The Independent Model

Gerd Leonard, Co-author of what I consider to be the music industry’s most recent bible, “The Future of Music” recently wrote an article that he titled “Open Letter to the Independent Music Industry” in which he shared many of his theories on where the industry is headed and how people can begin to adapt and prepare for the changes. While some of this changes he suggests may be preformed retroactively (ahem, the majors) to an already drastically different industry from what we knew just a few years ago, some of what he suggests has begun to take shape and should be of great consideration for anyone entering the industry.

The first point he highlights about this changing industry is how the future “business model” will begin to take shape, a model in which the “new ecosystem […] is not based on music as a product, but music as a service: first selling access, and only then selling copies. An ecosystem based on ubiquity of music, not scarcity. An ecosystem based on mutual trust, not fear” (par 5). This approach, in which music is not offered as a prepackaged product, but instead as a service of which people access for entertainment, offers many new and exciting ways to monetize the listener. No longer are listeners grouped as a large consumer base that buys the product, but as individuals that all interact with their media of choice in different ways, all of which can be, and should be monetized based on this use. For example, the casual listener may only demand music when working on their computer, and may only access music through streams that are either free or paid for by advertising. But the music connoisseur that would rather own an artist’s collection to download on her iPod for portability may pay in a more traditional manner. Or, as Gerd has suggested before, maybe the music will be offered for free in any form, but a tax may be levied on the digital media player that includes an all-you-can-eat subscription model in which the tax is split by a pool of content providers, publishers, etc. As he states in the article, “It’s not the copy of the recording that makes all the [money], it’s the use,” because “usage right is where you monetize” (par 23, 34). Instead of monetizing the ownership of content, he suggests monetizing the use itself, whether that be a stream, a download, or a copy, and whether its paid by advertisers, the user herself, or the digital equipment companies, and then up-selling the ownership when a consumer desires to own a physical (or more likely the digital) copy.

In this new ecosystem, the listener is the one that has control over how he interacts with the content, and the providers lose control. But instead of fearing this relationship, companies must be open to giving the customers the control, as this will build a community of trust that will truly allow music to be explored and shared, as it should. As Gerd describes the current situation that faces the music industry, “the losers built digital music stores, and the winners built vibrant communities based on music. The losers built walled gardens while the winners built public squares. The losers were busy guarding their intellectual property while the winners were busy getting everyone’s attention” (par 15). In this view of the industry, the so-called “losers” are the labels that attempted to make their offerings digital, but instead of letting listeners control how they interacted with it, made it much the same as a normal retail store like iTunes or Amazon. The “winners” are the DIY bands, labels, and publishers that made their content available either for free, or offered it with a new model. While Radiohead may be the best current example of the winners at work, other notable winners often include social networking sites such as the sixty one, iLike, or Last.fm. While each one of these websites may have a different layout or focus, all have one thing in common: they allow the listeners to interact with the media they listen to. Whether that is through a voting system to promote a new artist, recommending new music and concerts to friends, or discovering what other people with similar tastes are listening to, each site allows the listener to, in a sense, extend their music network. In order to continue profiting from the production and distribution of music, labels must no longer attempt to control the media they present to the public, but instead make it easy to interact with and then monetize the use or find a new way to create new, more untraditional revenue streams.

Many people may be confused or perplexed when it comes to the issue of creating new revenue streams (i.e. what can I sell if I don’t the music? How do I get people to pay for music if they can simply get it for free from a peer-to-peer website?). And that is exactly the point: why would you ask someone to pay for something that they can get for free? While the usual assumption is that an artist or label can’t compete with free, Gerd has another take:

“Guess what: you can compete with free because what you can offer is not free. Yes, a copy of a file is free. A CD burned from another CD is free, a USB stick’s content copied to my computer is free. But the real-life connection to the artist, the experience that is happening around the music, the added values such as videos, films, games, chats, books, concerts and merchandising, the context (!!!) -
all of that must not be free. You must stop the obsession with trying to make money merely from selling copies, and instead provide access, because only the legitimate and authorized source (i.e. agent-label-manager) can provide the whole bundle of values that the users, fans, the people formerly known as consumers, will buy” (par 37).

In other words, yes people want music, and no, people will not necessarily always pay for music, but yes, people want more content and more interaction with their favorite artists than just through listening to music. There are opportunities to sell that access through a multitude of models. Whether you are the artists bundling merch and live recordings with an album, the label selling a membership so that the user will have access to all multimedia content, or the concert promoter selling tickets to the sound check and meet-and-greats with the band before the show, people want access to it all, and are willing to pay for that access if the price is right and the offering adds enough value.

In the end, the customer is always right, and the customer has been showing the industry exactly what they want: free music and more content. Now it is up to the providers to make the consumer happy and to find a way to derive revenue from the access and not necessarily the ownership. Content will still be king and talent to create that content will still be in high demand, but now providers of that content must find a way to monetize access and attention in more creative ways than every before. As Gerd says, “Call me a Utopian, call me a Dreamer, call me a ruthless Optimist, but I think this is the Future of Music (par 51).

Leonhard, Gerd. "Gerd Leonhard's Open Letter to the Independent Music Industry." Future of Music 01 Jul 2007 21 Jan 2008.