8 posts tagged “label 2.0”

As I'd mentioned in my last post, what I'm really focusing on is a label model that can allow talent to grow and musicians to prosper without the influence of the Label 1.0 model.  There's just too much bad blood between artists and labels that I think there needs to be a fresh start.

Enter Rcrd Lbl which, just like Penny Distribution, is a digital music model that is based on a record label, but isn't exactly a label.  The Wall Street Journal mentions some of the keys to this model:

Rcrd Lbl has signed contracts giving it the right to distribute a handful of songs from 40 to 50 bands...Rcrd Lbl’s artist contracts are unusual—chiefly in that they make the company the exclusive distributor of a specific number of songs, not for an act’s entire musical output, as is the case in traditional record deals. “It’s a blog,” says Mr. Deutsch. “We’re not necessarily trying to tie you up for your fifth album.”

Artists with songs on Rcrd Lbl won’t get a cut of advertising associated with their music (as they would on ad-supported service imeem.com); they’ll get advances Mr. Deutsch characterized as modest for each song they give the label. These advances range from $500 a song for the least established artists, according to people who work in the music industry, and escalate for bigger names to around $5,000. Rcrd Lbl will divide with its artists any money that it makes from licensing their music to television shows, movies or TV commercials.

I think giving advances as opposed to a cut of ad revenue is smart move - now anything they make on ad revenue above and beyond the advances they paid artists at the beginning goes straight to their bottom line.  They might eventually make a profit - I said might. 

The $64million question here is whether or not people actually CLICK ON THE ADS. 

Myspace & Spiralfrog haven't shown that that is any way to make a company profitable, but that doesn't mean that ad-supported model doesn't work - it just means that no-one's figured out how to serve the ads in the right way so as to make them a) non-intrusive to the user but b) maximize the amount of people who click on them. 

Here's one guy who thinks that ad-supported music is the answer for the music industry but, unless there's an improvement in how the ads are served and the amount of people clicking, using advertising as the cornerstone of your model is extremely risky. 

Whether Rcrd Lbl is a success or not will be borne out in time, but it represents some key changes in artist/label structure that I think are necessary for a label 2.0., notably:  transparency in accounting with artists, flexibility and accomodation of artist/label needs and re-focusing on normal label revenue streams that can be profitable (e.g. publishing & licensing).  In an interview with Wired, founder Peter Rojas explains:

"...there's no weird, fuzzy, major label math about it, and that's really appealing (to artists)...We're doing entirely new kinds of deals with artists and have these very flexible arrangements....With some artists we do deeper deals, where we rep them in terms of their publishing and licensing, and we split the revenue for that kind of stuff.  Some artists want to take advantage of that, and some artists don't. It varies; it's a spectrum, a continuum – if you want to give us a little bit more, you get a little bit more, and if you don't, that's fine – it works both ways. It's going to evolve over time for sure."

Flexibility, openness, accommodation, evolution.  All essential traits for a market that changes every day, and essential in re-building trust between artists and Label 2.0.

I'd be remiss to not feel a little excited today - the first release from my label 2.0 is out today!  A release "date" is a bit of a misnomer in this day and age, but it's still nice to have one :)

Below is the full album stream of PD002, Departures by Tom McShane:-

There’s been a lot going on in the world of Music 2.0: 

• new business models: SpiralFrog and Universal's deal with to offer unlimited downloads in exchange for a higher payment by customers to their ISP, in this case France's Neuf Cegetel
• new heavy hitters (Amazon.com’s digital music service) which was supposed to launch today, but still hasn't!;
  
• new gadgets (160 GB iPod)
  

SO, over the last few months I’ve had the pleasure of talking to you about what will/should make up the next generation of music company and now it’s time for Penny Distribution to throw it’s hat in the ring:  Here’s how I think a Label 2.0 will look and, although I’m calling it “Label 2.0”, there’s a reason this is Penny Distribution.  We’re not a label.

As it should be, the artist,and solidifying and improving artist connection to the fan, is our raison d’etre. 

