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Op-Ed I - On "Disaggregating" the Old Music Ecosystem/Cottage Industries 2.0
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On “Disaggregating” the Music Ecosystem I and Empowering Cottage Industries [2,0] [An Op-Ed]
WHY CHANGE THINGS? The traditional business model for creating and distributing music is on the verge of structural and moral bankruptcy. Part I frames the problem; Part II provides some broad numbers; and Part III outlines a way forward.
PART I. THE ECONOMIC, SOCIAL/CULTURAL, AND TECHNOLOGICAL FRAMEWORK. The threshold question is: Does the current ecosystem reflect the best business model to create “truth-values” and, therefore, capital values in music? Troubling follow-on questions are: How are diverse Artists selected and guided by a few dominant gatekeepers and conflicted agents? How do profit pressures affect creative content? Most importantly, are Artists fairly compensated?
A. ECOSYSTEM I AND THE DOMINANT GATEKEEPERS. The traditional model (“Ecosystem I”) historically evolved in a fragmented environment, local Artists seeking broader opportunities, high production and distribution costs, limited access to media. Control of key variables by arbiters of taste with critical mass resulted in uneven concentration of power at the top of a hierarchical structure and dependence of local musicians and agents on the dominant gatekeepers. As external economic, social/cultural, and technological forces have changed, the “take” of intermediaries has become disproportionate
B. QUALITY/VOLUME TRADE-OFFS IN MASS MARKETS. As physical record sales and margins decline, pressures increase on the Artists without sustainable leverage at the base of the structure. Big Labels increasingly cater to the lowest common denominator, making a quality/volume trade-off to sustain mass market interest.
C. A PRISONER'S DILEMMA AND THE GATHERING STORM. Those controlling the “power discourse” have created a zero-sum, win/lose economic framework by choice or default. Compromised musicians become cynical stakeholders in a constrained and maligned system where survival depends on accommodation. This is the Artists’ prison and their economic and creative dilemma. Alternatively, Artists have rejected the system of craven competition for mass mind-share or, worse, abandoned their creative calling altogether. Industry dislocations have resulted in inefficient capital formation and diminution of diversity and excellence in music in our societies. Ecosystem I is in structural and moral crisis and the battle cry for a “Music Uprising” resonates profoundly.
D. INCREASING RETURNS, AND THEIR MEAN REVERSION OR DESCENT INTO CHAOS. The dialectic progression from ossified privilege to “creative destruction” is predictable. Business models destroy capital values when past successes become generalized as infallible processes in concentrated hands trying in vain to perpetuate perceived economic laws of increasing returns that are inevitably transitory. When they collapse, brittle structures based on diminishing advantages have ruinous consequences on captive participants. Artists beware!
E. THE NEW TECHNOLOGY OF INDEPENDENCE AND COOL. In the meantime, technology has spawned a whole new generation of musicians who want to stay independent. The social movement of Web-empowered individuals has reached a new order of magnitude in intensity and expression. The DIY ethos of this social movement is notably “anti-establishment” in that everything pre-Web 2.0 is deemed corrupt or compromised (perceived or real problems arising out of power hegemonies; undisclosed conflicts of interest; limited rather than open access.)
F. DO-IT-YOURSELF ETHOS. A “Wiki-consensus” describes DIY culture as a heightened reflection of the post-modernist (decentralized) mood of the times where grassroots protest (direct action) and party (the festival) converge in street-cred and the “scene.” Music is more local than ever and centralized command and control structures do not readily adapt to the DIY ethos. Individual Artists need a technology platform to leverage their own sweat equity to resonate with the decentralized energy of their impassioned Fans in local “scenes” and to grow their fan base organically. DIY II represents the evolution and empowerment of new cottage industries [revisited] as a micro-economic model that is more relevant to our times, without regard to where one subsists on the planet.
G. MAKING MONEY IS A GOOD THING - INDEPENDENTLY. “Indie” culture traditionally eschews commercial hierarchies but has evolved practically and for the better to mean local “control” and “integrity” even while making money doing what one passionately believes in. Artists making money is not necessarily a bad thing and growth of the music ecosystem still depends on the power of “the invisible hand” to create and monetize virtual values. You can’t play if you can’t eat.
