I previously wrote about the need to change the business model for the recording industry. This is a slightly different take on the same subject.
Yesterday was the 30th anniversary of the first public demonstration of the Compact Disc. The technology has been good to us. It was a great way to store and carry digital data, starting with music but expanding to software and photos over time.
Record companies (often called “labels” in the industry lingo) eventually stopped producing vinyl records and switched to CD production. In those thirty years there was a pretty rapid rise and fall of the CD. Lately there has been an attempt to recast the vinyl record as a more “pure” sound. Of course, the sound you get out of any particular system has different characteristics which is why some people think mp3 is the best and some say a much more lossless format is better. In any case, the reproduction quality of the format is not all that makes it rise or fall, as we saw with Beta versus VHS. Often business reasons are behind the success or failure.
In the case of CDs, digital distribution is simply easier, and is quickly becoming faster too. The cost to digitally distribute content is very close to zero. The labels want to hang on to their middleman status. They want to be able to control distribution. That’s what they’ve been all about since their inception.
The artist often gets about 9 percent of a CD sale. The label gets 46 percent and the retailer about 45 percent. Now, these are unconfirmed numbers but most accounts I have read float around this same breakdown — and the point is to show how small a percentage goes to the artist. Cutting out the middlemen and having a far lower priced product (approaching zero) would mean the artist gets a cut of all proceeds. For those thinking that a cut of zero is still zero, think of freely available digital content like business cards you hand out: the more people who know and like your free content, the more will be willing to pay for scarce goods or services you can charge for. And in the future it will be the artist who can best offer these scarce items: concerts, time with the artist, commissioned songs, and physical items (like limited edition album art). All offered without the middlemen.
Interestingly, some artists are trying to sue their record companies to prove that digital distribution is more akin to a licensing arrangement (like they’d get if their music appeared in a movie) than a distribution mechanism. So far the courts decree that they are one and the same. but I predict that something will change drastically over the next few years. (I personally feel that digital distribution is best compared to radio airplay, where the distributor gets money from advertising and then pays royalty… although I argue that in the Internet age that royalty can be paid directly to the artist.) The downward pressure on the price people can charge for digital distribution (aka “piracy”) makes some kind of radical change inevitable.