If you work in the music business, you probably already know the name Donald Passman. For the uninitiated, his book "All You Need to Know About the Music Business," which was first released in 1991 and comes out in a seventh edition today, is the book on how the music industry works. If you ever wanted to know how major and indie label deals are structured, the different types of royalties that musicians can earn and how they're calculated, what a personal manager does for a band, how much money artists make on tour, where your ticket fees go, or any of countless other nitty-gritty details, this is the book. Music industry people sometimes call it the bible, and they're not joking.
The seventh edition contains numerous updates since the last release in 2006, including the final resolution of the battle over Internet radio royalties, details of how royalties are calculated for iTunes and YouTube, and the latest developments in label deals. I had a chance to talk to Passman on the phone on Tuesday morning about the changes he sees in the music industry and where he thinks it's going.
Q: Since the last edition of the book was published in 2006, what's the biggest change to the industry?
Donald Passman: 360 deals [in which record labels get a cut of the artist's revenue from touring, merchandise, and other sources apart from record sales] are a tectonic shift in the way record deals get done. There was a smattering of them three years ago, but now it's become the norm. Early deals with Madonna and other established artists were really banking deals, where everybody knew the artist's track record and they were making a bet on what the future would be. Deals with new artists are quite different. The labels are saying that they're the only ones really willing to spend money on a new artist's career, and they can no longer make money just in the record business, so they need a cut of this other income.
We're also starting to see some industry patterns in how royalties and payments are calculated for digital music. So far, none of the business models have made a lot of money. Even iTunes doesn't make a huge profit. But part of the problem three years ago was that if you started a streaming music service, you had no idea what you were paying. Now we're starting to see industry patterns.
Do you still think it's worth an artist's time to pay or find funding for a professionally recorded demo in a big studio? Or would you recommend that artists invest that time and money in buying a computer and other home recording gear and learning how to record themselves?
Passman: There's no one-size-fits-all answer. The software that's available now is better than what professional studios used to be like 10 years ago. You can create an extraordinarily good demo in your house. The key is to create a demo that sounds like a hit so they don't have to use their imagination to hear it. People will tell you they can hear a diamond in the rough; they can't.
Do you think the rise of do-it-yourself online services like CDBaby, Tunecore, and Sonicbids will lead to a new thriving "middle class" of musicians--folks that aren't signed to a label, but spend most of their time recording and touring and make a decent living doing it?
Passman: It's a reality today. If you're a niche-type artist and you don't mind staying in your niche, you can make a perfectly good middle-class living that way. If you're more mainstream, you can use those techniques to build buzz and attract a label. Nobody's yet had a major career without a label behind them. I'm certain that's going to change, but for bands that want to be truly international and mainstream, they still need a label.
In your book, you mention that you favor unlimited music-streaming--the "celestial jukebox"--as the most likely future business model to succeed. Do you think ad-supported free services (like Imeem or Grooveshark) will ever be viable?
Passman: I'm skeptical that ad-supported music services will work in a major way. People have had a hard time monetizing music to advertisers because the music is so diverse. Advertisers don't know what type of music they're going to be associated with, so it's hard for these services to get high enough CPMs [impression-based advertising rates]. YouTube's had the same problem: you don't know what kind of video's going to pop up next to your advertisement. Free services will probably be a model, but I don't think they'll be the model.
Why do you think subscription-based services (such as Rhapsody) haven't really taken off?
Passman: They're not convenient enough, they're not truly cross-platform. For me, the ultimate would be anytime-anywhere access to any music for one subscription. On my computer, in my car, on a connected device, whether it's an iPod or something else, on an airplane when I don't have an Internet connection. Not just tied to one or two devices. I'm personally a believer in subscription services. People don't think twice about paying for cable, and when you stop paying it goes away. But with music, there's a kneejerk reaction because we're used to owning it.
We hear a lot of doom and gloom about the death of the music industry. Are you still optimistic?
