Possible Solutions to our Research Question

In terms of solutions to our research question How can record companies and signed artists better utilise the online music market to make money?, we have made the following suggestions:

The first suggestion is one that we mentioned earlier: that Internet Service Providers, or ISP’s, such as Optus Broadband pay record companies royalties when a customer downloads a particular artist’s music.

Second is the idea that record companies could fund projects such as Radiohead’s In Rainbows and NIN’s Ghosts I-IV, which have been shown to be successful methods of connecting artists with their fans.

Finally, record companies could potentially abolish physical CD’s and release music solely as digital downloads. This could be a way of saving on the costs of manufacturing and transporting CD’s, as digital files costs virtually nothing to copy and distribute.

Looking Towards The Future

Based on what we have discovered through our research, it is possible to make some general hypotheses about the future of the recording industry. These are that:

* Independent record labels, such as Vhp Records, are likely to replace majors.

* Innovative online marketing solution sites such as Promonet will become more prominent.

* Record companies are likely to take on a less significant role within the music industry, as artists begin to manage their own relationships with fans.

Recent new approaches to making money in online music

Despite the seemingly hopeless financial situation record companies are currently facing, there have been some recent attempts to use the online music market as a means of making profit.

One approach that has been taken is Promonet which is hosted by IODA, a leading distributor of digital music, based in the U.S. Promonet is a management site that allows independent record labels to distribute and market their own music online for profit. Part of this process is that different bloggers, retailers such as Amazon and iTunes and other promotional partners are allowed to give away for free certain tracks that an independent label has chosen, as long as they include a buy link, which the label can then track. Promonet also offers the option for labels to begin their own online music stores, set their own pricing for specific tracks, and manage their own profits. According to Piers Stacey, attorney at IODA, who talks about the principles of Promonet in a panel discussion on Artisthousemusic.org entitled Monetizing Music in the Digital Age (November 10th 2007), "The whole idea behind Promonet is to directly connect its labels and rightsowners (i.e. artists and songwriters) to their fans." By giving away free downloads, labels that use Promonet are able to market themselves to consumers, and encourage consumers to listen to the music of independent artists, and potentially buy it.

In another project, according to Stacey, "IODA has been working with Spectra Records since 2007 to create a system that allows independent music promoters to digitally download albums so labels don’t have to service physical CD’s and send them through the mail - this can be very expensive. Rather than sending out $2 CD’s to everyone you want to have your CD before it’s released, you can create something online that allows you to track who downloaded what, and when."

Working towards some conclusions

The results of our research and interviews indicate that making money in online music may mean creating a more direct relationship between artists and fans. If this can be established, fans may be more willing to shell out in order to sustain the careers of their favourite musicians.

Take Radiohead’s latest album In Rainbows, for example. Radiohead released the album independently of any record label, and told their fans that they could pay whatever they wanted for it. While a lot of people paid nothing, many did pay for the album, and paid generously. The result was that Radiohead made a significant profit, which ended up being virtually as much as they would have made for an album under their old labels Parlophone & EMI. While only a successful band like Radiohead could afford to undertake a project like that, it was a clever way of engaging directly with fans by putting the value of their music in the hands of the consumer. And the results show that this worked to Radiohead’s advantage, bringing them publicity, respect from fans, and a substantial profit.

Nine Inch Nails undertook a similar project with their album Ghosts I-IV (2008). In an article on Wired.com entitled Nine Inch Nails Gets Creative With Radiohead-Style Release, Eliot Van Buskirk states, "The band took Radiohead’s In Rainbows project further by leveraging BitTorrent and releasing songs under a Creative Commons license that allowed purchasers to remix the tracks. As with the Radiohead experiment, dedicated fans looking for something more substantial than a zip file full of music tracks could choose to spend more on a box-set version of the album, or buy inexpensive CDs."

While this process creates a positive connection between artists and fans, it also means cutting out record labels altogether. This may not necessarily be in the best interests of artists, who still need funding for tours and recording.

Impact of digital music on music industry professionals - Kenny from Vhp Records, Melbourne Australia

Next, we interviewed Kenny from Vhp Records Australia. Vhp Records is an independent "net" label based in Melbourne, Australia, that Kehinde (aka DJKZ) set up to release music he was writing and co-writing. It is a 100 percent internet-based label, which offers its fans music in streaming, download and also physical formats. The label also works with all the leading online retailers and websites to ensure its music is able to reach as many people as possible. 

