A Little Piece of Advice for the Major Record Labels

Posted on February 14, 2008 by Eric Hebert
Filed Under Music Industry Analysis |

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rubble.jpgThis is two nights in a row that I’ve tried to quickly get through my blogroll and have been forced to write a post.

A post tonight that got me motivated was “The New Economics of Music: File-Sharing and Double Moral Hazard.” It’s a pretty heavy discussion about the transactions that take place between a consumer and the record industry.

In a nutshell, the concept is that, in the past, we as consumers paid a certain price for music because we understood that the price paid for the discovery of music was the responsibility of the labels. It was their job to find us good things to listen to and we in return paid for it.

Now, as the industry grew and they began feeding us the same crap, we discovered that on the Internet, we could find whatever the hell we wanted to find and have it for free. We’d didn’t need the labels to discover new music because we could now do it ourselves.

So the thing the industry needs to do now is figure out how to return to a place where they become responsible for the discovery of good music. Unfortunately, they may be too late because other people are already doing it.

I’m already doing it. Hundreds if not thousands of other blogs and social networks are doing it. They are creating a community of people who read, listen, and watch their content everyday. They turn these people onto new sounds. They have become the new record labels. And they will have that same ability to charge their community for these services.

The “charge” may come in many different business models. It might be an actual charge to download a track or album. It might be banner or contextual advertising they have on their website. It might be an audio ad in a free streaming radio station, or a commercial in a live video performance. Merchandising or subscription services. Whatever it is, they will monetize it, because not only will they have the ears listening, they’ll also have their eyeballs too.

The record industry used to have those. They used to have our ears because they controlled the radio. They eventually grabbed our eyeballs too after they created MTV.

The problem is, no one gives a shit about either of those anymore. We only listen to the radio when we forget to bring our cd’s or Ipods into the car. And MTV isn’t about music anymore. So how are they supposed to nurture our attention?

There’s no engagement with you, stuffy suit record execs. There’s no community. Split yourself up into as many niche brands you can think of, get those who live and breathe that music behind the keyboard, and start building communities about as many specific styles of music as you can.

Build a strong community of fans and listeners, let them engage with yourself and the acts involved, and you just might get some of that power of influence back.

Hopefully if you do, you won’t take advantage of it a second time around.


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5 Responses to “A Little Piece of Advice for the Major Record Labels”

  1. Gareth Reakes on February 14th, 2008 6:56 am

    Hi Eric

    Great post, I think your insight into the music industry is on the mark, especially in terms of the multiple business models now on offer. I’m Gareth Reakes, CTO of We7 which I’ve been part of building for the last three years. We7 is an ad-supported music download service which has just celebrated its 2m download and we are now starting to see genuine strength in different economic values and choices for consumers. Like you, we believe that the coming few years will continue to change the industry but it’s exciting to see that some of the record labels are really starting to put the consumer experience and community first.

  2. Alan Coffey on February 14th, 2008 4:59 pm

    Eric, nice grasp of value added. Where is the value added from the old line music industry? I cannot see it.
    I trust several people to tune me in to new music sources. I don’t need, nor do I want, to have the music execs tell me what to listen to.

  3. Joe Bunting on February 26th, 2008 4:28 pm

    I read the article linked, and I’m not sure I understand it all. Is discovery really the only thing that I’m paying the record company for? What about production and other costs associated with delivering quality music?

    Also, the author talks about turning iTunes into something like Wallstreet with singles rising and dropping like Google. If the hottest single is selling for $3.46 and I want it, what’s to stop me from downloading it somewhere else for free (or less). Songs are not stocks because you can’t steal a stock (yet, anyway).

    It doesn’t make sense to me. Am I just reading it wrong?

  4. Eric Hebert on February 27th, 2008 12:53 pm

    You are right in that labels do provide production value, no doubt about that. That’s probably the one thing they do have - the studios, equipment, and specialists to get the job done.

    However, even these costs are dwindling as digital studios offer the musician a cost effective means to record their own music.

    It still doesn’t replace the traditional studio, but it’s viable.

    The “songs as stocks” concept is just that - it’s a concept being tested. Will people pay for a track that they can steal? That depends of what their time is worth. I don’t steal music via p2p, but I know it takes me time to click a few icons, wait for some software to load, search for the track, and cross my fingers that it’s the right quality (or right track at all).

    If I’m used to buying a track with a service and it’s more convienient to buy the thing for a buck, I will. And that’s pretty much where the ceiling it for a model like that - songs are free and begin costing money (up to a buck) when they get popular. It’s just a concept at this point.

    You’re gonna see a lot of people testing out new concepts like this one to see what works. I just ran into my buddy while getting coffee and he stared me in the eyes and said “how are musicians going to make money”. My response? Everything. By that I meant different revenue streams. Instead of one big load of cash upfront, you gotta set up different ways of monetizing the intellectual property. Any smart business operates this way. If a system like the one mentioned above brings in a little revenue, good. If not, find the one that does.

  5. Joe Bunting on February 27th, 2008 4:56 pm

    Thanks for answering my questions Eric. You clarified things for me. I think the way you described the “stock” model actually makes a lot of sense, especially if there is an industry wide ceiling.

    Another thing though, you talk about niche and genre, about how record companies need to create and infiltrate communities. What about bands and artists that transcend genre? The Beatles, for instance, were hippy, poppy, hard rock, acid rock, world music. People followed them because they loved them and because they were really good.

    My question then is, does the community revolve around the genre? I like music in probably 10 different genres, does that mean I belong to 10 different communities? Maybe, but probably not. I think communities, or “tribes” as Seth Godin puts it, is a great way to look at this, but I think they’re more complex. Also, I don’t think I would trust any community set up by a record company (at least not from today’s industry).

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