Making Millions with Music in the Digital Economy
Feb 27 '02 (Updated Mar 04 '02)
The Bottom Line The new digital economy offers challenges and opportunities for bands seeking the big-time. Learn to navigate the trends and you may get rich.
I've had a few comments that this review is off-topic.
I respectfully disagree. Advice on how to "start" a band should include a broad spectrum of information.
Otherwise, the only thing we'd read here is: "place an ad on the music store bulletin board, audition people."
Starting a band is also the process of taking the people and getting them to where they "are a band".
To some people, that means performing live.
If that's the definition of "being a band", then the Beatles stopped being a band during the entire time they were making some of their greatest music.
Starting a band means getting it on the road to achieving its goals.
In that case, considering that most bands are driven by profit motive, this would be something worth considering, wouldn't you say? How to make money as a band in the digital economy?
I see the rationale in saying this is off-topic. I'll just ask for folks to open their minds ever so slightly on this one.
The music industry is in a bad state right now.
The music is terrible. But there's a reason behind that which I'll go into in a little bit.
The reason they're really screwed is that their means of earning a living is in serious jeopardy.
They have always made money by controlling the distribution of music. But now, with MP3s and the internet, that isn't the case anymore.
Piracy is the equivalent of a #1 hit with a bullet.
I've never really done it. When I was younger, the only way to pirate was to make your own cassette tapes. They usually sounded terrible. Plus, instead of "owning" an album, you walked around with handwriting on a cassette label. I thought it reeked of trailer trash.
I always felt that by buying an album of a music act, that you were enfranchised as a fan of the music. "Of course I'm a Queen fan, I've bought 7 of their albums." As opposed to: "Of course, I'm a Queen fan, I've stolen more of their music than anybody else's."
This has carried through even to the age of digital reproduction. I bought an MD player because I liked the idea of arranging music I'd already bought. I won't say I haven't pirated some songs from friends or relatives, but in all honestly, I think we're talking 1 or 2 songs. (Yeah, I speed, but I don't drive drunk.)
A friend at work, who I love dearly, is an insane music pirate. He's always saying, "I need to borrow (fill in the blank) so I can burn a copy." So far, I've managed to stiffarm him. Dude, steal your music if you must, but I really don't want any part of it.
I don't know if it's just the place that music holds in my pantheon, or that I view even EASY theft as being wrong, or that there's that old element of sleaze to "owning" music you stole.
I read an article once where indie film was described as the "folk music of the next generation". I tend to disagree.
I think folk music will be the folk music of the next generation. Not the Joan Baez stuff. I'm talking about music that people produce themselves, record inexpensively, and distribute for free across the internet.
How will you make money doing it? Who knows. Maybe you won't. Or maybe you'll just have to get to the point to where you're collecting your circle P copyright royalties from radio airplay, and collecting money from inclusion on film soundtracks.
Or maybe you'll never make money from the recording. Instead, you'll have to make money by performing, live. The recordings may end up as little more than a promotional tool.
But the idea that a record company has a monopoly on the distribution of music is an antiquated one.
Will anybody be able to make money at simply selling records? I'm starting to think that maybe the answer is "no".
Maybe we're destined to have ONLY people who do it for the pure love of it. Maybe the incentive will be removed for many, many people to pursue this as a career. (Which, frankly, isn't all that bad, since it's about one of the worst careers you could ever pursue. Seriously, you stand a good shot at turning 40 with $0 saved for retirement, and having gone through rehab at least once. Not to mention the toll the lifestyle takes on your family.)
Maybe the best anybody will ever do is have somebody recognize them in a mall and walk up and say, "thanks for making some great music"… not because some teenybopper driven music machine told them to like the music, but because they actually liked the music.
There's a lot that's to dislike about the way things are going, but there's a lot to like, too.
It's approaching pure democracy: everybody records a song, and everybody gets to pick what they want to listen to.
Similar to web-pages: everybody can make one. There is very little to no cost to do so. Very few are worth looking at. Very few are so good that the producers can make any money at it.
