For much of recent history, the music industry has been infamous for its inability to adapt to digital technology. This said, certain companies within the industry, likeApple and Spotify, have proven they are able to adopt new ideas and succeed, demonstrating how valuable innovation is in any creative industry.
Digital Darwinism: Why the State of Music Is a Harbinger of What’s to Come for Every Business
Innovation is the least popular response to disruption or the threat of it, especially in the music industry. Instead, iteration or stagnation is the path of least resistance, which for some reason is the most popular choice. This response is the most certain way to not break new ground. There are some companies though, not industries, that are starting to get this and are taking appropriate action as a new study has found.
We live in a time of digital Darwinism, the evolution of technology and society as it impacts behavior, expectations and customs. The question we all have to ask is on which side of evolution we want to end up?
I was recently invited speak at MIDEM in Cannes and the Digital Music Summit in Toronto, both yearly music conferences and festivals dedicated to the global music community. I couldn’t help but see the parallel of what’s happening in music with almost every industry in which I work. There’s something happening here that we can all learn from.
Digital Darwinism Defines Legacy One Way or the Other
It’s not a secret that record executives had an opportunity to be on the right side of innovation, to fight for the future instead of fight for the past.
This is a critical lesson that we must all appreciate regardless of our business. This essay isn’t just meant to help the music industry; it’s meant to help us appreciate that every industry has arrived at the same intersection of “business as usual” or “innovate or die!” It’s a choice. You either do the same old shit you’ve always done or you invest in crazy new shit to change course. One of them has a future.
At some point, consumerism changes; so must your business. As they say, hindsight is always 20/20. Below, you can see the moment Netflix ventured into the direction of “crazy new shit” and Blockbuster followed the path of “same old shit.”
Technology changes. Behavior and preferences also change. To compete for the future requires an infrastructure that can identify early opportunities and experiment with new products and supporting processes. And, new research only corroborates this.
It’s a case you’ve heard over and over.
Tower and Wherehouse held onto physical retail locations to sell physical artifacts while the world went digital. Amazon and Apple blazed trails in two different and game-changing directions.
Netflix streamed the future of Hollywood, while Blockbuster asked customers to “be kind and rewind.”
Kodak ignored digital innovations developed within its own labs.
iOS and Android effectively tied the thumbs of RIM.
Uber and Lyft sent the taxi industry on a “detour” worldwide, much like some taxi drivers have done to customers for years.
Sonygate revealed the MPAA secret plans to force the hand of Google to prevent the Googling of illegally uploaded movies.
Even iTunes, the innovative service Steve Jobs championed to unify digital, portability and a marketplace for consumers and artists, failed to prevent Spotify from baking its Apple.
And the beat goes on.
Tonight We’re Going to Party Like it’s 1999
The music industry is one of the most — but definitely not alone — incredible case studies of digital Darwinism around. What’s fascinating about this story of disruption, however, is that it’s not new. If anything, it’s played out for decades, going back to the early days of all things digital.
As of 2015, the music industry is down 64 percent from its peak in 1999. I guess Prince was right. We needed to party like it’s 1999. Contrary to popular headlines, the current state of music is not victim to any one culprit. Its current condition was inflicted by a thousand cuts at the hands of highly public assaults that went untreated. Here’s a list of some of the confrontations:
Digitization from any format
Portable digital music devices
Online sharing networks
In case you didn’t know this already, the recording industry makes almost all its money from full-length albums. At the same time, no one is buying full albums any more. These charts, courtesy of Recording Industry Association of America, tell a jaw-dropping story.
As album sales sank, sales of singles exploded.
Music aficionados complained, and rightly so, that the industry’s kneejerk reaction to this dramatic change in buying behavior was to invest in songs instead of artists to sell more singles or trendy moments rather than long-form and longer-term experiences.
But even still, the rapid rise of single-generated revenue is also no match for streaming services. All signs point to a fragmented marketplace where no one business model, deal, or contract can rule. Merely updating agreements with new platforms and artists isn’t good enough.
Something needs to happen here as it’s disrupted model is ripe for innovation. In May 2015, Warner Music Group hit a significant milestone. The label reported it had received more revenue from streaming than downloads, the first such announcement by the three major labels. Recorded music streaming revenue increased 33 percent. In the music publishing division, streaming helped drive a $1-million increase in digital revenues.
