ONLINE MUSIC DISTRIBUTION
A THESIS
Presented to
The Faculty of the Department of Economics and Business
The Colorado College
In Partial Fulfillment of the Requirements for the Degree
Bachelor of Arts
By
Jeffrey A. Moore
May 2010 ONLINE MUSIC DISTRIBUTION
Jeffrey Moore
May, 2010
Economics
Abstract
The music industry has seen many new forms of technology that have helped shape it to become the multi-billon dollar industry it has become today. The Internet is currently changing how artists aredistributing their music as well as how consumers are receiving it. The ease of which an artist can distribute their music across the country without the help of a record label has lead to a new question as to whether or nota record contract is still necessary for an artist to succeed in the industry. This study will look at groups from the Front Range of Colorado at different stages in their musical careers to see exactly how they are using the Internet to distribute their music and to find out if any have achieved any level of financial success doing so.
KEYWORDS: Music Industry, Internet Distribution ON MY HONOR, I HAVE NEITHER GIVEN NOR RECEIVED UNAUTHORIZED AID ON THIS THESIS
Signature
TABLE OF CONTENTS
ABSTRACT iii ACKNOWLEDGEMENTS iv 1 INTRODUCTION 1
2 LITERATURE REVIEW 6 2.1 Overview of the Music Industry 6 2.2 Pricing Strategies and Internet Distribution 8 2.3 The Music Industry Market Structure and Value Chain 10 2.4 Piracy and the Music Industry 14
3 RELEVANT THEORY 17 3.1 State of the Industry Pre-Internet 18 3.2 The Introduction of the Internet 21 3.3 The Rise of New Innovative Distribution Tactics 23 3.4 Hypothesis 28
4 Methodology 31 4.1 What Question is this Study Trying to Answer? 32 4.2 Variables 33 4.3 Problems and Research Obstacles 35 4.4 Methods 36
5 RESULTS AND DISCUSSION 40 5.1 Exact Methods for Surveys 40 5.2 Experience of the Groups Sampled 43 5.3 TheUse of the Internet Distribution Sites 46 5.4 Ratings of Online Distribution Sites 48
6 CONCLUSIONS AND AREAS FOR FURTHER RESEARCH 53 6.1 Final Conclusions 53 6.2 Limitations of this Study 55 6.3 Areas for Further Research 56
7 WORKS CITED 58 LIST OF FIGURES
2.1 Music Industry Market Structure 10
2.2 Music Industry ValueChain 12
3.1 Description of Online Distribution Networks 27
4.1 Survey 38
5.1 Description of Artists Participating in Study 43
5.2 Chart of Survey Response to Question, "Have you used any of the following sites to distribute your music online? (check all that apply)" 49
5.3 Chart of Ratings of Distribution Networks 49 Chapter 1
INTRODUCTION
The Internet has revolutionized the way we perceive and consume many different products. Anything that can be digitized can now be transferred from computer to computer in a matter of minutes. Newspapers are now posted online and books are downloaded for an instant read. Instead of sitting down with a pen and paper, people are more likely to type up an e-mail. The same could be said about paying bills; instead of writing outacheck, some simply click a few buttons and hit "enter". The digitized age is
upon us.
Music is one such product that has seen a transformation due to the introduction of this digitized age. With the invention of the MP3 player, it is now more portable than ever. One can literally hold tens of thousands of songs in the palm of their hand. Not only is it more portable, but it is even more transferable than before, as it can now be transferred from one computer to another in a matter of seconds. With thisability to transfer information now available, it seems only natural that consumers and artists alike are turning to the Internet to share and distribute music.
In October of 2007, the UK's rock band Radiohead released their album In
Rainbows. Instead of the usual model of selling the album in stores, the band simply put the entirety of the album on their website for download. Not only did they do this, but they did not ask for a single penny fromanyone who downloaded the album; they merely asked people to pay what they thought the album was worth. Although the band has yet to release any actual figures for sales of the album, several different estimations on how much the band actually made have been put forth. Although different agencies such as
Billboard magazine or ComScore.com (an Internet research site) have varied estimates of number of albums sold and average price, it is widely accepted that the album was downloaded more than 500,000 times in the first three weeks of its release.' To add to this figure, the average price of a download was placed at $8. This means that Radiohead could have easily netted $4 million in the month of October alone. Even the smallest of these estimates placed the band's earnings at $1.36 million in the first month, which is enough to draw some attention, considering all this money went directly to the band. In a normal contract, the band would have been making royalties, which considering the band's status, could have been around 20%. Say they would have sold just as many albums at wholesale price (which varies widely, for this example we will use the figure of
$10) as were downloaded. The money going to the band would havebeen two dollars per album sold, which is their royalty rate multiplied by the wholesale price. Under a normal contract, the band would have grossed $ 1 Million (# of albums sold X rate paid to the band per album sold).
With the success of this distribution model, one might wonder whether or not this is the future of the industry. Could any band or artist copy Radiohead's methods to achieve a similar amount of success? Could they do it and succeed at all? One thing is
1 Hardesty, Larry. 2008. "The Tipping Jar." Technology Review (Cambridge, Mass.: 1998) 111, no. 1: 76- 77. General Science Abstracts, EQSCOhost (accessed March 1, 2010). 2 Passman, Donald S.. All You Need To Know About the Music Business. New York, New York: Free Press, 2006. p. 103 for certain: the music industry is changing, and the Internet is not going away anytime soon. The changing environment is posing new situations for both artists and the record labels that used to dominate the industry, as well as essentially control bands like
Radiohead. Artist's record companies must adapt to the changing environment just as much as the artists themselves.
The music industry is vast, especially considering the newly acquired ability to digitize songs and send them to the other side of the earth. According to a report by the
International Federation of the Phonographic Industry (IFPI) the music industry worldwide is worth more than 130 Billion US Dollars. Furthermore, the report found that over twenty percent of music sales in the US are through digital vendors, which is about
1.4 Billion songs downloaded over the past year.3 There is a great opportunity for musicians and record labels to secure some of this market-share, especially with the rise of Internet distribution networks as a more feasible means of getting music to the masses.
The creation of digitized music is not without its risks. Online piracy has been highly prevalent since the introduction of Napster and similar sites. In 2000, the metal band Metallica fought back, filing a lawsuit against the site for distributing copyrighted material. The court ruled in favor of the band and the site was shut down until it became a subscription site.
Even with the demise of Napster, the downloading continues. It has been estimated that over 40 Billion songs are illegally downloaded each year, which would show that over 95% of all music downloads do not lead to any profits to record labels or
3 International Federation for the Phonographic Industry. Digital Music Report London (2009) Available online at: http://www.ifpi.org/content/library/DMR2010.pdfAccessed Oct. 2009 musicians.4 If musicians or record labels are going to keep their market share and be successful selling music, they must find ways to adapt to the changing demands of the
consumer.
Musicians, as in any other business, must sell a product or service in order to make a profit. Originally, the only hope an artist had a successfully distributing their music was to sign with a record label, who had connections to distribution networks such as radio stations, television networks and retailers. The record companies traditionally also provide artistic input as well asoriginal investment on recording an album.5 The introduction of the Internet has created another option for musicians. Without the help of a record label, musicians can now distribute their music online.
This new outlet of distribution and the changing of the industry have led to many studies. Scholars have looked at the impact of the changing technology from various fields of analysis. Economic scholars have focused mainly on the impact of piracy on both artist's and a record company's revenue. Other research has focused on how companies must change the way they do business in a new technological age. Although extensive research has been done in this field, very little has focused on the artists themselves. Record companies are adapting, but so are artists. The recent surge of artists that are using the Internet to gain financial stability or recognition from record companies requires a study from a different perspective. The purpose of this paper is to explore this perspective and attempt to show whether or not artists are finding Internet related
4 Ibid. 5 Bockstedt, Jesse C, Robert J. Kauffman, and Frederick J. Riggins. "The Move to Artist-Led On-Line Music Distribution: A Theory-BasedAssessment and Prospects for Structural Changes in the Digital Music Market." IntemationalJournal ofElectronic Commerce 10, no. 3 (2006): p. 8 distribution tactics effective. This will be done by a series of surveys and interviews of bands located on the Front Range of Colorado.
The structure of the paper will start with a reviewof thescholarly literature written on any related subjects. Chapter 3 will focus on the relevant theory involved with the music industry. The chapter will go over the different distribution models available for artists to use and will serve as a basis for my hypothesis. After my theory is laid out, chapter 4 will outline my exact methods I wish to employ for this study. The results of this study will be presented and discussed in chapter 5, as well as any conclusions from this study. My final conclusion and discussion will follow in chapter 6, and I will present any areas of further research. Chapter 2
LITERATURE REVIEW
The invention of the Internet has shaped how we consume several everyday products, one of the most notable being music. Because music is a multi-billion dollar industry, there has been extensive research into how the transfer of digitized music has affected it. Record labels have evolved and adapted in the past, but it could be argued that now is the first time an artist has a legitimate chance to become financially successful distributing their music without the help of a record label. This poses new questions for all parties involved in the creation, distribution and consumption of music.
