Chris - I don't recall where I first heard of it, but upon receiving your email, I Googled these three words: "musicians seek royalties" and found a link discussing the basis of my comment and pretty much lays out the argument. See below.

http://twinportsmedia.twinportsbroadcasting.com/2009/02/25/musicians-seek-royalties-from-broadcast-radio/

- Art

An opportunity exists for a revenue sharing model whereby a third party manages ad content and download sales on behalf of the artists and forwards a percentage to them. The major labels unwillingness to work with anyone who doesn't pony up significant cash makes them less viable moving forward. But an independent social network dedicated to music for music sake can be turned into a profit center based on the traffic it generates rather than the amount of download sales it records. As the traffic increases premium memberships might be sold for premium benefits like tickets to live performances or even free rare and valuable downloads. I believe the money is in the traffic, not the music.

I think that a lot of the assumptions here are slightly off -- right track but the left rail.

Much of today's current ill-health of the music industry was caused over a decade ago when the industry failed, on all fronts, to even acknowledge "digital music as a file" concept. From the early days of the Sun 3/60 desktop Unix systems there has been music file sharing. It is certainly nothing new. The music executives felt that if they ignored the problem, it would go away. Ignoring technology has never, in the history of music, made a new technolgoy go away. I blame the music industry for this massive failure.

You are correct that Apple was the one who capitalized on the notion of monetizing music files. A computer company - not anybody in the entire music industry - figured it out. The music industry actually fought them every step of the way. They tried to modify existing contracts and up the rates repeatedly. Again, the music industry high-paid executives failed every step of the way. Again, I blame the music industry for this massive failure.

Then, the public relations side...The music industry decided to punish, threaten and sue their customers. Bad idea. It didn't work. It cost them badly. They lost consumers by the thousands. Even today, there is an entire universe of music consumers who will not purchase any music. They are steaming mad at the RIAA and EVERY LABEL. They view them as corrupt, unethical, greedy little theives. I blame the music industry for this massive failure and perception.

Now, artists have come out of the woodwork and have also claimed the music industry is corrupt, conniving, greedy theives. That certainly doesn't help the industry's image a whole lot either. They blame the industry that continues to use old models in today's evolving world and, as usual, it doesn't work. I blame the music industry for this massive failure.

Finally, I have a desk covered with music for review. 95% of it is pure crap. Garbage by the cd full. My waste baskets are over-flowing. Look at country music today. It doesn't matter if you can sing as long as you're blonde, young and sexy. Who cares about music quality? So, we see more and more listeners looking for something else. They are not getting what they want and both the record labels and the broadcast conglomerates are failing to provide anything of quality. It is all trash. The younger generation is tuning out by the millions. Again, the music industry has failed miserably yet again. I blame the music industry for this massive failure.

What the music industry has failed to do is make money for the artists, songwriters, producers, labels and the rest who they claim to represent. They repeatedly turn down every offer to monetize some new idea. Social network sites like MySpace and Facebook, podcasts, small web sites, blanket licensing, ... No! No! No! is what the music industry says. They have been belching No! for so long I don't even remember when it started but it was back in the early days of Reel-to-Reel tape recorders I think. How many trillion dollars would they have made if they had said "Yes!" Artists, labels, producers, songwriters and everybody associated with music would be rolling in cash but, their leaders had their mantra: "Just Say NO!" NO! meant no revenue. And, that is precisely what they got. Nothing. I blame the music industry for this massive failure.

Now, just for fun, lets take a look at the movie industry. Here is an industry that pretty much got it right. They are selling DVDs by the billions. They give the consumer more for their money. You can get the entire movie, extras and all the music in high-definition for less than the cost of the soundtrack CD! Hellllooooooo! Get a clue Music Industry! The movie industry gives their consumers what they want. And, consumers are buying it! Consumers want to own a movie they may watch only once or twice. They want to see the extras and hear the music in high quality. They want to be able to entertain their friends in home theatres. The price is right. The value is right. The consumer is HAPPY! Why can't the music industry learn? I blame the music industry for this massive failure too.

