Many bloggers and artists seem to be ending 2009 on a note of cynicism. While the year began with a sense of excitement about new possibilities available to artists, the independent music community has begun sounding unusually negative lately, even jaded. It’s like everyone is racing to be the first to declare the DIY revolution last year’s news.

2009 may not have lived up to everyone’s expectations, but there remain so many reasons to stay positive as we enter the new year. 2009 was transitional, as every part of the music industry struggled to find new footing. I truly believe that 2010 is going to be the year to plant our feet and make things happen.

Progressive or Regressive?

A lot of the negativity in recent weeks can be attributed to a couple of primary sources. We bloggers have a tendency to confuse cynicism with remaining on the cutting-edge of popular thought. Being the first to become jaded with a widely accepted idea and move on can often feel a lot like progressiveness. The headlines are catchy, traffic jumps and pages of heated discussion in the comments section ensue. That’s successful blogging, right?

Unfortunately, it’s really not progressive at all. In fact, prematurely dismissing ideas that still hold true potential has much more in common with re-gression. Independent musicians have been presented with what is perhaps a once-in-a-lifetime window of opportunity to succeed apart from the crushing practices of the traditional record industry. And we want to throw a wet rag on this fire? Yet, no alternative solutions are being offered. What option remains, then, except to go back to the way things have always been done? That’s regression.

Delivering on the promise

Artists appear to be growing frustrated with a lack of success relative to what they feel they’ve been promised by the Music 2.0 gurus.

Where are my 1,000 True Fans? I’m killing myself on countless social networks – why am I still not making any money?

I get the frustration, and I sympathize with you. The business of extracting revenue from music is not easy, and it takes a whole lot of work. DIY promotion is not a silver bullet. Hopefully neither I nor anyone else have led you to believe that it is. Signing a lucrative record deal would possibly be a lot easier (assuming you aren’t neglected or dropped unexpectedly of course.) But independence can be much more rewarding, and even more profitable than signing your rights to the majors.

Hang in there. Success doesn’t happen over night. Independent artists are small business start-ups. Any entrepreneur will tell you that most new businesses go 5 years before leaving the red. That scenario isn’t for everyone, but fewer and fewer alternatives are left. It’s important that you know what you’ve signed up for.

2010 is the year to make it happen

The DIY movement is one of those unique opportunities that only appear every generation or so. Music is leading the charge into modern, technology powered, socially connected business. This transition will only accelerate as other related industries begin to follow down the path of creative deconstruction. It’s the perfect time to establish a new career and make something happen. There is still room on the ground floor, but space is becoming limited.

2010 is going to be the year of execution for many – whether artists, new services or start ups. My advice? Do whatever you have to do to make sure that you are one of them.

Photo by Barry

Here’s a recap of what went on in the music industry over the past two weeks. Make sure to check out anything you might have missed and leave your comments. Know something we don’t? Submit a story.

Most Popular:

• The Defining Sound of this Decade is … Undefined – This decade is drawing to a close and there is yet to be a truly definitive sound. Why?
• “An Old Man’s Perspective” on the Current State of Rock and Roll – Music industry vet and founder of Live Music Machine David Sherbow tells it like he sees it.

This Week:

• What do you do when you just aren’t good enough? – How to make an honest assessment of your strengths and weaknesses as an artist.
• The music business gets leaky – Radiohead, Jay-Z, Muse and more – It looks like high profile leaks are here the new reality for the music business.
• To leak or not to leak? 3 ways for artists to respond – What should artists do to prepare for or respond to a leak of their unreleased material?
• Forrester Report: The way forward for the music industry, or a step backward? – A new report proposes a plan to ‘save the music industry.’
• The future of product innovation in music – Moving beyond the iPod.
• Album review – Castanets – Texas Rose, The Thaw, and the Beasts – Spaced-out folk rock.
• Billy Corgan announces new Smashing Pumpkins album – 44 free songs – A bold first play from Billy Corgan’s new Smashing Pumpkins.