Jasmine: To start off with, can you please give us a brief outline of the kind of work you do with Vhp Records.

Kenny: I don't have a particular job description. I do everything from recording, writing and producing. I also do all the A&R as well, and video production, marketing and promotion. It's pretty much all inclusive.

Jasmine: In what ways are you currently participating in online music?

Kenny: I am always on Youtube listening to music tips that come my way, as well as promoting our acts online through Facebook, Youtube and advertising. 

Jasmine: Has the emerging digital music industry affected you in your profession? If so, has it been more beneficial or detrimental? In what ways?

Kenny: Digital music has been quite good for me, as I was never really able to consistently release physical product, but with digital we can make music available at zero cost. Marketing is cheaper, but earnings from selling CD's and downloads have fallen dramatically. Fortunately, other opportunities such as ad-sponsored music have emerged. 

Jasmine: How do you think record labels are currently handling the issue of digital music?

Kenny: Most labels have handled it badly and do not have a grasp on digital music. As a result, they have alienated their fans and are trying to pick up the pieces. The whole industry is reeling from the fact that selling CD's is on a permanent decline. Online services providing ad-sponsored solutions do not pay enough, and it is indeed tough now. 

Jasmine: Do you have any suggestions on how record labels could take better advantage of digital music, and use it as an effective means of making money?

Kenny: Digital music wants to be free, so the best thing to do is to leverage it in a manner that creates value, brings in some income, and enables labels to profit from live music, endorsements and licensing. To do this, labels need to evolve. Fortunately from my perspective, I am very much part of the creative team and am an artist, writer and producer, so I am able to evolve and take advantage of new opportunities. It's a long, hard slog, and one has to be in it for the long run before one sees any results. 

We appreciate your time, Kenny!

Impact of digital music on music industry professionals - Jim Warren Sound Engineer for Radiohead

A little bit about Jim Warren: Jim recorded you never wash up after yourself (my iron lung ep, 1994), mixed permanent daylight (my iron lung ep, 1994) mixer and producer of 'high & dry' (the bends, 1995), mixer on 'the bends' (1995). Engineered all the demos for the album "The Bends". He continues to work extensively with Radiohead in the studio and provide their live shows with the sound that band and fans alike have come to expect.

Jim Warren also does Peter Gabriel's live sound and has produced and engineered albums by Jocasta and Pineforest Crunch. Jim has produced the second Unbelievable Truth album and has also been working with new act Darling, Gintare and Wock. Most recently Jim has just produced a single for Damien Saez.

Laura: How do you think the emerging digital music industry has affected artists? Do you think its been largely beneficial or detrimental?

Jim: For most artists, beneficial. It's now a lot easier to get your music heard by a larger audience without the help of a record company or an agent.

L: How do you think record labels are currently handling the issue of digital music (and the fact that it has dropped their revenue dramatically in the last few years)?

J: I think they're finally beginning to catch up, but they are dinosaurs who had been doing business in the same way for 70+ years, and were surprisingly conservative in their approach and marketing strategies, considering the "cool" product they were trying to sell. There were a few small label exceptions.

L: Any case studies/examples in your experience that have included the digital music realm? (i.e. RH's 'In Rainbows', whats your take on it, from the artists', record labels, and as an individual/'insider' who has the experience of the processes and sees the developments in the industry first hand)

J: I know that Radiohead made more from the "pay what you want" download than they would have done if they'd released the album oniTunes when they were signed to Parlophone, Record companies always put a clause in contracts to reduce the artist's share of income from "new media". This is supposedly to cover the extra costs to the record company, and they tried to justify it to me once by explaining how expensive it was to change all the shelves in music shops when they switched from LP to CD! These clauses have no time limit though, so in 25 years, your still paying for their new shelves. This was the situation Radiohead were in. iTunes taking a big cut of a reduced price, and the record company taking most of what was left, so they refused to release their music on iTunes unless the rec co. got less greedy.

Also check out my mate Tim Arnold. He was in a band I worked with years ago, but now promotes himself pretty successfully on his own website, and even does regular "gigs" from his 2 room flat in Soho to an audience around the world, rather than playing to no-one for nothing in a shitty little club somewhere.

