State of Mind of The Art

Spotted On: The Guardian

“When the history of our digital times comes to be written, one of the questions that will puzzle historians is why the record companies missed the significance of the internet.”

What a great thought (and a very catchy headline). Here is a summary of the article, with some commentary.

Since World War II, the record industry had a total monopoly on the recording, packaging, and distribution of music. They controlled the careers or artists, the way the music was disseminated, and dictated terms to music retailers. When the CD came around in the early 1980’s, and as the article says “recording studios converted the sounds made by musicians into bitstreams - long sequences of ones and zeroes - while, at the consumer end, CD players converted those bits back into high-fidelity sound.”

The sales model for this era was to create the plastic disks and packaging, ship them distribution houses, and then off to retailers. While this model proved to be profitable, the overhead costs were astronomical, with up to 50% of the retail price of a CD eaten up by production costs.

The internet was poised to change all of this for major labels. It presented the opportunity to drop production costs to the floor, while expanding profits. But the internet was ignored at first, and then it was treated as a realm for legal prosecution. Even bands chimed in, complaining about the evils of the internet. This practice got so widespread that the RIAA began prosecuting teenagers and single moms. And as the industry resisted the internet, CD sales bottomed out.

To put it simply, the major labels did not want to let go of CDs in the face of an evolving marketplace. Rather than adapt to the climate, they attempted to maintain the status quo. The writer of the article states “The obvious hypothesis - that the senior executives of all the record companies were idiots - has always seemed implausible to me. Or it did until I read the recent interview in Wired magazine with Doug Morris, chairman and CEO of Universal Music Group.”

Because CDs were so profitable, the music industry turned a blind eye to what was next, and settled into a short sighted approoch rather than looking at the big picture.

Bottom Line: The record industry can turn itself around virtually overnight by embracing and adapting to technology. Welcome to the Future.

Syndicated from: Digital Music News - by Paul Resnikoff

Ghosts is a variation on a theme created by Radiohead. The latest NIN album is part free, part paid, part digital, and part traditional. And a broad range of consumer preferences and budgets are accommodated by the initiative.

Reznor and Radiohead are important market-movers and fearless risk-takers. But are these experiments really relevant to the broader music industry?

The problem is that only part of the consumer population is going to play along. Radiohead found that a disproportionate number of fans downloaded In Rainbows for free, an offered option. But an even larger number of fans downloaded the album for free outside of the Radiohead page, on BitTorrent, P2P, and other sharing protocols.

These fans wanted the album on their turf, not Radiohead’s. And that has been the bigger story for the recording industry for the past ten years. Sure, the iTunes Store has sold 4 billion downloads, but that is just a tiny fraction of the free downloads obtained from other channels.

Outlets like Limewire offer instant, on-demand bulk downloads and comprehensive recording catalogs for free. The iTunes Store offers a cleaner copy, but for a price that makes collection volume difficult to achieve.

Now, Trent Reznor is about to learn a similar lesson. Most likely, fans will grab the first, free volume of the album in heavy numbers, and a smaller percentage will pay for the expanded collection.

But that is only part of the story. Outside of that sandbox, volumes II-IV will quickly creep onto Gnutella, BitTorrent, and IM. Sure, Reznor seeded the first volume onto BitTorrent. But who are we kidding? Fans are in charge of this channel, not Reznor.

That means far lower volumes for NIN, or any other established artist, compared to the 90s. Other factors are also sapping energy, including an increasingly-fragmented media market, and the lowered attention spans that come with it.

Then again, who needs 90s volumes when the major label is suddenly optional? After all, Reznor can now keep the revenues (almost) all to himself, and achieve robust revenues on far smaller volumes.

The math is alluring, and a major disincentive for signing with a label. Marketing specialist Seth Godin urges artists to cultivate targeted, niche audiences, and any business school graduate will lecture you on the value of consumer targeting. Why not translate those principles and percentages into a healthy, more controllable career?

The question is becoming less and less academic, and artists like Trent Reznor are putting the possibilities into motion. But it remains unclear if artists can healthily sustain themselves using this philosophy, at least in scalable numbers.

And smaller artists will have difficulty applying the Radiohead model, at least until their recognition grows. Why? The reason is that most lesser-known artists have trouble getting people to download their content for free, much less pay for it. Why pay for something blind? That is a game for pre-2000 consumers.

In contrast, Reznor and Radiohead have established names, thanks to a massive, major label publicity machine. That tailwind is a critical component of the current models - and a major reason why media outlets are focusing heavily on their initiatives.

In the middle are artists like Saul Williams, a poet and rapper that exists outside of the mainstream. Reznor actually helped Williams create a Radiohead-like model with the help of Musicane, and the results were mixed. Less than 20 percent opted to pay $5 for the album - a total of nearly 28,000. Then again, that translates into roughly $142,000, a revenue total that easily pays the bills.

