03/ 03/ 2015

Wu-Tang Clan on the Wrong Side of Debate Over Music Biz

On the surface, this gimmick by the Wu-Tang Clan seems so crazy it’s cool. I mean, exclusivity, numerology, symbolism, a mystery box made of wood and silver, a bidding war that reached $5 million … it has all the right ingredients.

But as much as I love Wu-Tang, I’m sad to say the thinking behind this is actually really backwards.

From the Guardian today:

The point, says RZA, is to make a statement about the value of artists in an age where everything is available for free, and therefore disposable. “Artists are very rare people,” says RZA. “Things have value when they are rare.”


The album was created in an attempt to break free of modern-day streaming companies like Spotify and YouTube, which encourage freely-shared music.

“This has never been done before,’ said RZA after playing the record. “Music is just handed out now, the industry is in crisis. People feel like they deserve to have it for free. This is art. You can take a picture of the Mona Lisa but that’s not art. The same with this: you can never reproduce it – this is the final thing.”

The music industry is in crisis, this is true. The fact that advances in technology helped bring this crisis about is true. But the assumption that these changes are BAD, and that the music industry in its traditional form was GOOD, is wrong, wrong, wrong.

Though there are many competing ideas for what the future of music distribution will be, the war over the music business can basically be broken down into two camps: people who want to preserve the way things were, and people who believe a long-term revolution of music revenue models is inevitable. If you can’t tell yet, I’m obviously part of the latter, along with most technology companies from Spotify to Google and to a certain extent, Apple.

I do not necessarily think any of these technology companies has come up with the definitive answer, but I believe that evolution takes imagination, and they are the ones who are thinking big, thinking long term, and investing in that evolution.

The music industry traditionalists will tell you that technology companies and bad music consumers are killing creativity, stealing music and devaluing it.  This understandable in a sense because, from their point of view, they used to be able to put a direct dollar value to every track they released commercially. It was based on the number of times someone purchased the rights to listen to, play, or repurpose that track. It was a hard, easily definable number. And those sales translated to billions of dollars in profit. Profits are obviously smaller for indie labels, but their revenue models were the same: sell the music.

In order to slow down the erosion of those profits, then, these labels are fighting TOOTH AND NAIL to hold on to status quo. They rage against ad-supported streaming services. They spit numbers out, rapid fire, trying to convince the world that companies like Spotify are basically robbing them by paying them pennies on the dollar for what they would make selling music the old school way. Perhaps fueled by propaganda from their labels, artists are infuriated by this–they see it as an insult to their art, a literal devaluation of their creations. And if it were technically possible, they would prevent every last person on earth from accessing pirated music, kill all streaming services and go back to selling CDs, or perhaps stick to the iTunes model.

But they are thinking about it all wrong. First of all, they are totally ignoring reality. Their desire to kill all piracy and streaming services, and to return to a world where albums cost $20 and that’s that, is a pipe dream for two reasons: 1. As fast as they shut piraters and bootleggers down, more will pop up, and they will discover new ways to steal music. The effort is just a game of whack-a-mole; and more importantly, 2. The way in which people listen to and discover music is changing, thanks to technology, and changing for the better. The Internet has enabled niche and indie artists to emerge from obscurity and in some ways turned the music industry into much more of a meritocracy. A scientific survey would have to be done to prove this, but I’m willing to bet that many of the kinds of people who would have listened only to top 40s music and whatever was playing on the radio 20 years ago are now sophisticated music fans who have exposure to all kinds of interesting sounds. Thanks technology!

Basically, music tracks themselves have become commoditized, kind of like computers or smartphones. And what has happened to the profit margins on those products? They’ve gone down! Yes, there will always be a market out there for premium products, kind of like there will always be a group of people who will shell out good money to buy albums on vinyl. But 70% of the market, and probably more, is destined to be a low-margin business.

What does this mean to vendors–should they stop selling their products altogether? NO! It means that they need to come up with new revenue models, i.e. making money on software and services. Get a dirt-cheap smartphone into the hands of every last person on earth for only 5% profit, if that, sign them up for an app store, and voila–you have a new platform to make even more money off of those people, just in a different way.

The movie industry has gone through the same problems, too. Film studios were scared SHITLESS of home videos when that technology was introduced. They were freaked out that no one would go to the cinema anymore. If they had their way, they would have sanctioned the whole idea of home video and DVDs never have come into existence. But the world moved on, and they had no choice but to figure it out. If they’d embraced the whole idea earlier, and tried to innovate to find new ways of earning profits, we might have had cushy arm chairs and 3D film releases much earlier than we actually did.

So it’s tempting to accuse platforms like Spotify or Youtube of treating amazing songs or albums like they’re only worth a single-digit percentage of what they used to be worth, but it’s not true. What these companies are actually proposing is for record labels and artists to take a short-term hit so they can capitalize a long-term music revolution. For example: an artist may only make negligible revenue on a per-stream basis for each track today, but imagine 10 years from now if everyone in the world was hooked up to a streaming service? What would the business ecosystem be around that? Aside from much more valuable, targeted ad products to make money from, that could mean infinitely more exposure and opportunities to sell merchandise and other services.

The potential downside is that the Katy Perrys of the world might make less cash for their labels. Emphasis on “might” and “for their labels.” But for all the money that doesn’t make rich people richer, there will be much more money to go around to the little guys who make great music, too, and who can never get any exposure under the current system. It is a myth that no one pays for music. Everyone will always love music, and the vast majority of consumers will willing open their wallets if you give them a compelling reason to do so.

If you’re dubious, check out what TLC did, or some of the indie labels that have cropped up around the world and who are making single-digit millions, instead of tens of millions, on super-popular albums by distributing them on Youtube and shopping their artists around for tours and live shows. I know of several in Brazil that actually GIVE THEIR CDS AWAY at concerts as promotional gifts. They sell their tracks on iTunes, and do make some cash from that, but while their core product is music the vast majority of their revenue is from everything surrounding the  music, not mp3s themselves.

These guys are so good at promoting themselves on social media (that is the core of their business) that people basically have their music videos playing on repeat on Youtube, and they get paid for ever single of those millions and millions of plays. They know people will always love music, and will always support artists and buy merchandise in some form or another, but they have embraced the new reality that record labels may not make billions and billions of dollars, and can still be very profitable. They just have to keep putting out great music.

And isn’t that what we all want?


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I'm a 30-something multimedia creator from New York. I do videos on Youtube centered on open discussion and co-mentorship. Once a month, I host a Q&A with inspiring people from entrepreneurs to athletes and more on The itsme Podcast. Be warned: I can be opinionated. But it's all love! Please follow and subscribe, it would mean a lot! :)

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