David Lowery, of Cracker and Camper Von Beethoven fame, recently wrote an article titled “Meet the New Boss, Worse Than the Old Boss,” which is based on a talk he presented at a previous SF Music Tech Summit. In the article, Lowery argues that the current digital distribution model is hurting artists more than the old model that was driven by a few large record labels. The article is quite interesting, and he presents his argument from the point of view of the artist.
No doubt the current music business is complex, and I believe we are in the middle of an evolution that hasn’t completed yet. Who really knows what form the music business will take once the evolution is complete. The rise of Napster was the beginning of this change. Here’s what Lowery has to say about that:
When Napster and P2P came along honestly I wasn’t pleased. At best I was ambivalent. I thought that we’d lose sales to large scale sharing but through more efficient distribution systems and disintermediation we artists would net more. So like many other artists I embraced the new paradigm and waited for the flow of revenue to the artists to increase. It never did. In fact everywhere I look the trend seemed to be negative. Less money for touring. Less money for recording. Less money for promotion and publicity. The old days of the evil record labels started to seem less bad. It started to seem downright rosy.
His argument seems to be primarily focused on the fact that artists receive less money from an album sell than they did in the mid 90s, when CDs were the primary music vehicle and record stores were the only places to buy them. Lowery breaks down a sample revenue sharing scenario based on his experience that shows in 1996 he would receive $2.51 per $15.99 CD sold and would assume the costs of recording the album. By contrast, in 2012 he will receive $2.05 per $9.99 album download sold while assuming the same amount of risk. Clearly, he makes less per album sold.
But, part of his argument revolves around the fact that Apple receives 30% of each album sold:
And then there is that iTunes store 30%. Seems kind of high to me. What is their risk? Today in 2012? Do they really deserve more per album than the artist? At least the record labels put up capital to record albums. At least the record labels provide the artist with valuable promotion and publicity. Historically in the music business when someone was taking more than 20% of gross revenues that had some “skin in the game”. They risked losing a lot of money.
I’m not sure that 30% figure is right. While Apple receives 30% of every app sold through its App Store, I’ve never seen evidence that this is the case with music sales. Maybe Lowery has evidence that he can share about the distribution. Most of what I’ve read over the years from seemingly reputable sources indicates that Apple doesn’t make a large amount of money from music sales, at least individually. Of course, when you sell billions of songs, even a few pennies per song adds up.
Further, Lowery goes on to say:
The New Boss, in this case Apple, takes 30 percent, takes no risk and provides the artist with almost nothing in return.
I disagree with this assessment. Apple provides artists the same thing that record stores do: a distribution point. His charts indicate that in the old model, record stores had to pay “Rent/Real Estate, Employees, Utilities, Advertising, Theft, and Payment Processing.” In the new model, he argues that Apple’s risk is limited to “Host files and Payment Processing.” Lowery seems to have an understanding of technology, but does he not think hosting the files and processing payments requires that employees be present, that utilities be paid (such as the electricity required to host the files), and that the servers hosting the files need to be located in a building somewhere? We’re much more separated from those things when we visit iTunes, but the costs are still there.
At the end of the article, he boils his point down to this:
Taking no risk and paying nothing to the content creators is built into the collective psyche of the Tech industry. They do not value content. They only see THEIR services as valuable. They are the Masters of the Universe. They bring all that is good. Content magically appears on their blessed networks.
He equates Apple, Amazon, Google, et al with the Electronic Frontier Foundation (EFF). I don’t think this is an apt comparison. We can agree that at least some of the more outspoken supporters of the EFF do wish for music and information to be freely available. And, there are certainly many consumers who think that they should be able to download whatever they want whenever they want. But, I don’t think these loud protestors are working for the tech giants that Lowery mentions. We can further agree that these companies are trying to increase their margins in any way possible, but I believe that the rise of Apple’s iTunes has helped the industry as a whole. Imagine if, like the movie industry, the music industry tried to hold off from easy digital distribution for as long as possible, despite the obvious signs that consumers wanted to be able to download music. Consumers would still be downloading music, but they wouldn’t have a legal channel to do so. Apple provided a legal, and perhaps as importantly, an easy channel for consumers to digitally obtain music.
Is the music industry better off today than it was in late 90s? I think everyone can agree that it’s declined from that period. Record labels have shrunk or shuttered their doors, many people have lost their jobs, and many artists have a tougher time making money. On the flip side, seemingly more artists than ever are putting out great records, so is it really as bleak as the picture Lowery paints?
What do you think? Are we better off with the new model or did artists have it better in the old days?
