Friday, March 14, 2008

The Music Industry Is Dead - An Obituary


The music business is dead, passed on! It is no more! It has ceased to be! It's expired and gone to meet it's maker! It's a stiff! Bereft of life, it rests in peace! If it weren't nailed to it's perch it 'd be pushing up the daisies! It's metabolic processes are now history! it's off the twig! It's kicked the bucket, shuffled off it's mortal coil, run down the curtain and joined the bleedin' choir invisibile!! THIS IS AN EX-INDUSTRY!! (Apologies to Monty Python...always one of their finest sketches.)

But this is not my assessment, at least not mine alone. Peter Gabriel, addressing the MIDEM conference who gathered to honor him in Cannes, said ""It's time to put the corpse of what we know as the record industry in the ground and let some other beautiful things start to grow out of it." Piano man Billy Joel unleashed his wrath while inducting John Melencamp into the Rock and Roll Hall of Fame. Joel had a few choice words to say about the executives in attendance but, in his denouncements, he also claimed that the music business is dead. David Byrne also recently wrote an article for Wired magazine proclaiming the death of the music business.

Billy Joel Expresses his Disdain For Music Executives

What exactly does this mean though? Is it true? Before we discuss the music business we must look at business in general, and examine how and why the models created in modern times, have lead to catastrophic failure.
"I was a securities analyst 70 years ago in London, so I can say that no financial man will ever understand business because financial people think a company makes money. A company makes shoes, and no financial man understands that. They think money is real. Shoes are real. Money is an end result." -- Peter Drucker
The tale of Peter Drucker is the tale of modern management. His philosophy (or at least selected bits of it) is responsible for the rise of the modern corporations and their managers. Without his analysis the rise of dispersed, globe-spanning corporations is unimaginable.

But Drucker became disenchanted with the capitalism of the late 20th century. Rewarding greed instead of performance was not something he saw as positive. He'd become repulsed by the excessive undue riches awarded to mediocre and incompetent executives even as they slashed the ranks of workers. And as he entered his 10th decade, multi-national corporate empires, who literally owed him their existence, and the academia who had embraced his earlier ideas, now said his time had passed, that he'd grown sloppy with the facts. In the meantime, a new generation of management punks and pundits were growing fat off books and speaking tours. Their Junk Bond philosophies displaced and eclipsed him.

The dubious misgivings and disillusionment with business that Drucker spoke of in his later years caused him to turn away from the corporation and instead offer his advice to the nonprofit sector. It was an obvious acknowledgment that business and management had miserably failed.
Drucker points long forgotten or ignored are:
-- Decentralization -- Drucker recommended this in the 1940s.

-- He asserted -- in the 1950s -- that workers should be treated as assets, not as liabilities to be eliminated.

-- He originated the view of the corporation as a human community -- again, in the 1950s -- built on trust and respect for the worker and not just a profit-making machine, a perspective that won Drucker reverence among the Japanese.

-- He first made clear -- still the '50s -- that there is "no business without a customer," a simple notion that was not obvious to industry.

-- He argued in the 1960s -- long before others -- for the importance of substance over style, for institutionalized practices over charismatic, cult leaders.

-- And it was Drucker again who wrote about the contribution of the knowledge of workers -- in the 1970s -- long before anyone knew or understood how knowledge would trump raw material as an essential capital in the modern economy. Regardless of what field of endeavor one is engaged in, craftsmanship must be honored. Craftsmanship is never "cheap".
But Drucker's story is not mere echoes in the canyons of history. Whether admitted or not, the organization and practice of business management is derived largely from the thinking of Peter Drucker. His teachings form the blueprint. In a world of quick fixes, glib bandaids, and worthless exegesis; amongst a backdrop of fads and simplistic PowerPoint pablum, he understood leading people and institutions is filled with complexity, the building of trust, and is rife with codependencies. He taught the importance of picking the best people for jobs and treating them fairly, of focusing on opportunities and not problems, of getting on the same side of the desk as your customer, of the need to understand your competitive advantages, and to continue to refine them. He believed that talented people were the essential ingredient of every successful enterprise. That they must be valued, that money was simply the reward for doing something well, not and end in itself. The cult of greed with rewards for the few and disloyalty and exploitation for the many is a business model that simply can not sustain itself, even as an illusion, for very long.


