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The Post-Capitalism Music Industry

Dec 7, 2017

by Blog, News

digital world of music commerce
Two huge bombs of information dropped this November.  First, Medium published the latest news update on DotBC Media Project’s comparison list of the current traditional vehicle driving the industry and their Blockchain framework’s approach that promises an entire paradigm shift, which I discussed in my previous article: Unraveling the Music Industry With Blockchain.  Then, TechCrunch unleashed the news with the reality-shattering headline that claims this brand-new entity, UnitedMasters, will replace record labels.  With both promising to put all the business directly in the hands of the artists and creators, we may witness what the post-capitalism music industry could look like.  This impetus mirrors a larger shift that could redefine capitalism in the coming years.

What Record Label?

The TechCrunch article on the unveiling of UnitedMasters makes bold claims.  Of the discussions floating around, there is still some confusion on where and how this business model fits into the industry.  Does this mean the end of tech companies hijacking the music industry?  That could be the wrong question entirely.  Many in the industry decry tech companies for taking over and “ruining” the industry.  UnitedMasters platform is essentially a tech startup aiming to put the power of business insight and marketing directly into the hands of content creators.  For those that see technology as overshadowing the music industry, the precedent that UnitedMasters sets by partnering with Alphabet makes it appear to be just another corporate merger with the tech giants, further embedding them into the music industry.
Josh Constine – author of the TechCrunch article, doesn’t see it that way, but instead as the death-blow to conventional record labels.  Steve Stoute, the man spearheading UnitedMasters development, is the former president of Interscope Records, so this push isn’t coming from entirely outside of the music industry.  Upon closer inspection of the business model UnitedMasters aims to provide, it becomes clear they are providing a solution to a very real problem that so many in the industry have been complaining about for decades.  The truth we are arriving at now is the realization that music and tech must come together.  We are in an age of technology, so how can we continue to approach them as separate entities without threatening our own success?

Now that Steve’s project is out of “stealth mode” and the key players involved have been revealed, there is no doubt in my mind that the major labels will react in kind.  This is their challenge, their call to action.  Adapt now, or die.  What will the future of Sony, Universal, or Warner look like? Those who are paying attention and taking these emerging solutions seriously know they need to keep a close eye on analyzing and comparing these solutions with their current business models to see how they can adapt it for their survival.

The Next Generation

With all the developments in blockchain-powered systems and UnitedMasters’ promises, a renaissance in the music industry business model is on the way.  We are on the horizon of a new dawn that may look nothing like the historical model we’ve known since the birth of radio.  But one question remains.  Is all this focus on technology going to be good for the industry, or are these disruptors going to simply replace the old gatekeepers with new ones?

I’ve had countless talks with many musicians and artists over the years about business strategies.  The most common questions I get are about learning how to build a business.  The dilemma is always the same: bands and musicians lack the knowledge and tools to manage and market themselves.  While I was drafting this article, I had a conference call with a friend and local musician, who is looking to learn more about music business to grow his brand.
Jared Christianson, the vocalist of Arkaik, has been touring and recording with the band for years.  Arkaik has a considerable following of over 90 thousand and is even signed to Unique Leader Records.  His dilemma, however, hasn’t changed.
“The music still isn’t making money, and we’ve had to increase our efforts on touring and merch to try to break even.”
Jared Christiansen

Vocalist, Arkaik

Earlier in the year we had talked at great length about the band’s journey with their label and learning music business.  While I was helping with their latest music video shoot for the release of their fourth album, Nemethia, the tension was clearly wearing on him and the band.  Even after four albums with a label, they aren’t experiencing the success they thought they would be at this milestone, and thus he’s searching for alternative vehicles to connect with audiences and create a sustainable income from his brand.

The current vehicle is part of the problem, just as Stoute fingers the blame on labels.  Bands like Arkaik must rely on the label to do the marketing and advertising.  In a healthy symbiotic relationship, the label executives will be transparent about the budgets and goals to hit, marketing advice, and all-around good communication – as with any effective business.  Those relationships are often far from ideal, and in some cases totally one-sided.  Many get lost in the legalese when confronted with the details stipulated in a contract and only those already affluent & wise enough to seek proper legal counsel can truly approach negotiating their label deal.  The bullish business strategies of labels hide in plain sight.

While there are software and web-based solutions that try to fill the void, they’re disconnected, isolated, and require a steep learning curve to master.  The further you head into self-publishing and promotion, the more tools you need to learn.  The more tools you must learn, the more ground you must cover.  It’s a war of attrition taxing individuals of their time.  Stoute recognized this, and from it, UnitedMasters was born.