I wanted to figure out the percentage earned both with 90s prices and modern prices, but couldn’t exactly remember how to do it (turns out math teachers were right all along – we would use it day to day), but I have even more simple math for the author (of the article):
If an album is over, say 12.00, I don’t buy it. I’m just not made of money and every little but helps. I’ll go to second-hand CD stores and buy the same album for less and the artist will get 0.00.
But at 10.00 an album, that’s a fair price, easier to justify, and I am more probe to buy more albums because I’m really getting some serious bang for the buck now. For 30.00 I could buy THREE albums from iTunes, generating 6.15 in royalties, or I can buy ONE CD at 90s prices and shrink that total royalty amount down to 2.51.
To me, cheaper prices mean more units sold and you’ll either recoup your cost or make more (especially if you digitized your music and aren’t constantly paying for new CDs to be made) so I don’t see te issue.
Also, regarding Apple’s 30% (if they get 30%), they’re the world biggest music store. Honestly what do you expect? They have devices that work exclusively with their platform that are great sellers and have a content library that could rival that have a whole STATES record stores’ combined.
But….
All of this would be irrelevant if artists just acknowledged that albums on the whole are the old way of going about releasing music and don’t fit with today’s fast-paced, a la carte mentality. Artists aren’t going to change the buyers’ minds and they need to adapt. Drop the album mentality and go back to recording and releasing singles and the world will be a better place.
Very interesting subject and article, Josh. I think you make some good points and your fact-checking of David’s work is very thorough. But I ask you this: does it really matter? I mean, my son had a teacher in second grade that used to say, “You get what you get and don’t throw a fit” and that’s where we are in the music business or really any business. It happened and longing for the good ol’ days probably isn’t going to help anybody move forward. Apple built an empire by listening to the customer and delivering exactly what they wanted — something the short-sighted, fear-driven labels wouldn’t do. The question is, what are people prepared to do NOW under these conditions to succeed despite the obstacles?
Great post, as with all others, Josh. Thanks for this. My two cents are about iTunes: I would think that artists sell singles and one-off “files” of songs at a pace far greater than the old model via iTunes. Said more simply: people like me are able to click and choose which individual songs we want to buy, often for as little as $0.99 per song, instead of having the buy the entire album for a much great amount of money. Musical purists and others in the industry still stuck riding Pony Express horses may not like this reality, but iTunes really does give the fan-base and consumer pool more choice and control over how we (I) spend our (my) money. The irony of all of this is that I actually have fewer outlets through which to spend my recorded music-buying dollar.
All of that to say, and aside from several necessary evils that this model has created (and I agree that there are many such evils), I believe this has resulted in more net-sales of music for the artist pool.
Also, and I’m not at all intending to blame the artists themselves, but isn’t this a little bit like complaining about how little certain venues (read: restaurants and dive-bar gig spots) pay for live bands to come and play? The ultimate way to police this is for every such prospective band/artist to refuse to offer his/her/their services. We all know that that will never happen.
Back to the point of the article: If artists are upset at the net-effect of iTunes, then they don’t have to participate in that forum/method of distribution, right? Again, we all know that ain’t going to happen.
As to the tours not netting as much money “as they used to”, I suppose that is a topic for a different day because I think tours net far more cash than they did “back in the day”.
Pappy – I agree that the price of music is a factor in how many “units” get sold. I can’t recall buying very many CDs at the $15.99 price, but I certainly bought a lot between $9.99 and $12.99. It’ll be interesting to see how digital music sales evolve over time. I happen to be an album guy, so my personal hope is that albums continue to stay relevant.
Scott – I think you make a good point. Whether the “good ole days” were better is irrelevant. Those days are gone, and it’s adapt or die in the new marketplace.
Chad – “I believe this has resulted in more net-sales of music for the artist pool.” I agree. While there may not be as many “big” artists, there are, it seems, more artists in the pool able to make at least some money for their efforts. Any artist can record an album, spend a few bucks, and get that album on iTunes through several outlets. All sans record label. It becomes incumbent on the artist to then market themselves, but that also means that the artist gets to keep more of the money if they are able to sell copies of the album.
What does Napster and P2P have to do with concert revenue?
I would have thought that ticket sales would remain constant or even increase due to more exposure from P2P …
Maybe there’s a lot of other factors at play than just digital music sharing?
Mike, I think many artists are raising their concert ticket prices to make up for the supposed “lost” revenue from album sales, which I think is turning some people away from the live shows. I’m frankly amazed at some of the prices artists are able to fetch nowadays. One artist I’m aware of has raised his ticket prices 100% over the past 3-4 years and ticket sales for this artist have continued to increase. I don’t understand it.