Amoeblog


THE FUTURE OF THE MUSIC BUSINESS?

Posted by Billyjam, October 12, 2007 08:26am | Post a Comment
madonna confessions from a dance floor
The ever-changing music industry is fresh on everyone's minds these days and the other day Amoeba Marc forwarded me a wonderful "Timeline" (the great read is reprinted below) of the key events this year to date in the rapidly changing music biz that is from a cool blog called "The Lefsetz Letter (First in Music Analysis)," which can be found online here. I got the email from Marc on Wednesday this week but the next day news broke of yet another major and noteworthy event that could be added to this Timeline: the news that Madonna had signed a new deal, not with Warner or some other major record label, but with Live Nation (the concert folks) for almost $120 Million. Of course, this makes sense, since, as reported here recently via the Guinness World Records AMOEBLOG, Madonna is one of the top grossing concert performers and since (as we all well know) concerts and merchandizing (not CD sales and not even digital music sales) is where the real $krilla is nowadays -- especially for Madonna, who can gross $200 million for 60 shows.

The Madonna/Live Nation deal is the first of its kind and is certainly one for the music biz history books, since this will be the way of future, although not every artist will be so lucky as to get such a sweet deal as Ms. Ciccone. Here is the breakdown of Madonna's Live Nation deal: she gets $17.5 mill up front, $50 million for three albums, and $50 mill (In cash and stock) to promote her concert tours and merchandise. While some analysts are predicting that Live Nation will need to sell at least 15 million of each album to recoup their investment, they are being short-sighted and (like the record labels) thinking in terms of the traditional music biz model -- and thinking merely of recouping from digital or hard copy forms and not figuring in all the future revenue from the licensing of music to movies, TV advertising and ringtones, etc.

Bottom line is that we are in a rapidly changing music biz environment with the power shifting from the traditional EMI and Warners to new types of companies, from concert promoters to phone companies and T-shirt manufacturers. Take a moment to read both the Lefsetz Timeline and his future predictions below for a neat recap on the changes in 2007 and for what might lie ahead. Thanks!

2007 MUSIC BIZ TIMELINE:

JANUARY
Eric Nicoli fires Alain Levy and David Munns. Desperately trying to save his own job, the biscuit king axes the architects of PolyGram's success. A company that was stolen from under Levy and company
by Universal when the Frenchman spent too much time and money trying to enter the movie business, where any savvy soul knows it's primarily about library and distribution, which PolyGram didn't have.
Although Levy and Munns preached revolution, one would be hard pressed to call their management style evolution. Venerable label Capitol Records is shut down. A fitting end cap to the closure of Tower
Records as the sun set on 2006.

MAY
Apple launches iTunes Plus. Which has no economic impact, since sale by track is not the future. Anyone clamoring for DRM free tracks is stealing them anyway. But what is important here is EMI's
willingness to move. Sensing disaster ahead, Nicoli tries to pull a rabbit from the hat, tries to move
the company forward. Although more drastic measures are necessary, this is a signal moment in the
history of the music business. Suddenly, the labels are playing offense. Sick of being beaten up and
seeing their revenue erode, they're willing to enter the twenty first century, to try something.
Universal gets all the credit, with its bullying of iTunes/Apple/Steve Jobs, but it was Nicoli who took
 action. Not that it was enough to save his job.

JULY
Prince gives away his album with the Daily Mail. Retailers cry foul. Only one problem, no one's on
the retailers' side anymore, nobody cares. It's a big box world, only the heartiest of indies is surviving, and they're a major label afterthought anyway. As for the consumer, he can suddenly find all those wares no stores stock online, whether it be for free via P2P or pay via iTunes. He's not complaining. He's happier than a pig in shit. He can take his now giant collection wherever he wants via iPod. Prince makes more money than he would have retailing his CD. It's great fanfare for his month long stint at the O2 Arena.  The only ones pissed are the old guard. The aforementioned vocal retailers, and the labels...especially Sony, which thought it had a deal for the U.K. with the diminutive superstar. The old guard says music is being devalued, but with more music in the hands of more people for less money and the artist richer and happier, where's the problem?
 
