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How The Music World Has Changed
Forget everything you think you know about the music biz
By: Bobby Owsinski


 
 

 

 

Bobby Owsinski's Music 3.0

Who's In Control?
Where Did The Record Stores Go?
Why Traditional Radio Is No Longer a Factor
Why Television Is No Longer a Factor
So What Is a Factor?
The New Players
The New Audience
Enter Music 3.0

Just like everything else technological, the music business has changed considerably in the past few years, and it continues to change at a fast pace. But never has there been an evolution as dramatic as M3.0. Although the phrase has been overused, the paradigm has truly shift ed, and all of the traditional players in the industry have new roles. Let’s look at some of them.

Who's In Control?

Although it may not be readily apparent, Wall Street and Madison Avenue indirectly control the M2.5 music industry through their tremendous influence on the financial bottom line of record labels, record stores, radio, and television. If you’re owned by a publicly traded conglomerate (as all major labels and radio and television stations are), then you’re in the business of selling stock, not servicing the consumer. What that means is that nothing matters more than quarterly earnings. To keep those earnings as high as possible, Wall Street turns to Madison Avenue to devise the best marketing strategy for keeping the profits high. Madison Avenue (in the form of the major advertising agencies) can bring in the big ad dollars, but only under certain content conditions (like programming that is tailored around the advertising), and the process repeats itself over and over. The advertising industry (Madison Avenue), not the music industry, therefore drives the music cycle in the United States.

In M2.5, it’s all about passing focus-group tests, which have separated listeners into the distinct demographic groups that advertisers are then able to tell stock analysts they have micromarketed their products to. As a result, radio, television, and live performances are no longer about aggregating and entertaining large audiences, but rather just a group of market niches. The bright side to this fact is that there’s one heck of an opportunity opening up for folks who don’t get hung up on trying to sell advertising. Wall Street and Madison Avenue have tried to redefine what music means to people, but most people are voting with their wallets by refusing to buy any new recordings. The view of the vast majority of consumers is that very few new recordings are worth buying compared to those a couple of decades ago, and this has become the dilemma of the industry. You have to sell product to survive, but it’s impossible to develop that product while trying to please your corporate masters. It might work when selling soap or clothing or any other consumer product, but a creative endeavor like music just doesn't work that way. It’s too personal, both to the artist and the consumer, to be a mass-market product.

Where Did The Record Stores Go?

Although sales of hard product like CDs are way down in the music business (off by about 54 percent since 2000), a major reason is that consumers oft en can’t find the product when trying to buy it. It used to be that almost every town had some kind of store where you could buy recorded music, but now even major shopping malls around the country are CD-barren wastelands. Since 2003 about 3,500 music retailers have closed, according to the Almighty Institute of Music Retail, an industry research group. There are fewer than 2,500 stores left.

"I think that the end of music retail is in sight, and it really has accelerated in the last two
years. What that means is we’re only a couple years away from not caring at all about getting
records into stores. That’s huge, because it eliminates a marketing opportunity where a clerk
in a record store who likes your record will tell people about it; so it’s a little sad, because
that point of contact at the record stores is going to be gone in a few years. On the other hand,
it’s really exciting because that barrier where a band feels that they needed a
nationally distributed release is gone."

Bruce Houghton, owner of the Hypebot
music blog and the Skyline Music Agency

So where did the music retailers go? Just like so much else in M1.0 through M2.0, music retailing was once a thriving business that had no shortage of customers, but several factors throughout the years delivered a knockout blow from which the retail part of the industry may find it difficult to recover. First up came the closing of the large music-retail chains like Tower (89 stores), the Wherehouse (320 stores), and Sam Goody’s (1,300 stores), all now defunct. While initially good for business, these chains began to put price pressure on the small independent retailers that were the backbone of the industry. If you can buy it cheaper from the chain store, that’s where you'll go, and so the buying public did.

