Dave Kusek, Future of Music

Hi, I’m Dave Kusek; I’m Vice President at Berklee College of Music. I’m also the co-author of the book The Future of Music with my buddy Gerd Leonard, and I’d like to talk a little bit about the future of music, the future of the industry from our point of view, and maybe show you some stuff on the web; how we are trying to create the future of music here at Berklee.
We wrote the book The Future of Music to really help to educate the industry and also to encourage a dialogue on what’s happening in the music business. People are a little confused it seems about what’s happening in the music industry. There is a lot of gloom and doom in the press over the last several years about how terrible the record business is and the Internet is killing the music industry and for the most part that’s just not true. The record companies would like you to believe that, but the reality is that the music business is in pretty much the best shape it has ever been in, from our point of view. There are more records being made, there are more songs being written, there’s more music being recorded, the touring business is quite healthy, there are more opportunities to perform music, there are more opportunities to get your music on various forms of media, television, cable, interactive media, the Web. Publishing revenues are at an all time high. So when you look at an overall scope of the music industry, it’s actually very healthy. Here we are in the summer of 2005, late summer unfortunately, but the business is really thriving as a result of digital technology.
The Internet software for recording, editing, mixing and distributing music has really revolutionized the music making business, and in a certain degree it has revolutionized the music distribution and marketing business. If you take a look at programs like Pro Tools, Reason, Live, all the types of MIDI and digital software that is available for the PC, the power of those little laptop computers that we have today, to be able to do a 24 multi-track audio recording in your own home, really all you need is the computer, the software, a couple of good microphones and then musicians. But you can do a lot of what you were able to do in very high-end recording studios, now, literally at home, and many people are doing it. What does that mean for the quality of the music being recorded? Well it really comes down to talent and writing a good song. If you have got that, then you are able to go a lot farther, a lot faster these days than in the past. You also don’t have to spend as much money to make those records as you did in the past because you have these tools and very, very quick recording and editing and mixing tools to get your ideas from your head through your fingers on to some form of media where you can begin playing with it and listening to it and seeing what you got. So as a creative enterprise, music making today is more accessible and powerful and available to people than ever before. So thus, we have tons and tons of records being made and songs being recorded. We have a glut of music available.
If you look at music distribution, record companies for the last four or five years have been hurting. Their sales have been declining, they just don’t seem to be making the kind of money that they have been making. They are primarily blaming the Internet and file sharing as the reason they are having these issues. This is a blog that we put together for the Future of Music book and one of the topics, this is actually an excerpt from the book, “Is File Sharing Really Killing the Industry” and we argue that, no, it’s not true, and that there are numerous reasons why CD sales are down. CDs came out in the late 80’s and were a huge re-issue opportunity for the record companies so they re-issued basically their whole catalogue from vinyl through cassette through eight-track onto CD and it drove sales because you had this perfect digital copy on a CD of basically, the vault and they were able to sell these things for $18.00 or $19.00. Even if you already bought the tape, you probably bought the CD, so that drove enormous sales of CDs, It was a very, very phenomenally successful format for the record companies and generated tons of cash, but you know, like a lot of businesses, when it’s going really good you tend not to pay attention to what’s the next thing, where should you be going next? And to a large degree the record companies missed the Internet, the digital transformation of the music industry for a variety of reasons. It’s only today that you see computers and email and Blackberries in the hands of record company executives. Not too long ago, and I’m talking years, not too many years ago, there were no computers in the offices, they weren’t connected to the Internet, they weren’t hip to what was happening online generally speaking. That’s not the case at the moment, but that I think made them a little blind as to what was happening. The videogames came along, were extremely interactive, very interesting to the youth market, they were available for 40 or 50 bucks, the kids absolutely loved them, they started kids buying video games, took money away from kids buying CDs. You also have DVDs coming out, the movie and kind of film entertainment business continued to thrive that also took away, and all those DVD sales took away sales of CDs. A CD at 18 bucks became less competitive with other forms of entertainment. So what happened? People started to spend their money in other places rather than buying as many CDs as they once did. So you have two forces happening there; everybody already replaced their library with CDs so how many more copies of that one record are you gonna buy? And you had other things to spend your money on. You’re buying video games, you’re buying DVDs, you’re buying DVD players, you’re buying home theaters, you’re buying personal computers, so it started to take available money away from the record companies.
