Music 2.0 - Exploring Chaos in Digital Music

Thom Yorke called it a “decaying business model” and Trent Reznor called them “greedy fucking assholes…who have fucked themselves out of a job essentially, that now take it out on ripping off the public”.
Harsh words that describe the major labels and the music industry but which closely echo the sentiment of many music consumers. But it carries greater authority when spoken by two of the biggest acts in the music industry and now, as a further endorsement of this viewpoint, Guy Hands, newly appointed chief of EMI has called a spade a spade in an internal memo sent on Friday in the wake of Radiohead’s wake-up call to labels via their innovative distribution method:

“Rather than embracing digitalization and the opportunities it brings for promotion of product and distribution through multiple channels, the industry has stuck its head in the sand.”

If these words were spoken in 2000 by a head of a major label, I would have applauded it, but 7-8 years after they crucified Napster, mp3.com and bludgeoned all manner of digital developments, it recalls regret and lost opportunities expressed by a terminally ill patient during an administration of last rites.

Ian Rogers, the new head of Yahoo Music is to be applauded for making a strong stand on his blog

“How much opportunity have we lost in those 8 years?…..If the licensing labels offer their content to Yahoo! put more barriers in front of the users, I’m not interested. Do what you feel you need to do for your business, I’ll be polite, say thank you, and decline to sign. I won’t let Yahoo! invest any more money in consumer inconvenience. I will tell Yahoo! to give the money they were going to give me to build awesome media applications to Yahoo! Mail or Answers or some other deserving endeavor. I personally don’t have any more time to give and can’t bear to see any more money spent on pathetic attempts for control instead of building consumer value. Life’s too short. I want to delight consumers, not bum them out.”

Further expressing the view that unless there are major changes in the industry, more top bands will by-pass record labels and instead sell directly to their fans, Guy Hands’ sense of foreboding was further confirmed by this “Big News” as written by Trent Reznor on the NIN website yesterday:

After threatening to leave Universal after one more final album, it is probable that Universal/ Interscope hastened NIN’s departure to save themselves from the vitriolic and damaging attacks that Trent Reznor has unleashed on them this year. So there,.it’s finally happened, another A-list band has joined Radiohead in stepping out of the major label circus and the repercussions will be felt strongly, not just by labels, but as I had expressed in an earlier post, it might probably affect other artists too if the existing model is not changed. And as if on cue, Guy Hands has warned EMI off this well-trodden approach by asking,

“Why should they (A-list artists) subsidise their label’s new talent roster?”

And he has instead encouraged EMI to think like a VC in their approach, and do away with paying big advances and instead subsidise the cost of album production in return for a share of profits (or losses). The proof is in the pudding and the jury will certainly be out there to check if the labels concoct new accounting shenanigans to obfuscate the artist royalties on this new model too.

Even more damning is Hands’ questioning of current practices,

“Why should they subsidise their record company’s excessive expenditures and advances”.

According to a Telegraph report, he also expressed “surprised at the size of salaries paid to second-tier executives”. What is most despicable to all of us consumers as well as artists is the admission of excess that record company executives have been indulging in, which the further Telegraph notes as “bands complain that too much of their money is used to subsidise lavish lifestyles for label bosses”

Ignorance of all things digital is one thing, but to rip off consumers and artists is criminal, and unforgivable. Carrying on from Trent Reznor’s observation of high prices in Australia for NIN CDs, I myself noted that many dance CDs at HMVs in various countries in Asia are being sold at the exorbitant price of at least US$25 – do they really take us consumers for fools? The labels’ desperation to sustain their margins via a fading medium led Guy Hands to state that,

“The recorded music industry… has for too long been dependent on how many CDs can be sold”.

But in an almost universal act of retaliation, consumers simply ignore CDs and are no longer bothered by the accompanying high prices as they get their music fixes via free options. An average of 1 billion music files being traded monthly on P2P networks shows that music consumption is still very much alive but major labels are still clueless on how to get a piece of the action, and are slowly being led by the very artists whose interests they were supposed to look after.