Passman: I'm optimistic in the longer term. Not for the next few years. I think it'll probably get a little worse, and then we'll bump along the bottom for a while. I don't think we've hit bottom, and that's because I see the trends that are happening now. CD sales are declining and will eventually disappear, and retailers are making it happen. They're cutting back the floor space they devote to CDs, which means less CD sales, which makes them cut back more.
But the digital opportunity is huge. We can sell music to people who've never gone into a record store, people who never listen to music because they stopped listening to the radio at a certain age will now have access. Unfortunately, we're not there, technically or legally. The more pain the industry feels, the easier the legal side gets. The better the technology gets, the closer we get to delivering an experience people want.
Yesterday, New York Times columnist Thomas Friedman wrote a post suggesting that president-elect Obama needs to do more than throw money at ailing industries, but actually needs to "reboot" America by investing in infrastructure and education. In Newsweek, law professor and intellectual property thinker Lawrence Lessig argued for a more narrowly focused reboot of the FCC, which should be encouraging technical innovation but instead tends to favor big incumbents.
But what about the music industry? Yes, the big labels have earned a lot of scorn for their technophobia and suing their customers--a practice which finally ended last week--but music is a multibillion-dollar industry, responsible for employing hundreds of thousands of people, and in the midst of several years of steep sales declines. If we can bail out the U.S. auto industry, and spend at least a trillion dollars saving the global financial system and reinvesting in infrastructure, surely we could spare a dime for the music biz.
Serious economic thinkers might scoff at the comparisons--finance touches everybody, and our entire infrastructure has been designed around the automobile--but music's more than a lark or a luxury. It's a core part of the entertainment industry, which is one of the few areas in which the United States is still an exporter and world leader rather than an importer. Even The Economist has acknowledged the deep biological importance of music, leading off its annual double Christmas issue with an investigation of why we love music.
As with Friedman's proposal to save America, my proposal to save music would start at the bottom--it's not enough to give the big labels and radio stations a few hundred million dollars to stem their losses and encourage re-investment. Instead, we need to create a culture of music appreciation and nurture the talent that will lead to the next generation of musicians. Here's my dream list:
Music education and training. In the U.S. education system, music and art are the last classes to be funded and the first to face cuts. Yet, we always seem to be able to spend another few million on sports fields and equipment. The U.S. government should mandate funding for music education beginning in fourth grade, when most kids develop the attention span and coordination necessary to learn an instrument, all the way through high school. This will not only contribute to a strong base of musical performers, but the kids who lack the talent or drive to pursue music as a lifelong hobby will at least learn to appreciate the skill it takes for others to pursue it--just like youth sports creates lifelong sports fans. And professional musicians should be able to take classes in new areas--theory, audio production--without having to pay the entire tuition out of their own pockets.
Tax breaks. Bars, restaurants, and nightclubs under a certain capacity should be given tax incentives to hire musicians. (I'm not so sure about big promoters like Live Nation or stadium-type venues.) Same with radio stations that play a certain percentage of music from local or unsigned musicians. (Big corporate radio with its narrow audience-tested playlists has done far more to devalue music--and harm sales--than the Internet.) Cities should be encouraged to create music-nightlife zones with less-stringent noise restrictions and the appropriate level of police protection.
Stipends for musicians. As romantic as punk-squatters might seem, being a musician doesn't have to mean a life of poverty. Canada offers grants to non-classical musicians, including emerging artists with "self-training" (read: rock musicians). Yes, they must have shown a viable career for at least two years, but a one-year grant could be the perfect bridge between promising local band and national club tour. If we can give the U.S. auto industry $17 billion, surely we can spare a few hundred thousand a year to give promising musicians a chance to postpone their day jobs while they try and find a bigger audience.
Infrastructure. It doesn't have to be all about roads, bridges, and high-speed data networks. Cities with decrepit or nonexistent classical venues should be given federal dollars for construction. National Public Radio should receive increased federal budget--with a requirement to devote a certain number of hours a day to music, particularly types of music and artists who don't get played on commercial radio.
I'm sure you can think of other examples. My point: we've treated music as a luxury--almost as a joke--for too long. I'm not asking for a national Minister of Rock (although Jack Black might be good), but as long as we're opening the federal floodgates to revitalize the economy, why not invest in something that people naturally love and that does no harm to anybody?
