Dear Recording Industry: Stop Focusing On Just Selling Music
from the look-at-other-models dept
There seems to be this continuing myopia in the recording industry, where they continue to insist that the only possible business model involves selling music directly. Hence the discussion at a recent industry conference where industry execs talked about how selling digital downloads doesn’t work, so the answer must be subscription services (despite little evidence that most consumers actually want music subscription services). It’s this weird disconnect that seems to stop these execs from realizing that the business model is not in trying to sell the pure music files anymore. Too many people just expect those for free. The secret is in giving fans a real reason to buy. That means adding real value beyond just the music. The music is free. That’s just the way the market views it. Pretending its not doesn’t save anything. It just annoys people.
Filed Under: business models, music
Comments on “Dear Recording Industry: Stop Focusing On Just Selling Music”
Missing it
The disconnect comes in their lack of engagement of the end user. Anyone who runs a blog could tell you that. Why do social networks work? Because they find, seek out, and engage the user.
Why did Elvis, the Beetles, and others do so well, while most modern acts do not? Same reason. They engaged. They got people’s attention. Disney seems to have some inkling of this, but even they don’t do enough. The music industry should not be about music. It should be a user engagement business. You’re absolutely right.
Re: Missing it
Sorry but I couldn’t let this one go…
It’s The Beatles, not the Beetles (clever play on words you see?)
There's Another Thing
…realizing that the business model is not in trying to sell the pure music files anymore.
They could lower the price.
I’m the kind of person who prefers physical product to digital download.
If these guys would open up their back catalogues (Beatles, Stones, Hendrix, Who, etc) and price them from $3.99 to $5.99, I would easily drop a couple thousand on replenishing my collection over the next couple of years.
I have to imagine there’s at least a couple more million people who would do the same.
Re: There's Another Thing
$3.99 to $5.99 CDs are just not economically feasible.
Even with bulk production, the manufacturing costs alone would be 80cents to $1 per CD. Be REALLY nice to the artist and give them 50cents a CD (pitiful in my opinion). Shipping is about 15cents per CD to the warehouse then another 15cents to the retailer. Add in the distribution costs of $4 per CD average and if you figure nothing in for marketing (not likely), plus retail markup on CDs of 45% -55% you’re talking $8.12 minimum (using .80cents manufacturing cost and 45% markup).
On top of that returns/defects/shoplifting/damage adds another 10% to the cost and that leaves an UNMARKETED CD’s retail cost at about $9.00
Yes, you could trim some of the distributor cost (typically the record label, but if you’re independent musician/band the label is not going to cut a deal with you). The retailer can’t really cut the 45% markup because they have to stock 50,000+ CDs to sell 10,000 of them – they have to pay for their costs and overhead.
If you go the entirely independent route, you still need a middleman (label), because even the independent distributors won’t speak too you (can you imagine Koch Distribution trying to deal with 500,000 artists rather than 1000 independent labels? That adds another $2-$4 per CD cost for them. They still need to sell 10’s of thousands of CDs to make any money. 10,000 CDs at 50cents a piece is still only $5,000 – not exactly a money making career…
Yes, CD prices could get down to $9.99 easily enough, but whats the point of even bothering to make CDs then? Unless you can sell 500,000 of each CD a year to make $250,000 for a band so they can quit their day jobs – Cd’s just aren’t profitable anymore.
Digital on the other hand is a different story. iTunes pays you 70cents a song and you don’t need a label. The average distributor cut is very small (iTunes does not deal with individual artists – so you go through a company like Tunecore or CDBaby). They charge $30 an album (Tunecore) or $35+9% of sales (CDBaby).
CDs are dieing off for a reason, the industry is killing them.
Re: Re: There's Another Thing
Re: There’s Another Thing
by Rick – Feb 10th, 2009 @ 10:52am
Hey! Thanks for that. Very enlightening.
I guess I’ll just pin my hopes on swap meets, yard sales and pawn shops then.
🙂
Re: Re: There's Another Thing
First you are a dumb ass. Most businesses would kill for a 45% markup or a 45-55% margin. The fact that they are use to that kind of a markup on an infinite good shows why they are not able to adapt. If a business (and I am in IT) could be disappointed in a markup of 15% then they have been ripping us off for way to long. If you need that kind of margin then cut costs.
