I read with sadness this New York Times profile of Irving Azoff and Live Nation. As my friend Andy Weissman asked, “How divorced is this world from reality?” The article reminds us of the way the music industry worked for many decades: a world of power by those who manage artists and run record companies. This power was derived by getting artists to agree to allow these moguls to negotiate and navigate their career decisions. Of course, the fans only cared about the artists and their music, but someone had to make business decisions, negotiate contracts and approve marketing plans. I don’t begrudge the many successful music industry executives who built lucrative careers and giant fortunes from the many good decades of music business success. They helped shaped the careers of literally hundreds of great artists.
In surveying the state of the business now, however, many of the decisions made by these very same executives over the past 12 years have resulted in nothing less than complete failure. The recorded music business, which used to be largely responsible for more than 60% of the revenue an artist generated, now brings in about 9% of an artists take (this number from Azoff himself.) The recorded music business at about $18B $17B worldwide is a shadow of its year 2000 peak of $40B. And I don’t see its fall stopping any time soon. In fact, I really think the recorded music business goes pretty close to about $6B – $8B over the next 5 years. And that’s worldwide.
The story of this decline has been well-chronicled. In fact, the mistakes of this industry are studied daily by executives in the movie, book, television and newspaper industries as a recipe to avoid. (I’m not so sure those execs have quite taken away the right lessons, as I have posted about many other times.) There are only two music industry segments in better shape than recorded music: music publishing and live music. The former hasn’t declined nearly as much thanks largely to the increased use of music in advertising and, to a much lesser extent, increased revenue from satellite and internet radio. Live music, as the NYT article makes perfectly clear, has stayed healthy for two reasons: (1) the magic of a live show can’t be pirated online and (2) huge consolidation in venue ownership, promoters and ticketing has allowed a massive increase in ticket prices. It’s hard to celebrate this second fact as a revival of an industry. In fact, I think it is the bellweather of its end.
I agree with Azoff that tickets were underpriced for many years. Scalpers have always showed us that the market had a curve to it that was not optimized by, say, two or three ticket price points. The rise of secondary ticket markets like StubHub showed us that there were more efficient and orderly ways to maximize profit. But massive consolidation and monopoly-building usually signals that there are no other growth opportunities left for a market — the market participants grow by consolidating and raising prices. Azoff’s belief that Live Nation’s upside is in selling t-shirts and fan clubs to the fans sounds like something I heard in 1997 during internet 1.0 days. It’s not only not innovative, it is precisely the opposite of what fans are looking for from the music industry.
I think, like many others, that we have been witnessing the atomization of artistic culture. The internet gives us far more choice than the limits imposed upon us by broadcast media. We know of more bands, we can get tour dates pushed to us, can sample music long before it is released and we can reserve tickets well before the show. But we are doing this across many more artists, spreading our limited disposable income around in ways we didn’t when we had fewer choices. Nevermind that we are offered billions of other entertainment choices from video games, YouTube, Facebook games and even Crowdreel and Bitly.TV.
The future of the business is atomized and decentralized. It is one where the collective power of the many fans actively engaged in discovery and sharing have more power than a few senior execs calling the shots about marketing budgets. Yes, there will always be superstars, largely gained by taking those who are bubbling up and pushing them through the mass media still remaining. But today’s superstars sell a fraction of records/downloads as the ones from years past. And yes, there will always be American Idol programming which is really more about entertainment than it is about creating great music. But the new power, in my mind, is granted to the aggregators who pull together our collective wisdom. The music business today is blogs, Twitter tweets, Facebook links, the Hype Machine, TheSixtyOne, Rockwood Music Hall, Pandora and Foursquare. Honestly, I discover far more music today from hypem.com (an aggregator of the best music blogs) than I ever will from the decisions of record execs and promoters. We will continue to pay Mr. Azoff’s company’s service charges for the privilege of seeing great live music if and when our favorite artists reach big arenas. And fewer and fewer artists will. But if you are going to bank your future on nothing more than raising prices and selling me more expensive t-shirts, the fall will be mighty indeed.
