Record Label 101

By Bob Lefsetz

Ladies and gentlemen, start your engines, the streaming era has begun. And it’s going to turn the music business upside down. So much of what now exists will evaporate. The game will be completely different. It will switch from one focused on sales to actual listening. Right now, Spotify is pioneering. It appears to be trumping its competitors, Rhapsody, MOG, Napster and Rdio. But the big behemoth Apple is waiting in the wings. If you study the history of the Cupertino company, it’s rarely first, that’s a recent phenomenon, it usually enters a sphere late, after the public is inured to the behavior, and Apple perfects it. Apple was late with CD burners, iTunes was not the first jukebox, the iPod was not the first MP3 player. But Apple employed design, both software and hardware, to create elegant solutions that were intuitive, simple to use, requiring no manual, and ultimately triumphed in the marketplace.

Don’t say Apple doesn’t rent, just look at movies and TV in the iTunes Store. Steve Jobs is famous for saying one thing and then doing another. Funny how he can change position and politicians cannot. Apple only strikes when the time is right, when a business can burgeon. Streaming is now here. Expect only one streaming service to triumph in America. Spotify has the early-mover advantage, but Apple has the installed base, and everybody’s credit card number. And when Apple moves, everybody knows overnight. Steve Jobs gets on stage and it’s bigger than any rock show. Furthermore, users spread the word and people trust Apple.

It makes no sense to own product. You want your music everywhere. Quality will improve with bandwidth. The ship has sailed. What does this mean for you?

1. It’s no longer about the initial sales transaction, but getting people to actually listen to your music. Your relationship doesn’t end when people buy your music, it begins when you get them to click.

2. It’s less about foraging for new customers than satiating old ones. An established fan streaming your track ten times is just as good and cheaper to accomplish than finding ten new fans to stream your track once.

This is assuming the artists makes royalties on streaming. The amount of royalties for streaming is different depending on how the streaming happens. Royalties for streaming on demand (MP3skull, youtube, etc) is really low compared to Pandora/satellite radio. If it’s given on demand, it’s just not worth as much for some reason. If it’s streamed as a radio station (where someone else determines what you’re listening to), it’s worth a lot more. My question is – what category does Spotify fall in?  If the artist really wants to make money from streaming, they are better off getting it onto Satellite radio and services such as Pandora. The concept of trying to get everyone to stream has to be done to such a great scale that only super duper popular artists would benefit. I think I heard that for the 150 million views for one of her tunes on Youtube, Beyonce only made about $15k in royalties from that. If people expect to make money from streaming on Spotify, I’d be interested to see the royalty rate.

Additionally, people are lazy. It takes work to hook your cell phone into the car stereo. People will still listen to radio in the car as long as it’s more convenient than Spotify/Pandora. In other words, I think people most people will be too lazy to use Spotify to its fullest extent. The teeny boppers will be on it constantly, but as people grow older, they’ll just resort to whatever is easiest. Now once they put Spotify in the car radios, that will be the day!

3. Marketing and promotion are reminders to get people to stream as opposed to buy.

Agree and disagree. Marketing and promotion will try to get people to come to shows. Maybe a little toward buying the album but mostly toward live performance.

4. Historically, it’s been all about the release date. Stopping leaks and working everybody into a frenzy to buy the first week. Now you won’t care if a track leaks, you’ll just put it up on the streaming site and book revenue.

This is already true. Except that there is very little/no revenue from putting it on a streaming site.

5. Sure, you’ll create events to stimulate streaming. But there will be many as opposed to few. And they’ll be more targeted. Today’s events reach many people who just don’t care. In the streaming future you’ll alert your fan base and then execute. Knowing who your fans are will be crucial. Whether it be Facebook, Twitter, e-mail or some unknown social network, you will go directly to fans. It will not be about pitching middlemen, print and TV and radio, to get the word out.

True. It’s always been a poor business model for iTunes to not hook artists up with the people that buy their music. Maybe Spotify can somehow change that.