And any starving artist knows that six-figures is a goldmine for a life in the arts. A major would drop Williams in a heartbeat after a performance like that. But sailing solo, Williams could command a decent and consistent payout.

So is the Radiohead model relevant? For more established, post-label artists, the concept probably maximizes recording profits, and creates momentum for other revenue generators. And the results are boosted if the recordings are dispersed across a broad number of sales outlets, including the artist page, iTunes, Amazon MP3, and even traditional brick-n-mortar.

Sure, the result is smaller than 90s recording sales potentials, but it is something nonetheless. And if the consumer elects to pay, they have the opportunity to do so.
What about everyone else? For mid-size artists, the concept can translate into meaningful revenues, and for smaller artists, the idea is probably premature ahead of broader audience awareness. But more than ever, artists have the potential to reach super-targeted audiences, and that greatly increases the chances of a paid transaction.

Spotted on: NYU Archives

Here’s a paper titled “Does Chatter Matter? The Impact of User-Generated Content on Music”. It’s a study in how blogs and and social networking sites are impacting music sales. The study did not include any analysis on radio or internet broadcasting as a variable. Since this a very long and convoluted paper, I’ll give you the highlights.

(a) the volume of blog posts about an album is positively correlated with future sales
(b) greater increases in an artist’s Myspace friends week over week have a weaker correlation to higher future sales
(c) traditional factors are still relevant – …a number of reviews from mainstream sources … tended to have higher future sales.

People naturally look to others for opinions. Music recommendation is part of this phenomenon. When people put time and effort into good blogs, readers find value in the content and message. With MySpace, the promotion of music in top friends can be a powerful recommendation tool. And album reviews and ratings are factors in people’s buying habits.

The study was conducted for four weeks before and after an album’s release, and the sales data was based on Amazon’s top sellers of physical units.

The study discovered that mainstream album ratings did not relate to online or consumer ratings. Blog postings had the strongest relationship to sales. Higher blog post volumes and higher percentage changes in Myspace friends corresponded to increased weekly sales in the future.

They also concluded that blog posts had a larger impact on sales than MySpace, and they hypothesized that was due to a credibility gap. MySpace allows for passive involvement, while reading blogs is a more active pursuit. Also, critical acclaim in reviews did not have the impact on sales that they expected.

Ultimately, the study was unable to determine whether or not blog chatter actually causes sales, as there were too many undetermined variables. Blog chatter does on some level represent the buzz around an album, making it an expected phenomenon that it had an impact.

Here’s a quote form the conclusion of the article:

“We analyzed the usefulness of blogs and social networks, as well as reviews in
consumer, online media, and mainstream media, in predicting album sales in the four weeks before and after the album’s release date. We found that the most significant variable is blog chatter or the volume of blog posts on an album, with higher numbers of posts corresponding to higher sales.

Higher percentage changes in Myspace friends may also be significant, although the results here were not consistent … We find that the average consumer rating is significant, while the number of consumer reviews is not … Average consumer ratings better predict[ed] sales than average mainstream media ratings.

Although we found that user-generated content is a good predictor of music album sales, our analysis showed that traditional factors cannot be ignored. While independent label releases with extremely high blog chatter can sell even more units than major label releases, our findings estimated that the average major label release sold approximately twelve times more than the average independent label release. We also found that the higher the number of mainstream media reviews, the greater the sales.”

Bottom Line: The results of this study suggest that user-generated content should be considered seriously by record labels.

Spotted on: Torrent Freak

Here’s something novel:

Dependent Records recently uploaded their entire catalog on Pirate Bay (Dependent specializes in aggrotech, electro-industrial and futurepop). Well, sort of. Apparently a group pretending to be Dependent posted the albums on the P2P site.

The quote from label head Stefan Herwig - well, an impersonator - is “I closed down my record label Dependent Records for good. But since I want my music to be heard by the people out there, everything I have ever published is now available on The Pirate Bay.”

While artists are turning to file sharing networks for promotion, it;s unusual to see a label do this (although there are some net labels giving away music, such as Kikapu and Lacedmilk).

Herwig (or his imposter) feels that P2P technologies are killing labels, not boosting sales. However, this article claims file sharing is a boon for new music. Perhaps availability adds to desirability.

Do you think file sharing is boosting or dropping album sales?

Spotted on: Freep.com

Here’s a great article about the new marketing methods we’ll be seeing in 2008.  We will begin to see large scale experiments in subscription based music distribution and other models which eliminate a pay by the track model (such as Imeem).  The death of DRM may come this year, as three of the Big Four labels are already in the process of abandoning it.  There are rumors of deals in the works between major labels and ISPs (internet service providers) to offer unlimited downloads or more bandwidth, and we can expect to see multiple collectible versions of albums released.

As the shift in music sales hits overdrive into the digital realm, 2008 is shaping up to be the year the major labels begin to adapt to environment.  The big question left is: how will artists break into the big time?

Bottom Line:  The Big Four are finally entering the digital revolution.