Hardware & Software

“This was meant to be a match made in heaven/instead we are slowly drifting in the opposite direction.”

Napster scared the dickens out of the label. The digitization of tracks showed us that good music can not be controlled and that labels should not be the ones deciding what is good for the listening audience (that the invention of social media platforms were not going to be used as thought, or the artist is never bigger than the song type of thing).

The technology changed the business, it did not, however, change the music. The label depends on the music to sustain their business, this means they depend on the artist to furnish them the music so they can make a business from it (this has not changed). But a big change has occurred and many label executives are blinded by it (I’ve sat in their offices and looked in their eyes). To get this streaming revolution going we have to thank Daniel Ek and Tim Westergren, who, without their services none of this would be possible, but it is their services which do not have as bright a future as the others (as they hire label/radio model error types, expect engineers to curate music, aren’t that profitable, are only licensed apps not playback devices, etc.).

I started listening to Pandora in 2005 and quickly maxed out the 100 stations, which to this day play predictable music (developed world type of stuff). Then there’s the limit on many times you can hear a song…Spotify is so sporadic, I have anxiety every time I let it do its thing. 

The labels had a physical product, they lost it to Napster types and have been steady trying to gain back some relevance in the physical space of music (360 deals take from touring revenue). Now that labels own stakes in Spotify, Pandora, etc. they are using this as their physical product or CD revenue. (Thus the reason they have tried to model streams to match album sales, but a stream is not a physical piece of anything!!! We must never forget this key business driver: The record labels had a physical product to sell, they do not have a physical product any longer. Where the heck is their money coming from?) Right now all of Big Streaming negotiates with the label for the same music (mostly old catalogue music made by musicians, not EDM digital stuff which is found free all over the internet). This means, Rhapsody, Apple Music, Spotify, Pandora et al are basically the same channel. Sub channels inside do not count, as this is too much work for an individual with tastes in music, (plus these tastes are being curated by the furthest from a musical person, with computer engineers). There is no way I am going to Spotify for Ambient, Jazz, Hip-Hop, EDM, etc… they cannot be great at all of them. Would you want an orthopedic surgeon operating on your heart?

We have to have the device before the app, and Apple/Google are steady trying to be the device in your hands, or the gramophone in your home.  Any extra steps, beyond the device needed to play the music, are going to become so fragmented that Big Streaming Apps (BSAs) will slowly be fettered out. How is this possible you say? Take a little look at radio, all music, stories, news, weather, etc. all started on one station. As radio (and record technology) grew in frequencies, and in listeners, the music spread out across stations. Radio stations started becoming format driven (580 became classical, 1640 became jazz, 1200 became news and weather and so on and so forth). Labels began signing a certain type of sound and when the technology grew, more sounds were created, and added, and so forth. The advent of FM changed it once again as a new radio band was able to broadcast a completely new style/sound/genre not being broadcast on AM, it fragmented/branched out again with genre labels and more and more music was made (so many labels, signing so many different sounds). We are destined to see a fragmenting once again, with distribution all over the place, finding the right niche of listener, but not as we’ve seen it in the past.

you can see the fractalness of where this is going, genre branching as streaming apps grow and become formatted…the U2 album inside itunes will be a lot like the future but not as forced….

Soon, all BSAs will all have a free tier (playing singles in format style like radio) and a subscription tier for the fan who wants the album (extra content). Now here is where it will get tricky, if BSAs begin formatting with the label sooner than later. They may have a future, but they will still be light years behind, as no one has seem to have caught on yet that labels, radio, and publishing never knew who was listening, but are being hired today (By BSAs) to help deduce business models around who is listening. The labels, (I am using terminology here, as record labels today will most definitely not look like record labels of the future. So the term will change with the intended meaning of what a “record label is.” The future demands an investment in the most lucrative area of the industry, which is live, and labels today do not care for live. New “live first” (vs marketing first) labels will emerge and be your “new label”) well, their only chance of survival (without some drastic, intervention & overhaul) is to do as Motown did, with a set sound of what they are willing, and capable to promote, and with a matching station (streaming service) playing Motown specific music. But today still you have multiple genres at one label, all running the same business model and licensing all their music to these BIG services. This is due for an overhaul, but they do not see it coming, hence the blindness. The physical product remains visible, but the technology remains invisible.

Royalties are a hard business to crack. Publishers, rights holders, and rights management all had a nice run with the label/radio model because no one knew who was listening, so it was easy to hide (with smoke and mirrors) their lack of value in the system.  The court system (copyright board) is on fire and I think a proper tracking of payments technology will have to be established before courts can adjust. 

In the good ol days, of the label controlling the music we hear, they set up manufacturing services for vinyl, eight track tapes, cassettes, mini-discs, CD’s, laser discs, all types physical pieces of technology. But before this, parts of some labels were also manufacturing the playback device. RCA made gramophones, and Sony made walkmans and portable transistor radios. They merged with the rights owners, as the rights owners needed their devices to remain valid in people’s homes and in their ears and the technology needed the rights owners to deliver content. Today the equivalent of a gramophone has to have a connection to the internet and comes from a playback device made by some of these companies: Apple (iphone), Google (phone), Samsung (phone), LG (phone), Blackberry (phone) and some more stationary devices like a Sonos soundbar, all physical (you can touch) pieces. Two of these have built in streaming services in Apple Music and Youtube Music (owned by Google). One is loved by the recording industry for its large customer base and hefty profits (for the label) the other is hated for their even larger customer base with lesser profits (for the label, and more for the artist who is independent). I will never argue a 50/50 split when the label has been getting >70% with streams. With proper structures in place to retrieve playback data, we will see a healthier industry, but before music gets paid, the music has to be deemed valuable. What has been valuable to the label since MTV has been much more image driven than audible. But looks don’t matter in reality and in reality the artist has to prove his or herself in the real transaction of live (that forgotten industry that’s way older than recording technology, and more robust). “You can’t fool too many people for too long” -Nassim Taleb

