The Future of the Music Business: General Trends
By Gerd Leonhard, MusicDish.com

* CD prices will drop to $5 (and less)

* Mechanical Royalties and Performance Royalties will be integrated, and revenue sharing schemes will replace today's fee schedules

* Record stores will no longer focus on selling music

* (Traditional) Radio will become irrelevant

* Music is going back to its roots by becoming a service (again), not a product

* Music companies will be utilities

* Performing right organizations (PROs) as we know them will vanish

* The lifetime of copyright will be decreased to somewhere between 5 and 25 years

* The global dominance of the 'Western Pop Music Monopoly' will come to an end

* Niche markets become powerful microcosms and will eventually overtake the macro markets

1) It's not about 'Online' or 'Offline', and it's not about the Internet. The Net is no longer a big deal in its own right, and new technologies that utilize the Internet (and most of them do) are simply being integrated into the workflow. This happened in the travel business and in the banking industry, and it will happen in the music business. Technology has always created larger, more vibrant markets and the consumer has always benefited from it - partly because of the control migrating from sellers to buyers (does that worry you?) Thus, the debate about the Internet wreaking havoc on the music business is outmoded; rather, we are simply talking about technology running its course, just like when amplification, the piano roll, and radio were invented.

2) It's no longer just a Music Business. The still prevailing concept that music products (and music companies) are created and marketed somewhat separately from visual products will cease to exist within 3-5 years. All products will be multimedia products, most of them will have interactivity features, and all of them will be interconnected, and companies will strive to maximize their earnings by putting their content, their people and their market position to work in multiple business segments. The music industry is not autonomous from other media businesses, and it will be even less so going forward. New technologies allow effortless bundling of audio content with visual, multimedia or interactive products. Music companies will no longer just sell music because powerful synergies in the marketplace can be explored, and new types of products require new structures.

3) Music is not a product but a SERVICE (yes, I know, you've heard me say that before). Music became a product with the invention of recording (records, tapes and CDs) and the explosive development of an industry that figured out how to sell the bottle that makes more money than just selling the wine. Before music was fixated on some plastic thing, it was simply a service, too, and it will be a service again. Intangible and inseparatable from its creator. And once music is more fluid (again) and as ubiquitous as electricity, new revenues will flow. Think of a record label / music publisher as a 'music utility company'.

4) Emotional Currencies are crucial. The value of any product is directly proportional to the depth of the emotional connection that the prospective buyer / user / participant / fan can make with it - this is particularly true for music. A meaningful, direct connection from the artist to the consumer is crucial for his / her commercial success. Thus the artist must cultivate a BRAND that represents his uniqueness and effectively communicates his values to his audience. New technologies will offer unprecedented opportunities in this regard, and if they can indeed achieve a higher level of emotional connectivity, revenues will soar. This is sometimes referred to as the 'dream society' syndrome.

5) Ubiquity: music will be everywhere, and music will be contained in just about everything that used to be 'Images ' Only', from online advertising to interactive slideshows to automobile software to digital cameras to advertising in magazines (!) - audio-visual use of music will soar and B2B licensing income will become a major cash cow.

6) The complete, unobtrusive and effortless integration of digital technologies in people's every day lives is imminent and will be a simple fact in under 10 years. Today's cumbersome devices will be completely intuitive and more reliable than your TV, and will reach a similar market penetration rate in less than 10% of the time. If this sounds somewhat 'Orwellian', keep in mind that only a technology that realizes human desires and respects the human factor will flourish, anything else will die quickly.

7) Some so called 'lesser-developed' nations will leap entire steps in the consumption of media, for example, straight from cassette tapes to DVDs. Consumption of niche media products in countries such as India and China will dwarf anything ever experienced in the U.S. or Europe. This will also result in the end of the Western 'Pop' Music Monopoly in the mass media. Finally, people's listening habits in Prague, Singapore or Mumbai will no longer be determined by a highly paid executive on Madison Avenue.

8) Drastic increases in people's discretionary time, due to the changes in work paradigms, and the rise of life-long learning, will lead to both a higher output of products from musicians, writers, composers and artists in general, as well as to a higher demand on 'anything-anytime' media; but with a drastic downward trend on prices for products that are not an established brand yet. Niche markets will proliferate and the bandwidth of content offerings will grow exponentially.

9) Because potent technologies are everywhere, people will matter even more. After all, the purpose of good technology is to be a 'slave' to the user, not the reverse. Consumers will attach solid value to having access to people they can identify with; again, emotional experiences are what the consumer will strive and pay for.

10) New revenues streams in the music business will not deplete existing income, but there may be periods of downturns because the 'next thing' is not quite ready yet (see today's MusicNet and pressplay). Digital instruments will not replace acoustic instruments, 'virtual' media will not replace physical media, online communities will not replace real communities, and distance learning will not replace schools and universities. But: the pie gets larger, faster, and previously disguisable shortcomings (aka doing it 'the good old way') are no longer negligible.

Provided by MusicDish Content Express. Copyright © Tag It 2002 - Republished with Permission

 

An Alternate Viewpoint

By George Ziemann

I'm going to start by saying that Gerd Leonhard (The Future of the Music Business: General Trends ) makes a lot of good points in his article above. But I think he's wrong about a few points.

