A comment/prediction on the future of recorded music. The file-sharing wars highlight a fundamental question - what is the best way to incentivize artists to create music and to distribute that music to consumers. I don't think the current model is it.
Basically, right now record labels sign artists to contracts and pay them large amounts of money up front. Most of the artists they sign will not make back the money they have been paid, so the few that do "make it" are leveraged like crazy to make up for everyone else that loses money. Artists make almost no money from record sales - they were paid up front and until the record companies make that back, they get essentially nothing.
Contrary to a lot of the rhetoric, I don't think that the *music* industry lives or dies with the *recording* industry. The recording industry is but one part of the music ecosystem and the functions provided by record companies can be provided by someone else. Those functions are - more or less - artist discovery, recording, marketing, and distribution.
Recently, we have started to see viable alternatives to record labels emerge and artists taking risks to explore them. There are several successful examples I can think of off the top of my head including the Radiohead (buy my album for what you think it is worth - even 0), Jill Sobule (fan-funded albums), Artist Share (more fan-funding), Josh Freese (selling "access" - e.g. $20,000 to hang out for a week), etc... There is no one "magic" business model that will work for everyone, but there are plenty of ways to make money that don't require selling music.
This is my (somewhat lengthy) prediction for what we are going to see in the music industry over the next 5-10 years. It may not be exact, but I honestly expect something like this to happen: (click read more to see it)
Andy's Magical Musical Business Model Tour
1. A few artists will experiment and start to have success with alternative business models. (this is happening now) They use free music and fan funding of albums to sell scarce goods such as access, concert tickets, merchandise, etc...
2. Businesses will start popping up that facilitate models built around giving music away and selling those scarce goods. They will entice artists by giving them ownership of the sound recording copyrights and make money by doing '360' management - tours, licensing, merchandising, recording, etc.. and taking a cut. They find ways to record high-quality music cheaply. The '360' firms know the future isn't going to be based on selling music, so giving up sound recording copyrights is not that big of a deal. Artists, however, value the control and the opportunities to license ( of which the '360' firms get a cut).
3. Other artists start to realize that they can own their music and make a living, and since they never really made any money off of selling CDs anyway (it all went to the labels) they might as well give away the music and focus elsewhere for revenue. They essentially trade signing bonuses for ownership of their sound recordings.
4. Things start to snowball and suddenly significant numbers of artists are giving music away for free, enabling efficient and reliable file sharing services for free music. They enable people to pay artists directly to support and 'fan-fund' the bands they like. Artists make as much on an album as they did before, but more people know about them and support them in more diverse ways.
5. Record labels see artists fleeing in droves '360' firms and alternative models as soon as their contracts are up. Labels see that '360' firms are getting big and making money. Sales of music plummet further as people get reacquainted with free music. The combination of consumers moving from albums to singles and reduced sales reaches a breaking point. The labels jump on the bandwagon and start doing 360 management (or just buy some of the successful ones that have sprung up). They give music away for free because they just can't compete otherwise. Some artists stick with labels, but the labels won't give up sound recording copyrights until so many artists are gone that they have to or die.
6. Labels realize they can't make money when they spend $1 million on an album so they cut back on costs. Producers, mixers, etc.. take a pay cut and the recording technology becomes commoditized.
7. Enforcing sound recording copyrights for non-commercial personal use ends. It just isn't feasible when people can get music for free. Infringement for commercial uses remains, but the days of selling music are done. A few holders of valuable older copyrights (Jackson, Beatles, etc..) for bands that aren't around anymore put up the biggest fight. After a few more grandmas are sued by Yoko Ono Congress sees the moral culpability of sharing music is gone and amends 17 USC to permit non-commercial personal reproductions of sound recordings.
8. The traditional function of record labels is replaced. Less costly production methods lessen the up-front costs of making albums and allow for bands to be more profitable off the same or less revenue. Fans 'crowd-source' the good bands from the bad using social networks and file-sharing, thus largely handling (along with the '360' companies) artist discovery, marketing, and distribution.
9. A backlash against ASCAP, BMI, and SESAC follows as the ridiculousness of demanding money from barbershops and mechanics for playing the radio at work catches up with them. Only places that actually make money off music (concert venues, etc..) are required to pay performance licenses. Writers adapt and find other ways such as up-front fees or cuts from other revenue to make up for it. Non-commercial music is essentially now free.
10. Artists are happy because most of them make as much or more money as before (maybe a handful of superstars make less, but the low- and mid- end greatly benefit from the exposure of free music). Consumers are happy because they get unlimited music for free. Most middlemen are happy because they make good money. Record labels are sad because they don't make as much or completely control the market (or Congress) anymore, but at least they still exist in some form.
In the end it isn't the law or consumers or technologists or labels, but the artists that fuel the change. They don't make money off of selling music other than the signing bonuses, so when artists are just getting off the ground and they opportunities to focus on things that do make them money they take it. The market wins.
Some of this may be wishful thinking on my part, but I think artists will drive a business model revolution because they will see that there is a better way. Maybe not the 1% that "make it" but the other 99%. When 99% of artists give their music away because, as Cory Doctorow put it, their biggest enemy is obscurity not piracy, the 1% can't fight the flood (even if they account for a disproportionately large portion of consumed music). The moral imperative is gone.
