News & Views

I've made no secret of my opinions on our current recording industry. I feel the existing record companies have litigated and legislated themselves into being the focus of widespread consumer hatred. They are involved in the most self-destructive activities of any business segment in history. They are dying of self-inflicted wounds and most folks will be happy to see them gone. Everyone hates them.

More importantly, nobody really needs the set of services they provide anymore. The business models they cling to make no sense in the digital age when individual artists can record and distribute their own music nearly as easily as the big companies can and with more control. Times have changed and the record companies haven't.

The only question left unanswered is, "What's next for these failing companies?"

There are some great suggestions floating around the web for taking the recording industry in a new direction, but none I've seen were as workable as the ideas outlined in an open letter posted by Ian Rogers, the former General Manager of Yahoo Music. He wrote this letter to Guy Hands, the boss at EMI. Guy Hands is one of the more forward-looking executives in the music industry, so he is likely to be more open to innovative ideas for his company's future.

In this letter, Mr. Rogers talks about the services recording companies once provided for artists. He then talks about why those services are no longer as valuable as they once were. Finally, he outlines a new set of services the recording companies could provide in order to make themselves relevant again. Let's explore some of his ideas, intermingled with my own of course.

In the "old days," recording companies provided the startup capital needed to make a master recording. Studios were scarce and studio time cost a fortune. The equipment was cost prohibitive and it took very specialized skills to create professional sounding recordings.

In those days, recording companies also provided the cash for duplication and packaging. They paid for the large scale reproduction of the studio recordings, the album artwork, the printing, the packaging, and everything else associated with creating a retail package to put on store shelves.

Recording companies also provided distribution. Back then, shipping cases of heavy vinyl records to stores all over the country became quite expensive and logistically difficult. Although the media became lighter when moving to CDs, the shipping expenses were still huge and it was no easier to coordinate. That was the era of big record store chains and obtaining shelf space for their artists was a major service the record companies provided.

Finally, they did a lot of marketing. In those days, marketing meant getting albums played on the radio. It meant paying for premium placement in retail outlets. It meant creating "point of purchase" displays in the big chain stores. Later, it meant getting the album played on MTV.

All of this was both useful to the artist and very expensive. All of it was necessary. All of it was worth signing a contract turning over most of the income from the album sales to the companies in exchange for the services. It was simply the way things were done back then.

Things are quite different now. In the digital age, professional quality recordings can be done by the artists at home using modern computers and software, all at very low cost. File servers and the Internet make "infinite duplication" as easy as customers clicking "download" on a web page. Album packaging means "tagging" the digital audio file with album artwork. Most of the labor and cost-intensive portions of making an album have been replaced by cheap digital solutions. Even getting the word out is fairly easy in our socially-networked world.

So why do we need the recording companies? Good question.

Really, out of all the services once provided by recording companies, the only one that is still debatably valuable to artists is marketing. Viral word-of-mouth on the Internet makes getting the word out about new releases nearly trivial, but the recording companies can still help the artists in the areas the artists don't want to deal with.

For example, they could provide new types of marketing services that are good for both the artist and the consumer. Create "groups" of artists with similar sounds, styles, or influences. Ian Rogers suggests that these groups be handled as "affinity labels." These are small niche labels that only handle a certain style of music. I personally think this is a brilliant idea.

One way to think of this process is "matchmaking." There is so much music available now that customers need a way to narrow down the selection. In this case, knowing you like one artist at a given affinity label means you can assume you will probably like other artists at the same label. The service provided by the record companies would help customers select music they are almost certain to like. They would be matching artists to consumers, which would help artists sell their music.

In my mind, the affinity label could even be "virtual" and still serve the same purpose. For example, you might call all of your dark, brooding artists, "Onyx" artists. In reality, "Onyx" may only exist as a marketing "tag" you use on web sites. The simple act of tagging an artist as an "Onyx" artist would tell the consumer what to expect and boost the sales of that artist to all "Onyx-loving" consumers.

The recording companies could also provide management services to the artists. Most artists have no desire to do the detailed management associated with multiple income streams from a wide variety of digital distribution sources. Perhaps the companies could provide web-based tools and services for artists to manage their various income streams.

The recording companies could also make it simple for artists to select highly-targeted marketing services or purchase premium placement on music web sites. Put all of these services in one secured location online and make it easy for them to use. The level of automation involved in these services will make it cheap to operate them. If it makes their lives easier, artists will be happy to pony up a percentage of their sales.

The retail and manufacturing aspects of this industry are quickly fading away. It is becoming a pure digital service industry. If the recording companies focus on providing the types of services that are both valuable to artists and helpful to customers, they will reinvent themselves in a way that allows them to persist far into the current century. They will also make good money at it.

In contrast, litigating grandmothers, parents, and children until hundreds of thousands of people are telling everyone they know to stop buying your products is stupid. Treating all of your customers like criminals is a bad idea. Using restrictive DRM only encourages your customers to download illegal DRM-free media instead. Lobbying to restrict Fair Use rights only makes customers hate you for making it illegal to use what they already bought. It's common sense.

This is not the way to do business and certainly not the way to survive. If you spend all of your time doing your best to incite hatred in those who feed you, don't expect them to feel sorry for you when somebody pirates your products. When you make it difficult or impossible to use the products they purchase from you, customers don't want to give you any more of their money and they don't care a bit when you go out of business.

The one common thread in every article I read about the RIAA these days is the belief that a major change is critical for their survival. The RIAA member companies need to pursue an entirely new direction and business model. They need to become service companies instead of product companies. They need to focus on serving the needs of both the artists and the consumers. Only then, do they have any hope of surviving.

Labels: DMCA, Fair Use, Music, PRO IP, RIAA