But soon the music retail chain stores got a taste of their own medicine. In the ’90s, Best Buy, Target, and Wal-Mart began to stock CDs as a loss leader in order to get customers in the door to buy their pricier merchandise. This combination of the music-buying experience along with traditional shopping proved hard to beat. Soon these three megaretailers were responsible for more than half of all CD sales, and their leverage hit home with record labels and traditional record retailers alike. The music retail chains, finding it impossible to compete with CDs priced at wholesale prices and below, soon closed, leaving only a dwindling number of independent stores left.

Then came the rise of M2.5 as digital music files (MP3s) penetrated the consciousness of the consumer, and soon CD sales began to drop year aft er year. Digital piracy, online CD sales, CD copying via CD burners, paid digital downloads, and the lack of new trends and blockbuster product have caused the number of music retailers to fall to unprecedented low levels. Even the highest-grossing record store in the country, Virgin Records in New York’s Time Square, has closed — not because it was losing money, but because more money could potentially be generated from the same square footage with another business. So even when a new blockbuster music product that everyone wants exists, you can’t buy it if you can’t find it.

Why Traditional Radio Is No Longer a Factor

Broadcast radio was once the lifeblood of the music industry. Even moderate airplay could be enough to establish an artist, while heavy rotation of enough songs could almost guarantee the artist’s long-term career success. Today, radio is just a shell of its former self, almost irrelevant in its impact on the success of an artist. In fact, airplay on some stations can even be harmful to an artist’s credibility, since much of traditional broadcast radio is now so poorly regarded by consumers and true fans.

"Radio used to be one of the things they trusted, but now it’s transformed into something that
music lovers can’t even tolerate, so real music fans don’t expect FM radio to turn them on to
new music like it once did. Therefore, for new artists, radio is moot."

Derek Sivers, founder and former
CEO of CD Baby

So how has radio gone from holy grail to dirty coffee cup? Radio has undergone its own version of technological morphing paralleling that of the music industry. Back in the early days of radio, each station was locally owned and reflected the tastes of the community and region, including the music. Much of the great music from the ’50s through the ’70s came about as a result of these local tastes; from Philadelphia to Detroit to Memphis to Cleveland to Chicago to Los Angeles, each region had its own distinct sound.

Another factor in radio’s rise was the relative freedom that disc jockeys had, being able to play just about any record that they liked. In the late ’60s and’70s, this freedom hit its apex on FM radio, as people tuned in specifically because they trusted the taste of the DJ. You could hear a raga from Ravi Shanker, hard rock from Led Zeppelin, jazz from Miles Davis, and acoustic folk music from Richie Havens back to back, with the air of discovery high and listeners flocking to the major FM stations in each region of the country. Your DJ was a personal music guide who could take you to new musical destinations if you just let him or her.

During this period, FM radio was considered a poor stepchild to AM because the proliferation of FM radio was just beginning and its advertising revenues were still relatively low, so large ownership groups generally overlooked the format as a potential source of revenue. But money always follows listeners, and soon FM radio was raking in big ad dollars, which attracted major players from both Wall Street and Madison Avenue looking for a new income stream. Soon local AM and FM stations were purchased by station groups and conglomerates, and in an effort to maximize profits, radio “consultants” were hired to review the station’s playlists and make them more
listener friendly. When this happened, the DJ lost all his freedom as to what to play as the playlists were tightened to the songs, and even the time, that the consultant picked. Since the same consultant was determining the playlists for the entire station group, stations using the same formats were playing the same songs virtually everywhere in the country, regardless of the region. Radio became homogenized and stale.

Worse still was the fact that what had always been a localized media soon became anything but, with some stations turning to automated broadcasting with no live on-air personnel. Soon came the endless commercial spots from national advertisers, since few local advertisers could now afford the service.

For the listener, radio went from a point of endless music discovery, where listening all night could be considered a reasonable leisure activity, to a sonic clump of audio goo designed to be as inoffensive as possible. In an effort to grow their profits, big corporations turned radio into a supplier of background music, rather than the companion that it used to be.

Prior to the influx of big-money ownership, radio couldn't afford demographic market research, and each station decided what to play by registering the calls they received or by calling up the local music stores to see what customers were buying. Although the possibility of overhyping a particular record existed, the information stations received bore more of a relationship to what people in the area were actually buying and listening to. Now, because focusgroup results take precedence over the preferences of listeners, we have more “turntable hits” than ever before, in which a recording gets massive exposure but no one is willing to purchase it.

