DOES MUSIC HAVE VALUE?

At most panels on the future of the music business, there is almost always a discussion about the value of music. Does music have an intrinsic value or does it have value to promote the sale of other goods? I often find myself in the minority opinion in such debates. In my opinion, the short answer is: “yes”. Music does and should have a specific retail value. But that is not to say that it can’t also be used as a marketing tool.

Perhaps a more important question to determine the future of the music business is whether or not people will pay for music. It is awfully hard to compete with “free”. Just ask any one of the many displaced record company employees and you will generally hear that free downloads have killed the industry. But it is hard to accept such doom and gloom assessments at face value when the overall number of legal downloads and total dollar amounts spent continue to rise.

Today’s digital music industry still has a very strong a la carte business. That is, most of the digital music revenue results from uses paying a per-track or per-album fee. This is often referred to as the iTunes-model although there are certainly many other stores that operate in this manner. For now, the subscription services like Napster, Rhapsody, etc., are generating only a small percentage of the overall digital music sales.

However, there are many new music services launching that are using advertising revenue as the main source of compensation for the artists and labels. Spiralfrog, LaLa, We7, and iMeem are only a few. (Some are even using an auction or a supply-and-demand pricing scheme.) Though there are variations between their revenue models, the basic concept is the same. They allow users to listen or download music for free in exchange for viewing advertisements. Then a portion of the ad revenue is shared with the labels on a pro-rata basis.

With these services, music is being used to generate impressions or views that have a certain value to a potential advertiser. It is impossible to predict what the value any given track or album will have. Each accounting period, the per-unit rate is going to vary and, perhaps, do so wildly. It is likely that the rates will be significantly less than the conventional $0.70 wholesale price of an iTunes-type sale.

In other scenarios, one finds artists willing to give away their music for free in order to stimulate other types of revenues. A great example of this is Prince’s recent album, “Planet Earth”. Prince struck a deal to give away 3 million copies of the album enclosed in the Sunday edition of the British newspaper, the Mail on Sunday. Prince surely received a substantial payment from the Mail. But the 3 million readers got the album for free. The strategy was likely designed to promote his live concerts in London. Apparently, it worked since Prince sold out 15 of the 21 shows at the London’s O2 arena within one hour. Estimates have it that this one series of shows grossed $26 million.

Does this mean that his album had no intrinsic value? Was it merely a marketing device to promote his concerts? Even though artists have made more money from touring than they do from albums sales, historically, I believe it would be weak argument to claim that albums were always considered a loss leader. (Note: the concept of albums promoting touring is a major factor leading towards “360 deals” which are starting to proliferate.)

For years, digital gurus have predicted the end of the a la carte pricing model in favor of a “feels like free”, subscription model. While that may be an inevitable end, I believe that it is still years away from becoming a reality. Most users do not prefer the type of restrictions imposed by subscription services and demand complete portability. This means that a la carte services will likely prevail for quite some time.

An oft-overlooked ramification of subscription models is the impact that it may have on the quality of music being produced. Ascribing a specific value to a track or album also has a long-lasting, positive affect on the creative aspect of the music industry. If an artist can anticipate the retail sale price of their work, then it will be easier for them to estimate its earning potential. This is very important because it is not reasonable to expect artists to keep creating high-quality music without sufficient compensation. Though the barrier of entry for releasing albums has never been lower, good recordings generally cost more to produce than bad ones.

All of the existing subscription, advertising, and other new business models remain to be an uncertain revenue stream for most artists. It is quite possible that this may change. For the time being, the reality is indisputable. These services simply are not generating enough revenue to support the creation of new music. Most artists do not have large concerts to promote or trucks full of t-shirts to unload. Album sales are still their main source of income. Unfortunately, many artists cannot and do not want to rely on corporate sponsorships (which is what advertisements really are). Without an ongoing retail value, most artists will be disinclined to producing more music.

So I hope that we can say that recordings will retain its own value for years to come. I don’t think that users really want to rely on their Sunday papers for obtaining new releases from their favorite artists.