What is a sound economic practice? One that is fair to all who participate in it. Henry Ford was called a "class traitor" for paying his factory workers a good wage and generally treating them well. But he understood what today's junk bond traders, profiteers, and self aggrandizing leeches do not. That to sell lot's of widgets, the buyers must have the capital to purchase them. If Ford's own employees didn't make enough money to buy his model Ts, how could he sell very many?
Roosevelt too, was called a class traitor. It has been said that J. P. Morgan's family kept newspapers with pictures of Roosevelt out of his sight, and in one Connecticut country club...mention of his name was forbidden as a health measure, to prevent strokes and seizures. In Kansas a man went down into his cyclone cellar and announced "he would not emerge until Roosevelt was out of office." (While he was there, his wife ran off with a traveling salesman.) Most historians regard F.D.R.today as one the greatest presidents the U.S. has ever had, 2nd only to Lincoln.

Architect of the New Deal-F.D.R.

F.D.R.became President at a desperate time, in year 4 of a worldwide depression that seriously threatened the future of Western civilization. "The year 1931 was distinguished from previous years...by one outstanding feature," British historian Arnold Toynbee said. "In 1931, men and women all over the world were seriously contemplating and frankly discussing the possibility that the Western system of Society might break down and cease to work." In the summer of 1932 John Maynard Keynes was asked by a journalist whether there had ever been anything before like the Great Depression, his reply: "Yes, it was called the Dark Ages, and it lasted four hundred years."

"The New Deal"struck a bargain between corporate marauders, tycoons, aristocracy (dragged kicking and screaming to table) and workers. The bargain was simply one that certified the rights of the workers to be treated with fairness, a degree of respect, and that government would attempt to supply jobs and human necessities that captains of industry were failing to provide. Starting in the 1980's this bargain has been chiseled away at and ignored. The partnership between owners and the workers began to be more and more lopsided, with profits through the roof, but wages less and less reflective of the prosperity of the companies. Every loophole was found to avoid management's obligation in this bargain. With exploitation of cheap labor from "Globalism" being the corporate Holy Grail. The New Deal attempted to have the US government step in where unrestrained capitalism failed. This bit of forgotten history has doomed us to a re-run.

By the time Roosevelt had been sworn in, incomes had been cut in half and over fifteen million Americans were unemployed. In every single state banks were closed or severely restricted their operations, and on the morning of his inauguration the New York Stock Exchange had shut down. For many, hope was entirely gone. "Fear bordering on panic, loss of faith in everything, our fellow man, our institutions, private and government. Worst of all no faith in ourselves or the future. Almost everyone ready to scuttle the ship, and not even women and children first." wrote the editor of Nation's Business. Hope, belief in the future, is a necessity for any type of prosperity.

Only a few weeks after Roosevelt took office, the spirit of the country was transformed. Gone was the listless torpidity and political paralysis of the Hoover years. (Republican President Herbert Hoover and his advisors believed in doing nothing, that the economy would correct itself. "Prosperity is just around the corner" was his slogan.) Business journals reported "The people aren't sure just where they are going, but anywhere seems better than where they have been. In the homes on the streets, in the offices there is a feeling of hope reborn."

Observers often referred to the imagery of darkness and light to describe the journey from the Hellish gloom of Hoover's final winter to the bright springtime light of day offered by First Hundred Days. Suddenly all the shops were open again, everyone was joyous, crowds moved excitedly. There was something in the air that had not been there before. The New Deal was perceived as a turning point. It was not just for the day, but forever. On the New York Exchange, where trading resumed on March 15, the stock ticker ended the day with the merry message: "Goodnite. ...Happy days are here again." (The song Happy Days Are Here Again was F.D.R's theme song).

