Lesson 1: The Music Industry

Lesson 1: The Music Industry

“Overview … Music Industry History: 1900-1950 … Music Industry History: 1950-2000 … Music Industry History: Napster and Beyond … Today’s Music Business Structure … Recap”
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Summaries

  • Lesson 1: The Music Industry > Overview > Music Industry Guiding Principles
  • Lesson 1: The Music Industry > Music Industry History: 1900-1950 > 1900 - 1950
  • Lesson 1: The Music Industry > Music Industry History: 1950-2000 > 1950-2000
  • Lesson 1: The Music Industry > Music Industry History: Napster and Beyond > Napster and Beyond
  • Lesson 1: The Music Industry > Today's Music Business Structure > Today's Music Industry Structure
  • Lesson 1: The Music Industry > Recap > Lesson 1 Recap

Lesson 1: The Music Industry > Overview > Music Industry Guiding Principles

  • I almost started snapping my fingers, and I said, you know? I know that tune, and I know that group.
  • Fantastic! I was feeling so good, and I almost felt like standing up and dancing to the music.
  • Anyone, I’m sure, would feel the same way if they heard their voice, or saw themselves in a movie for the first time.
  • As I was feeling so great, I started to think about when I was with the group.
  • By that time, I had also been entertainment lawyer to Rock and Roll Hall of Famers, The OJs, and R&B great, the late Gerald Levert.
  • So I knew the kind of money that’s paid to record companies and publishers when their music is used in that kind of format.
  • Every time the music gets played, somebody gets paid.
  • I say, if you’re an artist, songwriter, or producer, you should get paid, and not played.
  • There are three overriding principles for success in today’s music industry.
  • Powerful Product, Proper Prospective, and Professional Attitude are the three big Ps for success in today’s music industry.
  • What is powerful product, you’re going to ask? Well, powerful product can be a great, great song, married with a great performance, by a great recording artist, produced by a great producer, in a great studio.
  • I’d like to expand on the word, product, and take it out to mean even more than a recorded product, or an audio recording.
  • YouTube has become huge these days, as producing powerful product that has really launched the careers of many artists.
  • Powerful product is an asset that grows in value over the years.
  • That’s really what the music business is based on, assets that grow in value.
  • You know, many artists, when they have a hit record, their first hit record, think that they should be millionaires within six months to a year.
  • Well, trust me, many times, the fame doesn’t equal the fortune.
  • One of my colleagues told me a story about the great Nile Rodgers.
  • The great Nile Rodgers is a guitarist and producer, and he started off with the group, Chic, back in the ’70s. They had great hits like, “The Freak” and “Everybody Dance”.
  • He went on to produce great artists- Madonna, David Bowie, Diana Ross.
  • What is professional attitude? Well, it’s important for you to get a great education in the business dealings behind music, which you’re doing right now by taking this course.
  • Here is the last part of professional attitude, that’s possibly even more important than the first part, and that is having respect for the people that you work with, having respect for all of the people that you come in contact with in the music business.
  • So keep in mind those three big Ps for success in the music industry.
  • Powerful product is a valuable asset that grows in value over time.
  • Remember, every time the music gets played, somebody gets paid.
  • If you’re an artist, songwriter, or producer, I feel that you should get paid, not played.

