Market Noise

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Futurists and industry analysis agree we are on the verge of a revolution in the music business.  Gerd Leonhard posits in “the days of the lauded ‘Internet music revolution’ were just a mere testing ground, like the first kicks of a baby during pregnancy.”[1] Similarly, music business analyst Bob Lefsetz believes “[w]e could be on the verge of a renaissance…[t]he death of the traditional label model could eliminate looks-based music and formulaic radio…[e]verything you hated is essentially gone.” [2] This revolution in the music business has been predicted for well over a decade.
In “The Economy of Ideas” John Perry Barlow draws the poignant analogy of the music industry of the future being like “selling wine without bottles on the global net.”[3] He argues it was the ability to deliver wine (music) in a physical form that the rights of invention and authorship adhered thereto.  The value was in the conveyance of property, not the thought conveyed.  Throughout history “[p]roperty was the divine right of thugs.”[4] The record industry caused it to be “the bottle that was protected, not the wine.”[5] Music, being a non-physical idea, has been converted into property through industry.  Building upon Barlow’s concept, Leonhard argues music will no longer viewed as a product but rather a service.[6] Music only became viewed as a product because of the agenda of an industry that quickly learned “selling the bottle can make a lot more money than only selling the wine…[f]or the future, think of a “record label” as a ‘music utility company.’”[7] It appears the record industry is broken but the music industry has a future.  With the right concept and execution a revolution in the way consumers access music will continue to happen.  The business models of the future bear this in mind.  A growing number of artists refusing to deal with traditional record labels have experimented with the following alternatives:

No Label Model

Numerous big name artists have been breaking from their long-time labels to find new business partners.  In 2007, Madonna announced she was leaving Warner Music after 25 years to sign with Live Nation, the world’s biggest concert promoter.  For $120 million she is sharing revenue for music sales, performances, merchandise, and the rights to her name.[8] In 2005, her Confessions on a Dance Floor CD sold 1.6 million copies in the US and the subsequent worldwide tour grossed $193 million.[9] Similarly in 2008, Jay-Z left Def Jam Records, a label of which he had recently been president to sign a 360 deal with Live Nation for $150 million.[10] Comparable deals have been signed between Live Nation and artists like Shakira, The Jonas Brothers, and U2.[11] In late 2007, the Eagles distributed Long Road Out of Eden directly and exclusively to Wal-Mart.[12] The Eagles sold 711,000 in the first week and more than 2 million over the course of the year.[13] Clearly the Eagles decision to cut out the middleman and deal directly with the world’s largest retailer was a tremendous success.

Tip Jar Model

Alternatively, some artists are selling their music directly to the fans.  Radiohead avoided forming a business partnership entirely by releasing In Rainbows as a digital download.  Radically, the band asked fans to pay whatever they wanted for the album.  The Tip Jar Model wholly depends upon the philanthropy of music listeners to voluntarily compensate musicians for their art.  Users enjoy the satisfaction of knowing that they helped their beloved artists continue with their musical careers.  This is a very simple and affordable model for artists if the music is digitally distributed because the costs are de minimus.  A strong sociological benefit of the model is the fact that it makes piracy irrelevant. There are no incentives to visiting an illegal downloading website if the artist is giving their music away without the risk of litigation.

In practice, this model was a success for Radiohead and Nine Inch Nails.  The people who chose to pay paid an average of $6 per album, which when averaged with the total number of downloads amounted to a total of $2.26 per album – or more than $2.7 million in profits for Radiohead.[14] These figures were derived by comScore and based on 1.2 million downloaders, as the band refused to say how many fans bought the album online.  Singer Thom Yorke said “[i]f I die tomorrow, I’ll be happy that we didn’t carry on working within this huge industry that I don’t feel any connection with.”[15] When the band later released a CD version of the album it ranked No. 1 on the Billboard charts selling more than 122,000 copies.[16] In early 2008 Nine Inch Nails self-released an instrumental album titled Ghosts I-IV. This album made $1.6 million in revenue, which the band’s manager believed to be over five times as much profit as what a record label could have provided.[17]

