Fall 08 - T07 - G3

Group Members

Kirstie M. Justin M. Hayley M. Caveh M. Alyssa O.

Introduction

Through research we intend to find the short term and long term implications of the internet technology that enables musicians to release and distribute their music online without the aid of record companies. Specifically we will look at a recent example; Radiohead releasing their album In Rainbows for `Pay what you Want` online. We will look at the short term implications of this new distribution method along with the long term implications that we would assume if the technology is successful. We will also look into the new technology and see if it could be considered “disruptive technology,” meaning that it will radically change the previous systems.

Technology

Distributing music online by artists

Issue

Digital music distribution is beginning to take over the music industry, leaving record companies scrambling for new and innovative ideas to regain their popularity. With easy access to digital music distribution ( and at a lower cost), many musicians have skipped sending out hundreds of demos to record companies trying to make a deal with them, and now produce their own music in the comfort of their own home. By examining the present implications and possible future implications of online music distribution by the musicians themselves, we will determine the positive and negative sides of this technology. And finally answer the questions, will record companies go out of business? Will they turn to digital music distribution? and how will this affect the way musicians become well-known?

History

Music has always been an important piece of our history and yet it was not until the late 1800s that any practical recording and reproductive sound devices were created.

-In 1877 Thomas Edison invented the phonograph cylinder; the audio recordings were etched onto the outside surface of the cylinder records and could be played back on the mechanical phonograph machines. The phonograph was beaten out in popularity during the early 1900s by the disc-shaped gramophone systems and commercial mass production of the phonographs ended in the year 1929.

-The Gamophone was first introduced in 1888 by Emile Berliner and in 1889 the German toy manufacturers Kammer & Reinhardt produced and pressed the first discs as a toy for children. By 1910 the Gamophone had left behind the small discs and toy hand cranks and had become the dominant commercial recording format for both Europe and North America. The ‘Seventy-Eight’ (shellac discs that revolved seventy-eight times per minute) were replaced by the end of the 1950s by the vinyl microgroove record – the 7-inch single turning at 45rpm and the more popular 12-inch long-playing 33 1/3rpm. Both types were made of vinyl and were played on turntable record players.

-In the 1960s one of the major luxury items avaliable to the general public in North American and Japan was the transistor radio, the first of the mobile personal listening devices. The radio was a transistor-based radio reciever that received mainly (and in most places, only) AM boradcast radio stations.

-The compact cassette was introduced in 1964 by the Philips electronics company, about the same time the 8-track cartridge was introduced. The 8-track cartridge was created in the 1960s and was aimed at the automotive market as the tapes were affordable and could produce superior sound quality to the comparct cassette. Unfortunately for them the smaller size and greater durability of the the cassettes caused the cassette to become the dominant consumer format for protable audio devices in the 1970s and 1980s. A major breakthrough of the time was the Sony Walkman, the first personal music player created in the 1970s.

-1982 brought great improvements to the world of music and recordings with the invention of digital sound recording and the compact disc. The introduction of the CD effectively relegated vinyl records and cassette tapes into a small niche market by the 1990s, but the CD was initially resisted against by recording companies because of the fear of piracy and lost profit because of the ability to produce perfect copies of sound recordings with ease.

Recently the biggest developpments have come from digital recording. The invention of WAV digital music file and compressed file type, the MP3, have created new portable computerised digital audio players such as the MP3 player or even more popular, iPods. iPod is a brand of portable media players designed and marketed by Apple Inc. that was launched on October 23, 2001. As of September 2007 more than 150 million iPods had been sold worldwide proving that today the iPod is the best-selling digital audio player series in history.

Because of the ease in which music can be ripped and downloaded in today’s society the temptation to ‘pirate’ music has become very difficult to ignore. Record companies and artists are losing money and still millions of songs are being downloaded every day. Some bands are taking harsh actions. Only days before the release of their newest album Chinese Democracy, Guns N’ Roses filed a lawsuit against Kevin Cogill because he uploaded nine tracks from their unreleased album onto his website. Cogill could face up to a year in jail if he is found guilty of copyright infringement, a charge that is considered a misdemeanor.

Similar cases have occurred, websites shut down, people chaged thousands of dollars or even jailtime in extreme cases. So while the advances in musical technology have improved life for many, it has also created some unforseen consequences.