Lesson 1: The Music Industry > Music Industry History: 1900-1950 > 1900 – 1950

  • The music business is the intersection of art and commerce and is built around technological innovation and entrepreneurship.
  • In the midst of this change a lot of people have been saying that the music industry is dying, the music industry is dead. Well, I want to tell you that those rumors are greatly exaggerated.
  • Now, while the recording industry sector of the music business has grown smaller, other areas like live performance has reached record growth.
  • Now, this isn’t the first time that people have said that the music industry is over.
  • That’s been said a number of times over the over 100 year history of the music industry as we know it.
  • Let’s go back to the beginning of the music industry as we know it.
  • What was that business? It was the sheet music business.
  • Sheet music were selling like records sold in the 20th century.
  • Sheet music was the product that was being sold other than live performances, a burgeoning business.
  • Companies that are still around today started as publishing companies printing sheet music which sold.
  • So if they went to a minstrel show or a vaudeville show, a few days after they’d go to the music store.
  • The only way for them to hear those great songs that they enjoyed a few nights before was to buy the sheet music, and take it home, and start playing the music and singing the songs.
  • Then you had the shock of a new product that came into existence shortly after the turn of the century, a new type of product, a new configuration of music, of songs, the piano roll, the first mechanical reproduction of a song.
  • What was the reaction of the publishing companies at that time? Well, you can bet their reactions were, “Wait a minute. Our business is over.” Who’s going to want to buy the sheet music and have to play the piano and sing the songs where they can hear the piano being played as a result of the piano roll? The music industry’s over.
  • An early entrepreneur in the recording industry was a man named Harry Pace.
  • The first popular records were really recorded by black female blues singers.
  • Mamie Smith, Ethel Waters, in the early ’20s became mega recording stars as a result of them selling records in the ’20s. How did the publishers feel about that? There was some concern.
  • Records? People can buy records and hear the songs whenever they want to.
  • Why would they want to buy the print music? As it turned out, there was no problem whatsoever with that.
  • Recordings helped the publishing industry and the print music sales even to expand further.
  • Once again, people legitimately thought the record industry is over.
  • The recording industry thought, well, once again- and the publishing industry as well- thought we’re going to have a real problem here.
  • Why is anybody going to want to print sheet music? Why is anybody going to even buy records when they can hear this music for free? Our industry is over.
  • You had radio stars that became record stars because there was an increase in the sale of the records as a result of the radio promotion.
  • That group of stations, the Columbia Broadcasting System, CBS, went on to play a prominent role, not only in the music industry, but in mass media in general.
  • That was the first time that many foreigners had the opportunity to hear this great American music.
  • What kind of impact did that make on people across the world? They’re hearing this music, and they’ve never heard anything like it.
  • This dance music was something that was completely fascinating to peoples all over the world.
  • So what seemed to be one of the darkest hours, clearly on the political and social scene with the World War, turned out to be the boost that the record industry needed to further expand after the war.
  • There was great expansion of the music industry.
  • You can bet that there were soldiers in the European front that were in the ditches, and during their off time when they listened to the Armed Forces Radio Network, heard the great music of the Duke Ellington Band and Count Basie.
  • The only undergraduate programs or college level programs, advanced programs for music, were in conservatories that only taught classical music.
  • I think they want to understand and be able to play in bands, big bands, jazz music.
  • I’m speaking of Lawrence Berk, the founder of Berkley College of Music.
  • That was the forerunner of Berklee College of music.
  • Technical innovation and entrepreneurship were hallmarks of the music industry in the first half of the 20th century and will become even more significant in the second half.

Lesson 1: The Music Industry > Music Industry History: 1950-2000 > 1950-2000

  • There were on a number of new innovations and entrepreneurs who wanted to participate in the further development, particularly in the record industry.
  • He started to record company in New York with a partner called Atlantic Records.
  • The same thing was happening on the West Coast with Art Rupe, who was the owner of Specialty Records.
  • That was a company that recorded great blues and R&B singers from the birthplace of popular music- New Orleans, Louisiana.
  • It really left a void in the radio market, which was filled by radio stations playing records to a greater degree than ever.
  • They thought that the playing of records and replacing the serial dramatic series didn’t have the same kind of quality as they did the serial radio programs.
  • It enabled people to go into a restaurant, to a drug store, put a coin in the machine, and play any record that they wanted.
  • You also had record companies that felt if people could go out and have the records they want to have played at any time, maybe that would cut down on their record sales.
  • Certain cultural shifts, as you had baby boomers of teenagers are born to soldiers who came back from the war, who were coming of age in the mid ’50s and had a lot of discretionary income and really bought into this new form of music, which was based on blues, gospel, pop music, and R&B music- rock and roll, which exploded.
  • The music industry exploded, particularly the recording industry, which went from a total of $200 million in income in 1954 to over $604 million in 1958.
  • Sam Cooke, a pop singer as well as an R&B singer, started his own record company.
  • The great Ray Charles in renegotiating his contract with Atlantic Records decided to leave that company and go with ABC Records, because ABC Records allowed him to own his own master recordings.
  • Other creative talents also became interested in becoming entrepreneurs in the record industry.
  • He eventually decided to start his own record company in Detroit called Motown Records, which went on to become world-renowned and inspire other creative talents to start their own labels.
  • He decided to partner with a great record man named Jerry Moss to start and A&M Records in the middle of the ’60s. The explosion of R&B, rock and roll, and soul music led to the British invasion in the mid ’60s. And the Beatles, who grew up in England hearing the great blues music and also the great Motown hits, put their own spin on it and came to America and created a phenomenon like none other.
  • As the development of rock music and the growth of R&B music continued into the ’70s, albums started to really take off and become very, very popular.
  • It enabled people to take the music from the vinyl records and transfer it to this type of configuration, to the audio tape configuration.
  • That became a big concern to the record industry.
  • Disco music in the mid ’70s led to an entire new wave of entrepreneurs entering the business, starting their own production companies and labels, selling 12-inch singles to the masses and to the clubs.
  • Disco was a dead. A Chicago radio station had a party at a Chicago Cubs game where they burned disco records.
  • Once again, the naysayers said the music industry was dead. But the fact of the matter is is that the 1980s brought about more innovation that created a brand new market for the music industry.
  • Then in 1981 and 1982, MTV, a brand new music television network, emerged and created the music video market, which spawned great hits over the 1980s and also created great artists and changed the industry in a great way.
  • The CD cost three times the cost of a vinyl record and a cassette.
  • I could really see the future and really see that CDs would evolve and be the next evolution of the music business.
  • They really saw the value of music and selling recordings.
  • In the 1990s, CD sales took off, as many people tried to replace their vinyl and cassette collections with the same records, this time on CDs. The growth of CD sales in the 1990s was remarkable.
  • As a result, record companies and publishing companies became very valuable commodities.
  • There were other things happening in the music industry at that time, as the record companies became flush with cash from selling these CDs. The record companies many times became bloated with employees.
  • During that time, some people would say that record companies got so greedy by the end of the 20th century that they stopped releasing singles.
  • If you really wanted that one track, that single that you really loved, you had to buy the entire CD. Truly, the record companies felt that the good times would never end.

