’d like to challenge you to consider a different perspective, IMHO the only perspectives that matter, that of the artist and the fan. I see news about the health of the music industry as defined by the stock price of WMG or quarterly earnings of UMG, Sony, and EMI every day. What I don’t see, apart from a few articles on Radiohead and Nine Inch Nails, is an update on how the world is changing from the artist point of view. [emphasis his]

His point is that the new landscape, with the internet making digital delivery so easy, favors the artists and fans. He posits that we should begin to think less in terms of volume of music sold, and the effect of declines in sales on labels, and start to think more about the idea of “marginal profitability for artists and value to fans.”

The idea being that increased profit margin from direct sale releases can increase an artist’s income even if they sell less than they might have 5 years ago via physical distribution. Digital delivery certainly lowers per-unit cost considerably and makes delivery easy. The artist/label can make the connection directly to the fan without a distributer, and a retailer in between. And the percentage of revenue kept by the artist will be much higher.

By offering various price points for different bundles of music + other content/goods, the business can move away from a one-size-fits-all model of product delivery, toward multiple “target-marketed” approaches. For example, you might offer free downloads of a few tracks, $5 download of more tracks + PDF “liner notes,” $10 download + CD, $30 (or more) for some sort of deluxe/limited-edition-you’re-a-real-fan package.

He tells the story of a relatively unknown artist who has done this and enjoyed great success. And he thinks it can happen again for many others.

…there is an entire middle class of artists for whom the system hasn’t worked in the past who will be empowered by this new model…we don’t think they’ll ever end up playing the Staples Center, and we don’t care. We are more interested with seeing marginal profitability for more artists and satisfaction for more music fans increase.

He continues and discusses the idea of artists structuring their own “360 deals,” the steps the lables need to take to become valuable partners with artists, and value of greater consumer choice for the fans.

I think he has some good ideas that the bluegrass industry would be wise to learn from. Stop worrying about getting bluegrass music in Wal-mart, and start thinking of new ways we can connect directly to fans, new and old. It’s more work, but the payoff is there.

Iif you care about your future in the business, I suggest you take the time to read Roger’s keynote.