This chapter will start with a brief history of the music industry (to be expanded in the next chapter) and then will cover the relevant theory associated with the Internet commerce and digital music distribution. The chapter will conclude with the area of research I plan on exploring.
Overview of the Music Industry
Historically, record labels have dominated and determined the success of an artist in the music industry by drawing up contracts with the artist that give them exclusive rightsto distribute and market their music. The strategy for distribution of music by record companies has changed over the decades. The invention of the phonograph made music more portable and accessible inside people's homes as opposed to live shows. Originally vinyl's main form of distribution was the 45-rpm-single, which could be sold at a lower price.6 The idea was to appeal to a mass audience as opposed to a devoted fan base. The 1960's saw an expanse in the sales of full length albums over singles, which is a trend that has continued until the present. The move to producing full length albums showed two things, the first was that record companies promoted a move to a more bundled product aimed at fans that were willing to pay a higher price. The second was that record companies kept prices of albums fairly consistent across the board. This is compared to the movie industry where ticket prices are constant and studios must recoup losses incurred from some movies based on gains from others. It works the same way in the music industry; the majority of records that record companies front the production costs do not regain these expenses and the companies count on top-selling records to break even.7
Record companies have a connection with major outlets of distribution including major radio conglomerates and retail distributors which gives them the power in the contracts with artists and has necessitated artists to signthe contracts if they want to be successful. The power of a record company was that they were able to select what music becomes popular because they choose what music to distribute and where. Artists simply do not have the capital that record companies possess and are able to put forth in an effort to promote a song or artist.
The move to digitized music has changed the way music is produced now. The move tofull-length albums in the 1960's meant that even if an artist only produced one
6 Bockstedt et al. p. 8 7 Ibid 8 Mol, Joeri M., and Nachoem M. Wijnberg. "Competition, Selection and Rock and Roll: The Economics ofPayola and Authenticity." Journal ofEconomic Issues 41,no. 3 (2007): 701-714. hit song with a nine other songs that were less popular, the consumer was still left with no
choice but to buy the whole album. Digitized music can be separated and un-bundled,
allowing the ability of the consumer to obtain the one song much easier than in the past.
Pricing Strategies and Internet Distribution
The ability totransfer single songs or whole albums has changed the way
consumers can obtain music. This variation of how music is distributed has created a
market for many different music distribution networks. Many studies havebeen
conducted that have looked at the pricing strategies of online distributors. A study by
Brynjolfsson and Smith offered a view that the Internet is a frictionless marketplace,
pointing out that online music is priced up to 16% lower online than in a conventional
retailer due to decreased operational costs for Internet retailers.9 This is not the only
thing that should be considered with online distribution. Branding, trust and awareness
also playa large roll in consumers' willingness to pay, meaning that consumers are
willing to pay a premium for the most prominent brands based on image and trust.
Clemons et al. have pointed out that online prices can and should be dispersed with
product discrimination.10 They suggested that because of decreased menu costs for
Internet distributors it is easier for them to decrease prices for less popular goods or
increase them for more popular ones. Furthermore, the conventional model of bundling
music into albums has been overthrown by the ability of the consumer to purchase single
songs off albums or even bundle products in creative ways.11 It has also been pointed out by a study from Gallaway and Kinnear that older and less popular music can be offered at
9 Brynjolfsson, Erik, and Michael D. Smith. "Frictionless Commerce? A Comparison of Internet and Conventional Retailers." Management Science 46, no. 4 (2000):563. Clemons et al. "Newly Vulnerable Markets in an Age ofPure Information Products: An Analysis of Online Music and Online News." Journal of Management Information Systems 19, no. 3 (2002): 17-41. Altinkemer, Kemal, and Subhajyoti Bandyopadhyay. "Bundling and Distribution of Digitized Music Over the Internet." Journal of Organizational Computing & Electronic Commerce 10, no. 3 (2000): 209-224. a lower price than newer music. The demand for new music is less elastic than older music. This can be observed by the sales of most records, which tend to fall dramatically after the first few weeks of their release date.12
Even with these several models that point out the advantage of price dispersion, many online music distribution firms have maintained a level of price rigidity. Kauffman and Lee point out that many firms have maintained the price rigidity that has been displayed throughout the history of the music industry as to not show weakness and because firms compete not only on price, but also customer satisfaction and brand recognition, which can play a role in how much of a premium a firm can add to their price.13
The development of online music has shown a trend towards two different types of pricing for music. The first is pricing by song and album, the second is a subscription service. The success of Apple's iPod has catapulted iTunes to one of the most prominent music distributors online, using the model of pay-per-song or buy an entire album.14
Other firms have offered a much more interesting viewon how to distribute music, most notably Amie Street and Megatune. Both of these websites offer a dynamic pricing model. Amie Streetoffers most of its music for free at first and as more people purchase songs, the price goes up. Megatune offers a pay-as-you-wish model where consumers can purchase albums for whatever they want to pay, between $5-$l 8. Further discussion of these websites and payment models will be included in the theory chapter. The introduction of innovative pricing and distribution networks are largely viewed favorably
Gallaway, Terrel, and Douglas Kinnear. "Unchained Melody: A Price Discrimination-Based Policy Proposal for Addressing the MP3 Revolution." Journal of Economic Issues 35,no. 2 (2001): 279. Kauffman, R.J., and Lee, D. "Should we expect less price rigidity in the digital economy?" In R.H. Sprague Jr. (ed.), Proceedings of the 37th Hawaii International Conference on System Sciences. Los Alamitos, CA: IEEE Computer Society Press, 2004, pp. 1-10. Pitta, Dennis A. "Internet currency." Journal of Consumer Marketing 22,no. 5 (2005): 297-298 by both bands and fans, whereas the record labels could see them asthreats to their own market share.15 The labels must adapt or risk losing their competitive advantage in the sense that they have access to marketing and distribution channels that artists do not.
These innovative pricing and distribution models continue to give artists other options than signing with a major label in order to successfully distribute their music.
The Music Industry Market Structure and Value Chain
Artist Record Manufacturer/ Retailer Label distributer
Consumer
Traditional Supply Link Digital Consumer New Supply Link distribution network
forms Pay-sites Free (iTunes, "marketing" or Rhapsody) Free P2P sites "sampling" sites (MySpace, You tube)
Figure 2.1: Music Industry Market Structure
Traditionally the market structure of the music industry reflected the huge costs of producing an album, which were generally fronted by record labels. As Figure 1 shows, music would move from musician to a record label who would then own the music in exchange for distributing andpromoting it. New supply links are opening up however, as
Bhattacharjee, Sudip, Ram D. Gopal, James R. Marsden, and Ramesh Sankaranarayanan. "Re-tuning the Music Industry - Can They Re-Attain Business Resonance?" Communications oftheACM 52, no 6 (2009): 136-140.
10 digital distribution networks are enabling musicians to bypass these intermediaries.
Traditional retail outlets are losing market share as there is less of a need to produce any
physical product.
The ability to compress digitized music and its portability make the range of
distribution sites very extensive. Artists are even given the opportunity to distribute their
music digitally in physical setting such as live shows. A new option has been utilized by
bands such as Straylight Run from Long Island, New York. Instead of producing
physical CDs of their EP "About Time" and selling them while on tour, the band used the
site Dropcards.com and produced cards that contained a code to download the album
directly to a computer once the buyer got home.16 These cards could be sold just like
CDs or could be added to a purchase of shirt or even a vinyl record (which is difficult to
transfer to digital format) and gives the user, through the Internet, a chance to own a
digital copy of the album. This tactic is less expensive then producing CDs, the average price per card is about fifty-five cents. The average price for CD duplication including
cases is about $2.50.17 The site also offers an option to reduce the environmental costs of producing physical CDs or wasteful cards, giving the band or artist an option of buying cards that are made up of 100% post-consumer paper embedded withwildflower seeds.
This allowed the buyer to simply bury the card or throw it away knowing it is biodegradable.18
Artists can choose to put their music upon pay-sites, free download sites or to stream samples of their music on sites like Myspace or Youtube. One interesting
16 Noon, Will, Email correspondence with Author, March 8, 2010. 17 Diskfaktory "CD Duplication: Propak" 2009 Available online at: http://www.diskfaktory.com/products_audio_propak.asp Accessed March, 2010 18 Dropcards, Inc "Our Products",. 2010. Available Online at: www.Dropcards.com/products, Accessed March, 2010
11 connection is that Myspace and Youtube are open to everyone and not just artists. This allows consumers to put music they do no own on these sites seemingly against an artist's will. Because of this and the ability to share music over peer-to-peer (P2P) sites, once music hits the market it is almost always available to listen to it for free for consumers.
With the ever-growing access to Internet with cell-phones and laptops, this free listening could potentially diminish market share substantially for artists who are legitimately trying to sell their music.