L: Any ideas on the future? How far will the digital and online scene alter music?

J: Massively. There will be a much wider range of music available, because people can release their own "niche" music, and soon be selling it to small markets al over the world. The big record co setup could never have done that, they had to make a bigger profit.
Also, digital recording equipment gives artists the means of producing their own music to master quality, which in itself will lead to loads of (sometimes badly recorded) music, but some interesting new groundbreaking ideas.

L: Any suggestions/possible ideas on how record labels could utilize the digital/online realm?

J: Sky's the limit really. All of a sudden there is the potential for getting feedback from the people listening to the music, which could be just in the form of comments, or could be like minds sending in their own stuff, or check out the Nine Inch Nails idea of putting multi track versions of the songs online so that fans could do their own remixes.

Thanks for your time Jim!

Results of interviews with musicians

From these interviews, we have discovered that while artists have been affected negatively by loss of revenue for record companies, the digital music market has been mostly beneficial to them, as is evident in the pros and cons listed below.

Negative impact:

* Loss in financial support from record companies.
* Sound quality has been sacrificed for accessibility with digital downloads.
* Sentimental value of physical CD’s has become somewhat obsolete.

Positive impact:

* Widening of fan base.
* More recognition from overseas musical acts (e.g. SFK got to support Evanescence and David Bowie).
* People have immediate access to their music.
* The barrier between artists and fans is being broken down.
* Music should be for everyone, and now it is.

Interview with Kosta Linardos, Editor of MixDown Magazine

Click To Play

Next, we interviewed Kosta Linardos, editor of MixDown Magazine Australia. We asked Kosta similar questions to those we posed to Clint and Whitt. As we had hoped, he provided some really in-depth responses that varied from those of the musicians. In his opinion, there is very little the recording industry can do to make money online. He believes that record labels have ‘had it coming’ for a long time, and have outstayed their welcome as the long-standing ‘owners’ of commercial music.

This is similar to what Russell Rains, Director of the MBA Program in the Digital Media Management Program at St. Edward’s College in Austin Texas, discusses on the topic of “CD’s vs Digital Recordings” in a video posted on academic music blog Artisthouse.org. Rains claims that “the record industry killed itself”. He believes that the implementation of the container charge (where the record label takes 25% of the artist’s royalties to cover the alleged costs of making their CD’s and distributing them), and the fact that record labels had the cheek to sell CD’s essentially worth US$1 for US$17, is “nonsense”. In his opinion, with the decline of CD sales and revenue for record labels, “They have paid for that gluttony.” Kosta similarly believes it is ironic, yet positive, that the role of record labels and consumers have now been usurped.

According to Kosta, the advent of digital music is better for artists in that they are able to reach a wide audience without having to rely on record companies to handle marketing and distribution. If the demand for recording contracts lessens, the commercial side of music production (primarily, marketing) will slowly die out, resulting in an honesty and a rawness surrounding the music world that has not been seen before. No longer will record companies be able to pick a bunch of good-looking males and make them into instant stars; success will be based on talent, and this will be decided by the public, rather than the corporate companies. Kosta predicts that live music performance will become more and more prominent in the years to come, which will contribute to this sense of honesty, whilst providing artists with added credibility and a solid revenue. He gave an overall impression of approval at the way the music industry is heading.

Impact of digital music on signed artists: interview with Whitt from Spiderbait and Clint from Something For Kate

Click To Play

We began the interviewing process by interviewing Clint Hyndman (Something For Kate drummer) and Damien "Whitt" Whitty (Spiderbait guitarist). Both musicians Whitt and Clint had some extremely valuable things to say about the world of digital music, and the role of record companies within it. According to them, the impact on artists as a result of music being available online has been mostly positive. They believe that it has increased their fan base, and has been beneficial in terms of personal use, such as finding out about new (and old) bands, and having immediate access to their music. They believe that music is for everyone, and that the digital revolution has really captured this idea, particularly in that it has broken down the barrier between artists and fans. I thought this was an interesting statement to make, coming from the perspective of a musician.