6. Recommendations will be key. When another band or a fan spreads the word via playlists, infecting new listeners. Radio is inefficient. It’s about advertising, not music. You want tobe turned on to tracks by someone with the same sensibility, whose only goal is to turn you on to something great.

This is true. Wished Spotify would allow ppl to send single tracks. However radio will always have its place because people are lazy.

7. Playlist makers will be the new deejays. It comes down to who you trust. Anyone can publish, but not anyone can gain followers. Pandora and the like will fade, because they lack the human connection and their recommendation engine is just not as good.

8. You will get into business with he who can guarantee the most streams, not he who can pay you the most money. An advance means nothing. Marketing and promotion mean nothing without resultant streams.

9. There will be a streaming chart, which will cause people to check out winners. This will be determined by data, not influence. It won’t be about paying off the radio station, but reaching critical mass so that others will experiment by listening to you.

10. There will be multiple charts, based on newness and genre. Listeners will comb these to enrich their listening.

11. People will listen to more music than ever before. As a result, money will flow into other areas of the business, i.e. touring and merch.

Good luck with that.

12. Just because you can play, that does not mean you can win. Just because you’ve got your music on the streaming service, that does not mean anyone will listen to it.

13. Genre will no longer matter. You won’t complain that there’s no radio format for your track. Klezmer has equal footing with hip-hop. That does not mean as many people will listen to klezmer, just that the barrier to entry will be low.

True.

14. To get people to continue to listen you will constantly release new material, make live material public, the album will become passe. It makes no sense to get everybody to listen for a short period of time, you don’t want one big bang, but a constant flood.

True, but I think people will still do an album every now and then. To document.

15. Every act will have its greatest hits. Album cuts will be for fans only. You will constantly produce, trying to reach the brass ring. You won’t care about the losers, that which does not gain traction. If you fail today, record and release tomorrow.

True, except people won’t expect to make money from recordings.

16. Creativity will burgeon. With it being so easy to get into the marketplace and be heard, risks will be taken.

17. You need someone to gain you attention, you don’t need someone to press and distribute, to get you on the radio, to pay off middlemen to get you exposed. The manager will be king. Record labels will fade. Tribes of like-minded artists are a better place to park your rear end than a conglomerate with a plethora of acts that don’t sound like you. You want synergy. It’s more important to be on the Bonnaroo or Lollapalooza playlist than be signed to the major.

Already true.

18. Expect those with money and power to try and rig the game. I.e. major labels will try and game the system, generating plays and income for their acts. The streaming service will do its best to try and quash this behavior, but even Google has trouble weeding out those who try to optimize search.

This is true. Labels will pay someone in India $1 per hour to constantly stream on multiple computers. Probably already the case in some instances. But in the end, taste will prevail. You can only fake it so much.

This whole letter really makes me think about how we got to the way things were. What is the thing that makes people like music? When you’re young, it’s from recommendations from friends first then the popular people. Middle school kids have this huge “herd mentality” that makes them want to listen to whatever everyone else is listening to. As people get older, though, their tastes diverge from the norm. The “herd mentality” is still there, but there are more outliers in the older generations. It’s more about what you really like, and my question is: what determines what you really truly like? Is it the radio? Your parents? Something you heard while you were in the womb? A blogger? A friend? Word of mouth? Radio? Lyrics? Your internal rhythm? This is all dependent on what you are exposed to, and your ear. A lot of people like bands live but not the recorded sound.

I think this post is just a person trying to take what is already in place – the music industry – and package it in a new container. But that won’t be the case, if you ask me. Spotify won’t make you rich, nor will it make you famous. It’s the blogs and word of mouth and local presence that will make you into a success. Musicians who wish to be rich and famous will try to get that way not by selling their music (because it can’t be sold), but by selling their image, their culture, ethos, their coolness. Isn’t that how this all got started?

What do you think? I gave my op. Now give yours in the comment section below.