Figure 2.2- Example of the Music Industry Value Chain
Composing Recording Liscensing, Reproduction music and anil Retailing and copyright distribution Consumer lyrics publishing and marketing
The music industry's value chain is a similar story. Essentially, the intermediaries in the valuechain can now be removed as a band can record, replicate and distribute their own music without the help ofmajor record labels.19 Foss created a value-chain model with the concepts of value creation, value capture and value protection. Value creation, or
' Bockstedt et al. p. 20
12 value added, refers to the utility of the product, generally gained by the consumer. Value capture is the revenue received by each stage along a particular value chain. Value protection is how firms try to protect against imitation and competition. Foss's model is based on whether or not transaction costs are zero. He states that if transaction costs are not zero, opportunities for value creation become more difficult because the value created along each stage in the supply chain leads to value capture.20 Returning to Brynjolfsson and Smith we can see that the Internet has essentially zero transaction costs.21 Using
Foss's model, Mol et. al concluded that there was valuechain envy created at the point of music publishing, because the value created is minimal and the value captured is extensive. Value chain envy is the desire from one "selector" (a particular party in the value chain) to move along the value chain.22 Furthermore, they discovered that vertical integration into music publishing is largely from parties upstream in the value-chain, which is to say that artists and those with a musical background are becoming increasingly more involved in the publishing aspect of the music industry's value chain.
The industry is seeing the breakdown of the traditional value-chain as artists are taking over stages of the chain and going it alone.
Since transaction costs and costs of production are lowering due to increased technologies, the value added by each section in the value chain is becoming more efficient but is also lowering. There are new ways to add value to music, most notably by copyright protection and branding. The increased amount of free music available means that in order to regain revenues, value is added to music to help increase protection
Foss, N. J. "The strategic management and transaction cost nexus: past debates, central questions and future research possibilities". Strategic Organization, 1, no. 2, (2003): 139-69. Brynjolfsson, Erik, and Michael D. Smith. "Frictionless Commerce? A Comparison of Internet and Conventional Retailers." Management Science 46, no. 4 (2000): 563. Mol, Joeri M., Nachoem M. Wijnberg, and Charles Carroll. "Value Chain Envy: Explaining New Entry and Vertical Integration in Popular Music." Journal ofManagement Studies 42,no. 2 (2005): 251 -276.
13 against pirating and free music streaming.23 Value is also added by music distribution
networks that are recognized as brand names. Clay et al. found that for online book
distributors there werehuge price dispersions with Amazon.com able to charge an
extensive premium based on brand recognition and costumer service benefits.24 This
model of brand recognition and the ability to charge a premium by some sites has started
to develop in the music industry and online distribution outlets (further details in later
chapters).
Piracy and the Music Industry
As mentioned, one obstacle created by the Internet for the music industry to
overcome is the threat of piracy. There has been extensive research to look at the impact
of piracy on record labels and artists. Gayer and Shy set out to prove that piracy can be
beneficial to artists, as long as their royalties are set to zero.25 This is achieved by the
added value of ancillary revenues from a greater exposure to an audience. There are
many examples of artists using P2P sites todistribute their own music, almost as a form
of advertisement. Tom Petty put the song "Free Girl Now" from his upcoming album at
the time "Echo"on MP3.com for free, without telling his record label. The song was
downloaded over 150,000 times in less than three days before Warner Bros, pulled the
song off.26 MP3.com requires e-mail addresses in order to use the site, and Tom Petty
23 Bockstedt, et al. p 25 24 Clay, K., et al. "Retail Strategies on the Web: Price and Non-price Competition in the Online Book Industry." Journal of Industrial Economics 50, no. 3 (September 2002): 351-367. Gayer, A. and Shy, O. "Publishers, artists, and copyright enforcement." Information Economics and Policy, 18, 374- 384 26 John, Richard. "Tom Petty's Free Girl No Longer." Canoe- Jam!. 15 March 1999. Available online at: http://jam.canoe.ca/Music/Artists/P/Petty_Tom/1999/03/l 57748695.html Accessed Nov. 2009
14 used the 150,000 e-mail addresses from the site to help promote his tour to support
"Echo". The tour took in $27 million after selling tickets for around $40.27
A study by Gopal et.al. added evidence that file-sharing reduces the "star" effect
that is common in the industry.28 This is because many of the most popular artists gain
huge revenues off record sales, but as demonstrated by Tom Petty, it is possible to recoup
these losses by using free distribution methods to sample ones music and gain revenues
from touring. However, the effect of piracy on record labels is generally viewed as
negative, because their revenues are solely based on sales of the music from an artist. In
a recent article, Curien and Moreau offer the solution that record labels should re
negotiate contracts with artists to receive an amount of revenue from artists' ancillary
profits in an effort to off-set the loss incurred from pirating.29
This brings up an interesting dilemma where an artist shouldask themselves
which is better, to sign a contract or to go it alone? We're starting to see artists find more
and more innovative ways to get noticed in the industry and distribute their music. As
artists seek to gain legitimacy in the industry, more and more are turning to the Internet.
There are some artists that are going it alone, without the help of a record label. Others,
as in the case of Radiohead mentioned in the introduction, are dropping their record
labels once theygain enough fame to distribute their music by themselves, and others still
are using the Internet as a means in which to get noticed by record labels. Extensive
research has been done looking at how both artists and record labels have started to use
these new technologies, but the question still remains: have any had any success using
Kot, Greg. Wired: How the Wired Generation Revolutionized Music. New York. NY: Scribnet, 2009 p 27 28 Gopal, Ram D., Sudip Bhattacharjee, and G. L. Sanders. "Do Artists Benefit from Online Music Sharing?" Journal ofBusiness 79, no. 3 (2006): 1503-1533. Curien, Nicolas, and Francois Moreau. "The Music Industry in the Digital Era: Toward New Contracts." Journal of Media Economics 22, no. 2 (2009): 102-113.
15 only these technologies, and if so, what exactly did they employ to gain this success? For this study, the variable of success will be defined as a combination of financial success and popularity (further discussion in chapter 4). To add to the previous question, if any have gained success can their method be repeated by other artists to try and enter the market? The next chapters will focus on laying outa theoretical foundation for this study and exploring this question.
16 Chapter 3
RELEVANT THEORY
Technological change as a threat to the music industry is nothing new. Over the past century the industry has faced inventions such as the phonograph and vinyl records, which were supposedly the end of live shows. There were similar fears with the invention of theradio and later, the ability to copy cassettes. Both offered a way to obtain free music and looked to puta dent in record sales.30 Each time another new technology entered the game, the industry braced itself for a complete overhaul, but no dramatic changes came in the end and the business models of record labels have had no real problems adapting to these new technologies. The Internet has created a much greater threat however. The power of how music reaches consumers is no longer completely in the hands of record labels and large radio conglomerates.
This chapter will start by giving an overview of how the music industry operated before the Internet enabled distribution of digitized products. I will then show how the
Internet has affected different sectors of the market and present evidence that artists now have much more power than before the introduction of the Internet. The final section of this chapter will be my hypothesis of what I expect to find in my research.
30 Kot, Greg. Wired: How the Wired Generation RevolutionizedMusic. New York, NY: Scribnet, 2009. p. 29
17 The State of the Industry Pre-Internet
In his recent book, Greg Kot uses a series of interviews and observations to show just how relationships between record labels and artists have changed. He gives many recent examples of artists that have distributed their music themselves, either under the contract of a record label (such as Tom Petty putting a song up for free on MP3.com) or not under contract (such as Radiohead selling their music off their website for whatever the consumer wanted to pay, even allowing free downloads). The importance of Kot's book is that it consolidates all the events that have lead to the present situation, focusing on how artists signed to major labels are finding they have alternatives to how things weredone in the past. The research is a good overview of how things were and how they are changing, but it does not show any specific examples of up-and-coming artist's attempts to utilize the Internet as a means of procuring successful record sales. The state of the industry before the Internet really set the tone for the backlash received by record companies from both artists and consumers.
Before the invention of the Internet, record companies had an extremely vital role in whether or not a band became successful. The role of a record label to distribute and market a musicians' music has become less and less about fostering artist's talents and more about making money. This trend really started as record companies began to consolidate in the nineties. Polygram Music was sold to Seagram for $10.4 billion in early 1999, creating the largest music corporation in the world, headed by the heir of a liquor fortune. The consolidation continued and by 2000, only five conglomerates controlled the record industry. The mounting pressure from investors for companies to
18 post increasing quarterly returns facilitated an environment where record companies treated artists as commodities, if they didn't bring inreturns, they were dropped.
The need for artists to deliver a hit record was hinged on one factor: whether or nota large audience heard the music and thus, bought the record. This meant that the record companies needed a method of distribution, which boiled down to two main outlets: MTV and the radio. MTV, which started as a channel playing music videos all day everyday. This didn't last however, and the increase in non-music programming on
MTV left the radio as the most viable option to distribute music.
The relationship between record companies and theradio stations was interesting in the sense that there was almost no direct contact between them. The record companies needed radio stations to play songs from their artists, but they had to go through middlemen in order to have any chance of getting airtime at all. The situation was created where record labels would hire independent promoters to push their songs to radio stations. The more the song got played on each station, the more the promoter got paid. This was possible because of the relationships built upby the independent promoters with the radio programmers, generally in the form of bribes.31 Record companies were left with no other choice than to hire these independent promoters if they had any chance of getting their artist's songs any airtime. The system came full circle when promoters started making deals with the radio stations for exclusive knowledge of what theirplay-lists would be. They then essentially had a monopoly on what songs would get the most airtime, and could charge whatever they wanted to the record companies, who had no other option if they wanted their artist's song to get airtime and thus, sell records.