In the week that Radiohead’s revolutionary new album distribution takes place, alongside indie-darlings Charlatans’ album giveaway, news of Madonna’s impending Warner defection and Trent Reznor’s final release from his major label shackles, the silence from one of rock’s other outspoken statesmen is deafening…Bono, stop fiddling with highfalutin aims and concepts outside of your natural area of expertise and fix your own backyard instead!

Now that we are probably over the initial amazement and exuberance at Radiohead’s innovative pricing and marketing model which seemed to involve virtually all of blogosphere, it may be time to look at further impact on the rest of the industry while we wait patiently for our donation enabled Radiohead downloads to materialize on 10 Oct.

The unbridled glee that greeted the Radiohead model was unabashedly accompanied by hopes that this would signal the death of the major labels.
Thom Yorke himself told Time shortly before Radiohead commenced writing songs for their new album,

“I like the people at our record company, but the time is at hand when you have to ask why anyone needs one. And, yes, it probably would give us some perverse pleasure to say ‘F___ you’ to this decaying business model.”

It might be a bit over the top but one cant deny the mob instincts that give rise to such sentiments - and such is the hatred that the RIAA has aroused in the blogosphere that it would be advisable for all to exercise restrain and take a rational look at the implications in the cold light of day.

Though indie artists are sometimes loath to admit it, there are many that aspire to be major label stars, but now the stars themselves aspire to go indie with a major difference – they already have the fame and cash to stand on their own, and are in all senses of the word, truly independent. And ironically, these A-list artists - including Radiohead, Prince, Paul McCartney, Garth Brooks and soon, probably Madonna too - who are all weaning themselves off their labels got a huge leg-up from their labels to get to where they are. And this is exactly the kind of position that lesser artists have to aspire to, and one of the fastest ways to get there would probably be by landing a plum major label deal.

However, it has to be realized that as more A-list artists go independent, the major labels are going to find it hard to keep up their investments and take risks with new artists without the supposed buffers previously granted by the mega-revenues pulled in by these A-list artists. It is believed that these revenues offset the labels’ losses with money losing artists in their stable.
Mile Copeland, former manager of The Police famously claimed in 2000

“So where does the public get the idea CDs are overpriced? Don’t they realize 19 out of 20 CDs released fail to make their investment back?”

So if this is really the case, the whole equilibrium in the existing ecosystem is going to be further messed up.

Though many customers and involved artists have the nagging doubt that some of the profits from the successful artist(s) are also used to enrich the label too, this greed factor has clouded the fact that there could possibly be some truth in this subsidy principle. Successful artist Trent Reznor himself expressed disgust at the practice,

“That money’s not going into my pocket, I can promise you that. It’s just these guys who have f—ed themselves out of a job essentially, that now take it out on ripping off the public”

Andrew Orlowski of The Register had a more damning view of the economics at play here,

“But successful artists have always been able to subsidise more interesting but less popular artists on the roster. …When the rich keep more for themselves, there’s less for everyone else.
How ironic that these impeccable liberals should be endorsing trickle down economics and contributing to a wider disparity in wealth.”

Martin Talbot, editor of industry paper Music Week re-emphasised the point in Time

“And without the income generated by big name acts, how will record labels support and promote lesser-known artists? If we keep moving down this particular route, companies will only release records that are sure home runs. That means either stuff by established artists or unknown artists doing cover versions. There is the danger that it will no longer be worth it for companies to invest in new, up-and-coming artists. And if record companies don’t invest in them, who will?”

