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> I think the labels will be more than happy to bleed it dry and leave its lifeless corpse on the side of the road as they search for the next Big Thing to strangle, bleed dry and leave behind.

Absolutely correct.

The intermediaries in the music distribution network (i.e. "the labels") already know that they have lost in the long term.

They know that their best move now is to extract what revenue they can from the current examples of the types of service that will eventually replace them.

Maybe this is "evil" or maybe the execs think of it as their job to try to earn as much as possible, perhaps for their shareholders' sake.

Ironically, those services which seek to replace the labels in a way compatible with the law (i.e. startups rather than torrent sites) are the ones who will end up paying (perhaps too much) for it, and will risk going bust as a result.

Meanwhile, sharing via torrents etc. is gradually killing off the labels. It may be in the interest of everyone to just let this occur without starting up a business which tries to find a middle ground.

But there will always be companies springing up to take a gamble on being the first to exploit a new opportunity. If Spotify (or whoever) fails, perhaps the next music streaming service will be the one to meet a much weakened music distribution industry in the courts.

Once the labels are gone, services which offer subscription models for music will thrive without the threat of legal action. And the quality and variety of music available to the masses will thrive.

This is a waiting game, and I think we all know exactly how this will eventually play out. Meanwhile we're still in the wild west, waiting for the shootout at the O.K. Corral.

The lack of critical thinking about music copyright never ceases to boggle my mind. In this discussion Spotify is the intermediary. The labels and the artists do the heavy lifting here. Do you guys believe in the concept of intellectual property or what? It is vital for our whole economy (including FOSS).

The labels put up the money for the projects, and the risk is terrible. If you are a label almost every one of your products loses a lot of money. In fact all of the money you invest! You hope to make it back on a handful of hit acts. In some sense acts that fail commercially come out on the long end of the stick, in that they burn throughs hundreds of thousands in cash and are not on the hook to pay it back. This is why the classic case of hit acts not making any money exists, the deal is structured way in the labels favor. Without this the labels can't make money.

How you all feel about a company that agregated other companies software products and started giving them away for free? Any objections to that? Would you look down on efforts of developers to get as much as they can for their products?

A vital music culture cant exist without some kind of viable business model. Many attempts have been made to build a business on indie bands (my space , mp3.com) it can't work because indie artists don't have near the resources to create a true modern music product. Not to mention most indie music is not that good, and nobody wants to hear it.

"Vital music cultures" have existed for millennia without "viable business models", in the way we understand that term today. People like to make music, even if the reward is only attention. There might be less money in it, less commerce in it, in the future without "viable business models", but I think you're somewhat brainwashed if you think that means there won't be a "vital music culture". If anything, the music culture may be even more vital in the absence of extrinsic motivation.

"If anything, the music culture may be even more vital in the absence of extrinsic motivation."

Dead on. If any amount of extrinsic motivation is removed from the music industry with the death of record companies I will be a very happy person.

"If anything, the music culture may be even more vital in the absence of extrinsic motivation."

It's interesting how everyone seems to want to make choices for artists..without even asking them.

Without a way to make money, we will see less music. Why? Because artists will be forced to get day jobs. As it is, there is a small chance you will make a full living as an artist.

If anything, it will kill the indy scene because the only companies that will be able to even come close to a profit are the the ones with deep pockets (IE: the huge record labels or something like it).

Like software piracy, Adobe and Microsoft can handle it. Small companies go out of business if piracy us unchecked. I've seen it happen.

I don't think the artists get a special role in creating copyright laws since effectively those laws are an abridgment of the freedom of speech. We can speak our minds on this issue without having to ask their permission.

Given the course of recent history (i.e. ever expanding copyright terms and regulation), I don't see that more consideration for artists is warranted.

"I don't think the artists get a special role in creating copyright laws since effectively those laws are an abridgment of the freedom of speech. We can speak our minds on this issue without having to ask their permission."

huh? Since when is sharing someone's copyrighted material without their permission "freedom of speech".

>Without a way to make money, we will see less music. Why? Because artists will be forced to get day jobs. As it is, there is a small chance you will make a full living as an artist.

So? This is how it has been for centuries. Call it the invisible hand meets the art world. They can get jobs being music teachers. They can record using vintage equipment, like Blake Schwarzenbach did (used 4-track and 8-track recordings while he wrote for GamePro).

>If anything, it will kill the indy scene because the only companies that will be able to even come close to a profit are the the ones with deep pockets

Something tells me you don't understand the definition of "Independent Music".