For decades, the music industry has been in a self-destructive mode and they have repeatedly done just the opposite of what they should have done. Now, they are looking for somebody to blame. I can give them some accurate advice: Look In The Mirror! I blame the music industry for this massive failure.

I would say one problem is time. Artists today are expected to do so much, especially in the beginning of their career, but when are they supposed to write and perfect their craft. They have to maintain 30 different social networking sites, their web page, all the communication, etc etc. Even after they get established, the demand on their time away from being a great musician and artist can be daunting.

What would be interesting from our Linked in community is some thoughts as to WHY the music industry is failing. What is the difference between the music and movie industries such that one is better able to navigate the digital challenge? Obviously smaller files means the problem started earlier....but beyond that, why? Anyone have any thoughts, please?

The "industry" didn't want the rocknroll or hiphop either, they had to have it practically rammed down their throats, in fact. When did any entity in the history of business ever want to give up any kind of control, once established? But the days of giant corporations deciding what the general public has access to are done. (at least for now) Many, but not all, people will now take charge of their own tastes; traditional distributors will be left with the (perceived) crumbs-people willing to be force-fed. However, the biggest profits have always been made on this segment of the market: easily-led tweens have traditionally bought the lion's share of music, (or had it bought for them) since the end of the second world war. I doubt that this will change. What has changed is this market segment's willingness to simply steal the music instead. The rationale? It's not immoral if you can't be caught.
Not sure how you fight that; maybe just slap the parents, ISPs and universities with a mild surcharge to cover the shrinkage and write it off the taxes, so long as it can be quantified.

The difficulty with inventing the next music industry lies in establishing the groundwork for the new business model when lobbyists for the current regime squelch every effort. Who has the money for lobbyists and lawyers to do what's in the best interests of musicians and fans? And how do we best serve their needs?

If we want to determine the shape of the next music business model, there are two ways to go about it; we can look at what traditional companies are not doing or no longer doing, and we can look at who's doing it right. The main thing traditional record companies are no longer doing is artist development-any new artist that fails to gain immediate traction with the public is summarily dumped. There is still some effort made to break new artists, but with the excessive consolidation brought on by anti-regulation sentiment in the last four administrations/congresses-in fact, a lot of this goes all the way back to Reagan, there are now so few slots available at Clear Channel-dominated terrestrial radio that the labels' focus has shifted to trying to break new artists through TV and film placements.

I believe a forward looking RIAA would see peer-to-peer and torrent networks as a valuable market research tool. There has always been a segment of the market that for one reason or another never bought music, and these same kids in many cases become taste-makers for their peer groups, pointing the way for their friends and loved ones to get something better than the raw deal they're being offered by some media companies. I don't see why they don't let these cats have all the free music they want, so long as data is collected on how and when they use the music. I think plenty of people will still opt to pay for music that they can use in a completely private way, but some music should be free the way search engines are free-the data collected on the SE users is more valuable than the software and data cycles Google provides, right?

As to who is getting it right, I think Last.FM and ReverbNation are getting it pretty right, most of the time.

The industry did anything but ignore the problem. In fact I was hearing talk inside the industry of distributing files in the mid '70s!

What delayed the sale of files was the fact that the labels didn't have the rights to that form of distribution and needed to renegotiate many of their contracts with artists. Many artists were quite understandably reluctant to go first. That process was completed with most artists about the time Apple launched their service. The Beatles and a few others still haven't signed off on file distribution.

A real problem is that there is almost no objective reporting being done. The vast majority has been press releases from those who would profit from weakening copyright laws which are the only protection artists and songwriters have from gross exploitation by corporate interests. They point their fingers at the "evil" record labels when in fact they are only licensees of the artists and songwriters who are actually the ones under attack.