31 Kot, p. 19
19 This was nota favorable situationfor record labels. They were forced to drop a huge amount of money on the promotion of songs to promoters, who were the only ones that knew if the songs would actually receive airtime. What resulted was an even less desirable situation for the artists, who were pressured to produce hit records under the penalty of being dropped from the label, left with huge debts from the promotional costs and costs of producing the albums that the record labels fronted for the bands, and required repayment. Bands really did not have many options. There were other ways to get known in the industry, namely touring and/or word of mouth, but they were not nearly as effectiveas the networking capabilities of the record labels. Even if a band managed to gather a following via touring, they were still left to deal with SFX
Entertainment, who had a hand in producing more than 60% of the two-hundred highest grossing concerts in the country throughout the nineties.32
Bands generally do not have the capital to produce their own records, requiring record labels to front them the cash in exchange for exclusive rightsto the music.
Because record labels had such pressure to post quarterly return profits, and since they had to pour so much money into promoting an artist, they focused most of their attention
on artists that had already proven themselves.
What this meant for the consumer was that they were not exposed to new music nearly as often, and that the music they were getting exposed to was not based at all on
creativity but monetary value. Essentially the stage was set for both bands and
consumers to find an alternative to the system, which was not currently meeting their needs.
32 Kot, p. 7
20 The Introduction of the Internet
The instant music became digitized and was sent from one computer to another the industry was destined to be changed for good. The introduction of free downloading software like Napster, which allowed users to download songs from otherusers for free, sent record companies scrambling to find a way to deal with the situation. This was dangerous to record companies because it posed a direct threat to how they make money.
If consumers are able to obtain music for free the record labelswill surely go out to business. The record labels were forced to make a decision, whether or not tore negotiate contracts with artists or to try and stopthe downloading altogether. They chose the latter and instead of adapting to the change, they tried to stop it. The Recording
Industry Association of America (RIAA) sued Napster and won, shutting them down, but not until the site had already amassed over 20 million users.
The damage had clearly been done, and the record companies had hardly slowed the revolution at all. The introduction of peer-to-peer sites meant they no longer had any one target because users connected directly to one another. Again, instead of evolving and trying to work with the change, the record companies held their ground and sent out a new set of lawsuits, this time to the users themselves. Nearly twenty thousand lawsuits had been filed by 2007, mostly to college students who had around one-thousand pirated songs on their hard drives.
Eventually, the record companies started to put out their own downloading sites, mostly subscription sites that had limited libraries and didn't contain many of the most popular songs. The most popular site, iTunes, was not from a record company at all, but was introduced by the company Apple. Digital sales from iTunes were mostly fueled by
33Kot, p. 51
21 the popularity of the iPod.34 Even though great strides have been taken over thepast few years, the industry and role of record labels are still changing. Commercial radio no- longer has a strangle-hold over what gets heard and when.
The introduction of new technology has opened new windows for bands. No longer do they need to rely on expensive studios to record. Once they have recorded music, the costs of distribution havedropped dramatically as well. The introduction of
Myspace Music allows them to share their music for free, and iTunes lets them distribute
songs all over the world while they get a direct cut of the profits. This isn't to say that
record labels are obsolete, however. Record labels may have lagged at first and are now
trying and catch up with the more tech-sawy bands and consumers, but they are still very
involved in the music industry.
One way record labels have evolved is they have kept their ties with distributors
and have opened their own online distribution networks. The pricing of these sites is
generally consistent with the rest of the market but could change as branding becomes
more apparent. Clay et. al showed that in the online book market some websites can
charge a premium for their products due to increased consumer loyalty and brand
recognition.35 We are starting to see more price dispersion amongst major retailers with
iTunes now selling its most popular songs for $1.29 and some more popular albums for
asmuchas$16.99.36
The abilityto distribute music digitally has given rise to a much broader market of
online distribution tactics. There has been a huge rise in Internet labels that specialize in
34 Pitta, Dennis A. "Internet currency." Journal of Consumer Marketing 22, no. 5 (2005): 297-298 35 Clay, K.; Krishnan, R.; Wolff, E.; and Fernandes, D. "Retail strategies on the Web: Price and non-price competition in the online book industry." Journal of Industrial Economics, 50, 3 (September 2003), 351-367. 36 iTunes Music, Apple inc, 2009 available online at: www.iTunes.com/music. Accessed Nov. 2009
22 digital distribution. What this means is that instead of only a few giant conglomerates releasing only a select amount of music, there has been an increase in access to the market for bands. These decreased barriers to entry mean both good things for consumers and artists. The consumer will inevitably have more music to choose from and artists will have more opportunities to sell music.
With this ability to release and share music online, artists are now dealing with
changing incentives. Not only do artists now have incentives to distribute their own
music, butthey also have different incentives on how they create their music. Digitized
music tracks can be separated much easier than a vinyl or CD and distributed as
individualsongs. This gives bands an incentive to only write and distribute singles, as
opposed to whole albums.37 This is apparent when looking at the most popular songs on
iTunes on November 2nd, 2009, where eight out often were produced as singles.38 This
is in stark contrast to 2005, where all ten of the top songs for the year werefrom
complete albums.39 Since single songs can be purchased off an entire album, it is
becoming more profitable to only produce singles as opposed toentire albums. If an
artist produces an entire album but the majority of the profits from it are from selling one
or two songs, the incentives become to only produce one or two songs at a time.
The Rise of New Innovative Distribution Tactics:
Currently iTunes does not accept content that is directly from an artist. In this
sense artists are still required to sign with a label or go through some sort of intermediary.
A recent website service called Tunecore has signed a contract with iTunes allowing
37 Bockstedt et al. p. 10 38iTunes Music, Apple Inc, 2010 39Music Outfitters Inc. "Top 100 Hits of 2005", 2005. Available online at: http://www.musicoutfitters.com/topsongs/2005.htm AccessedNov. 2009
23 independent artists to upload their music to Tunecore, who will put the music on iTunes and other online distributors and give artists 100% of the profits from sales of the music.
Tunecore charges anupload fee, an annual fee and a feefor removing music prematurely
(before it has been on the site for more than six months).40 In using this service artists are notgranted any sort of promotional support from either Tunecore or iTunes.
The rise of iTunes as the predominant online music distributor has left the door open for others to try and gain in market share. Many independent online record labels have emerged in an effort to combat iTunes and allow both artists and consumers more freedom. One way online music distributors are separating themselves from the major companies like iTunes and Rhapsody is by innovative pricing models.
Mentioned in previous chapters, both Amie Street and Megatune have employed models that are against the traditional pay-per-song or subscription services used by the likes of iTunes and Rhapsody. Amie Street offers songs starting either free or for one cent, and as popularity rises, so does the price of the song. This gives consumers incentive to purchase lesser-known songs and discover new music while giving artists an idea of how many songs they are selling. On top of this, the model also gives them access to consumers who would otherwise be unwilling to pay a higher price (such as the ninety-nine cents charged by iTunes). Amie Street, which typically hosts only independent labels and artists, recently signed a deal with Sony Music Entertainment to host their entire library on the site.41 This deal did not include Sony's library to feature this dynamic pricing model however. The songs from Sony will be tiered at sixty-nine cents, ninety-nine cents and a dollar twenty-nine.
40 Tunecore, "FAQ" 2009 Available online at: http://www.Tunecore.com/faqiNoneTaken Accessed Nov. 2009 41 VatorNews "Amie Street Raises $3.9 Million", 2009. Available online at: http://vator.tv/news/show/2009-10-08- amie-street-raises-39-million. Accessed Nov. 2009
24 Megatune is another site that is offering an alternative pricing model to iTunes and Rhapsody. They feature a "pay-what-you-want" model, which features all albums in their library for whatever price the consumer chooses to pay, as long as it falls between
$5-$ 18. A recent study byRegner and Barria found that users on the site were paying more than the minimum, and were actually paying more than the suggested price of $8.
They attribute this to many factors, one being that the site hosts mainly independent artists whom the users could feel some connection with, and may want to help them out by paying a premium for their music.42 Both of these models present an alternative to the price-rigidity present in main players in the industry, and both present models that give consumers a more "fair" price for the music they are buying. Essentially what we see from both of these models, and especially that of Amie Street, is theforces of supply and demand. As the demand for a song goes up, so does the price. This helps show transparency in the market, which could potentially helparecord label with decisions on whether or not to sign an artist.
One important characteristic for iTunes, Amie Street and Rhapsody is that they all require you to go through a record label in order to deal with them. The alternative is to go through Tunecore, which will put your music on these sites for an upload fee. This is essentially the same as going through a record label thoughand it is impossible for an artist to work directly with these sites. There are two alternatives to this however,
Megatune (already mentioned) and CD Baby. Megatune's service of selling full length albums is only offered directly to artists. They refuse to work with record labels. They also offer help licensing artists' to independent films, advertising, web sites and other
Regner, Tobias, and Javier A. Barria. "Do consumers pay voluntarily? The case of online music." Journal of Economic Behavior & Organization 71, no. 2 (2009): 395-406
25 projects needing music. This is currently their fastest growing sector of their business and gives independent artists a chance to reach a sector of the industry that is generally complicated and hard to break into.
