Will the Internet Really Change the Fortuns of the Independent Artist?
by Paul Mathews
WILL THE INTERNET REALLY CHANGE THE FORTUNES OF THE INDEPENDENT ARTIST/SONGWRITER? THE ANSWER IS YES AND NO.
Amidst all the hype, hope, angst, confusion, and techno-babble lets try to simplify things.
What does the artist seek from the marketplace?
The artists main concern is - how will my one great song (out of more than 300,000 produced annually) affordably reach a broad enough audience and result in sales, recognition and a reasonable monetary reward?
It is the feeling of most artists that this is not a realistic expectation in today’s constricted hierarchical music business environment controlled by the major labels. Today artists look to the Internet to level the playing field by ushering in a new music business paradigm as it has in other consumer product areas.
What are the primary interests of the current music business establishment?
The major record labels are trying to determine what form this new e-commerce market structure will take and how they will have to adapt to make money in this new market environment.
The major labels are trying to buy time to effect an orderly transition to this new market environment.
What are some important facts about music and its marketplace?
Consumer quality music is cheap and easy to produce, package and deliver in comparison to other media content such as cinema or TV.
Studio technology and other ingredients are affordable, accessible and are easy to use for most artists.
70% -100% of the content of consumer quality songs can be produced in a cottage industry setting.
Approximately 30,000 CD,s or 300,000 songs are released annually.
Only 8%-12% of acts makes money from a CD released by a major label.
The total number of hours people listen to music will not change significantly.
The total $ spent on music will not change significantly.
So what gives? Production still remains much higher than consumption. Consumption (in terms of $ spent and total listening time) isn’t increasing significantly. If the Internet isn’t going to change this equation what will it change? How will my one great song out of 300,000 have a better chance of gaining a significant audience, and getting purchased?
Changes in the way the Internet allows us to listen to and purchase music will dramatically expand the market. The new Internet music business paradigm will increase the variety of music we will listen to via broadcast media. We will listen to more quality songs from a greater variety of sources, and no longer just the fare that flows to us from the major labels.
EXACTLY HOW WILL THIS BE POSSIBLE?
The unwanted repetition of any song (and especially substandard or undesirable songs that the listener is forced to absorb today from radio)* will be eliminated and replaced by a broadcast of a continuous assortment of new songs based upon the individual users set of selectable criteria. In other words, the listener will have Internet broadcast scanning utilities (like the scan button on your radio) that are search bots able to select music for the user utilizing a user controlled set of criteria such as genre; favorite internet music site; recommendations by other listeners; recommendations by the users choice of reviewers or critics; recommendations by artists or songwriters.
Songs found on sites on the Internet and meeting the listener’s criteria will be available to the listener in a continuous stream. If the users like what they hear, they can choose to listen to the whole song and mark that particular song to a playlist and or a shopping list. If the listener finds a particular song undesirable, they can block that particular song from future broadcasts and immediately skip to the next selection. The ability to avoid unwanted repetition and pass over substandard or undesirable songs is a great opportunity for the listener. Today’s listener often cycles through the channel select buttons on their radio to no avail. Under the new paradigm they will have the unrestricted ability to listen to something new with the new selection adhering to their chosen criteria.
So essentially what we will have is a broadcast on demand music environment where the demand criteria is controlled by the listener via their own selection of filters (opinions of others) that can be layered and altered allowing the listener to easily and quickly gain exposure to a much larger portion of the musical universe than they have exposure to today. This means your one great song has a better chance of an audience.
*this pertains to 30 of the top 40 in any genre. Under the new paradigm these songs would get a few plays.
OK, SO PEOPLE CAN LISTEN TO A GREATER VARIETY OF MUSIC AND THE MAJOR LABELS NO LONGER HAVE A STRANGLE HOLD ON WHAT IS OFFERED UP TO THE PUBLIC. BUT YOU STATED THAT THE OVERALL AMOUNT OF MONEY PEOPLE ARE GOING TO PAY FOR MUSIC WOULD NOT INCREASE HOW DOES THIS HELP ME? I NEED MORE THAN JUST AN AUDIENCE. I NEED TO GET PAID FOR MY SONGS.
There are two things that need to be addressed to answer this question. First, we must address the difference between broadcast quality and purchase quality music. And secondly, how can the artist, or anyone else for that matter, make any money if a lot more music has to share the same available $.
For decades the music industry has offered up two levels of music quality. First, broadcast quality music, i.e. radio. This is low fidelity music that is subject to the vagaries of the airways and is constantly interrupted by our favorite radio personalities and by commercial messages. It is not of a quality acceptable for purchase or to add to ones listening collection. Secondly, we have available purchase quality music. This is typically available on pre-recorded media such as CDs and meets certain fidelity standards.
Today the following standards have emerged to follow the same pattern. Real audio is the low fidelity, non- collectable, free broadcast format of choice and is sometimes interrupted with commercial messages. Enhanced versions of Real Audio or its competitors will soon be of a quality to allow web and wireless broadcasting to compete with FM radio. Purchase quality music ranges from high quality mp3 to wav. files or CDs. Simply put, your one great song will be broadcast in an enhanced form real audio and sold via one of the purchase quality formats.
The second factor that allows the consumer to purchase more songs for the same $ is the fact that the price listeners will be required pay for a great song will be 1/3 of what they pay today. Therefore they will be able to afford 3x the music that they can afford today. This is because under the internet music business model the cost of producing and delivering music to the consumer will be 1/3 of what it is today under the control of the major labels. However, the great news is that artists will receive as much or more from the sale of their music than they receive today and they will retain their copyrights!!!
