ARIA Chairman Ed St. John

The new music industry could be effectively broken down into two different camps, with the traditional recording industry on one side and the proponents of the emerging independent DIY models on the other. The two camps rarely see eye to eye, but in many ways the debate between them is quite balanced. The traditional recording industry has all of the money and political clout, while the independents have the blogosphere and a compelling David vs. Goliath story.

It’s no secret which side of the fence I’m on. I write primarily to independent musicians and those who are building their careers around them. And while I try to focus more on highlighting innovation and finding solutions, I’ve certainly done my fair share of major label criticism.

Today I want to point to an interesting interview conducted by Andrew McMillen on the OneMovementWord.com blog. Andrew has contributed to Creative Deconstruction in the past, and when he sent me this interview I realized that it provides a great opportunity to present a different perspective on the changing music industry.

The subject is Ed St. John, head of the Australian Recording Industry Association (the RIAA of the land down under.) This guy’s basically in charge of the traditional recording industry for the continent. The interview is an interesting change of pace because Andrew is actually quite sympathetic toward St. John and the recording industry in general.

St. John spends the bulk of the interview defending the recording industry against its critics. ”I’m all for discussing issues in a productive way, in a positive way,” he says. ”I love talking about new ideas, new business models, new ways of marketing music. But I just think you have to steer clear of people who are in the business of criticising major record labels for their own gain.”

Of course, the same warning could be given against those who are in the business of defending the major record labels for their own gain, but the point is valid and well taken. It’s good to see the man at the top getting excited about innovation.

St. John also addresses the growing chorus of voices online speaking out against the major label system. “Everyone is entitled to say whatever the hell they like, which is fine, of course.” He goes on, “But I don’t think many people really understand what record companies do; they’re very quick to judge the way the business works, or the way it has worked, without really understanding it.”

I agree that the democratic nature of the internet is both a blessing and a curse. With such a low threshold of entry there are of course many speaking up online who just don’t have all the facts. These are in many cases some of the loudest voices. However, there are also many bloggers and commentators who do have quite a bit of knowledge of the music industry. These individuals provide an important service as they represent an alternative to the established system.

Toward the end of the interview St. John gives what I found to be his most compelling defense of his industry. It’s a bit long, but well worth a read:

I think there has been a lot of demonisation of the music industry in general, and major record labels in particular. It’s sort of easy to do. It’s like saying the big Hollywood studios are evil. It’s an easy position to take, because you don’t really have to explain how they’re evil. It’s generalised evil, but if you actually break it down; if anyone bothered to come look at the people that work at a record label, and the work they actually do, they’d realize that there is actually a group of quite dedicated people trying to make their artists successful, which is pretty much the same as in a lot of other businesses. It’s not like we’re sitting here plotting how to destroy the world, or anything.

A lot of things have changed in the last few years. We, like any business, need to accommodate those changes in consumer behavior and the way that people share, experience and discover music. It’s quite easy to set up an illegal business model that is based around stealing someone else’s property. It’s quite a lot harder to run a legitimate business, and our challenge is that we run a legal, legitimate business. We have actual agreements with artists that we can’t just change on a whim.

If we want to do something new, we often need to get the artist’s consent. Call us old-fashioned, but we have a business that’s based around observing people’s rights and paying people royalties.

When circumstances change in the way people experience music and interact with it, it’s our job to understand that and respond to it. It’s not as if we’re pretending it hasn’t changed, because obviously it has. Our challenge is to evolve with these different media whilst still running a legitimate business, adhering to those contracts, and paying our artists.

It’s quite challenging to evolve quickly in a rapidly changing market. The music industry today is a very different beast to what it was 10 years ago. There has been a huge shift in focus. I think we all understand how much has changed. We’re just learning to have a different role and provide a different range of services for our artists, and a different offer for a consumer that fits the way people experience music now. That’s obviously a constantly moving target. It evolves all the time.

That last paragraph is an important one. The recording industry is steering a big ship with a small rudder. They don’t have the agility of independent artists and the teams that support them. That’s not necessarily a defense – if your organization isn’t scaled to meet the needs of the business then it needs to adapt. It is valuable, however, to understand the challenges they have and that they are actively looking for ways to meet them.