Short Term Implications

There are two key groups that will bear the major affects of this new trend of distribution of music online; musicians and the Record Industry.

MUSICIANS

With the development of this new technology of distribution of music online, musicians are presented with opportunities and challenges. The bands that have already created a name for themselves with the help of record companies will more likely profit by distributing their music online as well as musicians who are first getting started. First of all, musicians that already have a name will no longer be under the restrictions of the record companies. They will have complete creative powers, and will no longer have to get approval from record companies to release a song. The lyrics of the song The Entertainer by Billy Joel says it best:

“You've heard my latest record,

It's been on the radio.

Ah, it took me years to write it,

They were the best years of my life.

It was a beautiful song.

But it ran too long.

If you're gonna have a hit,

You gotta make it fit--

So they cut it down to 3:05.”

Of course record companies today are not as strict as they once were, but many of them encourage musicians to be making hits and main stream music, which increases the record companies’ profit. The earnings of the musician will also increase, but the majority of the profit will go to the record companies. Many of musicians will only receive between $1.27 and $1.78 on a CD which sells in the store for $17.00 per CD. Musicians who have developed a fan base are looking at this new distribution model because they potentially can be earning more, and selling their material at a lower price to the consumer.

Musicians who are starting out in the business will also be able to profit from posting their music online. They were once only able to distribute their music to their communities now they can reach people all over the world. Since this is a more recent trend, the majority of musicians who are posting music online are these bands undiscovered by the record companies. The new technology enables them to develop a fan base on their own. This will become more and more difficult as more musicians enter into distributing their music online.

The musicians who will not benefit from this new technology are the bands who are at in the middle of the previous two examples, bands that have developed a strong fan base in local communities. Record companies can really help these artists who are trying to break the regional barrier and go provincial or even international. Record companies excel at promoting musicians, getting them airtime on the radio and getting them venues to play for. If the internet technology takes over these bands will find it increasingly hard to reach super star status and will more likely than not be stuck in the regional venue.

RECORD COMPANIES

Record Companies are now being forced to change their whole business model if they are still going to be competitive in the future. The CD business is fading away, and internet downloads are becoming more common with everyday. Record Companies are faced with two problems, first of all how do they compete on the online market, and how to keep artists from distributing their music by themselves. Many Record Companies are now creating new business models and new strategies to keep their signed on musicians and to keep on making profits.

Some Record Companies are seeing the downfall in sales and are making rash decisions that will ultimately be regretted. Warner Music have decided to do something about this, they are going to make all their artists to sign the new ‘360 deal’ before they will work with them. Under the ‘360 deal’ Warner Music will not only get a cut of the album sales and related airplay,but now they will also be receiving cuts on the merchandise and touring. Basically the band will declare their total earnings to the Record Companies and the label will take a cut off. It is still unclear if Warner Music are going to make bands with existing contracts sign the new deal.

"This is a poor and unrealistic business model, instead of changing with new technology they are trying to make up for loss in profit by taking advantage of new bands who just want to get their music out into the world. If more Record Companies begin to make new bands sign this type of deal it will ultimately lead to the industries demise much quicker. It will lead to many popular musicians going against their contracts with Record Companies, like Radiohead, releasing their music online and speaking out against Record Companies. As the retired founder of Creation Records, Alan McGee says about the ‘360 deal.'" "I understand survival. I understand business. I understand it is not always win/win as it should be. I understand some lose and some win. But I don't understand raping and pillaging in business.”

Although that was a negative example of how Record Companies are reacting, there are some positive things happening. In Iceland on October 15-16, 2008 there was a music trade conference called, “You are in Control.” The conference featured performances by established rock groups such as Gus Gus and Vampire Weekend, and local artists such as Seabear and Nenni Hemm Hemm. The event was organized by Iceland Music Export (IMX) and their goal was discuss new marketing techniques such as YouTube Inc. videos, and the method used by Radiohead of distributing their album “In Rainbow” online with musicians and other business leaders. This is a positive way of how Record Companies are interacting with musicians to create the best overall business model where both will be making profits and help each other out.

The way Record Companies distribute music is now becoming outdated, but they still offer many benefits to new artists as was mentioned before. Many musicians are not trained in business and have no sense of it, if they all begin to distribute their own music, they will face many difficulties trying to support their music, getting a fan base and going on tour. This is where Record Companies have an advantage, they can begin to change their distribution methods and musicians will stay with them, or Record Companies can follow suite with Warner Music and make the transition full of even more obstacles.

