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From the mid-'90s though the Napster era, major labels wrote their own requiem mass with a short-sighted, quick-hits-for-quarterly-earnings mentality, according to digital music entrepreneur Jeff Price.
"They stopped generating the back catalog that could've carried them for many more years," Price argues, "No offense to The Bloodhound Gang, but Hooray for Boobies probably isn't going to be a box set in the near future."
But when it comes to hawking digital downloads, Price says, record, ringtone and singles sales can be quite lucrative for independent artists. His Brooklyn-based site, TuneCore, is the largest distributor of online music in the world, representing 3 to 4 percent of digital music sales in the United States.
On TuneCore, rights-holding artists of any stature — from the neighbor who mixes his dubstep tracks in his living room to Aretha Franklin or Trent Reznor — can pay an annual recurring fee of $50 per album or $10 per single or ringtone to have their catalog distributed instantly to the world's major online music retailers.
That includes iTunes, eMusic, Rhapsody, Amazon MP3 and stateside-new-kid-on-the-block Spotify — the reason TuneCore co-founder and CEO Price calls his baby "digital music's FedEx." Artists keep their rights and a generous 100 percent of their sales revenue.
Price says he started the site in 2005 to take advantage of the virtual marketplace's unlimited shelf-space. He means to democratize the digital music industry, providing artists access to online distribution without gatekeepers or middlemen.
"Unfortunately for the major record labels, [the shift] to digital really, really screwed them," says Price, who also founded the now-defunct spinART Records. "So it allows someone like me to show up."
For artists, one of most attractive aspects of signing to a label, either major or indie, was access to worldwide distribution. But the seismic shift to digital caught short conglomerates such as Warner Music Group, whose fiscal matrix was records and CDs — the physical properties of a product that has since gone viral.
According to Price, it would take WMG 90 years to match the 10,000 to 20,000 newly recorded releases TuneCore distributes a month. True, the overwhelming majority of these were self-recorded and self-released by artists who would never have made it past a major label's sentry.
But Price claims TuneCore's plebeian constituency — i.e., the artists who wouldn't have made it to a major — has sold more than 400 million direct-to-fan units of music in the last two-and-a-half years. That translates into more than $250 million for independent songwriters and owners of masters.
Small wonder he strongly disagrees with old-guard gatekeepers who claim that it's difficult to turn a profit from digital sales.
"They're wrong," he says. Monetization is an issue on the labels' and publishers' side, he argues, not the artists'. He explains that TuneCore's model is not only free of overhead such as shipping, manufacturing, return and packaging costs, but the digital infrastructure makes tracking and auditing individual sales absolute — as opposed to relying on to performing-rights organizations or intermediaries that are neither transparent nor immune to human error.
"Nobody knows what they make, or how royalties really get calculated," Price says. "Nobody has a clue what a performing-rights organization pays, or how they figure it out. There is zero transparency. The new music industry is completely [transparent]."
But how does a listener decide which of those 10,000-plus TuneCore-distributed releases they wanna listen to each month? TuneCore competitor The Orchard thinks it has the answer: target marketing.
When it comes strictly to distributing music, The Orchard's business model differentiates from Price's come-one-come-all, Web-exclusive platform in a significant way: Its bread and butter is in partnership agreements with indie labels like Barsuck and Daptone. It's more exclusive, it's not open to all who want to sign up, and it's proactive in how it targets and markets to audiences.
Founded by Scott Cohen and Sire Records co-founder Richard Gottehrer in 1997, The Orchard grew out of frustration with the impenetrable force fields of major-label distributors — who also distribute many of the larger indie labels.
"It used to be that it was very difficult to get into a physical store," says The Orchard CEO Brad Navin. "Unless you were signed to [one of the five or six major distributors] you couldn't get in to those stores, so how could you be 'a professional musician'?"
The Orchard was initially a physical distribution vehicle for smaller indie releases. But Gottehrer, himself a producer and songwriter, had the foresight to seek digital rights as well. That effectively made his company the world's first online music distributor, pre-dating Napster by two years. As the music world self-digitized, they were ready to compete as part of a developing infrastructure of online retailers and social networks.
In the decade-plus since, the company — which has offices in New York, Los Angeles, and since last year, Nashville — has expanded its model to include digital video distribution, publishing administration, a creative licensing department and a marketing division that customizes iPhone apps.
"How do you change a large business and the economics it's built on overnight in a world where the barriers come down?" Navin asks. "You can say, 'Well, it's not been overnight, it's been over 10 years and they still haven't changed,' and I [wouldn't] disagree with you. ...
"Probably the 21st century major label is a tremendous marketing and A&R source. But who has to own the music? And what are the splits? How do artists make a living? I think the independent [labels] figured that out a long time ago. I don't know what happens with the big guys."
Perhaps hope for all lies in the cyclical evolution of the digital marketplace. Napster's instantaneous education of music fans set the stage for a new generation of virtual record stores.
Unfortunately for the music industry, Apple figured that out first. Since 2008, iTunes Music Store, which launched in 2003, has been the nation's No. 1 music merchant. For the better part of the past decade disagreeing platforms and devices confused customers with parameters: If you had an iPod, you'd need a Mac. (Not really, but people thought so.)