I started into the music business in '94 - the same year as my Popular Mechanics magazine issue that reviews GM's electric car, in terms of performance - things like it beating an Acura Integra in a race up a hill, etc. The car was set to be released within the next 2 years. What happened? It seems this technological innovation would have majorly impacted the oil industry - by now, the gas car would have been obsolete. So the oil industry stopped it - or more precisely, DELAYED it so they could keep making money the way they were. Now after 15 more years of greenhouse gases, we're beginning to see clear signs of planet deterioration. And where is GM now? On the brink of extinction. The music industry, like GM, chose to ignore the problem and keep pumping out crap. I think Bob C's post accurately describes it. What's wrong with the music industry is the PRODUCT. Songs and "rock-star" brands, are no longer a viable product. They are a 20th century product, and now we're in the 21st century. Everyone gets their music for free, so no one values songs anymore. People can download movies for free too, but most don't because technology isn't yet at a place where it's as easy or fast for most people to make it worthwhile. But soon enough, it will be.
Then internet will be THE central distribution system for all media. The music industry has to develop a product that consumers value enough to pay for, and release that product in a new digital format - one that can be dowloaded or streamed, but not copied. I'm not a programmer, but it seems to me there has to be a way to create an audio or media file that has imbedded data which identifies it as a master, and another as a unique "copy". For example, consumers could buy product from labels by completing a proprietary monetary transaction process (online) which unlocks the ability to copy 1 iteration from the master, where the copy has a unique number that identifies it as a copy, and copies are non-copy-able. If the music industry were to develop a system like this (like they developed the phonorecord) they could sell "copies" of the master file in the same way as physical records, using this phenomenal global marketing and distribution system called the Internet.
There's no reason they can't develop a file like this. Keep .wav and .mp3, etc. for independant musician's who want to share their music, but the music industry would only put out their product in this newformat. Sure, people could still copy and share the music by playing it on a media player and recording it with audio software, then burning it in .wav or .mp3 form and uploading it - just like people could make tape copies of tapes and records back in the day fi they had the proper technology and were willing to spend the time. Most people wouldn't bother. And how many regular music consumers out there have the ability to record surround sound and output it back into a surround format? The product purchased from the music industry would be differentiated from the commonly shared, free file format. Consumers would then pay for it, because that's the only feasible way they could get it. This is how I believe the music industry could save itself.

For a review of this crisis from an Economic point of view; review a paper I wrote in 1995 at USC Grad School (http://www.musiconversations.com/respaper2.pdf) entitled "The Music Industry at the Window of Opportunity Generated at the Kondratiev IV/V Interface at 1998 to 2003"

This paper predicted the downturn in the music industry based on an economic cycle called the Kondratiev; which also predicted the "Depression" we are in today.

In the paper in 1995; the approach I provided to "saving" money back then was digital distribution of music. So I predicted this whole thing. I also predicted that the music industry had everything to lose in terms of "Controlling" the music industry with digital distribution; so they were going to do everything to stop it.

The following is was one my conclusion in 1995 in the paper.. Now remember this was before Microsoft had a real browser, Netscapes Browser (version 1.0) couldn't play embedded audio files; AOL barely existed as a company much less no MP3.com; no Napster, no iTunes. A cheap digital recording system was $20,000.

" Future Forecast - I see the future going towards a less physical distribution system for recorded material with multiple mini purchase sites. With the new information highway and fiber optics going into everyone’s home, the future may see downloads of material right into an individuals harddrive. Structurally their would need to be a raise in technological for data protection. This is already seen outside the music industry for electronic data copyrights on electronic transfer systems such as the internet. Genres will continue to grow and fall, artists will continue to rise and fade away. Musical instruments will get smarter and smarter, recording will get easier and less expensive. Power structure will be based on influence and less on capital investments. I see the organizational opportunities for forward thinking individuals to rise greatly in these declining times. New ideas will more likely be accepted and implemented, improving customer satisfaction and music quality."

Concerning the major Labels I also stated: " Concerning the Kondratiev IV/V interface and windows of opportunity. The primary opportunity will be the opening of a very closed and dominant structure that is maintained by the Big Six. This is not to say I’m against big record companies. I am a musician and a creator of music, desiring to share my work with anyone willing to listen, and hopefully willing to buy. Any structure that limits artists from sharing their material with the world is a sad one. As far as the recession that will probably occur in the next decade, I foresee major changes in the recorded music distribution system. This is the only function in the industry that is set in stone, and is a very expensive in it’s current distribution methods. ... Are the Big Six going to ever except a technology that threatens their very power structure. Probably not, until a mutation occurs and some smaller entities begin to use the technology. Nucleation will occur through savings to both record stores and record companies. This will drive the technology so big that the Big Six will have no choice but to use it as their distribution system."

