In my next venture, how would I reconcile the traditional author-agent-publisher-printer-warehouse-wholesaler-retailer-reader supply chain with the potential power of the Internet as a platform? I say “as a platform” to distinguish from how most publishers currently use the Internet—mostly as a logistics and marketing tool. Working with my friend and fellow publisher, Dedi Felman, what emerged from my research is a model that to some will seem unconscionably radical, to others unconscionably conservative: a business that properly avails itself of all the tools that now exist to enable the creation of writing and reading communities from which all else emanates—print books, downloads, marketing and publicity, editorial services—and, of course, revenue.
Good conversation about netlabels down in the comments on this blog entry by Andrew Dubber.
From the comments on sue em all not good for labels, here’s Greg on the prospects for the music industry:
It’s kind of like Dr. Bloodmoney or one of the other good Phil Dick post-apocalyptic novels: most of civilization may have been destroyed, but some industrious tinkerer out there can probably put together a wood-burning car, the kindly kid in the radio shop turns out to be telekenetic, and the small rodents evolve high intelligence.
On my optimistic days, I find this state of affairs exciting and stimulating — you never know what weird creature could come along mext — but just as often it seems dreary and near hopeless: there is, after all, a lot to mourn for.
And Victor’s response:
it does seem that taking something away as fundamental as charging per “copy” would be wrenching under the most visionary, forward thinking authority.
Meanwhile, the death of “my favorite band” seems to me a cultural phenom almost separate from sue-em-all and more a by product of other forces. Kids don’t seem to pin their parental-anxieties on celebrity rocks stars like they did in past generations. I don’t mourn that.
Unlike most, I don’t think things are over for the labels. I think that they are going to shrink to the size of the licensing opportunities, for example in helping jeans, cars, and games to sell. But once they get there they’ll stop shrinking, because the recordings they own will stay cultural milestones. If the song publishers — an industry rooted in the 19th century — can remain a big deal in the 21st century, the record companies can find a durable niche as well.
I’ll do a shorty talk at the Creative Commons salon in Silverlake, in LA, tonight. My topic is going to be the role of permissive licensing in the business of internet music. I’ll lay out a map of the industry as a whole and situate copyleft within it.
Creative Commons is at the forefront of the progressive copyright movement, seeking arrangements that allow the free flow of artistry and ideas while at the same time protecting intellectual rights and freedoms. A group taking the middle road, its efforts have been invaluable in the face of technology’s rush into the future. At tonight’s salon, Mark “Frosty” McNeil — founder of noted DJ and multimedia collective Dublab — and XSPF developer Lucas Gonze tackle the ramifications and opportunities that could result from current and proposed copyright policies and discuss their larger effect on the music industry.
The other day I emailed a netlabel to ask if I could rehost their album art. They didn’t have a version of it online for me to include using a direct link, and it wasn’t under a permissive license that would permit me to redistribute it.
Then yesterday I emailed a fellow who had put up a sound sample under a license I can’t use to ask if I could have permission to use the sample anyway.
Neither of these people have gotten back to me. That’s not a coincidence – rights holders have an incentive to be cagey. They benefit from saying nothing. I doubt that either of the people I emailed would object to my use. But compare what they get for saying nothing to what they get for saying something:
– If they say no, I don’t help market their works. I represent viral spread to them, and they want it.
– If they say yes, they give up the opportunity to charge me.
– If they say nothing and I do it anyway, they gain both viral marketing and the ability to sue me.
Not giving permission but not saying no is all upside for rights holders.
They don’t even want to be *asked*. Let’s say a rights holder had a web app for infringers to tell on themselves, so that a user of the app would be submitting a statement to tell the rights holder that they were infringing. Wouldn’t this create an obligation for the rights holder to complain? Oh noes! If they didn’t complain they might lose their ability to sue. If they did complain they might lose viral marketing.
So that’s copyright don’t ask don’t tell. Rights holders want you to infringe without either asking them or telling them.
Techies frequently rag on the RIAA “sue em all” campaign, saying that it hasn’t worked and never will. They’re wrong.
As an example of someone saying Sue Em All is not working, this sober analysis by professional economists describes the situation this way:
A catch-all phrase covering letter writing,
bandwidth throttling and legal action against those who upload and
download files. Whilst understandable as a choice given the current
coordination problems, there is little evidence suggesting the costly
process of pushing down on the black market will indeed raise up the
demand for the licensed market for music. Furthermore, there exists the
real risk of a ‘Whack-A-Mole’ game – persistent reappearance of
unlicensed sources for music upon the closure of any source.
It’s true that individuals in private life are just as free to do filesharing as ever, and that the amount of filesharing isn’t going down. However, it’s not true that businesses can incorporate filesharing.
A business that builds on filesharing creates unacceptable risk for its investors. The investors are about return on investment, and they aren’t ok with giant settlements or big ongoing legal bills. Businesses who need music are usually forced by their investors to cut licensing deals, despite the brutal expense.
Google’s settlement of the lawsuit over the book-scanning program is a good example. They had a pretty damn good legal case if they wanted to fight it out, but they stood to gain more by making up. Fighting meant uncertainty over whether the final judgement would vaporize the entire publisher project in the end. Settling now meant putting bounds on the costs.