Now if only we could find away to bring the traditional industry and the independents together to attack the issues they both face with a united front… Unfortunately that doesn’t seem too likely, at least not for now.

Read the entire interview at OneMovementWord.com.

Woodstock 1969

I received this email yesterday from David Sherbow in response to a comment I left on a post he had written. I felt like his perspective was worth sharing, so I’ve included his message in its entirety:

Subj: An Old Man’s Perspective

Refe -

Thank you for your comment. I believe that you are one of the more insightful bloggers of your generation.  Let me say this.

Since Napster, the music business I grew up with has basically imploded and through its own stupidity and greed has charted a course for almost certain self destruction.  In case you haven’t read it, take a look at Steve Knopper’s brilliant tome, “The Appetite for Self Destruction” which gives a chapter and verse description of the breakdown of the music business since the advent of the CD in 1979. Technology and change has brought us enormous amounts of user generated music, its easy distribution and a music world that is wrought with extreme fragmentation. I agree with you that these changes have brought a certain amount of opportunity to a group of people that prior to 1999 would never have even been on the music map. For those who enjoy this increased popularity, it is a new day and the new music business is working for them.

I grew up in the three most significant periods of cultural change in American life over the past 50 years. First was the period from 1955-68 when post WWII America first started coming apart at the seems and baby boomers started to rebel against the All American image acceptable to my parents generation. Things changed soon after McCarthy fell in the mid 50’s and, in essence, parts of Texas and the deep south and its country, blues, and R&B music converged and rock and roll began to evolve. I got my first radio in 1957 for my 7th birthday and soon after became addicted to Top 40 radio then R&B radio.  Elvis, Chuck Berry, Little Richard, Eddie Cochran, Hank Williams, Sr.,, Jerry Lee Lewis and Roy Orbison changed my world along with R&B groups like the Platters, 5 Satins, Smokey Robinson and Little Anthony and the Imperials and bluesmen like Robert Johnson, Muddy Waters, Howlin’ Wolf  and John Lee Hooker. No disrespect meant at all, but you are much too young to have been moved by such amazing forces of music that changed my life forever and moved millions of others like me in ways that today are unimaginable.

Then came the Vietnam War, free speech movement, civil rights movement, the drug culture and sexual freedom all heaped upon my generation.  Groups like the Beatles, Rolling Stones and the Who, Cream, Jeff Beck Group and Led Zeppelin from England, The Beachboys, Bruce Springsteen, The Grateful Dead, Jimi Hendrix, Doors, Janis Joplin, Bob Dylan along with Otis Reading, James Brown, Temptations, Supremes, Four Tops and Aretha Franklin and many others changed the American music scene forever. Then there was Woodstock to bring it all together. It’s is impossible to understand how powerful this period was without living through the majesty of its immense political and cultural change.  Then the 70’s brought unbelievable heavy metal music and Disco. The 80’s brought Michael, Jackson, U2, Madonna and the 90’s brought grunge with Nirvana and Pearl Jam.  Every decade brought another group of artists that clearly articulated the feelings and moods of that generation.  People were toally swept up in the music.

Then came 1999 and Napster and over the next 10 years music became diluted, homogenous, and less than inspiring.  Today it is plentiful and ubiquitous. In my opinion, part of what truly makes music great from the days of Beethoven, Bach and Mozart to the present day, is the connection certain artists have been able to develop with the masses who then have a shared common experience they all can relate too.  It is this shared experience which takes music to another level. Its is something that your generations feels and sees in bits and pieces in between video games, surfing the Internet and Texting.  Music is ever present but it is no longer the focused force for change in our society. Music is still a part of everyone’s day to day life but it is no longer the focused cultural and political force it once was. A platinum artist is nothing more than a monetary designation that became the standard by which great bands were judged since Creedence Clearwater Revival was the first group to ship 1,000,000 albums in 1971.

Music has always evolved and changed without the help of the record business which has only been good at co-opting great talent and rarely developing it. I totally agree with you that it’s all cyclical and look forward to the next game changing music scenario.  We are a world of many niche artists and very few genuine original popular artists.  What American Idol continually tells me every year it maintains its immense popularity, is that is that the masses want artists to believe in and to connect with. So do I but I want them to be of substance, not manufactured by the remnants of the record hit making machine but instead I want my new music to emerge from the grass routes of the new American psyche motivated by meaningful cultural change.