Advertisers want to control what’s being played around their advertising dollar, and the need to please the advertiser (instead of the listener) is one of the reasons that radio is where it is today. No advertiser is willing to take the risk of being associated with new music when, for the same money, they can be associated with a known quantity. Yet listeners have proven over and over that they are more than happy to embrace something new.

"Before cheap data processing came along, calling up a record store and playing what they
told you people were buying was a cheap form of market research. Music flourished in that environment.
The minute it became a game of attracting the right demographics in a focus group, it was the end
of commercial radio playing any music that people were passionate about. I think it’s
mind-boggling that some people are taking this idea seriously."

Bob Ohlsson, media sage, historian,
and former Motown engineer

Arbitron ratings between stations continue to be important, but far less so than when there used to be competition between stations as opposed to station groups.

"The change has been due to what’s called micromarketing. Each chain sets up stations
that are each fine-tuned to a particular demographic group in the same market. Then
they sell advertisers combinations of those stations that fit the precise marketing profile
the advertiser is looking for.

I think this selection process is what dumbs down the music, because in the old days it was
still about selling advertising, only the music played was based largely on local record sales.
The musical motivations of the audience have been taken out of the process."

Bob Ohlsson

INTERNET RADIO
Radio is said to have gone through its own version of M3.0, with Radio 1.0 being the early startup days of AM, R1.5 being the age of the Top 40 formats of the ’60s and ’70s, R2.0 being the rise of FM, R2.5 being the rise of talk radio, and R3.0 being Internet Radio.

Internet radio is currently on the rise, with a whole new set of Internet-only stations appearing, and the majority of terrestrial stations having an Internet counterpart as well. In fact, Internet listening has risen by a third in 2008 alone according to Edison Research, a leader in media opinion and marketing research used by the radio industry. These stations utilize the vertical nature of the Internet and provide very specific, targeted programming to their listeners. But while terrestrial stations have a sales staff with a host of customers used to advertising, their
independent Internet counterparts require a different business model to survive, as they are relegated to traditional Internet sales support like banner ads, paid search, and pay-per-click.

One of the biggest problems for Internet radio is the issue of performance fees, which broadcast radio does not pay (although this might change soon). Currently, an Internet radio station pays on a sliding scale depending on the type of station and number of listeners, but the rates are due to rise in 2010, jeopardizing one of the truly great resources to new artists. When the cost of doing business rises for Internet radio, many stations will have to resort to the advertiser-supported model of their terrestrial cousins to survive. This also brings with it the same problems that their terrestrial counterparts now endure, meaning outside pressure regarding their playlist. The bottom line remains that the fan is out of the loop in advertising-supported entertainment, other than their passing interest in something like a chart statistic.

In the end, technology doesn't change the lessons of broadcast history or the fact that there is always intense competition for advertising dollars. There is very little difference between electronic distribution and broadcasting once you peel away all of the hype.

SATELLITE RADIO
Satellite broadcasting was once thought to be the next revolution in radio, and while providing a superior listening experience to the consumer in many ways, it has run into many snags along the way. The two original competing services, XM and Sirius, have merged in the face of staggering startup costs and overhead, and while the subscriber base of the merged company is a healthy 18 million listeners, program licensing costs with the NFL, MLB, and especially the $100 million per year deal with Howard Stern, continue to be a huge impediment to profitability.

But despite these large cost burdens, Sirius-XM provides more than 170 digital channels coast to coast, including 69 commercial-free music channels, with original music and talk channels created by the company’s XM original programming unit and by leading brand-name content  providers. Sirius-XM is now available in over 200 car models (cars being the main target of the service). Unfortunately, with car sales at a near 20-year low at the time of this writing, Sirius-XM’s subscriber base is at a standstill.

Some wonder whether Sirius-XM can survive despite its die-hard following, since the eventual replacement of its satellites will require a large influx of cash that the marketplace just can’t support. This calls into question the subscription model for programming versus the age-old advertising model — which, as we've seen, eventually leads to controlled playlists.

