Musicology - I'm On The Road

iMusic: Bach to the Future

The Development of the Music Industry, and the Effect of New Technology

The Beginning of Music

In the beginning, music was free. It began with the desire to express oneself, and to share that expression. Music is speculated to have originated in Africa more than 50,000 years ago.¹ From its conception through the Middle Ages, music was predominantly communicated in public venues, such as parks and piazzas, for casual spectators. Certainly, talented musicians were sought by the wealthy and commissioned to compose and perform works for private audiences; this became more prevalent during the Renaissance and beyond, but the concept we have today, of music as a commodity, is remarkably different from that throughout history. In fact, most of the famous, prevalent musicians throughout history (for instance Haydn, Mozart, and Beethoven) were servants to wealthy noblemen. Music was undoubtedly considered a service.

During the Renaissance, musical creation exploded across Europe. As copyright law would not be conceived until after Gutenberg’s invention of the printing press, musicians were free to “borrow,” or “steal” as much as they liked. There is a clear line of early Italian madrigals that were derived from Dutch compositions, which were subsequently translated into English. The result is a large body of written compositions employing the same music and lyric in several languages, with different accredited composers!² This, however, was unrelated to the central feature of music; the end result: live expression and the direct communication between the performer and the audience. This notion would not begin to change until the advent of the phonograph.

Enter Technology

Edison

With the introduction of the phonograph in 1877, for the first time in history the original performance of a piece of music was separated from the audience’s receipt of that performance. For the first time, the social aspect of a musical performance could be removed. Music could now be played conveniently in the home at any time. It would not be long before companies would realize the potential to mass-produce, market and distribute music. It is with this recognition that today’s prevailing idea of music as a form of merchandise is first considered.³

The Reign of Record Companies

Record companies quickly became the driving force behind music, and music quickly became a massive business. Record companies did not view the performance of music as a service – and accordingly, arranged their business models in accordance with those of any other manufacturing business. Companies invested in a roster of musicians, supplied the resources to record, promote and distribute the music, and hoped for a “mega-hit” to recoup the investment. A single “hit,” if large enough, could more than make up for the losses accrued on fruitless investments. Moreover, the established business model demanded this “hit-or-miss” based strategy as the cost of recording and distributing physical records was quite inefficient.⁴ In an effort to increase the ratio of “hits” to “misses,” companies established precedents regarding the types of artists and music in which to invest. The advent of the radio, while first fought by record companies, ironically, became the premier promotional tool for marketing new music. What followed was decades of dictation: record executives chose the music to record, promoted it via the radio (and eventually television), and consumers chose from the limited options presented.

While companies promoted only individual songs (“singles”), often the only way to purchase the song was to buy the entire album. This important aspect of the business model allowed record companies to charge upwards of $18⁵ for (what seemed to be) about ten songs. Often, however, the additional tracks on the album constituted “padding,” frequently recorded only after the single had been a success, in order to fill remaining space on the album, “add value,” and allow for an increase in list-price. This system essentially enabled a significant markup on each single.

New Mediums of Distribution

As new methods of recording and distributing music emerged, record companies were generally quite receptive; they stood to benefit in an important way: each time a new medium was introduced, consumers repurchased their entire catalogue! When the 8-Track, and eventually cassette tape was brought to market in the 70’s, anyone who wanted to listen to Sgt. Pepper in their car had to buy it again, from the source. Thus, record companies were able to resell significant portions of their old catalogue. The release of the CD in 1982 was a joint effort between Sony Records and Phillips. Marketed as “Pure Digital Sound, Forever,” the campaign pointed to the increased quality of digital sound – but the interest was, once again, to resell old music in a new form. With this in mind, it’s not surprising that the first album released to the world in the CD format had been released on vinyl four years earlier: Billy Joel’s “52^nd St”.⁶

With the introduction of each new format, naturally older, less convenient formats were slowly abandoned. While audiophiles scoffed at the quality of each new format, nevertheless each was adopted. This has led to the hypothesis that “consumers of recorded music will always embrace the format that provides the greatest convenience. No other factor… will move consumers substantially to change their listening and buying habits.”⁷ Below, the graph depicts the product life-cycles of various mediums over time:

Historical Product Life Cycle

Data Source: http://insightbydesign.blogspot.com/2007/07/product-life-cycle-of-music-industry.html

As each new format is adopted, the prominence of the older medium diminishes. It is important to note a sleight discrepancy on the graph above: iPod sales data is not necessarily synonymous with the increase in MP3 format demand, nor is it equivalent to total music sales on any individual format illustrated above. iPod sales were included above as an analogy, or representation of the current trend. In fact, the decline in CD sales begins before the introduction of the iPod, and partially the result of the adoption of the MP3 in conjunction with custom CD recording (“burning”) capabilities.