Streaming Isn’t the Villain We Once Imagined
If you were to believe the press, you would think that streaming is literally starving artists. And, indeed, at the surface level, this appears true. For example, it takes 5-to-7 plays of a song on Spotify’s ad-supported free “tier” to generate the same amount of royalties as a single play on Spotify Premium. That sh!t cray! But, seriously, it was widely reported that Pharrell Williams earned less than $3,000 in song-writing royalties for 43 million streaming plays of “Happy.” I guess this is news you just can’t clap along to. If you’re an executive at an influential record label, it very well could be.
But for those who appreciate the story behind the music, Spotify insists that it is indeed growing revenues for artists and labels, paying over $2 billion USD in royalties-to-date, with $500 million in 2013 alone. And, thanks to Sonygate, we can see that money is in fact flowing, albeit a different type of flow, into the banks of major labels. But a label-made dam constricts wealth, thus trickling revenue to artists.
TechDirt reported earlier this year that evidence is mounting that implicates major record labels in grand theft auto-tune. Seems that these alleged “greedy blood-suckers” are keeping nearly all of the money they get from Spotify and the like rather than passing it through to the artists who deserve it.
So then, who’s the villain?
Mike Masnick, an old friend from Silicon Valley, has some thoughts. As he believes, to survive digital Darwinism, labels need more than transparency …
Sure, in the past, it may have been reasonable for the labels to take on large fees for distribution — but that’s when it meant manufacturing tons of plastic and vinyl and then shipping it to thousands of record stores around the globe. In this case, there’s no manufacturing, and distribution is an “upload” button … there are some marketing costs, but the numbers ring pretty hollow (especially for many of the artists for whom the labels do little to no marketing). So, again, rather than blaming these streaming services, it appears that perhaps they should be discussing things with the labels.
On the other hand, Spotify’s emphasizes evolution or outright innovation. If the industry can figure out how to shape artists in an era of digital Darwinism, there is in truth significant revenue to be shared.
The chart below shows the money a Spotify Premium customer spends per year compared to the average spend of a U.S. music consumer who buys music. A Premium user, according the company, delivers more than 2x the amount of revenue to the industry (per year) as the average U.S. music consumer currently does. Company executives exclaim Spotify’s goal is “to convince millions of people around the world to become Premium subscribers and by doing so to re-grow the music industry.”
“The more people listen, the less their theoretical per-stream rate is,” Spotify’s head of communications Jonathan Prince once explained. “But the more people listen, the more likely they are to keep paying, which is what all of us, Spotify, rights holders and artists, should want.”
I guess that’s what this is all about. If we can stop looking at the future through legacy lenses, we can see that there are more opportunities than less. We just need a new perspective to innovate, otherwise we’re stuck iterating or worse, running in place while the runway crumbles beneath.
Music Streaming = Mainstreaming
Spotify isn’t the only online service disrupting the music business. Pandora, Apple Beats, Tidal, et al., aside, YouTube is in and of itself an alternative to both radio and music television. While the radio is still a major source for breaking new artists and equally driving bigger trends, YouTube is the “new TV”; and younger consumers are learning about established and up-and-coming artists thanks to YouTube’s accessibility and algorithm. The platform, while aging in its own way, is largely credited with being the number one way people access single songs. More so, it has breathed new life into the music video business, opening up an additional avenue for revenue. But, it’s not a solution in and of itself.
Video platforms, such as YouTube, are estimated to have only paid out $641 in fees to labels and artists while streaming services paid $1.6 billion.
I’m not necessarily the biggest fan of Taylor Swift’s music, but I am a fan of her work toward helping labels and services rethink relationships with artists in this era of digital Darwinism. She’s already done more than amplify this entire discussion; she’s opening the vaults to pay artists. Most recently, she did the unthinkable. She was able to rock Apple at its core.
During the launch of its new Beats music streaming service, Apple announced it would offer a free three-month trial. Sounds gracious. Mrs. Swift, however, was swift to point out that while consumers benefitted, artists did not …
“I’m sure you are aware that Apple Music will be offering a free three-month trial to anyone who signs up for the service. I’m not sure you know that Apple Music will not be paying writers, producers, or artists for those three months. I find it to be shocking, disappointing and completely unlike this historically progressive and generous company.”
Needless to say, Apple changed its tune, as it should.
But this is just the beginning of how we need to think about the future. Taylor Swift is arguably one of the world’s biggest artists today. But what about those who have long fought against the system to find success in and around traditional labels? The Voice, American Idol, X Factor, America’s Got Talent, et al., only compound the focus on singles and not musical experiences. Thus, the business model supports a world where artists largely matter for a minute, only to become the next fad. Ahem, Iggy. Sorry. Not sorry.