Instead, where might today’s execs focus their energy? Providing tools and assets to empower the many fans willing to do their marketing work for them. Terry McBride has articulated many times that the secret to his artists’ success is by giving fans the music and other goodies to share with friends, evangelizing their favorite artists. Shouldn’t the music catalogs be available through a click-wrap API, paving the way for thousands of new music filters on hundreds of thousands of web sites? Shouldn’t music be decentralized? Not free, but just available everywhere, especially to developers to create more engaging and relevant online music experiences. Music needs to become part of the fabric of the web, not an overlay on top of it. Like I can embed my Twitter stream anywhere, I need to be able to embed the music driving my life all over the web too. Not just the song names, the music itself. I have a need to share it, but I really can’t today. If this happened, the businesses that could be built on top of it are quite interesting. The data becomes the value here enabling the new generation of music programmers to emerge based on the collective and specific expertise of the masses.
The tech community creating digital media is filled with forward-looking businesses. In the past three weeks alone we’ve seen the launch of the iPad, new Twitter APIs, and extended Facebook Social Graph APIs. As Andy Weissman pointed out to me, “All, or none of those may work – but they are all forward-looking in their nature and in how they want users to experience them. Live Nation is looking backwards.”
I am not arguing that artists should not be paid. But the ways they build their career, reach an audience, and then ultimately sell stuff to that audience, is fundamentally being turned upside down. Ecosystems based on sharing are the future. This is what the net native generation that is the future audience of all entertainment businesses know to their core. And Mr. Azoff’s shouting at business partners and squeezing fans for a few extra dollars on a ticket isn’t going to change any of this.
Everyone knows this – except Azoff and Rappino. When you do something for so long – and reach the pinnacle of power – how do you possibly say it was all wrong? The problem is that the record labels and the promoters are middle men in a world where the artists have a way to reach the fan directly – I never quite understood why an artist would pay a management firm today – when they could easily route a tour using the data that Pandora or any of the other music services provide. They could use stubhub software – or something else like it to do a dutch auction for tickets – maximizing revenue for themselves – and not pissing off fans (how could you really complain if someone was really willing to spend $1000 a seat to be next to the stage and you weren’t?) I wrote about some of this in the last two days at http://hdemott.wordpress.com and we’ve seen similar posts from Fred Wilson and Shawn Snow among others. It’s only a matter of time.
I’ll tell you why artists need management and so forth. Because artists simply can not do it ALL themselves, especially solo artists. Try writing songs/albums, recording them, PR and market them, then setup your own tours or gigs, deal with contracts, deal with any media and so on and so forth. In what other industry would you expect someone to do all that? You think that an artist can simply learn what it takes to wear all those hats and still be successful at what they should be focusing on at the same time, being writing, recording and performing? Give me a break! The expectation people have of artists and what they think artists should be doing is ridiculous and as winded as the big labels who have continued to sign crap because they know they can control crap and the marketing machine behind the crap in a manner that puts all the $$ back into their own pockets. The expectations placed on artists in general, who are working to also put food on their tables and thus most have second jobs which also take up even more time, are becoming as foolish as industry itself. Truly talented artists have it difficult enough just being heard and seen awash all the garbage being played and submitted daily. Adding more to their plates does nothing to help the industry find its way back to talent driven sales.
it will be really nice story if all of american read it…
Great post…
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Great analysis… Only one question though: In an environment in which the future is very difficult to predict (as noted in your reference to Andy Weissman’s remark), why is forward looking necessarily superior to backward looking? It would seem to me that all possibilities are fair game. If anything, backward looks are at least rooted in actuality. No?
Thanks for your comments, Dan. I don’t think there is anything inherently wrong with looking at the past for guidance as to what to do. In this case, these guys are simply holding on to the past and seem to believe it is the way the world will be. I am arguing it won’t.