Long Term Implications

Another aspect of online distribution of music is long-term affects. Online distribution will affect record companies and the musicians both positively and negatively. Reported in an article from businessweek.com, CD sales have decreased by 13% from 2006-2007; while online downloads have increased immensely in the past few years.

WILL RECORD COMPANIES GO OUT OF BUSINESS?

This leads to the question, “will record companies go out of business?” The answer to this question is no. As long as record companies begin taking different approaches to their traditional artist launch, such as jumping on to the digital bandwagon and embrace the change instead of fighting it, which would end in failure on their part. Also by focusing on the business side of the industry, record companies will keep their artists happy by not interfering with the artist’s creativity and creation of music and focusing on promotion, getting the artists name out and organizing events so the musicians can focus solely on their music. And finally the record companies should promote the benefits they can create for the artist. Record companies were originally used because artists couldn’t afford to tour, create music and live, artists didn’t have access to quality music studios or enough time and expertise to organize tours, distribute music, promote music, and still have time to make music. So if record companies can embrace online distribution and make the necessary changes, it’s certain the future of record companies will not be in complete ruin.

MUSICIANS IN THE INDUSTRY

Online distribution also affects musicians in several ways. Firstly, this change in music distribution can affect musicians in the industry positively by making it easier to create music. For instance, musicians can use Apple’s Logic Studio for a mere $500 and easily distribute it online through websites like MySpace. The negative affect for musicians is that they won’t have the same connections that they would get if they were with a record label, which would result in the inability to get their name made known as fast or efficiently.

MUSICIANS MAKING A PROFIT

And finally online distribution will affect musician’s profit. The positive aspect is that with the decrease in song value for consumers, it is possible that consumers will be more willing to buy music with it’s lower price and because musicians will be selling their music online without the aid of a record company, the profit will go directly to the musicians. However without promotion and advertising from record companies profits may plunder because of low attendance at concerts due to lack of knowledge.

The Artists

Radiohead released their latest album, In Rainbows, as a free download from their website. After Radiohead’s contract with their record company had expired, Radiohead decided take matters into their own hands. Consumers can pay whatever they choose to download the album, even nothing is acceptable. In the first week of sales, the record sold 122 000 copies in the U.S. and 45 000 copies in U.K.. Even under the best record deals, artists only end up with less than 30% of sales revenue. As a result it doesn’t seem that big of a transition for Radiohead. Record labels’ are becoming worried that their business may become obsolete. Record labels can still promote younger bands, but there is a certain flaw. Radiohead is considered a popular and extremely talented band, and if the world’s greatest band is releasing their album for free, why would you then pay for albums created by less talented? On the other hand, it seems as though this new approach positively affects the concert business. For example, Prince gave away his album Planet Earth for free in the United Kingdom. Then he announced 21 consecutive London concert dates and sold out every single one of them. Nine inch nails followed in Radiohead’s footsteps and released their album online. Unlike Radiohead, Nine Inch Nails had strict pricing for certain packages available for download. Upon release, the site was extremely slow because fans hit the site in unexpectedly large numbers.

Downloadable Music: Disruptive Technology

The music industry regards file-sharing as a massive threat to their livelihood. With programs like Bittorrent and Limewire popping up, the sale of physical units of albums for example, is coming to a point of extinction. Record labels and music stores are being pushed out of the picture. People can download an unlimited number of good quality songs without paying any price at all. Most people want to get the best bang for the buck, so why go to the out of your way to the store and pay full price for an album when you can get it for free at home? Cd’s and cassette tapes are becoming virtually non-existent. Downloading mp3’s make it much easier to transfer music on to Ipod’s which are dominating the music player industry today.

Other Artists – Will they Have Success in this Type of Business?

Despite popular belief, Radiohead was not the first band to release their album for ‘Pay what you Want’ or ‘Free’ online. In 2001, Yankee Hotel Foxtrot was dropped from their label and decided to release their album for free online. Hundreds of thousands of copies their album were downloaded. As a result of this, their album A Ghost is Born was re-released by a different record company - Nonesuch in 2004. Ghost was Yankee Hotel Foxtrot’s highest debut to date and made it to Number 8 on the Billboard Charts. A lot new of artists are now embracing the internet as a viable way to make money and get their music out to the masses. It is an easier, more convenient, widely accessible tool for artists to use to get their music out. Though, there are many positives and negatives that artists should think about when considering releasing an album independently online.

