« Misuse of information | Main | The quirkiness of innovation »
May 16, 2005
The new music industry model
I have stated in previous posts that the music industry needs a new model to cope with the rise of disruptive technologies. James Surowiecki argues in a recent issue of The New Yorker "Hello Cleveland" that the new model is the old model: touring.
The music industry may be in crisis, what with illegal file-sharing, stagnant CD sales, and the decline of commercial rock radio, but the touring business is as sturdy as ever. In some ways, it is healthier than some of the mediums (radio, recorded music) that at one point or another were supposed to render it obsolete. Since 1998, annual concert-tour revenue has more than doubled, while CD sales have remained essentially flat. Last year, thirteen different artists grossed more than forty million dollars each at the box office. (Prince made eighty-seven million.) Consumers who seem reluctant to spend nineteen dollars for a CD apparently have few qualms about spending a hundred bucks or more to see a show.
There are still artists who make huge sums of money selling records, but they are the lucky few. A longtime recording-industry rule of thumb holds that just one in ten artists makes money from royalties. Today, it's probably less than that. So the best model, if you're in it for the money, may be the Grateful Dead. Although the Dead didn't sell many records or get much airplay, they worked the big stadiums and arenas long enough and often enough to become one of the most profitable bands out there. As in politics and sales, nothing beats meeting the people face to face.
Most musicians, from a business perspective, at least, would wish it otherwise. Selling CDs is, as economists say, scalable: you make one recording, and you can sell it to an unlimited number of people for an unlimited amount of time, at very little cost. A tour, on the other hand, is work. You have to perform nearly every night, before a limited number of people, for hours at a time. You can knock a few seconds off each song, fire a percussionist, or sell more T-shirts, but in the end efficiencies are hard to come by.
The trick is that musicians get a much higher percentage of the money from concerts and merchandise than they do from the sale of their CDs. An artist, if he's lucky, gets twelve per cent of the retail price of a CD. But he doesn't get any royalties until everything is paid for-studio time, packaging costs, videos-which means that he can sell a million records and make almost nothing. On tour, though, he often gets more than half of the box-office, so even if he grosses less he can profit more.
Traditionally, tours were a means of promoting a record. Today, the record promotes the tour. The decline in record sales has shrunk the size of the pie for labels and artists to fight over, so they've had to find new ways to make money, and artists have come to see how lucrative touring can be, given what people will pay to see them live.
Touring may be hard work -- and a return, in many ways, to the old craft economy. But in the age of easily reproduced music, it may be the best model around.
Too bad Surowiecki didn't talk about the other way that musicians are making money: from selling rights to their songs for everything from commercials to corporate presentations to cell phone ringtones. Again, the Grateful Dead may be the leading indicator. Just look at what Jerry Garcia did for men's neckties!
Posted by Ken Jarboe at May 16, 2005 08:44 AM
Trackback Pings
TrackBack URL for this entry:
http://www.athenaalliance.org/mt/mt-tb.cgi/127