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Thanks for the nice article.
Do you have a breakdown (roughly) of where the other 91% of an artist’s revenue comes from? (Royalties, Live Music, Ads from somewhere, etc).
Also, ringtones were a multi $B business (at one point at least), is that considered part of the recorded revenue numbers? Likewise, iTunes revenue — is that in there too? Or, are those considered a separate revenue stream?
Thanks for any thoughts.
Mattew, I don’t have an exact breakdown, but I understand touring to be the lionshare for most artists now. Ringtones were part of only publishing until they became actual recorded music clips, and now they are counted in recorded music royalties, as are all digital downloads.
I often reflect on the fact that the traditional record industry was built to deal with the reality that production, marketing, and distribution of recorded music was expensive and required heavy capital investments. Now high-quality recording and production can be accomplished with a battered laptop, marketing is basically free with online tools, and the problem of distribution (for Old Media) is that it is too easy – not too difficult.
It seems to me that the Live Nations and Ticketmasters of the world will continue to exist because even in a perfectly fluid economy, such as that approximated by the open internet, power law effects ensure a small percentage of acts will gain superstar status. These superstars need super-size production and touring to wow the masses, and that still requires heavy capital.
But the music experience is, in aggregate, already dominated by empowered artists that don’t show up on any ‘top 100′ charts, and who don’t require any massive investment in infrastructure or marketing budgets because they are, indeed, already woven into the fabric of the web. The observation that the new music industry is actually a patchwork of enabling services and technology relying heavily on social media is a keen one. The value in the industry has not gone away — it has been decentralized, split apart into a beautiful mess of online tools and services that connect artists and fans directly over any distance.
The music industry is dead! Long live the music industry!
David,
Really enjoyed reading your article on the Live Nation/Ticketmaster merger.
I do think you should have pointed out that the artists do share some of the blame 1) for rising ticket prices and 2) for the necessity of the merger.
Live entertainment margins are razor thin (usually below 5%) so I wouldn’t say the promoters are jacking up prices to generate major profits. Big artists have become increasingly vigilant over the years getting big guarantees and to some degree the smaller ones (those who play to 2K to 10K audiences) can be more difficult to negotiate with.
So, agreed that innovation will likely not come out of this merger (It’s unclear big profits for LN will either). But, I think it’s too easy to place the blame on big music biz. A ton of blame on them for virtually no innovation the past ten years, but the artists should take some responsibility for the state of ticket prices and the live music biz too.
Thanks, Rory
I think the current view of the music business still isn’t visionary enough. People seem to assume that there will still be artists making music and fans consuming music-related items.
But aside from the fact that, as you say, the entertainment market is being broken down into smaller and smaller pieces, “the people formerly known as fans” are generating their own content. As music tech tools become more sophisticated, someone with little or no music training/talent can make music that is comparable to what is currently available. Therefore, developing a core group of fans who will buy what they sell becomes that much harder for artists/bands.
I envision a day when we’ll all be music creators to some degree or another and our fans will be our friends, family, and neighbors. We’ll all be making music but it will be tough for anyone to generate enough music-related income to survive without some sort of day job to pay the bills.
Great thoughts, Suzanne. Thank you.
While this may be true for the electro-pop built out of samples on Garage Band this is clearly NOT true with virtuosity-centric music like jazz, classical, bluegrass, prog-rock/fusion, blues, etc. There is only a tiny minority of people who can even attempt to play that kind of music with any degree of authenticity. No amount of mix mastery can reproduce a Pat Metheny guitar solo over complex Brazilian inflected jazz changes and rhythms. While the world is focused on easily reproducible pop “beats” it is the highly trained, extremely talented musicians playing at the limits of their virtuosity every night that remain in complete ownership of the means of production of their product.