Just like Megatune, CD Baby offers a chance for artists not signed to labels to distribute their music. CD Baby's offers a wide variety of services, from selling physical and downloadable albums for artists to setting up accounts allowing artists to accept credit cards at live performances. Also, as in the case of Megatune, they take a cut from the sales on all of their services and charge a start-up fee for each new service the artist wishes CD Baby to help with. The options CD Baby offers are extensive and they allow the artist to pick and choose which ones they want help with. They havebeen successful
as well, boasting selling over 5.5 million albums as well as paying out $111 million to
independent artists.44 A visual representation is given on the next page to help illustrate
and organize the different distribution methods that this study focuses on.
43 Megatune "Our Model", 2009. Available online at: http://magnatune.com/info/model Accessed Nov. 2009 44 CD Baby "Artist Services" https://members.cdbaby.com/default.aspx Accessed Nov. 2009
26 Figure 3.1: Description of Online Distribution Networks
Name of Site Characteristics Cost to Artist Cost to Consumer iTunes Sells both single songs and Must be signed to a $.99 for most full-length albums. record label. songs, $9.99 for Extensive Library. most albums Widely used Rhapsody Subscription service. Not Must be part of $14.99 per month iPod compatible. Lots of Rhapsody catalog, for unlimited restrictions of what you generally through a downloads and can do with songs. record label. ability to transfer away from computer to compatible portable music devices Tunecore Sitethat offers unsigned Must pay an upload Generally is not artists ability to put music fee for every song used for
on iTunes, Rhapsody and and album as well consumers. other sites. Does this by as a start-up fee. contractual agreements Tunecore doesn't with these sites. take any royalties off sales from music Amie Street Sells individual songs Must have contract Depends on the starting for free or at $.01. with record label, popularity of the As downloads increaseso but Amie Street song. Will not does the price of the song. posts songs from cost more than Relatively small library. much smaller labels $.98 than iTunes. Megatune Sells full-length albums, Only works with Consumer between $5-$ 18. Also independent artists, chooses what to provides licensing take 50% of sales pay, between $5- agreements for films and from albums and $ 18 per album. other projects. Relatively licensing. small library. CDBaby Way to distribute physical Pay to register new Usually between CDs for unsigned artists. albums and CD $5-$12per Send them your album and Baby keeps a album, plus they will sell it online in percentage of your shipping fees if both physical form and sales. buying a physical downloadable form. CD. Relatively small and lesser- known artists fill library.
27 Artists are now using these distribution tactics more and more in an effort to expand their fan-base. A recent study by Sargent showed that although artists have had some success building an immediate support network of friends, families and other musicians by using Internet related technologies, but had trouble bridging the gap to form an actual audience. She found that in an effort to bridge this gap artists spent significant amounts of time and money on promotional and media services.45 It is exactly these promotional services that a record label typically employs.
Sargent does point out a few cases where artists have had success using Internet technologies, but it is only those that have flexible working hours and have access to capital to help pay for promotional services.46 Her research is based in the role of networking sites on culture and thus does not point out whether or not these artists are bringing in any revenues from creating music and distributing it online. She also bases her research only on bands that are un-signed and are not looking to become signed. This is in stark contrast to Kot'sbook, which focuses only on major artists who utilized the
Internet to undermine their record labels once their contracts were up.
Hypothesis
Basedon the theory presented above, I do not believe artists yet have the ability to gain significant financial success or popularity without the help of a record label to
support and promote them. This study will look at artists and bands who have already
gained some sort of financial success and those who are looking to do so, either by the
use of a record label or by solely distributing their music by themselves using online
tactics. I do not expect to find any artists that have had substantial success distributing
45 Sargent, Carey. 2009. Local Musicians Building Global Audiences. Information, Communication & Society 12, no. 4 (07): 469-487. 46 Ibid.
28 their music without the help of a record label along the way. Even with the wide variety of ways emerging for an artist to bypass the contracts of a record label and distribute their music to consumers, they still lackthe promotional power possessed by record labels.
Sites like Tunecore, Megatune and CD Baby have given artists the chance to put their music up online with the ability to see direct profits from each unit sold (either an individual song or an album). None of these sites provide the services typical of a record
label however. Advertising is left in the hands of the artist, who most likely do not hold the capital required to carry out such a task.
Even with the supposed necessity of record label to perform tasks like advertising
and assisting with distribution, I do think it is possible to use the Internet as a tool for
getting noticed by a record label and vise versa. The transfer of information and
distribution of music is not only from artists to consumers but also from artists to record
labels. This could mean one of two things. The first possibility is that because record
labels have much greater access to information. This information could be as simple as
noticing how many fans on Myspace.com the artist has to being able to track exactly how
many times their song has been downloaded in a certain week. With this increase in
transparency in the market, the chances of an artist to get signed to a major record deal
have decreased. In contrast, the second possible scenario is that the influx of new labels
distributing music online could mean that almost any artist has potential to sign a record
deal. There are obvious differences between signing a record deal with Sony or Warner
than signing a deal with an independent label that only hosts four or five artists due to the
clout and capital that major labels possess. These distinctions could spell the difference
for success or failure for an artist, but as Internet distribution continues to grow as a more
29 viable way to make a profit, these distinctions are starting to blur. I do hope to find that an artist can retake a significant share of profits by distributing their music by themselves after they have gained some legitimacy in the industry via a record label. I also hope to find that the Internet has created an outlet for bands to get signed due to their ability to prove their legitimacy to record labels based on website hits and record sales off Internet distribution sites. Artists now have many more options and some more popular artists may have the ability to sell their music online without the help of record labels at all, but as far as any new artist is concerned I believe they still count on record labels to gain success and legitimacy. At this point, record labelsare still necessary for artists to gain success in the industry. The next chapter will look to outline the exact methods used for this study and the theoretical background for why these particular methods were used to help investigate this hypothesis.
30 Chapter 4
METHODOLOGY
This study will attempt to show how the Internet has affected the music industry with an emphasis on the changing incentives for bands to use Internet-related technologies to help distribute their music. There are several different ways in which this relationship could be explored. In one way, the object of this study is to see how things have changed based on one variable: the Internet. This would suggest an experimental or causal comparative study to show how the Internet has affected the industry. These methods are not viable however, because there is no way to create a control group. The scope of this study is to attempt to capture the current state of the music industry based on the introduction of Internet related technologies by observing and analyzing different strategies used by artists to distribute their music. The emphasis on observing different artists and their strategies means the best method to conduct this research is through surveys and interviews.
Surveys and interviews were chosen for this study because they can show exactly the state of the Internet from an insider's perspective. A regression is simply not necessary or appropriate for this study because there is no way to objectively test causation, as it was pointed out above. The data for each artist would be toovaried and difficult to attain. Also, a quantitative research question is better for asking "what?" as
31 opposed to "how?" or "why?" In other words, this is nota quantitative study because it already knows what distribution methods are in place and in that knowledge, it is attempting to find out how they are being used.
The object of this study is not to find the statistical significance of whether or not certain distribution sites are effective, it is merely to grasp the current state of the music industry from the perspective of the artists to find out exactly how they have used these sites and whether or not they have achieved any level of financial success doing so.
Surveys and interviews are thus the perfect model of research for this study because they can address this "how" question. This chapter will explain the structure of the research used for this study. According to Basic Research Methods in Social Sciences by Julian
L. Simon, the first step in any empirical study is to identify exactly what problems the study hopes to answer.2 He sets up a step by step guide for building an empirical research study. It is by this guide that this methodology section will be based. First, I will outline exactly what type of questions this study is attempting to answer. Next, I will outline the value of this research and all the variables involved. Finally, I will go over the exact methods used to collect the data for this study and explain why these methods were used as opposed to alternative ones.
What Question is this study trying to answer?
This study hopes to look at many different aspects of the music industry, notably how new distribution tactics created by the Internet have affected an artist's ability to become financially successful. The main focus of this study is to survey and interview
Marshall, Martin N. Sampling for Qualitative Research. Family Practice Vol. 13, No. 6, 522-526 Oxford University Press 1996 2 Simon, Julian Lincoln. Basic research methods in social science; the art of empirical investigation. New York: Random House (1969)
32 artists from the Front Range of Colorado and find out how they have used the Internet to gain notoriety as well as distribute their music with or without the help of a record label.
The focus will be to try and analyze what has worked for artists and what has not worked.
In theory the same strategies should be applicable for multiple artists, meaning this study
has potential to yield some valuable business advice.
By looking at another aspect of the music value chain, i.e. asking artists how their
relationship with their record labels started and what they felt worked in getting a
contract signed, the evidence should become stronger asto which strategies work and
which ones do not. One might think that the Internet has made things easier for a new
artist to get a record deal because they can gain legitimacy through the Internet to prove
their worth to a record label. On the other hand, it could potentially become harder for a
new artist to get a record deal due to the accessibility of the Internet, making the record
labels much more selectivein who they sign. The ability and ease to sign with a record
label is included in the scope of "success" for an artist, whether they choose to sign with
one or not does not matter. This study will hope to find out whether or not it has become
easier or more difficult to sign a record deal now that the Internet has introduced ways to
distribute music without the help of a record label.