I am by no means trying to say that my insight or love of music is deeper than yours or your generation. My perspective over 58 years is different than those in your generation.  I truly miss discovering and sharing music the way I used to.  I believe that eventually the Internet will develop a better mechanism for the discovery of popular music and I look forward to that day. I hope this wasn’t too much bullshit. You ought to call me sometime and personally share some of your thoughts.

David Sherbow

David is a music industry professional with over 40 years in the business. He has managed and booked major regional and national rock, r&b, and hip-hop artists, owned and operated a rock-n-roll booking agency, put out over 25 independent releases, made record deals and was head of promotion for WMG’s Asylum Records. Find out more about David at his blog or on Twitter.

Also check out yesterday’s post The Defining Sound of this Decade is… Undefined.

This post was originally published on OneMovementWord.com, official blog for Australian music conference One Movement for Music Perth.

It’s no secret that the music industry is fractured. The point was driven home once again last Friday when the RIAA – the main lobby group for the recording industry in the US – won their second high profile lawsuit against an individual fan accused of sharing music files online. Damages in the two cases totaled over $2,500,000.

The recording industry is bankrupting fans in court, technology is reshaping the marketplace faster than anyone can keep up, and fewer people than ever before are buying music. How did we get here? More importantly, how do we respond?

One of the biggest roadblocks in the way of healing is the industry’s unwillingness to let go of the past. So much has happened in the last 10, even 5 years. The consolidation of record labels, the digital revolution, the social web. Each new development has brought its share of challenges and opportunities, but the clock can’t be turned back. It’s time to stop guarding our castles and throw open the doors to change. In order to make real steps toward a unified music industry progress must be embraced, not feared.

Unfortunately, this industry isn’t such a big fan of change. For years the record companies were riding a wave of incredible profits. In the 90’s the cost of a CD peaked as high as $19 in the US.  People were willing to part with the cash because there was no alternative. The record labels had fans right where they wanted them. They even convinced themselves that things could remain that way forever.

When Napster arrived on the scene the limitations of the old system were brought into sharp focus. Fans were tired of being overcharged and under-served. A new precedent for finding and sharing music was established.

Had the industry been willing, they could have recognized the new ways that fans were finding and interacting with music. Instead they shut it down. But it was too late – the world had tasted the potential of digital distribution. While the major labels were still patting themselves on the back for their victory over Napster, a thousand smaller, more agile networks were already being deployed to take its place.

Years later many industry leaders have since admitted that they missed a big time opportunity in their handling of Napster. Geoff Taylor, head of UK major label trade group BPI penned a now famous article for the BBC expressing his regrets. Unfortunately, this concession has done little to affect the way the music business is run. Instead of learning from their mistakes the major labels retreat further into protectionism. Today nearly every new technology, service and alternative business model is met with litigation.

It’s time for the music industry to stop trying to protect what has already been lost and to begin to look forward at what the future might hold for the music business. The playing field has been leveled. Artists have the tools to what only labels were capable of providing only a few short years ago. Has technology made record labels obsolete? Some believe so, but I disagree. Artists still have much to benefit from what a label can bring to the table. It simply won’t look like it did ten years ago. Both parties have the potential to go so much further if they come together as true partners to create an environment where quality music can thrive.

And that’s what this should really be about. There’s so much talk of money and business  models and economics that it’s easy to forget that music remains at the heart of this industry. Where great music is produced, fans will emerge. They’ll even be willing to open their wallets if they feel that they are supporting the music and the artists they love. More music is being created now than ever before, and never in history has it been so easily accessible. It’s an opportunity that begs to be seized, and if we won’t do it someone else will. Because one thing is certain: the music will go on, with or without any of us.

The Senate judiciary hearing on performance rights and parity was held yesterday on capitol hill to discuss the controversial Performance Rights Act. If you are unfamiliar with the bill you should know that it carries significant implications for the music industry. If this bill passes, terrestrial radio will be required to pay royalties to the performers of the songs they play, in addition to composers.

If you’ve been around the blog a while you might remember an article I wrote a few months ago dismantling what I considered to be five key flaws in the proposed legislation. At the risk of sounding self-important I suggest that you read that article if you haven’t already. The bill and my opinion of it have both evolved since then, but I still consider those 5 points to be critical. Particulary if you are an artist, because while it’s natural to instinctively support a bill that promises to increase your income it is still important to check the facts.