We should very skeptical of record labels owning a piece of these BSAs. The labels missed the boat on creating a new technology (that interacts with the fans) so how are they somehow still afloat? In the place of a physical product the labels negotiated with Spotify, Pandora, etc to be part equity owners in the product they did not create (sound familiar). This has been the label game for some time, let others do the work, then claim you own a share for doing absolutely nothing. When I say nothing I mean without skin-in-the-game. The label will not be helping drive your band’s van/trailer. They will not be unloading or loading gear. They will not be writing songs, or playing on stage, or offer much support in the realm of performance, and they most definitely aren’t coming to the show. Today the lowest part of a record deal is still tour support and the highest is marketing. These non-interactive types are the furthest thing from understanding the real transaction of the artist/listener experience, yet they remain inside BSAs trying to figure out how to create a User Experience, on a User Interface, without ever experiencing or interacting with a user (listener) face-to-face. I wish they would all quit their jobs but it’s not that easy.

The problem being, the BSAs remain in bed with the label (who remain non-interactive) until the label can produce their own service or do better/different deals with the Playback Devices (PBs/phones). If the playback devices get smart, they will not need the labels or the BSAs to make music have a great future. YouTube is already a direct line to the listener, which cut out an extra step (agency problem) in the process of listening to music. Youtube has production facilities and Apple has done at least two direct deals with artists who bypassed a label. In this future Spotify and Pandora are destined to remain non-interactive. Which leads us to question their data analyses of interactive transactions, when they have never interacted in the real transaction.

The data to match the listening audience was never possible inside the old technology. In the bullseye radio market, a song could be spun 7 times a day, in an area of 300,000 listeners, and with some scientific mumbo-jumbo formula (which included focus groups) they would attempt to tell us how many people (but not who) were listening. This is some messy data as no one really knows who was listening, just like no one knows if Alicia Keys first record sold 500,000 copies in the first week because one man (Clive Davis) bought 300,000 of them. These tactics are the same as going to a chinese take-out and seeing a tip jar full of cash. Did every customer tip or did the owner stuff the jar with cash from the register, no one knows. But what we do know, with interactive data, is who is listening, when and where, think of it like a concert ticket…Friday night, at the 9:30 Club, there will be people listening to the sounds of so and so. This real transaction data has been taking place long before the gramophone was ever invented. The label’s business (built on gramophone technology) was to promote singles (through radio spins) and sell (physical) albums (through record stores). Their distribution started with radio and they gave radio whatever they thought would spin. Today a stream is neither a sale (album) or a spin (radio) because today we have the choice to stream (invisibly) what we want.

Now that the physical piece of music has been digitized, the influence and power of the industry falls on the remains physical pieces needed to play music. Think your phone, an instrument, a musician (something you can touch).

Look at this crap. You are an independent artist (congratulations) who feels as though you should put your music on Spotify and Pandora because this is what people without skin-in-the-game are telling you to do. They will not be harmed by their words, they are only talkers and you should avoid them like the plague. You write a hit, and put it on these services, which are partly owned by a label, now your fans, your music, and your hard work is in part being shared by a label who have done nothing, not even market your songs. This was all done by an audience liking the song enough to share it and listen again and again and by you or your band possibly touring and gaining credit in the market. All the while your song(s) are influencing an even bigger audience to use said platform (BSA) more and more. In the meantime you see no money (or very little money) and are leading your followers to platforms partly owned by labels, but you have no desire to be on a label. Now if your followers subscribe, they are paying a label and a service to stream your music. The pooling of payments has got to stop.  Mariah Carey does not see revenue from Macy Gray’s concerts sales. These services use ads to reach your followers and pay for their vacations with this ad revenue, but do not share this ad revenue with you, or invite you on their vacation. Weird right, sounds just like radio. This is not good business, using old models with new technology. I can’t think of anyone who would look at this model and say, “yes, that’s the future…your skin, in their game.”

So even though we were fortunate to hear some of the amazing singles we did, partly owed to artists (who demanded, if not more, that this or that song be the single) and partly owed to a different era of the label biz, (when label execs didn’t put marketing first but wrote songs and went to shows) what we did not hear about are the thousands of artists who had the talent, the single and the wherewithal to make it, but succumbed to the label’s idea of an album cycle, and drowned in obscurity.

Everyone in music knows their role, and if they don’t, they become helicopter enthusiasts, uber drivers, or pickled egg makers, you get the point, they end up doing something else. Most label executives are leaving for other things. Take a look at one head of A&R, who just loves Broadway musicals. He too believes music is about image and followed his heart right on out of the music business taking his label with him. Artists do not stay around forever and neither should these executives and their antiquated models that do not fit the new technology. These non-interactive models are so mispriced in the market, that is interactive, it is only a matter of time until history jumps in favor of the artisan/entrepreneur.

Problem: artists/entrepreneurs are not seeing the proper payments in an interactive setting mostly due to a system of non-interactives trying to captain the ship

So there seems to be two questions that remain… Will the government do a Ma Bell on the record labels (giving streaming services equal footing in the market) or will Apple/Google be able to purchase Warner/Universal/Sony…and if they purchase said labels, are they smart enough to revamp interactive music, without the presence of those non-interactive types?

The bifurcation of a pre-streaming label and post-streaming label is upon us. The label can keep their old catalogue, I’ll be over here working with new model artists who wish to retain their intellectual property.