Re: Re: Re: There's Another Thing
I’m the dumb ass, yet you completely twisted the argument around.
We’re talking about CDs here, not digital. It’s obvious digital is profitable and an infinite good. Cd’s are NOT an infinite good.
You state you are in IT, so obviously you have no clue how retail works. How do you expect Best Buy to carry all of the 450,000 titles that come out each year? WalMart only carries 10,000 of them. BestBuy CHARGES Independants up to $250 PER MARKET to stock your CD. FYE charges about $150. For the average musician making 50cents a CD, that means they have to sell 500 CDs per market before they make a dime – not realistic.
The 45% markup isn’t my choice, it’s the retailers. When they carry 10,000 CDs with 5 copies of each per store and only sell 4 of the top 100 titles, the other 9900 titles sit there taking up shelf space, selling 1-2 copies. Who pays for that? After a certain time period they have to ship the unsold back. Who pays for that?
If there were only 1,000 titles a year, yes a 15% markup would be more reasonable – but it’s unrealistic.
You are just assuming you know what you’re talking about, yet you’re only focusing on digital realities – where the markup is lower. iTunes only takes 30% for example. The pricing on digital is already beginning to drop, and will continue to do so – but it’s not as easy with physical products, especially when the major record labels/distributors are taking such a large cut ($4-$8 per cd).
If you had bothered to read my whole comment, it ends with the fact that it is ithe industry that is killing off CDs, not the retailers.
The musicians still don’t make squat unless they’re mega stars.
Re: Re: There's Another Thing
Then why are there $5.00 Bins full of Brand New DVDs at WalMart? Why are there racks of $7.50 DVDs at WalMart?
Music CDs can not have a higher overhead than the DVDs do!
No, Rick, Music could easily be marketed and sold for $5 per CD and everyone could still make some money. I for one would probably buy up a lot of physical product if the prices were lower.
And the music industry already saw that the majority of people will pay for the digital music if it were less expensive. See AllofMP3.com
All the music recording industry has to do is learn to compete with free. Most people are willing to buy and own legally if the prices were more affordable.
Me, personally, I already have a subscription service that offers more than just music, it’s called XM radio. I’m not paying for another subscription service.
Re: Re: Re: There's Another Thing
Bargain Bin DVDs are a completely different story. Learn the difference between Apples and Oranges.
There are not 450,000 DVD titles available. They also are not being made by independent people, like most music is made.
WalMart can buy the leftover movies from years ago in bulk directly from the movie industry too – cutting out the large distribution charges of $4-$8 per disc. They only carry a few hundred titles at a time too. The overhead costs and management of DVDs sales is completely different.
So, yes music CDs do have a higher overhead than DVDs.
As for your argument about AllOfMp3 – what does that have to do with CDs? Some people DO WANT CDs, that’s the market we’re discussing. Digital is a new market that is stil evolving and it is getting cheaper already, with subscription services and variable pricing. Heck, even Amazon has only charged 89cents a track since they launched their MP3 service. The price will continue to go down, because it can…
Re: There's Another Thing
couldnt agree with you more. Sorry, but i havent bought a cd in a long time but would be more than happy to if the prices would come down. $13-$20 is way to high for how long they have been around. Less than $10 I would be pleased enough to buy CD’s again.
Re: There's Another Thing
…and do the same with digital downloads. Why am I paying $10 for an album that’s an infinite good (ala: iTunes)? Honestly, I paid for music via those Russian sites because the tracks were $.06/song then 10% off if you purchased the entire album…it was great — since I don’t really care about the liner notes or a physical disk.
Re: Re: There's Another Thing
Ahem brother, ahem!!!
let em go out of biz
that’s all that’s left. Just let em rot out, Mike.
It’s time.
Actually, the better focus on selling music, because the merger of Ticketmaster and Live Nation is going to be the death of the live event revenue stream. Service charges will soon be 2-3x the cost of the actual ticket…
Getting it
The music industry does GET what the new business model should to be. They’re just not done trying to get the Government to legislate us into buying music they way THEY want us to. They simply refuse to let go of the profits of yesterday even though they are just not there anymore. They refuse to believe it so to them it MUST be piracy that’s doing this to them and not the changing market. I think that the difficulty lies in the fact that WE are the ones who changed the market as opposed to them. Change doesn’t sit well in boardrooms, especially when it’s imposed change.
