Two Thursdays ago I had the privilege of delivering the keynote at the GRAMMY Northwest MusicTech Summit 2008 (introduced by the mayor of Seattle, no less!). Below is more or less what I said, or what I intended to say, since I wrote most of this before the presentation. Thank you to Ben London and Michael Stephens for hosting me, and everyone who came to see my presentation.
[While I have your attention, I want to remind you to come visit us in SF on Tuesday night, November 18th.]
Hello everyone.
Thanks sincerely for asking me to come speak to you today. It’s an honor to have been asked to kick off this conference. I’ll only take a few minutes of your time, leave some time to ask questions, then you have an incredible two days of discussion on the future of the music business. It’s been quite a week and clearly Change is in the air, and not just in the music industry.
My name is Ian Rogers. I started collecting records when I was five years old. When I was in high school, my dream was to study recording engineering at Full Sail for 13 months and produce records for a living. Then my high school girlfriend got pregnant and I thought a four-year degree might help keep me out of the trailer park, which is how I ended up studying computer science at Indiana University. In 1989 I sold my TV partially because I was broke and partially because I was just more interested in music. I haven’t watched much TV since. I don’t really watch movies. I read Mojo cover-to-cover each month, prefer to have music playing at all times, and still wish I had more time for more music.
I dropped out of grad school in 1995 to go on tour with Beastie Boys, was the Webmaster at Nullsoft running Winamp.com and SHOUTcast.com, sold a company called Mediacode to Yahoo! Music in 2003, headed Yahoo! Music in 2007, and in April left to join a startup called Topspin, founded by Digidesign’s founder Peter Gotcher and Musicmatch alum Shamal Ranasinghe. Topspin’s charter is to be for digital marketing what ProTools was for digital production, a democratizing software toolset.
I realized a long time ago that I’m stuck with music. It’s not like I’m going to change jobs tomorrow and take on video like iTunes did or suddenly get into the video games business. To be honest I wouldn’t be any good at it. Yahoo! tried to put me in charge of Yahoo! Video and I was professional about it, but anyone who knows me would tell you I just didn’t have the same passion for it. Music is my life and digital music is the only game I know professionally.
So it’s truly an honor to be asked by The Recording Academy to speak to you all today. Two years ago when I joined The Academy I was humbled. I’ve worked on the periphery of the music industry for fifteen years, building little music Web pages before there were even Web browsers for Windows or Mac, before Adam Curry’s MTV.com even, when there were just a couple of us who thought the WWW was a better Gopher. So to have finally merged lanes with the recording industry career-wise was a meaningful moment for me, regardless of the backdrop.
The backdrop, of course, is one we know well, a story we’ve heard ad nauseum at this point. Physical sales are decreasing (~20% Y/Y). The “two hit songs for $17 at Best Buy” business is over. Digital sales are increasing (~40% Y/Y) but it’s not making up the difference. Not only is digital not making up for physical sales, as the tracks are unbundled and the model is a singles-driven iTunes business, the actual value of a unit of music continues to plummet.
That said it’s with great respect and with the belief that I’m as big a lover of music as anyone in this room I admit to you:
I don’t care.
The lamenting we read in the press is not the story of the new music business. Continuing to talk about the health of the music industry on these terms is as if we’d all been crying about the dying cassette business in 1995. The difference is that when we moved from cassette to CD the winners were the same (big companies who owned access to cash, distribution, and marketing) and the definition of winning was the same (more units sold for these big companies).
As I’ve been saying for years, the physics of the media space have changed and you shouldn’t expect the winners or even the definition of winning to stay constant, so simply looking at how iTunes replaces CDs doesn’t tell the entire story.
As Chuck D said at MIDEM last year, “There is nothing wrong with the music business, there is a problem with the CD business.”