Variables
This study hopes to focus on an artist's changing ability to become "successful"
based on the introduction of Internet related technologies. The variables this study will
therefore focus on will be musical artists and Internet related technologies. At this point,
"success" should also be defined. For this study, "success" will be defined as both
financial success and popularity. Financial success will be based on whether or not
33 music is a viable way for the artist or artists to earna living wage, which is to be determined more subjectively from the perspective of the artists themselves. The popularity aspect will be a more objective variable, based on fan-base and concert attendance. Both of the popularity variables will be determined by a combination of surveys, interviews and research into each band (on either their MySpace page or website).
It is important to note the reason for this definition of success. Using a more standard economic termof success, such as profit, number of albums sold or average wage from performance is not viable for this project. This is because of several factors.
The first is that although it is assumed artists are a "for-profit" enterprise, they do not necessarily treat profits the same way a normal business would. To many artists, making music is their first priority, not making money. Because of this creative and personal aspect of making music as a living, it is possible and even likely that many artists do not record or keep track of their profits, making the information difficult to acquire. Instead of this variable, this study simply aims to ask artists whether or not they feel music is a viable way to make a living.
The aspects of determining whether or not an artist has achieved financial success could pose a problem however, as they are somewhere in between objective and subjective variables. To simply ask an artist whether or not they feel they have gained some level of success playing and distributing their music online is not enough. Any artist could feel they have gained success in the music industry purely based on the fact that they are writing music they enjoy. This same artist, who feels they have achieved
some level of success, could have only been paid for one show and never fordistributing
34 an album. This shows that the variables of success used for this study could potentially be extremely subjective based on how an artist feels about their current situation.
Because of this aspect, the two popularity variables were added to the definition of success to help balance the subjectivity of it. The popularity variables are through the perspective of the audience/fans, which are the true driving force behind the artist's financial success. If an artist does not have any fans, they will not be successful.
Because an artist does not have to charge for their music, the amount of fans they have and the perception of the artist by the fans is a telling way to see how well an artist is doing.
Problems and Research Obstacles
Determining the sample population poses as one of the main research obstacles for this study. The Front Range of Colorado was selected based on two criteria. The first is that because the majority of major record labels are located in Los Angeles, California and New York City, New York. This could give artists on the Front Range additional incentive to use the Internet to both distribute their music and to help gain recognition.
The second reason the Front Range was selected is convenience.3 Convenience sampling is the practice of selecting a sample based on the most opportune group available to the researcher. Indeed, to try and gatherdata from artists covering the entire US would be outside the scope and grasp of this project. The Front Range offers a large enough sample of artists that it is possible to confine the sample to this area while still allowing the researcher to contact each artist personally. This poses another research obstacle however, because while this study is attempting to reach a number of different artists in
3 Marshall, Martin N. Sampling for Qualitative Research. Family Practice Vol. 13, No. 6, 522-526 Oxford University Press (1996)
35 different stages in their careers, it can really only include those who are willing to participate.
Another aspect of this is that if a band has already expanded into the national
music scene and has had some success, they will be less likelyto be willing to participate
because the sole incentive of participating is that this study could yield some business
advice. If they already have had some success, they would be less likely to desire
business advice. It is because of this aspect that this study must rely on some personal
contacts in order to contact artists that are further along in their career and have achieved
some level of success.
Methods
There are two ways that data will be collected for this study. The first is to gather
a relatively large sample of data from around the Front Range area of Colorado. This
includes the cities, from North to South along the range, of Fort Collins, Boulder,
Denver, Colorado Springs, and Pueblo. The method used for gathering data initially will
be surveys sent out to a large number of artists and bands. The advantages of surveys are
they achieve a closer look at the "real" variables than onecan with an experiment.4 The
real aspects of this include the first-hand knowledge of what the artists are actually trying
to achieve and how they are going about doing so. Surveys are used here for many
different reasons. The first is to get an overall view of how artists are using different
distribution sites. The survey goes through some basic data to help categorize the artists
by name, how many albums they have released, whether or not they are signed to a
record label and whether or notthey share their music online. The next section asks each
artist whether or not they've heard of and/or used the following sites: iTunes, Tunecore,
4 Ibid
36 CD Baby, Amie Street and/or Megatune. The final question asks the artists to rate the sites they have used by how effective they havebeen (1 being not effective at all and 10 being very effective). This method will help give a broad view of how artists view the music industry and the new distribution sites available to them. I have included the text of the survey at the end of this chapter for the reader's reference.
The second method of data collection for this study will be interviews. The idea behind the surveys is that each one will provide a very basic look into how artists are
using Internet distribution methods to distribute their music. In an effort to get more of a
response rate, the surveys were kept fairly short. Because of this aspect, there needs to be
some other form of research to look more in depth: interviews. The advantages of the
interviews are the same as those from the samples, but with an interview, the questions
are not necessarily set, and thus a much greater depthof information can be obtained.
The object of the interviews for this study is to hopefully try and get information from
several artists that have gained some success, to ask exactly how they felt they achieved
this success, as well as what they may have done differently. With this knowledge, the
data will be analyzed to see if any techniques artists have used to gain some success
could be replicated for other artists to try and achieve similar success.
In the next chapter, I will present and organize the data acquired from the surveys
and interviews. The discussion will be broken down from the broader overview of
surveys and then move into the more detailed finding from the interviews.
37 Figure 4.1: Survey
1. What is the name of your band/group? 2. How long have you been performing under your current name? 3. Are you signed to a record label? a. Yes b. No c. Not anymore 4. How many albums have you released? 5. How many albums have you released under a record label? 6. How many albums have your released online? 7. How often do you perform? a. Once a year b. A few times a year c. Several times a year d. Once a month e. A few times a month f. Once a week g. A few times a week 8. Do you have a website that is not a Myspace or Youtube account? a. Yes b. No 9. Do you share music on your website and/or Myspace? a. Just Myspace b. Just on a website c. Bothon a website and on Myspace 10. Have you heard of the following sites for online distribution? (check all that apply) a. iTunes b. CD Baby c. Tunecore d. Amie Street e. Megatune 11. Have you used any of the following sites to distribute your music online? (check all that apply) a. iTunes b. CD Baby c. Tunecore d. Amie Street e. Megatune 12. Please rate the effectiveness of any of these sites you HAVE used to successfully distribute your music. (10 being very effective, 1 being not effective at all) a. iTunes b. CD Baby c. Tunecore d. Amie Street
38 e. Megatune 13. Are you willing to meet for an interview or answer follow-up questions? a. Yes, an interview b. Yes, follow-up questions c. No thanks
39 Chapter 5
RESULTS AND DISCUSSION
This chapter will present and discuss the data that was acquired in the surveys and interviews. I will first start by recalling exactly how the surveys were sent out. The previous chapter was an overview of the theory of why surveys and interviews were conducted; this information pertains to the actual results that were obtained from this study. The next section will be a brief recap of my hypothesis from chapter three and then move into the relevant survey results and interview to discuss the results from this
study. Each section will be broken down into sections based on different aspects of my hypothesis and the results pertaining to those sections will be discussed starting with
expected results, unexpected results and then problems and complications.
Exact Methods for Surveys
The first step was to send out the surveys. Over 70 artists from the Front Range
were contacted with a short description of the project and a link to the survey. The
survey was not sent out to every artist on the Front Range. The idea behind this study is
to focus on artists that are actually trying to make a living and break out of their local
scene; because of this, the survey was only sent out to those artists that fit the criteria.
The judgment of these criteria was left up to the author, but several factors were
involved. The method of finding and contacting each artist was the social networking
40 page Myspace.com (and in some cases, email). The website posts many aspects about the artist, including number of fans, upcoming shows, links to other sites, music recorded by the artist and how long the artist has been a member of the site. Using these aspects of the site, the judgment was made whether or not to send out a survey to a particular artist
(for example, if the artist only had 10 friends and did not have any upcoming shows, they would be deemed unfit for this study). No preference orbias was given to any group based on the style of music theyperform.
The incentive for the survey was that if they spent less than three minutes completing the survey, they could potentially receive some business advice from this
study. Of the bands that received the survey, six responded by completing the survey and
one responded by saying they would rather forgo the survey and just do an interview.
The group that didopt for an interview was a group called "The A-OKs".They are an
eight-piece band and are self-described "Ska/Punk" band from Denver, Colorado. The
interview took place at a concert the band was performing at. The setting was in Denver
at a venue called the "Blast-O-Mat". The venue had a capacity of approximately 150
people and there were approximately seventy people in attendance. The interview took
place before the show started at around 7:45pm in the green-room at the venue.
One other interview was conducted for this study. The name of the group is the
Flobots, a politically charged hip-hop and rock group from the Denver area. The method
of contact was different for this group than any other group because of some personal
contacts with the band that helped facilitate the interview. The group is the only group
that participated in the study that is signed to a record label. The interview was
conducted over the phone with one of the emcees in the group named Jonny 5.
41 The figure (5.1), presented on the next page, is a visual representation of the bands that were sampled. Since there were only eight groups that responded, it is convenient to look at a table to see some background information on each group to help put the results in perspective. The information included helps show what the band has accomplished so far, by providing the number of years the group has been performing, the number of albums released and the success the group has had on their Myspace page
(which was the main method of contact for the majority of thegroups). All information was either received from the band themselves in the survey or interview, or taken off their Myspace page and is current up to April 2010.
