News Flash: Music Industry Still Lost

SAN FRANCISCO -- Web 2.0 Summit -- When I look at the music industry these days, I get the same feeling as when I turn on CNBC: that sinking feeling. The idea that when you wake up in the morning, you'll see lots of red.

Chris DeWolfe, co-founder of MySpace (NWS), and Edgar Bronfman Jr., CEO of Warner Music Group (WMG), didn't do much to alter this feeling. Speaking at Web 2.0 Summit Thursday, they cited the same obvious trends that the music industry has been confronting for years: the fragmentation of distribution channels, the decline in physical sales, and an increased reliance on ancillary revenue streams such as merchandising.

DeWolfe and Bronfman did their best to put on happy faces, pointing out that music is morphing into an online social activity, which they are trying to capture through networks that allow users to share and discover music. Bronfman pointed out that more of the value that labels add is in marketing and promotion. The problem is: the money.

Just take a look at the Warner Music Group stock chart, and you get the picture. The company has been losing money and its revenues have been declining for years. Though its operating income recently turned the corner into the green, revenue is flat, so there's clearly no explosive growth here.

Bronfman knows the challenges, as he articulated yesterday:

The issue is there is no one channel that will replace the CD. Artists, music companies, and artists absolutely make money from iTunes. But it's going to take a whole series of channels.

He said that Apple should be lauded for its efforts in figuring out whatever it was that nobody else could figure out. DeWolfe agreed, and said that MySpace Music is not a competitor to iTunes, because iTunes is about selling tracks, and MySpace Music is about discovery and interaction.

DeWolfe pointed to 1 billion streams and 5 million bands on MySpace Music, which is impressive. In fact, you can point to MySpace Music as being one of the largest music aggregators in the world. It would be that this is the future of music: a massive, fragmented community in which musicians fight for a share of consumers attention and share a pie of advertising.

In that vision, the future of music is advertising-supported.

But how will musicians and labels, in the future, hit upon the equivalent jackpot of the platinum album? The digital equivalent probably doesn't exist. And even if there is a platinum jackpot, Apple has succeeded in slicing down the margins thin enough that the limos of rock stars may be shrinking for many years in the future.

If Apple is the answer, then they might have to start giving more back to a music industry to sustain the market.

The bottom line is that the music industry is still lost, without an answer to its own problems.

Disclosure: none

Comments

[Hayweed:]

The problem is the music industry which was needed to find talent, record it, make the cds and music videos, and then market the band. Now what stops someone from recording their own music, selling it on itunes, marketing it on myspace. Where is the need for Warner Bros.

Apple's cut is so small that they have nothing to give. The record company gets $.70 per song but only share about $.18 with the artist. The record industry is the middleman that technology is eliminating.

2008 Nov 09 01:43 PM

[Oh Blah Dee...:]

RE: "If Apple is the answer, then they might have to start giving more back to a music industry to sustain the market."

REPLY:
For Apple to give "more" back to the music industry, Apple would have to charge "more" for iTunes downloads.

If Apple charges "more" for iTunes downloads, then users will go back to ripping and stealing tracks.

The "answer" is that the world has changed. Just as we no longer live in caves, ride horses to work, require candles for nightlight, we also no longer have to buy CDs.

The music industry has to stop looking at increasing music download fees, and continue to look for additional channels to bring in revenues.

The music industry has changed for good. Get over it, and get on with it.

2008 Nov 09 05:27 PM

[R. Scott Ra...:]

I actually agree. But that doesn't mean the current model is working. We do need to get over it, and get on with it. I guess what that could mean is the middleman is nearly entirely eliminated.


On Nov 09 05:27 PM Oh Blah Dee Blah Dah wrote:

> RE: "If Apple is the answer, then they might have to start giving
> more back to a music industry to sustain the market."
>
> REPLY:
> For Apple to give "more" back to the music industry, Apple would
> have to charge "more" for iTunes downloads.
>
> If Apple charges "more" for iTunes downloads, then users will go
> back to ripping and stealing tracks.
>
> The "answer" is that the world has changed. Just as we no longer
> live in caves, ride horses to work, require candles for nightlight,
> we also no longer have to buy CDs.
>
> The music industry has to stop looking at increasing music download
> fees, and continue to look for additional channels to bring in revenues.
>
>
> The music industry has changed for good. Get over it, and get on
> with it.

2008 Dec 02 11:10 PM