Very interesting article/post on the current state of the music business

[MDV]

Meet The New Boss, Worse Than The Old Boss? -Full Post | The Trichordist

With regards to online sales, labels (old boss) involvement in modern recording, piracy and digital distribution in general (new boss) and how screwed bands are, now Vs before.

[Drew]

That's actually a much better read than I expected. These two charts tell an interesting story:





...and from further down:



Edit - I like this guy.

This is what people do not understand. When they look at the royalties that the record labels paid artists it doesn’t seem like a lot. It seems unfair. Until you consider the guaranteed advances. Let’s say the artist was to be paid a lowly 12% royalty by contract. That compares unfavorably to the 61% of revenue that the independent artist gets from iTunes. But the artist is always given an advance and usually the advance assumes moderate success. But 9 of those 10 bands did not achieve great success even moderate success. It was never expected that all 10 would be successful. So the result was that the record label artist actually received a lot more than that contractual 12%. The unsuccessful artist may have received an advance that was equal to 90% of the gross revenue generated by that recording. And most artists were unsuccessful. So your average record label artist was actually receiving way more than 12%. The artist royalty rate is actually the floor. It’s the minimum share of revenue the artist will receive.

(I know this is probably really confusing to you civilians. Am I really saying it’s better to be un-recouped as an artist? Yes it is. Quantitative finance geeks will see this as selling a series of juicy “covered calls”. Being un-recouped means you took in more money than you were due by contract. You took in more money than your sales warranted. And there was a sweet spot, being un-recouped but not too un-recouped. For instance I estimate that over my 15 year career at Virgin/EMi we took in advances and royalties equivalent to about 40% of our gross sales. In other words we had an effective royalty rate of 40%, despite the fact that by contract our rate was much lower).

That's actually a great metaphor.

[bulletbass man]

if you're in a band you shouldn't even bother recording an album. Just gig 180 nights a year until you can play decent venues. Its pretty much you're only chance at making money.

[Drew]

Originally Posted by bulletbass man

if you're in a band you shouldn't even bother recording an album. Just gig 180 nights a year until you can play decent venues. Its pretty much you're only chance at making money.

If you're in a band you should have a day job. You should record an album because 1.) you want to, or 2.) because you think you can write off the net losses on costs minus net sales as a business expense to reduce your taxable income.

[Drew]

You know, though, given a belief in an efficient market, it should be possible to change the paradigm. I don't quite believe that the role of the Aggregator or Distributor is entirely riskless, because it's riskless with respect to the transaction, but there is still business risk present. However, no doubt it's quite low. Yet, the two groups shouldering the minority stake of the risk are capturing nearly 80% of the profit.

Given a start-up with enough venture capital investment to get off the ground and get their name out there as an alternative, You could potentially capture a not-insignificant chunk of the market in a hurry by selling albums for, say, $6.99, taking 10% (70 cents) as overhead, and passing $6.29 back to the artist. It would be popular with consumers because it would represent a 30% savings over anything else out there on the market, and it wold be popular with artists because it would represent a 200% boost in profit per sale. The biggest hurdle is that the online music distribution market is one that lends itself to a natural monopoly due to scalable costs and barriers to entry, so you'd have an uphill battle to get enough name recognition to compete.

[Josh]

Good post. There's also evidence that labels are cutting into digital distribution sales more than they should be:

Royalties Reallocation: Rock Stars Sue UMG Over Digital Distribution Dollars | For the Rechord

(pardon the self-promoting post; it's an interesting topic)

[MDV]

Originally Posted by Josh

Good post. There's also evidence that labels are cutting into digital distribution sales more than they should be:

Royalties Reallocation: Rock Stars Sue UMG Over Digital Distribution Dollars | For the Rechord

(pardon the self-promoting post; it's an interesting topic)

Also interesting. Rep to you sir for writing interesting stuffs.

[metalheadpunk]

Originally Posted by Drew

You know, though, given a belief in an efficient market, it should be possible to change the paradigm. I don't quite believe that the role of the Aggregator or Distributor is entirely riskless, because it's riskless with respect to the transaction, but there is still business risk present. However, no doubt it's quite low. Yet, the two groups shouldering the minority stake of the risk are capturing nearly 80% of the profit.

Given a start-up with enough venture capital investment to get off the ground and get their name out there as an alternative, You could potentially capture a not-insignificant chunk of the market in a hurry by selling albums for, say, $6.99, taking 10% (70 cents) as overhead, and passing $6.29 back to the artist. It would be popular with consumers because it would represent a 30% savings over anything else out there on the market, and it wold be popular with artists because it would represent a 200% boost in profit per sale. The biggest hurdle is that the online music distribution market is one that lends itself to a natural monopoly due to scalable costs and barriers to entry, so you'd have an uphill battle to get enough name recognition to compete.

I had a conversation with a good friend of mine along these lines over the weekend. It was more about how certain record stores are still trying to sell CD's for $15 +, and how there must be some sweet spot that would likely increase sales. If every new cd that came out was ~$8 or so we felt that more people would be likely to buy physical CD's again.

What you are saying makes more sense though since most people are more interested in buying digital now.

[metalheadpunk]

Originally Posted by bulletbass man

if you're in a band you shouldn't even bother recording an album. Just gig 180 nights a year until you can play decent venues. Its pretty much you're only chance at making money.

But where are you getting the initial money to tour? It's a tricky thing. You can cut a pro sounding record for cheaper than ever now a days, so there is little risk in recording an album and getting it out there.

[Drew]

Originally Posted by metalheadpunk

I had a conversation with a good friend of mine along these lines over the weekend. It was more about how certain record stores are still trying to sell CD's for $15 +, and how there must be some sweet spot that would likely increase sales. If every new cd that came out was ~$8 or so we felt that more people would be likely to buy physical CD's again.

What you are saying makes more sense though since most people are more interested in buying digital now.

Physical CDs are probably done, relegated to be a niche item marketed to people who appreciate the physical medium. I like CDs with good liner notes and artwork and the like, and I do try to buy them, but they can't compete with the lower cost structure of digital distribution.

...except it's not actually lower. $9.99 CDs are nearly ubiquitous these days, so there's really no premium for buying a CD over buying a digital download. Considering that a CD should carry a premium (higher unit costs, higher fidelity), that makes no sense and does sort of imply that someone on the digital distribution side is making an economic profit that shouldn't be there.