42 Figure 5.1- Description of Artists Participating in Study
Name of Length of Number of Number of Type of Group Time Fans on Albums response Performing Myspace.com/Profile Released (interview, Under Views survey) Current Name Fierce Bad Approx. 1 1,288 Fans/19,092 1 Album and 1 Survey Rabbit Year Profile Views1 EP What About Approx. 3 3,832 Fans/58,812 2 EPs Survey Pluto? Years Profile Views Slopeside Approx. 5 185 Fans/12,449 1 Album Survey
years Profile Views3 of David Approx. 2 19,413Fans/Profile 1 Album, 1 EP Survey Years Views Unavailable4 Jet Edison Less than 1 261 Fans/13,777 0 Albums or Survey Year Profile Views5 EPs, has live recordings shared on Myspace.com Take It To Approx. 3 19,464 Fans/Profile 1 Album, 1 EP Survey Eighty Eight Years Views Unavailable6 The A-OKs Approx. 3 5356 Fans/ 60874 1EP Interview Years Profile Views7 Flobots Approx 5 156,871 Fans/ 2 Albums, 1 Interview Years 8,842,440 Profile EP Views8
Experience of Groups Sampled
As stated in the third chapter, the expected results of this study were that no artists
would be able to gain enough traction in the industry to financially support themselves
with music without the support of a record label. The results from the surveys and
1 Fierce Bad Rabbit on Myspace Music, http://www.myspace.com/fiercebadrabbit. Accessed April, 2010 2What About Pluto? on Myspace Music, http://www.myspace.com/whataboutpluto. Accessed April, 2010 3 Slopeside on Myspace Music, http://www.myspace.com/slopesideacousticcurrent. Accessed April, 2010 4 of Davidon Myspace Music, http://www.myspace.com/ofdavidband. Accessed April, 2010 5 Jet Edison on Myspace Music, http://www.myspace.com/jetedison. Accessed April, 2010 6 Take it To EightyEight on Myspace Music, http://www.myspace.com/takeitto88. Accessed April, 2010 7 The A-OKs on Myspace Music, http://www.myspace.com/theaoksrok. Accessed April, 2010 8 Flobots on Myspace Music, http://www.myspace.com/flobots. Accessed April, 2010
43 interviews of the artists/bands that replied supplied one expected outcome from the hypothesis presented in Chapter 3. This expected outcome related to the experience of the groups sampled relating to whether or not they have achieved financial success. On average, the groups had been performing together for about three years and had released one album (only one group had yet to release an album). None of the groups that responded to the survey were signed to a record label. All of the groups that responded were very active performers. Out of the six groups that filled outa survey half claimed to playa few times a week and the other half claimed to playa few times a month. The A-
OKs stated that they performed at least once a week but during high concert season
(mostly during the summer) they could play as many as five shows a week. They also reported that the majority of the money earned from playing shows went back into the band to produce shirts, buy instruments and cover recording costs. Assuming the groups that took the survey get paid for each performance, one can deduce that they are at least earning enough to support similar expenses.
Even with the ability to support the expenses of playing music, the A-OKs stated that every member of the band needed to hold down a secondaryjob in order to pay for daily expenses outside of playing music (rent, food, paying bills). They had not achieved
any sort of financial stability from playing music even with the volume of shows they played on a weekly basis. This suggests that even though the band is able to
continuously book concerts and perform on a regular basis, the size of the shows and/or
the price of tickets is not enough to support the members of the band. They have
established a solid enough fan base in Denver to support just enough to continue playing
44 in the area, but they have yet to gain any non-local support regardless of plans to tourthe
Southwest states later this year.
The Flobots presented a special case in this study because of their experience and the fact that they are signed to a major label. The group has been performing together for significantly longer than anyof the other groups that responded. The group has been performing under their current name and members since 2005, although Jonny 5 has been involved in the project since 2000. As statedin Chapter 3, it was hypothesized that no groups would be able to support themselves financially without the help of record label distribution. This holds true with the Flobots, as they were the only group that used their musical endeavors to fully supportthemselves. No one in the group holds another job and the members view the group as a full-time job. The experience of the Flobots set them apart from the other groups and helped reinforce the hypothesis that it takes a lot of effort and time to gain enough recognition in the industry to support an entire group of musicians fully off writing, selling and performing music.
As hypothesized, the abilityto support oneself financially solely using music is greatly diminished without the help of a record label. This is an important point because not all artists are able to sign to record labels. The band the A-OKs stated their desire to
get a record contract, but had so far been unsuccessful in their attempts. Despite performing for several years, it was not until 2007 that the Flobots signed with the record
label Universal Republic. The record contractthe band signed was unlike the majority of
record contracts. The usual record contract is for a band to record a new record and
release it under the termsof the contract. This way, the record label gets to oversee the
entire creation process ofeach record. In the case of the Flobots, they had a previously
45 recorded album called Fight With Tools, and the label Universal Republic agreed to re- release the record under the terms of the contract and keep the contract for a second album, which was released in March of 2010.
TheUse of Internet Distribution Sites
In Chapter 3, the hypothesis was presented that a group could show record labels that they were worth signing a record deal with by using Internet distribution sites to independently get their music out and prove to the record labels that they had potential for success. On the surface, it seems that the Flobots followed this model, but in actuality their strategy was very different. Even though the relative success of their first album helped gain record label interest, they did not sell the album online on sites such as iTunes untilafter they had signed on with Universal Republic. The original hypothesis hoped to find a group that had released a record online and used the numbers from online
sales to attract a record deal. The idea behind this was that in selling a record online as
opposed toin a store, it is easier to reach consumers that are not in your immediate
surroundings. In order for a record to be successful for a major record label, it must sell
wellnot only in the local area of the artist but also throughout the country and sometimes,
even throughout the entire world. An artist proving that they could sell an album
throughout the entire country made it seem more likely that a record label would be more
enthusiastic to sign a contract with them. The Flobots instead focused almost
exclusively on their immediate area. They participated in contests to get a song on a
local Denver radio station along with selling out several shows in the area. It was this
strong local following that Jonny 5 credits the Flobots' success with. As mentioned
above, the Flobots did not utilize Internet distribution sites to helpgain recognition for
46 labels. Even with the help of a label, they still only post their music for sale on iTunes and on Amazon.com. Jonny 5 admitted to not being in theforefront of all the business decisions the band made, stating they had a wholeteam of business managers and agents who took care of the sale of the album more than he did. He welcomed the help from the record label, because it allowed him and the other members of the band to focus on the creative aspects of the band as opposed to the business side. Before they were signed to
Universal Republic, however, he said one thing that set them apart was the fact that the band did all the work themselves, allowing them to save money by not having to pay for others to make business decisions. This also helped show the label their work ethic which Jonny 5 also credits towards the interest the label developed in the group. Even when the members were making decisions about the business aspects of the band, they
still focused on the local market. One of the measures the band took while trying to
attract record labels was signing up for a service called Soundscan. This service was
started by a marketing company that provides the information for the Billboard top 100
albums sales.9 Any group that sells a CD with a UPC can sign up, allowing them to track
the number of sales of the album over a given time period. This gave the Flobots even
more concrete evidence as to their potential.
Along with what the Flobots did with their attempt to gain a strong local
performance without much help from Internet distribution sites, the unexpected results
from the surveys were how the groups that participated used online resources available to
them. Since none of the groups that completed the survey had released an album through
a record label, it would be expected they would be fairly aggressive about releasing their
9 Nielson Soundscan "About Nielson Soundscan", http://home.soundscan.com/about.html, Accessed April, 2010
47 album online. Every group does share their music on their Myspace page, and all but one group shared their music on a personal website other than a Myspace page. Of the groups that responded, all had heard of iTunes and CD Baby as a means of distribution.
Five out the six had heardof Tunecore and only one had heard of Amie Street. None of the groups that had responded had heard of Megatune. Almost all of the groups had used iTunes to distribute their music, with five of the six saying they had utilized the site.
Tunecore was the next most used site, with three of the six saying they have distributed music through it, and CD Baby had one group that had distributed their music through the site (see figure 5.2).
The sites that the groups had heard ofand the ratings of the sites that they had used was a very surprising result. As stated before, it would seem likely that the groups would be very aggressive about distributing their music themselves, because they did not have a record label to do it for them. The fact that the majority of the groups had not
even heard of Megatune or Amie Street was particularly surprising, because these sites
that arespecifically geared towards up and coming bands. It seems that if these sites
were able to advertise themselves more effectively to new emerging groups, both the
groups and the sites themselves would benefit.
Ratings of Online Distribution Sites
The ratings of the sites were fairly varied. Of the five groups that had utilized
iTunes to distribute music, the majority gave the site a low score of five or below with
two groups giving the site a two andone a five. However, in stark contrast to these
ratings, two groups gave iTunes a much higher rating; one group giving the site a ten and
another giving it a nine (see figure 5.3 for chart of scores).
