“If you wanna change the world shut your mouth and start to spin it” ~ Cracker
[Note: originally written in January 2010]
Fundamentally, the music industry’s biggest challenge today is that recorded music is now free, or close to free, to the consumer. The historical reliance on physical music sales cannot be the focal point for the industry’s future. This has led almost all aspects of the industry into a transformational state in what is now the second decade since Napster began disrupting the traditional revenue model. From my perspective, a few of the bigger issues that derive from this “digital-music-as-a-free-commodity” reality include:
1) The struggle for balance between copyright owners and the pliability of digital music. Most digital music advocates claim existing copyright laws are outdated and inappropriate for the global music world of digital downloads, ubiquity, sampling and streaming. Copyright owners, including the record labels, are protecting existing catalog rights, fighting piracy on legal grounds and lobbying heavily for royalties from new sources, like webcasting. Despite continuous attempts to mediate these disparate views, there continue to be inequities and a lack of a satisfactory solution to safely move forward. In finance, I personally experienced how an unclear legal framework can stagnate business development, and how markets can thrive once a legal foundation exists. Establishing the appropriate legal and royalty framework for the digital music world represents the most critical step in creating a solid ground for the new music business model to grow.
2) The long tail music model paradox. Thanks to the wonders of digital music, the amount and styles of music the listener can access and how the listener accesses it continues to grow exponentially. But matching the listener’s taste to this vast sea of music has become an enormous challenge for artists, labels, managers, marketing firms and service providers. The successful paradigms for how artists and compositions cut through this digital static will have a profound impact on the business model for music going forward.
3) The elusive new profitability model. The music business revenue mix is shifting away from recorded music sales to publishing, concert, media licensing, merchandising, and digital data and support services. Today very few focused on the recorded music business are making significant bottom line profits, with large incumbents, like the major labels, losing money. Even promising digital start-ups (like Pandora) at best are breaking even still, but with very little revenue scale built into their operating model. Until more success stories at a business level emerge from this transformation, investment capital will continue to be scarce and unevenly distributed.