Critic-Based Pricing Model

A distant cousin of the Tip Jar approach is one where the better the quality of the music is the higher its price point. This model simply shifts the determination of how much an album should cost from the record label to a third party.  In the only instance of this model ever in practice, Asthmatic Kitty Records tied the cost of a particular album to the rating the album received from critics at Pitchfork.com.  On December 8, 2008, Asthmatic Kitty Records put this model the test.[18] In this instance the critic, Pitchfork.com, gave the album, Ropechain by Grampall Jookabox, a 5.4 out of 10.[19] As a result Asthmatic Kitty offered that album for $5.40 for the next 54 hours.  54 hours later Asthmatic Kitty declared the experiment a failure.  In good spirits they added “[o]ur in-house scientists are currently researching weather-based pricing.”[20] The search for a new approach continues.

Commercial Patronage Model

The Commercial Patronage Model is, at its core, harkening back to the early days of patronage of the arts.  This is a practice that began with artists being supported by kings and churches but today could easily translate into support by McDonald’s, Mercedes-Benz or Halliburton.  This model shifts the all costs of the production and distribution of the music to the artist’s sponsor. A record label would operate like a matchmaker pairing up artists with sponsors.  If a patron so required, artists could include commercial messages in their music. Consumers could enjoy music at not cost, other than any integrated advertising that may exist.  This is a concept consumers readily accept in other popular entertainment media, like television. This model also renders music piracy irrelevant while at the same time guaranteeing some compensation to the artist.

Digital Rights Management Model

The Digital Rights Model greatly compensates labels and artists through heavy protective measures and meticulous consumer tracking.  This model severely restricts the public’s ability to enjoy music, while at the same time ensuring that artists and labels are being paid.  Through DRM record labels could control every play of a digital record.  For instance, labels could control and charge users for every time a recoding is played or for the length of streaming durations or even for the number of CD burnings.  Piracy would be a constant struggle but, as discussed supra, the DMCA would support record labels and artists in the enforcement of their rights to protect their art.

Socialization of Music Model

The Socialization of Music Model is a bottom-up approach valuing consumer demands above all else.  Consumers want uninhibited ownership of their music free of DRM and consumers want their music to be portable, not streamed.  The socialization of music would impose a blanket music tax on all Americans, making them de facto patrons of the arts.  The concept of tax-subsidized entertainment is not as radical as it may seem.  England imposes a similar television tax on its citizens.[21] Government could set up a central server to host and track consumers’ usage.  The American public may not be quite ready for this model but no approach should be ignored in searching for the best way for the industry to evolve.

[Photo by Woodleywonderworks @Flickr]


[1] Leonhard, supra note 5.

[2] (Lefsetz Letter, 3/4/09).

[3] Barlow, supra note 11.

[4] Id.

[5] Id.

[6] Leonhard, supra note 5.

[7] Id at 15.

[8] Knopper, supra note 53 at 244

[9] Id.

[10] Id.

[11] Panos Panay, 360 Deals Are Not The Future, (2008).  Available at http://panosbrew.sonicbids.com/360-deals-are-not-the-future/ (last visited 4/25/2009).

[12] Knopper, supra note 53 at 244

[13] Id.

[14] Id.

[15] Id.

[16] Id.

[17] Id.

[18] Asthmatic Kitty Records, Asthmatic Kitty Adopts Critic-Based Pricing Structure, (2008).  Available at http://www.asthmatickitty.com/news.php?newsID=372 (last visited 4/22/2009).

[19] Id.

[20] Asthmatic Kitty Records, 6 Out of 10 Critics Agree: Critic-Based Pricing, (2008).  Available at http://www.asthmatickitty.com/news.php?newsID=375 (last visited 4/22/2009).

[21] Matthew Reynolds, Why Music Should Be Socialized, 10 Vand. J. Ent. & Tech. L. 505 (2008).


*Ian Gibson, Esq. is an attorney licensed to practice in the state of California. This article is for informational purposes only and is not intended to constitute legal advice. Visiting iangibson.com does not create an attorney-client relationship. This material may be considered advertising under applicable state laws. Copyright © 2012-2013 Ian Gibson, Esq.

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