Now the flip side; if the Kondratiev predicted its decay and decline; were does that put is in the near future as far as sales. That is the topic of my new blogs and articles 14 years later the original analysis since it has all come true. More to come at http://www.myspace.com/musiconomics .

Frankly; the Internet and all its distribution and marketing opportunities it has provided has removed the chains of music artist to the Labels. The cost to self produce a CD is negligible, to cost to distribution digitally is nothing; so all that is left is the marketing side which social networks provide for some. More artists means more options to the listener and consumer but it also means more BS music as well; therein the confusion factor; so a filtering mechanism must surface soon.

When the money returns to music sales after this economic depression our society is in now; that filtering mechanism will surface much like iTunes has provided sales; to highlight the real commercial value music. Let the long tail independent artists (low volume sales) stay in the digital realm. When a "Label" artist makes about $1-$1.50 per CD; an independent artist's sales volume can be a tenth of the sales of a major label act and you keep your rights; which can be picked up on in a movie or TV show (this is happening for alot of the major MySpace acts).

The last 8 years has been great for the independent acts and I think digital marketing for music acts is at its infancy..

Wade Erickson

I have been in the music industry since the 1960's and the industry that I love no longer has music people in charge. The majors labels have no concern for talent or quality - they are simply about the bottom line! No more artist development which shows in the amount of crap that is released and pushed on the public.

When the major labels want every artist to write their own songs its because its cheaper for the labels. Not everyone can write songs, songwriting is an art form. As for the digital age, if has many advantages and just as many drawbacks. Piracy will always be here - it always has been. The attitude of young people that all music should be free is the major problem. Most adults do not steal music and they will not buy crap.

In an ever shrinking marketplace where a few companies control so much of what is heard on radio and is available at retailers, the indie label is having a harder time then ever. The real enemy here are the major companies who control so much of what ends up in front of the public.

Quoting Mike, "... a new digital format - one that can be dowloaded or streamed, but not copied. I'm not a programmer, but it seems to me there has to be a way to create an audio or media file that has imbedded data which identifies it as a master, and another as a unique copy. " I'm a musician and a programmer, so let me go ahead with both hats on.

This is a goal that the digital rights management folks claim is always going to work for the "next" scheme. This is never, ever going to work when decryption/authorization/you name it has to happen on a piece of hardware owned by the consumer. Once the file is in playable form, it can be copied by someone sufficiently motivated to do so. Maybe it's a kid who has loads of free time and wants to be able to claim he was the one who broke the scheme. An amazing amount of work can get done by a large number of idle programmers. So the concept of "completely protected, but playable by anyone" music is done for.

The "only playable on my hardware" option is also dead. Microsoft's "Plays For Sure" (none of which plays anymore) killed that one. The general-purpose computer genie is out of the bottle and isn't going back in.

At this point, it might be an idea to look at what is working. I'd mention Nine Inch Nails as a particular example here. The money is not coming from total control of distribution; it's coming from access to stuff that's not digitally duplicatable. Example: the limited-run extra-special edition of "Ghosts I-IV" - a $300 limited edition that sold out completely at blinding speed. Only so many of those; even if you get the music (most of it given away FREE to the fans, by the way, to a huge positive reaction from the fanbase), you can't have that unless you buy it. You can't see the band play live unless you go to a concert. There are special t-shirts and other stuff available only at the concert. Let's go one further: a recording of the concert you can buy as you leave after it's over. Maybe not quite practical yet, and I believe someone has been granted a patent for this, so there may be some additional costs, but still it's an "I was there for this concert and you weren't" even if the tracks end up on file sharing.