This Week in Music History:

1976 – The first of the two night 100 Club Punk Festival at Oxford St, London. The festival featured The Sex Pistols, The Clash, Sub Way Sect, Suzie (spelling on the poster), and The Banshees, The Buzzcocks, Vibrators and Stinky Toys. Admission was £1.50.

I just wanted to take a moment to say how much I appreciate you, the readers of Creative Deconstruction. It’s encouraging to see so many artists, fans and music pros recognizing the unprecedented opportunities we have in the music business today.

When I started this site a few months ago it was my goal to create a place where new ideas could be discussed and independent music could be celebrated. There are still quite a few features and services that are yet to be implemented, and I am always looking for feedback on what you would like to see more (or less) of. So please – make use of the comments section at the bottom of each article. Share your ideas and voice your questions and concerns. I try my best to respond to each comment. I won’t have all the answers of course, but there’s likely someone out there who does.

There are also several other ways to connect with me and the rest of the budding Creative Deconstruction community so that we can all get to know each other better. You can find me on Twitter as @refeup where I’ll point you to many other people and services that you’re likely be interested in, and join our new Facebook community where you can post comments, music, videos, etc. You can also subscribe to our RSS feed or via Email to stay up to date with new articles as they are published.

Please feel free to send me an email using the form on the Contacts page. I like emails. Submit interesting stories or tell me about creative or unique business strategies you have implemented - especially if you got the idea here. I’m always looking for good case studies, whether they resulted in success or failure.

Thanks again for reading and for your comments. I look forward to seeing the Creative Deconstruction community grow and getting the chance to get to know each of you better in the coming months.

- refe

The future of the music industry as we know it will depend on how it responds now that the product on which they’ve built their empire is no longer profitable. While the major players are intrenched in red tape and beauracracy, independent artists and record labels have an incredible opportunity to adapt and thrive under the new market conditions. So here’s the question: what do listeners and consumers value, and how can artists provide it to them in a way that enriches the experience of their music?

Six Different Forms of Supplemental Scarcity

First a little recap. Recorded music lost a lot of value when it transitioned to digital formats. Digital files can be freely copied an infinite number of times, which means that demand can never catch up. How can finite demand compete with infinite supply? (Read more about this subject here.)

That’s where ‘supplimental scarcity’ comes in. The idea is that if you have an infinite good such as digital music, something scarce (as in, existing in limited supply) must be offered alongside it in order to add value. There is a fantastic article at the Technium that has become something of an Internet classic. In it, author Kevin Kelly describes eight different forms of supplemental scarcity.  I have chosen the six concepts that I felt were most relevant and applied them directly to the business of being an artist. I’ll talk about three of them here and the rest in a separate post due to length.

1. Personalization

Fans love feeling like they are part of the music - part of the experience. Personalization makes the experience that much more valuable. The different ways that an artist can personalize their products for their fans are limitless. Jill Sobule, in an effort to fund her next album and avoid signing with a record label, offered personalization in exchange for donations on her site. Donate 10 grand and you get to sing on the record. Five thousand dollars bought you a private concert in your living room. There were different “gifts” at each donation size, each one welcoming the fan further into the process in some way. Sobule’s fans loved it and she reached her goal of $75k in only 53 days.

A more classic example of personalization would be to utilize packaging to engage fans. Radiohead recently charged an arm and a leg for a special-edition vinyl package of In Rainbows. Imagine what they could have charged if they had offered to sign and dedicate a limited number of copies. Offer something unique at key gigs in order to drive ticket sales, and make sure you aren’t offering it anywhere else. Provide functionality on your website that caters the user’s experience based on a profile they create for themselves. I could go on and on, but you’ll be most successful if you and your band figure out what kind of personalization would be most valuable for your core fans and working out a way to give it to them.

2. Interpretation

Authors have been doing this for decades at their book signings. They come to a local bookstore with their new hardcover novel displayed prominently, and their fans show up to hear them talk about the new book. What was the author’s inspiration? What was his process? Where did he write it? What does it mean to him? They go out of their way to meet the author in person so that they can hear his interpretation of his work. This kind of interpretation is even better suited to music because lyrics are so often somewhat cryptic and mysterious. Find an unique way to let some of your fans in on your secrets – I guarantee they will be more committed to your art when you are finished with them.