ADVANTAGES OF RELEASING AN ALBUM ONLINE

-artists often receive a larger percentage of the profit

-They are not stifled creatively by record labels, they have the freedom to make any kind of music they want

-Get to make all their own decisions

-Often releasing an album online comes at much less of a cost to the artist. (no need to actual CDs, packaging, ext.)

-Music becomes easily accessible to anyone with internet access; do not need to worry if music stores will carry their album

-Can choose how they want to promote themselves – by email, blog ext. artists can say what they want about themselves with no worry of reprucutions from a record label.

DISADVANTAGES OF RELEASING AN ALBUM ONLINE

-all the money invested is coming from the artist (assuming they do not have an internet label backing them)

-difficult for artists to become known, with no outside partner promoting them

-people that do not have internet access will be unable to download their music

-very risky

FOR NEW ARTISTS

Success of Independently Releasing an Album Online, Depends on Three Main Things:

1. Cost

- if you do not have a record label all of the costs fall on the artist

- risky, if you are not a well known artist or do not have much education or a full time job, you will likely have trouble getting a loan, and will have to pay upfront, at the risk of loosing lots of money.

2. Distribution

- can be very hard to do if this is your first album

- "Ultimately it's emerging acts that suffer most from illegal file-sharing since they don't have a large fan base or touring income to rely on, and they need the investment of music companies at the beginning of their careers.” – if you are selling your album online, it is likley that people will be able to access your songs and download them for free from a file sharing network. If you were to attempt to release your album in stores, you have no distribution deal, so it will likely be very difficult to have you albums actually appear in stores. It appears that for new, unknown groups, not having a record label is a double edged sword.

3. Promotion

- most labels, even small ones have formed relationships with press/radio stations that can help make buzz about a new artist. Without a record label it can be hard for new artists to get people to take notice of them and their music.

These rules generally do not apply to more well known artists or groups. Because they already have a fan base, such as the group Radiohead it is much easier for them to take risks, and it is more likely that they will wreak the benefits of those risks. People know their sound and are more willing to follow the artist wherever they may choose to go.

Online Record Labels and Profit

Now, there are even ‘online record labels’ that artists can get signed to, and these labels are very different from the traditional record labels people are used to. Generally, when artists sign up with these labels they get more money, have more rights, and have much more creative freedom. For example Magnatune, an open internet label promises artists 50% of the profits seen from each sale of their album and that they will get to keep all the rights to their music. This label also uses similar tactics as Radiohead`s approach to business, in that people must pay a minimum fee of $6, but have the option of paying more for the music if they so choose. The average amount that people usually pay is approximately $8.40. This proves that people and artists are both embracing this new way of sharing and purchasing music. Though, when independently releasing an album online, artists still do not get 100% of the profit as you might think. If they are charging people for their music, they must set up and online payment process through companies such as World Pay or Pay Pal, who take a percentage of each transaction. In this case, of independently releasing the album, they would also have to shoulder all of the costs that it took to actually make the record.

Success in the Future?

It is this group’s belief that the technology of using the internet to distribute music is something that is not going to go away. People have begun to embrace the internet as a way of getting the music they want, and there is no reason for this not to continue in the future. As the way people access and purchase music is changing, artists are getting more creative with the way they choose to release their music. A reoccurring theme seems to be that artists are putting tracks from their album online, for people to sample (not download) and then are releasing their actual album both online, generally for purchase as well as in record stores. It is clear the way things are going right now, that the number of artists electing to independently sell their albums online is only going to increase. We believe that this technology is only going to become more popular as time goes on.

But what does this mean for new artists? Is it going to be much more difficult for them to get their music out to the masses, because they have no record company and no marketing expertise? Or will people actively seek out new acts on the internet – causing the quality of music come to the forefront, rather than clever marketing schemes? It is difficult to say, and only time will tell.

What we know for sure is that the connection between the internet and music is only going to grow stronger as time goes on. It is fair to say that if new artists do not embrace this new technology and use it to their advantage they will not see success in the music business.