Thats like telling coke to stop focusing on selling soda.
Re: Re:
I love how self defeating saying “your an idiot” is.
Re: Re: Re:
I think this is like saying ‘Yours Truely’. That person is our ‘an idiot’.
Re: Re:
Coke hasn’t sold soda as a business model in years.
I repeat, kill the music industry
and start over
Re: I repeat, kill the music industry
The music industry is doing just fine. One segment, the recording labels, is struggling. They are headed to a scrap heap of businesses that failed to adapt.
My cut please....
Yeah, the labels should give all the music away for free, and then demand a cut from the band’s ticket and t-shirt sales….
Re: My cut please....
and then demand a cut
…for providing what service?
ARS has an interesting article on how even free can’t compete with free when you place too many restrictions on access to content. The music industry is simply convinced they can only make music selling those little plastic discs or even less with digital downloads. They have failed to recognize there is a much larger market waiting to be exploited if they could just understand music is part of a community that is BEGGING to be engaged.
http://arstechnica.com/media/news/2009/02/ruckus-when-free-music-cant-compete-with-free-music.ars
Can they really change?
As hard as I try, I can’t see a way for the majors to adapt to these new models. When you’ve got million-dollar recording processes backed by a billion dollar publishing arm, all designed to produce and shift units of music…how do you adapt that to a market that doesn’t want to pay for units any more?
The answer to the business model issue has to come from finding cost-efficient ways of recording music and promoting it freely to fans without sacrificing quality. Then you use the web2.0 stuff to tie the fans to the artist and bring them down to the shows and shift the merch…it could work. You wouldn’t make a huge amount of money off each act after paying the artist, but with centralised resources between a couple of acts it could make a good start-up.
But how does a major label do that? It’s not designed to leverage mid-level artists in the same way (it makes a loss on many of them). It’s the major acts shifting high volumes of units that keep it profitable.
The bosses at Universal, EMI and Warner could wake up tomorrow and cry “Eureka! I get it now!” but they’d still have to gut their companies to change so drastically.
I firmly believe that a business could be sustainable though leveraging the benefits of free music, but I don’ think there’s any way for the majors to return to the level of profitability they enjoyed at the height of the CD.
Maybe that’s the reason they still live in this dream world of music taxes and subscriptions.
Re: Can they really change?
(Its times like these I wish it was possible to edit comments)
Re: Can they really change?
At least part of this problem stems from the nature of the record companies. They exist(ed) to provide a service that was not accessible or affordable. Recording and distributing music once required a large capital expense in recording and pressing equipment to create the disc, a large distribution network to move the disc, and a large marketing department to get the disc heard through fairly narrow marketing channels.
NONE of these limitations exist in any real way anymore. These things are all available to your average musician with 5k in her pocket.
What was once a symbiotic relationship to content creators is becoming increasingly parasitic. They offer at best a marginal benefit to the creators and market in general, but have too much inertia in the industry to just be shrugged off.
They’re making buggy whips.
Re: Re: Can they really change?
I sort of agree with you. These three things the majors used to do…there just isn’t a need for the same level of infrastructure any more, not with bit torrent and web blogs.
But there is still a need for some.
You could probably record an album for 5k, on the cheap. But that sort of cash is only really going to pay for rental of a studio for a month. You want professional production, promotion, management…all these skillets are still needed in the digital age and very few young artists will have them.
That means employing professionals, and so already your expenses start to shoot up. Plus if you’re going to take an artists intellectual property and distribute it for free…you’re probably going to have to end up paying the artist a salary (rather then royalties) for a couple of months while he/she writes and records the album. The costs aren’t as unsubstantial as some like to think.
But this is what’s needed, I think. A business model that’s efficient in keeping the costs of recording music down, but being able to combine it directly with the finite products Mike loves to talk about.
And I can’t see the Majors being able to do that. I see it coming from mid-level labels that used to make their cash from building up small acts to the point where the Majors would snap them up for big bucks. That used to be necessary because a smallish label wasn’t saleable enough to support an artist when they became big. It was a natural progression, but I think that’s changing now.
Perhaps Twinrova is right, and Techdirt should forget the majors and focus on encouraging those smaller businesses who have the potential to achieve all this.