3. Authenticity

The music industry has suffered a huge blow in this category over the past decade. Elements of pop music have always had an element of fake-ness to them – those acts are meant to provide entertainment, not create art. Yet, from the assembly-line boy bands to the Britney Spears albums written by pale-faced men in their fifties, I think the industry has overplayed its hand. Listeners want something real.

There are a lot of different ways to let fans know that what they are getting is authentic. Release a studio b-side of something you recorded when you were just goofing around. Live albums can have a similar effect. Think about the prevalence of online file-sharing and illegal copying. If a listener is downloading a track on Limewire she has no idea what it will sound like once it’s finished. Yet, if she knows that the download is coming straight from the band itself she can trust that she’s getting the very best quality out there – first generation stuff. Kevin Kelly writes, “Digital watermarks and other signature technology will not work as copy-protection schemes… but they can serve up the generative quality of authenticity for those who care.” Find ways to set the products you sell apart from those who resell them. Bonus tracks, bundled music videos, etc. Anything that will let your fans know that what they are purchasing has come straight from you.

Share Your Ideas

So there you go: personalization, interpretation, and authenticity. I have only related the basic concepts here – there is so much that can be done with this list. Let me know what you think, and please post what you come up with in the comments section so that everyone can benefit! If you follow a band that has done something creative or innovative with supplemental scarcities please share that as well. The last three items on the list, embodiment, patronage and findability are described in Part Three. I’ll try to have it finished up and published here by tomorrow so check back soon. Also, remember that you can find out when new articles post by following me on Twitter.

This shouldn’t come as a surprise to anyone at this point, but album sales were down 17.8% in May over the same month in 2008, and 37.7% lower than May 2007. Hypebot deftly points out that Soundscan released these figures just a day before the NARM music sales convention – the largest retail convention in the industry. Not a great start to the weekend. This is bad news for the recording and music retail industries because there are still precious few within them who have truly begun exploring business models that rely less heavily on the sale of CDs and digital downloads. Maybe, just maybe this will be the kick in the pants the folks at NARM need to begin seriously discussing how they’re going to get through this.

Unfortunately, I’m not sure there’s much the retailers can do. Their business depends on a product that is becoming increasingly commoditized,  and that’s really not a great place to be. One option would be to add a ‘long tail’ to their strategy like the one Amazon.com as been successfully operating under for years. Stock your digital shelves with a diverse inventory that has something for everyone and make your money on one-offs and rarities.

As for the record labels, if the 360 deal is the best they have been able to come up they’re in big trouble. A better idea might be to develop talent that can actually put out something substantial and package it with valuable scarcities. Release singles on vinyl with worthwhile artwork and liner notes and send it out with a coupon to download the track online as well. Give the fan access to something they couldn’t have access to without purchasing the music – give them a reason to buy something that you know they have come to expect for free.

Independent artists should take heart, though. The upheaval that is going on at the top of the music industries doesn’t have to hinder you from being successful. Note that these sales figures are from Soundscan – most albums sold at concerts and gigs don’t show up on the Soundscan reports. Especially albums being sold by independent artists. Independent artists have the freedom to create business models that work for wherever the market is at any given time. Find out what your fans want and give it to them. ‘Part Two’ of Why Free Music was Inevitable will include seven major categories related to adding value (and revenue streams) to your business model, so make sure you check back soon.

It’s not all doom and gloom – the music industry as we know it is being shaken up, but music will outlast the chaos.

In the CD’s heyday the average price of a disc reached nearly $19. Record companies took in huge margins and saw unprecedented growth. Now, less than a decade later entire albums are being given away free of charge all across the Internet. Even superstars are giving their records away. So… what happened? How did the recording industry go from lucrative cash cow to staggering giant in such a short span of time?

