How much is music worth? Reflections on our evolving industry.

How much is music worth? Reflections on our evolving industry.
By John Stiernberg | January 2008 Perhaps you saw the news in the music trade publications on 10/16/07: Madonna signed with Live Nation for a comprehensive business deal worth $120 million over 10 years. This is one of many recent music industry developments that underscore how dynamic things are in the music industry right now. Will the Beatles sell their songs on iTunes? Will record companies eventually stop marketing CD’s and album-length work in favor of single tracks and ringtones? Will concert promoters sign artists just like Hollywood studios sign actors? What will happen to the independent side of the music industry?

Is the record industry dying?
With major-label CD sales declining, it’s easy to jump to gloomy conclusions. But let’s take a step to the side and remember what “record” means. It’s an abbreviation of the word “recording” that has been in use for over 70 years. Even in the 1950’s, there were multiple record formats: 78 rpm, 45 rpm, 33 1/3 rpm discs, and reel-to-reel tapes. In the 1980’s, record companies offered vinyl LP’s, CD’s, and cassettes. Today the choices include digital downloads in addition to standard CD, SACD, DVD-A, and yes, vinyl LP’s!

Then there is the issue of albums vs. singles. In the early days of recorded music, there were only singles, recorded on shellac-covered canisters. Later, “albums” became big notebooks with multiple 78 rpm discs, allowing the listener to enjoy more songs by a favorite artist in one purchase transaction.

Today we have – in addition to all of the above – box sets that range from a few CD’s in a jewel box to elaborate, multi-media extravaganzas with audio, video, print, and online components (check out Ray Charles Pure Genius – The Complete Atlantic Recordings 1952-1959 for a fun example). The content is still music, regardless of the packaging or format.

The Value of a Song
Do you remember 45 rpm singles? Each disc had two songs on it. When I started buying records in the 1960s, the street price of a single was $1 and an album with 10-12 songs sold for about $3. Accounting for inflation, a 1967 dollar is worth $6 – a six-time increase over 40 years. But a “single” goes for a lot less than $6 these days.

Has the value of music decreased in the past 40 years? That is a difficult question to answer. There is no question that music is a great entertainment value and that the purchase price of a song is less today than in years back. For reference, a digital download single sells today for 99¢ and an album for $9.99 on iTunes. No liner notes, no packaging, MP3 sound quality, all offset by a high level of convenience.

Compact discs are a bit closer to the 6x multiple at $18.98 list/$12.98 street price. There are also more choices for music fans today than ever before. It’s an example of the classic “buyer’s market,” with a virtually infinite supply vs. limited (albeit big) demand.

Multiple Revenue Streams
Back to the Madonna deal. This isn’t just about records. It’s about multiple revenue streams. Here’s a quote from the press release:

“The deal with Live Nation encompasses future music and music-related businesses, including the Madonna brand, albums, touring, merchandising, fan club, website, DVDs, music-related television and film projects, and associated sponsorship agreements.”

From the public’s standpoint, there are two fundamental ways to consume music: live and recorded. It’s not one or the other, but both. As a result, just about all music people have multiple revenue streams. That’s a good thing, and is unlikely to change in these dynamic times.

Record Company vs. Music Company
Here are three business trends that are worth watching:

• Record companies are becoming music companies (again). Much like Motown Records in the 1960s, record companies today are looking for (you guessed it) multiple revenue streams. To accomplish this, they are redefining themselves as music companies, and stand to earn a share of song royalties, merchandising revenue, and live performance revenue from signed artists.

• Concert production companies are becoming music companies. Live Nation’s core business is live entertainment. The Madonna deal takes them into records, merchandise, and publishing, thus making them a “music company.”

• Artist management companies are becoming music companies. While artists’ managers have been paid on multiple revenue streams in the past, many are now developing their own record labels and concert production divisions – still another version of a “music company.”

What Does It All Mean?
Whether you are a songwriter, performer, agent, manager, record label, promoter, producer, or music-whatever, you need to pay attention to changing business models in our industry. The public loves music and will pay for it. If there were no music created or sold, there would be no music industry. Here are three things you can do now:

1. Take stock of your situation. Are you achieving your creative, financial, and personal goals and objectives? Will you be able to sustain your own music business over time as the industry changes?

2. Update your business plan. Your plan is your best competitive weapon and keeps you in control of your business. Make sure that it is always up to date and written down.

3. Be flexible. The rules are changing. There is no single best business model, just options for success. For some people this is scary, for others it is exciting.

Film at Eleven...
So how much is music worth? Business wisdom says that the price of anything is whatever the buyer and seller agree upon. That said, the value of music ranges from worthless to priceless, all depending on the buyer’s point of view.

What will happen to the value of music between now and tonight’s 11 o’clock news? Anything can happen. Keeping your options open is essential for success. Stay in control of your business through planning, objectivity, and flexibility. Good luck!

John Stiernberg is principal consultant with Stiernberg Consulting, the Sherman Oaks, CA-based business development firm http://www.stiernberg.com. John has over 30 years of music industry experience including eight years as performer, recording artist, and agent, 12 years working for sound equipment manufacturers, and 14 years as business analyst and consultant. In addition to entertainment technology industry affiliations, he is a member of IBMA, the Recording Academy, and the American Federation of Musicians.

John's book "Succeeding In Music: A Business Handbook for Performers, Songwriters, Agents, Managers, and Promoters" is published by Backbeat Books. For details, visit http://www.succeedinginmusic.net or e-mail John at askjohn@succeedinginmusic.net.