What’s the Best Business Model for the Music Industry?

Put simply, a business model is the plan for generating revenue and profits.  For musicians, that means being able to put food on the table and pay the rent.  As Jill Sobule put it, success in the music business “means not having to work a straight job.”

A solo artist may need a different business model than a band, and the business models for musicians will be different than those for music publishers, record labels, and streaming services.  Some of these businesses may be competitors, customers, suppliers, or partners; and taken together they compose (part of) the Music Industry.

So a better question would be:  What business models will work for the music industry in the 21st century?  Vivek Wadhra defines seven basic components of a business model:

  1. Reaching customers
  2. Differentiating your product
  3. Pricing
  4. Selling
  5. Delivery/distribution
  6. Supporting customers
  7. Achieving customer satisfaction

It’s easy to see how most of these activities would apply to the music business, but as an artist, you may be asking: “Hey, where’s the making music part?”  The business model canvas might work better for you.

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Pete Townshend and Steve Jobs’ Balls

You may now be thinking: “Is this going to be on the test?  I mean, really, I’d rather not deal with any of this.”  In that case, you should probably be working with a manager you can trust, and earning enough to pay someone else to deal with it.

Which is just the way Pete Townsend liked it.  In the inaugural John Peel lecture last October, Pete waxed nostalgic for the old days, and enumerated the services provided by music industry past:

There were record companies and music publishers. Was it good, what the God of pop music had created?

Music publishing has always been a form of banking in many ways, but – in cooperation with record labels – active artists have always received from the music industry banking system more than banking. They’ve gotten…

1. editorial guidance
2. financial support
3. creative nurture
4. manufacturing
5. publishing
6. marketing
7. distribution
8. payment of royalties (the banking)

Today, if we look solely at iTunes, we see a publishing model that offers only the last two items as a guarantee, distribution and banking, with some marketing thrown in sometimes at the whim of the folks at Apple.

~ Pete Townshend

Having said he once wanted to cut off Steve Jobs’ balls, Pete likens  iTunes to a digital vampire bleeding artists for its “enormous commission.”

David Byrne’s Suvival Strategies

David Byrne takes a more even-handed approach, and describes a spectrum of distribution deals, from the 360 or equity deal to the self-distribution or DIY model.  In order of increasing artist control:

~ Wired: David Byrne’s Survival Strategies for Emerging Artists — and Megastars

While noting that no single model will work for everyone, Byrne does offer some advice:

I would personally advise artists to hold on to their publishing rights (well, as much of them as they can). Publishing royalties are how you get paid if someone covers, samples, or licenses your song for a movie or commercial. This, for a songwriter, is your pension plan.

Increasingly, it’s possible for artists to hold on to the copyrights for their recordings as well. This guarantees them another lucrative piece of the licensing pie and also gives them the right to exploit their work in mediums to be invented in the future — musical brain implants and the like.

Innovation vs. Ideals

Much of the talk about music business models has been around innovation.  The first 66 slides in the presentation below highlight business model innovation in the music industry.

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But not everyone has jumped aboard the business model innovation bandwagon.  In part 2, T Bone Burnett suggested that musicians who use the word “monetize” should be ashamed of themselves.  He believes that musicians should be focused on one thing: making great music.

T Bone can find soul mates in the views of (he keeps coming up, doesn’t he?) Steve Jobs and Umair Haque.  Discussing his period of exile from Apple, Jobs said there was one fundamental cause of Apple’s problems under John Sculley: letting the desire for profits outweigh passion.

My passion has been to build an enduring company where people were motivated to make great products. The products, not the profits, were the motivation. Sculley flipped these priorities to where the goal was to make money. It’s a subtle difference, but it ends up meaning everything.
~ Steve Jobs

Umair Haque argues that business model innovation can be exactly the wrong thing to focus on, and stresses value creation over monetization.

Consider finance. Securitization was a breakthrough business model innovation for banks. Everything was remixed by everyone. Yet, toxic junk was mostly what was flowing through that new business model. Business model innovation amplified value destruction. Banks who didn’t play the securitization game — and stuck to simple, one-sided deposit-taking business models — are today’s survivors.

The reason monetization is a dirty word is simple. It blinds us to value creation, at the expense of value capture. When we seek to monetize, we end up chasing the same old lame competitive advantage. I win, you (and you, and you) lose. Put another way: “monetizing” toxic junk — from CDOs, to Hummers, to McMansions, to Big Macs – is how we got into this mess.

It is by rediscovering how to make stuff that’s not toxic junk in the first place that we’ll get out of the mess lame, evil, brain-dead 20th century thinking has left us in. That’s the challenge of a new generation of revolutionaries. And it’s not about new business models: it’s about reconceiving authentic, deep, value creation.
~ Umair Haque, “Why Ideals are the New Business Models” – HBR

Regardless of how you feel about Britney Spears, that might go a little too far.  There needs to be a balance between creating great music and earning a living.  From a musician’s perspective, there are two major challenges that can sometimes conflict:

1. Discovery – getting the music out there and connecting with fans

2. Compensation – finding a way to get fair payment to make a living and continue creating music

From here we will take a look at some of the new music business models being developed, with an emphasis on how they can contribute to improving discovery and compensation for artists.