Supply and Demand

There are a host of reasons for the declining price of recorded music, but at its heart is the issue of supply and demand. The more demand you have for a product that is limited in availability (generally known as a ‘scarce good,’) the higher the price of the product will rise. Conversely, if the availability of the product exceeds demand, price will be driven lower in an attempt to increase demand and move excess units. It shouldn’t come as a surprise to anyone that at this point the supply of recorded music far exceeds demand. In fact, it just about obliterates it.

One reason for this is competition. As the production of recorded music becomes cheaper and easier, more and more bands are flooding the market with their tracks, hoping to get heard. The choices available to listeners have become nearly limitless. There are just too many artists vying for a finite number of fans. Bands are giving away their music in an effort to increase their share of the listener pie.

Infinity vs. The Recording Industry

There is more to the issue, though. The transition from physical CDs to digital downloads has introduced a new challenge into the industry. The model of supply and demand is built upon the concept of scarce goods – if there is no limit to the availability of a product, it is impossible for there to be enough demand to make it profitable. How can finite demand overtake infinite supply? This is exactly the challenge with monetizing digital music files. Digital files are infinite goods – they can be copied ad infinitum at no cost, and no significant investment of time. This is why the price of music has dropped, and this is why so much recorded music has been made available for free. The transition from physical to digital made free recorded music an inevitability.

Three Ways to Respond

Inevitable or not, this decline in value presents artists and rest of the music business with a real challenge. Strategies have to change. If digital music files themselves hold little value, value has to be added from somewhere else. The industry has three main options for accomplishing this, all of them related to adding scarcity to the infinite-ness of digital music.

1. Artificial Scarcity

Otherwise known as DRM. What Digital Rights Management is designed to do is place artificial limits on digital files that prevent them from being copied. I call this ‘artificial scarcity’ because while real scarcity has a direct, positive effect on value, DRM actually decreases the value of music. DRM has been proven time and time again to inhibit consumers from legitimate use. Even as a kid I remember being frustrated that I couldn’t bring a video game over to a friend’s house because it was only registered on my PC at home. I wasn’t going to copy it for him, we just wanted to play it while we were at his house! Regardless of their own personal experiences, most people can’t stand DRM. The consumer backlash has been so overwhelming that even Apple – notoriously IP centric – decided to get rid of DRM, and was even willing to raise prices past their trademark 99 cent/song in order to get the major labels to drop it. Consumers aren’t fooled by artificial scarcity, they just get irritated and take their business somewhere else.

2. Legislative Scarcity

Otherwise known as the RIAA. I’m referring here to the practice of issuing threats or actual legal action against individuals and institutions who engage in sharing digital music. This is by far the least sensible approach. First of all, it just isn’t practical. RIAA – you’re really going to go after individuals one by one until you have fined every single file-sharer or frightened the rest into compliance? How’s that going for you so far?

More importantly, though, these aggressive and costly lawsuits are a PR disaster. The record industry has never had the best image with consumers, but now they have taken whatever they had and dragged it through the gutter. The RIAA, with the blessing of the larger recording industry, has turned consumers and fans into crooks, thieves and pirates. Never mind that these same people have shown themselves to be the industry’s single largest group of paying customers. It’s just bad business!

3. Supplemental Scarcity

 The idea here is simple: accept the fact that technology has decreased the value of digital music files and find something else to sell.  It is sad to think of music in any form as being devalued, but the benefit of this approach is that it is the only one that embraces innovation rather than trying to suppress it.

So what do we sell? There are many ways to use this new market reality to the advantage of the independent artist. I will talk more about the different scarcities that can provide value along with recorded music in Part II,  as well as how those different revenue streams can add up to a successful career for an independent artist. So stay tuned, and please feel free to add your comments below.

Free music may not be what anyone in the Music Industry wanted, but ignoring it and hoping it will go away is the wrong response. It won’t go away – at least not until someone figures out a way to add additional value, or we witness the collapse of the Western world. Since both of those scenarios appear to remain a while off, the music industry needs to stop fearing pirates and start looking at creative ways of capitalizing on them.

Amazon.com looks to be the latest example of a major music retailer missing out on a huge opportunity to profit from file sharing – and this one was practically handed to them!