SEPTEMBER 
Rick Rubin is profiled in the New York Times. Those in the know wonder if the Times is relevant
when it comes to the music business, especially since it quotes the now out of the industry David
Geffen. Although desiring to appear forward-thinking, Rubin is mocked for his focus on the label's building, as if it's still the seventies. But Rubin does put the word "subscription" on the lips of every old wave player in the business. As if Napster wasn't failing in front of everybody and Rhapsody's footprint wasn't tiny. But, suddenly, the oldsters are waking up, thinking something's got to change.

Britney Spears is a laughingstock on the MTV Video Music Awards. MTV cites a ratings increase, the show is pummeled all over the Web, which now functions as the public square MTV tells Madison Avenue it is. This is the nail in MTV's coffin, even though the station doesn't realize it. You know you're in shit shape when Justin Timberlake complains that you don't air enough videos, because when he broke through with 'N Sync you already showed very few clips. His complaint is equivalent to drivers bitching about the phasing out of vent windows. They're never coming back and neither are videos on MTV.
 
Amazon launches its music store. Universal believes it's fucking with Apple, but the only relevance of the launch is the hastening of the demise of DRM.
 
OCTOBER 
Radiohead distributes its album direct to fans, at a price they determine, even zero. Suddenly, a tidal
wave erupts. Jamiroquai and Oasis, also out of their deals, are said to be following suit. The Charlatans just give away their album completely. In nine months, music has gone from something you pay for, at CD prices, whether it be for the complete album or tracks at the aliquot price, to free. The major labels are to blame, for sticking to the old model rather than monetizing the new, but it seems too late now. Acts want to do it for themselves. We may not know for months how successful this Radiohead model is. One doubts the band will release sales figures. But, the acts won't go back to the majors unless they get much better deals and transparent accounting. For even if the album is free, they can make a fortune on
touring and merchandise. The album is the loss leader.
 
The Eagles release their album via Wal-Mart. You get the saturation advertising of the majors without a major involved. Whether or not tracks ever become hits on the radio, the band will profit handsomely, since Wal-Mart has made a guaranteed purchase, using the band as a way to get people into their stores to buy more merchandise with higher margins. Suddenly, the major labels don't look like they're in control anymore.

THE FUTURE 
Rapid change. More has happened in the landscape of online music/distribution in the past ten months than in the previous seven years. Tower Records has closed, CD sales have tanked, iPod penetration only increases, the majors can keep their heads in the sand no longer.

The Minnesota courtroom victory is the last hurrah of a failed strategy. Lawsuits might not be abandoned, but they will be back-burnered. The majors have to figure out a way to get people to pay for music. And the only way to do this is to create an attractive value proposition. Don't be surprised if in the next twelve months some form of P2P is icensed. More probable is an expansion of the eMusic model, wherein for a low price you get a  bushel of unprotected MP3s.
 
Who blinks first?

Certainly not Universal. Doug doesn't do anything without a check. Hell, this is the guy who held up Microsoft for a piece of the Zune! If you follow him, you're in trouble.

Warner's Bronfman pleads a digital strategy but insists on higher per track prices and DRM, both anathema to an increase in online revenue/a solution. Will he wake up? Or will he focus on taking Warner private again, with the stock price so low. 

Sony BMG. Sony's a wreck and BMG's purely old school. It's not clear who could put forth change even if it was desired.
 
EMI? The smallest company, with the worst assets, EMI must change, or merge, or die. Merger is going
to be tough, certainly without more major label decline. IMPALA alone will make approval difficult. Nothing inspires change more than imminent death. New ideas will come from EMI, if at all.

But suddenly, all the movement is coming from acts. The acts are all making their money on the road,
which the majors have no control over/interest in. This road revenue allows them the ability to experiment. The acts are leading. Look to them for new ideas. They might not all be right, but after Prince, Radiohead and the Eagles, no one's afraid to take the leap anymore. Just today Trent Reznor went on his own. The acts will give their music away for free in order to generate ticket sales. This leaves the majors out, unless they find a way to monetize music. The old way obviously doesn't work, otherwise all the acts wouldn't be deserting them. We've finally got a game here. Frustration is dissipating, action is beginning. A new landscape will emerge. Probably run by new players. King will be the Web filters, in bed with the acts.  The majors may just end up as licensing houses. Unless they're willing to give up their old model to get into the new world.