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Indies Trashing Major Labels' Business Modelby George Ziemann -- January 7, 2009 -- The first thing on the list is Nielsen's report on RIAA sales, which has been offered under the headlines that say music sales are up 10 percent. What they're referring to is the number of sales. Under this calculation method the purchase of a single counts the same as an album. So if you bought two CDs last year ($20) and this year you bought 3 singles ($2.97), sales from you are up 50 percent. The number of "music purchases" is useless information, which is why most news sources led with it. Of course, that's how Nielsen's press release was written, which is probably the source of the problem. Physical album sales (362.6 million units) were down another 20 percent in 2008. If you throw in the digital albums (65.8 million), that means the industry is reliving the glory days of 1982, only without the cocaine. What saved them in 1982 was the CD format, which made all of us go out and replace our vinyl albums. This time around, we've got our old favorites already. We just popped our CDs into the computer and made a digital copy. This brings us to our first point.
We've already talked about the end of the lawsuits. This was a necessary step in Warner Music's "Everybody give us $5 a month" plan. Besides, they hadn't won a case yet and Harvard Prof. Charles Nesson is preparing to show us why they were not legally viable in the first place. As a balance to all this, the RIAA got the Senate to approve a copyright czar and assign the Dept. of Justice to handle "intellectual property" civil cases. Yesterday, Obama named an RIAA lawyer to assistant director of the DOJ -- in charge of civil cases and antitrust. This leads us to conclude that...
We've also got an announcement that Apple is completely abandoning DRM. It's about damn time. Interesting that the labels decide to give up the lawsuits and DRM almost back-to-back. Wonder what their tech unit is going to do now. In exchange for allowing Apple to dump DRM, the major labels got the variable pricing they've been asking for. Looks like there will be three price points -- 69 cents, 99 cents and $1.29. Because the majors are certain that you'll pay more, if given the opportunity. 2008's top selling album download at Amazon was Nine Inch Nail's Ghosts I-IV, which you could get for free. NIN sent me a link to it, I downloaded it. I did not buy a copy, but I listened to it, which is more than I can say for any RIAA album that was released this year. But what does it say about music fans that, given the opportunity, they will sometimes buy what they can get for free. Did they do it out of concern for the band getting paid? Or did they just miss the whole "download for free" part? I'm sure this is all befuddling some guy at Universal Music who trying to figure out what to do next. Well, next after the ISP Slowdown & Shutdown mission has been stamped "FAIL" like the lawsuits and DRM. The majors have a growing problem, though. They fired all their bands or, even better, the bands refused to re-sign and decided to become independent. One example is Trent Reznor's band, Nine Inch Nails (see note above). Not that there were that many to choose from, which is the problem I was talking about. I'm just guessing, of course, since I haven't seen any data since 2002 (people are still writing to me asking if I have any new numbers). Apparently, Jeff Price, president of TuneCore, has seen some numbers, as he recently made the following claims in an e-mail to customers:
Since we don't have to buy The White Album again, the RIAA is going to continue to be annoyingly stupid, DRM is finally dead and buried, and now the audience doesn't have enough money to buy new speakers or $300 concert tickets. Maybe they'll spring for a couple new tunes, though. Price's e-mail also noted that, since TuneCore's inception in Jan. 2007, their customers have made $30 million. Compared to the industry, this is almost negligible income, unless you take the perspective that it's $30 million that the RIAA didn't get. And there are other digital distribution services very similar to TuneCore. They have competition. TuneCore was the first one I found and I didn't see it until August of 2008. While the RIAA has been suing people for listening, the rest of us have been allowed into the retail stream for the first time in music history. This is, in and of itself, the end of the RIAA's dynasty. Huge milestones were passed in 2008, but we're not quite there yet. I'm hoping to see two filters emerge in 2009. The first would be the RIAA's magic filter that blocks all their music. The second would be more human-based, with the function of listening to all the new music that comes out and telling us what doesn't suck. Kind of like Rolling Stone was 35 years ago. If the independents are putting out as much music in 3 days as the industry does in a year, there's probably a great indie album released every day. And if you consider the fact that "independent" is a category that now includes Paul McCartney, Nine Inch Nails, The Pixies, Tapes 'N Tapes, New Order, The Cure and every other act the labels were unable or unwilling to keep over the last three years or so, and there's a huge non-RIAA catalog out there worth listening to.
I think Pandora was trying to do that, but last I heard, the RIAA's new royalties threatened to kill them off. Don't know how that turned out, to be honest. The best part -- you get paid much more in digital royalties if the label isn't taking most of it. This means that known artists are finding the switch to digital to be much more profitable without a label. We all have the tools to create studio-quality recordings. We have the Internet for distribution. Our audience is not limited to the 50 or 100 people that might show up for a bar gig. The only other record label function to cover is marketing and promotion, which they stopped doing five years ago in favor of suing people. So...
The whole damn Internet is out there. Millions and millions of music fans. Go find your audience and get their attention. A viral YouTube video could be a free ticket to sales. It's been done, more than once, on a $10-$15 budget with a home video camera. Have your record in place in retail when you release the video and you increase the chance for impulse sales. Or radio airplay. The biggest chips in the game have always been in the RIAA's hands -- distribution and control of available shelf space. The physical limitations to distribution have been eliminated. This also eliminates the need for people like me to do a bunch of PayPal buttons (and pay a 30 cent fee) in order to try and sell a single song. Or how to instantly deliver an album to a paying customer without the world being able to go in and take whatever they wanted. And how much should you ask for your band's new album? I always thought that if a Beatles song was worth 99 cents, I should get to offer a lower price to make up for my "unknownness." Like the cut-out rack at a record store. But the way it works is that you get paid X every time an album or song sells. Amazon could charge $2.50 for each song, or give them away for free. Not having control over the retail price, but knowing that there is actual competition going on in that arena, is somehow liberating for me. Maybe that's because right now I have to file monthly sales tax reports with the state and city in order to keep a retail license on the off chance that someone buys a CD this year. But a Hurricane album is on the way and I'm not sure if physical product will be involved or not. As we enter 2009, the independents finally have that level playing field we've been asking for. Some will still complain because the RIAA is still on the field at all and the idea that Obama put an RIAA lawyer in charge of antitrust at the DOJ certainly seems like a WTF? question as well. But the RIAA no longer matters. Their only function to the rest of us was to create obstacles making it impossible to get retail distribution without them. Unlike radio, the retailers let us in without the labels. Now as our catalogs begin to be in place to be discovered, its up to us and our audiences to find each other, and persuade the fans to spend that $10 on us ($7-something at Amazon) instead of Coldplay. You wouldn't think it would be that hard. According to Nielsen, the "Other" category (formerly "Independent") gained one percent of market share in 2008. Much like the $30 million, it's not a lot, but it's a good start. We're still ahead of EMI. Correction: The above statement is false. "Others" actually lost a percentage of market share in 2008. I started worrying about market access in the first place in 2002. Looking around right now, independents have been enabled to compete. We have yet to see the results of this. |
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