Why You Should Be Actively Licensing Your Music

Published: Tue, 06/09/09

Hi ,
 
Today I want to share a few of my thoughts on the current state of the music industry, how it´s changing, and why I think professional musicians should be pursuing licensing opportunities more aggressively now than ever before. 
 
As I assume we all know by now, the music industry is rapidly changing.  Record sales have been steadily declining, thanks in large part to the internet, and the shifting tastes of consumers who are refusing to pay exorbitant prices for full length CDs and who are instead opting to purchase songs one at a time, if they purchase them at all. 
 
These changes have made it harder than ever before for artists to get signed to major recording deals.  Recording and distributing music, at least the old school way, has become less and less profitable.  I for one think there is a major silver lining in all of this, at least for the artists who are making music and seeking to make a living from it.  Getting signed to a major recording contract and hoping to ¨make it¨ has always been somewhat analogous to winning the lottery.  The odds are simply stacked completely against the artist.  The game was designed where a very few lucky artists would win, most wouldn´t, and the recording labels that succeeded in pushing a few artists to the top would become extremely wealthy.
 
This music business game, the way it has been traditionally played, is becoming a harder and harder game to play for both artists and labels.  Record sales, even for artists who have recording contracts, are becoming a smaller and smaller source of revenue for artists and labels.
 
What does all this mean for you the artist? I´m a firm believer in being as self empowered as possible.  I think musicians should always take their careers into their own hands and proactively design their careers to be as profitable as possible.  Doing this successfully in large part is a result of simply having the necessary knowledge to make good decisions in terms of where to focus your time and what avenues to pursue.  None of us have crystal balls, and I certainly can´t predict the future of the music business.  But what I can say with certainty is that CD sales have been increasingly declining and that revenue earned from licensing music has been increasing.  This is a trend that has been pointed out in numerous studies of the music industry, several of which I´ve referred you to in previous newsletters.  

Peter Rojas, founder of Engadget and co-founder of RCRD LBL, a free, online-only music label launched by Downtown Records had this to say as to why the recording industry is collapsing (note the emphasis on music licensing as one of the three pillars of revenue):

¨The short answer is that the Internet happened.

I never thought studying Adorno and Horkheimer in college would come in handy (much as I loved them), but they did a good job of identifying how the rise of mechanical reproduction went hand-in-hand with the birth of mass culture. Whether it was television, radio, newspapers, or records, huge media companies were able to take advantage of a curious sweet spot in history -- mechanical reproduction made it possible to churn out cheap, identical copies of a book, newspaper, record, etc., but creating and distributing those cheap, identical copies required the sort of capital to which very few individuals had access. In the case of music, a handful of major labels could more or less monopolize the creation and distribution of music.

The Internet changed all that. We'd already been slowly shifting from analog to digital reproduction, but it was digital reproduction combined with the a ridiculously cheap distribution channel (the Internet) that really mucked it up for the major labels. The emergence of Napster (the original one) was the wake-up call, but the record industry would be in trouble now even if no one had invented peer-to-peer file sharing.

The fact of the matter is that the majors thrived in an era of inefficiency, when there was value in physically producing and distributing music. There isn't any value in that any more (or at least, it's very quickly declining), and there's no good way for labels to compete given that the cost structure of the business was designed around physical releases. Major labels need blockbusters, because the costs inherent with producing, distributing, and marketing each physical release means it's easier to make money from one mega-hit that sells 10 million records than 100 small hits that each sell 100,000 records. In a digital world, you could make money from those 100 small hits almost as easily as you could from that one mega-hit. (See Chris Anderson's theory of the Long Tail).

If this was merely the extent of the problem, the record industry might be doing okay right now. The majors could have adjusted and reinvented themselves for the digital era. Instead, they took too long to start selling music online (and even when they did agree to start selling digital downloads, they screwed it up by insisting on digital rights management ). The lack of legal, paid-for downloads created a vacuum in the pre-iTunes era, one that numerous peer-to-peer file-sharing networks were happy to fill. A generation of kids got used to the idea that music was free, and given the infinite amount of freely -- if illegally -- available music out there, it was hard to argue with the facts on the ground. Music seemed free, so it was free. It didn't help that the industry had been gouging consumers for years with high CD prices; prices rose even as the cost of producing CDs plummeted. Digital downloads should have made it possible to slash prices for recorded music, but the majors have done their best to keep prices at around a dollar a track -- an artificially high price point that makes piracy more attractive than it should be.

I don't pretend to know what the industry will look like in ten years, but the funny thing about all of this is that music itself is healthier than ever. The Internet, combined with low-cost (or even no-cost) digital tools, has led to an explosion of creativity, with millions of amateurs making music for every conceivable genre, sub-genre, and microgenre, and then sharing their creations online. Andrew Keen might look down on these results, and no doubt 99.9 percent of the music being created today is terrible; but that's besides the point. Even that one-tenth of one percent means that there is more great music being created than any of us will have time to listen to -- and that's not even taking into account all of the "professional" music that still manages to get made. Many professional artists are discovering that, regardless of how well their music sells, they're still able to make a healthy living from live appearances, merchandise, and licensing -- and the Internet only makes it easier for them to build a fan base. It's the Britney Spearses of the world that are hit hardest by all of this change. Manufactured pop doesn't do quite so well when consumers have better options to choose from.

The majors thrived in an era of artificial scarcity when they were able to control the production and distribution of music. Today, we have an infinite number of choices available to us, and when content is infinitely abundant, the only scarce commodities are convenience, taste, and trust. The music companies that are successfully shaping the Internet era are recognizing that the real value is in making it easier to buy music than to steal it, helping consumers find other people who share their music tastes, and serving as a trusted source for discovering new music.¨
 
 
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Happy Songwriting!
Aaron