PART II. THE SHRINKING ECOSYSTEM I AND CAPTIVE ARTIST-CLIENTS. The existing model is now largely driven by the big 4 (possibly to become 3) major recording labels, their “stealth indies”, and agents, controlling an approximately $30 billion global recording industry. As noted, the structure of Ecosystem I is hierarchical rather than flat with the major labels at the top of the food chain taking most of the approximately 85-90% of gross revenues from their physical record sales and most of the Artists at the bottom of the food chain, but providing the creative content, getting approximately 10-15% royalties or points when they choose to play the game. Reportedly only 1 out of 20 CD albums, out of about 30,000 produced annually, are seen as “profitable” and the gold/platinum sales are shrinking. What is “profitable” depends on complex accounting. Much of the tickets, merch, publishing, and other music revenues, making up another $35 billion of the music industry also goes to the labels, middlemen, and others in Ecosystem I and little, if anything, reverts to the Artists because of the contracts of adhesion they often sign due to lack of negotiating clout or business savvy.
A. ARTISTS AS A BROAD ECONOMIC UNDERCLASS. It had been reported that the average income of the approximately 250,000 professional musicians in the US is about $30,000 a year, before personal outlays. Artist royalties reverting to the labels also include "recoupment" of cumulative advances for “music that did not sell” [due to lack of mass market appeal by compromised arbiters of taste]. To support the existing hierarchical system, where the "take" of the staggering superstructure is far greater than the base [of starving Artists], overlords control the creativity and exposure of their contracted artist pool and appropriated past works of art. Lest the entire structure collapse, the owners of content strive to ensure that the "mass market" successes are huge, that is, the reported 1 out of 20 CD albums (a diminishing SKU) that do become “profitable” and support everything else is package-able and saleable in volume both during the short-lived frenzy of release or through periodic catalog sales of past recordings and copyrights owned by the labels rather than Artists.
B. A FAILING MODEL. The hierarchical and vertically organized industry structure with concentration of power at the top is in trouble with declining record sales, costly legacy structures, and a growing discontent among Artists, being the creators of content making it all happen in the first place. To prop up a failing model, the drivers of Ecosystem I now focus on eliminating perceived cost redundancies rather than broad industry growth [witness the industry consolidation of the major labels and possibly satellite radio]. The overlords still don’t “get it.” Naturally, the flip-side of crisis is opportunity.
C. THE SPARK. The social movement of DIY culture, being a culture of political activism and grassroots celebration discussed above, is gaining a web-enabled momentum, and frustrated Artists are just waiting for the spark to set off a revolution in their industry. Imprisoned Artists have nothing to lose but their chains. Hereafter, they will deserve the future that they create. The message heard, must [and we believe, will] be acted upon.
PART III. THE STRUCTURE AND PROMISE OF A NEW MODEL (Ecosystem II and Free and Independent Artists). The coincidence of an economically challenged industry, Artists-in-revolt, and web-enabled technologies (with costs of communications approaching nil) will inevitably flatten the dislocations implicit in Ecosystem I, with the promise of eliminating the waste of the old model of concentration and privilege. More revenues can and should be passed on to more Artists who provide the creative and economic foundation of the system. The way forward is now clear and the new music structure (“Ecosystem II”) will effect a renaissance of growth as Artists and Fans embrace it.
A. THE NEW ECONOMICS OF COMPLEXITY AND MUSIC UPRISING FOR FITNESS. Ecosystem II will provide the structure and tools to permit a greater number of Artists to work as full-time professionals and be creative as independent nodes in a highly complex, but flat and networked, economy. For example, if the total global music industry revenue base of approximately $70-75 billion can effect a compounded annual rate of growth of 10% over the next 4 years [not an overly heroic assumption in an era of digital distribution and "communications for free"], the total gross revenues would be approximately $!00-110 billion. The only way to unlock/solve the prisoners’ dilemma is to create a win/win system based on growth and equitable allocation for value-added in the system.