I was immensely pleased, after putting together the bones of Label 2.0, that I saw this chart by Media Futurist Gerd Leonhard explaining the revenue stream switch from Label 1.0 to Label 2.0  Although it’s a simplification, Penny Distribution’s core focus will be on the elements of the music industry which are now reaching prominence. 

Here’s how I see a Label 2.0 breaking down

New Media:

- Digital Marketing and Distribution – Getting artist’s music to over 100 digital music services and working to get promotion on a large percentage of those.
- Internet Marketing & Online Promotion Campaigns – Offer internet marketing services (either in house or 3rd party) to get artist exposure on 3rd party websites, online interviews and coverage in the digital media.
- Marketing Innovation/Invention – Examine new frontiers of building word-of-mouth and getting exposure online.

PR & Sales

- Media coverage – Build relationships with media (online and off) to benefit artists
- Physical Sales – Selling product to retailers, the old fashioned way!
- Talking Penny & it’s artists up – generally getting the word out.

Licensing

- Administering the copyrights of artists signed with Penny – Using our music library we’ll make it easy for music supervisors to find the music they need and we’ll proactively pitch that library to supervisors.  The aim?  Inclusion of Penny’s catalog is broadcast media of all stripes.  Here's a great chart from eMarketer that shows why this will be an essential part of any Label 2.0.
- Cross Promotion – We’ll also try and tie Penny’s music to other activities that are not necessarily music based – sponsoring an event that will have a lot of attendees who might enjoy Penny’s catalog is one example.

Touring

- Tour support services – Promotion of live shows, pressing additional CDs, street teams – all coordinated with the New Media & PR departments to maximize awareness of a tour using online & offline tools.
- Management services – Artist management, from showcase to CD release.
- Merchandise - Designing & manufacturing merchandise for artists.

All of this is A-La-Carte, and each element will be included only as needed by the specific situation, offering the greatest flexibility to artists.  There are a lot of these things artists can and will do for themselves.  But for the rest of ths stuff, the stuff that really gets in the way of being an artist first-and-foremost?  That's Penny Distribution.

So that’s it.  That’s what 6 months of conversations about Label 2.0 has gotten me.  Now, as always, I’m relying on you to tell me what you think :-)

I just read a very interesting study about regional music economies, by the University of Birmingham’s Tim Wall.  As with most studies in this area, the only thing that’s clear is that there’re no real rules yet that govern the burgeoning new music industry (or MI 2.0 to beat the hell out of that handle!)

That said,  I found it an interesting read considering the consistent talk of the “global economy”.  Yes, the wealth of opportunities that exist courtesy of the web are innumerable and of course, national and international markets are essential for a growing business and the goal is always to get as many ears listening as possible. 

But like everything, it starts with one person, then moves to the neighbors, then the neighborhood.  Austin, Seattle, Manchester, Liverpool: Despite the PR blitz that solidified these places as hubs of various music movements, they all had strong regional music economies.  As I develop the marketing plan for Penny’s upcoming debut releases, it helps to focus on the scale of the local market and the possibilities it represents.

I find the biggest questions raised here are those that concern the paradox of the success of local artists.  How does a regional economy first and foremost develop great musical talent, connect it to the outside world and make it successful?  But just as importantly, how do we translate the success of previous acts into a musical economy that can survive, grow and continue to incubate great music, as well as attract innovators and thinkers from other areas?

Just as a qualifier, my particular interest comes from my being Northern Irish.  There’s always been a great tradition of quality song-writing and successful musicians from my wee corner of the world but, frustratingly, there seems to have been little rhyme or reason for the success.   Not only that, but the successes (Van Morrison, Ash, Therapy?, The Divine Comedy) didn’t have any noticeable impact on the growth of a strong arts & music scene, other than the obvious cultural cache.  

Of course, during a civil war, people have more things to concern themselves with than “art”.  But given the demise of said war, I’m interested to see if Northern Ireland can turn the recent successes of acts like Duke Special and Snow Patrol into some sort of “legacy”, both artistically and economically that might benefit music and culture for generations.

Although not specific to music, San Francisco is a good example of a healthy regional economy.  Although San Jose is the undeniable tech capital, San Francisco’s progressive thinking, mixed with this tech savvy, has created some of the most exciting companies of Web 2.0, and by extension, some of the most exciting digital music companies around.  Social Networks Bebo, Vox and Fuzz call SF home as well as microblogger Twitter.  Real Networks, IODA, IRIS, Pandora, MOG and SnoCap all reside here.

