“Too Expensive to Be Free, Too Free to Be Expensive”

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I have to partially borrow the title of (my friend and former colleague) Eliot Van Buskirk’s article on Wired.com for this post:  Music: Too Expensive to Be Free, Too Free to Be Expensive.  I need to borrow it, because when it comes to the state of digital music business models, this phrase nails it more than any I’ve heard in a long time. I’ve worked on both the consumer and the “rights-holder” side of this business, and the institutional barriers in the music industry have always been, in my view, the biggest obstacle to progress — for all parties involved.

Advertising was supposed to be music’s magic bullet, enabling fans to get the free music they’re going to find anyway while contributing at least something to copyright holder coffers. That dream is fading fast. As legitimate sources for free on-demand music dry up, fans will likely head back to file sharing networks, which is bad news for everyone involved in music — except for, perhaps, hard drive manufacturers.

That paragraph elegantly sums up what I see as a summary of the core institutional issues of the music business. The revenue generation happens so far away from the consumer experience that the two don’t recognize each other anymore. This model worked for a long time while the entire creative, intellectual property, manufacturing, distribution, and retail channels were in the control of a few large entities, because, well, that’s how oligarchies are. The industry’s bent towards “rent seeking” models, however,  grew old and tired and then the internet came along and put them all out of their misery.  Understand that I lump labels, publishers, and performance rights agencies together into the word “industry”, and rightly so, because this disaggregation of rights is a big cause of their woes.  I’m going a bit beyond the scope of Eliot’s article in discussing the various rights owners and their motivations, but it applies when you are a consumer company who must consider the cost of entering a business involving music (and I ‘m not even talking about up front costs and guarantees).

In a recent MidemNetBlog post titled A Delicate Balancing Act, Ted Cohen is sympathetic to both sides of the   “music industry vs. tech start-up” predicament, and he alludes to the cultural differences between tech entrepreneurs and industry types:

Having been on the label side, I understand the desire AND need to extract value from assets. In my current ongoing work with start-ups, I appreciate their passionate desire to do something innovative with music. These two goals shouldn’t be at odds with each other, and yet they are. The ‘asks’ by the rightsholders are frequently substantial, the expectations from the start-ups are often unrealistic. Neither side is really listening to each other, they are each focused on their own immediate concerns. Understandable, but not very productive.

The expectations for start-ups are often are unrealistic, but innovation is like that, and ultimately, “explaining” the music industry to someone with a good idea and a grasp of the demand side of the equation doesn’t solve the problem. The cultures do need to understand each other better, but the institutional structure of the music industry and the high costs that it creates in comparison to the questionable (and perhaps, now, unknowable) demand is a really, really big problem.