Re: Can they really change?
Yes. What he said…
We've been taught that DRM'd subscriptions don't work.
Music lovers have been taught over and over that DRM’d subscriptions services don’t work. You subscribe, put in a fair amount of time building your playlist and getting the system sorted out. Then poof. The service goes out of business and you are back to square 1.
RE:Can they really change?
If they follow your model then the labels would be in the artists pocket again wanting a cut of the live show ticket sales and t-shirts and swag. The artists will never go for that. And they shouldn’t. The labels rarley sponser tours because it’s expensive. Any artist with a backbone will keep the labels out of their touring revenue.
Re: RE:Can they really change?
Agreed, Tom. It seems rather obvious that Mike has never actually worked in the music business or he’d realize this. Most artists do need someone if they want to tour, get promoted, etc . . . Especially if they want to leave the US, as working as a musician in Europe is a whole ‘nuther ball game which the average musician wouldn’t be able to do. And still make music that is.
Re: Re: RE:Can they really change?
Agreed, Tom. It seems rather obvious that Mike has never actually worked in the music business or he’d realize this. Most artists do need someone if they want to tour, get promoted, etc . . . Especially if they want to leave the US, as working as a musician in Europe is a whole ‘nuther ball game which the average musician wouldn’t be able to do. And still make music that is.
As others have pointed out, plenty of labels are now signing 360 deals (though, mostly mucking those up). But we are seeing them work quite well in areas like Asia. And who said anything about musicians going without a label? Not I. I’ve explained how some new labels are innovating quite well. You can keep denying and denying and denying, but we see so many examples of bands and labels adapting that I’m not sure what you’re denying any more. Reality, maybe.
Re: RE:Can they really change?
You’re behind with the times. Majors have been shifting acts onto ‘360’ deals ever since In Rainbows.
Majority of new acts they push they’re already getting that cut.
Compete with Free?
Pirate Bay has ‘only some’ of the back catalog, in a mix of different formats and bitrates, with downloads dependent entirely on how many other people are seeding. The labels have something Pirate Bay will never have; the ENTIRE back catalogue all in one place, at the highest available recording quality. And the price most people would be willing to pay for convenience, even on an equal footing with ‘Free’ (as demonstrated by the success of allofmp3.com) is a lot higher than the cost to the labels of providing it. They could put all that music online at ‘$5 per gig’, let the buyer choose the format (any format from low-bitrate mp3 through to the full multitrack studio recordings, losslessly compressed). Don’t even bother with DRM. Don’t even bother suing p2p users. The amount of money people have spare to spend on entertainment is fairly constant, give them the best value for their money and they’ll throw most of it your way! Oh, and also if enough people start downloading direct instead of using p2p, the remaining users have nobody to leech from either so ‘Free’ becomes even less convenient!
Fat Cats
Its not easy being a kitty cat when once you where the Dominate FAT KAT with all the bands at your mercy! now that they have to think about growing new business models (considering they are way behind the times) and trying to please a different market, and being at the mercy of ITunes, im sure they HATE Steve Jobs and go to bed cursing his name. it not his fault, the industry sat on there ass’s counting there money when the world (and the market) changed around them!!!
Enough, already!
Before I begin, I want to state I am not a defender for the recording industry/RIAA.
However, these blogs are beginning to get tiresome. Worse, it seems Mike (Techdirt) can not distinguish the difference between the musician vs. the recording industry.
So, Mike, what shall the recording industry do? Should they have concerts and/or sell goods?
In case you’ve forgotten, it’s the MUSICIAN people want the goods from, not the company which distributes it. Constantly, these blogs usually reference what Trent Reznor and other MUSICIANS are doing, but rarely, if ever, do they show examples of the INDUSTRY doing something new.
The fact is, the recording industry is dying. There’s really no need for them anymore, and it’s this fear of dying which spawns their idiotic decisions. As more musicians become aware of using technology in their favor, especially at a lower cost, the more clients the recording industry loses.
We all have heard about the cries and pities from musicians regarding the industry in the past. Now, it seems, the tables are turning.
This is good, because I’m really getting tired of the industry pushing scantily clad jailbait to the masses while truly great singers go unsigned because they’re not pretty enough.
