CD Replacement Revenue. By, Bob Lefsetz

Posted on November 17, 2011 by


So I’m reading about the police clearing Zuccotti Park and I’m thinking we already had our protest in the music industry. And the public won.

Back before MTV reared its dominant head, we could count on the acts to keep the labels in line. Tom Petty famously filed for bankruptcy rather than be treated like chattel, have his contract transferred from ABC to MCA and then have his album used to break the price barrier. Yes, MCA wanted to sell Petty’s album for a dollar more. But Tom stood his ground.

Maybe that’s why Tom’s still standing, still has a viable career today. His fans believe he’s on their side.

Whereas major label acts are no longer on their fans’ side, they’re ripping them off at every turn, they align their interests with the labels, with other fat cat rights holders, the public is the enemy. Oh, you’ll get lip service, as they pile into the limo and jump on the private plane, but if you think today’s name stars are in it with their fans, you probably believe racism has been eviscerated from our country, you’re delusional.

Actually, that’s part of Lady Gaga’s success. Sure, you might point to the fashion, the overbaked videos, but really it’s her posturing as being on the side of her “Little Monsters”, the alienated audience paying attention, that has cemented her place in the firmament. Yes, with most artists you get homogeneity, their goal is to play to everybody, alienating no one in the process. Isn’t it interesting that the biggest new star takes the exact opposite position?

The turning point was MTV in concert with the introduction of the CD. Not only was the CD a huge jump in price for the consumer, the acts did not share in this upside, they settled for a reduced royalty, under the rubric that money was needed to grow this new technology. Ain’t that a laugh.

So, suddenly acts and rights holders are rolling in dough. MTV builds stars overnight and you’ve got to buy an overpriced CD to hear the music. Furthermore, the economy was roaring, there were a few extra shekels around.

And then came Napster.

Actually, before Napster came Sillerman, the rollup of the concert industry. Which resulted in insanely high concert prices. Want an enemy? Look at Bob Sillerman, not Ticketmaster. And then look at the acts. Who saw shrinking recorded music revenue and decided to take it out on the public, their fans, by raising ticket prices.

So what you’ve got is a runaway train, with rights holders and acts in cahoots, and suddenly they ran out of track. Suddenly, the public could not only acquire only the song they wanted via P2P, they didn’t even have to pay for it.

Bloody heresy.

But everybody forgot what came before. The aforementioned overpriced CD and unreasonably high ticket prices. It was as if the rights holders and acts believed they were entitled to inflated incomes. Instead of seeing MTV and CDs as an evanescent bonus, they became an entitlement. And try taking away an entitlement, isn’t that what the debate is all about in Washington?

All of this change was brought about by the public.

Which is why when you pooh-pooh Occupy Wall Street, you’re missing the point. Whose side are you on? The bankers were overpaid because of a destruction of regulation and oversight and a thin layer of people got rich, and they used their lobbying power, their money, to institute lower taxes. And you wonder why the rank and file are pissed off?

The rights holders have done a good job of labeling the public as ungrateful thieves. But is this an accurate description? Almost definitely not. The public was fed up with past practices and angry because they could not acquire music the way they wanted to.

The way you succeed in business is by staying one step ahead of the customer, knowing where the puck is going, not where it’s been. Streaming services are an example of this. Most people say they don’t want to stream…they’ve got so many complaints. But they’ll end up loving these services that are one step ahead of them.

And what do artists and rights holders say? WE CAN’T MAKE ENOUGH MONEY! Let’s give the public less than what they want. Let’s force people to overpay for what they do buy. The end result of which is a vast underground economy where tracks are traded/acquired absolutely for free.

Now the movie business has learned nothing from the music industry’s travails. Filmmakers still believe they can corral the public into doing what they want them to.

And it’s not only hit artists who are on the wrong side of the line. Wannabes are complaining more about Spotify payments than stars. Wannabes want the old edifice to remain. As if they too can become royalty.

But the monarchy has been torn down, democracy reigns. The old system is dead.

I’m not saying there’s no money left in music. I’m just saying that forcing people to overpay for tracks, especially requiring them to buy them in a bundle, is absolutely history. We live in a mix and match world. You just can’t stop it.

As for exorbitant ticket prices, all it does is ensure that no one takes a risk.

But it’s worse. You can’t get a good ticket because the act is taking money from American Express and there are pre-sales and all kinds of shenanigans making it hard to be a fan. All of which are bad for the business.

We’re in the process of a wrenching transition. And it all happened online. Malcolm Gladwell said you can’t have a revolution with soft ties, but music fans executed one without ever meeting face to face.

The war is over. The price of recorded music has deflated.

And this is good.

This allows more people to listen to more music. Recorded music used to be for the rich. Most people could only afford a few CDs a year. Now you can listen to everything, for free. And there’s nothing the rights holders can do about this.

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