48 Have you used anyofthefollowingsitestodistributeyour music online?(Checkallthat
iTunes CD Baby Tunecore AmieStreet Megatune
Figure5.2
PleaseratetheeffectivenessofanyofthesesitesyouHAVEusedtosuccessfullydistributeyourmusic.(10being extremelyeffective,1 beingnoteffectiveatall) Response 4 5 6 7 8 9 10 N/A AnswerOptions 1 2 3 Count
0 1 1 0 5 iTunes 0 2 0 0 1 0 0 0 0 0 0 0 0 0 0 1 CDBaby 1 0 0 0 3 0 1 0 0 0 0 TuneCore 1 1 0 0 0 0 0 0 0 0 0 0 0 0 0 0 Am ieStreet 0 0 0 0 0 0 0 MegaTune 0 0 0 0 0 answeredquestion 5
skippedquestion 1
Figure5.3 All in all, iTunes received an average rating of 5.6. Tunecore, the next most utilized site, received two very poor scores (one group rating the site a one and another group rating the site a two) and onemediocre score of a seven. Tunecore came out below iTunes with an average score of 3.3. CD Baby only received one score, a three, which ranks it as the lowest average.
The surveys presented a few problemsand complications in as much as they did not yield as high of a response rate as this study could have hoped for. Another problem was thatin an effort to gaina higher response rate, the questions were kept concise and easy to answer. This posed a problem because the depth of knowledge gained from the survey is thus much less than it could have potentially been.
This problem carries through because of the unexplained ratings of the sites.
There seems to be no reason why the majority of the groups rated iTunes and Tunecore solow. In an effort to reveal why the groups rated the sites as they did, follow-up questions were sent out toselect groups asking them to explain their rating of each site
(not each group was asked to submit follow-up questions because not every group responded that they were willing to answer such questions). For instance, the group
What About Pluto? gave the site a high rating of a nine, while the group Fierce Bad
Rabbit gave the site a two. When asked why they gave the site such a high rating, What
About Pluto? responded that they felt iTunes was a recognizable site that they didn't have
to promote much. Furthermore, they did not go through the site Tunecore to get their
music on iTunes. Instead they used a free site called Nimbit (remember from Chapter 3
that Tunecore charges a yearly and start-up fee). On top of all this, they also allow free
50 download of their EP on their website, so they really are not looking at iTunes as a matter of making money. They would rather just get their music to their fans.
Another factor could be the difference between What About Pluto? and Fierce
Bad Rabbit (who did not respond to follow-up questions). If one looks at these groups, we can see that a group like What About Pluto? could have rated the site much higher because they have a stronger fan-base. The ratio of fans-to-profile views is fairly similar withboth groups, but What About Pluto? has a lot more experience in the amount of time they have been performing. On top of all this, they have only released two EPs, which are fairly inexpensive to buy and if they have a strong local following, they probably have better success getting their fans to buy their music. Fierce Bad Rabbit has already released an album and an EP, and without a strong local following, they will probably have a hard time selling many copies, which could be the source of their frustration with iTunes. As hypothesized in Chapter 3, it seemed unlikely that a group would be able to fulfill the role of a record label, which is mainly to advertise. What About Pluto? has probablyplayed enough shows in their local area to fulfill this role in their hometown, which is most likely the reason they have had some success selling their music online.
One solution to the problem with a lack in data gathered by the surveys is that the
end of the survey asked whether or not the group would be willing to answer follow-up
questions. Five out of the six groups that filled out the survey responded that they would
be willing to answer follow-up questions or conduct an interview. Even with this
percentage of groups willing to participate in follow-up questions or to conduct an
interview, only one of the groups that were contacted about answering follow-up
questions responded. It is unknown why there was such a low response rate to the
51 follow-up questions, but it could be that the survey offered an easy, one-time participation in the study and that the groups may have lost interest after completing it.
This lack of participation presented a major hole in the research because there is no clarification for the majority of the answers. The most notable holes in the research are that there seems to be no explanation of any of the ratings for the online distribution
method, with the exception of those who were interviewed and What About Pluto?.
The next chapter will present my conclusions that have been reached from this
study. I will also provide a discussion of further areas of research that this study has
uncovered as well as acknowledge areas that could be improved upon for this study.
52 Chapter 6
CONCLUSIONS AND AREAS FOR FURTHER RESEARCH
This chapter will serve as the conclusion to this thesis. The first section will state what this thesis has accomplished as well as compare the findings of this study to the overall hypothesis stated in Chapter 3. The next section will present the limitations of this study and areas of improvement if this study were to be re-created. The final section will be a discussion of further areas of research and propose other studies that could stem off this one.
Final Conclusions
The initial hypothesis of this study as presented in Chapter 3 stated that the object
of this study was to find out whether or not using Internetdistribution tactics could lead
to financial success in the music industry. This could be done by either selling enough
music online to gain such success or to use these models to gain recognition in the
industry to get recognition from a record label.
This thesis helped show how up and coming bands could hope to use different
tactics to gain success. By surveying groups from the Front Range of Colorado, this
study has explored what different groups are doing to try and "make it" in the industry.
The main findings of this survey do not necessarily show what works, but instead tend to
show what is not working. The main method of distribution for the majority of the
groups that participated in this study was the site iTunes, which seemed to work well for
53 some groups butnot well for others. The site only appeared to work well for those groups that had been around long enough to build a local audience or for those groups that were simply trying to get their music out to a broad audience. The sites designed for new groups (Amie Street and Megatune) were not utilized at all and in many cases were not even known to the groups. If the sites had more effective advertising to these groups they could possibly help distribute their music to a broader audience.
The case of the Flobots was a special one for this study. The group represented the one and only band that had gained "success" in the industry under the definition of success as defined by this study. The group gained this success without using many of the tactics that this study had anticipated a group of similar success to use. Instead of using the Internet as a means to distribute their music and acquire a record contract, the
group focused mainly on their local audience to prove to their current record label,
Universal Republic, that they were worth signing. Furthermore, now that they have label
support, they only utilize the sites iTunes and Amazon.com to sell their music online. By
focusing their distribution on a few sites, they are able to advertise their product with
greater ease. The Flobots are also somewhat of a special case because of their politically
charged nature. Jonny 5, an emcee for the group, admitted that getting their message to
their fans wasmore important to him than making a lot of money from the music.
In conclusion, this thesis has shown what the current state of the music industry is
for a group that is trying to utilize the Internet as a means of gaining financial success in
the industry. Against what this study hypothesized, the industry has not changed as much
as originally thought. The success of the Flobots using tactics other than the Internet has
shown that record labels have perhaps not yet decided that the Internet is a viable means
54 of finding new talent. The main site used remains to be iTunes, with other sites still trying to play catch-up despite their dynamic pricing models. At this point, it seems that the "Radiohead ideal" ofbeing able to drop a record label and "go it on your own" is still out of reach for the majority of the artists in the industry.
Limitations of this study
The main problems with this study and holes in the research were created by a lack of participation from artists. This was possibly created because the aim of this study was to gain enough knowledge about the state of the industry that it could present some sort of business advice to artists, but those who could provide the most valuable information were not in need of business advice. Having only one group that had gained
"success" in the industry really limited the results. This study could have provided much strongerfindings had it looked at several groups with similar success, to compare and contrast each group's methods gaining said success to try and find any commonalities
amongst them. Also, given enough time and funding, this study could have possibly built
some relationships with bands that may have led to more bands participating. This could
have been achieved by attending enough shows in the area of a certain band that it could
have been inevitable to meet other groups and let them know about the study. Not to
mention that with unlimited time and funding, this study could havebeen expanded to
artists outside the Front Range of Colorado, which would have made the sample more
varied.
If this study were to be repeated, it would probably be more successful if more
interviews were conducted as opposed to surveys. Initially the artists that completed the
survey seemed interested enough in the study to conduct a survey, which would have
55 probably provided better data than the survey. After the group had completed the survey, however, they seemed to lose interest and did not complete any follow-up questions.
Conducting surveys, possibly of several groups at a time during performances, would have most likely yielded the strongest results.
The final limitation of this study is that it was one-dimensional. The study focused mostly onwhat different groups were doing in order to gain success, and the findings would have been much stronger if the study had looked at the other end of the business, namely what record labels are doing to find new talent. This limitation was brought on by a very limited number of record labels on the Front Range of Colorado, which were unwilling to participate in the study. Had this study expanded its sample pool to areas such as Los Angeles or New York, the vast number of record labels may have led to some more promising results.
Areas for Further Research
This study has led to many interestingfindings. The goal of this study was to find out exactly how groups are using Internet distribution models to gainsuccess in the music industry. One area that could have been explored further is to conduct a similar study but focus on the sites themselves to see how they are attracting groups. The study found
some interesting results in regards to new sites that distribute music, and focusing a study
on these sites totry and offer similar business advice could prove interesting. Another
study that could stem from this is one that would follow a group for an extended period
of time, tracking each business decision to see whatworks and what doesn't. This study
was simply a snapshot of the industry, and a more involved study could provide even
more valuable results.
56 Given the limitations of this study and the small sample size, it is hard to present any solid conclusions. The data that this study did yield gave a small glimpse into the state of the music industry, but the conclusions reached from this data should probably not beused to give any broad statements about the entire trade.
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