Happy holidays.
I picked this book up while traveling yesterday, read a few pages in the bookstore, bought it, and have blazed through the first 150 pages in little more than a day. It's one of the funniest and most entertaining books about music, culture, and business that I've ever read.
Like a lot of suburban white boys of a certain age, Dan Kennedy dreamed about being a rock star in his youth, but reality eventually intervened and he got a corporate gig. Only in this case, the corporation was Atlantic Records--Led Zeppelin's record label, as he points out. Or rather, the corporation was AOL Time Warner (this was 2002, before they dropped the "AOL").
What follows is a hilarious and often scathing look at big money rock and roll. For example, if Jewel sings a song about not selling out, then sells it to Schick to promote a new razor, is she a clever ironist or a sellout? Under what circumstances is it acceptable for a hip-hop artist to smoke pot in a conference room? Does the ability to make eye contact in a meaningful way with everybody in a room really guarantee you a seven-figure salary, or is it merely your hair and the fact that you haven't cut it since you discovered Rush?
The best sequence, though, is where Kennedy discovers Limewire and comes up with an idea to help Warner capitalize on the digital era: digital-only contracts for recording artists, with lower up-front payments and first right of refusal for other types of recordings, such as CDs. His boss thinks his idea's good enough that he's called to present it to various corporate heads in New York and--via teleconference--Los Angeles.
Unfortunately for him, but fortunately for us readers, his idea is eviscerated by a woman he calls Angry New Media Chick and her sidekick, Loud Man. As Kennedy puts it, "They both make great money, and it seems like anytime they think they're going to have to do more than maintain the company Web site they start screaming dot-com words that the senior vice president co-people don't understand." (Example: "Impossible! Back-end architecture! Cookies and lasers! Server-side technology!") He continues, "And they've got an awesome corner on things, since we're talking about a place where anybody above middle management has to yell to their assistants for help with something as technical as, say, an e-mail attachment."
I would have thought he was exaggerating before I read the Wired interview with Doug Morris in November.
At any rate, if you want to know why EMI is laying off 2,000 people this month and have a laugh at the same time, Rock On has just come out in paperback.
Correction 5:35 p.m. PST: This blog gave an incorrect last name for the head of EMI Music's digital business. He is Barney Wragg.
Because I had to leave Las Vegas on Wednesday, I was only able to catch the first two sessions of the one-day Digital Music Live conference, a conference about technology and the music industry co-sponsored by Billboard and the Consumer Electronics Association (who's behind CES). Nonetheless, the morning speakers had some interesting thoughts.
(Credit:
CEA/Billboard)
First up was Gregg Latterman, president of Aware Records, whose company manages multimillion-selling artists The Fray (which had already been signed to Epic by the time Latterman began managing them) and John Mayer.
Despite the rejection of traditional promotion and distribution by everybody from the youngest MySpace bands to the most-established rockers, Latterman argued that the old ways--terrestrial radio and major label marketing and distribution--are still necessary for artists to sell more than a million records. He acknowledged that it's harder to create million-sellers from scratch--a few years ago, he claimed, a label could put $1 million into promotion and radio and almost guarantee a million album sales--but he noted that many critically acclaimed independent acts just aren't selling in big numbers, citing Bright Eyes (whose last album sold 189,000 copies, according to Latterman) as an example.
He also pointed out something I noted when Radiohead first revealed its tip-jar pre-release download plan for In Rainbows: without EMI, the band might never have built the huge global audience that allowed it to perform this experiment and sign distribution-only deals for the actual full CD.
My favorite insight, however, came in a discussion of how digital downloads are becoming a larger proportion of sales:"it's not fun to buy a record anymore." He didn't expand, but I imagine he was thinking of big-box stores and $18 retail prices.
The next session was a five-person panel on the current state of the industry. EMI Music's head of digital business, Barney Wragg, claimed that moving to DRM-free downloads revitalized the label's sales of digital full albums, as opposed to singles, contradicting the industry's fear that users would cherry-pick fewer tracks in the iTunes age, leading to less revenue per sale. (He didn't reveal exact numbers, but hinted they were significant enough to change top executives' thinking on the subject.)
