TeleMedia Strategy
The Bleeding Edge of Disruption

As TeleMedia Strategy magazine’s Entertainment Editor J-Michael Cabosky describes in his article “The Digital De-Evolution” industry observers have witnessed the demise of the traditional major label-based music industry over the last several years.     

Former industry giants such as PolyGram, Arista, Motown, and all the others struggle to remain relevant in the newly interactive and Internet-based music business.   Quite simply, the “new economy” has changed the business model to such an extent that the traditional major record label’s main advantages – financial support and industry connections – aren’t all that necessary anymore.  In fact, one can argue whether or not a “music industry” even exists anymore - or has it been swallowed whole and now part of a larger “new media” or “digital content” world.  

None of this means that the remaining major labels intend to go quietly.  DirecTV’s licensing of the current Beyonce single ‘Upgrade U’ is part of a growing trend to use new songs in commercial advertisements helps the labels promote new releases.   Using very contemporary music in commercials is a significant reversal of the prior tradition, which relied on use of remakes of older music for advertisements.  When a song breaks through the noise to become a modern-day hit, the combination of traditional CD sales, downloads, Internet radio royalties, and commercial ad licensing can drive more per-song revenue than ever before.  The jury is out on whether this “less is more” approach by the major labels will allow them to stay in business. 

The Internet’s unbelievable impact on major record labels began with the rise (and subsequent fall) of Napster and other file-sharing sites like Kazaa.  In just two years – from 1999 to 2001 - Napster was able to create the notion in most consumers’ minds that music over the web could be free.  While the RIAA and other interest groups were later able to gain legal protection for the unauthorized sharing of music, the stage was set for iTunes to introduce 99 cent downloads.  

At 99 cents a song or $9.99 for an album, the iTunes model has eviscerated the margins on full length records.  This contraction to major record label profitability is causing the traditional industry to put a larger focus and investment on a smaller number of artists and pursuing only the “can’t miss” recordings.  Yet, more music is being recorded and sold now than ever before – just not in the traditional model of major labels selling albums.   

Some background… In the 80’s and 90’s, only artists like Peter Gabriel could self-produce or co-produce albums.  They did so with significant major label support and scads of expensive equipment in their own full production studios.  Major artists could spend hundreds of thousands of dollars on studio time alone; just to end up with a dozen songs on an album.  Then there was potentially millions of dollars needed for advertising, marketing, and promotion.   

Smaller artists and local bands were often limited by production budgets.  That led to very judicious use of overdubs, re-takes, and so forth.  Many artists employed top-notch studio musicians to get a great (or good enough) take in the shortest time possible.  It was worth going to famous studios in Nashville, LA, New York, London, etc, to get the best engineers and best musicians together, so that post-production expenses could be minimized.  Still, all that cost money.  Lots of it. 

Let’s fast forward to the late 1990’s and use a personal example. In 1999, I played drums on a local jazz album that was recorded straight to hard drive, then edited and mixed on a Mac.  This was my first experience not recording to big reels of expensive audio tape.  Even that album cost about $10,000 to make, including recording time, musician wages, mixing, mastering, licensing for one re-arrangement, and production of about 1,000 CDs. 

At that time, the complex software and post-processing tools still carried a hefty price tag well into the six figures and beyond range.  Engineers to operate it all added to the costs.   All but the most well-funded musicians had to settle for less than perfection somewhere in the process.     

In iPod and Internet radio parlance, let’s skip forward to today.  In 2008, aspiring artists can walk into any neighborhood Best Buy and acquire all of the same stuff needed to make a high quality recording for well under $5,000.  All it takes then is a little bit of computer expertise, a few tutorials, and you have your own professional quality recording studio.  Believe me, it’s true.

Most bands can either rehearse enough or try enough takes to get what they believe is a good-enough version of their songs recorded, given enough time in the studio.  With the removal of studio per-hour fees, the artist can spend as much time as they desire making takes, overdubs, mixing, and so forth.   With the decreasing costs of post-production tools and the availability of these tools on PCs or Macs, post-production effects, fixes, and “ear candy” can be added at the artist’s discretion, not limited by the budget.  No per-hour engineers are necessary. 

So, garage bands can now capture and mix their best effort in their own studios for a small fraction of the 1990 local music recording costs.  What should they do with it?   

A crawl-walk-run approach is one idea.  Let’s say that a band can access or build their own studio and use as much time as they need to capture a song.  They don’t need more than a few songs to be recorded; after all, the album is dead.  A good draft recording with a rough mix is enough to open doors at the local live music venues to build a local following.   