CD prices will drop to $5 (and less) -- This isn't quite as bad as John Dvorak's (PC World) opinion that he shouldn't have to pay more than $1.38 which, by his own logic, is about $1.20 higher than what the cover price of PCWorld ought to be. I don't really know who Mr. Leonhard is (I bet I find out really fast, though), but it seems to me like he isn't a recording artist. Otherwise, he might have rethought that figure.

I'm an independent artist. I make my own CDs. It costs me $1.12 to produce one copy, which includes the actual cost of the CD, the jewel case, and printing a four-page, full-color insert. There are 11 songs on the current CD. According to copyright law, the mandatory royalties are 8 cents per song, for a total of 88 cents. That's $2 total cost and does not include any consideration at all for the labor. If you buy a CD from me, the postage to mail it to you is 83 cents.

So now we're pushing a $3 fixed cost. I haven't even attempted to sell it yet. Haven't bought any advertising or paid for a web site to put it on, much less touch the cost of the thousands of dollars in equipment I had to invest in guitars, keyboards and recording equipment to make it. If I tack in $1 to pay these variable costs, the $5 price point only gives me $1 a unit to pay the band (5 guys). So we make 20 cents each for every CD.

If I were a major artist and had a killer contract right now. I'd probably be making $2 an album. The record company gets the rest, even though the artist pays all the costs of studio production, advertising, marketing and distribution. Major artists have started what is called the RAC (Recording Artists' Coalition) because they agree that albums are overpriced. They also think that since the record company has made them pay each and every cost except for running a CD burning operation, they deserve a little more than 2 bucks. Don Henley thinks health insurance might be nice, too.

You're asking these guys, who are already getting screwed, to reduce the entire unit profit to less than they already get paid less than 20% on. If Tom Petty gets forced into your $5 scenario, he'll be lucky to get 20 cents for the entire band for each CD, which adds up to a 99% pay cut. And still no health insurance.

But I'm not a major artist. Nonetheless. we spent a full year on this project and we poured our heart and soul into it. I certainly don't think it's worth $15 or $17 a copy, as the record companies seem to believe, but it's worth more than $5. If I can't get at least $7 or $8 a copy, why should I even bother to ever make a record? Why would any major artist? Sure, I'll sell you a $5 CD, with the CD, jewel case and insert. But at that price, you get a blank CD. Hope you like the melody.

The real upcoming trend will be somewhere between $7 to $10, depending on if the artist or the record company controls the price. If it lands on $8.98, that takes us back to1987 price levels, which is a good start.

* (Traditional) Radio will become irrelevant -- That's not a future trend. That's now.

* Music companies will be utilities -- I don't think they'll be quite that successful. In my vision of the future, the record companies are a footnote in history. They do no one any good.

* Performing right organizations (PROs) as we know them will vanish -- I'm an ASCAP member, both as a songwriter and as a publisher (as soon as my publisher application gets processed). I can honestly say that ASCAP is the only organization in the world that cares about any royalties that are due to me under the rights I have according to the Constitution of the United States. For about 50 years, the annual membership dues have been $10 for writers and $35 for publishers. Effective May 23, 2002, the membership dues have been abolished.

I can't speak for BMI's members, but I can say with great certainty that ASCAP ain't goin' anywhere.

* The lifetime of copyright will be decreased to somewhere between 5 and 25 years -- Not a chance. Whoever writes something owns the copyright for life. Anyone in Washington, D.C. who even thinks we're giving that up is in for a big surprise. We'll do a Million-Musician March on the White House that'll make Woodstock look like a backyard barbeque for the Fraternal Order of Police. We'll all show up, dragging every media organization in the world with us and every fan we can muster up. Between the majors and the independents, we can pack a 20-mile radius and run multiple non-stop concerts long enough to bring the government to a complete halt until the issue was addressed.

My crystal ball shows something very different happening to the copyright laws and the future is very near and these changes are only necessary until the record labels disappear entirely.

* Music is going back to its roots by becoming a service (again), not a product -- Close, but we'll still have a physical product. Consumers like to hold things in their hand to know they own it. You can make it smaller and cheaper, but people want something real.

As for what the "service" portion will evolve to...

This is based on an idea blatently stolen from Janis Ian, with a twist. Remember Napster? At heart, it was a great idea but got trashed by the record labels. What did the record companies and the artists all complain about? The royalties and the pirates.

But what if the"next Napster" was run by ASCAP and BMI, those performing rights organizations that Mr. Leonhard has written off? Janis Ian calls it the Virtual Jukebox and her original suggestion was that the record companies get together and build it. I say give it to the PROs. The record companies ARE the pirates, so I sure don't want them to run it.

There would be download fees, of course, but they would be minimal. Janis says 25 cents a song but she was trying to let the record companies make some profit. I'm cutting them out of the picture entirely. In the hands of ASCAP/BMI, downloads might start at a quarter a song so they can build an infrastructure, but is almost certain to drop once costs are covered. They'll end up at about a nickle a song but could fluctuate depending entirely on consumer demand, with the most-requested songs commanding a slightly higher fee.