Maybe 20 years from now, the way everybody will find out about music will be an e-mail and a file attachment: "Hey, this is some wierdo from New Jersey. Listen to this stuff, it's actually pretty good."
We'll still have radio, but the payola-like system that dictates what gets played now will be replaced by a system whereby radio stations determine what songs are being traded most often.
(You did know that radio stations get paid to play songs, didn't you? The record companies pay "independent promotion", who in turn pay the radio stations. That's basically how every song in the top 40 gets into the Top 40. The record company buys it into the Top 40. The fans may determine how long it stays, but only the record company gets to decide whether it gets there in the first place.)
The new paradigm really is power to the people.
Will there still be millionaires and pop and rock stars? Sure.
There will always be some Brittany Spears or 'N Sync that is packaged and marketed and is part of a huge para-musical business enterprise.
Even if you're not one of the chosen few, if you have a handful of MP3s that are topping the "most downloaded chart", that means fans.
You can't do 30 dates at 15,000 seaters without making some money. In fact, figure tickets cost, what $50 each these days. Those venues are grossing 3/4 of a million dollars a night that way. Even if the artists only take home $50,000 of that money, you can buy a lot of guitar picks with $1.5 million a year.
Yes, $1.5 million a year. That's over "one million" as in Dr. Evil, baby.
Even bands playing the 2,000 seaters will find that club owners have no problem writing out a check for $5,000 - 10,000. After all, they can charge $10 - 20 at the door and rake in whatever profit they can from selling booze.
Instead of a record company determining who goes on tour by distributing tour support money, a concert promoter or club owner makes that determination based on who's being downloaded. Which means the fans determine who's coming to town.
Yeah, at first the band gets there in a rented van. But it might leave in a Lear Jet. Or maybe a tour bus.
I'm not so Polyanna as to suggest that all the changes will be good. In fact, many will not be good. Although the record companies get a much-deserved bad rap for many of their practices, who else is going to front $250,000 to new bands to record their first album? You'll never see another album like "Bat Out of Hell". Too expensive to record.
In the future, those bands will have to hook up with guerilla studio owners and try to get their albums recorded for $2,000. The quality will necessarily suffer.
Or will it? Sgt Peppers was recorded on a 4 track machine in a studio with tube preamps and all analog equipment. (Which you can still get… it just costs more than digital equipment.)
It can be done. In your hometown is at least one studio owner probably charging about $40 an hour, with enough equipment to equal what the Beatles were recording on. It won't be easy to find the studio, but very few million dollar paydays are easy to find. It just works out that way. It's basic microeconomics.
And on the true upside: real music is personal in nature. We all have a band that we consider OUR band because it's not widely popular. We feel an ownership and kinship with the band. We feel part of it specifically BECAUSE it is not Brittany Spears.
If we saw the drummer in a deli, chances are nobody else would recognize them. We envision that we could walk up to them, buy them a cup of coffee and have a conversation with them about aspects of the band that few people outside the band know.
Good music is personal in nature. And nothing will personalize it more than a direct connection between band and fan.
Would you pirate an album if it cost $16 and you only like one or two songs on it? The answer for many young people these days is a resounding "yes".
What if the album only cost $5.00, and was personally autographed by the band? What if it was one of your favorite bands? I think a lot of folks would say "no". They'd fork out the $5.00. They'd purchase their franchise. They'd WANT the connection to the artist.
Aimee Mann tried this with her last album, and it didn't work all that well from what I can gather. (And she didn't charge $5.00, either.) But that was a first try, and I don't think it failed dismally.
Probably the main reason nobody took part was:
1. She didn't make any MP3s from the album available to download.
2. Nobody KNEW she had a new album.
3. Nobody was even THINKING you could buy real albums this way.
Figure a niche artist like her would be lucky to move 200,000 units. For those kinds of numbers, you can't get a record company executive to pick up the phone.