I truly wish Techdirt would just stop using its own Streisand Effect to this industry. The readers get it and really don’t need to be reminded of this on a daily basis.
Unless, of course, Techdirt starts providing examples of the RECORDING INDUSTRY trying to do something new, and not the musician.
I find it quite appalling Techdirt would rather continue spitting out this dribble rather than help them or provide apples-to-apples examples (especially to the readers Techdirt’s trying to convince to stop supporting the dying mode, between the lines of course).
So please, enough already. Focus on the positive and quit whining about the negative regarding the recording industry.
Techdirt has no influence to stop millions from downloading via iTunes which continues to fuel the industry’s desires to protect its profits.
Re: Enough, already!
“So, Mike, what shall the recording industry do? Should they have concerts and/or sell goods?”
No but they can offer their clients a business plan that has that in it and several thousand other possibilities. The recording industry can provide an invaluable service even in this Internet age.
“but rarely, if ever, do they show examples of the INDUSTRY doing something new.”
That’s because they don’t.
Re: Enough, already!
In case you’ve forgotten, it’s the MUSICIAN people want the goods from, not the company which distributes it. Constantly, these blogs usually reference what Trent Reznor and other MUSICIANS are doing, but rarely, if ever, do they show examples of the INDUSTRY doing something new.
Actually, we’ve pointed to plenty of examples of labels figuring this out. But, you know, why bother with facts when you want to go on an ill-considered rant.
http://www.techdirt.com/articles/20081211/1941213099.shtml
The fact is, the recording industry is dying. There’s really no need for them anymore, and it’s this fear of dying which spawns their idiotic decisions. As more musicians become aware of using technology in their favor, especially at a lower cost, the more clients the recording industry loses.
There’s plenty of room for the industry, again, which we’ve discussed, and you choose to ignore for the sake of a rant.
http://www.techdirt.com/articles/20080318/173833576.shtml
This is good, because I’m really getting tired of the industry pushing scantily clad jailbait to the masses while truly great singers go unsigned because they’re not pretty enough.
You’re confusing a few major record labels with the rest of the industry.
Re: Re: Enough, already!
“we’ve pointed to plenty of examples of labels figuring this out.”
ONE link? That’s all you can provide?
I didn’t say Techdirt never posted positives. I said rarely. Thanks for proving my point.
I’m sorry you feel this is a rant instead of constructive criticism. Sure, I probably could have sweetened it up and made it nice, but it’s not what I do. You know that.
“You’re confusing a few major record labels with the rest of the industry.”
I’m sorry, but I don’t believe I am. There are a few record labels trying to make changes (which Techdirt did point out one or two last year, sic, rarely) while the rest continue to rely on the current business model.
Look, I apologize if my post offended you (which it obviously did), but don’t take it personally. It’s business and, as a business, you want me to keep reading. Don’t keep producing the same anti-recording industry news, day after day, which pushes us to start skipping over them.
THAT’S a bad business decision, even if Techdirt’s giving away the content for free.
Innovate (aka: practice what you preach).
Looking forward to the next “anti recording industry” blog and keeping my fingers crossed the message got through.
all in all the whole spectrum must change from the bottom up. Listeners, buyers and those who benefit from free media (apple, creative commons,etc etc) need to look at the reality that someone has to create the the “art”, therefore RESPECT for intellectual property must re-introduced to the new generations. What the music industry needs to do is stop trying the rape everybody (the artists, songwriters and consumers) for everything they can. The world has smartened up fast and that greed will be the death of the majors.
Kenny Chesney
I read everyone’s comments and I have to say that I agree with the phenomena of getting the audience engaged. I wanted to use Kenny Chesney as an example. I don’t listen to country music but his stuff is exciting and interactive. His concerts are ridiculous and he has won entertainer of the year for the last 4 years…why? or how? Because he loves to do it for the right reasons, he just wants to send a message and impact his audience and it works, this guys sells more concert tickets than any other entertainer…no one is talking about how many cd’s or downloads he gets, its the experience. They literally have to get him to stop playing his music at shows. I think artists and execs should use his model as an example to follow. Thanks, JT
Tip of the Iceburg
I can generally buy a DVD for less money than a CD might cost me. The RIAA actually bullied one of my favorite file sharing services into cutting off my MP3s (Of my own music) because there was a presumption that I owned a natural copyright and would want them “protected!”