Standing on principle is not what businesses do. They exist to make money. Making money means controlling risk. Controlling risk means preventing ruinous legal judgements.
And users gravitate towards experiences supported by business, because business support allows for better usability.
Case in point, the Apple silo. Apple makes it very easy to get music onto the iPod by buying at the iTunes music store. If you’re an iPod user, you’re an iTunes user, and if you’re using that software then it’s often easier to buy licensed music from the iTunes store than to download from a filesharing network and import to iTunes.
Not that users *can’t* do filesharing — that would be a ridiculous claim — but that the usability of licensed commercial suppliers is greater.
And usability is a huge factor. People have a hard time operating computers. They have an easier time when businesses devote resources to helping them. When they have an easier time of one thing than another, they do more of the easy thing.
Again, it’s not that lawsuits against private filesharers have caused private filesharing to go away. For an individual engaging in filesharing the calculation is clearly on the side of doing it. Individuals who are rational actors *will do filesharing*.
It’s that the same calculation doesn’t produce the same result when it comes to support businesses.
I hear you say: what about My Favorite Software, which is still around? What about X-Factor-Gee-Whiz-2000? What you don’t know is that the proprietors of those companies almost certainly are having meetings with the labels. They are making the pilgrimage to Santa Monica to kiss the ring and seek absolution. If they’re still doing what they’ve always been doing, the reason is probably that they can’t get a favorable deal.
Open source software is an exception; without investors, it doesn’t need to control risk. Generic software which can be used for filesharing is the other exception. Nobody thinks it might lose a big court case.
As a result of all this, the record labels are busily cutting licensing deals. It’s simply not true that they have scared the customers away. Now, maybe the companies taking out those licenses are going to go out of business, leaving the labels dead in the water in the long run. But the jury is out on that. We won’t know for a few years whether licensees can survive and under what conditions.
What we do know is that the labels have created a customer base by suing it into existence.
I don’t think they’re selling their spots at the listed rates. I think the ads they are selling might be part of package deals with other sites that I don’t know about, because they can’t deliver enough traffic for major brands to pay attention to them. And I think the actual rates are lower.
I also think that I understand their business strategy. They’re able to put major brands inside the world of way-cool MP3 blogging without risking association with copyright infringement. It’s hip but also clean. The business is relying on their squeaky clean copyright status to charge a premium for ads. So even though I don’t think they’re getting the listed rates, I do think they’re getting much better rates than ordinary MP3 blogs.
This points towards an elegant and innovative business model.
Ordinarily internet music companies are forked between two deaths. If they keep it clean they get killed on royalties for licensing. If they’re fast and loose with copyright, they get killed on legal bills and eventually are forced to license anyway. But either problem assumes that they have to carry a broad selection of everything with cultural presence.
RCRD LBL avoids both forks by doing their own A&R, then packaging the results as a blog. The reason they’re a label is that they do their own research work to find obscure gems. It’s important that these are obscure, because it means that licensing costs can be kept down. It’s important that they do their own research, because there aren’t yet strong discovery tools for digging out the gems in the mountain of unknowns. The reason they’re a blog is that they aren’t expected to carry everything everywhere. If they were a search engine like Seeqpod or an encompassing content browser environment like All Music Guide, they would need to carry music that they couldn’t afford to license. The blog format puts them in position to limit what they release.
Note that the importance of lowering royalty costs doesn’t imply that the musicians are getting screwed. If the musicians earn exactly the same as they do on a traditional label, RCRD LBL can still have a winning cost structure by keeping royalties that would normally go to label and publishing bills.
Will it work? It depends on execution. They need to get their traffic up enough to do business with the brand advertisers who will pay a premium for RCRD LBL’s clean but edgy product line. This range is about a million uniques a month.
What I think we’re seeing is a market inversion, that we’re currently bang smack in the midst of.
When this inversion is complete, instead of a label acting as an artist’s promotional agent maximising the sale of their music to their audience, we’ll have an audience’s discoveral agent maximising the discovery and commissioning of the music they like.
A label in this case will be just like 4AD, but instead of representing a common je ne sais quoi character of the signed bands, will represent a common undefinable taste of the represented audience members.
I don’t completely agree. Yes, listeners are getting more power to pull fresh media according to their own taste, and publishers are losing power to push media according to what they can monetize. As Umair Haque would put it, attention is becoming scarce at the expense of marketing. And yes, listener-driven distributors like shared playlist sites have an edge over creator-driven distributors like garageband.com.
But at the same time, distributors with a compelling voice are gaining ground. Good music bloggers speak with their taste, and they have a lot in common with specialized labels like Dischord. Per Greg:
Maybe it’s just my view from the extreme edges of the indie fringe, but to me a label is a vehicle for a particular real life community, aka a scene. The indie labels that have had real and long lasting artistic and commercial success, from SubPop and Touch and Go at the high end to Kill Rock Stars and Dischord at the low, have been built around groups of people who actually know and like each other. They play in each others’ bands, they tour together, etc. Even when the bands on the labels play different styles of music, there’s some kind of shared vocabulary there that creates a commonality.
