Reflections on the Music Industry in the 21st Century

Many years ago a famous businessman was the guest speaker at the graduation ceremony of a well-known university. He told the young grads that all the advice he could think of could be summarized in two words: "Embrace change. Change is inevitable. It comes to all things. It affects all industries. Don't try to hide from it or wish it away. Embrace it. Try to anticipate it and get out ahead of it — or at least run with it. Whatever you do, don't get caught off-guard by it or resist it — or you will be left behind." How right he was. As we all know, the music industry is currently in the middle of the greatest change in its history. And the cool thing is that the story is just being written now. It doesn't have an ending yet. If you are part of the music industry today, you are participating in and helping to shape a true revolution.

The challenge in discussing this revolution is figuring out where to begin. There is so much going on, it's a bit overwhelming. For those of you who know a great deal about the industry already, the following summary will surely seem overly simplistic. It is important to note that this summary is written with the intention of describing the industry's current changes as simply and objectively as possible — without bias for or against any of the players involved.

History

In the past, the career options for an aspiring artist were pretty limited. The primary path to meaningful success was through one of the major labels. And only a lucky few would make it in the club, and fewer still would subsequently make it big. The oligopoly of the big 4 labels, each individually but collectively via similar practices, integrated and owned all the key elements of the business value chain. The label acted as venture capitalist or owner/banker; A&R/producer; star-maker; and distributor. All the components needed to finance an artist, choose and adapt the right music, make the artist famous, and get the records/discs to the masses - were owned or controlled by the labels. In this model, the artist typically got somewhere around 10% of the revenue from his/her record sales and, importantly (and often unbeknown to the artist) all expenses associated with making the record, marketing, touring, etc. came out of the artist's share. It's not hard to see why so many artists ended up making the record label lots of money but netted out very little for themselves or were even left in debt after millions of dollars in sales.

The other side to this story, that gets very little airplay, is the extraordinary amounts of money that record labels spent on big advances and marketing music for aspiring artists whose songs never caught on with the masses. Moreover, the real "hit" rate of the major labels has traditionally been frighteningly low. Industry estimates from reputable sources show failure rates north of 90%. In other words, 90% of the artists signed to the label never made enough money from their first album to warrant making or marketing a second album. Yet all the money from the signing bonuses, all the money from the marketing expenses for the nine out of ten that didn't make it was bet and lost. Given how painful this statistic is, one can see why the labels don't publicize it widely — even if it might help their image as the big mean gorilla. But it's only fair that we take note of the fact that while many artists who signed with the majors in the old days felt they were treated unfairly (and surely many were), the labels were in the business of trying to make a profit in a very high stakes, highly speculative industry - with extraordinary failure rates for huge sums of money on the majority of the bets they placed. See historical value chain diagram below. Note: all components of the historical value chain were owned or controlled by the label.

That was then. But along came the Internet. And just like the TV revolution of the 1980s — that was spawned when cable television broke the distribution lock of the big 3 networks; and just like the telecom revolution of the 90s (whose new infrastructure made the Internet possible) — that was spawned by a judge's decision to break up the AT&T monopoly; so too do we now have a Music revolution — spawned by the Internet's free-market effects on the historical marketing and distribution locks of the major label oligopoly. This has brought many great opportunities to the aspiring artist — but don't be disillusioned. Many of the same old challenges are still there — along with some new ones.

The Internet (and other cool technological advancements)

A thousand years from now, the world will still look back at the advent of the Internet as one of the most important events in our history. Its ramifications are that life-altering, for the consumer and for scores of industries — not just music. And the most exciting part is that it's still only in its infancy. There is so much more still to come. Below are a few of the key Internet-driven advancements (along with other cool technological advancements) that are contributing to the current revolution in the music industry — segmented by artist and consumer:

Major advancements for artists:

1. Advancements in studio recording technology: artists can now produce and record high quality music for a fraction of what it cost even 10 years ago — allowing them to own, write, produce, and record their music without the financial backing of a record label.

2. DIY marketing and distribution online: the Internet has made it possible for artists to Market and Distribute their own music via their own web sites, social networking sites, streaming music sites, artist promotion sites, and online music stores — again, without needing the backing or involvement of major labels.