The fact is, the labels function as a market for pump and dump stocks, where the stock is a band or album. Independent music doesn't (or in my opinion, shouldn't) work that way. It can take 5 years for your album to blow up. (See: Mumford and Sons). You might have a bigger following only after you're dead and buried (See: Elliot Smith and Bright Eyes). You might have every single one of your fans wanting you to quit your main gig for a side project they've done (See: Death Cab For Cutie/The Postal Service).

Disclaimer: I am a founder of a failed start-up company that would work with artists in a way that was designed to supplant the labels and exploit long-tail effect, etc.

The sad, sad thing is that indie bands are getting picked off quicker and quicker by labels and pumped up for the first-album success. It's actually a huge issue (read up on MGMT) when the artists then try a new direction for a second album and the label is hesitant to financially support an album unless fans move the product in the first two weeks. This becomes at catch-22. How do you enjoy the success of radio play when nobody's paying to play you on the radio? This leads the labels to relegate these bands (by the second or third album) to a "we don't help you" status, forcing the band to break up or just be a small indie band forever on tour.

If anything, major labels playing in the indie scene is akin to making the indie bands "build on a flood plain".

TL;DR: NOPE. Artists make very little money from albums. It is known.

"So? This is how it has been for centuries. Call it the invisible hand meets the art world. They can get jobs being music teachers. They can record using vintage equipment, like Blake Schwarzenbach did (used 4-track and 8-track recordings while he wrote for GamePro)."

Again, you are making choices for them. You don't see anything wrong with this? Nobody is guaranteed a living. However, you should be given a chance. You are taking away that chance completely.

"when the artists then try a new direction for a second album and the label is hesitant to financially support an album unless fans move the product in the first two weeks."

This is the consequence of going with a label. The label wants to make their money back in the short-term and you, as an artists, give away your creative control. It's almost the same as getting VC for your startup.

Over time, people with your attitude have pushed many artists to go with big labels. They have little to no chance making any kind of living on their own (because people just share their music and don't pay for it). So, the label offers them money and some sort of living.

" I am a founder of a failed start-up company that would work with artists in a way that was designed to supplant the labels and exploit long-tail effect, etc."

I hope you weren't charging any money, because you sure don't seem any better than a regular label.

>Again, you are making choices for them. You don't see anything wrong with this? Nobody is guaranteed a living. However, you should be given a chance. You are taking away that chance completely.

I don't even see where this is coming from. I think you jump over a few points in your logic here, or you just know nothing about an industry which you're trying to debate about.

>Over time, people with your attitude have pushed many artists to go with big labels.

NOPE. Where are you getting your talking points? The RIAA's "downloads = lost sales" page?

If people didn't broaden the market and fanbase for independent music and independent labels, it wouldn't exist, and you'd only have major label music.

They have little to no chance making any kind of living on their own (because people just share their music and don't pay for it). So, the label offers them money and some sort of living.

The labels offer an incredibly bad deal. And all the artists who, you know, actually make a living without belonging to a major label might want to have a word with you about your data.

>I hope you weren't charging any money, because you sure don't seem any better than a regular label.

Actually, we were tons better. We basically set up our store to be the reverse of the apple store: They get 70% we get 30% (agency model). So selling your album for $5 bucks nets you 3. The same album on iTunes, would you net you about $1.50.

Except, as an independent, you'd have to go through a service which functions as a 'label' that takes 50%. So an album that nets you $.75 on iTunes would make you $3 off our site.

Oh, and one of our founders actually owned an independent record label. The problem is, all of the small indies have no internet strategy, and everyone in the business knows that's the name of the game. Fortunately, sites like SoundCloud and Bandcamp are actually there for independent musicians these days.

I'd love to go on, but to me it seems like you have no clue as to what you're talking about and I've got better things to do than re-hash the research we used in our pitch. Good day!

Ok, my attempt to make my point is heavy handed vis a vis intellectual property as a whole. My main frustration on this subject is that many tech and entreprenrial people, like those who hang out here, have an inconsistent perspective on intellectual property when it comes to music.

In this perspective the record labels are considered rapacious and entity like Spotify as being unfairly squeezed. Actually the labels put in tremendous resources to create the product, what value added does Spotify bring? As it stands, copyright is the law of the land. The whole concept of property, including intellectual property, is what enables business as we know it to exist. Think about just trademarks and how critical they are to so many types of business.

Would you feel bad for a retail store set up in a market with razor thin margins because their suppliers are asking for prices that are too high? I might feel bad but you can hardly say the suppliers are being greedy.