Nobody wants to put me on their label, my music doesn’t into fit into any of the nice little pigeonholes that Clearchannel thinks should be popular, and yet I cannot even give my own music away because it doesn’t fit into the RIAA’s business model. Thanks to Soundclick.com, I still have a place to give away my little MP3s however.
Let’s hear it for Creative Commons, the friend of the educator. Honestly, I think the only way that we can possibly dig ourselves out of this mess, is to create enough content for free, to keep ourselves afloat until the RIAA and agencies like them, implode upon themselves, hopefully taking all the profit mongers with them!
Re: Tip of the Iceburg
Give us a link and I’ll give your music a try.
bands should tour
Thanks JT. Right on. Go out and be with the fans. There’s nothing wrong with merchandising your band. Every band, from their inception started somewhere and there was usually a merch table involved. So, go out and tour. Give the music away. It’s already free, no matter what you do. There a lot of ways to make $$$.
http://www.betterthanthevan.com
Google
Google is the answer. Make people enjoy using the product and getting advertised to.
Are You All Really That Blind?
It is really amazing how blind these comments are. Mike pick it up in the Stimulus article yesterday. The ISPs will eventually be enforcing the law in the United States. That means a substantial reduction in illegal on-line file sharing of all sorts. It will never be eliminated but substantially reduced. Wake up, we live in a nation of laws and they will start being enforced by the entity that really can. PS And no one cares about the file-sharer who does it occasionally or not in high volume.
Do YOU work for free ?
If music costs to much don’t buy, everyone will adjust to the market, and things will work out. You can justify it any way you want, but if you steel it you’re a fucking thief.
Re: Do YOU work for free ?
If music costs to much don’t buy, everyone will adjust to the market, and things will work out. You can justify it any way you want, but if you steel it you’re a fucking thief.
You meant “too much” not “to much.” And also “steal” not “steel.”
Either way, you’re wrong. First of all, it’s infringement, not stealing, and no one’s talking about that anyway. This isn’t about ocpying. This is about the business models that will work. Just trying to sell music isn’t effective.
And as for your title, yes, everyone works for free if they don’t give people a reason to buy. Trying to charge for what’s already available for free isn’t a good way to make money. It’s just economics.
Do YOU work for free ?
If music costs to much don’t buy, everyone will adjust to the market, and things will work out. You can justify it any way you want, but if you steel it you’re a fucking thief.
You meant “too much” not “to much.” And also “steal” not “steel.”
Either way, you’re wrong. First of all, it’s infringement, not stealing, and no one’s talking about that anyway. This isn’t about ocpying. This is about the business models that will work. Just trying to sell music isn’t effective.
And as for your title, yes, everyone works for free if they don’t give people a reason to buy. Trying to charge for what’s already available for free isn’t a good way to make money. It’s just economics.
You meant “Octopus” not “ocpying” ?
Economics is my point, business models that don’t work.
In an environment were consumers have the options of, a) buying a product or service, b) not buying, or c) taking it for free, no business model works. Unless you can sell advertising all over your big mac wrapper to other companies, whose products are available for free.
Perhaps you differentiate between things that are heavy, like a car, or not so heavy like a disk with a song on it. Are you saying it’s ok to take something if it’s easy, and your friends are doing it? Or is it that record companies are evil, and it’s ok to take from them, and you industry is not evil so it’s not ok to take what you make.
If I’m your boss and I have the option (and all employers have the option) of paying for your weeks work or not paying you, and if all employers have convinced themselves that it’s ethically and orally fine to not pay employees, then your business model doesn’t work. You can only fix it with rules or guns.
If I grab your car and girlfriend, then take off for 60 days, would you consider your girlfriend to be,”infringed” ?
Your are wrong about copying, and you are wrong about business models.
Back when music was available only on vinyl disks and tapes, the only copies were on tapes and after a few copies the quality was terrible. People could not give copies to other people, and music was not free. Now with digital tech high quality copies are easy for everyone to pass around, and music is “free?” Music is still owned by musicians, record companies, and publishing companies who create, promote, and distribute it with big investments of man hours and money. Music is only free because it is easy to steal.
Did I mean orally or morally ?
Google
Google is the answer. Make people enjoy using the product and getting advertised to.