But ultimately, that's assuming the stars line up with good promotion and good music.  It's rare.  

I'm afraid Tylers maths are a bit too basic for the real world!

His "sell 2875 albums to recoup your $20,000 investment assumes that all the revenue goes to the record label!!

Firstly the digital sites/aggregator will take a percentage

then there's sales taxes

then there's the publishing royalties - maybe to the band/collection society/publisher

then there is the band's performance royalty

Does the 20,000 include recording studio, producer, session players, transport, accomodation, promotion etc etc? 

In the OLD days when people bougt vinyl albums they received something of obvious value and enduring pride. You Mom and Dad probably have a whole stack of well loved albums in the cupboard which remind them of their youth. I can't see a hard disk full of mp3s doing the same in 30 years time!!

The modern mp3 is so invisable its not surprising that people value it near zero.

It's hard to build success stories when artists work is illegally exploited without consent or compensation as a norm.

If people want to truly liberate artists, than pay for the music that is consumed. There is no balance in the marketplace when illegally free is the norm.

I'd like to add that in today's marketplace the artist/band is likely their own record label (yay!  They can expect to gather 100% of their Soundexchange royalties!) and are only expecting to re-coup recording costs.  This of course, is totally naive as there will be $0 spent elsewhere trying to actually promote their product.  The Narcissism-fueled internet the demise for an act like that.

Many of the digital music models/apps are great ideas, but they will not thrive if there is not an ecosystem there to support it.

The Digital Content Exchange is the best-known ecosystem restoration model (there are others) but none of them can get any traction because, unfortunately, fixing the ecosystem happens fastest with a little cooperation.  And everyone for the last 15 years, since Napster was shut down, has been focusing on the Next Music App that is supposed to ride in on a white horse and save the day.

So ... we need a think tank, involving the cooperation of all the major players in the industry, tasked to develop a way of repairing the ecosystem.  Or else we're going to keep getting failure, as Tyler points out.

Does the copyright value of "Baby You're A Rich Man" = the copyright value of the entire The Shaggs catalog? How do you establish the value of a product that is so easily pirated?

Good Question!  The answer is, market pricing.  Old industry pricing was based on the limited amount of shelf space.  Since it took the same amount of shelf space, heat and light, employees, in order to retail that Shags album as it did that Beatles album, the price had to be the same (known as the "list price").  

The Digital Content Exchange has similarities with a stock exchange (and of course some big differences too).  So just like the price of Facebook shares rises and falls, the price of the Beatles and the Shags can rise and fall.  

As far as the "so easily pirated" part, you can pirate a share of Facebook too if you want, but with all the players in the financial industry cooperating, it is tough if not impossible to do what you want with that share Facebook.

If industry players would cooperate on the Digital Content Exchange, it would be tough to use your pirated "Baby You're a Rich Man".  

But The Digital Content Exchange is as much a carrot as a stick: with prices reasonable and digital downloads completely re-sellable, plus borrowing a song for a few days on the exchange available as well, more users will prefer to do it legally, through the Exchange.

Is this what you are talking about b/c David tried it.  http://en.wikipedia.org/wiki/Bowie_Bonds  IMO the value will always depreciate unless large sums of cash are spent on marketing.

no, I am afraid that is not what I am talking about at all.  look at the slide deck and you should get a better idea.

The bottom line is that very few people care about quality music or care where it came from or how it was made. The rest are content to be spoon fed dribble that is marketed as the next and best new thing.  In this new digital reality those who contract to borrow $thousand from a label and spend most to promote their product might make it, those that are 100% DIY might make the same as working at McDonald's...if they are lucky

You've hit the nail on the head when you say "spoon fed...." People want validation - even if in your opinion the music is shit - radio is still the biggest influencer in 2012 as it was in 1982 and listeners are 10 times more likely to buy a track from an UNKNOWN ARTIST if recommended on radio or a top blog. The mentality being if this radio station or cool blogger are playing it then it's worth buying.

Again I go back to gatekeepers which I've banged on about in the past. They DO exist outside of label A&R and management like they always have and artists should strategize wide and deep around how to get on their radars. Get beyond that and THEN think about Tunecore or whoever otherwise it's just another band increasing the depressing and destitute long tail.

the truly digital dream is just that. music as an art form is not respected, and our culture suffers.  

And Matthew founded Beserkley Records, the first of the real independent record labels, which inspired Stiff Records and countless others.  So he knows a little bit about the cultural impact of all this.

if I read Matthew's point correctly, it is a good one that I have never exactly heard before:  (restated in my own words) music may not be inherently disrespected, but the chaos caused by the effect that digital delivery has had on music, has caused people to disrespect music.

The chaos can be sorted, the ecosystem can be fixed, is the good news.  But like an alcoholic, it is apparently going to take the industry hitting rock bottom before it will come together and cooperate to form a think tank to study what will fix the problem and then dedicate the cross-industry resources to implement the fix.

Uh, yes, it is, for sure, a radical disruption but it is about all information not just music.  How we create, share and are compensated for information, news, art and entertainment will not be the same as it ever was.  Sorry if you missed the boat.

But, "real independent" labels did not begin with Beserkley Records. Was a time this country was swamped with indie labels-back when record store owners were just as likely to press up a few hundred 45s of a hot local band and walk the copies over to the local radio sation DJ who they might have known from school. Beserkley/Stiff was clearly part of that continuum just not the originators.