Lesson 1: The Music Industry > Music Industry History: Napster and Beyond > Napster and Beyond

  • You’ll probably remember earlier I said that the sale of music in 1958 was only $604 million.
  • No one knew how to stop the havoc that peer-to-peer file sharing was wreaking on the music industry until 2003.
  • Steve Jobs of Apple Computers came up with a new way to access and purchase music online- a digital distribution method, iTunes.
  • He also accompanied that with hardware, like the iPod and the Shuffle, which enabled people to take music wherever they wanted to- their music, their playlist, similar to what happened back in the ’80s with the Sony Walkman, a great technological advancement.
  • Interestingly enough, over the following years, iTunes returned the single configuration as being the predominant configuration in the music industry.
  • I referred back to the ’60s and ’70s when singles were the predominant selling configuration of music.
  • I think, dreamed of the music being paid for just like you pay for water, being paid on a monthly basis.
  • The interesting part about this is that that was the first technological advancement that kind of had people willing to pay on a monthly basis to receive music, not a new concept, certainly.
  • Another emerging technological advancement was the internet radio service, Pandora, which really was built on a model of a two-tiered-type service, where people could actually register for the service and listen to it for free.
  • You had the development of other services to provide music in a manner similar to what David Bowie suggested, in a manner where the music would flow like water.
  • Ad-supported free service and premium subscription service, which eliminates the ads, has been creating great new revenue for the music industry that really stands to continue in the future.
  • Spotify was one of the first streaming services that was able to negotiate licenses with all of the major labels and many independent labels to allow for unlimited access to a wide catalog of music.
  • That’s going to be the big charge for artists over the coming years, to make sure that they’re represented well and advocate for greater share of the revenue that’s generated from these subscription services and digital streaming as these businesses come to scale.
  • Many people feel that artists, even though they may not make as much money from selling records or even from having their music streamed or being heard through various subscription services, how are they going to make money? Well, many people think that they can make money performing, that artists should be able to make money on the road. They should be able to perform live.
  • The question will be, to what extent can new artists generate revenue from those sources? Certainly, the heritage artist and the artists that are performing at the big festivals are making a tremendous amount.
  • What about the artist that’s just starting at the club? And here’s another point to think about.
  • All creators of music aren’t performing artists.
  • Artists are making tremendous amounts, some of the top artists, from other types of opportunities, like endorsements and sponsorship and even product development.
  • So interesting things are happening in the music industry.
  • You really have to find out where do you stand in there? Are you going to develop an app? Are you going to write the next great song? Are you going to be that performing artist? Are you going to come up with some other type of service that’s going to be of benefit to artists? Where do you stand? What is your goal in this new emerging digital age?

Lesson 1: The Music Industry > Today’s Music Business Structure > Today’s Music Industry Structure