Music consumption isn’t declining: iPod sales up 59% Y/Y (source: Apple), P2P filesharing volume up 35% Y/Y(source: NPD), audio streaming up 25% Y/Y (source: Accustream). And despite the endless discussions about the “pirates,” there isn’t an unwillingness to pay for music, either: 1.6B decisions to buy music in 2007, up from 1.3B in 2006 (source: Neilsen Soundscan), 40% Y/Y increase in worldwide digital music sales (source: IFPI), 8% Y/Y increase in North American concert revenue — an all-time high (source: Forbes.com), 40% paid an average of $5 in Radiohead’s pay-what-you-want model, Nine Inch Nails self-release generates $1.6M in first week sales, includes sell out of $300 box set in first 48 hours (source: NIN.com).
As you spend the next two days discussing the future of the music business, I’d like to challenge you to consider a different perspective, IMHO the only perspectives that matter, that of the artist and the fan. I see news about the health of the music industry as defined by the stock price of WMG or quarterly earnings of UMG, Sony, and EMI every day. What I don’t see, apart from a few articles on Radiohead and Nine Inch Nails, is an update on how the world is changing from the artist point of view. But I tell you, when I talk to managers and artists they feel it, they feel an ability to take their careers into their own hands, to redefine what success means for them, and that is the emergence of the new music business.
I say this with all respect to our friends in the existing music business. We all know smart people who are busting their asses trying to solve the Innovator’s Dilemma those companies are facing. I’m sure Lyor would love for us to stop focusing on WMG’s stock price and start talking about the artists again.
Today I’d like to tell you a couple stories you haven’t heard yet about how the Internet can help connect artists and fans in a meaningful value exchange, point to a tipping point in the relationship between artists and their partners, and ask you to stop dwelling on past news and start re-framing the conversation around the question of marginal profitability for artists and value to fans. In doing so, I believe we’ll find the path forward.
In August Topspin had the honor of helping to release an album by David Byrne and Brian Eno. We started by just gathering email addresses of fans, then offered a free track in exchange for an email address, then offered the album free for streaming from any page on the Web along with three options to purchase: digital download, digital download + CD, and digital download + boxed set.
At the beginning of the run we asked manager David Whitehead how he would be judging success. David told us the number he expected to be offered as an advance on the album from a record label. Gross revenues on the project reached that number on the fiftieth (50th) day via Topspin alone, and the album went to iTunes, Amazon, etc on day sixty and is headed to physical release approximately ninety days in (next week). Because there were $9, $13, and $70 price points, the average purchase amount per fan was many times greater than the ever-declining industry average. Digital sales don’t make up for physical? From the artist perspective they certainly can, and quickly. David and Brian keep the majority of the profits, and (via Topspin at least) are paid within sixty days of the fan purchasing (no wait for recoupment and complex royalty accounting). When your costs are low your royalty rate high and your channel direct, the marginal profitability from the artist perspective can be far different than in the old model, to be sure.
Now I know exactly what you’re thinking, because Ted Mico said it for you when we were on stage together at the Digital Media Forum West last month: “This is great for established artists who have the benefit of previous years of marketing spend from the majors, but what’s the model for emerging artists?” While there’s no question the scale of success available might be different for artists with established fan bases, there is plenty of evidence that the new model can work for brand new artists, too.
How many of you have heard of an artist called Joe Purdy? Joe is in his late 20s and has already recorded and released 10 albums, selling more than 650,000 singles on iTunes thus far. He made more last year than I make as the CEO of Topspin (as it should be) and he bought himself a house. He’s selling more music to fewer fans and earning a living from his art. He might not be on the cover of Rolling Stone or a household name, but personally I consider him a successful artist, I know his manager does as well, and I hope Joe thinks of himself that way, too.
We’ve talked about Jubilee before, since they were the very first band to release their music via Topspin and are close personal friends to many of us. I’m not going to lie to you, Jubilee are not exactly flush with cash. But they have been very outspoken about how Topspin has helped them remain independent and keep the lights on while they finish their (amazing) forthcoming album. When they only had four completed songs they started selling a year’s worth of music for $20 and incredibly enough 60+% of all purchasers spent $20! From a band that only had four songs!