HOW CAN THIS BE?
It costs a major label between $500,000 and $1,000,000 to launch a new act today. A great many, if not the majority of new acts, lose money for a label. The bulk of these staggering costs associated with launching a new act are from lavish promotional budgets with the rest coming from overblown production costs and staggering overhead. As you will see below these costs are not present in the Internet model.
The Internet model doesn’t rely on huge promotional budgets to push music down our throats. This push strategy is replaced by a simple yet elegant demand scenario where a quick listen and a few clicks of the mouse will determine a songs success. A mountain of needless waste is swept out of the equation. From an artist point of view the prospects for financial success under the major label paradigm are even more dismal. Only about 8%-12% of CDs released make money for the artist. An act with a major label today has to sell about 800,000 CDs to break even. In the new music e-commerce environment an artist with $5,000 invested in studio production for a master CD will have to sell about 5,000 copies to break even. If the artist sells their CD in a network direct fashion via mp3, liquid audio etc, as few as 2000 CD sales could cover all costs.
New net-music business paradigm*
Expenses
Studio and production costs for CD master $5,000
Cost of 5,000 CDs @ 1.00 ea. $5,000
Cost for one page promotion site providing broadcast of 10 song titles $100
Cost of inventory and transaction management services @ $3.00 per CD = $ 15,000
Total cost $25,100
Revenue
Sale of 5,000 CDs @ $5.02 ea. = $25,100 -break even
Sale of 10,000 CDs @ $5.02 ea. = $50,200 and a $5,000 profit or $1.00 profit for each CD sold after break even sales of 5000 units
* this is the worst case scenario. Songs sold in a network direct fashion will provide the artist and promotional site with greater profits while further lowering the cost of the “album of songs” to the user. Also note that under this worst case scenario the consumer is paying $5.02 per CD or about a third of today’s retail.
** also remember artists have a right to sell their CD through other outlets - at live performances etc. Also, artists can keep all profits from live performances. As a signed act, the artist’s performances are often a part of the promotional costs of their album.
Major Label Paradigm
Expenses that the artist is responsible for
Studio and production costs for CD master: $100,000-$200,000
Overhead, promotional costs: $800,000
Total costs: $900,000+
Revenue
CD gross sales of 500,000 units @ $15.00 ea. = $7,500,000
Artist royalties @ 12% = $900,000
*Royalties average about 12% for most new acts known acts can receive up to 25%
The bottom lines here is that for the most part the Major Labels are costly dinosaurs of another age. The new music business environment of the Internet will allow for easier and more affordable access to a greater variety of music and correspondingly greater exposure for a greater number of artists. This is the e-commerce Paradigm in action, providing benefits to both the producer (artist) and consumer by reducing channel friction and transaction costs. Yes, there will still be filters and influencers, but they will allow listeners to broaden their choices and increase their exposure to more music. Many of the new filters will be comprised of the artists and songwriters themselves through their affiliations in organizations such as Indie-Music and JPFolks.
COULD YOU SUMMARIZE IN TERMS OF HOW ALL THIS WILL IMPACT MY ONE GREAT SONG?
Technology will contribute the following:
Lower the cost of producing consumer quality music. -This has been realized.
Provide easy access to independent music. -This has been realized.
Provide broadcast on demand of acceptable quality. -This is almost here.
Provide a structure comprised of ratings or filters that can be utilized by web utilities. -On the horizon.
Provide web based search utilities (bots) enabling user selectable criteria (filters) to deliver on demand music broadcasts to the listener. -On the horizon.
Your one great song will be impacted as follows:
It will not be unilaterally filtered out of the broadcast media by the major labels. For the most part, it will have the same chance at reaching ears as music of equivalent “consumer standard quality” style or genre.
About 2/3 more individual songs will reach listeners ears than reach listeners ears today. This means that your individual songs will have about a 66% greater chance of reaching the listeners.
About 2/3 more individual songs will be purchased. As above, yours will have about the same opportunity as songs of equal quality.
IS THERE ANY OTHER EVIDENCE THAT THE LISTENER/CONSUMER WILL BEHAVE AS YOU HAVE SUGGESTED ABOVE?
Yes, the change is already upon us. And by that I mean the displacement of repetitive lesser quality music with the search for a variety of better music. The on demand internet search utilities are in place today to allow a new generation of listeners to access, sample and acquire the best quality songs of the prior generation. Using 50% of their listening time, teenagers today are searching and selecting to listen to Led Zepplin, The Doors, Jimi Hendrix, Bob Dylan, etc. etc.
Why? Because surfing is fun and has become the quest game of the new millennium. Because the web utilities are there to make it fast and easy. Because the musical content of the archives is far better than 75% of the available listening content today; and teenagers know it.
As soon as the last few pieces of technology are in place, the next great hunting ground for the new music consumer will be the pool of consumer quality music from independent artists.
ARE THERE ANY OTHER FORCES AT PLAY?
Yes; big business itself. In spite of the foot dragging by the major labels there are top down forces in the media/telecom markets that are coming into play. For instance the purchase of Time Warner by AOL. How long do you think it will be before a brilliant telecom/media, Internet entrepreneur like Steve Case sits down with Time Warner executives and says, “I have seen the light. Get with the program”.
Copyright © 2000 Paul Mathews
Paul Mathews is an independent marketing and telecommunications consultant.
e-mail: quony@aol.com
Editors note: This article was written and submitted March 2000. Interestingly it still holds it truths today. Some, but not alot, has changed.