People of every political persuasion gave full credit for the salvation to one man: Roosevelt. The British ambassador, Sir Ronald Lindsay said FDR's "conspicuous courage, cheerfulness, energy and resource, contrasted so markedly with the fearful, furtive fumbling of the Great White Feather, Herbert Hoover, that the starved loyalties and repressed hero-worship of the country have found in him an outlet and a symbol." The Republican Senator from California, Hiram Johnson, also praised the New Deal: "The admirable trait in Roosevelt is that he has the guts to try. ...He does it all with the rarest good nature. ...We have exchanged for a frown in the White House a smile. Where there were hesitation and vacillation, weighing always the personal political consequences, feebleness, timidity, and duplicity, there are now courage and boldness and real action." On the editorial page of Forum, Henry Goddard Leach summed up the nation's nearly unanimous verdict: "We have a leader." In the U.S. we now urgently have need again for someone with vision and imagination to occupy the oval office. Someone to stand up against the forces of unrestrained greed that again are fleecing the nation and the world. Someone who would again re-empower a middle class and return it to an equitable position. It can be done, but not by any conventional means. Perhaps a new "New Deal"?

I believe F.D.R. looked at the economic woes of his time much like a football coach looks at his tactics on game day. He had some general plans and plays, but tried all sorts of things to see which ones worked, and stuck with the ones that worked. This is no time for politics as usual. Bold new thoughts and deeds are needed, forget about party politics, this is way beyond those limiting parameters. Despite any claims about deceased actors who snoozed through their Alzheimer's dementia in the White House, the Soviet Union failed because their economy tanked. They went bankrupt in a foolish glut of military spending trying to convince the U.S. that it was a equal or superior military force. Now the U.S. faces a similar situation, in a world without cold war arms racing, the U.S. outspends all the nations of the world combined on it's military. This is completely unnecessary, a loss of treasure that could be used for the good of all, and directs the nation into needless conflicts that are not "defensive"in nature. Ironically the same mindset that bankrupted the U.S.S.R. is now bankrupting the U.S.A.


This gap between the U.S. and the rest of the world has widened considerably over the last 10 years. That's true because our own military spending has increased wildly during that time:

To sum up the article so far, the economy in general has been pillaged by supporting a cumbersome unnecessary infrastructure, by focusing on quick profits at the expense of the future, by adhering to ideology even as all evidence suggests the ideology is flawed, and by focusing on cheapness to bolster profits rather than value, quality, and particularly growth. In general, these same issues that are destroying the economy also apply to the music industry in many ways.

What is a business? The only function of a business is to create customer value. If that value is created, the business is viable, and is rewarded with profits. Music itself, of course, is not dead; musicians will always make music, with or without the aid of business. The "business" refers to the packaging, promotion, and delivery of recordings of their music. At it's best, it is a partnership that improves the circumstances of all involved. After all musicians are best left to make music, rather than conduct business, design marketing strategies, etc.


Businessmen are happy to have their talents rewarded in a profitable manner, and the consumer is served well when products have quality control, are readily available, and produced in a professional artistically sound way. Had the music business heeded the philosophy of Peter Drucker, and concerned itself with offering the best music possible, (instead of the cheapest to produce). If it nurtured, developed, and stuck by it's artists; and lead the way with innovations instead of fighting them-sticking to an ideology that was failing entirely, we would be talking about a completely different paradigm. But rather than dwell on the illness that killed the industry, let's look at what is growing out of it's grave.


There are literally hundreds of articles that cite Radiohead's recent success offering their latest collection of songs, In Rainbows, as a download that you pay whatever you think it is worth for.
Most are suggesting this is the model of the future. Trent Reznor has a different view though.

"I think the way Radiohead parlayed it into a marketing gimmick has certainly been shrewd," But if you look at what they did, it was very much a bait and switch, to get you to pay for a MySpace quality stream as a way to promote a very traditional record sale."

Radiohead's manager has also said that the band likely wouldn't try a similar promotion again. The British super group ended the offer and has begun selling the record through traditional sales channels.

"I don't see that as a big revolution that they're kind of getting credit for. There's nothing wrong with that, but I don't see that as a big revolution that they're kind of getting credit for...to me that feels insincere. It relies upon the fact that it was quote-unquote 'first,' and it takes the headlines with it" Reznor said to the Australian press.

