Tag Archives: Music industry analysis

ANALYSIS: How we fucked up the music industry, and what other companies are learning from us (hint: not enough)

I started my career in music back when music videos still cost a million dollars.

If I was born 10 years earlier, I’d be a multi millionaire by now. I wouldn’t have had to work nearly as hard. Money was flowing all over the place and the party was never going to end.

Today, the music video budget for a super star artist is maybe $75,000, give or take. It is less than 10% of what it was a decade ago. Money just isn’t easy to come by.

I’m not complaining. Our industry used to attract a lot of people drawn in by the lure of easy money. Some may refer to these people as “douchebags,” but I digress. The people working in music today are passionate about their jobs. And they make ridiculously less money.

That’s why it is hard to read an article like this one.

Does anyone pay attention to what we just went through? I had lunch with a big time movie producer the other day. They’ve worked on huge $100million+ films, and they were lamenting that the average budget for a mid-sized film has dropped from $60 million to $30 million. One of the biggest reasons? When they make their budgets, they’ve reduced their estimate on DVD sales all the way down to zero.

Another good idea from film masterminds (or… an industry metaphor?)

I’m no expert in the film or TV industry. Heck, I’m hardly an expert on the music industry. But I do know that a bomb of a film still made its money back, by selling the rights to cable, selling it on DVD, licensing it around the world, etc. This happens in music, too. Maybe an album tanks, but if the song is used in a TV commercial or whatever, the label gets paid, as does the artist. For major labels, there is actually a LOT of money in this, with entire divisions dedicated to music placement. The point is, your income has to exceed your expenditures, and we sort of fucked that up. “We” as in the industry, but as consumers too. There is a great article about that right here.

It is not news to anyone that as an industry, we were slow to react. Here is an example. The ‘old’ music model was that you would have an artist record an album, press it to CD, package and shrink wrap it, ship it to a store, then have the employees unpack it and put it on a shelf. As a label you would pay maybe an 18% distribution fee for all that to happen. There are whole companies built around this model. It was a huge business! And a lot of work.

OK, now Apple comes along and builds their digital store. As a label, you type in your meta data and click some buttons. Apple charges 30% for this service.

iTunes is the biggest distributor now. They sell more music than WalMart or Target or Best Buy. And their marketshare is growing. More or less, the music industry conceded a third of their revenue to Apple.

Well, fuck us. It was our own damn fault. There are no shocking revelations in this article or anything like that. Anyone even on the periphery of music knows we spent all our resources fighting Napster and P2P while Apple came in and built their digital store. What I’m curious about is: who is going to do for film what iTunes did for music?

There is one potential game changer for us. The reason pop music gets pushed so hard is because that is how our business model is structured. Follow the money: pop music succeeds because right now, that is what brings in the revenue. 70% of sales often occur in the first week of release. Everything is front loaded. Our model rewards pushing something as hard as possible for a short while and then abondoning it, moving on to the next flavor of the week. That last 30% takes a lot of work! Every once in a while something sticks, and everyone cheers, but that is rare. At least one big label I know of doesn’t even have an “artist development” department any more.

These five defined my childhood.

So what happens when streaming services become more popular? Those pay based on consumption. Let’s say you pay Spotify $10 a month, and you listen to Spice Girls’ “Wannabe” over and over again. It’s the only song you listen to. Well, Spotify or whoever takes their cut off the top and pays the rest out to the Spice Girls’ label. If you listen to “Wannabe” and Ke$ha, they split your money. They pay out based on what users are listening to. The thinking then becomes: OK, do we want a big pop song that everyone will listen to like crazy over the summer, or do we want an OK Computer, an album that over 30 years is going to pay over and over and over?

Would love to hear your thoughts. Leave a comment below or send me an email.

UPDATE: TechDirt has a great analysis up with a similar viewpoint that is worth reading. Anyone in the film industry who can shed some light on this for us?