B. A CAVEAT ON LONG TAIL SOCIAL COMMUNITIES AND 'EXCELLENCE' IN MUSIC. Many Music 2.0 (dis)intermediaries are developing web-enabled social communities in the music sector. Ironically, the new, new initiatives that do not address the prisoners’ dilemma are merely technology-enabled versions of the old model, pandering to the lowest common denominator, that foreshadows doom. Subjective quality distinctions regarding “excellence” and the interactivity of nodes in complex networks (i.e., order self-emerging from disorder at the edge of chaos) will be an important and productive thread to be developed in a separate blog.
C. DISAGGREGATE AND RECONFIGURE. Beyond the foregoing, the potential of a flat, web-enabled model with a proper artist-centric focus is that the participants and new integrators need not rely exclusively on revenues that derive from the artists' creative work [song downloads, touring, publishing]. Advertising revenues that were previously captured by the middlemen in the hierarchical Ecosystem I [radio/TV/fanzine advertising, etc.] would now also flow in significant part to the integrated enablers and to the Artists themselves directly and indirectly through the enhanced net residual take of a reconfigured and broader pool. Growth of digital advertising itself need not be a zero-sum game. Indeed, the broader music Ecosystem II may be a bigger value-creator of capital in the new music industry model than the underlying music content itself. The challenge for the new web-integrators is to communicate and obtain Artist/Fan indulgence and absolution for using the virtual real estate of ad-space that will proliferate in Ecosystem II to secure a powerful alternative revenue stream to support the “Music Uprising” and much needed transformation. In business, judicious execution is everything.
D. A RESOLUTION OF THE PRISONER'S DILEMMA. In broad terms, the development of Ecosystem II is a win/win for the Artists and their committed Fans released from the constraints of the existing win/lose prison [for Artists] and limited choice [for Fans] who have thus been locked in a prison of their own. All are free at last.
A few enlightened participants are at the juncture where a potentially structural and morally bankrupt system, a vast social/cultural movement, and technology are about to collide and they are prepared to seize the day. As a long time student and practitioner in capital formation, we conclude that “Music Uprising” is an inspired and timely mantra for revolution, change, freedom, growth, and excellence. The Spark has been ignited.
March 26, 2006 - TheCapitalClinic [a disclosed and committed, but independent stakeholder in Fuzz and the Fuzz Manifesto]. Please send public or private comments to TheCapitalClinic homepage on the Fuzz.com website. Selected public comments may also reappear in the Fuzz Buzz. The views expressed herein or therein do not necessarily constitute a Fuzz endorsement. The analysis above is part of a broader study of TheCapitalClinic on the shifting power discourse to disaggregate the modern corporate structure and empower cottage industries [in revisited format] to optimize the creation of capital globally.
WHY CHANGE THINGS? The traditional business model for creating and distributing music is on the verge of structural and moral bankruptcy. Part I frames the problem; Part II provides some broad numbers; and Part III outlines a way forward.
PART I. THE ECONOMIC, SOCIAL/CULTURAL, AND TECHNOLOGICAL FRAMEWORK. The threshold question is: Does the current ecosystem reflect the best business model to create “truth-values” and, therefore, capital values in music? Troubling follow-on questions are: How are diverse Artists selected and guided by a few dominant gatekeepers and conflicted agents? How do profit pressures affect creative content? Most importantly, are Artists fairly compensated?
A. ECOSYSTEM I AND THE DOMINANT GATEKEEPERS. The traditional model (“Ecosystem I”) historically evolved in a fragmented environment, local Artists seeking broader opportunities, high production and distribution costs, limited access to media. Control of key variables by arbiters of taste with critical mass resulted in uneven concentration of power at the top of a hierarchical structure and dependence of local musicians and agents on the dominant gatekeepers. As external economic, social/cultural, and technological forces have changed, the “take” of intermediaries has become disproportionate
B. QUALITY/VOLUME TRADE-OFFS IN MASS MARKETS. As physical record sales and margins decline, pressures increase on the Artists without sustainable leverage at the base of the structure. Big Labels increasingly cater to the lowest common denominator, making a quality/volume trade-off to sustain mass market interest.
C. A PRISONER'S DILEMMA AND THE GATHERING STORM. Those controlling the “power discourse” have created a zero-sum, win/lose economic framework by choice or default. Compromised musicians become cynical stakeholders in a constrained and maligned system where survival depends on accommodation. This is the Artists’ prison and their economic and creative dilemma. Alternatively, Artists have rejected the system of craven competition for mass mind-share or, worse, abandoned their creative calling altogether. Industry dislocations have resulted in inefficient capital formation and diminution of diversity and excellence in music in our societies. Ecosystem I is in structural and moral crisis and the battle cry for a “Music Uprising” resonates profoundly.
