Yesterday, I posted my second article inspired by Fred Wilson’s comments to Jason Calacanis during LAUNCH, wherein I focused on his comments about Kickstarter regarding the music and movie industries. The post itself became too long to explain the economics of the paradigm (of the music industry, at least), so I figured it would be better to do so here in a more focused post. So let’s jump in.
In the music business, there’s a well-known adage: “Live won’t save music.” This is the argument that many within the established major label machine use to fend off the assertion that free distribution of music would actually help the music industry in the new digital era. The argument is that artists can’t make enough on a live performance to offset losses they would see by distributing their music for free. And in some cases this is true; income from live shows may not be able to offset those losses…for the major label artists, who have huge stage crews, large arena shows, and a long list of people to pay back (not least of which is their record label).
What industry professionals don’t tell you is that live shows are where artists have historically always made most of the money that goes into their pocket. Money from album sales most often gets paid back to the record label and company, whose “signing” of the artist was simply a monetary advance in the first place. In 1993, well-known artist/producer Steve Albini took aim at the expenses squeezed from artists in his essay “The Problem With Music.” Excerpts from the essay clearly detail how the real economics worked behind the scenes.
The Simple Economics
This simple economic reality means two things: 1) That it’s true that major label artists like Beyoncé and Robin Thicke may very well have a hard time making any real money from live shows and will possibly need to continue to rely on the age-old system’s business practices, and 2) That newer, increasingly independent artists can leverage this new business dynamic to their advantage. Whereas their major label peers are essentially tied to the old system (and streams) of revenue, newer artists who are either fully independent, or have contracts with smaller indie labels which afford them more control, don’t need to sell 150,000 albums or fill an arena tour to make a profit. In fact, they will have an easier time of it, precisely because their “stage crew” many times may only consist of a friend from high school watching the merch table.
And this is where Wilson’s comment comes into play, and is exactly right; crowdfunding platforms like Kickstarter and Indiegogo provide a way for artists (both inside and outside the music sphere) to secure funding for that next tour without being on the hook for ~$400,000 in album distribution and tour expenses.
In fact, there are many artists now exploring the possibilities of free precisely as a way to use their music as a means of marketing to jack up the money they’re able to raise on sites like Kickstarter. By using their music as a “free sample” of their brand, artists are able to explore the dynamic of giving their prospective fans a reason to come out and see them live, buy a shirt, bring a friend—all things that are better for them than the money for one album sale anyway. Music is increasingly being used by these artists as major means of marketing and branding, rather than solely as an end commodity for sale.
You can’t argue with math, and here’s reality: How many times are you compelled to and/or do you buy a song or album? Just once. Why would you buy it again unless you had to? But if you examine the same dynamic with respect to going to a show, or buying a t-shirt, suddenly the answer is “as many times as you want.” It becomes a self-feeding cycle, wherein new possibilities are presented by the power of crowdfunding, and not having to go to a major label for the financing. It boils down to simple arithmetic.
The Album You Had to Buy Over and Over Again
It’s worth noting, also, that the established music industry got used to people buying the same album(s) over and over again because they had to. With each subsequent technological change, that Led Zeppelin album you loved so much became obsolete, and thus you needed to shell out more money for something you already had. Buying music on ’45’s became buying the same music again on LP’s, then again on cassettes, again on CD’s, and then again as basic mp3 files (usually off iTunes).
But something happened during that last transformation: music became distilled down to only the information, sans any physical product, and with the power and reach of the internet, distribution costs dropped to zero. Suddenly, the ability to reproduce and distribute music became the cost of 10 minutes of your time, and didn’t even require the kind of distribution networks that record labels had spent decades building, growing and protecting.
And who was it who lost out the most? The demographic that gleaned most of their revenue from physical album unit sales—the major record labels. But the artists now had a new reality in front of them: mass distribution, but without having to indenture themselves to the “physical CD sales-dynamic.” They were (and are) free to make money where they always have: in the live sphere with grass-roots ticket sales and merchandise sales. Thus it becomes clear that the statement “Live won’t save music” is inherently a biased lie. Live won’t save the old music industry, but those within the industry who are adapting to the new terrain are doing just fine exploring the new possibilities before them.
The New Free/Live Dynamic
Those are the people I would place my bets on. They have no stake in the old paradigm, and are happy to push it aside to see what the new free/live dynamic can do for them. This is where the real money in the music industry will be in the next decade. Not grasping with frail fingers at a business model quickly fading away, but exploring with wide-open eyes the opportunities that “free/live” afford both those in the music trenches, and their prospective fans. Don’t be fooled; there’s still a ton of money and opportunity in the music industry. You just need to know where to look.