On the negative side, they said that a lot of the more sentimental aspects of music have become, for the most part, obsolete. Clint talked about the “mystery” of hearing about an artist for the first time. He described it as enticing, not knowing who this person is, where they’ve come from, how their music got picked up. But this sense of mystery has been destroyed by the all-knowing internet, which can now track down and reveal all these details. This kind of exposure is, of course, part of the process of weakening the barrier between artist and fan. Clint and Whitt both agreed that the value of this mystery, and of having nothing but an artist’s physical CD to reveal who they might be, has become pretty meaningless since the advent of digital music. They also mentioned the quality of digital recordings. In their eyes, the quality of a track that has come straight from the studio is far superior to that of a file downloaded from the internet. This is another aspect of music that is not so important anymore, and has become second to accessibility.

In terms of what record labels can do to make money in the online music market, Whitt said, in plain words, “Catch up.” We thought this was a very succinct way of putting it. He and Clint believe that it’s all about finding a connection with your fans. If this can be established, they reckon fans would be much more willing to shell out in order to sustain the careers of their favourite musicians. Take Radiohead’s In Rainbows album, which we will discuss in more detail later (see "Results" post).

Overall, Whitt and Clint spoke generously on the topic, and this made for a really worthwhile, useful interview. We were a little surprised about the fact they said the digital revolution has been mostly beneficial for them as artists. They, of course, acknowledged the fact that when record labels lose money on CD sales and such, the artist also loses money. However, they believe that the good outweighs the bad, as both have had increased interest in their music that would not have been possible otherwise. As mentioned previously, Whitt stated that music is for everyone, and that the digital age has really brought this idea to life. The interview was great because it challenged our assumption that artists have suffered as a result of online music, informing us instead that they’ve really benefited from it.

Research Approach

We have taken a fairly broad approach to our research question by looking to a variety of different avenues for information. These include:

* Online academic articles
* Statistics (graphs, tables, reports)
* Interviews (professional musicians, music industry professionals)
* Music blogs, both academic and non-academic
* All research and conclusions to be hosted on our blog, Future Notes.

Our research question

Despite their attempts, it is still evident that record labels are slowly but surely losing the fight. It seems the only way forward is to embrace online music use and work it towards their advantage.

This brings us to our research question:

How can record companies and signed artists better utilise the online music market to make money?

How have record companies responded?

Record companies have tried to adapt to the changing music industry in small ways. EMI, for example, recently made all their digital music Digital Rights Management (DRM) free. This means there are no longer restrictions embedded within EMI song files that limit the number of times the song can be copied, transferred to burned to CD. It also means there is no restriction on what devices will play digital music owned by EMI.

iTunes is another figure who has utilised this idea by introducing the iTunes Plus DRM-free service. iTunes now offers DRM-free songs, which cost $2.19 per track and have a higher sound quality because they are encoded at 256 kilobits per second (kbps), in contrast to tracks that do have DRM and cost $1.69, but are of lesser quality.

And, of course, labels have been offering legal download of their music that users must pay for, similarly to iTunes.

The growth of the digital music market

*Click image to view full size version.

Since the introduction of iTunes, the digital music market has only grown. The above statistics from the London-based International Federation of the Phonographic Industry, or IFPI, indicate a further reduction in revenue for record companies due to the increase in popularity of online music use over the past decade.

The Recording Industry Association of America’s 2008 Yearend Statistics demonstrate that the total record sales in America have dropped by 18.2% since 2005. While downloaded singles have increased by 27.6% from 2007-2008 and downloaded albums by 33.9%, the CD as a physical commodity has experienced a radical drop of 26.6% in dollar value from 2007-2008.

Major record companies have also expressed concern for the current state of the recording industry. According to Charles Goldsmith's aforementioned article, EMI, whose roster includes Coldplay and The Rolling Stones, reported a net loss of 71.6 million pounds from 2003-2004. Its shares also dropped 20% in 2005 in London to a low of 212 pence. Recording giant Warner Music has also suffered in recent years, with company stock falling from $17 to $15.47 in 2005.

Other factors that have led to financial losses for record labels include platforms such as such as Myspace and Youtube. These have allowed artists to market themselves for free, no longer having to rely so heavily on record labels for marketing and distribution. According to Nick Phillips, Vice President of A&R at Concord Music Group, one of the world's largest independent record labels,  major music stores such as Tower (USA) and Virgin in New York have closed down due to sales losses. The issue of illegal downloading and piracy have also contributed significantly to the problem, as have independent websites offering free downloads that do not supply royalties to the music’s rights holders (i.e. artists and songwriters).