However, we may not yet be socially ready for this quantum-state business model that is sweeping across the industry.  Is UnitedMasters a software company, or is it a marketing firm?  According to quantum mechanics, it can be both.  Many in the music industry point fingers at Google for Youtube’s poor royalty rate performance and even at Spotify for its struggles, but Stoute points to big labels as the ones withholding the earnings. He wants to empower the shift directly into the hands of the content creators.  Stoute’s partnership with Google’s Alphabet umbrella company is providing the example of what the next generation of music business architecture will be: one foot firmly planted in both industries, but that partnership can look deceptively scary to those on the outside.

Let The Right Ones In

The current fear with involving the big tech companies is their potential to skew the market in their favor.  Google has been known for controversial business tactics that toe the line of acceptable behavior.  Last year, the European Commission fined Google with antitrust charges for 3 separate counts regarding Android and the mobile market, and an entirely separate charge for search ranking manipulation, totaling over $14 billion.
Every big tech company has faced multiple controversies in their lifetimes and I’m sure no one has any doubt there are bound to be more in the future.  If Google can wield their influence and manipulate the market and their search engine in their favor, what’s to stop them from creating this unfair advantage for UnitedMasters in the face of competitor solutions?  This behavior could stomp out the competition before it even arrives.
If we lose the battle on Net Neutrality, this could send many of these promising endeavors into downward spirals.  While Google may look interested in saving the music industry by seeding into its metamorphosis with UnitedMasters, Google is playing a much larger game.  The LA Times reported on the lobbying power growth of tech companies, and Google’s spending on lobbying and research grew by 40% from 2016 alone.  It’s no coincidence that just two days after the LATimes article, a mammoth expose get unleashed over at The Guardian, which had detailed accounts from an inside source at the think tank funded largely by Alphabet’s co-founder Eric Schmidt.

With these recounts, it makes it hard to swallow that Google may truly care about the health of the music industry’s future, putting a hesitant spin on the deal with UnitedMasters.  To some, it could just be another experiment that Alphabet has the disposable income to play with, ambivalent of its viability.

Follow the Leader

UnitedMasters won’t light the way alone.  Their mere presence may inspire others to attempt to provide similar solutions, including the blockchain-based front-ends being developed.  It would make all-too-much sense for these kinds of emerging technologies to start cooperating early on and providing interoperable solutions. UnitedMasters, DotBC Media Project, even others like Amuse and Ethereum could provide a total package that puts major business power directly in the hands of the creators of the content.  As these offerings march forward, they will have plenty of their own challenges to face outside of the “big tech brother” narrative.

We can already see multiple services operating in similar, overlapping spaces trying to fill this market void.  As Josh with TechCrunch points out, services like TuneCore, DistroKid, and more have analytics tools to help artists better understand their market – beyond just handling the distribution.  Spotify also has its own insights tool.   How saturated will the market become with competing gateways and services? Will Spotify “2.0” be a music outlet that also provides market analytics and its own cryptocurrency, digital wallet, and sales gateway?  That could very well be in Spotify’s future five or ten years down the line if these emerging technologies prove viable enough.  What will matter most in the coming years is good, ethical leadership.

The Race for Supremacy

What we’re seeing now with cryptocurrencies is the technological equivalent of the 49’ers Gold Rush, or more aptly – the infamous Tulip Mania.  With so many pump-and-dump schemes flooding the cryptocurrency sector, the negative social perception of these technologies can also bleed into the music industry’s blockchain endeavors as well, especially as these endeavors look to cryptocurrencies as a solution to the middle-men problem.  As these competing models and approaches emerge, not everyone will succeed.  The race ahead of us will not just be about leveraging blockchain architecture as a backbone but in the front-end development of who can offer the richest feature set in managing the intersection of art and commerce to save us humans our valuable time.
Comparing the current use-cases for Blockchain technology has some caveats.  So far, with Cryptocurrencies being the primary use-case for blockchain architecture, the focus is largely on financial transactions.  If we look at these markets right now, Bitcoin surpassed $9,000 per coin as of November 27th, as reported by Gizmodo.  The author, Tom McKay points out that while it’s skyrocketing in value, the public still has relatively little use or involvement with it.  Cryptocurrencies are still not accepted at most places of commerce.  What is driving the rise in value is primarily the speculators and investors hoping to hit it big.
Upon investigating blockchain the music industry’s endeavors, the use-case and thus the design architecture quickly becomes more complex than simply dealing in financial transactions.  Because the public has barely started becoming aware of the intricacies of cryptocurrencies, questions about security come up often.  One such question bore out of confusion is often “what happens if the physical storage of the transaction key is broken or lost?  Is the associated content now gone for everyone else too?”
The consensus leading to hardware storage solutions like Trezor is indeed a viable and much-wanted solution for keeping long-term investments secure as compared to web-based “wallets”, but it is still vulnerable to being lost or stolen.  Where confusion arises is disseminating what is being stored where. The distributed ledger and database that Blockchain provides authorizations and accounts, but the music content we care about will be stored somewhere else, like the cloud.  How it gets accessed can be managed by these blockchain platforms, and can centralize many processes that the traditional vehicle currently requires authors and artists to do independently with each “authority” like the PRO’s, ISRC, and the U.S. Copyright office.

