Notes on the Music Business

The Future of Music

Hey guys, check out this video HERE. It's an interesting view of the future of the music business.

I agree with much of what they say. The goal for me isn't to sell 2 million records...it's to sell enough records to make a healthy living as an artist and ultimately that comes from more than CD sales.

It's kind of funny...so many of these things they talk about are things that I've talked about on this blog. That's right! I actually know what the freak I'm talking about. Sometimes.

And here's what I talked about originally....


The Music Business

Over the last few weeks, I've been doing a lot of reading and research and seeking counsel. I thought coming out of American Idol and having labels after me that it would be easy to choose a major label and make a record. However, as I have moved through the process and had time to process a lot of this STUFF I have come to a place of really wondering if a major label deal is what I want or what I need.

Here's a little bit of how major labels work today. Chris Jones is an up and coming artist who writes great songs...sure they need some work, but he writes great songs. So, Major Label signs him to a deal. As a part of this deal, Chris agrees to get 12 "points" per record sold. Each point is worth 8 cents, so Chris will get 96 cents per album sold. Not a lot of money, right? (This is a pretty normal deal for educational purposes...the deals I'm looking at are more like 15-20 points, but I digress). Well, Chris signs his deal and gets a $100,000 advance. He also receives a $250,000 recording budget. This will go towards producers, studios, studio musicians, production coordinator, mixing engineer, mastering engineer, etc. If Chris doesn't spend $250,000, he can keep the rest as a personal advance.

Now, each song is worth a point. Usually a record budget has a budget for 10-12 points for publishing. However publishing is split in half between the writer(s) and publisher(s). So, if Chris writes half of every song on the record and there are 10 songs, he will make an additional 20 cents per record sold (the other writers gets 20 cents, and 40 cents goes towards publishing. Now, the nice thing about publishing is that publishing in most deals is NOT recoupable. So, Chris will get paid his 20 cents for every album sold from the beginning.

Chris makes a record and it releases, shipping 50,000 copies off the bat because he is a new artist and no one knows who he is. He owes the record company $350,000 (advance plus recording budget) that he must pay back through record sales before he makes another penny. Now, remember he makes 20 cents per copy of the album sold no matter what, so he's making a bit of money but not a lot. Making 96 cents a copy, he will have to sell 364,583 albums to make another penny on top of his advances. Now, just to put it into perspective, Elliot Yamin is up to 399,000, Bucky is up to 274,000, Katherine McPhee has actually scanned like 330,000 (though she shipped gold). These are American Idol alumni...think of being a new artist no one has heard of...selling 364,000 copies is no easy feat. Granted if he sold 364,000 records, he will have made $72,800...but that is hardly crazy money.

Right now, I have deal on the table from an indie label that is a 50-50 deal. I'm also looking into starting my own label with major distribution where my cut would obviously be even higher. I also have deals from major labels that are in the works...the question is what's the best option. So, let's talk about where a lot of people think music is going.

One thing I'm really passionate about is being at the front of whatever is the next "trend" in music. Right now (and for the last 30 years or so) the major label way of doing things was the best way, if not the only way to do things. However, because of digital downloading, cheaper recording costs, the internet, myspace, etc., the major label way is on its way out. A lot of insiders think that wihin the next 5 years the music business will have completely changed. Honestly, it's a scary time to be a music artist right now. 2 weeks ago was the lowest record-selling week in Soundscan history. There are things that will change, I think, to help record sales...for instance, when consumers download an individual song, it does not go towards album sales at this point. A lot of people think that eventually 10 single sales will be worth an album's sale. For instance, the Afters only sold 100,000 records but they sold 1.5 million downloads of "Beautiful Love"...if they were given 1 album for every 10 downloads, they'd have sold a respectable 250,000 records. Anyway, I digress.

A lot industry insiders believe that within the next 10 years, albums will simply be used as promotion for their tours. There will be no need for a label...distribution will be all that is needed. Very soon online will be close to the only way to buy music. Right now, for 90% of artists, the main source of income is touring. Many people think that when the industry finally goes belly up, touring will be the main source of income for everyone.

So, within the next 5, maybe 10 (if they're lucky) the major label system will be done. Most record deals are what is called 1 record plus 4...this basically means you are guaranteed 1 record with the label's option for 4 more (notice it's the label's option, not the artist's option). If I sign a deal, it will be for 5 records, if I'm successful (here's hoping). That's 8-10 years. I sign a deal now and I'm stuck in an old school way of doing things while the success and money is coming from the new school of thought.

So, to my situation...my STUFF.

I have the labels still interested. I have indie labels interested. But I might have the possibility to do things a little differently. We're looking at possibly doing a direct deal with a retail chain that would be exclusive for a short amount of time (3-6 months). The albums would have a very low price point (like $6.99), so I would make similar money to a label deal, but it would help move units. We would do a large amount of albums non-returnable (this is important) to the retail chain and really push to that chain (playing the album in the store, doing in-store appearances, albums by the registers, etc.) At the end of the exclusivity period we would take the album to every retail chain, via major distribution, a la Elliot Yamin. We will have already sold a large amount of albums (the numbers we're looking at now are between 1-200,000) with the exclusive deal. This whole time, we would be working to radio, since ultimately singles will sell the record. However, as we go to distribution, we would still keep the price point low (maybe $7.99).

The goal through this is not necessarily to sell records (thought that is how the endgame happens)...it's to put music in people's hands to push them to buy concert tickets. The focus would be touring. I am a touring musician. I hope to play 200-250 shows a year over the next few years. Radio is important to moving records. But I think that touring is what will allow me to have a career.

So, here are the questions

If I go out and give a consistently low price point, does it cheapen the music, or is selling albums selling albums?

Is it radio (i.e., hits) that cause you to buy albums or is it the artist? Do you check out myspace, iTunes, etc. instead of relying on radio?

What causes you as a consumer to buy concert tickets? Is it the fact that you like a certain song or because you think it'd be interesting to see them or is do you have to like the whole records.

Okay, discuss.