As I mentioned above, some key amendments have been made since the Performance Rights Act was introduced. They establish a sliding fee scale to address the concerns of smaller and minority broadcasters’ ability to afford new royalties. Here’s a concise summary of how that breaks down courtesy of Variety:

• Royalty rates for stations that have annual gross revenues of $1.25 million or more would be established by the Copyright Royalty Board if broadcasters and performers are unable to negotiate rates on their own.
• Commercial stations that gross less than $100,000 per year will pay a $500 annual fee.
• Commercial stations that gross more than $100,000 and less than $500,000 pay a $2,500 annual fee.
• Commercial stations that gross more than $500,000 and less than $1.25 million will pay a $5,000 annual fee.
• Public, nonprofit religious and college music stations that gross less than $100,000 will pay a $500 annual fee. Those above $100,000 will pay a $1,000 fee.

None of the royalties will take effect for at least a year. For stations that gross less than $5 million per year, no royalties will be due for three years. For those above that figure, none would be due for another 12 months.

While these amendments don’t address many of my concerns, they are a big step in the right direction. I have no love for ClearChannel, but I don’t want to see local and volunteer radio pushed out of business by crippling rates. I still haven’t found anything that addresses the heavy record keeping burden that will be imposed on these small stations, however, and I know that is a big concern for many of them.

One important item in the above amendments is that royalty rates for the highest earning stations “would be established by the Copyright Royalty Board if broadcasters and performers are unable to negotiate rates of their own.” The creative industries – particularly music – rely far to heavily on government legislation in my opinion. This is supposed to be a free market. Rates and fees should be determined through a process of negotiation between buyer and seller, not by government.

That’s why the issue of payola throws such a wrench in the idea of record companies requiring additional fees from broadcasters. The market – in spite of government legislation – determined that air-time was worth paying for, not the other way around. Record companies were so determined to get their acts on the air that they were willing to throw down significant bribes to get it. The practice of payola continued until at least 2005 when Sony BMG was found guilty of buying airplay despite laws forbidding it.

Unfortunately, the National Association of Broadcasters (NAB) has to date been unwilling to participate in negotiations. As infuriating as this is it does make sense – they don’t want this bill to pass at all. Either way, they may not be able to hold that position much longer. During the hearing yesterday Senator Patrick Leahy said this to the broadcasters present: ”Legislation will move, and I suggest that you talk to the artists because I would want the legislation to be in the interest of both the broadcasters and artists.” In other words, start negotiating.

Whether or not Senator Leahy’s predictions are accurate remain to be seen. Before the hearing even took place a group of 22 lawmakers requested that the vote on the PRA be delayed ”until such time as the impact of this legislation can be fully examined.” It is at least encouraging to see that some lawmakers realize that this bill will have major implications and needs to be considered carefully.

Art and business are not incompatible, but they do make an odd couple. One constantly pulls at the other as both try to achieve their own distinct goals and serve their own purpose. Just like in any relationship, there are times when common ground allows for beautiful things to happen. Other times their differences threaten to tear them apart.

Music is art, but without business that art would never be given the opportunity to leave the bedroom and reach the audience it deserves. Inspiration may be free, but everything that comes after that costs money. Fortunately, one of the great things about art  – even less than skillful art – is its unique ability to make lot’s of money. Not that it always does, and it’s nearly impossible to predict when it will, but the potential is there.

So who pays for all of this, and when the money is finally made, who is entitled to a share?

The music industry is made up of many, many different players. Labels, publishers, distributors, broadcasters, webcasters, PR and marketing folks… the list goes on. Each one has a stake in the success or failure of the product being sold: music. And over the years, a nasty little culture has developed that has each of these stakeholders convinced that everybody else is out to get their piece of the pie.

Labels exploit their artists and sue consumers. Fans hate the labels and by association distrust artists. Artists feel cheated by their labels, and resent their own fans when they don’t play by established rules.

It doesn’t have to be this way. This unhealthy competition that is so prevalent in the music industry is based on the false belief that the business of music is a zero-sum game. According to this reasoning if one group is making money the other groups are losing money. So instead of working together toward the common goal of a healthy, profitable music industry, we get 40 page contracts, messy legal disputes and massive congressional lobbying.

