Is the music industry in serious decline or is it booming? Well… both.

‘Economy’, ‘Credit Crunch’, ‘Recession’. All very real to some people, but at the same time as the job cuts, the music industry is reaching more people who are consuming more music and more artists are making a living from it (some are even selling downloads and merchandise by the truckload). So what IS going on?

Forward thinking music 2.0 businesses that should be expanding are being forced to cut back.
Sirius XM laid off 50 staff including some disc jockeys, Pandora had to cut their team from 140 to 120.

These businesses are thriving in one sense, with more members, fans and subscribers every day – Pandora also stated that their listenership is ‘growing rapidly’ – and yet they are still struggling to fund their staffing costs. I think that this is because their ideas and business models are sound, but the market and industry as a whole is just not ready for them. Not just yet. The ones that aren’t adapting are looking even gloomier; Time Warner is expecting to cut 1,250 jobs across the media and entertainment sectors following it’s recently reported fourth quarter loss.

Then there are the small music businesses that are doing well, making a successful living from the music industry (isn’t that what it’s all about?). More people are doing so every year. They are selling downloads, CDs, T-shirts… it’s great!

Music businesses are split into two sections in my mind. There are the businesses of old, who have always relied on selling huge numbers of a physical product and ignoring the new ways of connecting with music fans. You’ll hear from them that ‘pirates’ are causing job losses, but in reality, they are selling less physical products than they were 10 years ago because 10 years ago people were still buying CDs in bulk to replace their out-of-date cassettes and vinyl. Those figures were unsustainable and it was unrealistic to expect that surge of purchasing to continue. The other trouble with that strategy in today’s digital world is of course, single song downloads. Why buy a turkey of an album for $15 when iTunes offers the best song for $.99? So yes, Sony’s music profits have declined 41% and Warner music can increase digital revenue yet the total revenue slides 11%. These companies are struggling to find a new way. We all know that.

The other section of businesses I would call music 2.0 businesses. People and teams who are looking for new models for success in the music industry. They may be online distributors or sell music-related products or services. They may be websites streaming to consumers for free (gasp(!)) or an artist giving their tracks away. What sets them all apart is how they look at building a community and reaching out to fans, with a view to creating real interaction, enjoyment and value for the consumer. Often on a personal level, because blogs and websites may be run by independent bands, and therefore often it’s the artists themselves answering the emails. This makes their music genuine, appealing, and because they don’t blow hundreds of thousands of dollars on old media marketing of average artists, they can (and do) succeed woth a small yet loyal fanbase. You could even put a band such as Radiohead in this sector, because although they are affiliated with a major label, their idea of branching out with a new concept and a ‘name you own price for our album’ strategy created a stir as it tried to push music consumerism forward.

Many successful careers and companies are crafted during tough economic times, let’s face it, people can’t throw money around so they only make the smart decisions (Gary Vaynerchuck taught me that). The smart advertisers and investors are siding with the ‘future’ of the music business, and shifting away from the dinosaurs, hence the split in the news headlines.

Maybe you should think about where your music career is now, where you want to be, and how you can appeal to fans and investors alike in these tough times, in order to create a relationship that you can both benefit from.

Lee Jarvis.

The Big Royalties Debate

Congratulations! You have recorded a kick-ass song and a major label wants to sign it and distribute it to a worldwide audience. The trouble is, just how much will you be rewarded for your years of hard work?

The fact is that people don’t buy singles on CD or Vinyl for £3.99 anymore – they pay £0.99 (if you are lucky) for a download, so the record companies have a lot less coming to them (read: a lot less to share with you). Sales have gone crazy with the advent of the digital revolution, but that is just the tip of the iceberg; there has been no set royalty rate agreed with music publishers and the RIAA. No wonder everything is such a mess!

Just a few weeks ago, all the major groups representing record companies, songwriters and digital music websites agreed a new deal for so-called “mechanical royalties” for interactive streaming music and limited music downloads. (The LA times gives a very good glossary of these terms and further details on the agreement.) The RIAA chief executive stated that “This agreement provides a flexible structure to support innovative business models in the digital music marketplace that will benefit music fans, creators and online services”.

It’s a step forward, but there are still some other issues to be resolved, and some rather large ones at that. The biggest grey area at the moment is Internet radio and the royalties that would be accrued from that. I’m sure we’ve all heard various stories about sites such as Pandora and the constraints placed upon them.

Streaming and internet radio is big business, and if you can find a (legitimate) way to make money in this markets then you can justify earning just a few pence per unit sold, or even giving your music away for free, as did Nine Inch Nails recently. Some big bands such as Guns’n’Roses can even swallow a major album leak, use the publicity to their advantage and turn it into promotion of the full album release. The market for online promotion of merchandise and live gigs is just as vast, and enough for a future blog post

The dwindling pot of money further declines because, as the big boys keep moaning left, right and centre, pirates are stealing billions of pounds of music every year. Yes PIRATES! Swashbuckling, downloading, free riding college kids are able to find, copy, distribute and burn illegal copies of your music for free in their sleep. The industry believes that the ratio of unlicensed tracks downloaded to legal tracks sold is about 20 to 1, which is a staggering figure. While the recent agreement is a step in the right direction, we’ve still a long way to go.

The short answer is that you will not earn very much directly from sales of one successful song. The days of retiring from one lucky “ooh ahh just a little bit” are long gone. But the thought of earning a new community fan base of affluent, stylish, generation-Y internet users that share and participate in the online world… well, that’s worth its weight in gold.

Lee.