As a musician, I think this step is still needed, so that the band can get comfortable working with a crowd. Since consumers are not willing to pay more than about 99 cents for songs that they know that they like; live performances have become the primary income source for the majority of recording artists, major label or not.   

Said hypothetical band can post a video of their studio or live performance and then use MySpace and FaceBook to point all of their friends to their art.  These social networking tools are also being used to communicate performances by many small artists to great effect.  While the artist can record onto CD-R or DVD-R discs, some bands have used USB drives to sell or give away recordings of their songs.   

Note to any garage bands out there: Royalty protection via ASCAP, BMI, and the like is probably a good idea by this time. 

Assuming that there is enough money and/or interest to take the next step, let’s explore some ideas for pursuing a larger audience. 

Sites like CDBaby and TuneCore allow indie labels and artists to get distribution in the physical and virtual world (including iTunes) for a series of fees that are generally percentages per download or flat fees for getting works onto iTunes on a per song or per album basis.  Some of these aggregators offer duplication services for CDs, so that online ordering can use just-in-time inventory for the performer (and avoid pressing 5,000 CDs that will sit in the garage until the end of time or the end of the band).  This change to the business model removes up front batch pressing of CDs, which was a significant portion of the traditional recording cost.  In an iTunes world, why bother?  

Internet radio and podcasts have potential to grow the fan base as well, especially as the mobile web becomes, well… more like a mobile web (versus the proprietary nature of early web-enabled phones).  The Apple and Google phones, with full browser capability, allow sites like live365.com, Pandora.com, and of course, iTunes, to stream internet radio to the user anywhere.  

An indie label or artist can easily set up an internet radio station for about $200 to $350 a month on live365.com.  These prices go up as “listening hours” or “simultaneous sessions” grows past certain thresholds.  There are two complementary radio station formats that can be used.  For a label or group of bands that fully own their content, they could have an Indie Radio channel that is exclusive to the music within the group.  The operator would likely have to use outside means, like live performances, YouTube, social networking, and so on to drive listeners to the station. 

A slightly different approach would be to build a station with music that is like the new artist.  A mix of known songs with some unknown band tracks sprinkled in might have a better chance at gaining listeners than a station that is exclusive to one independent artist or label.   On live365.com’s “pro” packages, the station operator has complete control of any banner advertising or in-program ads.  If the radio station operator can drive enough advertising revenue, the station may be able to be profitable in its own right, while promoting the artist’s music. 

So let’s do the math for all the up and coming garage bands reading this article:

·         Home studio and HD video camera  = $5000

·         Studio time = free

·         YouTube posting = free

·         MySpace and FaceBook postings = free

·         USB drive for copies = $10 and up

·         CD-R discs for copies = 50 blank discs for under $20

·         Paper and labels = $14.99/pack

·         Cover art = free (digital band pic with photo editing)

·         TuneCore = $19.98 per album or 9.99 per song for a year (including iTunes)

·         Live365 radio station = $250 to $350/month for a station that plays indie music alongside established artists

In short, musicians can spend much less to make better recordings and get them to the masses.  Good thing, too, because at 99 cents a download, it will take about 5,000 downloads to pay for the shiny new studio equipment that now takes up the living room.  Still, this volume is far smaller than the hundreds of thousands that were traditionally needed to break even in the past.  No wonder the major record labels are going, going, gone.  

By Earl "Woody"

Woody Berner is an unconventional thinker with unique experience in music.  Woody has an undergraduate degree in Jazz Performance from the University of North Texas, where he played with the world-famous One O’clock Lab Band.  Noteworthy appearances include performances with the Supremes, Drifters, Platters, “Big Joe” Williams (Count Basie Orchestra), Norah Jones, Lou Marini (Blues Brothers),  and Tom “Bones” Malone (David Letterman Band and Blues Brothers), and the Disney All-American College Show Band.  Woody has appeared on over 25 recordings.  Mr. Berner is an avid listener and continues to perform regularly.

Woody also happens to be a telecommunications consultant with subject matter expertise in Operations, IT, and Business and Operational Support Systems (B/OSS).  Mr. Berner has spent the last 9 years in the telecom industry, most recently as a Consulting Manager with Amdocs Consulting.  At Amdocs, Woody heads up the Customer Centric Service Assurance and Tiered Billing practices.  Prior to his role at Amdocs, Woody worked directly for one of the major telecom service providers in the US and in the telecom supplier industry.  Woody obtained an MBA from the University of Texas and remains an active alumnus and Longhorn fan.  Woody can be reached at wberner@gmail.com

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