Reznor has a point. Though Radiohead's music giveaway pioneered new territory, did it actually search for a new way to distribute music? Peter Gabriel's We7 is another model for downloading music that is fair to artists. Of course there are 7 million bands on MySpace, but how many are even remotely listenable by any standard? (Maybe one in 10.) Reznor's latest release with his band, Nine Inch Nails, began with distributing a digital album, Ghosts I-IV a 36-track instrumental, in a number of ways. The offer included free samples, a $5 digital version and premium packages that came with downloads, discs, and varying merchandise depending on the money one was willing to pay. In a little over a week, Reznor told The Chicago Tribune that he generated 781,917 transactions and earned $1.6 million.



Artists who do this type of release, and are successful at it, have said they do quite well financially because the overhead is minimal, and they get to keep all the profit themselves. This has always been an area that record companies have been criticized for. Often deals were struck that didn't do much justice to the artists. (Often receiving only 4-5 % of profits for albums.)

In this new model, there are missing links however. Radiohead and Nine Inch Nails came up through the old system and have had the "label" treatment. They have an existing large fan base. How do new bands get promoted successfully? What do you do to hear new music?
Why are there so few venues now for new live music? (Maybe you live in a region that this isn't the case, if so, I'd like to hear about it!)

Is the Music Business really dead? I think not, though the model that has been used since the inception of recorded media may be. Are record labels irrelevant? Only to the very rare musician who likes, and is good at accounting and promotion. So what is dead? In this period of transmutation, artists are their own publicists, accountants, promoters, etc. As a rule these are tasks most artists will not excel at, and will distract from actually making music. Distributors, marketers, and accountants will again be desired at some point. But here is the great possibility that could come to pass....perhaps this time the artists will not be "owned" by labels. Perhaps now a partnership will be the normality. A shared interest. This is my hope for the next phase.
When artists have partners who are good at other aspects of business, genuinely work together to produce the best quality products, everyone including consumers benefit.


I understand today's label executives spend every day simply adding friends on MySpace, so "obituary" may be too strong a word. The labels are attempting to use, and control in a sense, the internet mechanisms that sprung up as an alternate route for music players and listeners. The same medium that they had so opposed and dismissed only a few years ago. Artists must band together to insure the mistakes of the past do not re-occur in the future. This is a somewhat unusual notion as creative people are often fiercely independent. But if they don't, the "level" playing field offered by the internet will be controlled by the likes of Clear Channel.

Peter Gabriel said in a CNN interview: I think that a lot of artists aren't very good when it comes to marketing or accounts or doing a lot of the jobs that record companies do, so we're going to want somebody to do that. And probably the people we will look to do it are probably those who have the experience. But what I fundamentally believe is that the relationship should be a partnership. It shouldn't be we own you therefore we do what we want with your work. Those days should be gone, and if artists aren't smart enough to get off their arses and change that now, then we deserve what we get, because we have the opportunity [to change that]. It's quite hard talking to artists sometimes to get them motivated because there is not a lot of money in it at this point. But I think there will be and it's more sort of a power balance and I just think people in record companies now are a lot more willing to consider power-sharing deals.

Peter Gabriel has been a major mover and shaker in the download business, OD-2, Loudeye,
We7, are all innovations he has had a hand in. One of the most interesting I think is The Filter.
If you have not tried it, here is the link- http://www.thefilter.com/
It's a service that recommends new music based on your existing tastes. Very good!

We stand at a crossroads, both in the music business and political-economics in general. Now is the time to see to it that the way forward features equitable and fair progress for all of us. And to lay to rest the failed notions of the past. The idea that a handful of people should make enormous profits on the backs of all others, who make very little is not only unethical, but unsustainable, and impudent. Craftsmanship must again be honored and valued above cheap labor or production costs. The market wants good value in products, not cheaply made shoddy goods that have huge profit margins. We know all too well what trickles down from the extremely wealthy on everyone else has never been prosperity...that is a blatant lie.


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