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Living the Theory

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There are all kinds of theories about the next business model for the music industry, most involving a combination of increased emphasis on live performance and much more widespread use of free digital sampling of music as a promotional device. Here is a guy who is living it:

    Every two weeks or so, I pack up my Taylor acoustic guitar, fill my backpack with CDs of my music, and head down into the New York City subways to busk away. I make good money, and I get to watch and study people, too. For example, I can now tell from about 50 feet away whether a woman is likely to give me money.
    If she’s walking fast, wearing headphones, angrily porting a briefcase, or chasing down one of her children, that’s an easy no. She wouldn’t throw a dime into Jimi Hendrix’s case. Other women, who are more aware of their surroundings, have greater possibility. Usually it boils down to makeup and midriffs. If the woman is decked out, she may look at me, but only to see if I’m looking at her. But if a woman is dressed casually, walking slowly, and thinking about something beside herself, she’s likely to listen for at least a few moments, and then I have a decent chance she’ll enjoy the music, stop, and maybe buy an album.

    This is but one of the lessons I’ve learned from performing in train stations that I think could be helpful to the floundering music industry, or at least to the many talented musicians stifled by it.

    ….Whatever the reason, it’s clear that the music industry’s old model of doing business isn’t working so well in today’s market. That old model relied on labels plucking out a handful of bands they believed would sell big, and investing millions of dollars in production, promotion, and marketing to get them the time on the radio dial or the space in the record stores they required to catch fire. The industry defended itself against complaints by saying they were simply meeting the demands of popular taste.

    In truth, there was always a tautological element to this argument. The music industry functions like a cartel, and the public’s preferences have always been limited by the choices they were given. Now that the market for music has changed, and CD sales are declining, the record industry is hiring lawyers and lobbyists to squelch the new technologies that are changing the music business.

    ….When I first started playing in the subways, I experimented with different prices for my albums: $2, $5, $8, $10. I sold slightly more CDs at $2, but far fewer at $8 or $10. The sweet spot seemed to be a price of $5. … This could merely be the measure of what my music is worth. But my strong sense is that five dollars is what people will pay for a CD they like by a musician that they’ve never heard of.

    ….One might think that my only audience would be the Birkenstock nature-lovers and 14-year-old kids porting around their first guitars–and I do do well with that crowd. But I also do well with middle-aged black couples, 40-year-old white couples with kids, white blue-collar workers, and the Ecuadorian immigrants who sell jewelry in my favorite station. In fact, I have a much better chance of telling whether someone will like the music based on the way that they walk than based on their age, sex, or apparent income.

    ….Many people’s tastes stretch well beyond formats, and might they want to buy some of this music if they heard it. Indeed, it’s almost guaranteed that somewhere between these formats, the next big thing in music is brewing. But figuring out how to profitably micro-market heterogeneous bands to scattered audiences is something the music industry has not yet figured out how to do.

    ….Fortunately, the Internet allows a wide audience to inexpensively sample a huge array of music. File-sharing networks like Kazaa, and artists who allow free downloads off their Web pages, are roughly like playing in the subway. The Net allows artists access to a substantial potential audience at almost no marginal cost, while providing listeners with short samples of a wide variety of artists and musical styles they may not hear on the radio with a low investment of time and almost no investment of money.

    ….Big artists do indeed lose with file sharing, and it’s their profits on which the industry depends for survival. That’s why they’re fighting it so hard. But it’s a fight they will eventually lose, and that won’t be a bad thing either for bands or fans. Eventually, much as the movie industry eventually figured out how to profit from the VCR, record companies should look harder to find ways to make money off of the Internet–probably once they learn to be more nimble and pay more attention to the particular tastes of a diverse audience. [Washington Monthly]

I’ve been saying for some time that $5 is the right price for a CD – everyone’s life would be so much easier if they just realized I am right all the time, except when I am not.

I am also glad to hear Thompson say there will be losers in the new environment: the biggest stars, the backbone of the old industry, WILL lose out because the all-or-nothing model is no longer sustainable. Putting all your eggs in a few baskets will no longer yield the dependable bonanzas that it has in the past: the mighty signing bonuses, advances, unlimited recording expenses and promotional/publicity campaigns for the elite will no longer make sense – excellent and good riddance.

The industry is going to have to learn to make smaller profits from more artists in lieu of mega-hits from a few. How is this bad for anyone other than those few mega-artists, the few who can most afford to be downsized anyway? I say screw them and spread the love around: more artists win, the industry wins, music lovers win.

It may be more work for everyone involved, but as the analogy we pointed to yesterday from the history of the automotive industry reinforces, it’s always more work to sell much higher volume at a much lower price, but once it can be done it will be done and there is nothing that can be done to stop it, AND the industry as a whole and consumers win big. Only the dinosaurs lose, and dinosaurs have ALWAYS ended up losing. I weep not.

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About Eric Olsen

  • http://www.filteringcraig.com Craig Lyndall

    First of all won’t this future kill radio as it stands today? I am definitely not saying that is a bad thing because radio has become very repetitive and boring, but I think it is obvious to see that this is the first thing to go.

    Second, when these supergroups aren’t getting huge signing bonuses and things, who are we going to put on Cribs? If Tommy Lee doesn’t have a Starbucks in his basement, a mirror on his ceiling and a raving room, how are we going to spend 15 minutes virtually touring his house on MTV? And if the rappers don’t have 12 cars, a ridiculous pool and a yacht, what the hell are we going to watch?

    It’s a sacrifice, but I guess I will just have to deal with it. :-)

  • Eric Olsen

    Actually since radio is already so narrow and niche-oriented, I don’t see them having to change all that much. Perhaps the “novelty” of eclecticism – as in the original Top 40 of the ’60s – will come to hold more appeal: when you can get all the niches you want, the “best-of” each genre might interest more people.

  • frost@work

    Craig: if you look around a while online you might be able to come across some hard figures about how much artists make from CD sales. I remember seeing some figures from Britney Spears annual income last year. Although her albums went multi-platnium (a VERY rare feat) she only netted a couple million from that. The real money for artists is in concerts. That where you can sell CD’s that you bought from the record co. for $5 and turn around and sell them for $8-$10. A shirt that costs you $8 goes for $15. Instant money that can’t be rearranged by record companies ‘new math’.

  • http://www.makeyougohmm.com/ TDavid

    I like the ability to choose my own playlists and some online music services make this convenient (IE. Rhapsody). Radio will always be around for sports and talk radio, but for music the only benefit is in more niche oriented programming.

    And commercials do work in talk radio and sports. We do well with advertising for the Mariners and the Seahawks. But forget it with music. It’s too intrusive, I think.

  • The Theory

    I appriciate the fact that out of respect for YOURS TRUELY, EO did not capitolize the “the” in this article’s title. Gracias.

  • http://www.makeyougohmm.com/ TDavid

    Dead The Theory could be an intriguing title of a story or book. Hope it’s not biographical though.

  • Albatross

    if cd sales go down i think concert prices will go up. that stinks. but then again alll that money evens out doesn’t it. and you can always try sneaking into things. it’s not so hard sometimes. yeah. top music people make too much money anyway. fuck em.