The net result of these changes has been the creation of a completely new value chain for the music industry — now being adopted by millions of new artists. The diagram below shows the new world order value chain (in red) — compared with the old value chain we just saw above. The difference between the two is truly striking. In a few short years the industry went from near total control of every component of the value chain by a few major labels — to one where the involvement of a major label is not required in any component of the process.

Simultaneous to these dramatic changes in the Label-Artist power paradigm, technology and the Internet have also brought a host of changes to the consumer experience as well:

Major advancements for Consumers:

1. Consumers can now buy singles for a buck or less instead of buying an entire album for $16 (for example).
2. Consumers can rip their CD on any PC or Mac and then "share" this music on other devices they own, or with friends, and even strangers — in a matter of minutes online.
3. Consumers can stream music for free at any of a number of music streaming Internet sites
4. Consumers can store, manage, and play all their favorite music on easily-affordable devices that are lightweight and completely portable.
5. And now, especially with the advent of 3G phones, consumers can take streaming Internet radio (and even terrestrial radio being simulcast online) on the road with them anywhere they go — creating potentially lethal competition for both terrestrial and satellite radio.

At first glance one would think that both artists and consumers would be happy in this new world order. Artists can do their thing without having to pay homage to the big labels; and consumers get a ton of new toys and ways to buy, share, stream, and go mobile with their favorite tunes. Unfortunately, the new world order has also created some enormous new world challenges for all involved.

The new challenges

1. Making money: the fact that consumers can buy that single they really like for a buck, instead of the whole album for $16, is dramatically altering the industry's revenue model. The fact that many consumers are "sharing" the one purchased copy with friends, and even strangers, online makes generating revenue from music sales even more challenging. Some claim that generating sales revenue from recorded music is dead forever. Yet, in poll after poll the majority of consumers agree that they should have to pay some nominal price for singles. Regardless of how this plays out, it's clear that it will take a few years before the industry, the consumers, and the courts all figure this one out and we get back to some commonly agreed principles of right and wrong on this subject. Until then, it's safe to say that revenue from music sales will continue to be adversely affected by the current trends and so artists and Labels have to seek alternative streams of revenue in order to survive. The main alternate forms of revenue that are being pursued right now by artists and labels are: Touring; Music Licensing; Sponsorship by consumer brands; and Merchandise sales. All of these streams, commonly referred to collectively now as "360 deals" are potentially robust revenue sources for the modestly-popular regional act and the major star alike. However, artists need to be sure they have conquered the next challenge if they expect to receive any meaningful income from any of the above revenue streams.

2. Standing out from the crowd — attracting a real following: one of the great things about the new world order is the egalitarian nature of it all — the ease with which artists from all walks of life can make a CD and throw their hat in the ring. This happens to also be one of the downsides of the new world order — the shear volume of people trying to become music stars. MySpace alone reportedly has over 5 million "band" pages. Let's assume that some of these pages are no longer in use and that others are duplicates of pages for major label acts — put up by well-intentioned fans. That still leaves several million artists all clamoring for attention. Some percentage of these several million are probably really good — genuine star potential. A large percentage of these several million are surely hobbyists who don't really intend to quit their day job but who are marketing their music online at all the same places just in case their dream magically comes true and their music suddenly takes off virally and they become a star. It's ironic that in many ways artists face the same old problem they have always faced — it's just in a different location. How does an artist differentiate his or her work from this sea of noise? It's not a small issue. It is THE issue. The simple truth is that unless an artist finds a way to become at least moderately famous, the prospects for financial success are poor — no matter how many cool revenue streams are attempted or how many cool distribution outlets are primed. The cold reality is that online consumers are suffering from a bad case of information overload and simply do not care about one more emerging artist singing one more song. This is an unfortunate, but very real, by-product of the new world order.

