Guest post: Eric Tobin, VP of Hopeless Records

If you were to ask me who the top ten smartest people in the music industry were, I would hand you a list of the gentlemen running each of the major labels. Haha, wait, no I wouldn’t. The ‘smartest’ people are the ones with a positive attitude, who recognize there is still plenty the music industry could be doing right, if only we re-thought some of the core business models.

So I would add Eric Tobin to my top ten list. Eric has been driving a lot of the business development and A&R at independent label Hopeless Records, and is the man behind building and/or revitalizing the careers of All Time Low, Yellowcard and The Used, among many, many others. I asked Eric to respond to my last post, about future business models for the music industry, which really struck a nerve with some people. Eric’s reply is below.

Optimism in the business of music. You forgot what that is right? Here is the opposite of optimism.

R.M.S. Music Industry

No wait. This is better.

“The future of video”

Yeah yeah. It’s all going to total crap. I know.

It’s very American to get all caught up in a sensationalized version of every little thing happening (think: “the country is going to shit” – my favorite phrase – said for 200+ years). If we can make it the end of the world, we will – and I am damn proud to be a member of it.

The source of my optimism? My uncle Bob, a self proclaimed music lover, and a little thing that comes up from time to time in music – format wars.

My mom wouldn’t buy this one for me and now look where I am.

We’re right in the middle of another format war. The industry isn’t dying – it’s just not living off the back of an amazingly high margin product anymore. That product? LPs! We’re back to the same length plays as that first incarnation of the album in 1948 (thanks RCA!) which consisted of just a couple songs. High margin and cheap to make in volume. Yup, we are back to singles, with iTunes leading the charge.

OK so this new format changes the way you think about music and now it’s digital downloads, digital singles, ringtones! And then subscriptions, and DRM downloads, and blah blah blah… And our new music discovery leader YouTube and digital radio! And, of course, the CD is still selling (my pops just got Willie Nelson’s Greatest Hits on CD and had my technologically challenged mother “put it on her lap computer” – 2 for 1 in that quote really, go dad!).

I hear it all the time – where’s the money in these formats? How will we ever get back to where we were? Especially in this hot topic of streaming. Cue the complaints – the artist doesn’t get paid! The money is bad!

My point – let’s get back to being optimistic! Get excited! Music is no different than it was when it started. Millions of people continue to consume music that is created and mass marketed to them, and there are so many ways to monetize it – and there are smart and passionate people who want to help make even more money on the rights they own. Those who can’t get into optimism and new business models? Well, take an economics course.

Details, details – here we go:

Here’s an example (and I am the most qualified to say I am not the only guy thinking of this – not even close to first) – streaming subscription companies will make deals with your providers of data (ie the cable or phone companies) with their previously acquired rights. The biggest pain in the ass for any company is the licensing of rights from the big companies, but once they do it, they will sell the partnership to some data provider and “package” it. Boom! The upsell continues. “Unlimited music with your cable TV connection and free for two months.” Technology is catching up with your living room, i.e. Integrated TV sets, synced up to our car, our kitchens, our bed rooms. We have mom’s credit card paying the bill and our own playlists and mom is in the kitchen playing the newest TV sensation from the newest American Idol or other amazingly high-concept TV show to sell the idea of talent. Sure it’s small now – Pandora and Spotify penetration is not there yet because the access to the technology is not there for everyone and the brand trust isn’t there yet – especially for my Uncle Bob who loves Lynard Skynard and Guns n Roses and lives in a town you will never ever go to.

It takes about 3000 streams to equal the same fees the industry is getting now on a record. That certainly seems like a lot of streams – 2009 industry revenue was about $6.3 billion which means we’d have to stream approximately 7 trillion streams to equal our current revenue. Sounds crazy right? But let’s think ahead to when a third of the 300 million Americans will have access to “packages of music” from their mobile or terrestrial data provider at $9.99 a month, or free versions that are advertising at much higher CPMs. If those 100 million people stream just 20 songs per year – well that is 2 billion streams right there. Getting closer.

Which brings me back to my Uncle Bob the music lover – he will NEED to have the music package as much as the sports package. I mean he loves music (all 6 artists he knows) and my guess is that when he figures out how to use it he gets in about 47 songs played a year at the cost of $120 (@$9.99 per month) which equals $2.55 per song. Beats our current $1.29 standard = a 98% increase in song value. I can tell you who is winning there. Of course not everyone is like Bob – though I can’t say many won’t be like him either – it’s hard to say how the standard “music lover” in middle America will treat his music day-to-day when he gets busy.

Of course I could be wrong! And this format could be gone in two minutes – such is the way of entertainment and the way it’s consumed. But we must have optimism! People need music.

One more thing about my Uncle Bob. He has no idea about the state of the music industry. He still hears his 6 favorite songs on his local classic rock station. He is stoked – and he is not sure why I listen to this “hippy bullshit, you kids have no idea of what real music is!”

Everyone has an opinion about music.

Thanks Uncle Bob.

Uncle Bob, signing off (on fun!).