Record companies would point the finger and say well that’s not the reason that we had any trouble; its people stealing our music online. Napster or Kazaa or Limewire, all of the other file sharing sites that sprung up in the last five or six years are the reason that the record sales are down. Well, we argue in the book and we’ve seen lots of supporting stats that that’s just not true. That file sharing has been shown to actually encourage people to explore and discover new music and to ultimately lead them to go and buy CDs or go to shows or talk to their friends about the bands they discovered online. Is it completely black and white? No. You know, has file sharing impacted CD sales somewhat? It’s very, very difficult to say whether that’s been a positive or a negative. It appears to be relatively neutral. It’s a great way to market music, it’s a great way for people to discover music to find things that they always liked, to kind of cherry pick the collection and assemble music that you’re really into, that’s sort of bad for the music companies, but on the other hand, you’re out finding things, finding new music, you’re trying things, sort of like singles, that the record company, like singles used to run the business in the seventies and eighties and the nineties singles kind of went away as they shifted more emphasis to the CD format. Well, the online files are now kind of the new single. So you go out you sample music, you find the new bands, you test things to see if you like it, it generally leads people to going to the stores and buying CDs, go online and buy tickets for shows, buy merchandise, read and discover more about these artists that they found online, talk more, buzz more about artists online through instant messaging and chats and other tools that are available on a lot of these file sharing networks. When you weigh the balance: fire sharing- good, bad? We figure it’s pretty neutral and it kind of weighs toward the positive side that if the marketing folks at a record company decide that they want to use file sharing to break an act or to pre-release a record before the CD hit’s the stores. There’s numerous examples that that works incredibly well. Radiohead, 50 Cent, are two examples right now where the tracks were leaked ahead of time, they got onto the file sharing networks and the records sold absolutely huge. Norah Jones, same thing. Tracks were leaked; her first record just sold millions and millions of copies.
So, The Future of Music, we talk about how do you embrace the web, how do you embrace digital technologies as a key component of your marketing strategies of selling records and promoting bands. We look at different ways that you can market online, we look at different ways that you can distribute online, and we also start talking about kind of, what does the future music company look like? If you take a look at all of the ways an artist can make money you have, in theory, selling records, and the royalties that you would make off those records, the ugly truth of the music industry is, most records never recoup their advances, maybe one in twenty, one in fifteen records actually recoup their advances. So if you’re an artist and you get a nice check for fifty grand, maybe a hundred grand, if you’re incredibly lucky and have a great attorney negotiating for you, that’s probably all the money you are ever going to see for that record. And you know, you split that with your manager, you split that with the other people in the band, and before you know it, that money is gone. So what do you gotta do? You gotta hit the road, and play. And you can make money, if you are willing to get out there and play and work really, really hard. You can make a lot of money. So the records kind of are promotions for your shows where you’re really going to make the coin. You can sell merchandise, t-shirts, hats, whatever. Whatever you can think of. A lot of that money goes into your pocket. Again, if you’re smart, you’ve got a good manager; you’ve got a good attorney. Publishing- if you wrote the songs, you are going to make money from record one off mechanical royalties. But you can also go and license those songs, you can put them in commercials, you can get them used on cable, you can get them used in interactive media, that’s very lucrative and very future-oriented because a lot of uses for music in the future are going to be publishing related. You are going to be syncing up to visual images, you are going to be syncing up to the web. When you think of 500 channels on your cable television, where’s all that music going to come from? And that’s all publishing money. So, records, touring, merchandise, publishing, those are four main ways that artists can make money.
What if you take a fresh look at the view of the music industry and say “Well, historically it has been driven by record sales, and then artists can make money playing and writing songs and selling hats and t-shirts,” but the driving force was that the record company came in, put down the money to make the record, to market the record, they distributed it, they “make you famous” and then you can sort of fend for yourself to make some money. What if you took a different approach and said well, at the very center of the equation is the artist. Whether you’re a writer, or an artist, or both, you’re at the heart of the deal. You and your manager form a partnership and your job is to promote yourself and make as much money as you can everyway you can think of. So if you create a picture of manager and artist in the middle and records, touring, merchandise, publishing, writing books, teaching, appearances for other reasons, other than performing and you start creating a universe of opportunity around yourself that we think is one of the structures of the music company of the future. Where you put management and the artist at the center, and you put all the different ways of making money around it, and you can structure it in a bunch of different ways, you can put one company, it can be a bunch of related companies, but if you start thinking about the opportunities for artists and songwriters from that point of view, you begin to look at that recording a little bit differently. Does the recording have to be the way that you are going to make the money, recoup the money that you invest to get the artist well known or, is the recording perhaps a way to drive awareness for the artist so that they can perform more. So that they can sell more merchandise, so that they can get their songs published and picked up in different places, so that they can create this little business empire around themselves. And if you look at the recording in that context and you look at file sharing you think, well, maybe if we give a bunch of records away and we give a bunch of songs away in order to create awareness to get people to come to our shows, to get people to buy some merchandise, to get them to buy some CDs, to get them to buy our DVDs, to get them to buy our books, whatever, you start to look at file sharing as less of an evil concept, and this we think is the future direction of the music industry. We’re not going to write off the ability to make money off of recordings, but if you look at sort of a tiered system, where some stuff is free and some stuff you pay a little bit for, and some stuff you pay a lot for, it changes the dynamics of the industry, and makes it much more focused on the artist and the opportunities for the artist to have a reasonable career without waiting for that next record deal to come along. Because that’s the vicious cycle that you don’t want to be in, if you can help it.