Why Television Is No Longer a Factor

It used to be that an appearance on television could give an act a pretty good sales boost. During the ’70s and ’80s heyday of Saturday Night Live, an act could count on at least 100,000 unit sales (usually more) the following week, and of course MTV made acts into bona fide stars and superstars. For the most part, those days are over.

"First of all, SNL’s viewership is down. It used to be that it did a 12 rating, but now it might do a 2 or a 3.
What that means is that only 2 percent of the households are viewing it, or to put it another way, it’s not
being viewed by 98 percent of the available households. So there’s been some dramatic drops in viewership,
and as a result, traditional media becomes a lot less effective."

Larry Gerbrandt, media analyst and
principal in Media Valuation Partners

Today, an appearance on a late-night talk show like David Letterman’s will probably go unnoticed, since the demographic watching is falling off to sleep. A new act might get some small amount of traction on Conan O’Brien’s or Jimmy Kimmel’s show, but it probably won’t sell many units because of it. Daytime TV can help sales, though. An appearance on Oprah can be sales gold, as can an appearance on Ellen DeGeneres’s show, but the demographic is narrow (mostly women age 25 to 45), so this type of appearance can’t be utilized by every artist.

The Disney Channel is the only major star-making venue on the air today, although it’s limited by its demographic as well (kids between the ages of 6 and 14). An act appealing to the prepubescents can truly move product, but the time window is small because the audience grows up and usually makes for short careers. Disney sells cute, not art, and there’s only room for a few acts.

In the end, television is much like the Internet, with so many vertical avenues that have sucked viewership from the major networks. If you have an eclectic viewing taste, there’s probably a channel for you, but there’s less and less space for music instead of more. MTV and its sister stations are now more about lifestyle than music, and any music show on an outlying cable network has an already-limited viewership (Live from Abbey Road on the Sundance channel, for example). The fractured demographic and viewing habits mean that fewer and fewer eyes see music on television, which translates to fewer sales being made.

"What’s happening is that the numbers for traditional broadcast television are dropping
dramatically. In a 500-channel universe, viewers simply have a lot of choices, and a lot
of the programming is simply not compelling enough."

Larry Gerbrandt

So What Is a Factor?

Overlooked in all this is the effect that the actual music has on consumer buying habits. If consumers can’t relate to or identify with the music, they won’t buy it. Some industry critics feel that the release of safe music guided by the hand of Madison Avenue (like the boy bands N’ Sync and Backstreet Boys) is as much a factor in the decline of music sales as anything else, and indeed, they may have a point.

The industry has been slow to develop a new generation of artists, instead relying on so-called heritage artists like The Eagles and Madonna for large sales numbers. Since grunge was the biggest genre trend in the past 20 years or so (musical trends usually come every 6 to 10 years), it can be said that the industry is long overdue for something new. But with less artist development than ever before, when will this happen? Artist development has always been the lifeblood of the industry, even as far back as M1.0. A good example of this is Geffen Records (now owned by Interscope). To build his label, David Geffen signed three of the biggest stars in the world at the time (1980): Donna Summer, Elton John, and John Lennon. Donna Summer’s and Elton John’s albums stiff ed outright, while John Lennon’s was headed for the dumper, but he was unfortunately killed, which caused his entire catalog’s sales to spike. It wasn't until the label signed new acts that it truly became successful, with Whitesnake and Guns N’ Roses leading the way. As always, if you want to get rich in the music business, you’ve got to invest in the new.

The nature of artist development has changed through the years, going from being one of patience to that of instant win or lose for the artist. In the music business’s so-called glory days of the late ’60s and ’70s, it was not uncommon for a record label to stay with an artist for three, four, or even five albums (as was the case with Bob Seger, Bonnie Raitt, and Earth, Wind and Fire), as the artist built an audience and eventually broke into the mainstream music consciousness. This is because the most successful labels like Warner, Atlantic, and Elektra were run by music visionaries instead of large corporations worried about the quarterly bottom line. As the conglomerates gradually took over the major labels, that patience grew less and less until it reached today’s “The first record must be a hit, or you’re dropped” mentality. Luckily, M3.0 finally provides an alternative to this way of thinking within the corporate music industry.