Limited access to non-digital stuff is where the money is at this point. The sooner the music industry figures that out and makes, the sooner they'll be back on track. Perhaps not as incredibly rich a track, but they won't fold, and they'll quickly lose the negative connotation they're going out of their way to get. Stop thinking about the music as the marketable commodity; think of it as ads for the stuff that can't be distributed over peer-to-peer networks.

iTunes isn't selling music: it's selling convenient. I can buy a track from iTunes and play it on up to five of my devices; if I buy the MP3, I can play it on any device I choose. I don't have to order the disk, rip the track myself, or wait to download it off a file-sharing service: it's right there, on my computer in a few seconds, and on my iPod or iPhone a few seconds after that. Apple has very carefully worked to keep the cost of the convenience low so people will be more likely to just buy it through iTunes rather than go at things the hard way. Dream up ways to provide more convenient access at a (low) premium.

Re DVDs - it's not all roses there either. Region coding, Macrovision, automatic disabling of HD outputs - these still tick people off. Many of them shrug and put up with it. It's still more convenient to buy a DVD than it is to download a movie - mainly because of connection speeds. If it were possible to download a full-length movie in HD in a minute or two, a movie that can be watched on any device you own at maximum resolution, the DVD market would suddenly start dwindling as well. The growing urge on the part of the studios to start playing "hardball" like the RIAA I hope will diminish; it's sad enough to see one industry writing its own suicide note in lawsuits.

Selling access and non-digital items will still remain moneymakers. Digital distribution is now best viewed as wide-bandwidth advertising for those other items.

I think the problem is that the mass media and it isn't the worst thing. You can't get everyone's attention at the same time anymore. I remember walking into work on a Friday morning and everyone talking about Seinfeld the night before - now, all my friends in the morning, the same friends that watched Seinfeld in the 1990's, had 20 different experience. The internet has made entertainment ever so personalized. So how is a record company ever going to be able to get everyone's attention.

I for one think this is one of the best times ever and one of the most exciting times, I don't think there are any problems, unless you are wanting to continue to work in the 'typewriter' business.

I'd have to say that the digital revolution is just as important, or even more important, on the music production side of things. Now anyone with a few thousand dollars can make and distribute a listenable, if not pro sounding recording. If much of it is crap, well, much of it was always crap and I'd say the good to crap ratio is fairly consistent. If 1% of 1000 albums a year produced 10 good albums then these days 1% of 100,000 albums a year is producing 1000 good albums. The problem is *too much* good music to find. The labels can't control the flow of what gets out and therefore can't focus the market on what they offer. But good music is out there everywhere you look. I've had the 90 downloads per month emusic subscription for years and I still have 140 albums on my list to download that I haven't gotten to.

Historically, we're going to look back at the music industry as having a small, weird window in which it was possible to be insanely profitable based on a unique and unsustainable combination of circumstances – a perfect storm of controllable media outlets, musician ignorance of business, and limited media for consumers to focus on. It's over. And quite frankly it should be. As a musician I hate the fact that it's hard to make a living as a musician, but looking objectively, musicians were overvalued for a generation. That led my generation to believe that it was a viable career choice right at a time when recording technology became incredibly cheap. Naturally this led to consitions that flooded the market and devalued the product down to virtually zero no matter how good it was. (If anything, I'd argue that free music through piracy is artificially propping up demand for the supply glut.) But I trust at some point Smith's "Invisible Hand" will shoo off the people looking for a quick buck and leave our music scene healthier for those who continue to pursue it. Give it 20 years to sort itself out and stabilize.

But even if money doesn't change hands music will remain a vital, vibrant part of the fabric of our society, just as it was when a majority of musicians were amateurs, playing in the parlor for friends before Edison came along.

Many of your points are spot-on here, Chris. I'd also add that the major labels were greatly to blame for the diluting and commercialisation of the music industry. Not nurturing new and upcoming talent along with forcing the artists into a hit-machine mould and the music fans into a "you must buy the album even though 10 of the 12 tracks are average" purchasing model have kept the industry stagnant and stale over many decades. Playing the big money game with national radio has helped the demise of FM radio as a source of new music discovery too.

I like your point number 5 about the traditional record store. Again, Major labels signing exclusive deals with Big Box stores has not helped, and the independent stores found it hard to align their niche markets, create value and reduce overheads. I wrote a full blog on 'Saving the Record Store' a short while ago you may enjoy.

