Capitalism or the Music Industry - change can take place faster than you think

[Sutter Cane]

I don't know if anyone else here reads Bob Lefsetz. He is a music-industry commentator with a blog where he regularly rails on how the major labels dropped the ball in adapting to the digital music landscape. I never see posts about the music business on itulip, so I thought I'd add a different perspective to the usual lines of discussion.

His post the other day got me to thinking of repeats/rhymes in history, especially in regard to our current economic difficulties and the OWS protests.

In college I worked in a CD store, and in the 80's-90's that was a can't-lose business. If anyone in, say, 1995 had tried to predict that the CD business would completely crash by the mid-00's, nobody would have believed them. Yet the collapse happened, and only took a few years.

CD Replacement Revenue

So I’m reading about the police clearing Zuccotti Park and I’m thinking we already had our protest in the music industry. And the public won.

So what you’ve got is a runaway train, with rights holders and acts in cahoots, and suddenly they ran out of track. Suddenly, the public could not only acquire only the song they wanted via P2P, they didn’t even have to pay for it.

Bloody heresy.

But everybody forgot what came before. The aforementioned overpriced CD and unreasonably high ticket prices. It was as if the rights holders and acts believed they were entitled to inflated incomes. Instead of seeing MTV and CDs as an evanescent bonus, they became an entitlement. And try taking away an entitlement, isn’t that what the debate is all about in Washington?

All of this change was brought about by the public.

Which is why when you pooh-pooh Occupy Wall Street, you’re missing the point. Whose side are you on? The bankers were overpaid because of a destruction of regulation and oversight and a thin layer of people got rich, and they used their lobbying power, their money, to institute lower taxes. And you wonder why the rank and file are pissed off?

The rights holders have done a good job of labeling the public as ungrateful thieves. But is this an accurate description? Almost definitely not. The public was fed up with past practices and angry because they could not acquire music the way they wanted to.

The way you succeed in business is by staying one step ahead of the customer, knowing where the puck is going, not where it’s been. Streaming services are an example of this. Most people say they don’t want to stream…they’ve got so many complaints. But they’ll end up loving these services that are one step ahead of them.

And what do artists and rights holders say? WE CAN’T MAKE ENOUGH MONEY! Let’s give the public less than what they want. Let’s force people to overpay for what they do buy. The end result of which is a vast underground economy where tracks are traded/acquired absolutely for free.

Now the movie business has learned nothing from the music industry’s travails. Filmmakers still believe they can corral the public into doing what they want them to.

And it’s not only hit artists who are on the wrong side of the line. Wannabes are complaining more about Spotify payments than stars. Wannabes want the old edifice to remain. As if they too can become royalty.

But the monarchy has been torn down, democracy reigns. The old system is dead.

I'm sure you've seen this footage from a couple of days ago of UC Davis students being pepper sprayed:



Check out how the students then gave the Chancellor the "silent treatment" in a protest yesterday. You can really feel the tension:



Interesting things are happening right now, and things can change a lot faster than we expect...

[c1ue]

Re: Capitalism or the Music Industry - change can take place faster than you think

Nice try, but Mr. Lefsetz clearly doesn't understand the business of music or the economics of entertainment.

As I've written about numerous times, the situation the CD industry is in is one entirely of their own doing. Music has always made it money via reharvesting: i.e. selling the same thing, but in a different form.

Artists like the Beatles, Rolling Stones, etc etc all reharvested multiple times when the public switched from radio to 8 track, from 8 track to cassette, from cassette to CD.

But since the 'leaders' of the music industry were stupid, they apparently failed to understand this dynamic because allowing Jobs to port users' music into a digital medium which is controlled by Apple, the people making the money are now the hardware makers (i.e. Apple). The music is the lure by which people are first drawn into the Apple hardware world, then becomes the anchor dissuading them from leaving.

What the music industry should have done is to have users create their own repository of music and to charge an annual fee for permanent maintenance, as well as fees to transfer into various 'hard' media if the owner so chooses.

Instead of making money by selling access, you make money by providing convenience, stability, and portability.

The actual result was to outsource this to someone else, unsurprisingly killing existing revenue without any form of replacement or improvement of business model.

Yes, there are all sorts of greedy music industry executives. But the music industry does have a real role: recognition and promotion of artists.

Outsourcing the recognition and promotion aspects to the artists themselves may seem attractive to those artists who already have massive recognition, but ultimately it is not a good deal for those who do not.

[Sutter Cane]

Re: Capitalism or the Music Industry - change can take place faster than you think

Actually, I don't see your post and what Lefsetz is saying as being in opposition.

What the music industry should have done is to have users create their own repository of music and to charge an annual fee for permanent maintenance, as well as fees to transfer into various 'hard' media if the owner so chooses.

Sounds like a streaming service like Spotify, which Lefsetz mentions in this very post:

Streaming services are an example of this. Most people say they don’t want to stream…they’ve got so many complaints. But they’ll end up loving these services that are one step ahead of them.

He was suggesting the majors license Spotify in the U.S. long before they finally did so. Of course, by the time they did, it was too late. If they had started their own version of Spotify in 1999, they could have avoided all of this.

Outsourcing the recognition and promotion aspects to the artists themselves may seem attractive to those artists who already have massive recognition, but ultimately it is not a good deal for those who do not.

I agree.

But this is getting too specific, when I was just trying to suggest a very broad parallel between the music industry and its customers with FIRE and the 99% today.

The music industry was a massive, powerful, profitable industry which was undone by unorganized, individual action across millions of people, technologically enabled by the internet.

[c1ue]

Re: Capitalism or the Music Industry - change can take place faster than you think

Sounds like a streaming service like Spotify, which Lefsetz mentions in this very post:

...

He was suggesting the majors license Spotify in the U.S. long before they finally did so. Of course, by the time they did, it was too late. If they had started their own version of Spotify in 1999, they could have avoided all of this.

Streaming services would be one component of music industry income, but is in reality no different than the existing radio model.

Streaming is not a threat to the music industry's revenues; you only have to look at Pandora's royalty expenses to see that existing revenue models for broadcast more or less still work even with streaming.

Lefsetz mentioning Spotify betrays even more his fundamental lack of understanding of the music industry business model.

I'd also note that Spotify doesn't pay anything beyond standard broadcast rates for music access; it has a few of the consumer benefit features of a repository but none of the music industry revenue features. For example, you can't move your Spotify 'ownership' anywhere else. It is simply an Internet software version of Apple's iTunes hardware monopoly, even assuming Spotify can achieve and maintain a dominant role in the streaming world.

Secondly one reason the streamed music costs (and radio costs, and similar movie/jingle/etc royalty costs) are lower are simply because these venues are a major marketing resource for the music industry.

The issue is with ownership and access to owned music.

The entire point of discovering talent and marketing new and old music is to persuade people to pay money to own it.

A music industry repository which permits people to store and access what music they've paid for can replace the previous reharvest revenue with ongoing maintenance revenue. That this maintenance revenue is lower is at least partially compensated for by the reduced need for supply chain and inventory management.