The New Players

Control of the music industry has slowly drifted from the power days of the record-label executive to the new power base of today — management.

MANAGEMENT
Managers of talent have always been powerful (especially with a big-selling act in the stable) and have, for the most part, stayed behind the scenes. After all, it’s the acts that should have the most attention. But as the music industry transitions into M3.0, managers are more powerful, and more needed, than ever. The reason is that the fortunes of the manager are directly tied to the act. If the act makes money, so does the manager. If the act tanks, the manager starves. As a result, the manager has to truly believe in the act and represent it with a passion. The manager’s singular vision must be to make that act successful. Any other member of the artist’s or the group’s team, from producer to attorney to record label to publicist and so on, will not have their fortunes tied so directly to the artist’s success, and, as a result, their passions can’t be expected to ever be as high. With most service contractors that an artist employs, you can never be sure where their loyalty actually lies. Is it with the record label, or the artist? With a manager, the answer to that question should never be in doubt.

So why has the manager’s role become more profound in M3.0? Because as the choices for the artist have expanded, so has the manager’s influence. In M1.0 through 2.5, the manager’s main focus was on dealing with the record label and getting the act booked. The label was the 800-pound gorilla in the room, and the manager was the keeper. With the record label’s influence now decreased to that of a chimpanzee (although a very powerful one), the manager has ascended to become the giant in the act’s life. As we’ll see in later chapters, there are far more possibilities for every aspect of the act, and with that far more decisions are required.

An interesting trend is that management is now adapting to M3.0, bringing multiple talents in-house for instant access and attention to the artist. These talents include concert promotion, Internet promotion, dedicated social networking, the handling of street teams, and where it’s legal, even acting as a booking agent.

Not every artist is able to connect with forwardthinking management of this type, or even any kind of organized management, but that’s okay. Personal management is ineffective unless the manager is passionate about you, since passion can overcome inexperience. Passion is something that you can’t buy or contract—the manager has to truly believe in you, or you’re wasting your time. And as the act gets bigger, it’s easier for a less powerful manager to connect with a larger management company and “four-wall,” or get the best of both worlds: the power of the larger management company and the attention of the smaller.

THE PROMOTER
The second-most-powerful entity in M3.0 is the promoter. Regardless of whether he’s booking a coffee house on a community-college campus or a 10,000-seat arena, the promoter is needed to keep the act doing what it should do best, which is playing in front of people. Promoters have always been important since, despite what you might think, most artists have always derived the majority of their income from touring rather than from record sales. In M3.0 promoters are a crucial link in the chain. No longer does an act tour to promote their record as they once did in M1.0 to M2.5. In M3.0, the record promotes the tour and is relegated to an additional piece of swag for the on-site vendors to sell. In M3.0, it’s more important than ever that the artist’s tour be successful, and the promoter’s influence has risen appreciably as a result.

It used to be that promoters relied on SoundScan numbers to determine the ticket-sales potential of the act. These days, they could care less where a record sits on the charts, because ticket sales are the only figures that matter. In the promoter’s M3.0 world, success begets success. If you sell tickets in one region or venue, a promoter in another is more likely to work with you than if you have a release in the current No. 1 spot.

Financially successful recorded music is very much a reflection of people’s experiences in enjoying live music. The more they experience it, the more they are likely to buy it. The promoter is an integral part of that success.

The New Audience

Today’s audience is a stratified vortex of special tastes and ultratargeted desires. Regardless of whether your taste lies in electronic Bantu music or alien space music, it’s out there if you can find it. But finding the music that moves you is both the key and the dilemma.

"I see more and more niche markets finding more coherent audiences. You can be into
Hungarian death metal or Central Canadian bluegrass and easily fill your iPod with songs
of that particular genre, then in your spare time you can read blogs pertaining to
only that subject."

Bruce Houghton

One of the main attributes of the new M3.0 audience is how it likes to receive and play the music it loves. More and more of the current audience chooses to listen to its music in a digital format like MP3 or Apple’s AAC. With more than 1 billion sales in 2008, digital music has become a major distribution method. But this has also caused listening and buying habits to change.