 Not only that, most of these companies are based in San Francisco’s developing SOMA district.  This “cluster” of companies share talent, ideas and inspiration to push innovation and sustain growth, despite the international reach of their creations.

Surprisingly, despite San Francisco’s obvious musical pedigree, it lacks a distinct and thriving music economy.  The greatest innovations in music are those I mention above which have a less “traditional” music focus.   Perhaps, much like the areas in England that are the focus of Wall’s study, SF suffers from its proximity to a major music capital.  

But whatever the reason, I think that an important shift of focus has to widen away from narrow avenues such as recorded music sales and export (“making it big”), to include the entirety of what makes music sucessful:  clubs, retail services and all forms of communication media...And that starts right next door.

3.  Change your perspective

As we chatted about in my last post, the relationship between artist & label has become, or is certain to become, more balanced as digital music continues to grow.  Although Digital music still comprises only 10% of the U.S. national music market, it is clear that it’s expansion has made labels more - shall we say -  pliable than in years past.  The music industry is moving in what most of us would consider the right direction.

Of course in these times of change, a radical perspective can often help us see the pitfalls, and the possibilities moving forward.  To wit, I came across Techdirt’s blogs about The Economics of Free (via Andrew Dubber’s excellent 20 Things You Must Know About Music Online e-book).  Chris Anderson, the progenitor of the Long Tail theory is basing his next book on the subject and it’s certainly one that bears thinking about – and is quite the opposite of everything the music industry is currently based on. 

The short version goes something like this:  When part of a commodity’s availability approaches infinity, the standard economic treatise of “supply-and-demand” breaks down.  (MP3s are widely available everywhere)  An infinitely available product, if given away for free, grows a market’s size exponentially  (Music is more popular now than ever).  And an infinitely available product increases the value of “less infinite” or scarce products that are connected to or the same as the product.  (More people hearing MP3s means more revenue from Merchandise, Licensing revenue, Tour revenue etc.)

Taken at face value, from Label 1.0’s perspective, this translates to “we’re fucked”.  The business model of Label 1.0 is based around the control of a scarce product (CD) and the very concept of “free-to-consumer” is an extraordinarily alien one. 

As for Label 2.0, it could be said that we can already see the increase in value that The Economics of Free have brought to the “less infinite” products that artists provide. 

The New York Times had an excellent article on “Web Superstar” Jonathan Coulton.  What’s made abundantly clear from this article is access to the artist, a feeling of being part of something, or a direct connection to the artist is now what is valuable to music consumers, and he makes a remarkably comfortable living from providing it.  The music is free, but the music brings with it the desire to know, connect and interact with the creator.  Some of the artists in the article profess to be tired of the constant MySpace message replies and such, but this may be the “business” of music in the future and the ability to deal with it the determinant factor in the success or failure of a musician’s career.   For tips on how to grow a Jonathan Coulton-esque music career, I’d consult this article about documenting your every move. 

There’s a place for Label 2.0.  But what functions will Label 2.0 fulfill in the development of an artist’s career?

More ramblings on Label 2.0

2.  Clean up your act.

One thing that I've noticed prevalent in the machinations of Label 1.0 is an inability to upgrade one's approach once a new format arrives.  They seem to keep archaic articles of contracts around like someone who refuses to clean out the fridge and hopes no one notices the stench. 
A notorious example is the "Breakage" deduction which hung around like a bad smell well into the CD era.  The basis of this deduction (sometimes reducing a royalty base by as much as 15%) was that when Vinyl records were made with Shellac a certain percentage of those would crack and break while being transported.  The label passed that damage on to the artist.  Without any basis, labels kept the clause in there way past the sell-by date, hoping no one would notice.  A few other examples of clauses that could do with an overhaul would be:

Shorter album terms:  There’s no need, and may be counterproductive, to lock an artist into a long term deal.  The standard used to be 7 years...