I admire your optimism. However, imo as long as new digital delivery systems kowtow to the major labels for content then the system will not change.

Support micro-labels.

Whoa.

Promotie, het toverwoord waarom deze blogger teleurgesteld is in digitale distributiemodellen voor muziek.

So naive!

Maybe the music industry is just hitting the same reality as every other industry in the digital age -- scarcity is over and with that comes declining value. Book publishing, the news industry and all of the other things we see not repeating their performance from the last century. Maybe we need a new outlook that goes past the product and looks to different ways of making a living.

Any ideas? What is working for people these days?

Re-introduction of the Fairness Doctrine would bring back uniqueness to news.  Finding a story and and then presenting all sides of it, would make single-voice channels as we have now redundant.  Journalistic Craftsmenship could rule.  It could bring back 'credible' media and criticism too.  It could even marginilise blogs.

Very interesting outlook.  So many choices, people just undervalue things now days. That's a good point.

Wow! A music start up that didn't make it. Big news!

That Gartner Hype cycle chart looks pretty spot on.

It doesn't matter how long the "long tail" is; junk has always been worth nothing, and it's worth nothing now. Digital technology simply democratized creation and distribution -- it didn't make artists more talented (or more likely to have an impact in the marketplace). Fact is, the commercial landscape is about as inviting (and ominous) to new artists as it ever was. No use wasting time with the wringing of hands...

I agree completely with this article.  I'm a 2x Stellar Award nominated gospel recording artist that was signed to a major gospel label that had international distribution with Polygram.  When they went bankrupt, I became an indie and thought, I already have a fanbase in place, I'll distribute digitally, I'll connect, blah, blah.  I'm making pennies.  And ALL of it is on me, marketing, promo, radio servicing, branding, distribution, imaging, payouts to musicians, production, merch, EVERYTHING and I still have to produce the quality of music that the fans want, but don't want to PAY for.  It's rough. I thought that the indie artist's market was going to be a real boon, but it's just still hard and even more competitive, because it also includes a lot of junk that shouldn't even be on the market, obscuring the view of good musicianship.  It has definately worked to separate the sheep from the goats, if you don't love this business, you won't be bothered with it, cause you ain't gonna get rich!

I guess indie authors do better than indie musicians.  

Indie (self-published) authors write book, hire editor/cover designer.  Upload to Kindle/Nook and get 70% of the sales price.

50,000 books sold at $2.99 will mean more than $100,000 in royalties.

selfpublishingsuccessstories.blogspot.com has a list of 152 authors who has sold more than 50,000 self-published ebooks

Looking at the top 100 Best Sellers on Itunes, you don't see any indie.  But the Top 100 Best Sellers on Kindle, you see around 20% are indie.  

Welcome to reality.

Top 10 digital retailers (iTunes, Spotify, Amazon...) make 80% of the digital music revenue worldwide.

Same for the top 10 countries when looking at revenue split.

With 10-20 products only, a major record label can make 50% of its digital revenue.

There may be room for smaller retailers and Indie artists, but the market is clearly dominated by the "giants"...

All the rest is long-tail strategy that don't really pay for digital music.

Well stated Tyler.  Sometimes the truth hurts, and I am a very optimistic, seasoned veteran of the recording/entertainment industry.  There are very few incentives left. It makes very little sense to create original content under the current business climate we find ourselves in, unless you have tons of money and/or own a radio conglomerate.  Making a ROI as in indie is nearly impossible.  There is such a vast ocean of mediocrity out there, freebies, and so many consumer distractions, it is amazing anyone ever pays for music at all any more.  It also makes it even more difficult to discover the great acts, of which there are very, very few.  When the legacy acts from the 60's, 70's, 80's, and 90's are gone, it may be over.  I honestly don't see too many contemporary artists carrying an audience for 30+ years with the content they are releasing at present.  It seems that the music business is quickly heading to the same disposability status as that of a paper plate.

Great article.

A good read.

Just have to wonder how Tyler knows how much Lady Gaga received from Spotify? Spotify pays Interscope and then the label pays Gaga as an artist, and I don't think that Interscope makes that infornmation public record. Did Gaga's camp release the stat?

In any event, the more interesting issue is how much of an advance or guarantee does Spotify pay Interscope or Universal and whether Gaga or any other artist gets a share of THAT?

Steve

www.stevegordonlaw.com

Something that might temporarily change the business plan is if digital music distribution is characterized as acquiring a license to use and not a sale.

I can't find the lawsuit out there but I know some recording artists are arguing this point.

Can you direct me to the case?

I found it

http://www.ca9.uscourts.gov/datastore/opinions/2010/09/03/09-55817.pdf

I guess it really doesn't change things, it just means lawyers for major labels have to update their contracts

the issue is this..

most indies are addicted to production and allergic to promotion. They love to make music, and think that by simply making music, it will magically find ears, and translate to money in their pockets. This simply is not the case the majority of the time.

It still takes old fashioned work to make money in the music business, but it takes a long time, and you don't usually get rich and famous doing it.

The way to "make it" these days is to be discovered on a TV show.. sad but true. Just the times we live in.

i think that electornica has its place in music;however, I dont think it shoudl be counted amongst music created by musicians who are actually CREATING the music the produce, not just arranging. good post keep up the hard work. check these out IStillGotMyGuitar