D. INCREASING RETURNS, AND THEIR MEAN REVERSION OR DESCENT INTO CHAOS. The dialectic progression from ossified privilege to “creative destruction” is predictable. Business models destroy capital values when past successes become generalized as infallible processes in concentrated hands trying in vain to perpetuate perceived economic laws of increasing returns that are inevitably transitory. When they collapse, brittle structures based on diminishing advantages have ruinous consequences on captive participants. Artists beware!
E. THE NEW TECHNOLOGY OF INDEPENDENCE AND COOL. In the meantime, technology has spawned a whole new generation of musicians who want to stay independent. The social movement of Web-empowered individuals has reached a new order of magnitude in intensity and expression. The DIY ethos of this social movement is notably “anti-establishment” in that everything pre-Web 2.0 is deemed corrupt or compromised (perceived or real problems arising out of power hegemonies; undisclosed conflicts of interest; limited rather than open access.)
F. DO-IT-YOURSELF ETHOS. A “Wiki-consensus” describes DIY culture as a heightened reflection of the post-modernist (decentralized) mood of the times where grassroots protest (direct action) and party (the festival) converge in street-cred and the “scene.” Music is more local than ever and centralized command and control structures do not readily adapt to the DIY ethos. Individual Artists need a technology platform to leverage their own sweat equity to resonate with the decentralized energy of their impassioned Fans in local “scenes” and to grow their fan base organically. DIY II represents the evolution and empowerment of new cottage industries [revisited] as a micro-economic model that is more relevant to our times, without regard to where one subsists on the planet.
G. MAKING MONEY IS A GOOD THING - INDEPENDENTLY. “Indie” culture traditionally eschews commercial hierarchies but has evolved practically and for the better to mean local “control” and “integrity” even while making money doing what one passionately believes in. Artists making money is not necessarily a bad thing and growth of the music ecosystem still depends on the power of “the invisible hand” to create and monetize virtual values. You can’t play if you can’t eat.
PART II. THE SHRINKING ECOSYSTEM I AND CAPTIVE ARTIST-CLIENTS. The existing model is now largely driven by the big 4 (possibly to become 3) major recording labels, their “stealth indies”, and agents, controlling an approximately $30 billion global recording industry. As noted, the structure of Ecosystem I is hierarchical rather than flat with the major labels at the top of the food chain taking most of the approximately 85-90% of gross revenues from their physical record sales and most of the Artists at the bottom of the food chain, but providing the creative content, getting approximately 10-15% royalties or points when they choose to play the game. Reportedly only 1 out of 20 CD albums, out of about 30,000 produced annually, are seen as “profitable” and the gold/platinum sales are shrinking. What is “profitable” depends on complex accounting. Much of the tickets, merch, publishing, and other music revenues, making up another $35 billion of the music industry also goes to the labels, middlemen, and others in Ecosystem I and little, if anything, reverts to the Artists because of the contracts of adhesion they often sign due to lack of negotiating clout or business savvy.
A. ARTISTS AS A BROAD ECONOMIC UNDERCLASS. It had been reported that the average income of the approximately 250,000 professional musicians in the US is about $30,000 a year, before personal outlays. Artist royalties reverting to the labels also include "recoupment" of cumulative advances for “music that did not sell” [due to lack of mass market appeal by compromised arbiters of taste]. To support the existing hierarchical system, where the "take" of the staggering superstructure is far greater than the base [of starving Artists], overlords control the creativity and exposure of their contracted artist pool and appropriated past works of art. Lest the entire structure collapse, the owners of content strive to ensure that the "mass market" successes are huge, that is, the reported 1 out of 20 CD albums (a diminishing SKU) that do become “profitable” and support everything else is package-able and saleable in volume both during the short-lived frenzy of release or through periodic catalog sales of past recordings and copyrights owned by the labels rather than Artists.