Total Recall

Blockchain technology is not directly “the cloud”.  In our traditional understanding of the cloud, we upload our content to an online storage solution, and it will propagate copies of it across a network of connected storage computers.  That cloud might act as a gateway which can keep things private and grant access, but this function is not directly comparable to what Blockchain is for.  To get a better sense of the differences, we can compare with a working model we can use right now: Amuse.io.
With Amuse, you can upload your content directly to their app.  The files you upload will get syndicated to all the outlets you select for it to deliver to.  However, their back-end is a private cloud storage solution for hosting all the content they receive.  You still have your original masters, and you just sent them a copy of it.  There are no “smart” capabilities of this transaction, and you are free to use your masters however you like.  There is also the potential that your masters could get leaked on your end somehow, and now you have illegal copies floating around that circumvent the streaming services available to all.
With the blockchain approach, you would simply create the title and metadata, provide the URL link to where your files exist, and it will simply “read” the file.  The bigger potential, hopefully soon through 3rd party developments like Proof of Existence, will write-access the file you link and watermark it with a unique identifier code.  From here you could then opt for a cloud storage solution of the watermarked content.  That unique identifier code is now permanently etched into your original master.  From here the blockchain tools can synchronize it with any transaction, potentially cutting down on piracy and creating a much better solution for identifying genuine content.  This Digital Fingerprint can provide the missing link to make all this possible, connecting the actual content to copyright registration, to ISRC code, and even PRO registration of the work.  This compartmentalized approach is one potential safeguard from having a complete “removal” from the platform that could be irretrievable.
These technologies are promising a very real potential to make copyright registration, ISRC, and even the P.R.O.’s completely redundant and unnecessary.  With a blockchain gateway handling every transaction directly, that means the author or owner of the content is also the recipient of the entire transaction.  Any splits or distribution of that income are procedural and carried out automatically through the transaction’s process.  This means all the income flows directly between the involved parties, no middlemen required.  Whether it is wise to abandon them entirely or simply modify how these administrations operate to accommodate this new avenue will be determined by the motives and ethics we call upon in general business practice moving forward.

With Promise, Comes Challenge

Cryptocurrencies are on the rise, and perhaps the biggest challenge these new infrastructures face are going to be dealing with the multitude of solutions.  Right now, we must deal with the co-existence of fiat money and digital cryptocurrency.  Due to the infancy of these emerging currency formats and the nature of their derived value, society is largely uneducated about how finance translates into these systems and therefore divided and ambiguous toward them.  That doesn’t mean Cryptocurrency is anything to sneeze at.  According to Ripple CEO Brad Garlinghouse in an interview with CNBC, As of September 11th, 2017, the total value of Bitcoin is roughly $75 billion.  That is still considerably small when compared to roughly $9 trillion for Gold. Ripple’s XRP platform is the fourth most valuable cryptocurrency to date, and will only continue to rise.  However, with promise, comes challenge.
The burning question of left to cover is on the scalability of the decentralized platform, and the hardware required to keep the growing system operating efficiently.  by design, these have numerous limitations that can severely stunt the blockchain architecture’s long-term viability.  To answer, I searched for someone on the inside of blockchain development that could articulate just what these scalability challenges might be.
Preethi Kasireddy, a blockchain engineer & author of “Blockchains don’t scale.  Not today, at least.  But there’s hope.” Provides a detailed and thorough analysis of Blockchain’s scalability issues and of the many she enumerates, each plausible solution she attempts to provide seems to come with its own resulting challenge.  The very design flaw that reaches for the ideal decentralized consensus limits its capacity to operate at any sort of scale usable by the public.  Will it be possible for the pace of demand on these blockchain systems outpace the rate at which they can adapt and evolve to overcome the limitations threatening their existence?  That might be a mid-distant possibility for all but private blockchain networks, but people like Preethi are already hard at work attempting to solve them.  While she does preface her overview of solutions that none explored so far are silver bullets to the problems, the solutions are at least promising incremental improvements that could be enough to keep up with the demand as it grows.
Regardless, there is a clear demand for cryptocurrencies.  Each logistical approach and underlying technological innovations target different use-cases.  At first, I and many others thought of blockchain as a singular solution to solve many problems.  However, it is likely that we will need multiple systems to tackle and simplify all the problems the industry is facing.  Blockchain alone won’t save the music industry, but it could be the pivot-point for a massive axis shift in how the industry operates.