There are definitely types of music that take years of training to do well. But the economics have hit these musicians like they have hit others. If the fans don’t come out to support musicians who have spent years at perfecting their skills, it becomes hard for them to make a living.
I’m a huge jazz fan. Not everyone is, though.
As I look at the course of popular music over the last 100 years or so, I’ve seen fans move away from music that takes years to learn and toward music that can be created on computers. Where we once had orchestras, now we can have a solo artist creating a density of sound via looping.
I’m not saying I want these well-trained musicians to go away. I’m just saying that we may have to prepare for a day when it gets even harder for them to earn a living at this.
Suzanne,
I’ve tried looping pedals, but using them tends to form a certain type of composition that is heavily repetitive… unless you really polish your skill with it and learn to stop and create whole new sections on the fly.
The best “looper artists” can do this, but by then they have invested quite a bit of time mastering the techniques as well as their instrument. By then, you are talking virtuosity-centered music again.
My take? I think over the next years people will have their fill of “simple music” and start to hunger for something new. The very nature of music enjoyment in the brain demands variety, both within a song from verse to chorus, and through different types of songs within a set.
And people who can really *play* their instrument and sing have the ability to provide that night after night in live shows. They’ll do it through improvisation and the ability to adapt the music to the audience moment to moment.
Great article. It’s great to see more people speaking up about this issue.
[...] The Sad State of the Old Music Business – In surveying the state of the business now, many of the decisions made by music executives over the past 12 years have resulted in nothing less than complete failure. [...]
[...] – From David Packman, The Sad State of the Old Music Business [...]
Nice article and agree with what you say but find a gap in the argument about how artists are remunerated for their recordings. The comparison is always made between file sharing that it is like sharing a tape or record or home, and it is somewhat like this – but as the net evolves it’s really much more like listening to the radio. The sensible approach to copyright infringement online would be to levy a blanket license upon ISPs, which is then distributed to copyright holders in the same way TV and Radio performances are done now. If more techies, start ups and consumers pushed for this the next generation of online entertainment business would emerge much faster – unfortunately, the innovators tend to side with the ISPs who object to such proposals. So, we’re left with a situation where theft is tortuously argued into being a public right and artists are told that they must accept being ripped off and change their business models. That won’t work.
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Great article, David. Glad to see I wasn’t the only person depressed to read that article in the Times this weekend. It was so anachronistic. The way Azoff seems to revel in his success makes it incredibly hard for me to click the “purchase” button when I am buying a show ticket these days. In fact, I do my best to avoid shows where I have to encounter Live Nation/Ticketmaster altogether. He must be one heck of a salesperson… but at least he is one of a dying breed. I just wonder how much more damage he can do to the music industry before he has accumulated enough.
Thanks for your comments. I think a lot of these actions are typical of incumbents in transition.
MUSIC WILL BE THE ONLY THING THAT WILL SAVE THE MUSIC INDUSTRY.
That’s the way it’s always been and always will be.
The business can’t keep inventing excuses for putting out the same overstretched muck over and over and over again and expect to turn a profit on it. Too much of the stuff out there is a repulsive turnoff, and the listening audience (who wants to listen to quality music) won’t buy into it, period. Not to mention there have been situations that quality productions that could have pulled a steady revenue stream were downed and shut out over some misproduced who knows what that ended up costing more than it should to produce and ended up tanking up anyway.
Never underestimate you audience. When you make interesting music, people will LISTEN ANY PURCHASE IT. Instead of inventing excuses for restricting it, they should be working up reasons for promoting it.
The listening audience if rather intelligent. They don’t want to hear all the lamebrain excuses the companies come up with for the crap that has been in an overabundance, especially over the past thirty years. QUality music is what the music business should be about.