B. A FAILING MODEL. The hierarchical and vertically organized industry structure with concentration of power at the top is in trouble with declining record sales, costly legacy structures, and a growing discontent among Artists, being the creators of content making it all happen in the first place. To prop up a failing model, the drivers of Ecosystem I now focus on eliminating perceived cost redundancies rather than broad industry growth [witness the industry consolidation of the major labels and possibly satellite radio]. The overlords still don’t “get it.” Naturally, the flip-side of crisis is opportunity.
C. THE SPARK. The social movement of DIY culture, being a culture of political activism and grassroots celebration discussed above, is gaining a web-enabled momentum, and frustrated Artists are just waiting for the spark to set off a revolution in their industry. Imprisoned Artists have nothing to lose but their chains. Hereafter, they will deserve the future that they create. The message heard, must [and we believe, will] be acted upon.
PART III. THE STRUCTURE AND PROMISE OF A NEW MODEL (Ecosystem II and Free and Independent Artists). The coincidence of an economically challenged industry, Artists-in-revolt, and web-enabled technologies (with costs of communications approaching nil) will inevitably flatten the dislocations implicit in Ecosystem I, with the promise of eliminating the waste of the old model of concentration and privilege. More revenues can and should be passed on to more Artists who provide the creative and economic foundation of the system. The way forward is now clear and the new music structure (“Ecosystem II”) will effect a renaissance of growth as Artists and Fans embrace it.
A. THE NEW ECONOMICS OF COMPLEXITY AND MUSIC UPRISING FOR FITNESS. Ecosystem II will provide the structure and tools to permit a greater number of Artists to work as full-time professionals and be creative as independent nodes in a highly complex, but flat and networked, economy. For example, if the total global music industry revenue base of approximately $70-75 billion can effect a compounded annual rate of growth of 10% over the next 4 years [not an overly heroic assumption in an era of digital distribution and "communications for free"], the total gross revenues would be approximately $!00-110 billion. The only way to unlock/solve the prisoners’ dilemma is to create a win/win system based on growth and equitable allocation for value-added in the system.
B. A CAVEAT ON LONG TAIL SOCIAL COMMUNITIES AND 'EXCELLENCE' IN MUSIC. Many Music 2.0 (dis)intermediaries are developing web-enabled social communities in the music sector. Ironically, the new, new initiatives that do not address the prisoners’ dilemma are merely technology-enabled versions of the old model, pandering to the lowest common denominator, that foreshadows doom. Subjective quality distinctions regarding “excellence” and the interactivity of nodes in complex networks (i.e., order self-emerging from disorder at the edge of chaos) will be an important and productive thread to be developed in a separate blog.
C. DISAGGREGATE AND RECONFIGURE. Beyond the foregoing, the potential of a flat, web-enabled model with a proper artist-centric focus is that the participants and new integrators need not rely exclusively on revenues that derive from the artists' creative work [song downloads, touring, publishing]. Advertising revenues that were previously captured by the middlemen in the hierarchical Ecosystem I [radio/TV/fanzine advertising, etc.] would now also flow in significant part to the integrated enablers and to the Artists themselves directly and indirectly through the enhanced net residual take of a reconfigured and broader pool. Growth of digital advertising itself need not be a zero-sum game. Indeed, the broader music Ecosystem II may be a bigger value-creator of capital in the new music industry model than the underlying music content itself. The challenge for the new web-integrators is to communicate and obtain Artist/Fan indulgence and absolution for using the virtual real estate of ad-space that will proliferate in Ecosystem II to secure a powerful alternative revenue stream to support the “Music Uprising” and much needed transformation. In business, judicious execution is everything.
D. A RESOLUTION OF THE PRISONER'S DILEMMA. In broad terms, the development of Ecosystem II is a win/win for the Artists and their committed Fans released from the constraints of the existing win/lose prison [for Artists] and limited choice [for Fans] who have thus been locked in a prison of their own. All are free at last.
A few enlightened participants are at the juncture where a potentially structural and morally bankrupt system, a vast social/cultural movement, and technology are about to collide and they are prepared to seize the day. As a long time student and practitioner in capital formation, we conclude that “Music Uprising” is an inspired and timely mantra for revolution, change, freedom, growth, and excellence. The Spark has been ignited.