He also acknowledged that many executives at the majors have had their heads in the sand regarding digital downloads and combating file trading, but pleaded for some tolerance, noting that a lot of artists and publishers refuse to participate in newer forms of distribution for fear it'll hurt their own bottom lines. I'd be crying crocodile tears if I pretended to be too sympathetic, but it was a good reminder that the majors aren't monolithic corporations, but actually must represent lots of parties with conflicting interests and levels of comfort with digital distribution.
There were a few other interesting points in the panel discussion, although 45 minutes seemed hurried.
Ian Rogers, VP of Video and Media Applications for Yahoo, praised the impending end of DRM, claiming that Yahoo Music had been unable to sign many deals--such as one with home automation company Control 4--because of the expense of supporting DRM-protected audio files.
Matthew DeFilippis of publishing rights clearinghouse ASCAP talked about how the organization was never interested in DRM, but cares much more about tracking usage--watermarking could be a useful technology here--and mentioned a system ASCAP is using to monitor songs playing in public places.
Finally, well-known music lawyer Fred Goldring summed up the problem nicely: empowered consumers with an unlimited supply of music directly contradicts the old industry basis of enforced scarcity. The trick is figuring out how to monetize what consumers are already doing. Unfortunately, there are no jaw-droppingly obvious or brilliant solutions at hand, although he and Nettwerk Music Group CEO Terry McBride seemed to lean toward some sort of blanket license applied on ISP fees.
MTV has a rundown of events showing that 2007 was the year the music industry broke. Not broke as in "broke big," like "The Year Punk Broke." Broke as in "became broken." (Which I suppose is followed by "went broke.")
And in Wired, David Byrne explains the modern landscape and what musicians can do about it. I'm a huge fan of his music, his writing, and his art, so far be it from me to add anything to what he said, but I'll point out my favorite part: he begins by defining music, a subtle way of pointing out how warped our modern definition of it has become. Before the latter half of the 20th century, music was like conversation--live, in the moment, and tailored for specific social events. There was no plastic, no manufacturing, no "radio-ready" mixes, no merchandising, no marketing, no branding. Just, you know, notes and words. When it was over, it was over. To me, this is still what music's about--recordings are great, but the context in which you listen to them can completely change how they sound, and a live performance is still the highest form of musical art.
Which brings me to the Crocodile, which closed suddenly last Sunday. If you lived in Seattle in the 90s, or even visited, and are into live music, you probably saw a show there. Clubs come and go, but they had a great sound system run by an excellent sound engineer, and were genuinely decent to the musicians playing there, regardless of how hot they were at that particular moment. A shame, but live music continues in the many other mid-sized clubs that have sprung up in Seattle since the Croc opened in 1992.
Radiohead and its record label, EMI, parted ways in 2005 after the band fulfilled the terms of its contract. The assumption among fans and industry types was that the band was shopping for a new label, and a new album was supposedly slated for 2008.
Today, Radiohead posted a terse entry on its official Web site announcing that its next album, In Rainbows, would be available for sale on Oct. 10. Sort of.
That is, fans will be able to download digital versions of the 10 album tracks on that date. Not from iTunes or Amazon or any other music download service, but exclusively through a band-operated Web site devoted to the album. Fans will be able to decide how much they want to pay (although a minimum credit card transaction fee may apply), and while the band hasn't revealed anything about formats, DRM-free MP3 files would be in line with the iconoclastic, anti-industry approach they're taking. If you don't care how much your fans pay for the digital download, why should you care if they copy and share?
The band's also taking pre-orders for a special box set (they call it a discbox) that will cost 40 pounds (about $80). It'll include the album on both CD and double-LP format, and a bonus CD with eight additional tracks. That discbox won't be available until Dec. 3. In other words, free from the label dictates to sell product, Radiohead is smart enough to use the digital format as a teaser--fans will download it on the day it comes out, and if it's good enough, and they'll pony up for the full meal deal. And probably buy concert tickets as well.