There are three important issues to point out with regards to the launch of the CD:

Though they were unaware, record companies inadvertently released their entire catalog to the public in an unprotected, digital format (“at about eighteen bucks a pop”⁸).

In 1991, the adoption of the MP3 as a standardized file-type would allow the CD’s unprotected media to be “ripped” to any computer hard-drive and compressed to a size capable of being transferred over the internet.

“Ripping” music to a hard drive eventually facilitated the fragmentation of the album. In the 1960’s and 1970’s, albums were established as cohesive entities. Now, consumers could pick and choose individual tracks off each album and create truly customized “mixes.”

Music and the Internet

In 1998, MP3.com was founded by Michael Robertson and Greg Flores as the first major music sharing network. Eventually reaching 4 million audio file downloads per day, the site prompted the first in a long line of anti file-sharing lawsuits, UMG v. MP3.com. The court ruled in favor of the record labels. The Following year, Shawn Fanning created Napster, the first peer-to-peer file sharing system. Again, litigation followed, and Napster shut down.

These two law suits, as well as the many directed at individual consumers (more than 20,000 to-date⁹) created a stigma between the music-listening public and the mammoth, “Big-Four” record labels. The labels’ goal was deterrence by way of fear. Whether this was the best option is questionable. Regardless, the witch hunt for file-sharers positively indicated that record labels had separated their immediate customers (Wal-Mart, Target, K-Mart, Best Buy, etc…) from their actual end consumers. Recent opinion is that record labels should have quickly embraced the format change as they had in the past. Instead, record companies acted out of fear: technology had surpassed the dominant business model. The immediate response was to turn to the law. The RIAA now admits the lawsuits have been largely unsuccessful. Today, illegal file sharing outnumbers legitimate music downloading by a factor of 20 to 1.¹⁰ Almost half of the teenagers in the US bought zero CD’s in 2007. Steve Jobs claims that Apple’s data indicates that less than 3% of the music on the average iPod was downloaded from iTunes.¹¹ And while the legitimate digital download market has grown to account for 15% of world music sales in the last five years, this does not make up for the decrease in CD sales – which is down more than 18% from 2000.¹²

With all of this, however, some studies have shown that illegal music downloading is not the driving force in the decrease in physical album sales. A study conducted by professors at Harvard Business School indicated that, controlling for popularity, the most frequently downloaded music was not statistically linked to the physical sale of those albums.¹³

What, then, if not illegal music downloads, could account for the downturn? One argument is that today’s music-lovers are not satisfied with the music being professionally marketed. Similar trends occurred between 1979 and 1985, with the shift from disco to ‘80’s rock. This time, however, there is an extra layer: since the beginning of the decade, technology and the internet have come together to allow individual artists to write and record music at little cost, and publish it for the world to hear. Websites like Myspace and Purevolume are frequented by millions looking to find new, independently created music. Tunecore.com allows independent artists to list their original music on iTunes, eMusic, Amazon and Rhapsody (among many other online retailers). Effectively, record companies no longer definitively control the music we hear. Any artist has access to the world, and the world can find him.

As an aside, this realization has prompted many established artists, such as Madonna, Prince and Jay-Z to allow their record contracts to expire. With digital distribution, these artists can successfully release new material to the world without using the facilities of a record label. In the digital world there is no need for mass-production, shipping and significant retail-overhead costs. Some artists have opted to give away their music for free, as a promotional tool before an upcoming tour.

A second contributing factor to the downward trend in physical CD sales is that recorded music is now in competition with the great many other forms of entertainment available. “It does not seem implausible that a good chunk of the $11 billion rise in spending on home video products since 1999 represents foregone CD sales.”¹⁴

Finally, an important factor in the overall decline of music sales is the aforementioned fragmentation of the music album. Whereas in the past, a consumer was forced to spend nearly $18 in order to purchase the one or two songs she desired from an album, she now has the ability to simply purchase that specific song. Thus, even if no consumer illegally downloaded music, in the eyes of the industry, each individual consumer has decreased in value from $18, to $0.99.

Industry Responses

This last concept is quite significant, because it has paved the way for a new market strategy. The Pop and Hip-Hop segment of the industry has effectively shifted to a singles-driven approach. Today, less frequently do the predominant artists release albums as they do singles. The concept is that a popular artist will record several new tracks in the studio, but only one will be promoted and released. To minimize costs, most often the single is released only through online retailers. After exhausting the initial single, a second track will be released. In this way, an artist can release his album one-by-one, maximizing the amount of individual downloads of that track.

