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July 14, 2010

The industy is dead! Long live the industry! (Won’t someone think of the children!?!)

Since I touched on the subject of media transition touched on briefly in my post about going mobile friendly, I think this is a good chance to highlight some historical hysteria regarding entrenched business models collapsing to be replaced by new ones.

Let’s specifically look at the history of music distribution over the last 100 years.

Going into the 1900’s piano rolls and sheet music were the predominant methods of music distribution. Granted there were also broadsides, but those were considered a medium for the working class and were typically lyric sheets with no music score, commonly notated with statements like ” sung to the tune of -fill in the blank- “.

Even in a time where the average worker earned around $600 a year, 25-60 cents for a copy of sheet music was a premium purchase for many. That said, sheet music was big business and when the phonograph came around, sheet music publishers saw the new medium as a threat and fought tooth and nail to kill the medium. “Oh! We can’t let this happen”, “This will destroy the traditional family gathering in song”, “nobody will learn to play music”, “someone think of the children”, etc…

But, the reality on the ground was that pianos are expensive both to purchase and maintain. On the other hand, phonographs are cheaper to produce, cheaper to maintain, easier to operate and you didn’t have to be able to play music to enjoy them. In the end music producers actually sold more copies of music because they now had a larger audience and the companies that adopted to the new business model profited greatly.

Most sheet music publishers failed to adopt the medium hardly failed to die. Granted some of the fears were well founded, the days of the families gathering around a piano to sing together for leisure were lost (if they truly were all that common to begin with). But sheet music is still produced and sold in most music stores. Granted these days it’s mostly piano and guitar based, but, those are the popular instruments for people learning to play music so it only makes sense.

Let’s roll ahead to the next big jump to radio. When radio hit the scene phonograph publishers went crazy. “Oh! We can’t let this happen”, “People will quit buying music when then can get it for free over the radio”, “This will make it impossible for musicians (sic, publishers) to get paid for their work”, etc…

On the contrary to most concerns, radio actually increased sales for two reasons. People were exposed to a larger variety of music and they like the convenience of listing to a song on-demand so naturally they went out to buy their favorite songs in order to have them available to listen to. Publishers that added value to their product saw even better profits (e.g., B-Sides) among core fans.

Then over then next 60 years not much changed aside from improvements in recording and distribution. Granted there were fights over the introduction of cassette tapes and fears that people would just copy music instead of buying it. The same thing happened with CD based music. But don’t forget it’s always been a steady lowering of the bar of the cost of entry into the world of listening to music contrasted against the publishers desires to maximize profits from that same music. Also, people on the whole will more often than not pay for something when they feel it is being sold at a value they perceive as fair. Don’t believe me? Ask Trent Reznor (of the band Nine Inch Nail) or for another example in a different entertainment industry, ask the video game publisher Stardock. Both have spoken out at length about the success of this business model to their sales.

Since the who knows how long the common perception (supported by much anecdotal evidence and statements from artists) is that artists get paid little if nothing for their work when they publish music through a publisher and that publishers takes all of the profit from sales. The big money for the artists more often than not is in concerts and live performances and endorsements. A popular song will generate larger ticket sales and everyone wins (hopefully). This situation set the scale for next big crisis for publishers. The Internet combined with the modern computer.

In the mid-to-late 90’s the barrier of cost related to copying and sharing music finally broke down and anyone with a computer and internet connection suddenly found a plethora of methods to acquire music to listen for free (sometimes pirated, sometimes not) that weren’t available before. And the net result? Sales increased! What’s that? That doesn’t make any sense. The music publishers told us that people stealing music was loosing them money. Wrong. People downloading music was gaining them customers. The money they were supposedly loosing was based on estimates of “if every single downloaded song on the Internet had instead been purchased we would have profited this much”.

… publishers used the same logic with radio by the way.

The reality was that people who used to be pigeonholed to a particular music style suddenly had a inexpensive way to explore new music that they might not have been willing to pay for (on the risk that they might not like it). When they discovered a new artists or new genre they enjoyed, they then frequently went down to the record store to find more of that music to purchase. You had punk rockers buy classical music and country lovers buying speed metal.

But the industry could only focus on the “lost sales” not factoring in that these weren’t really lost sales. Anecdotal evidence from the time indicates that were more like samples. To compare, yes, we know there is always going to be the guy who lives off samples at the grocery store for dinner, but most people actually buy their food and the samples are good because they primarily encourage regular customers to try things they never tried before. The guy living off of them is a cost of business.

I always said at the time that music companies should have jumped on this immediately and put their entire catalogs online at 56kbps bit-rate (radio quality), with an easy click to purchase the higher quality version priced as a convenience item. They would have made a killing, but instead they decided to fight their customers (and still do). Effectively deciding to sue anyone who eats a square of cheese at the deli counter without buying the whole wedge.

When asked years later why they pursued this course of action, one executive answered that they were so scared of the changes happening and knew that they didn’t have a clue about what was going on that they feared everyone was out to rob them and that even the consultants couldn’t be trusted. So they fell back on the only tool they could trust, their lawyers.

Sadly this fight is still playing out even to this day but in the last year some significant changes have happened that probably mark the end for some of the large publishers in this space. The barrier of entry for recording equipment has vanished and a lot of bands, frustrated with publishers and finding greater profitability by simply going solo on the Internet is increasing. When you strip away all of the fluff YouTube is now the largest publisher of music on the Internet at this time. So large that other publishers now effectively turn their content over to them just to get exposure for their artists.

The more things change the more they stay the same. Business is always evolving and those that learn and adopt quickly are well positioned to profit from their observation skills. Others are destined to dig in their heels and ultimately become a footnote to history.

….some references that helped in the creation of this article are listed below.

  • Media-Morphosis: How the Internet Will Devour, Transform, or Destroy Your Favorite Medium: http://www.internetevolution.com/document.asp?doc_id=171555&
  • http://www.econlib.org/library/Enc1/WagesandWorkingConditions.html
  • http://www.bls.gov/opub/cwc/cm20030124ar03p1.htm
  • Perspective: Radio/photograph was going to destroy print: http://web.mit.edu/comm-forum/papers/murphy.html
  • Sheetmusic and broadsides…: http://popmusic.mtsu.edu/dbtw-wpd/textbase/broad/broadside_ex.htm and http://www.phonobooks.com/BirthRec.htm
  • http://cultureandcommunication.org/deadmedia/index.php/The_Victrola
  • Radio was going to destroy the records: http://en.wikipedia.org/wiki/History_of_radio#Legal_issues_with_radio (although the Internet distributed music has revolutionized the way records are sold, it still hasn’t destroyed them)
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