QUALITY MUSIC IS THE ONLY THING THAT WILL SAVE THE MUSIC INDUSTRY
The artist who has learned the craft of live music well, and who can be expressive with it on top of that, plays to the audience in the moment….very hard for loops to do that. So don’t give up the ship, anyone. When a human being plays an acoustic instrument or sings, there is air in the sound. Samples and looping, no matter how advanced or easy to use they become, will never have actual physical air, the air we breath everyday, in them, because they are not in the moment, not in the real world. They are processed, like processed food.
When we hear an actual human performance with its cherished blemishes, we hear what the human heart, mind, and body can accomplish by itself. It is the same reason we watch live sports avidly, and hope there is no manipulation in the sense of steroids, etc.
Since we all want genuine connection with others, and we want to see what others are really like, we have to hear music in the “flesh” eventually. Everything processed, like MIDI, is flat. When you can recognize the value of the human spirit, whether it is J.S. Bach, Joni Mitchell, John Coltrane or John Adams, nothing processed can remotely compare. You want the spirt, live, or immortalized in recording. And by recording I mean capturing the human sound. Or maybe it is just an individual’s amateur guitar pickings. That is who he/she is, heart and mind going to the fingers plucking the strings, the sound in the air itself. Our air, your air. This takes a little work, a little practice. We have to get beyond “convenience” and buttons at your fingertips. Because eventually, convenience does not nourish. Go out and sit right in front of some live instruments, a folk singer, a chamber music concert, a live jazz group. With minimal amplification hopefully. Dig into your local publications to find where this is happening.
You might hear a minor miracle. You might take up an instrument or start singing and see what your own fingers or voice can do in the air we share. Then, we will really know you.
I’m an acoustic music fan. So I can appreciate what all of you are saying. But I’m not sure to what extent we will get people who haven’t been to classical or jazz concerts to start going. Some may go to bluegrass or to singer/songwriters, but I don’t see a lot of people rediscovering music from past generations. Once a style of music falls out of favor, it doesn’t seem to come back in a big way.
Periodically we get a renewed interest in the big band era, but for the most part there aren’t a lot of big bands out there.
Very true, we are seeing exactly the same trends with the fans who run our services. We are generating 4x the number of users around promotion of events for large and small bands through engagement marketing. One case study we did with the O2 Arena demonstrated that through fan to friend marketing, promotion snowballed to national press at 0 additional marketing costs. The passion fans have for their favorite bands is the driving force behind their desire to share, but a. they need the tools to do so, b. the walled garden approach does not encourage this type of behaviour, c. fans need to be treated as potential customers with all that entails in terms of client services.
Great review, thanks!
thanks, for the information.
Why are the artists still a footnote in this? You talk about a business built on the backs of the artists with little or no return! This is the fundamental problem. The blood suckers will find new ways to exploit the hungry.
I run an indie label and I am an artist, this thing we do making music costs real money and time to produce as does rehearsing and getting it together to play live. You’re advocating free music even though you didn’t come right out and say that is what you’re suggesting. That’s total BS and spoken by someone who has no vested interest other than making sure they can profit off the backs of others.
I’m not advocating free music and I specifically say so.
Hi David, i just wanna say i like you posting on “The Sad State of the Old Music Business”
Great article for sure.
I’m looking forward to your next postings.
ciao
Thank you!
Great article. My family the Talmadges have been in the nusic industry for over 60 years! As I have tried and continue to try and continue the Talmadge legacy (started by Sid Talmadge it is really a challenge to figure the industry out. I have been on the web since 1985 and have had some success. Would love to really have one of these bands that havbe come up from their own grass roots promotion share with your readers exactly how they did it and why others are not following suit. I also lve the way that Trent Reznor has reinvented how he gives the music away and makes money through other mediums and web site memberships. The labels need help and people to implement new ideas!
Thanks for your comments, Keith. Much appreciated.
[...] audio podcast is an interview with David Pakman who has been a venture capital Partner with Venrock since 2008. Earlier he was the CEO of eMusic [...]
[...] (Here’s a link to my previous post on how the music industry could save itself, “The Sad State of The Old Music Business“.) [...]