March 26, 2006 - TheCapitalClinic [a disclosed and committed, but independent stakeholder in Fuzz and the Fuzz Manifesto]. Please send public or private comments to TheCapitalClinic homepage on the Fuzz.com website. Selected public comments may also reappear in the Fuzz Buzz. The views expressed herein or therein do not necessarily constitute a Fuzz endorsement. The analysis above is part of a broader study of TheCapitalClinic on the shifting power discourse to disaggregate the modern corporate structure and empower cottage industries [in revisited format] to optimize the creation of capital globally.
Comments
As for the labels [and studios], the cycle of growth and "creative destruction" will keep repeating itself until a new format for the creation of capital evolves. This is the core thesis on which Op - Ed I rests; hence, the call to empower the "Cottage Industry" [but in a revisited format that is forward-looking rather a return to more primitive times.]
Ironically, all that it takes to save the labels [and studios] are concerned fiduciaries and enlightened management in these hierarchical businesses to free artists to create their own future in a flat environment in collaboration with the new enablers. Unfortunately, with their sunk costs and vested interests, the prison-keepers are now locked in a prison of their own making. Predictably, the change will be too painful for most of them to endure; and Artists and Fans will free themselves from their own confinement before the gate-keepers are ready, willing, or able to do so for themselves.
Suffice it to say [for now], there is no free lunch in economics. The effort expended as "sweat equity" in energizing the artist-fan relationship [through direct communication, feedback, and DATA MANAGEMENT] will in time be reflected in tangible values. This proposition applies in equal measure to our work at TheCapitalClinic in aid of the ongoing Music Uprising.
You should read and be energized by Maureen's Blog posted today at the Fuzz Buzz: "I wish there was a Fuzz when I was a middleweight punk rock star." This is an incredible description of the prisoner's dilemma and the path to freedom for artists at all stages in their careers. Her blog is a masterpiece for hope. Everyone should read it, reflect, AND TAKE ACTION. Again, creativity is always an experimental exercise for the bold.
Maureen: "I actually wrote this piece a while back as an email to the company, but never sent it. I wanted us to always be aware that the majority of bands still have limited or no income, and maintain our sensitivity to that in our business model, in our signings, in every aspect. As Fuzz moves forward, I believe we are creating a new socio-economic strata of artists who once were powerless--financially, politically, socially--and that this change will tip culture in a huge way. I think it will make the world a better place, I really do. And in the same way that one empowers the impoverished with the tools to make their own living instead of by providing loans and charity, this can drag the artist population out of the lower classes. Music uprising indeed..."
TCC: In practical and philosophical sum, both Maureen's blog and TCC's Op - Ed agree that-
1. A truly worthwhile platform must accommodate and be useful to the entire spectrum of artists, from the aspiring amateur to the accomplished professional, most of whom may equally be considered part of an economic undeerclass.
2. The empowerment of artists [in every important financial, political, and social aspect of their lives] in Ecosystem II represents a "tipping point" in our culture and society.
3. DIY 2.0 [we take liberty here to expand upon the meaning of the post-modernist DIY movement] (i) "EMPOWERS THE IMPROVERISHED" [Maux' sound-bite with emphasis added]; (ii) enriches our culture; and (iii) restores dignity [socio-economic balance] in an unbalanced world.
Music uprising indeed...
An area where Fuzz can perhaps more easily grow is in the less developed markets of Asia, South America etc. I am not an Artist, but from the humble perspective of a Fan in Hong Kong, I see my access to music limited by what the labels view as "high probability investment returns" - i.e. there is very limited variety of music from the US and Europe that actually reaches Asia, and Fans have to spend a disproportionate amount of time trying to find anything not mainstream (i.e. commercial).
Broadly speaking, people in Asia represent enormous target markets for US Artists. I am certain that if Fuzz could expand to the Asian market, a large latent demand for music between the two cultures could be tapped.
To use a perhaps absurd example, look at the surprise success of David Hasslehoff in Germany - he was able to access a completely new market and thus hype surroundnig his music grew virally. The same could happen for artists in the US that gain recognition in China. People often forget how big the opportunities are in Asia. If an Artist could reach just 1% of the population in China, and in turn convert just 5% of those people to Fans, that would equate to an instant 650,000 Fans. Not a bad start.
let the people have their say.
i'm with you.