Investing In The Music Business Part VII

Posted by Pinky on Oct 12, 2010 in Blog | 9 comments

Earlier this year I began a series on “investing in the music business,” which was based on the lessons I have learned over the last 12 years as a music industry professional, entrepreneur and investor.  My question was:

Why can’t we apply a venture capital-style model to the music industry, give artists a way to own their own creative works, consider live performance the new distribution model and standardize music licensing to encourage technological and creative innovation?

In my last interview with Larry Pareigis, we learned the answer.  We can’t do any of those things because it costs $500,000 PER SINGLE to promote a song to radio, not including the expense of recording, touring, eating and clothing ourselves in the process.  In other words, if you don’t have $2,000,000 minimum, you’re not even in the game, and if you do, as Larry puts it, “you’re entering into a business that has a 98% failure rate, why do you think you’re a part of that 2%?”

This can’t really be right, can it?  If it were really this expensive, how could there be any record labels at all?

Labels have historically made it work in 3 ways:

1. They have an in-house radio promotion staff so their per-song cost is lower than independent promotion would be (though not by very much).
2. They play the odds.  Most of what they sign fails, but the artists that succeed pay so well it makes up for their losses.
3. As the gatekeepers to a $38.6 billion dollar industry, there was plenty of money to go around.

Forester Research is predicting that the industry could shrink to $9 billion by 2013, and any time an entire industry shrinks to a quarter of its original size in just a few years, blood gets spilled.

So what’s the solution?

For starters, if you’re an aspiring artist and you’re in it for the money, you’re in the wrong line of work.

Next, if you don’t want to play live, you’re in the wrong line of work.

Third, if you don’t want to tour, you’re in the wrong line of work.

Fourth, if you expect someone else to handle all the “business” so you can just be an “artist,” you’re in the wrong line of work.

But if you believe in miracles, make music for the pure joy of doing so, get out and play every single weekend and write songs that truly stand out, you might just make it in the music business.  And by “make it” I mean “pay a normal sum for a normal house in a normal neighborhood.”  Until you’re 35.  And then you’d better get a job.

The irony is that I teach a course in the digital marketing of superstardom and have made a living on the exception to the rule for most of my career. In fact, I’m being interviewed by NPR today about Taylor Swift’s digital strategy.  (They want to know if her online efforts have brought more fans into the country music fold.)  I also work with about 10 technology startups in various capacities – some that even focus on music technology and innovation.  But if you ask me if a venture capitalist can take the place of the modern music label, I’m sad to say that I really don’t think so unless they approach it from a philanthropic perspective.  Meaning, if a wealthy investor wants to “risk” $2m – $5m for a good cause, an artist will be able to write, record and perform music and have a true shot at mainstream success.  (It can and has happened.)  But even with that kind of firepower, their songs will just be songs played on radio stations with lots of high quality music competing all day and all night, every day and every night.  You can’t buy a hit song, but you probably won’t have a hit song without a serious investment.  And of course, one hit does not guarantee another.

So these are the problems we face.  For now, there is still enough money being made at the top that a handful of folks are still making millions of dollars a year in profit.  But for those that are just starting out, stay focussed on the purpose of your art and the joy of live performance, and forget about the mansion in the Hills.  Your chances of finding joy and fulfillment along this path are far greater than your chances of retiring at age 30.  And there ain’t nothin’ wrong with that.