The recording industry becomes the performing industry

Mike Arrington in Techcrunch has it absolutely right when he heralds the news that CD music sales were down a further 20% in 2006. It is good news, and yes, it is inevitable. I've followed Mike's lead and posted a YouTube video with this post, for the same reason. The video is a fan-recorded excerpt of ‘Live In London’ by James Cooper and band, on Youtube. By putting it on this website am I breaking copyright law, or marketing an artist on my label? The answer is both.

What’s that? Shocked to hear a record label owner looking forward to the decline of CD music sales? Well, the massive changes currently affecting the music industry are why my label exists. In any moment of dramatic change there is an opportunity for small, fast-moving businesses to gain a competitive advantage. The bigger the changes, and the faster they occur, the better, for the artists the label represents, and for you the music-buying public. Why? Let me spell it out:

You don’t consume music the way you used to. The industry is still configured to cater to the way we bought music 20 years ago: you saved up all your pocket money for a couple of weeks so that you could buy one, or at most, two new albums a month. Because your purchase volume was so low, the investment you made in the purchase decision was enormous. Your purchase decision research was 90% of the time you spent as a music consumer. Everything from lavish stadium shows to million-dollar music video to double-album-insert-art-pull-out-poster album production extravaganzas were all aimed at you in your purchase decision research phase, to influence you to buy one album over another.

If you still pay for the music you listen to (vs downloading it free via P2P or sharing burned CDs with friends) you don’t buy albums anymore because you can trial each track on an album and download only what you want, busting the album-sized products into EPs or single tracks. Smaller sized purchases and cheaper music online means that instead of 90% of your month spent researching and 10% spent purchasing, you spend 90% of your month making little nibble purchases, and almost none of your time researching.

Record labels can’t invest all that money trying to persuade you to buy one product anymore, because they can’t be sure when you’ll buy. You don’t make the same investment in researching your purchase, because if you don’t like what you’ve bought today, you can just buy something new tomorrow. So all the massive promotional and media infrastructure aimed at changing your album-buying decision is wasted.

The same internet technologies that changed the way you consume music have also changed the way music is produced and marketed. While its still possible to spend millions of dollars in a recording studio, that investment has no greater chance of breaking-even than a music which is created in a bedroom with a Mac and some midi software. Music’s marginal production costs are approaching zero.

Record labels used to be able to ‘gate’ the supply of new artists and music by forcing all aspiring artists through their production systems; systems that had evolved to extract the maximum profit for the label while minimising risk, leaving the artist saddled with the maximum risk and minimum share of profit. Now artists can exist entirely without a label, or do an end-run around the label production system - coming to meet the label only at the point at which their completed debut album has already sold a few thousand units, has been reviewed everywhere that matters, and has been played to a large and growing fan base online and offline worldwide.

A larger number of artists inevitably means much lower sales for each artist, as the music buying volume is shared more broadly. The old Top 10, Top 20, and Top 100 charts used to track the success of an artist will become meaningless because the market is changing from the Top 100 making 99% of the revenue to a market where 99% of the revenue is made by artists that don’t even appear on the chart.

The days of the music megastar are fading, and in a decade or so will be just a memory, replaced by ‘entertainment megastars’ of whom Paris Hilton is an early prototype. They will be wealthy from the proceeds of a variety of media, one of which will be music. These megastars will still be created by entertainment companies, but not record labels. Instead they will be owned by vertically-integrated media empires like News Corp.

For music artists, there will still a reasonable living to be made from music, but it will come from performance, not from the sale of recordings. For most of the history of popular music, this is how artists made a living, and its to this market we must now return. Because your recorded music will continue to decline in value until most of it is effectively free, it’s not something you can make a living from directly, but it remains the best tool for promoting your live performances and finding new audiences. The early signs are already here - while sales of CDs continue to dramatically drop, it looks like the revenues from live performance (these are US figures) were up 35% in 2006, and that mostly includes large shows - nobody yet tracks small venues.

You won’t be aiming to live in a mansion and drive a Ferrari anymore, but it will be possible to own your own home and put your kids through school, as long as you adapt to these changes as quickly as possible and develop the ability to engage and entertain a live audience through performance.

In Australia and elsewhere, there’s a lack of live performance venues, but this can be solved in a variety of ways; artist collectives investing in venues, labels investing in venues, and savvy investors investing in venues when they see how live performance will be the next big growth area in the entertainment industry. For the last 50 years we’ve believed that popular music must be performed after 9pm, on only a few nights of the week, only on premises licensed to serve alcohol, and they should preferrably be hard to find, smoky and dirty. That belief is as old as the Prohibition Era, so you should expect all that to change too.

Labels like Littoral which are small enough to adapt will start to focus on marketing the live performance of artists using recorded music and other means, such as managing the online presence of an artist, and the way we share profit with an artist will necessarily change too.

While nobody will be a megastar in the future of the music industry, many more artists will be able to make a good living from performing live, and more profit will be returned directly to the artist when the large record labels start to splinter and collapse - that’s the best news of all.