I could comment much more but I'll save it for future posts here :)

Best,
Lee.

This is a good artical that is showing up the problem with the Music Industry. And that is the problem it is now an industry with outmoded views and bussiness practices. Today artists rather stay independant, in control of their own journey, earning money from live performances, and CD sales at their gigs. We can be more independent today as making CD's of our own music to a very high quality is affordable due to the digital recording revolution. Independent artists can now side step the recording contract.

Independent artists network on the internet and can keep their fans/followers/friends posted of gig dates, tour dates, and new releases. The internet has allowed the independant musician to function and slowly build their own bussiness plan.

The biggest problem I see as an independent musician and live performer is ditribution. As ststed the old idea of a one stop bussiness model dose not allow independent artists in on the distribution. Maybe ditribution companies should start looking to the future and freely distribute on demand, with a financial plan with the artist.

Radio is tied up with the dreaded play list culture. What we need is Pirate radio prepared to play all new work whatever genre without prejudice, and allow the audiance to choose.

Royalties should be collected from all over the globe, and distributed the artists, inedpendent and contracted, but ensure that the registered artists get their total royalties rather than the top few superstars who get the cream from the top on the assumption that their music is being played somwhere in the World.

Music web sites for the unsigned ask the artists to give a way a track or two. This should be stopped and all music should have a download fee. and a percentage passed on directly to the artists.

The mmusic industry is a closed shop. New artists are not allowed through the door. The industry is also too quick to dismiss the idependant artist. Also the industry is too busy keeping score on pop music, and not looking at the broader picture accross all genres. The industry targets too small an audiance. These companies should start to look at the bigger picture.

Ok 360 deals a nessicity ??? maybe like I have already stated distribution companies should be more independant, and retail outlets sholud also loosen up and maybe have a section for the local bands and artists where the independent musicians and band can sell their CD's under a direct percentage between the local shop and artist.

Music should be kept as a live experiance with real musicians performing, Not a digital sales model.

Artists that perform live have problems selling their CD. Why dont the music venues have a permanet area where the Musicians and Bands can sell their CD at the venue allowing the audiance to buy the CD the next day etc.. This would rais money directly for the artist and the venue.

Todays music scene has changed due to the digital revolution, But the big Industry has not changed and is stuck with the old bussiness model. Independent musicians are able to side step the indusrty today. But the infrastructure is not yet in place that can help this new strategy.

OK, I'm just going to come right out and say it:

There is only ONE business model that has been shown to be profitable for the internet. It is that of the Internet Service Provider because in most cases they can shut down anybody who doesn't pay. Every business is built around relationships, the ability to enforce agreements and the ability of society to punish unethical conduct. Until the Internet can be effectively policed, all talk of "business models" for anybody involved is a pipe-dream.

If the internet can't find a profitable business model without content creators being expected to give up their ability to sustain themselves, the internet quite simply has no sustainable business model. The oldest Ponzi scheme in show business is telling performers that they should give up getting paid today for the future benefits of "exposure." This was B.S. in the 1920s and it is still B.S. today.

What we are really talking about is an internet business crisis that people are projecting onto the music business. The idea that there is all of this ""middleman fat" that if eliminated could make internet music services profitable has simply never been true. Unfortunately there are a whole bunch of investment schemes that are based on people believing that false premise.

Let me add:

You CAN get everybody's attention when something is good enough to get everybody's attention. I think the bar is just very high today.

Upon rereading all of this, I also think people are projecting an amazing amount of power on record labels that has never been true. From everything I've seen during my 45 years at this, the music business has always really been a meritocracy. Everybody at a record label can generally play stuff for you that is incredible by any measure, got an extraordinary mount of promotion and publicity but was a complete bust in the marketplace. It's very common for people to blame their failure on "the industry" and I fear a lot of the ranting about record labels is related to not wanting to give up having that excuse.

@Mike White:

The problem with a proprietary 'master' copy digital file format is that such a system already exists - it's called DRM and everyone HATES it. Even control-happy Apple now offers their downloads DRM free now with their new pricing structure. To suggest that a system like the one you described should be the Music Industry's new business model is actually to take a big step backwards.