This is not to suggest that a Marxist approach of equality and subsidies has to be implemented – mind you, the music industry was at its peak during the excess and hubris of the Ahmet Ertegun, Clive Davis and David Geffen era which also coincided with the advent of digital technology via the CD and with it, massive profits from superstar acts.
Now with the second act of the digital technology era proving to be the sharp end of the double edged sword by which the major labels seem intent on performing harakiri, profits have eroded with even the golden geese fleeing the nest in protest at the fleecing. The question remains on whether the major labels are going to the hang on to the vestiges of a bygone era and business model or can they adapt and mould newer artists with better and fairer reallocation of funds – failure to adapt might necessitate a total collapse of the industry in order to allow the proverbial phoenix to rise from the ashes.
Until a clearer vision is obtained, artists would do well to be slaves to the tour bus and possibly day jobs too to sustain their art while keeping alive the oft unspoken dream of being an obscenely rich and famous artist who can afford to give away their music for free one day!

Update: 12 Oct 2007
A week ago, Guy Hands, newly installed chief of EMI sent out an internal memo in the wake of Radiohead’s new distribution model where he also addressed how the new artist cross subsidy will be affected and exhorted the recorded music side to review business models that work in this new environment:

“In this note, I want to address what Radiohead’s decision means for EMI and what it means for artists generally. For EMI, this is a welcome reminder of the new digital world in which we operate and the need to focus on the services we provide to our artists. Those artists break down into three categories:
• Those who are already established and in whom we have invested heavily;
• Those with whom we are working to make really successful; and
• New, start–up bands.
EMI needs business models which work for all three categories, the reality being that the vast majority of the third category will fail to achieve commercial success and have historically been cross-subsidised by the first category………
We will need to give artists at all levels a deal that is fair to both sides, perhaps one that moves away from the large advances model of old and provides a true alignment of interests and transparency.”

Full memo here.

Finally, a big name band has made good on the premise of selling their music directly to fans. Out-of-label contract band Radiohead has put up their seventh and latest album “In Rainbows” for pre-order sales exclusively on their website with a release date of 10 October for the digital download and a 3 Dec shipping date for their Discbox. And what is most amazing about it is the fact that fans can name their own price for the digital album (plus 45 pence credit card handling charges)

After their recent decision to unload their back catalogue digitally via 7Digital and Amazon instead of iTunes whetted appetites, and with the radioheadlp7.com hoax last week purportedly announcing the new Radiohead album release details drove expectations to a frenzy, Music2dot0 can verify that this new announcement is totally genuine having been announced by Jonny Greenwood on Radiohead’s own Dead Air Space website.

With Trent Reznor also recently announcing that once Nine Inch Nails fulfill their Universal commitments, they will be selling their albums direct to fans from their websites, this signifies a sea-change in distribution methods by A-list artists. Of course this is not an option for every band, but if all the superstar-bands that actually benefited from the old system to get to where they are, are now subsequently deciding to go totally “indie” where are the major labels going to find the mega-revenues that used to subsidize the rest of the money-losing acts in their stable?

As Thom Yorke himself wryly observed in an interview with New York Times in July last year.

“I’m not really into the idea of picking an enormous fight now because I think the structure of the music business is in a state of collapse anyway. You might as well just let it get on with it. There’s no point in us trying to help. And it makes you sound really arrogant, like, ‘Yeah, we’re going to mess up the system.’ The system’s built us, so that would be a bit silly, wouldn’t it?”

In this Web2.0 age, there are already numerous bands that sell direct to fans but for a band of this global stature to totally shun the major labels and established distribution networks to sell direct to fans exclusively is certainly significant in shaking the established order of things, and will certainly cause major label executives to shudder. Boing Boing has been even more effusive in their appraisal of this development

“This is major, and it’s such a slap in the record industry’s face. An unsigned superband, treating loyal fans and customers like loyal fans and customers instead of thieves — what a revolutionary concept.”

As a concept, Radiohead’s move is to be admired as they adopt the shareware donation ethos of allowing fans to name their price – a radical move that they emphasize on their website with an incredible “No, Really It’s Up To You” statement.