The new world order and the convergence of the Artist, Label, and Entrepreneur

It is an ironic twist of fate that these three, historically very different players, now share so much in common that it is becoming difficult to distinguish one from the other. The main challenge facing the major labels today, is the same challenge facing the thousands of independent labels and millions of emerging artists, and it's the same that has always faced Entrepreneurs and leaders of businesses large and small: " how do you get the mass consumer audience to pay attention to you — let alone give you any amount of money — in a market where millions (literally) of other competitors are now marketing to the very same consumers at exactly the same time?" What makes it even more daunting is the myth that is continually perpetuated by the media (and many entrepreneurs, artists, and labels themselves) that "success just found me because my product/song/artist was just that good." Whatever you do — do not believe this myth. It is nothing short of a lie. The true "overnight success" story is literally one in a million — once a generation. Although it's helpful to one's brand to pretend that one's success was just an automatic result of one's natural gift — as recognized by the fans — it is never this simple. Just scratch the surface on any of these "overnight success" stories that the media loves to report on and you'll find years of hard work, years of rejections, years of shows to rooms with only a dozen people in the audience, and countless months when the rent barely got paid or was late. In nearly every case you will also find hard work, relentless personal networking, smart investment and marketing decisions, an unshakeable positive attitude, and maybe even a lucky break or two — that came their way because the artist had the perseverance to stay at it until the wheel of fortune finally spun their way.

The record label

Given the turmoil in the industry, a commonly asked question is: " is the role of the record label dead in the new world order?" In the final analysis the answer is unlikely to be a simple yes or no. The way the major labels traditionally did business is surely dying — which is why the majors, indeed all labels, are quickly working to adapt to the new world order. But record labels, large and small, will continue to play an important role in the industry — just as venture capitalists play an important role in launching new businesses. Of course there will be artists who already have the financial means and/or business acumen to navigate and persevere in the face of the daunting odds facing every musician today and make it big without the financial or production or marketing or distribution assistance of a label. Likewise there will always be entrepreneurs who can build their business without a VC. And in both cases these individuals are to be commended. However, these folks are the exception — not the rule — even in the new world order. The likelihood that someone who is a fantastic musician — with all the passion and vision and charisma of a true star — is also a talented marketer, producer, promoter, web expert, etc. is slim. Additionally, as the market becomes more and more crowded the financial resources and the knowledge of what does and does not work in online marketing become even more important pieces in pulling an artist out of the general obscurity of the millions and elevating him/her/them to stardom. There is nothing wrong with partnering with a good independent label (or manager or producer, etc.), or even the new breed of the ever-evolving major labels, if the deal offered is competitive and you believe the people you're dealing with are genuine. The "I hate all labels just because they are the labels and are therefore inherently evil" myth is quickly going by the wayside in the new world order — as is the concept that all commercial sponsorship is bad, etc. The old stereotypes are less and less valid with each passing day.

As with any industry paradigm shift — all players involved must rethink their views on everything. Artists and labels alike are being forced to rethink their views of each other and of themselves. Successful artists in the new world order must make decisions more like a businessman than a rock star — especially in the early going. They must prove their viability with a core group of dedicated fans (i.e. real human being-fans, not elusive "friends" online) and get more traction on their own before labels will be willing to bet on them with a contract. And most label executives agree that the days of signing the unmanageable wild-child are over. Artists in the new world order can still party like a rock star but they are expected to show up sober and on time the next day for the Sponsor's photo shoot, to discuss the contract without screaming, and to leave the hotel room with all the furniture in tact. Likewise, the free market forces have caused the music labels — the majors included — to revamp their artist contracts in order to remain competitive for the best talent. Artists who can show solid, verifiable, traction with a meaningful fan base today are getting signed to deals that involve much better percentages then the old days, broader flexibility on the part of the label, and much less onerous conditions on a host of terms that used to be buried in the fine print. Many of these new deals are for lower advances and are for shorter periods of time — but for the true breakout artists that nail it, being locked-in for a shorter period of time on the contract you signed when you weren't yet a star is a good thing.

In summary — the good news and the bad news

So the good news is that a much larger number of artists will get the opportunity to make a good, often great, living from the new free-market environment of the new world order. Those that are able to make it without the help of a label or a sponsor are able to use a host of new, inexpensive tools to do so and to keep the lion's share of the spoils. Those that choose to partner with a label are likely to get a more competitive deal than they would have been able to negotiate at this point in their career five years ago.

