The Future of Music [Rant]

The launch of muxtape (which you should check out) has lead a lot of people to talk about the future of music. I thought I would take this chance to throw my two cents out into the fray. (Not all of these are original arguments, but when I first had this discussion they were pretty novel)

About two years ago, when I was looking to switch jobs, I interviewed with Warner Music Group's Digital Strategy group. I was drawn to the position because I thought that they were faced with one of the biggest challenges a large company has faced maybe since the best horse carriage maker had to deal with the Model T. After a few rounds of interviews, I was having a discussion with one of the guys on the team about what the real value add is of the record labels. My opinion is that before the internet and crowd-sourcing and wiki's and all that other great stuff that has made finding great content easier (and actually possible), the record companies had a HUGE and valuable role. They were the tastemakers, manufacturers and distributors. They 'discovered' the artists, they helped them produce the music and then they distributed and marketed it. They controlled the entire value chain because they provided access to resources unavailable to starving musicians-and they were good at it.

Once upon a time, recording studio time was unfathomably expensive because of all the intense equipment (in addition to the expensive producers/technicians in there). Then, assuming that a hit single came out of that session, you still had to get someone somewhere to play it. Sure, a band could play some small venues and keep growing their fanbase, but to really hit it big, you needed radio play (or MTV, but that requires a music video and all those extra costs, too). If people actually wanted to buy your album, you would have make physical copies of it and get large quantities them to stores.

What's changed?

Almost everything. The cost of production is much lower. A band can get high quality recording equipment to use in the garage. Manufacturing is possible because making mp3s costs basically nothing and no one even buys CDs anymore. Furthermore, distribution is possible, because you could create a website or myspace page and offer downloads or shipping. Even iTunes might let some indie bands on there for a cut of the sales (basically the strategy they are using for iPhone apps). During my interview, I made the case that big record labels are losing a major portion of the value proposition they bring to musicians, big and small. Musicians might soon be confronted by the possibility that signing with a label might cost them more than its worth. Basically, giving the label its customary cut may not be as profitable as going it alone. Youtube videos and myspace pages can and are being used successfully to reach and interact with fans.

So, what do the labels have to offer?

Marketing. In the most recent past this was making big acts into huge acts. Going forward, how can they keep provide this value for the long tail of indie bands? I don't think they can, and I think we'll see a lot more small acts doing it on their own. Furthermore, as radio stations become less relevant, getting played is less important and another leg of the labels' value proposition is broken. The guy from WMG did not agree with my view. He seemed more concerned with wringing the last few pennies out of the last Snoop track by selling ring tones and putting music in video games. It seems to me that they were content to negotiate a royalty stream on their existing library (which is fine, but I think shortsighted).

If I was a record label, I would focus on my pipeline of new acts. When I interviewed with WMG, I made the additional point that the success of a record label is not tied to its own brand. When listeners want to hear a song, they aren't looking for the newest album produced by WMG. They're looking for acts that they like. What if WMG became really good at helping me find music that I would like? Pandora and last.fm already do a great job, so they might be too far behind already. But, presumably, the record labels have an expertise in A&R that could be leveraged (to borrow an obnoxious consulting term) to build a great channel for the average joe to discover new and exciting acts. There is already a ton of music out there that I've never heard or even heard about. And if production and distribution only get cheaper in the future, there will probably be even more music to never hear.

Isn't there some kind of value in the label as a brand? Couldn't the expertise in A&R be one of its core strengths? Maybe all of the value add is behind the scenes, and there will never be value in that brand to consumers, but the same was probably said about the chips in your computer, until Intel came along with the Intel Inside campaign.

What if there was a connection between me and the WMG brand similar to what I have with, for example, Zappos.com. I trust that if I get shoes from Zappos that don't fit, they'll replace it or refund my money. Well, why can't a record label build the same level of trust with its customers as a random website selling shoes? I see some difficulties. For example, the relationship is really between artist and listener. However, the label could help foster the first interaction between artist and listener. Like a music matchmaker setting you up on blind dates with music. The lawsuits also probably aren't helping.

So, where do we go from here? What's the future of music?

Fred Wilson, by all accounts a smart guy, thinks that we'll have completely on-demand music, with very few people actually interested in even downloading the tracks. Not only are people going to stop buying the physical CDs, they're going to stop downloading songs! He thinks the web services that provide the tracks will be ad supported, like today's radio stations. Or else, people will pay a penny each time the listen to a track on-demand. I think one of those (or both) will happen (though I don't see us abandoning our files entirely for ad supported music). This basically makes us all like the patrons of the arts from Beethoven's days, although we'll pay after the creation happens, rather than commissioning a symphony in C.

Am I right?

I don't know for sure and it's still too early to tell. However, In the two years since I interviewed with WMG, Radiohead and Trent Reznor have left labels to sell (or give away) their music on their own, both ventures seem to be successful (though Trent may not have felt it at first). Plus, I wouldn't want to have owned this stock.