The Internet and The Music Industry, Part I

My good friend, JF, recently pointed me to a few articles on the Internet speculating that Google, Inc. – and/or other large Internet and computer-based corporations – has so tired of negotiating fruitlessly with record labels that they have entertained the notion of ‘buying the music industry.’ I include the quotation marks around that last phrase for a reason: this is a quote from one of the reports. This is beyond simplistic; indeed, it is uninformed; no, it’s stupid.

The music industry consists of layer upon layer, decade after decade of complexity in which record labels represent but one (albeit significant) sector of the whole. The challenges faced by Google, Amazon, Apple and all other Net-focused companies negotiating with ‘the record labels’ are mere skirmishes. Wait till they go up against the music publishers, songwriters, musicians, managers, agents, venue owners, royalty representatives, performing rights organizations and other license and rights’ holders.

It is understandable that a journalist reporting on a music industry story would wrongly misappropriate the moniker ‘record labels’ for ‘music industry.’ When the average consumer thinks about music they likely ponder their favorite artists, songs or live shows. When the average consumer gets pissed off at the music industry (paying too much for a CD, a rancid collection of songs on a new project, poor sound quality, a regurgitated ‘Best Of’ release) they likely imagine the greedy bastards running the record labels. Some of these reactions are justified but many are misguided. Indeed, record labels (and for the moment I use that phrase to represent the Big 5: EMI, Universal, SONY, Warner Brothers and sometimes BMG) function as the hub of the wheel in the music industry. At various points in the process they interact with – and even represent – the music publishers, artists, managers, booking agents and – for the most part – all other factions of the industry. But they have little, if any final authority over any of these entities. So, let’s move beyond the idea that ‘the record labels’ represent the final frontier in difficult negotiations faced by these potential buyers of ‘the music industry.’

I suppose the next of many related issues is the true value of that which would be purchased. It is almost impossible to place a dollar value on ‘the music industry.’ The most current, unbiased and accurate statistics I could find today suggest that the total revenue generated by all aspects of the industry in 2010 was $68 billion worldwide. Roll that number out over 4 years with modest growth estimates and you come pretty close to $300 billion. Just for grins let’s use that number as fair value for such a transaction. Here are the current market caps for the companies suggested as possible suitors for this global business: Apple: 291B; Google: 156B; Amazon: $85B; eBay: 37B. The combined market cap of these 4 behemoths is $569B – less than twice the suggested value of the global music industry. (Facebook is estimated to be worth $50B and plans are being made to take it public. How would you like ‘the music industry’ to be run by Mark Zuckerberg? Would that make things better? Is he a good guy?)

And finally, to end Part I of this tirade, I choose to share a few personal conclusions about the music industry as I have known it and experienced it in my lifetime. The major label model began crumbling in the 1980’s, probably before. It needed to crumble: decades of arrogance, huge salaries, absurd artist advances, really bad music and apathy were the large contributors. And yes, it is proving to be a long, slow death. Here’s more bad news: when the patient is finally pronounced dead the reading of the will is going to take at least as long as the lengthy death, probably longer. Each of its myriad sectors has millions of hands and eyes, claims and rights; they shall not go away quickly or easily. Best wishes to the lucky new owner(s.) If anyone reads this and truly believes that a little tape copying here and a little file sharing there had no impact on this industry’s demise – you are ignorant, uninformed and naïve. (As a professional songwriter I can only suggest that you teachers, doctors, CEO’s, truckers, firemen and accountants slash your income in half 3 times over the next 15 years.) And there’s one more bit of very significant information that speaks to the heart of this matter: 2 major Grammy Award Winners from 2010 (Arcade Fire and Esperanza Spalding) were signed to record labels – independent record labels! The natural processes have long been in the works – a new era has already begun. Let's allow it to happen...