A Sign of the times

Surprisingly, some industry veterans are hesitant about tech being the future of the music industry.  Jimmy Iovine, for example, points out quite blatantly why it is that the music industry problems have not yet been solved in an interview with Colin Stutz at Billboard.  Streaming isn’t a profitable solution, and Spotify – being the only stand-alone business out there, has proven that after 9 years without turning a profit.  The big tech companies like Apple, Google, and Amazon can all afford to keep running these services because it’s only a small portion of their overall business model.  They’re big, they’re diverse, and they’re sitting on enough cash reserves that if one leg of business is under-performing, it won’t threaten to sink them.  More importantly, as Jimmy bluntly points out, “Amazon Sells Prime; Apple sells telephones and iPads..”.  It’s no wonder then, that he and Dre got into the hardware business, as they clearly saw the writing on the wall.  But, where would they be if they hadn’t sold Beats brands to Apple for $3 billion?
Jimmy got sentimental in the interview, pointing out that the music has changed.  I think he started a great point with his discussion about how artists aren’t saying how they feel anymore.  When exploring which came first, the chicken or the egg effect, this issue is incredibly complex.  The approaches to music as a business tend to fall in one of two categories, and Kenny Gioia, a veteran engineer and producer who also writes regularly for Groove3, articulates perfectly the differences between these approaches to music in his article Pop Vs. Art!  Artists traditionally write music from within.  Pop music, by comparison, is written for the audience.
“Pop music, unlike any other type of music, is not made from within. If I’m writing or creating a pop song, I’m not creating something that I feel that I need to express. I’m trying to tap into something that you want to express. Or more specifically, a message that you want to hear. I’m not doing it for me. I’m doing it for you. So you can like it and enjoy it.”
Kenny Gioia

Engineer, Producer, Columnist, Groove3

The trend of the music industry to adopt this “pop” music approach has bled into “commercial viability”.  What Iovine was pointing out is that there haven’t been artists with the same kind of artistic expression the likes of which we saw in the 90’s with the icons he helped build: Marilyn Manson, Nine Inch Nails, Mary J Blige, and the like.  It’s hard to tell if technology is the cause of this, or if the race for staying-power is driving artists to adopt more of the Pop music approach and leverage technology to maximize their growth at the short-sighted risk of alienating their audiences. This phenomenon is not something that technology can solve.  However, if technology can streamline the business side so that artists can get back to focusing more on their art, that is the ultimate goal these tech companies should aim for.
In my previous article about DotBC’s approach, I pointed to Amuse.io as an example of what the future of commerce with this new approach will look like.  If that is any indicator that robust software solutions are the future, we need to begin throwing out the social dogmas the industry has been carrying since that golden age of radio.
The industry has never been an industry of musicians, it has been and always will be an industry of musical entrepreneurs.   If more of us in the industry can adopt that perception it will be much easier to begin embracing the future instead of fearing it.  Many challenges lay ahead, but approaching them objectively with an open mind can ensure we all move forward together for a brighter future.  If we fear that we will simply eschew the industry further into the hands of the tech giants like Google, Microsoft, and Apple, then now is the time to act while these technologies are young.

References:

Medium – Traditional Music Industry Approach vs. What’s Coming… Oct. 29th 2017, Benji Rogers
Neologic Studios – Unraveling the Music Industry With Blockchain, Nov. 22nd 2017, Cameron Bashaw
TechCrunch – With $70M from Alphabet, UnitedMasters replaces record labels, Nov. 15th 2017, Josh Constine
CNN Money – Google charged by EU in Android monopoly lawsuit, Apr. 20th 2016, David Goldman
LA Times – To understand how dominant tech companies are, see what they lobby for, Sep. 1st 2017, Brian Fung & Hamza Shaban
The Guardian – Forget Wall Street – Silicon Valley is the new political power in Washington, Sep. 3rd 2017, Olivia Solon & Sabrina Siddiqui
Wikipedia – Tulip Mania
Gizmodo – Bitcoin Blows Past $9,000, Nov. 26th 2017, Tom McKay
CNBC – Ripple CEO Brad Garlinghouse explains why the world has barely scratched the surface with cryptocurrencies, Sep. 11th 2017, Eric Jackson
Hackernoon – Blockchains don’t scale. Not today, at least. But there’s hope. Aug. 23rd 2017, Preethi Kasireddy
Billboard – Jimmy Iovine Breaks Down What’s Wrong With the Music Business, Warns Against Overoptimism in Streaming: ‘They’re Not Making Money’, Nov. 29th 2017, Colin Stutz
Groove3 Blog –  Kenny’s Discussion of the day: Pop Music Vs. Art, Nov. 27th 2017, Kenny Gioia

What do you think about where the music industry is headed?  How do you view these technologies?  Join the discussion below.  And as always, happy productions!