Coda.fm is a music-only torrent site featuring a few features that are somewhat unique among torrent sites. One of those features is the option to purchase albums from Amazon.com after downloading them for free on BitTorrent. The reasoning behind this is simple: download free music from Coda.fm and after you’ve had the chance to sample a bunch of different tracks you can hop on over to Amazon to buy the ones you like. According to the site’s founder “a couple hundreds of albums and digital downloads have been sold to date.”

The model’s not perfect, but any service that encourages people to purchase music from your site should be a good thing, right? Well, not everyone sees it that way, apparently. Shortly after the site’s launch Amazon.com asked them to remove any links to the online retailer from their site. They also closed their associate account, preventing them from taking any cut from purchases made through the links.

“I can’t overstate enough the idiocy of said request: they’re actually telling us to stop helping them selling albums,” said Coda.fm’s founder. TorrentFreak also puts it pretty well: “Indeed, in theory this is a win-win situation for all parties involved. Amazon, the artists, labels and the Coda founder all made extra money while the users of the site could buy off their guilt.”

So why would Amazon put the kabosh on a creative new revenue source? They haven’t officially commented on the move, but it’s no secret that the company has larger interests at stake – any profit Amazon might make through sites like Coda.fm would pale in comparison to the payout they receive from the major record labels who license their catalogues for sale on AmazonMP3.

It seems that yet again the music industry lobbyists want to have their cake and eat it too – they want someone to drum up free publicity for their work, and to cough up a fee for the privilege.

Last week I wrote about Google’s decision to block music videos on YouTube in the UK and Germany due to rising royalty fees. This has upset a lot of artists who have enjoyed the free exposure that YouTube has brought them. One of the most vocal in this camp is British musician Billy Bragg. He recently railed on Google for its decision to block music videos, and demanded that they agree to pay the fees:

“We have growing concern over the use of our music on the internet and the unfair way we believe music is treated by Google and YouTube, which it owns. At the heart of the issue is Google’s disagreement over the prices it should pay to PRS for Music, the not-for-profit licensing organisation. Music fans in the UK are confused and angry at Google’s stance. We, as songwriters and composers of music, share those concerns. It is not in anyone’s best interests to block access to music. Fans are denied enjoyment, creators aren’t paid and illegal music sites benefit from the resulting displacement of web traffic.
Google says it cannot operate YouTube if it has to pay a royalty — however small — every time a video containing music is played. In 2007 the UK’s independent Copyright Tribunal established that a minimum royalty per play was an essential requirement in the licensing of online services. Google fails to recognize this and ascribes little value to music — in spite of a huge increase in music usage on YouTube’s UK service. Royalties are a vital income source for all professional creators and must be preserved to ensure a continued vibrant music industry. We trust that Google will reinstate music on YouTube and pay a fair price for it.”

Let’s take a step back and consider what Bragg is really saying here. The crux of his position can be summed up in his assertion that Google has some sort of moral obligation to play music videos because if they don’t, “creators aren’t paid.” Later in the article he goes on to say “Royalties are a vital income source for all professional creators and must be preserved to ensure a continued vibrant music industry. We trust that Google will reinstate music on YouTube and pay a fair price for it.”

There is a fundamental problem with Bragg’s reasoning. He argues that because content creators need to get paid, Google needs to play music videos and pay royalties – even at the expense of its own business. To put it another way, Google’s main function as a company should be to support the music industry.

This just doesn’t make sense. Google’s main function is to be a profitable business. Larry Page and Sergey Brin didn’t establish their company as a not-for-profit designed to provide a welfare system for musicians. And they acquired YouTube because they saw potential for increased revenue – not because they realized it could be a great way to make sure Billy Bragg never goes without a paycheck.

If Google doesn’t want to play music videos on YouTube it doesn’t have to. However, if musicians so badly want their music videos on YouTube, they should be willing to compromise on the fees they’re demanding. Google holds all the cards here. My guess is that over time artists will realize just how much they were benefiting from YouTube and when they do, they might even begin to change their tune.