Introduction of ITunes

In response to the growing popularity of digital downloading worldwide, Apple launched online music store iTunes in the U.S. in April 2003. iTunes Music Store offered a range of possibilities, including being able to download a single song for 99 cents, rather than having to purchase the whole album. This saw a sudden peak in single hits, which completely undid the concept of the album.

Charles Goldsmith reiterates this point in his 2005 article Apple’s IPod Success Isn’t Sweet Music for Record Company Sales on Bloomber.com, stating, "In the digital era, the "unbundling'' of CDs through the purchase of individual tracks lets consumers pay far less to get a few of their favorite songs rather than buying an entire album.” 

One of the first legal methods of accessing music online, iTunes offered investment plans for record companies, who could then receive royalties when their music was downloaded. iTunes also offered quality recordings produced by the artist, rather than recordings illegally downloaded from a program such Napster that were often of poor quality.

iTunes, however, soon proved to be more beneficial to Apple than any of the record labels with whom it associated. According to Goldsmith, Apple soared while music stocks declined. iTunes Music Store accounted for only $265 million of Apple’s $3.68 billion sales in 2004, meaning that the majority of the profits Apple were receiving were from other avenues such as iPods and iPod accessories – these all went straight to Apple. In addition to this, record companies were only receiving 65c per track, from the initial 99c iTunes selling price. And selling 10 digital songs on iTunes meant a loss of 20% for record companies than if they sold an album wholesale at $10.

Record companies losing money since late 1990's

The Recording Industry Association of America’s 2002 Yearend Statistics demonstrate a steady decline in both CD production and sales. As we can see from the chart, the manufacture and shipment of physical CD’s decreased by 8.9% from 2001-2002, as a result of a loss of 6.7% in sales. This was largely due to new computer technology that sparked an increase in music piracy such as CD burning. The climbing popularity of digital downloading from illegal software such as Napster was also a highly contributing factor. Napster was hosting approximately 4 million users per day until its demise in 2001, and played a significant role in the decline of record sales during this period.

PROJECT BRIEF

Background

• The music industry holds an interest for us in terms of future employment, therefore its future is relatively important to us.

• It seems that the music industry (record companies, artists etc) are at a kind of crossroads where the music industry is perhaps lagging behind technology, and as such it has become increasingly difficult for record companies and artists to make money from music (Due to file sharing and consequent lack of CD sales; record companies/artists being currently unable to make the same money through digital means as they were from CD sales).

• Developing ideas about the future of the music industry would be good for future endeavours.

Aims

• To develop a comprehensive knowledge of the current music industry landscape

• To identify possible developments in the music industry with respect to new ways of money-making (distribution, marketing etc)

Scope

• This study will trace recent developments in the music industry with the intention of predicting what the future holds for record companies, artists and consumers.

Research Questions

• Are record companies and artists taking full advantage of the online music market?

• How can record companies and artists take better advantage of the digital realm in terms of distribution and marketing?

• What are the new that may emerge for money-making in music?

• Are there any untapped opportunities for money-making in music?

Research Design

• Interviews with: - Band members

- Record industry professionals

- Consumers

- Marketers

- Digital experts

• Looking at record company sites & existing distribution sites/platforms

• Articles: research journals, newspapers, music blogs

Outcomes:

• A report documenting the project, including data collection, analysis, research conclusions and recommendations.

The report will be presented on a blog, with links to other research and examples of pre-existing models of online music.

Possible answers or solutions to the research question.

Throughout the project, individuals will also be using their blogs to document the projects progress.

Time - line

• Start late March

• Finished and submitted June 12th
  

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Why research the future of record companies and signed artists?

Since the advent of digital music in the late 1990’s, record companies have been experiencing serious declines in revenue. This has been due to increased access to free digital downloads, as well as file sharing. Such declines have inevitably affected signed artists, who have also seen a drop in income due to online music access.

As Media students as RMIT University in Melbourne, Australia, we are interested in pursuing careers in the music industry. Thus, this research is directly relevant to our future endeavours as media professionals.