And to prove that they are not diving blindly into the digital void at the risk of alienating their less digitized fans, there is the option to buy the album as a Discbox for £40 ($82). which contains not just the In Rainbows CD but also 2×12 inch heavyweight vinyl records and a bonus CD. As Thom Yorke emphasised in the same NYT interview

“The truth is that the traditional medium is still there, and you need it”

And in recognition of their global appeal, there are no silly rules restricting purchases to only the US and UK - so bring in the yen, peso, ruble, rupee and reminbi by the cartful. Since the Discbox will only ship on 3 Dec, it can be expected that most will buy the digital download for instant gratification come 10 Oct, and then also probably buy the Discbox set for the bonus CD with additional music, digital photographs and artwork plus lyric booklets which are all encased in a hardback book and slipcase.

Though details of the download format have not been revealed, we assume that having gone this far down the road, it will be in a non-DRM format. It all adds up to a brilliant move to maximize returns via both old and new economy practices.

Where Radiohead might stumble a little in this exercise is in the actual steps to purchase, where their transaction manager Waste Products Ltd could learn a thing or two from iTunes and Amazon on ease of purchase. The slow speed of the buying process, the empty shopping basket even after choosing the desired items, the infuriating attempts at getting the security code right which was also confirmed by Coolfer are all areas that can be improved in due course. But for the die-hard fans currently inundating the site as we speak, such hurdles are insignificant in their exuberance to directly touch the veil of their rock-gods in anticipation of the sweet music that will be unveiled in 10 days time.
‘In Rainbows’ track listing:

And since everything comes to those who will wait, the second CD from the Discbox features a further eight new songs:

Update: 5 Oct 2007
Radiohead is intending to sign a record deal to release ‘In Rainbows’ after all, to complement their innovative web distribution model as confirmed by their managers Chris Hutton and Brice Edge on BBC Radio 4’s ‘Today’ programme on 4 Oct,

“Yes, absolutely. We’ve got about seven days to sort it out. We tend to fly by the seat of our pants. The band think they [are] incredibly proud of this record and feel that it deserves to be brought into the mass marketplace. That’s why we need a record company who have that infrastructure to deliver the CD.”

Despite the preponderance of the internet, a good CD distribution network is still needed to reach fans who do not have access to or are averse to the digital medium. So in the Darwinian scheme of things, we have to be thankful that at least progress has been made with Radiohead’s recent exercise but an overnight radical change in habits might be too much to expect.

Speculation is rife as to how the record deal and distribution will roll out especially in view of Radiohead’s earlier distribution announcements. Music2dot0 has found out that the pitch is happening this weekend with the following as the main contenders:

1) ATO or Side One Recordings - Billboard and Hits considers them a front runner for the deal, with the common thread of Coran Capshaw owner of Red Light Management who also co-owns both ATO and Side One Recordings.

2) EMI - and after 6 albums with Radiohead, of course they would try to be in the running for at least distribution outside of the US, though one wonders how much of a negative contributory factor they were in pushing Radiohead to strike out on their own.

3) Warner - has been faithfully flogging the dead horse trying to get Radiohead on their books since the latter’s early EMI days, so they would seem to be simply making up the numbers on this pitch

4) XL Recordings/ Beggars - Music2dot0 can confirm that they are not only in the running despite not having been mentioned anywhere else, but Music2dot0 also feels that this is the darkhorse that could win it - not just due to their pro-artist philosophy but also the fact that this is the home of Thom Yorke’s Eraser solo album.

If Radiohead was looking to further their innnovative approach, they would be well off considering the two independents, but if they were simply looking for a brute force functional distribution deal devoid of creative ideas - ideas which Radiohead have already shown great aptitude for - the two majors would certainly be suited for it.

One also wonders whether this record deal pitch exercise is just a necessary evil that Radiohead is forced to live with, as after all, Thom Yorke was saying just before recording ‘In Rainbows’,

“I like the people at our record company, but the time is at hand when you have to ask why anyone needs one. And, yes, it probably would give us some perverse pleasure to say ‘F___ you’ to this decaying business model.”

For now, it seems the pleasure is not Radiohead’s….