But distributed directly, it could result in a payday in the 7 figures. That's one million samoleans or more, folks.
It's not like downloading and burning MP3s is a "free" activity. You buy the blank CD. You spend the time to look for good MP3s. You burn the CD. The process takes time.
If you are the artist, it's worth your while to make the product cheap enough that the value of an hour of the person's time working at Starbucks exceeds the cost of stealing the album.
Folks aren't stupid: they'd rather buy a good sounding CD than exchange a comparable amount of their labor to get a bad sounding home-burned MP3 CD.
People WANT to be part of the franchise. They WANT to say that they are U2 Fans, not U2 thieves. But that desire, like any desire in life, has a price.
Basic macroeconomics: if you hold a price artificially high, aggregate demand declines in the "classical range". Or, in street lingo: "You're charging too much. Screw you, I'll just burn the 2 songs I like."
$16 for a CD? They're kidding. They should retail for half that much. Record albums cost $8.00 when I was a kid, and it took PETROLEUM and a hell of a lot of full color artwork and cardboard to make them. These days, the actual cost of producing a CD, with jacket and jewel case, is under a buck. For the studios, it's under 50 cents. The band makes a quarter. The band's business people make a dime. The record company pockets $7, and the retailer pockets the other $8.00.
A lotta links in that chain, and you'll notice that the band's accountant probably makes a lot more than the band because he can represent dozens of bands.
So, the only one not really making money is the band, who are, basically, the only ones adding value in that chain.
If we made cars this way, a Honda Accord would cost $65,000. $10,000 in materials, $2,000 in labor. $25,000 in record-label profit, and the dealer would pocket $28,000.
There's something really wrong with a kid paying $16 for a CD because most of it ONLY serves to oil the machinations of an organization that doesn't care whether it is producing crappy CDs or good ones. They all pay the same. Seriously, your record company doesn't care if it makes good music or bad. They only care which ones they can sell the most of.
That means a target demographic of 14 year olds, which means they're trying to sell the most quickly appealing music to an easily impressionable group of people. That means Brittany Spears, that means the Backstreet Boys, that means New Kids on the Block, that means Sean Cassidy, that means Bobby Sherman. You get the idea.
Anything else is just a niche.
It's not hard to envision a world where the Aimee Mann website sells all her music directly, and has links to the Michael Penn website, where he sells all his music directly, and both sites have links to the Jules Shear website where he sells his music directly (provided that he's still talking to Aimee…)
And fans of similar music keep a finger on the pulse of a handful of artists they like.
It could happen. It will happen. It is happening now. The only question is "to what degree"? Or even more importantly, what is the rate of acceleration of this trend?
All it will take is for Courtney Love to stop griping about the record companies and pony up some venture capital when her current record contract is up. Record the thing yourself, Courtney. Sell it on your web-site. Promote it with free MP3 downloads. Find likeminded other artists and use the strength of your numbers.
Get a bad mo-honkin' booking agent and promote the thing with live performances.
This isn't rocket science. If it were, record companies wouldn't be able to do it. They were never that bright: they just controlled the main means of distribution. But the tide is turning and that may no longer be true in the very near future.
Take the music directly to the audience. Bypass the non-value added segments of the chain: the record companies, the payola radio stations, the record stores.
Keep the prices low, sell the stuff for $5.00 a unit. The way your current recording contract is written, you'll make more money, per unit, anyway.
Again, I don't think it's an approach to utopia. I don't think it will result in a perfect world or even necessarily a better world in the area of recorded music.
This change may or may not be good.
It is guaranteed to be one thing and one thing only: inevitable. And in the new paradigm, some people will get fabulously wealthy.
But it won't be the people who cling to the old model.
As Bob Dylan once wrote, "your old road is rapidly fadin', please get out of the new one if you can't lend a hand…"
Why?
"Because the Times, they are a' changin'."
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jystrebler
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Location: Toledo, OH, Northcoast of America
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About Me:
Father of one squirmy child, Sometimes listenable Musician.
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