One ray of light is that the playing field is being leveled. Before, one half of the industry held the majority of the power. The labels and publishers held a monopoly on key resources – namely manufacturing, distribution and promotion – and it was reflected in unfair contracts and an unapproachable legal presence. Artists – and I would argue the art of music itself – got the short end of the stick. Look at the drivel being pushed as Top 40 over the last ten years

With the advent of the age of digital distribution and social media marketing that power is being quickly eroded. Already we are seeing this resulting in new business models that look less like exploitation and misguided competition, and more like true partnerships.

We have an opportunity to get back to the foundation of ‘music business’ – the creation and promotion of quality music in a way that sustains the further creation of quality music. The key in that statement is that music should be the foundation and the goal, not money.

Do I think this Utopian industry is possible to achieve? Probably not. But if more people set out to do business with a true love for the art that drives it, our industry will find itself in a much better place, both creatively and financially.

A pair of Wired stories recently reported evidence of a significant uptick in the sale of vinyl records, showing that while CD sales have declined 11.7 percent this past year, vinyl sales have increased 36.6 percent.  This recent resurgence of vinyl is beautifully ironic. This is the digital age! Music is cheap, convenient and portable. Innovations in technology have propelled us to places no one could have dreamed of a couple of decades ago. 8-Track cartridges came and went. Cassette tapes came and went. We’ll soon be able to say the same thing about CDs. Yet here we are, watching the sale of vinyl records climb like it’s 1976.

 There are those who may see this as a step backwards for physical media, but in reality that couldn’t be further from the truth. For the past few years the recording industry has been increasingly commoditized, and listeners have consistently chosen quantity and convenience over quality. The MP3 is the poster child for this idea. You can download, copy and share it almost instantly and carry it anywhere, but it sounds terrible. The result is a glut of recorded music on the Internet and a largely devalued product. Listeners were ok with this for a while, but it seems the masses (or at least an increasingly large subset of the masses) have had enough.

Vinyl could be the perfect answer to listeners’ digital fatigue, and could provide the flailing music industry with something it desperately needs – value. Digital files are nearly worthless as a product. You can’t see them or touch them. They are infinitely reproduce-able and instantly available. If over abundance commoditized a physical product, inite-ness devalues a virtual product completely. Vinyl on the other hand can’t be easily reproduced, and is a much more sensory medium. The sound quality is better, there is more room for artwork. You can see it, hold it, smell it, taste it. It has the ability to foster a much deeper connection between the listener and the music. How many times have you flipped through dozens of songs on your iPod without really listening? You have to work for vinyl – finding the right album, placing it on the turntable, finding the groove, flipping it over when the first side finishes. You can’t just let it play forever in the background. Vinyl has the potential to return some of the appreciation for music as art that this industry has lost.

CDs are not the answer. Digital files have made CDs redundant and obsolete. Why do we need a physical version of a digital file? That makes no sense. We have iPods for that, which better represent the advantages of digital anyway – convenience and portability. MP3 players don’t scratch or skip and you can carry your entire library in your pocket. CDs were always flawed, and now they are finally on their way out.

Of course, we’re talking about vinyl replacing CDs not digital music in general. We have only just begun to realize the potential of digital technology, but digital is still more effective when a physical medium is also available. Labels like Matador Records have recognized this and have begun including coupons in record packaging that can be used to download digital versions of the album’s songs. According to Matador the coupons have been a big hit. Programs like this are a great way of providing fans with the best of both worlds.

I’m not old enough to have any real nostalgia about vinyl records, but the benefits a true resurgence could bring to our struggling industry is exciting. Vinyl provides the artists and labels with a real product to sell again, yes - and that’s great. What excites me, though, is that vinyl has the potential to get listeners to connect to recorded music as an art form again, and that is something we can all get behind.

