The Music Business
by Keith Cowing, June 18, 2008
This is an interesting question recently posed by Peter Kafka from SAI. There has been a lot of talk about music recently, especially among venture capitalists and entrepreneurs (see Fred Wilson’s Blog for some great insight into the music industry). The first part of my response is a question: What are the components of this giant arena called the music industry? The answer is pretty simple.
Production: Music studios build expensive setups and rent out time to musicians, either current stars or up-and-comers who can get their hands on some cash. Production studios will always be around, but now small bands can find digital studios that are really cheap (or even create their own for a few grand). The new era of music studios are moving away from the deep relationship with record labels and are starting to focus much more on independent, unsigned artists. Who needs a record label if they don’t add any value to your game plan?
Promotion: This one’s going…going…gone. Historically, the only way anybody ever knew about your band was if you could get radio time. In order to get radio time you either needed to join a giant record label or payoff a radio exec. Now all you need to do is create a MySpace page, a Facebook account, upload your music to Yahoo! Radio, etc. Viral marketing is proving very powerful, and nearly free of charge.
Distribution: Old world: record sales. New world: subscription services or MP3 download sites. There is still money to be made here, but it’s not going to be from the record labels – it’s going to be from portals like iTunes, Amazon MP3, etc. The record label doesn’t provide much value in this space anymore because the marginal cost to sell an extra song is practically zero. All you need is to get your album, or even a single track, setup on an MP3 service and you have the potential to sell a million copies. The subscription-based model is also looking very likely. At a certain point musicians have to stop fighting digital piracy. It’s too hard to fight MP3 sharing if you can find a way to play along with it and still make money.
Live Shows: This is where the smart people are putting their money. Is it a fluke that Jay-Z just landed a ridiculous, $150 million deal? No, because he can sell tickets and bring people to events and that’s where music is heading. Back to live shows. You can never quite replace that concert feel and there is still money in that game. Lots of it. Some artists in Europe are even giving away their tracks for free, and solely focusing on sales via live events. Instead of fighting digital piracy, why not play along with it? Get your music out there for free, promote yourself, and get fans to pay to see you in person. After, it is still a “Show Business.”
So my bets are placed in three categories: 1. Technologies and business models that allow musicians to produce quality music on their own (with no record label). 2. Technologies and business models that support wide spread marketing and distribution (subscription services, MP3 portals, and social networking utilities that focus on music). 3. Companies that focus on promoting and managing live events.
Tags: Music, MP3, Marketing,