The cable industry’s annual trade convention is going on this week, and the big topic of discussion this year is the Internet. According to yesterday’s article in the Chicago Tribune, Cable has watched the Music and Newspaper industries struggle to adapt to the digital world, and there has been a lot of talk about how to avoid their mistakes.

“Cable TV companies will have to do something in between the approaches taken by the music industry — which ignored the threat of the Internet for too long — and the newspaper industry, which put its content online for free.”

Unfortunately, it sounds like they are already repeating the biggest mistake of all – regarding the Internet as a threat instead of an opportunity.

Let’s face it – traditional cable television is on its way out. Why would anyone want cable if they could have high-quality video programming online? With cable you are stuck at your house, forced to watch according to a schedule set by the channel. Online programming can be taken anywhere, and watched according to the individuals schedule. The Internet is superior to cable television in just about every way, and will only become more so as network speeds improve.

My proposal: Give customers everything in one place – online. Most (if not all) cable providers already offer broadband internet through the same cable as the TV content. So, why do households need both services? This would allow them to get rid of schedules and instead provide a kind of network hub where users can access whatever content they want. Combine cable TV content with web functionality and Viola! – a vastly improved user experience and a whole lot of happy customers.

The question becomes, how do we pay for all of this? Well, if you’ve read my previous posts you know my position on free as it relates to music. Cable TV is a little different, though, because it is has always been designed to be a premium service. Network TV is free for everyone, Cable TV requires a subscription. That’s the way it has always been, and I see no problem with this. If someone doesn’t want the extra content that Cable offers, they can stick with the free Network channels. The same could easily be true online.

Yet, even if the subscription model is retained, the Internet offers a unique opportunity to also offer free content. Let some content sit outside of the ‘walled garden’ (the name being used by some to describe the subscriber-only sections of the sites) so that casual viewers can get a taste for what Cable has to offer. This way, content can be used to promote the premium services.

None of these ideas are revolutionary, but if the Cable providers don’t do something soon someone else will do it first. If that happens, companies like Comcast and Time Warner will have a hard time recovering.

Business Week ran an article recently that talks about the “problem” of online music streaming services. The article claims that while online streaming was initially intended to promote music, and therefore promote the purchasing of music, it has actually had the opposite effect. The author describes a 23 year old man who has gone from spending over $100/mo. on music purchases to only $10/mo. because he figures he can simply stream whatever music he wants to hear at any given time.

Despite the account of the single consumer they interviewed, I disagree that online music streaming has really caused the sale of recorded music to decline. The fact is that online streaming does promote music. The listener is exposed to music that they may never have encountered otherwise. When a listener hears something she likes, she will look for more music by that artist and may end up a loyal fan down the road. Does that guarantee that she will someday purchase the music that she has enjoyed via the music streaming services? Of course not, but she is much more likely to do so than if she had never heard the artist in the first place

This perspective also seems to ignore the fact that conventional radio has been doing the same thing for decades. (Of course, Billy Corgan has decided he doesn’t like that either – but that is another post entirely!) Listeners do not pay the radio stations that they tune into, and the stations - particularly online stations – pay big royalties on the music they play. It is understood that the artists benefit from the free publicity, and the radio stations make their money from advertising dollars that exist because so many people are able to listen for free. The listeners obviously get to enjoy music in their homes, cars or wherever else they happen to have a radio. It works the same way online. Granted, there are at this point fewer listeners, and the ad dollars haven’t caught up with conventional radio, but the free publicity piece remains unchanged. If both services ‘stream’ music into the home, why is one generally accepted as promoting the sale of music, and the other as discouraging it?

The answer is that this entire discussion is irrelevant. Free online music streaming is not discouraging it’s listeners to purchase music any more than conventional radio. In fact, it is almost certainly helping music sales, especially for lesser-known artists. The real issue is that the old Industry models are broken in far more serious places. Consumers have decided what they want – free music that they can listen to whenever and wherever they want – and the established Industry doesn’t like it. The argument against online streaming is just another straw man that the Music Industry has erected in an attempt to reclaim some of it’s former control.