I just heard Tyler Cowen, one of my favorite econobloggers
, on the public radio program On the Media
discussing Radiohead's name-your-own-price model
for its latest album. (The segment starts around 38:20 in this MP3
) He makes a number of good points, but I think he overestimates the importance of the recording industry in the coming years. He says: "When you go back to this core function of discovering new music, lending the money to the people who produce that music, taking the chance, and then getting the product out there and publicizing it, the labels offer very important value, and the Internet is not a substitute." In the pre-Internet world, this was a reasonable description of the recording industry's role. Publishing a new album was a risky endeavor because you had to cover the fixed costs of recording the album, pressing several thousand copies, shipping them to retail stores, and undertaking an expensive nationwide promotional campaign. If an album fell short, the label risked losing tens of thousands of dollars.
The Internet changes all that. Online distribution costs almost nothing, promotion can be done
at very low cost using a variety of online tools, and even recording has gotten a lot cheaper thanks to digital technology. As a result, there's little or no up-front cost to releasing an album. (Beyond the costs of writing songs and practicing them, which most bands do long before they get their first contract) That means there's no longer any reason to have record label executives picking and choosing music on behalf of fans. Instead, every band's music can be made available to everyone, and the fans themselves can "discover" the bands they like.
The labels may still have some valuable expertise finding and promoting good bands. But that's the role of an editor or agent, not the quasi-venture-capitalist role they played in the pre-Internet world. And it's a role in which they're going to have a lot more competition than they're used to, because lots of people enjoy finding and promoting good music; many of them even do it for free. Cowen says that new acts will be hurt by this trend because they won't get "big-dollar support from the major labels" to promote their albums. But as the Internet gives bands and fans a variety of new and sophisticated ways to find one another, "big-dollar support" simply won't be as important as it used to be. (Indeed, some musicians are already finding
that television exposure matters more than the support of a big label) People will find new music via online word-of-mouth, the recommendations of trusted music reviewers, and a variety of sophisticated recommendation algorithms. "Big-dollar support" never hurts, but truly talented bands will have no trouble building a fan base
without it. And a lot of bands will choose to go it alone so they don't have to give up creative control or a share of their revenues.