My other frustration is a lack of acknowledgement of how many resources go into creating modern music entertainment products. It's true that there is compelling music made by amateurs, and that has always been and will continue (essentially folk musics of different flavors).

But most of the recorded music that we love is made by pros. There are other ways to support it: government funding, patronage. Advertising based business models as we know them are completely dependent on our current intellectual property structure.

As a point of common sense I don't think we as a society should be enforcing copyright against individuals. But to abandon intellectual property as a whole concept is a very radical proposition.

BTW, the reason most music business projects lose money is inherent to the endeavour: most people don't like most music. To get a product that is successful, you have to do a lot of projects knowing that most will fail hoping for the hit that makes up for all the losses.

Courtney Love's famous article http://sodacity.net/system/files/Courtney-Love_Courtney-Love... is disingenuous because she knows what's up with this business model and conveniently leaves that out of her argument.

I appreciate everyone's thoughts on this subject!

> Do you guys believe in the concept of intellectual property

Certainly not as an article of faith. It needs to be configured according to evidence, and that is about as far from the case as possible today.

> It is vital for our whole economy

That as a whole statement is definitely false, since plenty of things have nothing to do with it. And it is quite possible it is not vital to any part of the economy.

Economic research has not been able to determine the value of IP (see, for example: 'The economic structure of intellectual property law'; Landes, Posner; 2003. Conclusion, p422, s3.). That means, as far as anyone knows, we might actually be better off without it. That might be surprising, but there you are.

If there were no, or much limited, IP structure/law, business activity would re-arrange; it would do different things. Putting forward an argument that business could not do what it currently does rather misses that. And if, as you describe, music recording is a business where "almost every one of your products loses a lot of money", it seems there is indeed a very great deal of room for improvement economically.

An exposition of how broken the music industry business model can be found in Courtney Love's essay: "Courtney Love Does The Math". There are far too many corroborating similar stories for her story to be an outlier or an aberration.

http://www.salon.com/2000/06/14/love_7/

> The intermediaries in the music distribution network (i.e. "the labels") already know that they have lost in the long term.

You have GOT to be kidding me. These entities along with their purchased congress-critters and executive appointees are ready to go nuclear vs. the Internet (which is the fundamental change agent that allows them to be disintermediated).

They are not going down without a fight - this is the same industry that decided suing their customers was a great idea, they would not think twice about burning down the commons by destroying the Internet as we know it.

As an analogy, we've had electric cars for sale since the 1970s, but only recently have we gotten any real options... imagine if the music mafia could achieve that kind of life extension? It's certainly a probability this could happen.

Great analysis!

You've got to take into account the fact though that the labels don't give two poops about what they're doing to the services they're killing. Spotify. MOG. Rdio. Hulu. They're all fronts to appease those of us that are interested in a different delivery route for our content. They're the proverbial pylon that the industry can point to and say "there, we tried to innovate, piracy is bad, killing us!"

We talk about guaranteed failure of the labels and studios in the long run because of their pig-headed nature and their resistance to change - but they say "nay-nay". They know that these short term gains will accomplish a few goals that will guarantee their business model for decades to come. Paying their lobbyists to run up to capital hill and enact new favorable legislation...

If we've learned anything, having power is the key to business, not a good idea or a steady execution. Once you get to a certain point you're immune to the regular rules of market dynamics.

Just as the banks before them, we're currently seeing legislation being put forward to protect a broken, legacy, business model by ensuring a monopoly for a select few, and stifling innovation for many.

And just as the financially misguided before us, the people in black suits will soon be coming to take our homes, or in this case, our domains.

So it sounds like the media companies are trying to do something like this:

1. Launch free to cheap streaming services like Hulu, Netflix, and Spotify, to draw people away from DVRs and piracy and dry up the pirate networks. Since the services are streaming only, users don't own archived copies of the media they enjoy.

2. Lobby governments and hire lawyers to crack down on the remaining pirates, flood their ISPs with DMCA notices, etc.

3. Once the pirate networks are dried up, kill the legitimate services that everyone used instead (mostly done on Hulu for many shows, work in progress for Netflix).

4. Since people don't have archived copies of the media they enjoy and stopped using their DVRs, media companies hope consumers shell out for the DVDs and CDs to restore access to the songs and shows they used to enjoy for free/cheap.

The entertainment conglomerates will kill off plenty of digital distribution pipelines in the coming years, but ultimately, they'll kill themselves if they don't wise up.

