The E-Conomy and the Music Industry

Our readers would be wise to ignore the faux prophetic warnings of music executives bemoaning the pending death knell of their domain. While consumers no longer have to haul around a 10 pound CD wallet to listen to more than one album on a foray outside their homes, and while it has undoubtedly been a few years since any of our readers stepped foot inside a Tower Records, music is still very, very big business. It is simply that the nature of the business has changed. And transitioning from the Walkman to the iPod is not the only example of this. From streaming radio stations to satellite radio to YouTube, the way music is consumed, paid for and creates wealth is not so much in a state of evolution as it is embroiled in a foaming sea of change.

Rolling Stone contributor Steve Knopper has helpfully explained exactly how in a recent article The New Economics of the Music Industry. In the article, through words and graphics, Knopper explains how what music consumers pay for everything from downloads to streaming content is shared between executives, artists, songwriters and hosts. The observant will note at least one in-article correction explaining that various models exist as well as some differing opinions on actual payment schemes in the comments section. However, the broader point is that the recording industry is doing just fine, and your favorite artist is not at all likely to be facing penury any time soon, at least not any more than s/he would have been under the old system...

Though changing economics might not result in big artists losing revenue, one legend in the industry believes that the new model is leading to poorer development of new artists. Pete Townshend, perhaps taking advantage of the metaphorization opportunity afforded by both Halloween week and the buzz around the latest installation of the Twilight saga, went so far as to liken Apple to a 'digital vampire' earlier this week. At the BBC-hosted lecture he was speaking at, Townshend argued that, of the traditional functions of the record executive: editorial guidance, financial support, creative nurturing, manufacturing, publishing, marketing, distribution and payment of royalties, the iTunes system really only provides the latter two.

Of course the flip side to this is that distribution has become increasingly global. This has led to a correlated rise in opportunities, and therefore royalty payments, for some artists which exceeds any opportunities they might have had under the old system. In addition, it could be argued that the digital marketplace provides many of the other functions Townshend is bemoaning the disappearance of, such as instant user feedback to replace editorial guidance. Meanwhile, publishing and manufacturing have arguably lost their importance under the new model. In other words, things are undoubtedly changing, but it is hard to say for certain that they are changing for the worse.

Mr. Townshend may or may not be correct in the point he was trying to make. However, in either case his thoughts do provide evidence of the broader theme of today's post; the industry and its economics are changing. Those who embrace it, taking advantage of new distribution opportunities and global marketing (assuming they can hold a tune, or at least passably wail over a populace-pleasing synthesized beat as the case might be) will succeed. Some artists, including Townshend, will benefit in spite of themselves as digital services provide new sales opportunities for well-established acts. And some artists, including those who might have benefited from a helping hand under the old system, might never make it to our readers' iPods. Unfortunate for both them and our readers (in some cases) I suppose, but then success was never guaranteed under the old system either.

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