It appears that all the mechanics--manufacturing, order-taking, shipping--have been contracted directly by the band and its management. This E! News story quotes the band's publicist, but it's not clear whether there will be any major marketing campaign--there's no real need when a couple of Web pages can generate hundreds of news articles and blog postings. (Guilty as charged.) Radiohead never got much radio play anyway, so they don't need a label for that. And their management company can handle the tour.
True, not every band's got 15+ years and five critically acclaimed studio albums and millions of fans to fall back on like Radiohead. And most artists can't afford a producer like Nigel Godrich or the time to tinker in the studio unless they have label backing. Still, if a musician knows how to write and perform, develops a solid live reputation by touring constantly, and can spare a few thousand dollars to record and press a quality-sounding recording, what's a label get them? Radio play--maybe a 1 in 1,000 chance. An expensive carpet-bombing publicity campaign? Only useful for wannabes with insufficient talent to attract attention on their own. Comfortable living for a couple years while you wait for your big break? Fine, as long as you're sure you can recoup your advance.
Market research firm eMarketer recently published a study about U.S. consumer spending on music since 1980. Most commenters have seized on the fact that the study shows a higher percentage of people are buying music today than ever, but that those users are spending much less, probably due to the rise of single-song downloads. (eMarketer calls these "MP3 downloads"--in fact, the #1 source of legal downloads, iTunes, offers them in the AAC format, and many other sites offer downloads in the Windows Media Audio format.)
But I also noticed that music spending per capita rose dramatically in the late 80s and early 90s, peaking in 1995, then has declined ever since.
The conventional wisdom is that these changes were driven by technology: as CDs replaced other forms of recorded music in the late 80s, music sales were artifically boosted as everybody repurchased their LP (or cassette, or 8-track) collections in the new format. That replacement cycle ended just as piracy and single-song downloads emerged, hence, spending per capita plummeted.
But as I noted on Wednesday, there were way more megaseling albums--15 million or more--released between the period of 1987-1996 than any decade before. This suggests that there was more interest than ever before in new music--not just replacements.
Where's that interest today? The last album to move 10 million copies in the U.S. was Norah Jones's 2002 debut, Come Away With Me (Outkast's Speakerboxx/The Love Below, released in 2004, went 11 times platinum but was a double album, meaning "only" 5.5 million copies sold.) The top selling album of 2006, the soundtrack to the TV show High School Musical sold only 3.7 million copies. Could there really be another few million burned or pirated copies sitting around?
Possibly. I think there are a lot of other factors at play, though. Market fragmentation is probably number one--you don't see many top-selling albums that appeal to multiple age groups anymore. The obscure, unsigned local bands I've recently played in actually drew people who knew about us only from MySpace, and some of these kids (all under 25) viewed MySpace as a more valid source of musical information than radio or TV--they prided themselves on downloading songs and following local bands they learned about there. (Although the latest dirt says that MySpace is no longer trendy, while Facebook's on the rise again.) In other words, the mainstream's way more fragmented than it used to be, or maybe it no longer exists. That tail's getting awfully long.
Competition from new forms of entertainment is another factor--one analyst expects Halo 3 to earn $200 million in its first weekend. When's the last time an album release generated that much excitement?
As I've mentioned previously, independent musicians can fall prey to a lot of questionable business deals that promise to make them rich.
But Pump Audio seems like good way for independent musicians to earn some money. (Full disclosure: Pump is based in Seattle, and I'm acquainted with one of their employees through mutual music connections.) If you own the rights to your compositions and recordings--as the vast majority of independent and unsigned musicians do--you can license them on a non-exclusive basis to Pump. Then, Pump retitles and sublicenses these pieces to other content creators who are looking for a particular type of music--say, an instrumental surf piece for use in a TV spot, or scary music for a scene in a TV show.