Amazon, Netflix, and now Microsoft are getting into the original content business (MSFT is actively poaching TV execs to lead its new content division). Facebook has a few folks in Hollywood already. Google has been trying to make content deals for years now, and it's only a matter of time before it gets more sophisticated about doing so.

What's to stop digital music services from going directly to artists, and acting as labels? All it takes is one or two big hits to prove the viability of the model. And promoting self-owned artists through organic and inorganic discovery within the digital services can effectively replace the massive marketing efforts that major labels currently rely upon to break out new artists.

A recent, slightly analogous example: Few execs in the network TV business took AMC seriously until it produced "Mad Men." After that, people took notice, though many assumed it was a fluke. Then AMC produced "Breaking Bad." Suddenly, this basic cable channel -- this two-bit backwater -- was on the map in a big way. The rise of on-demand and time-shifted viewing sufficiently democratized content discovery, allowing a relatively small outlet to produce high-impact hits. AMC's rise arguably could not have taken place in a pre-DVR, pre-on-demand world. I suspect many more small shops will generate big shows in the coming years. And some of those shops will not be traditional TV, or even cable, networks.

I'm not as familiar with the dynamics of the music business as I am with those of the TV business. But I have to imagine that they follow a roughly similar pattern.

[Full disclosure: I work in TV, though increasingly, I will probably be saying that I work in "content." The world is slowly becoming network-agnostic, and it's only a matter of time before it becomes medium-agnostic in earnest.]

Those companies are getting into content because they have no choice. Content owners have priced Netflix's old business model out of existence. Music, on the other hand, is ridiculously cheap. Spotify pays based on how much the music gets played. If they become a label they have to start giving advances to artists, a considerable risk.

Think about it, if traditional label struggles with people no longer buying full albums, how is a subscription label going to survive on $10/month?

"Those companies are getting into content because they have no choice."

That's precisely my point. In an oligopolistic market, when the oligopolists (the entertainment congloms) overplay their hand, new entrants emerge to compete with them. Sometimes by choice, and sometimes by necessity. In this case, what's happening is what you're describing: distributors are getting priced out of carrying the product they distribute; ergo, they will need to create their own product. This is what I mean by saying that the entertainment companies will "kill themselves" if they keep squeezing distributors for much longer. They don't have viable distribution pipelines to compete with these distributors, and their ignorance of that fact will be their downfall.

In the long run, it's much easier and less expensive to create a great show (or album, or film) than it is to build, grow, and maintain a great digital distribution company. The distributors will have an easier time getting into the original content business than the content companies will have getting into distribution. Time and economics are on the distributors' side in this battle.

"Think about it, if traditional label struggles with people no longer buying full albums, how is a subscription label going to survive on $10/month?"

A traditional label's economics depend on getting consumers to buy albums in excess of $10 a pop, or tracks at $1 a pop, because the label bears so many costs in producing and marketing its music. It spends a fortune on advertising, promotions, executive salaries, and so forth, and it passes all of those costs on to the consumer in the form of CD prices that are astronomically higher than the raw price of the discs themselves. Present-day a la carte music pricing is still, by and large, reflective of the marketing and overhead costs of these labels.

If you take the costs of running a traditional label out of the equation, and build a label from the ground up -- entirely digitally -- you can avoid a lot of the costs that traditional labels continue to bear. For instance: if a company like Spotify or Pandora were it to court its own artists, it would not need to spend a fortune on marketing and advertising. It could rely on the mechanics of collaborative filtering, organic search, and word of mouth to get its artists discovered by users. As for the $10/month pricing, that would depend on generating enough new artists at scale, so that users felt satisfied by the overall selection on the subscription service.

>If they become a label they have to start giving advances to artists

Why?

Logic now costs $200 and a MacBook. I daresay that most musicians pay far more for their instruments than they have to for a production studio.

The idea that you have to invest $$$ to produce an album (hire Timbaland as a producer, spend megabucks on marketing and A&R) is more a byproduct of the blockbuster music market than a logical necessity. If you want to produce a blockbuster, spend blockbuster money, but don't assume that this is the only path to success (success defined as being able to make a living as a musician).

I believe the labels see it as a simple proposition, they should get any monies that are generated by playing one of their songs. That this doesn't allow digital music services doesn't register, or that their songs in a vault some where generate no money. Collective stupidity, and it will kill the music labels, it already is. Now they might not die as fast as you or I would like, but they will die, either by legislative fiat or by musician revolt.

Makes me wonder if taking them private will help.