Artists Must Also Innovate
The world’s short attention span theater isn’t ignorant of artistry. It just needs visionaries who can champion and monetize new models to invest in experiences over moments.
It’s easy to blame everyone and everything else. We’re always ready to point out what doesn’t work, but we’re rarely so willing to become part of the solution. The same is true for artists themselves.
A few years ago, I had the opportunity to partner with Billy Corgan, lead guitarist and cofounder of The Smashing Pumpkins. We keynoted SXSW together and also subsequently fired off a few shots across the bow of traditional music. His mission was to call attention to challenge new artists to think differently about signing away their souls in exchange for temporary relevance. He emphasized that labels don’t develop artists the way they used to. He went so far as to compare new artists to sex workers saying, “Once you’ve scored a record deal, you’re just the fresh stripper.”
What are you going to do now and tomorrow that matters? Once you have someone’s attention, what are you going to do with it? How will you earn it over and over again in real-time so that you’re not a one-hit wonder?
To gain mainstream attention for talent these days, according to Corgan, artists have to set themselves on fire on YouTube. Even that, Corgan claimed, would likely not be enough. “Artists that break through now have grown up thinking that being famous is the goal,” he said on stage at SXSW. “Not to be respected — not to be dangerous,” he continued.
That said, Corgan acknowledged that even when he was coming up, the system wasn’t perfect. “I knew I was being exploited,” he said, “but there was a Faustian bargain to be made.”
Corgan’s underlying melody is that musicians and technology are feeding the mentality that fame is what artists crave, exchanging artistry with ephemeral relevance.
“Don’t call it rock and roll,” Corgan told the audience in Austin. “I was part of a generation that changed the world — and it was taken over by poseurs.” His point is that with the state of affairs today, there can never be another Smashing Pumpkins if it’s left to the labels. Instead, artists have to rewrite its sheet music by questioning yesterday’s path to stardom and, in the process, redefine the idea of stardom.
Artists need to think beyond the music. They need to think like entrepreneurs and approach music as a service or product. Furthermore, their music should be just one part of a thriving ecosystem supported by an engaged community where artists, and what they represent, essentially become startups that compete for attention and relevance.
Some are doing just that …
The genius of Thom Yorke cannot be underestimated. In 2007, Radiohead debuted In Rainbows, an album without a record contract. Prior to its official release, 10 days to be exact, the band surprised fans by offering it under a clever but unproven pay-what-you-want model (aka a digital tip jar). The album entered the Billboard chart, the U.K. Album Chart and the United World Chart at No. 1, and it went on to sell millions worldwide. According to Radiohead’s publisher, Warner Chappell, In Rainbows made more money before the album was physically released than the total sales for the band’s previous album, Hail to the Thief.
In 2014, Thom Yorke did the unthinkable again by releasing his solo record, Tomorrow’s Modern Boxes with notorious copyright infringers (or new media heroes) BitTorrent. Within a month, the album was downloaded millions of times and is also reported to have made millions in the process.
The idea of the surprise album is now a thing. Beyonce, Drake, Kendrick Lamar and many others now use the technique as a strategic marketing ploy. And it seems to be working for the most part. Beyonce, for example, surprised fans with her eponymous album with no prior promotion at the end of 2013. The album topped the charts and became the fastest-selling album on iTunes, selling more than 800,000 copies internationally in three days.
There are many ways to think about the future if you start from scratch. Flyleaf, a multiplatinum band I’ve long supported, is just one of the many examples of new ways bands can gain notoriety and sales in a streaming economy. To fund the recording and release of its latest album, the band turned to PledgeMusic to crowdfund the endeavor. Needless to say, it more than worked. As a fan, I took part.
There are also those who pave the way for the future of music through YouTube and beyond. Even though you may not hear or think of OK GO outside of its incredibly clever and avant-garde YouTube videos, it is successful defining its own musical journey and destiny as independent artists and also as digital marketing strategists for brands.
“After so many years together, alt-rockers OK GO are still going strong, thanks to a dedicated fan base and some of the most creative music videos of all time,” declared Huffington Post. The band experimented with EMI after finding initial success on YouTube and is now proudly working on its own. More so, OK GO is now partnering with brands to help produce viral clips and commercials that riff on their experience with online creativity.
