Music 2.0 - Exploring Chaos in Digital Music

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….

Following his radical statements in China, Trent Reznor returned to his old label-stomping ground in Sydney and volleyed one of the most defiant verbal assaults on a label by a major label artist ever recorded on video. Reznor’s attack dwarfs past anti-label rants by Prince and George Michael.

(Audio transcript)

“Lots and lots and lots of familiar faces..Is there anybody here tonight that wasn’t at Luna Park last night?
I talked a lot last night; tonight I’m not talking so much. I know, I know…
I woke up this morning and I forgot where I was for a minute.

I remember last time I was here, I was doing a lot of complaining about the ridiculous prices of CDs down here. And the story got picked up and got carried all around the world and now my record label all around the world hates me because I yelled back at them - called them out for being greedy fucking assholes

I didn’t get the chance to check – has the price come down at all?
[Crowd yells “NO”]
I see a no, a no, a no, a no…anybody…has anyone seen the price come down?
[Crowd yells “NO” again]
Okay, well, you know what that means - STEAL IT. Steal away. Steal and steal and steal some more and give it to all your friends and keep on stealin’. Because one way or another, these motherfuckers will get it through their head that they’re ripping people off and that’s not right.
Bet we didn’t make any friends by saying that”

On the contrary, Trent Reznor has made an incredible number of friends all over the world with his empathy - and his radical stance is swelling the ranks of his existing legion of fans.

While there have been a few contrarian comments about Reznor’s recent pro-fan statements with the main criticism being that he’s already a big star and can afford to encourage people to download his music for free, it has to be realized that there are many big stars out there who are simply living off the fat of the land, doing nothing to defend fans from labels that demand extortionate prices for legitimate copies of music.

Reznor’s public criticisms of Universal’s pricing policies have drawn attention to the fact that it is not just fans who are frustrated by big labels: many artists have been getting a raw deal too with the lack of control over pricing, marketing or distribution of their work, high cover prices and ‘new media’ sales that translate into tiny royalty payments. In Reznor’s own words in reaction to the overpriced CDs in Australia in May he said:

“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”

If fans are being ripped off and musicians are unhappy, why should anyone support major labels?

Until now, a multitude of faceless John Doe file-sharers has been hiding anonymously behind torrents, like worker bees moving billions of music files around the globe. This faceless swarm now has a rallying cry and a focal point with a sting in its tail– and his name is Trent Reznor.

What we are witnessing now is an all-out war, unprecedented in retail history: consumers feel that it is their right to give major labels a taste of their own medicine, and that it is morally justified to pay them back for years of rip-offs. In turn, in an attempt to preserve their profit margins, some labels have used the moral platform that downloading hurts artists most, but Reznor has now demolished that argument by making it possible for fans to download his music and for them to claim with some credibility that they support musicians, but not support unethical labels. This mass-scale justification of free downloading by erstwhile law-abiding customers perpetuates  and accentuates the global tidal wave: a social phenomenon that the RIAA and IFPI will not be able to stop by brow-beating consumers or threatening them with legal action. Many consumers already feel that the rhetoric of groups such as the RIAA and the MPAA represents little more than an attempt by established interest groups to defend their ability to extort unfair prices from music-lovers.

Reznor’s exhortation to ’steal and steal’ could well be straight from the script of a Wild West movie - and in keeping with that theme, the land-grabbing now taking place in the world of digital distribution will probably have to get worse before it gets better.

Many struggling musicians and smaller labels will inevitably fall victims to the changing landscape of the digital music world, while channels like YouTube, MySpace, last.fm and Baidu in China hide behind and capitalize on safe harbor provisions and grow rich in the same nebulous environment. The Wild West was indeed an unfair, bloody and cruel place – but one famous for the opportunities it represented juxtaposed with the danger and hardship that faced those who ventured there.

The consumer backlash now taking place is part of a broader seismic shift in the copyright landscape that underpins the music industry. Copyright laws were conceived in a world of tangible products where it was easy to accept that taking a physical product that’s not yours is wrong. This legal framework is struggling to deal with the challenges presented by the digital domain.

Digitization and the internet have made copying and sharing music faster, cheaper and easier than ever before. The distribution of music in a digital world does not rely on physical copies and many file-sharers justify their actions by noting that copying someone else’s music does not deprive the original owner of their copy. The first sale doctrine in the United States allows CDs to be given or sold second-hand without royalty payment to the copyright owner. Savvy file-traders have noted that the moral and legal landscape relating to digital sharing of content is far from black and white. The US Copyright Office has counseled a ‘wait and see’ approach in relation to whether the first sale doctrine should be applied to digital products such as music. It is very likely that this ‘wait and see’ position will be resolved one day when enough ‘blood’ has been spilt in courts in legal battles and subsequent precedents and rulings evolve. And in the meantime, we will all have to be guided by our wits, interpreting events and pronouncements for ourselves in the absence of absolute legal or moral guidelines.

John Perry Barlow, former lyricist for the Grateful Dead, addressed this in his famous manifesto ‘Selling Wine Without Bottles: The Economy of Mind on the Global Net’ by describing this digital conundrum as ‘a profoundly new kind of challenge’ – one that straddles complex distribution, legal, moral, and cultural issues that old laws and business models will not be able to overcome.

And in this vacuum, Trent Reznor’s perverse rallying call to fans to steal his own music should be seen as a riposte to major labels’ self-preservation and fan-exploitation actions and not a permanent solution. Indeed, Reznor himself will be doing his part in building an online community for his fans with access to his music at fair prices, once he himself has finished serving his sentence with his label.

(Thanks to Ryan Streat for the awesome video recording and to Dr Lucy M for editorial input)