Full royalty for all geographic territories:  In the past, artists would be paid 50% of their royalty for sales outside their “home” country.  Within a digital economy, this is an anachronism that needs to be removed

New Media deductions:  Some contracts call for paying only 75% of a royalty on “New Media”, including digital.  There is no reason, other than artist royalty reduction, to keep this around.

Digital “Free Goods” and “Packaging”.  Unbelievably, some Label 1.0 companies still use packaging deductions and free goods deductions on Digital delivery. 

Packaging Deductions / Free Goods Deductions:  The worst of a bad bunch, labels would use a 20-25% packaging deduction (the cost to make the records packaging) and a 10-15% free goods deduction ( to account for copies given away as “promotional items”) to reduce an artist’s royalty.  For example, if an artist received a 15% royalty on a CD priced $18.98, he’d get $2.85/CD.  But these deductions would reduce the “royalty base” by the given amount so she’d end up with a smaller cut:

For example, with a 25% packaging deduction and a 15% free goods deduction an artist royalty looks like this:  

25% (pack. ded.)of $18.98= $4.75.  
15% (free goods) of $18.98= $2.84.  

$18.98-
$4.75 (pack ded.)
$2.84 (free good ded.) = $11.39.  

Artist royalty would now be 15% of $11.39, NOT 15% of $18.98.  thus reducing the artist Royalty to $1.71/ CD. 

As a perfect example of how Label 1.0 had a propensity for shooting itself in the foot, a simpler, more transparent method of accounting is currently in use that forgoes all of the number-juggling, but leaves both labels & artists with almost the identical split of revenues.  Instead of basing the royalty on SRLP, why not base it on Wholesale price?  A frontline CD wholesales for about $11.45 today, and would lead to an almost identical split of revenues without the smoke & mirrors - and provide a certain level of trust between labels and artists.

There are of course many methods of equalizing the basis on which the artist/label relationship is based.  That equalization is already well under way, so it only follows that Label 2.0 move with it.

That being said, it's a widely accepted fact that in order for viable business models to emerge from the rubble of Label 1.0, Label 2.0 will have to share in revenues from sources not traditionally demanded by record contracts.  T-Shirt & Merch. sales, tour revenue and performance monies are some examples.  The (now widely derided, but perhaps prophetic) deal that Robbie Williams & EMI struck back in 2002 may be a good blueprint for agreements in the future.

From an artists point of view, I can understand why there'd be some resistance to these kinds of changes. But as Digital Music has served as a leveler, so the relationship of artist/label must come closer & closer to resembling a partnership. (which is why, incidentally, I don't agree with the Controlled Composition clause, but more on that later). 

This is an enormous opportunity for artists and labels across the music industry economic spectrum to abandon years of acrimony and work more closely together for common goals.  It should be an interesting ride...

As I’d mentioned, I’m hoping to use the next few posts to “think-out-loud” about what Label 2.0 might look like.  As I’ve had first hand experience of Label 1.0 with Real Music, I’m hoping to use that as a jump off point for this discussion.  Despite all the hype, I think that most innovations in an industry build on, modify and improve on older models rather than completely replacing them.  With that in mind there’s a few things that a Label 2.0 needs to address, and we’ll start with:

1. Improving the reality and overall perception of the Artist/Label Relationship

For a variety of reasons, the perception of a “record label” has been universally distrusted, reviled and rejected as a system of corruption by artists for years, possibly since the very inception of the industry. 

The design of a Label 1.0 record contract could be summarized thus: “You get the glory, we get the money”.  Through a system of wily accounting, ambiguous clauses and extraordinary use of language, record labels strove to reduce the size of a royalty paid to an artist by any means possible.  

Once large corporations began buying & consolidating labels throughout the 70s and 80s, this process only quickened as shareholders began demanding greater and greater profits.

Although the indie label industry often set their own rules, the “standards” set by the larger labels formed the blueprint for many independents business models.  And why wouldn’t it?  It was certainly making serious money for the majors.  
 
As recently as 2004, while reading about industry practices, I was struck by how brazen it all was.  The reasoning behind many parts of record contracts was so obviously skewed in favor of the label, at the expense of the artist, that I couldn’t understand how they got away with it. (Check out Everything You Need to Know About the Music Business by Donald Passman for plenty of examples)   The reasoning, of course, was “This is how it’s been done for years, so crying about it won’t help”.