Greg Kot, in his new book Ripped, focuses on the story of an unlikely but high profile independent artist – Prince. While the diminutive 80’s pop star and his music may not seem relevant to many of you, it turns out he is actually an interesting example of an artist bucking the traditional system and striking out on his own. In particular, his frequent release cycles and emphasis on touring have made him something of a forerunner. Prince had a deal with Warner that was reportedly worth up to $100 million, but he was unhappy with the control the label exerted over his creative process. Prince was (still is) a prolific songwriter and wanted to release several albums per year. The label limited him to one and also kept him from releasing Sign O’ the Times as a triple album in 1987. Apparently it is very unwise to cramp Prince’s style (and oh, what a style it is…) because after this he began to do everything he could to get under the label’s skin. He all but stopped touring, he wrote the word ‘slave’ on his cheek in black permanent marker, and famously changed his name to an unpronounceable symbol.

When his contract finally ended, Prince released a new album, Emancipation and went into business for himself. Prince has always been a bit nuts, and being independent hasn’t changed any of that – if anything it has only highlighted it further. Within a couple of years of being ‘set free’ from Warner, Prince had released nine albums worth of material. Album after album flooded the market – experimental tracks, archived material, new music, and who knows what else. People thought he was crazy.

Yet, look at the industry today. We’ve got thousands of artists and millions of songs that are available at the touch of a button. The days of waiting three years between releases are long gone. I’m talking frequency here, not volume – nine full albums worth of material is way more than necessary. But if you release a couple songs every few months, your fans will stay much more engaged and you will have the opportunity to remain front of mind in a crowded marketplace. If you really still want to release a full album, you can compile them at the end of the year and sell it dressed up in creative, high quality packaging along with some extras you had saved for the occasion.

Also, look at the way Prince handles touring. He is constantly changing things up. He’ll spend a few weeks playing one venue, or give away free post-midnight performances at previously unannounced locations. When he does do a conventional tour, he makes it worthwhile. He once packaged his new album in the price of the concert tickets and everyone who came to his show walked out with his CD. The record shot immediately to the top of the charts.

This is creative stuff. Not all of it is going to work for new or unknown artists, obviously, but it can all be scaled and applied to wherever your career is at right now.

No – probably not.

What is a 360 deal? It is basically an arrangement where one entity facilitates every aspect of their artists’ business – including marketing, pr, distribution, merchandise and live performances – and takes a cut from each of these revenue streams. Madonna was the first to sign a deal like this with concert promoter Live Nation, and since then a few other big acts have followed suit.

The benefits of this arrangement are obvious from the perspective of the corporate entity. They get a piece of every penny that an artist generates by providing a wider range of services than the traditional record label. With record sales declining but live performances still making money, this makes a lot of sense.

From the artist’s perspective there are pros and cons. The pro – probably the only pro, really – is that they are able to outsource just about everything to the company they are contracted to. They get a one stop shop. This can make life a lot easier for someone like Madonna whose career is very multifaceted and involves a whole host of different ‘products.’ The downside is that whereas under a traditional record label deal, the label is only entitled to squeeze an artist on one front – record sales. A 360 deal allows them access to other revenue streams which were traditionally off limits. In Bob Lefsetz words:

The vaunted 360 deal is basically a land grab.  Challenged financially, major labels are forcing acts to fork over interests in ancillary rights, most notably touring and merchandise, and delivering almost nothing in return.

What’s funny about this is that when young artists or bands first start talking to record labels, they often think that what they will be getting is something more like a 360 deal anyway. They don’t realize that a label is really only there to help you cut, market and distribute recorded music. I was talking with Chris Parker of Chicago label Window Licker Records, and he was telling me about some of the expectations he often finds during the first few conversations they have with bands they are considering for their roster. The bands would ask about booking, merchandise, etc. and they quickly began having bands sign a document that clearly stated that they would not be assisting them with any of those things because that’s just not what a label traditionally does.

Those are young bands, though – still green. Most seasoned acts recognize the danger in signing over every facet of their livelihood to a single corporate entity. They realize the hefty price this can carry. If you have ever been in the studio and had to put up with an overly controlling record label you understand why you might not want the same control extended over your live performances and merch.

So, no. I don’t think that 360 deals are the Answer to the music industry’s need for a new model. If anything, they are just a step further on the path that led us to where we are today – centralized resources and greedy corporations with no regard for music as art and musicians as artists.

Google officially launched its ad supported MP3 search engine in China yesterday. Similar services have existed in China for some time, including the most popular and widely used, Baidu. Google is the first to offer the service legally, after cutting a deal with all four major record labels that entitles them to a cut of ad revenue. The deal is something of an about-face for the record labels whose previous strategy was, unsurprisingly, to sue Baidu for copyright infringment – which they have done twice without success.