It’s these kind of relationships that give labels meaning for fans, as well. If you’re into Fugazi, you know what it means to be on Dischord. In fact, you might buy a Q and Not U record, or some other release, simply because it’s on the label. How’s this for a definition of a label: a collection of artists under a common banner where, if you like one, you’re likely to like more. That’s why labels (in the sense of companies) had labels (in the sense of logos) in the first place: as differentiators for the customer to know something about a new record before getting to listen to it.
The structure of the attention network is not so much around automated attention agents acting for listeners. It’s more like representative democracy — listeners are delegating the selection process to trusted curators like MP3 bloggers, playlisters, and labels.
Ok, so, this might seem like a basic question but what is a label anyway?
Ian thinks it’s a music service organization oriented towards market niches:
With the disappearance of advantaged label competencies such as superior production, distribution, and marketing, reconfigure your labels to be based around affinities and focused narrowly enough to serve roughly the same audiences from release to release. The labels would be very small teams responsible for fan cultivation, focused and direct marketing, and A&R. They would rely on EMI for service, support, and tools (generic marketing would happen on the EMI mothership, for example).
That’s sounds an awful lot like a marketing company to me. And if that’s the case, Victor isn’t down with it:
as far a I know no major label have ever, as in never, broken a band. The band breaks itself, proves it has an audience, and then the labels cash in and sucks the artists’ till dry. There is zero expertise there.
The thing that I get hung up on is that the music business doesn’t have a lot of empty niches, and I don’t see what a label brings to the table in any of the niches it doesn’t already occupy. Sure, labels can get into the concert business, but why are they better at it than established players? They’ll be coming to the party with culture and resources designed for a completely different line of business.
Every other significant revenue source in the music industry is a complementary product to recording sales. As far as concert promoters and merch vendors are concerned, every CD should be 100% free. Having to sell the CDs just gets in the way of creating the attention that moves t-shirts and concert tickets. So how does a label get into these businesses if its legacy interest in selling recordings interferes with its new interesting in giving recordings away?
The business of a record label is selling records, and if selling records isn’t the point then labels seem to be the wrong kind of business to drive the music industry. That’s not to say that there won’t be label-ish things in the long run, just that the labels seem to be the worst candidates to fill that slot. And what slot is that?
Bands need to cluster
If I were writing a business plan, investing money or advising investors, I would say – stay away from stand-alone artists and invest in groups/collectives/labels/consortiums/franchises, but not stand-alone artists or bands.
Stand-alone artists are not, and can barely be entertaining on the Internet. Clusters of artists can. The person that can figure out the “model” – how to cluster artists and make it all work, will be creating a real business.
Well, I agree with you…we were lucky with World-Around Records, though. I look back at the past year of our operation, and it was mostly formalizing informal networks that grew organically and mostly by accident.
Taking this back to the long running theme on this blog about musician sites and musician blogs, the success of standalone musician blogs depends on becoming part of a network.
A complementary point from a blog post on newmusicstrategies.com titled Do I really have to blog?
The idea that the world is divided into content creators and consumers is increasingly redundant. What’s important is the quality, frequency and ‘engageability’ of your content – and that’s no longer restricted to your musical output.
The fact that you make music is unremarkable. The quality of your communication — musical content included — is now the measure by which you will be judged. This is not a call to pick over the mundane minutiae of your life. This is a challenge to be interesting.
And really, this is not such a radical or transformative idea. Your music has always been communication. Your music business has always been a communication business. This is about using the online tools to enhance that communication.
But blogs can easily be isolating experiences, and that’s a core problem for musician-bloggers, who need to keep up a steady stream of releases but have to stay connected to a vital cluster of fans and other musicians. Hence the reason why most musicians thriving on the net pick a social publishing context like YouTube, Myspace, CCMixter, or GYBO.
Mo bettah, Mr. Hands
Clustering is something labels are already doing. Blue Note is for jazz. Warp is for a particular kind of electronica. Matador, Sub Pop, Metal Blade…
Which brings me back to Ian’s proposal to Guy Hands:
reconfigure your labels to be based around affinities and focused narrowly enough to serve roughly the same audiences from release to release. I’ll buy that this is an important thing to do, and the need is not going away. But I’m still skeptical that record companies can cannibalize their current business to do the right thing in this new niche, and in the meantime YouTube, Myspace, CC Mixter, and GYBO are doing fine without them.
So here’s my proposal to Guy Hands as to what he should do with EMI’s new music business.
Creative Commons has posted a Request for Proposals (RFP) regarding the future of the ccMixter.org site, and Victor has posted detailed comments on this. If I were EMI I would step in to operate CC Mixter. It’s a fully functional cluster of music makers with a strong hold on its niche. I don’t know how to monetize it at the scale EMI would need, but I do know that at least EMI would be in the game. Take over and learn how it works. Use the time to gain the institutional skills in managing community. This will take a while, but in a few years the Mixter community will have started to reverse colonize your company. And that’s EMI needs — to absorb the values and skills needed to manage clusters.