  • The paradigm shift from physical to digital has really taken a drastic toll on the major record labels.
  • Where there were six major record labels in the ’80s and ’90s, currently there are only three.
  • Now, what are these major record labels? Just what do they do? Well, they aren’t like the labels of old, where you had an entrepreneur who might have been an artist or a songwriter, like Berry Gordy or Ahmet Ertegun, that really got involved in the creative process to a great degree.
  • So you have three major record labels currently- Sony Music Entertainment, a Japanese concern; Universal Music Group, owned by French conglomerate, Vivendi; and the Warner Music Group, recently purchased by Leonard Blavatnik of Russia.
  • I should say the major manufacturers and marketers and distributors of up to 85% to 90% of the records that are sold today.
  • Let’s talk about the major labels and their subsidiary and sub-labels.
  • Universal Music Group has a number of influential and significant sub-labels and subsidiaries like Island/Def Jam; the great Interscope label, Geffen Records.
  • Most recently, Universal Music Group purchased the catalog and contracts of EMI, Priority, and Capitol Records, reducing the number of major labels from four to three.
  • Sony Music Entertainment distributes the great catalogs and the artists that are assigned to Colombia, Epic Records, Arista, J Records and Jive Records, a great cadre of historic labels that has had a tremendous effect on the music industry.
  • Lastly, the Warner Music Group distributes labels like Elektra, Atlantic, and, of course, the Warner label.
  • You know it’s amazing that even in this day and time of DIY, you find many artists that want to sign with major labels.
  • Then at the same time, you have a number of other artists that would say, why in the world would you want to sign with a huge company that may not pay that much attention to you? Well, the people that feel that they need to be with major labels like the prestige of being with the major labels.
  • Most of these artists also mention the fact that these major labels do have a distribution system that is wide and vast, particularly in the physical space.
  • Major labels are tremendous at expanding your market.
  • I find it remarkable that a major label can decide on a particular date to have your recordings in record stores internationally.
  • I have to say that I am very impressed with major record labels.
  • So it’s amazing to see that record companies are able to not only meet those expenses but also to have a distribution network, which enables them to have that record in stores nationally and even internationally on a particular date.
  • You certainly want your audience, who you’ve targeted that marketing and promotion to to be in a position to go into the store and pick up that record on that date.
  • A growing trend in the music world today is for independent labels to start off on an independent distributed basis and, as they build their market, affiliate with major labels solely for distribution.
  • This market has really taken off over the past few years, as you’ve had great new independent labels, like Big Machine Records, that releases the recordings of Taylor Swift, great bands like Mumford and Sons working with the independent label Glass Note, that is now distributed by a major.
  • Macklemore and Lewis had their own label that became so popular on their own that they ended up affiliating just for distribution purposes through one of the major labels.
  • Back in the ’50s and ’60s and even in the ’70s to some degree, most recording artists had to have a label in order for their product to reach the market.
  • Usually most artists didn’t have the money to afford the cost of studio time, hiring an engineer, paying all of the session players that you needed to put together your recording.
  • In addition to that, most artists didn’t have the money to manufacture their records.
  • They relied on the major record labels, not major record labels, but a record label, independent record label at that time as well, to pay for the cost of manufacturing.
  • In order to reach the market, pretty much you had to go through a label’s distribution relationship.
  • Well, how have they changed? Well, now do you really have to pay recording costs for a studio? Many artists have studios in their bedrooms, in their basements, maybe even in their kitchens or bathrooms.
  • What about marketing? Record labels also provided marketing that the artist couldn’t afford years ago.
  • So if you have the talent to be able to record yourself and put together all of the pieces of the recording, you could be in a great position to be in business.
  • When the Synclavier came in, drum machines came in, Stevie was one of the first artists to record all of the music on his own.
  • Can you exploit all the various social media outlets to really create hype, create a great YouTube video that’s going to really maximize your exposure to the audience that you want to have? Are you going to be in a position not only to create that initial hype and develop that initial audience, but are you going to be able to develop that audience and expand it to the next level? That’s primarily what the major labels are still saying to this day that, wait a minute, when you really want to reach the broadest market, come to us.
  • Many DIY artists are feeling that pressure once they’ve had that initial audience reception and success, whether or not they should go to the next level with the major labels or if they should continue to try to do it yourself- DIY.

Lesson 1: The Music Industry > Recap > Lesson 1 Recap

  • In lesson one, we talked about my theory that every time the music gets played, somebody gets paid.
  • Every time the music gets played, somebody gets paid.
  • I say that there are three big Ps, three big principles for success in today’s music industry.
  • You need to have the proper perspective to know that the asset value in those creations that you come up with grow over time.
  • The music business is a blend of art and commerce that evolves over time with technological advancement and the spirit and the determination of entrepreneurs.
  • The music industry has constantly reinvented itself or in it’s over 100 year history, and we talked about the cyclical nature of the music business.
  • How things have gone up and down, and there’s been many times that people said the music industry is dead, and that hasn’t proved to be the case.
  • There’s been one constant in this cyclical nature of the music industry, and it’s an instrument.
  • The exclusive recording artist agreement that provides the basis upon which the music industry is built, and that’s what we’re going to talk about in lesson two.

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