Reading through their detailed FAQ, I don't see any major catches for musicians: there appear to be no up-front costs, you retain the full rights to your music, and if you later want to sign a record deal and the label refuses to allow you to sublicense your music in this way, you can write Pump a letter and they claim they'll remove your music from their database. The one catch, and it could be a deal-breaker for some artists, is that you have no control over where Pump places your music. It could end up in a commercial for some product or organization you despise. (Welcome to the world of licensing--it works the same way with some label deals as well.)
Today, Getty Images announced their intent to purchase Pump Audio. Founded in 1995 and also based in Seattle, Getty basically does with digital images (particularly photographs) what Pump has been doing with music, only on a much larger scale--the company is responsible for delivering more than 3 billion thumbnail images per month, garnered more than $800 million in revenue in 2006, and has offices in 21 cities. You see Getty-licensed images all over the place, in news stories, commercials, and stock images on Web sites. (Their main competitor is Corbis, which is owned by Bill Gates; a number of "microstock" sites, which license images from mostly amateur photographers at very low prices, are also in the market.)
Getty's huge customer base means more licensing deals for Pump, and more money for the musicians who license their songs to Pump. It's also a wise move for Getty--some music industry watchers predict that publishers will thrive the most as the current music industry business models--like CD sales--collapse.
Beginning musicians tend to be big dreamers. And there are an awful lot of us--Guitar Center's got nearly 200 stores now taking in more than $450 million per quarter, and you know that most of those buyers are thinking, at least in the back of their mind, that they'll be the next Jimmy Page. Or Joe Strummer. Or Kurt Cobain.
As you might expect, this combination tends to draw a lot of, shall we say, questionable businesspeople to the music industry, particularly the lower reaches. Over the years, I've heard it all: unscrupulous managers, publicists and promoters who take up-front payments and deliver nothing in return, small labels that collapse without a trace, big labels that ensnare artists into perpetual servitude, promoters and clubs forcing bands to pay up front for the "privilege" of playing (hint: if all the bands are paying to play, most of the people in the audience are probably going to be other bands), charging artists an up-front fee to appear on a CD compilation that will be mailed to radio programmers (who will throw it in the trash can, as they do with most unsolicited discs, especially pay-for-placement compilations), and on and on and on.
Most of these pitches aren't illegal, but all of them take advantage of the gullibility--or optimism, if you will--of musicians. Common phrases include "you've got to believe in yourself" and the time-tested "you have to spend money to make money."
A couple weeks ago, a fellow musician asked me if I'd ever heard of a company called BurnLounge. He called it a mixture of MySpace and iTunes. I looked into it, and at first glance it looked like an interesting new wrinkle on online distribution. Essentially, any music fan can become an online music store, selling tracks from artists he or she likes. The stores are fairly easy to set up--it's basically a Web module that can be placed on any home page. The resellers get some cut--money or other forms of reward--for each song they sell. Artists, meanwhile, can sell their music through hundreds or thousands of online stores simultaneously.
Then I did a little more digging, and began to see some pretty skeptical blog postings about the company. Apparently, while it's possible to set up a BurnLounge store for free, there are also higher-level stores that require up-front fees. (I haven't found a price list on the BurnLounge Web site, but I've seen blogs reporting that the fees range from about $30 to more than $400.) More important, once you've signed up to become one of these higher-level affiliates, you earn money by convincing other people to become affiliates.
Aha! A multi-level marketing program. That explains why my fellow musician had first heard of BurnLounge from a random guy in a mall.
Now, there's nothing illegal about MLM in itself, but years of watching the music industry (not to mention surviving the Web 1.0 bubble) have trained me to be suspicious of up-front costs and uncertain business models. I shared my suspicion, pointed the inquirer to some of those blog postings, and decided that I'd continue to promote any of my own musical projects through other channels.
Yesterday, according to a news report, the U.S. Federal Trade Commission filed a lawsuit in California accusing BurnLounge of being an illegal pyramid scheme.
Now, an accusation doesn't make it a fact. Nonetheless, I'm more than happy to stick with time-tested sales and promotional channels like CD Baby and MySpace.
All a good reminder to beginning musicians: there's no short cut to success--not even the power of the Web can substitute for the time-tested combination of talent, hard work, and luck.
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