There’s a lot more that could be said about how artists find success in this new world and we’ll cover this topic in more detail in the months that come on this blog (including a post I’ve been meaning to write on how Seth Godin’s “Tribes” plays in — both Joe and Jubilee are integral parts of the Hotel Cafe and Buddyhead Tribes, respectively), but fundamentally I believe the model is shifting from mass-marketed (via radio and TV) and one-size-fits-all (one $15 CD suits fans of all levels of commitment) to a target-marketed approach where fans can self-select where they fit on the scale (when Trent offered Ghosts at five price points he was really asking, “How big a fan are you?”). And where the mass-marketed approach was low-margin from the artist perspective, the target-marketed approach can be much higher margin (which is how Joe Purdy buys a house on his iTunes sales). Topspin believes there is an entire middle class of artists for whom the system hasn’t worked in the past who will be empowered by this new model. We think there are a lot of Joe Purdys and Jubilees out there, and no, we don’t think they’ll ever end up playing the Staples Center, and we don’t care. We are more interested with seeing marginal profitability for more artists and satisfaction for more music fans increase.
As such, it’s hard to deny there’s a power shift going on from label to artist, and therefore the artist’s closest business partner, the artist manager. This isn’t to say labels aren’t valuable. A lot of people like to line this debate up as label vs. independent, but that’s not how I see things. What I see happening is artists having a choice, and labels needing to prove their value. It’s no longer the de facto dream of every musician to “get signed”. Instead of doing a 360 deal with a label artists are able to do a 360 deal with themselves and choose their business partners based on who is going to add the most value. If you’re an unknown pop-punk band from Orange County would you benefit from the marketing and branding help Epitaph Records could provide? Hell yeah. If you’re Joe Purdy would you benefit from what a major label adds? Perhaps, but what would you give up in the process? Artists now have some leverage in their ability to earn a living without making the leap.
Again, there are only two players in the music business that matter at the end of the day: the artists and the fans. The rest of us either add value or get in the way. Don’t get me wrong, over the years labels have added a tremendous amount of value through financing, A&R, marketing, promotion, etc. I’m just saying that every player needs to either understand how it truly adds value or it needs to get out of the way, Topspin included. Our business does not operate on lock-in, ownership of copywritten work, or long-term contracts. We either add value today with a compelling service or we die. And I’m perfectly happy with that.
The Featured Artist Coalition, which appeared on the scene last month, is a good example of this power shift in action. Artists as varied as Radiohead and Iron Maiden have signed up to a few basic principles. They aren’t outlandish, they’re really simply anti-exploitative: artists should own their copyrights and participate in how they’re exploited and accounting should be transparent. Twenty-five or even ten years ago artists signing on to a manifesto such as this would have been laughable. I’m sure some of you are snickering today. But the fact that this is happening at all, backed by major managers, is a sign of palpable change.
Personally, I would welcome Featured Artist Coalition to come to Topspin and take a look at our artist agreements. I’d love for them to take a look at how we pay and account. In return I would like their good housekeeping seal of approval right here on my Web site: here is a company that operates in accordance with our charter. How would your company stand up to such a test? If you think they would fail, how do you feel about that? I know how I felt when Yahoo! (where I worked) turned in a Chinese dissident and Jason Calacanis called us out on it at BarCamp. I’ll leave it at that.
Thanks very much for your time and attention today. I hope this has been at least mildly thought-provoking. As you hear the various panels and discussions over the next couple of days, I sincerely hope you’ll think about the music industry not as what it was, but what it will be. I hope you’ll focus on the two parts of the value chain that matter most, the artist and the fan, and that you’ll judge the success of the music “business” on the metric of marginal profitability of artists and the ability of artists to earn a living, not the ability for the rest of us to build businesses around music. It’s up to us to provide value to the music business, not up to the business to provide value to us.
Thanks sincerely,
ian c rogers
Topspin