Some might call them sellouts. On the other side of the conversation, they are getting paid to keep making music.
“It’s hard in music,” said Tim Nordwind, the band’s bassist in a recent interview with Forbes. “Most people get their music for free these days, so I feel like we have to look to a bunch of different avenues to support the things that we do.”
In the end, artists must create incredible music, of course, but they must also invest in experiences that unlock ecosystems to breathe life into new revenue models.
Discoverability Is the New Awareness
There’s also something to be said for the fact that all these new platforms, regardless of their monetization models, significantly contribute to music discovery among younger generations who don’t listen to or watch traditional radio or TV.
Discoverability is an unsung gift. Simply by listening to music or watching videos, algorithms help introduce you to songs or artists “like” it. How many times have you heard stories of older artists enjoying newfound popularity simply because their music aligned with the digital DNA of more recent material? There’s something here that artists can plug into as a way of capitalizing on awareness and interest. It’s definitely not unheard of. Just look to country music for inspiration ;).
But in all seriousness, artists need to think about both innovating and fast-following popular algorithms to stay both discoverable and relevant. It’s not unlike how up-and-coming artists influence YouTube’s algorithm as unsuspecting viewers are barraged with covers when searching for specific music.
Attention is there. It’s what you do with it that counts. This represents a new opportunity for artists, labels and the entire ecosystem to collaborate on new ways to earn discoverability and monetize it now and over time.
Ignorance + Arrogance = Irrelevance
All in all, what’s most important to learn from is that our victim, aka the music industry as a whole, refused innovative treatment and instead turned to archaic practices of medicine to heal its life-threatening wounds.
Rather than innovate and collaborate toward the future, the all-too-common and legacy-unraveling trend among executives is to fight for the past and let competitors, seen and unseen, define destiny.
Aside from this incredible disruption that, for some reason, laggards continue to debate, I believe the music industry is here to stay. It’s just forced to deal with the reality that this current chapter in the history of music favors subscriptions over singles. It’s time to question convention and to establish a new status quo.
There are an almost infinite number of places and ways to start unbundling to collapse, re-invent, or completely invent the future of anything and everything.
Steve Barnett did the unthinkable as the new chairman and chief executive of Capitol Records in 2012. He pulled down all the framed records and cardboard cutouts that had adorned the lobby of the historical Capitol Tower offices in Hollywood. Just think about it. The Beatles, The Beach Boys, among an iconic list of music legends, are no longer greeting employees and visitors when they walk in every day. The idea was to remind everyone that the future wasn’t so much rooted in the past as it was in need of fresh perspective.
“They were so burdened by the past they couldn’t think about the future,” said Barnett in an interview with the LA Times. “We’ve had to make a path for ourselves. And two years in, I think we’ve done that … I think we’re in the game.”
Innovation doesn’t have to come solely from the music vortex. Spend some time with startups and you’ll see new possibilities.
There’s also a lot to learn from the creator space, for instance. New models arise almost every day to cultivate video creators on YouTube, Vine and now Facebook. The goal is to grow communities and engagement to develop a new generation of “new TV” stars and monetize the content for the entire ecosystem. Even without help, many of these creators are making millions per year. As a result, new media companies, such as Maker, Machinima and Collective, are erecting ecosystems to support new artistry. It’s one of the reasons Disney acquired Make for upwards of $1 billion.
Boyce Avenue, up until July 2015, was the biggest indie band on YouTube. Since departing Universal Republic in 2010, the group has sold 400,000 albums and 5.3 million digital tracks, and its songs have been streamed nearly 450 million times. The band has amassed 7.2 million subscribers and earned over 2 billion views. Now, Boyce Avenue has since signed with digital entertainment company Collective Digital Studio to be part of CDS’ multichannel network.
Opportunities unfold in mysterious ways, and sometimes they’re completely orchestrated. But it’s only our cognitive biases that interfere with innovation or the ability to see new possibilities. We can’t innovate if we root our decisions in what we know. This is why it’s time for innovation and not iteration or complacency. Digital Darwinism is a chance to shine or fade into obscurity.
The invariable Steve Jobs once ironically stated, “Death is very likely the single best invention of life. It’s life’s change agent. It clears out the old to make way for the new.”
Music is knock knock knocking on Heaven’s (or Hell’s) door. Open the door and let “them” in. In other words, don’t wait for someone to tell you what’s next when everyone else is waiting for you to do just that.