A Nine Inch Nail in the Recording Industry’s Coffin

I find it fascinating that many market disruptions are not technological, but rather business models enabled by technology. What happens when there are no barriers to entry? What happens in a world with no friction? What happens when customers can interact directly with sellers?

Dell shook up the PC industry by first selling direct to end-users. Google has gone from a Search engine to the dominant force in advertising, and along the way has figured out how to do "free" very well. eBay brought the garage sale to the world. And finally, recording artists are realising that there’s money to be made selling direct to your fan base, without compromising your artistic integrity.

Nine Inch Nails just released a collection of 36 songs, called "Ghosts I-IV". MSNBC.com suggests that "2008 may go down in history as the beginning of the end for the recording industry." I beg to differ. It’s been like watching death by 1000 cuts in slow motion. 2008 is hopefully the year where the final nail is hammered into the coffin, a nine inch nail.

Where did it all go wrong for the music industry?

Record companies are licensing companies. What is a "record deal", if not a license granting rights to an artist’s intellectual property to a record company along with the rights to make or have made physical product, the rights to distribute and sell this IP in return for a royalty rate paid to the creator of the IP. For decades, they held the keys to the kingdom. Barriers to entry were high…Studio time, production and mixing equipment, analog master tapes were expensive, manufacturing, promotion to radio stations, and distribution channels…The studios had a wonderfully integrated system, but it was a closed system. The only way that an artist could get a record on somebody’s turntable was to play within the system, by their rules.

Video may have killed the radio star, but digital is what killed record companies.

The shift from analog/vinyl to digital was the first nail in their coffin. Cheap, ubiquitous broadband was another nail. Napster got people used to downloading content and not having a physical instantiation of the music (i.e. a CD) and was another nail. MySpace and other social networking sites facilitated the viral promotion of artists; another nail. YouTube further helped them distribute music videos and concert footage; another nail (This one in MTV). Apple bundled GarageBand with the MAC, enabling anyone to produce decent quality music quickly and cheaply; yet another nail. iTunes and the iPod gave us a means of storing and cataloguing our music, eliminating the need for a home stereo system or physical form factors; another nail. iTunes gave us a means of purchasing music that no longer required a trip to the mall; the eighth nail in the coffin.

And in the past year, major artists like Radiohead and now Nine Inch Nails selling direct to their fans. Hopefully, the ninth and final nail.

In his book, The Long Tail, Chris Anderson articulates how in a world without friction (i.e. the Internet), even those with the most arcane tastes, can find something they want, growing the overall size of the market. He posits that there is more money to be made across the entire breadth of the market, as opposed to a narrow, deep market as the music industry used to be.

The music industry isn’t dead, record companies and MTV are.

But have we, as consumers, ended up winning or losing in this deal? I would suggest that we’ve won big-time.

Trent Reznor, from NIN comments on Ghosts I-IV: "The end result is a wildly varied body of music that we’re able to present to the world in ways the confines of a major record label would never have allowed…"

The probability of my selecting a Nine Inch Nails CD and paying $15.95 to see whether I liked it or not would have been pretty small. Or Radiohead for that matter.

But give me a chance to experience and experiment with new tastes in a low-risk way, and I’m all over it. Does it get any better?

That’s my .02!

Martin Suter

(martin.suter@iplicensing.net)

This entry was posted on 12. March 2008 at 08:48 and is filed under Music, Disruptive Technology, Internet, Licensing. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response or trackback from your own site.

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