The bad news is that millions of other artists are competing for the consumers mind share, making it extremely difficult for each emerging artist (with or without a label) to stand out from the noise — and making it equally difficult for the consumer to discover what is good without a huge amount of effort.

How does OurStage fit in to all this?

OurStage was created specifically to address these tectonic changes in the music industry. OurStage is a brand new way for the world to discover the best new music — and for the industry to discover the best new artists. At its simplest level, OurStage uses the work and the wisdom of the broader Internet community to rank from best to worst (not rate as in one to five stars) the music of thousands of emerging artists each month. We use this information to produce rankings or charts to allow consumers to easily find and stream the very best new music — and to allow industry players (venues, sponsors, music labels, etc.) to identify who the best new artists are, and subsequently give them job opportunities. The ranking process is done in our judging engine — which has an extraordinary series of proprietary anti-gaming technologies woven throughout the process behind the scenes - preventing over-zealous individuals from unfairly inflating the ranking of any given artist. Our goal is to solve the single greatest challenge facing the music industry in the new world order — separating out the truly great artists from the millions of people marketing their music online today. Moreover, we are totally artist-agnostic. In other words we are not focused solely on "independent" artists. We are focused on new artists and new music. Artists on OurStage may be free of any association with any label, or they may be signed to a small independent label, or even signed to a major label. We are about discovering the best new music — regardless of the source.

The company is independently owned by a small, passionate, group of employees and private investors (who are not related to the music industry) — and is based just outside of Boston, MA. We launched the beta site to the public in April 2007. In early 2008 we began a very successful partnership with the world's largest music site, AOL Music, for our Ad Serving — and to share some of our cool content with their community. In the Summer of 2008 we partnered with the worlds largest concert promoter, LiveNation, who now offer opening slots at major performances nationwide to top ranked OurStage artists through our jobs Marketplace. Looking ahead, we are broadly focused on two main areas: 1) Building out the feature set to ensure that the jobs Marketplace is the most valuable, effective, easy to use web site on earth for both artists and industry players looking to hire those artists; and 2) Building out the coolest set of fan-centric features on earth — to ensure that we continue to attract millions of fans per month and that those fans find the very best new music to stream and download, the coolest new artists, and information on all things related to new music and new artists discovery.

Closing thoughts — a few words of advice to both Artists and Fans

While it is surely presumptuous to try to give advice to many of you who have been involved in the industry longer than OurStage has been in existence, the following thoughts are nevertheless offered — to both artists & fans — for those of you who may find a pearl of wisdom or two in them:

Artists

• Accept the fact that until you are famous, you will need to become as expert a marketer as you are a musician. Try not to resist this — instead embrace it and get good at it. It's not enough to just put your hat in the ring and hope for the dream — force the dream to come true through learning, multi-tasking, hard work, and sheer will.
• Consider the constructive feedback of fans as well as industry pros whose judgment you trust — regarding your music. Even the super-famous had to grow and improve their abilities to get where they are.
• Sing what you are passionate about and let your passion show. For those of you who saw "Walk the Line", my favorite scene in the movie for me was when Johnny Cash's first producer asked him to sing something that was his true passion and not just the music Johnny thought people wanted.
• Do not get demotivated by rejection. EVERYONE gets rejected a lot before they make it - all industries, all walks of life. Perseverance is required of us all.
• Use OurStage as one of the tools to help you get recognized and get cool gigs that will give you potentially career-changing exposure. We may not be a household name (yet) but we are offering top ranked artists real exposure to millions of potential fans and many important industry professionals every day.

Fans

• If you love music then please be sure to take time out of your busy day to support the artists you like — buy their Tee-shirts; tell a friend about them; join their fan club; go to their concert; buy their music. It's a small investment for you but can make a big difference to the artist.
• Let your voice be heard. Don't be shy about sharing your judgment or opinions online, whether it's just leaving a comment to let someone know you like their music or its actually judging in the OurStage judging engine. We are happy to have you judge — even if its only a few battles. You are a critically important component of the process in the new world order on OurStage and in the industry in general.

I hope you found the above thoughts informative and maybe even helpful. And if you're reading these words I'd like to personally thank you for being on OurStage and for being part of this exciting revolution in the music industry.

Ben Campbell, Founder & CEO
OurStage, Inc.