What is interesting about all of this is that these search engines is that they crawl the web looking for free MP3 downloads, and according to estimates by the IFPI about 99 percent of these downloads in China are illegal. However, instead of trying to shut down these Web sites and stop the illegal downloading Google and the major record labels that set up a system that actually profits from the huge demand for free music. The more demand there is for downloading – illegal downloading – the more people will utilize these search engines and the more revenue is generated for both Google and the labels.

This is significant because it represents a huge concession by the labels to file sharing. By giving their blessing to a service that makes it easier to illegally download music, they are actually going a long way toward legitimizing the practice. It looks like the major labels have realized that the demand for free music is overwhelming and that they need to find alternative ways of capitalizing on it. This is encouraging, even if it is at this point limited to the Chinese market.

1. Diversify your product offerings -The value of recorded music now rests largely in its effectiveness in promoting a complete experience. What people want today is to experience their favorite artists’ music in a much fuller way than was previously available. To capitalize on this, find a way to package and monetize different elements of that experience. The wheel doesn’t need to be completely reinvented here: think music videos, creative merchandise, unreleased tracks, private and semi-private concerts, extended album artwork, unreleased copies of notebooks and practice tapes used during the songwriting process, etc.

2. Innovate – It is abundantly clear by now that business as usual is no longer working. It is time for you to clear your cache of models and practices that worked in the past and come up with something that will allow you to survive the future – or the present, for that matter. Take Canadian label Nettwerk for example. Nettwerk is probably the furthest ahead of the pack as far as innovation is concerned, and others would do well to pay attention. They have been coming up with some very creative ideas to add value to the music they release, including offering what they are calling ‘Pre-mixes.’ Before an album is even officially released, Nettwerk is releasing unfinished studio tracks for any and all to remix. The best of these will be compiled and released as a companion to the official version of the album. This is a great example of adding to the overall experience of a band or album in a way that engages listeners and can be easily monetized.

3. Stop the Greed – If you want to succeed, stop exploiting your rosters and start supporting them. As recording, promotion and distribution of music gets cheaper and cheaper you are beginning to lose the upper hand you once enjoyed. Artists don’t need you quite as much anymore, so you had better find away of increasing the value you can add to their careers. No more dropping bands the moment they appear to hit a rough patch. Treat you’re the acts in your roster more like partners and less like commodities or they will find ways to be successful – with or without your help.

4. Stop Suing Your Customers – If you treat your customers like criminals, they will spend their money elsewhere. The recording industry has apparently decided that instead of finding ways to offer value to their customers, they will simply use the legal system to bully them into paying for something that is being offered for free by just about everyone else. This is not a sustainable business model. Also – drop the ‘we’re just looking out for the artist’ rhetoric. Everyone knows that the interests you are protecting are just about exclusively your own.

5. Shake Up the Talent – I’m not talking about your rosters here – I’m talking about you. If you want to compete in the New industry it will mean shedding old ideas and coming up with new ones – and getting rid of anyone who is unwilling to do that. There was some promising news a while back that EMI hired Douglas Merrill, formerly VP of Engineering of Google as the head of EMI Digital. It appeared that EMI had realized that it needed someone with a fresh perspective to shake things up. Unfortunately, news broke recently that EMI and Merrill have already severed ties after only a year. The reasons are unclear, but it would seem that EMI was never fully committed to investing in Merrill’s ideas, or in embracing new ideas.
 
6. Embrace - Don’t Fear – Technology - Finding and listening to new music is easier than ever before thanks to online music streaming, MySpace, blogs, and a host of other technologies. So far, you have spent most of your time and energy trying to shut these new technologies and services down, rather than partnering or competing with them. Imagine if you had embraced Napster and used it to promote your artists! The exposure that file-sharing could have brought to those artists with the resources that you had available is almost limitless. Now the opportunity has passed because you were unwilling to let go of the status quo.

7. Give Rid of DRM – No one likes DRM. People want to be able to listen to their music wherever they want, whenever they want. Most households now have many different devices that they use to listen to music, and they don’t want to be limited as to how many of those devices they can upload their tracks. Just get rid of it.

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