"The industry, whatever you wanna call it — we just haven't given the consumer a good experience," The Orchard's Navin says. "What does the consumer wanna do? They wanna push play."
But as computer literacy rates rise rapidly with new generations, the major players in the digital marketplace have grown more user-friendly. And new players are still emerging — so quickly that the ever-aggressive evolutionary cycle could come to threaten the digital retailers it spawned.
The looming threat comes from cloud-based subscription services, which allow users to store music libraries and playlists on servers, not unlike on-demand video provider Netflix. Mere years after announcing themselves to the world, they threaten to make direct-download music retailers like iTunes as obsolete as a video rental membership at Tower Records.
At this moment there's one word on the minds of music industry wonks: Spotify. Since launching in 2008, the Swedish streaming site, music retailer and smart-phone application is the biggest advent to sweep across Europe since the Euro. Like a combination of iTunes' playlist and storage features, Rhapsody's on-demand platform and Last FM's personalized social networking condensed into one sleek package, it's available as an unlimited access, $5 to $10 per month subscription service, or as an ad-supported free service. Listeners don't have to download the music to own forever, but they can listen to it forever from the cloud, as long as they remain Spotify subscribers. Six weeks ago Spotify launched in the U.S. to much fanfare — and in the industry, fear.
"It's an amazing tool, and the best thing to happen to music fans since Napster," Nashville festival promoter and manager Jason Moon Wilkins says. "The problem is, it's pennies on the dollar for getting what you get. It's gonna significantly decrease sales most likely."
But in Europe, where Spotify holds sway, Brad Navin says the cloudbank hasn't obscured The Orchard's business. "Our data never showed it eroding sales on iTunes, or leading download-to-own stores," he says. "It seemed to always complement, and in fact always lifted sales."
While the streaming model could revolutionize the way listeners consume music — and while that inevitably will make it an invaluable direct marketing tool for artists — how those artists stand to monetize that exposure is the industry's 64,000-cent question.
"Any active music buyer has historically spent more than $120 a year, even in the iTunes days," muses Jamie Cheek. "I don't have any doubt that, for [them], music is worth more than people are paying for it now."
For most listeners Spotify's monthly subscription fee should be an easy sell. But the site and app — which also doubles as an online retailer, distributed by TuneCore and The Orchard — or their contemporaries are going to have to recruit millions of U.S. users if artists, labels and publishers ever hope to see them become a bona-fide revenue source. That's because the royalty rate that trickles down to the rights holder per click is in the neighborhood of a penny per play, versus the 70 cents they get on iTunes. Only time will tell if those numbers amount to a new, viable industry.
But as a publishing executive who asked not to be named tells the Scene, "[The industry] has had to reset their expectations from an overall level — expectations on what's a hit, how much money [they] expect to make. ... There isn't the million-dollar publishing deal for a band that's getting signed to a record label the way there was 10 or 15 years ago."
Unless you're in mainstream country. Still the marrow bone of Music Row, country superstars like Keith Urban and Taylor Swift are still selling millions of records at big-box retailers like Walmart and Best Buy. Their audience finds new music the old-fashioned way — by listening to the radio.
"If you are a writer of a Top 10, Top 5, No. 1 country song, that is still big money, and if you are in that machine, whether it's through an independent or on a major, you're gonna see some immediate money there," Cheek says. "[On] the rock side ... [where] there's just not as many stations, the performance royalties are less."
Nevertheless, hip-hop, pop and rock artists of all stripes still have an exposure platform with the potential to be as powerful as radio or MTV ever was — YouTube.
Now mainstream media's viral-video kiosk, the combination crowd-and-corporate-sourced video-sharing site has become ubiquitous, integral in launching and re-launching the careers of artists like Justin Bieber and OK Go (and of course Kyle Andrews). Not to mention oddball diversions-of-the-moment such as Rebecca "Friday" Black and Antoine Dodson — you know, the "bed-intruder song" guy.
No less a record-industry kingpin than Epic Label Group CEO L.A. Reid recently signed an artist discovered via viral video. That would be Boston pop duo Karmin, who, unsigned, cracked 100 million views on YouTube after licensing their song "Take It Away" for use in 2011 NBA Finals promos. But Cheek isn't convinced. "Everybody's promising that big dollars will come from YouTube, you still hear that," Cheek says. "But I don't see it yet."
The Scene's unnamed music-publishing source says he does. Because of YouTube partnerships with music-video entities like VEVO, artists such as Lady Gaga, Justin Bieber and Eminem are making millions from their millions of views, he says.
"YouTube is becoming more than the means to an end, it's becoming the end itself," he explains. "Your music video never made you anything. That Britney Spears video with 100 million views made her money, it made writers money that was never [before] available."
And YouTube is paying big blanket licensing fees to the recording industry, which still ultimately has control over what intellectual property is allowed to stream on the site. Those fees are made possible by Google's $1.65 billion purchase of YouTube.
"It could actually have a pretty good impact on the music business," the Scene's unnamed source says, "Google had enough money to bring everyone to the table, but I think they've opened up what is currently probably the best and biggest distribution of music in the world."
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