"They’ve changed because they can’t be spoonfed anymore and they (music consumers) can’t
really be sold or persuaded as much as before. Because they have endless selection, they only
receive and act on recommendations from trusted sources, usually friends."

Derek Silvers

The new digital demographic has become a consumer of the single song (or “single”), opting for buying only one or two known and liked songs, as compared to the 10 or 12 normally found on an album. While full-length albums were the cash cow of the industry until M2.5, the M3.0 buyer has returned to the habits of the ’50s, when the single was the main point of interest. The M3.0 consumer still wants to discover new music and is willing to sample songs from any of the music-discovery sites, but she is no longer compelled or required to purchase an
album that has only one or two good songs on it.

The new audience also has many more entertainment choices than ever before, and it’s only natural that music is going to suffer for it, just as television has in the face of the expanded cable universe. Facebook, MySpace, videogames, YouTube, and a host of other on- and off -line activities now occupy the time that used to be reserved for listening to music.

The tastes of the new audience are different from their predecessors as well. A shorter attention span and proficiency in multitasking has taken its toll on the album. While in the late ’60s and the ’70s ( M1.0 and M1.5) an album release would be an event (usually followed by a listen front to back without a break), that rarely happens in M3.0. The M3.0 audience wants to taste a little from everywhere rather than take a long sip of just one drink.

THE EFFECT OF PIRACY
Many consumers choose to illegally download pirated copies of legally purchased songs every day. While the industry has long claimed piracy to be a major reason for flagging sales, other factors may loom as large or larger. With iTunes Store purchases at nearly 8 billion from its inception in 2001, there’s no doubt that consumers are choosing to buy the digital music they love. The exact amount of piracy has always been debatable, but it was certainly there before digital downloads (especially in M1.5 and M2.0), going back as far as when recording devices were first commercially available. While piracy’s impact cannot be underestimated, it shouldn’t be overestimated either: for many years, the music industry has used piracy as a convenient excuse to cover its many other ills and shortcomings.

"But what people really forget is that by the end of the ’70s, the recorded-music business was
in deep, deep trouble. There was a recession and a couple of years of downward trends,
and a lot of people thought, 'This is the end of it.' There was a lot of piracy, thanks to the
cassette player and that issue of that Record button, and people just weren’t buying vinyl
records anymore. The issue of people making their own copies was pretty big even in those
days. People were copying music for free off the radio or from another cassette or record.
We reckoned that we were losing at least 25 percent of our business to home taping. So
when people talk about 'free' today, there’s nothing particularly new about it; it’s just a
different version of the same thing."

Rupert Perry

That doesn’t mean that everyone and every genre have been quick to adopt digital music though. Country music fans have been slow on the digital music uptake, as have Christian music fans. In fact, a recent study by the Country Music Association states that only 50 percent of country music fans have a home Internet connection, and that there is a ratio of digital-to- CD sales of only 7.5 percent (other genres have about 17 percent). There’s also some empirical evidence that hard rock and metal fans still prefer CDs, although it’s uncertain whether that’s because the core demographic is uncomfortable with computers or it simply desires a collectible of the artist.

Enter Music 3.0

Music 3.0 is the natural evolution of the music business. It allows the artist to take into account the current deficiencies of the business entities of M2.5 and provides the ability to bypass them completely in the course of building an audience and career until those entities can be used to the artist’s advantage. In M3.0, there is only the artist and the fan, with no one in between. Assuming that the artist creates music that can capture an audience in the first place (however small it might be), the opportunity to build an audience is more available than ever before, providing that the artist has the skills to take advantage of M3.0. Let’s take a closer look at M3.0 and the best way to develop those skills.


Excerpt taken from Bobby Owsinski's Music 3.0: A Survival Guide for Making Music in the Internet Age, available now from Hal Leonard Books. Click here and enter promo code MP9 when checking out to receive and additional 25% off plus free shipping (within the US) on this and many other titles, exclusively for MusicPlayers.com readers!

 

   
             
             
             
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