Flash forward to 2007 and the game has certainly changed.  But the perception of a label, if anything, has gotten worse. 

I believe a Label 2.0 needs transparency, first and foremost.   As hinted in previous posts, a Labels’ raison d’etre is NOT exploitation of artists for the maximization of profits.  The functions of artist development, promotion, publishing, management and licensing are still vital, but artists rightly distrust many of the agreements which allow Labels to take over these functions on their behalf, mainly because of the labyrinthine language that purposely plagued Label 1.0 explanations of various revenue streams.

For many artists, and the general perception of aspiring musicians everywhere, assistance from a label has been seen as a major stepping stone in a career as a musician and has made the move a desirable one for most. 

This goodwill has been met with difficult contracts, exploitation of artists and songwriters and a general disregard for the public good in favor of higher profits.  The changes that are running through the music industry today are finally bringing a certain balance to the conversation.  Artists have many more options available to them now than even 5 years ago in all the arenas that were once the exclusive domain of Label 1.0. 

It’s up to Label 2.0 to prove that a record label is an artist’s best option, rather than the only one.

Tune in tomorrow for ways I see a Label 2.0 aiding transparency and making Label structure attractive to artists once more.

"Suddenly, labels are not only struggling against nosediving CD sales.  They are also facing a powerful class of emerging startups, a sector that is just taking shape.

But where are the billion-dollar, label-replacing ideas, tailored for modern, digitized consumption habits?  The digital music space is already bubbling with innumerable startups and fresh ideas, but who will develop, market, distribute, and license artists in the future?"

~ Digital Music News

Sometimes it feels like Silicon Valley circa 1999.  Music-based companies with the faintest whiff of an idea are snapping up funding quicker than you can say “lala.com”.  Innovation is great, and the spirit of opportunity and entrepreneurship such an atmosphere engenders is great for music in general.

My question is:  Do we really need to reinvent the wheel here?  According to the hype surrounding Napster, digital music was the death of the music industry.  Yet here we are in 2007 and it’s widely accepted that there is, in fact, a more voracious appetite than ever for recorded and live music.

So amongst all of the great ideas (lala.com, last.fm, SnoCap’s MyStore) I think an overarching problem has been missed.  Once the traditional record label dies, who and what will take their place?  

I watched with interest last week when Nettwerk, Beggars Group, Matador Records, Om Records, XL Recordings, IODA, IRIS, INgrooves, Redeye Distribution, and the Orchard opened up their respective (predominantly Indie, wholly DRM-free) catalogs to Imeem/Snocap’s ad supported music sharing plan.  

Not only is the size of this venture impressive (at almost 3 million tracks) but the brain-trust behind these respective labels and distributors is representative of many of the best minds the new music industry has to offer.  I’m not one to follow the latest trends, but when all of these companies see value in an idea, there has to be at least some merit in it.  

What was most fascinating though, was the fact that at the same time Warner Music Group is suing Imeem for copyright infringement.  

I mean, WMG are seriously missing something here, right?  It’s these kinds of studies in contrast that seem to point to an upcoming vaccum as larger, protectionist labels begin to lose market share steadily and quickly. 

Although the institution of the record label is certainly unfashionable, the basic function of a label is still to develop, market, license and distribute artists.  Yes, every artist now has the ability to handle each of these essential functions themselves, but which artists are actually capable of doing so?

A label is primarily a company which assists in the execution of these functions while an artist concentrates on the task at hand: being creative.  Among all of the hysteria surrounding Digital Music, music industry bashing and nose-bleed funding rounds, the services a label provides to an artist – 60 years ago and today – remain relevant and essential to the ultimate goal:  Creating art and having it experienced.

Over the next few posts I’ll be examining what modifications to the traditional model need to be made to make a Label 2.0. and whether it'll all make any difference in the end...I really hope you’ll join the discussion…

Update:  Shortly after I wrote this, Warner dropped their suit and signed up with Imeem.  

For more thoughts on Label 2.0, check out Digital Music News' recent article on the subject.