The singles market has also integrated with a new trend: ringtone sales. In 2007, Akon’s “Smack That” was the number one ringtone, at $1.6 million in sales. Almost overnight, the ringtone industry has exploded into a multi-million dollar industry – a modest subsidy for the loss in physical CD sales.

Record companies have also shifted focus to target certain consumer groups that do not typically download music. For instance, the baby-boomer generation is still by and large loyal to the CD format. Such considerations explain why the number one physical album of 2007 was Josh Groban’s “Noel”.

Over the years, many labels have worked to acquire the publishing rights of popular music – regardless of whether or not they had anything to do with the initial creation of the work. With these rights, record companies can license the music for use in film and on television. Naturally, given the current state of the industry, companies are actively pursuing this revenue stream. This is why the theme song for CSI, CSI: MIAMI and CSI: NY are all different songs by The Who, why Peter Frampton is on Geico commercials, and films today are so often seasoned with current and classic pop/rock hits.

Lastly, and most controversially, labels are changing the structure of their new-artist contracts. Until recently, record companies would pay an artist an advance upon signing the contract. This advance, and any expenses incurred in conjunction with the promotion, distribution and treatment of the artist, was to be recouped against expected album sales and royalties. Because of the structure of the deal, 95% of major-label artists never received a single royalty check.¹⁵ Therefore, artists typically made money through merchandising, advertising and touring. Now, “360-Deals” allow labels to claim a percentage of those three conduits as well. Opponents argue that it’s unjustified to demand a percentage of the additional revenue streams without contributing to them, simply because the old business model is failing. However, on the other side of the coin, many are of the opinion that record labels should have been taking percentages of these streams all along – as without the label’s initial contribution of making the artist a “household name,” no artist would ever be offered these opportunities.

The Future of Music

Looking forward, it seems that realistically, technology has advanced beyond the reach of traditional record companies. These companies were born out of the need for significant capital investments to fund the production and distribution of music. Now, the internet has created a viable conduit for sending and receiving massive amounts of information at almost no cost to the user. The bottom line is that the CD is both less convenient to the consumer and less cost efficient to the creator, than digital distribution. With technology like the iPhone, the potential for creativity in the digital music industry is limitless. Already, one can hold his phone up to the radio, identify the song, and buy it. He can sing a melody or say a lyric to the phone, identify the song, and buy it. Using services like Pandora, one can customize a radio station to his specific tastes. The Vice President of Berklee College of Music, Dave Kusek, has mentioned such concepts as: live performances where the audience chooses the set-list via text message. Or, upon leaving the show, the phone immediately receives a video recording of the night. Lyrics are streamed to the phone while the user hears a song for the first time. As technology progresses, traditional record companies will surely adapt, or die out.

Music has always been about a relationship between the artist and the audience. Just because the business model is changing does not mean that humans are no longer interested in hearing music. A power shift is slowly taking place – record companies are losing their grip, as artists and their fans are developing closer relationships through technology and the ubiquity of the internet. For record companies to survive, they will need to shift focus, and become “artist development” houses. They need to worry less about selling “pieces of plastic” and more about managing the careers of their artists. New technology will undoubtedly continue to open doors for music consumption – all that remains to be seen is how the labels will respond.

1 http://en.wikipedia.org/wiki/History_of_music
2 Palisca, Claude V., J. Peter Burkholder, and Donald Jay Grout. A History of Western Music. Boston: W. W. Norton & Company, Incorporated, 2005.

3 http://blip.tv/play/gf432JxIhuYl - Lecture by Dave Kusek – VP of Berklee College of Music4 http://freakonomics.blogs.nytimes.com/2007/09/20/whats-the-future-of-the-music-industry-a-freakonomics-quorum/index.html

5 After adjustments for inflation. [In 1967 the average album cost $3.75, which is nearly $22 in today’s currency (based on the C.P.I.)] For Official RIAA Report, see: http://76.74.24.142/F3A24BF9-9711-7F8A-F1D3-1100C49D8418.pdf

6 http://www.sony.net/Fun/SH/1-20/h5.html

7 http://freakonomics.blogs.nytimes.com/2007/09/20/whats-the-future-of-the-music-industry-a-freakonomics-quorum/index.html | Fredric Dannen8 http://www.futureofmusicbook.com | Dave Kusek – VP of Berklee College of Music 9 http://www.arstechnica.com/news.ars/post/20071002-music-industry-exec-p2p-litigation-is-a-money-pit.html10 http://www.smh.com.au/news/web/95-of-music-downloads-are-illegal/2008/01/24/1201025084723.htm