Friday
11Jan
A New Model For Record Labels
Bruce Warila | Fri, January 11, 2008 at 04:35 PM | Business Models, Planning & Strategy, Record Labels
MODERN AUTO RECYCLING - A NEW MODEL FOR RECORD LABELS
This is not a funny joke. I have experience working in both industries and the problem solving skills needed to succeed in one industry are remarkably similar to the problem solving skills needed to thrive in the other.
In this post, I am going to tell you why modern auto recycling is a great model for the record labels of the future.
This post will help artists develop strategies they can use to improve their odds as the music industry evolves to become as sophisticated as the global auto recycling industry.
The Auto Recycling Industry
Consider that every single car on the road will ultimately be recycled; that the automotive recycling industry generates over $30,000,000,000 (billion) in revenue annually; and that auto recycling is one of the most complex, competitive, data intensive and demanding industries on earth, and this is where the music industry is headed.
Roughly Speaking, The Auto Recycling And The Music Industry Are Numerically Identical...
To begin to absorb the analogy (for the future) hold this in your head: (recycler = label) (vehicle/car = artist) (song = part).
The Complexity of Auto Recycling
Auto recyclers acquire whole wrecked cars for their constituent parts at highly competitive auctions. The cars come from insurance companies that have inherited the cars from consumers after a car is appraised as unfixable (after an accident for example).
When an auto recycler buys a vehicle at auction, the recycler has to rapidly process a complex matrix of information, as every car has numerous parts, and EACH AND EVERY PART has numerous questions that have to be answered before a bid price can be tendered:
Using sophisticated (and FULLY AUTOMATED) salvage buying programs, the answers to these questions are numerically tallied and scored against every other vehicle that the recycler could possibly buy at the auction, as an investment in one vehicle usually means forgoing an investment in an alternative vehicle that carries a different matrix of answers to the questions above.
A typical large auto recycler has to make this type of inventory investment analysis decision hundreds of thousands of times per year. Large auto recyclers carry tens of millions of dollars worth of inventory and the inventory investment decisions are absolutely critical to the success of a recycler.
Remember This Paragraph
Auto recycling is a data driven business. The acquisition of cars for their parts is driven by data. No amount of promotion or marketing by the entity disposing of the car will change the data driven decision that the recycler must make to be profitable.
The Music Industry Will Become a Data Driven Business
The current music industry is a business driven by marketing and promotion. Going forward, any company that puts "record label" on their business card will have to be a business that is skilled at RAPIDLY acquiring, managing, analyzing, presenting and intelligently acting upon - DATA.
Why Data Trumps Marketing?
You can no longer put lipstick on a pig, and it's becoming impossible to sugarcoat shit. There you go; it's becoming more and more difficult to promote anything that can't positively populate the data matrix that equates to great music; as collectively determined by a niche of humans coupled to the Internet. Moreover, the margins are going to remain so thin, AND THE COMPETITION FOR THE GOOD STUFF WILL BECOME SO RAPID AND INTENSE, that there will be no room to make mistakes when acquiring "inventory" to nurture, invest in and to SMARTLY promote.
The Complexity of The Music Industry - The Data Matrix
The cool-looking, pointy ball in the diagram above is a Matchkey from a Boston-based company called Matchmine. A Matchkey is a mathematical representation (shown graphically here) of your personal interests, tastes and preferences in movies, music, video and blogs. In reality, everyone has one of these things conceptually growing and evolving in their head.
I am not sure how Matchmine represents or calculates music, but here's how Hit Song Science does it:
Think about a song as a keyhole. If the pointy ball above (remember, everyone has one) fits into your keyhole then a data event will occur, and if it does not fit into your keyhole, a negative data event will occur. Someone's matchkey fits when melody, harmony, tempo, pitch, octave, beat, rhythm, fullness of sound, noise, brilliance, lyrics and chord progression match your keyhole. (Please - no keyhole jokes on the comments.)
This Is What I Told You So Far:
I estimate that there are four million artists in the English-speaking world creating ten million new songs per year; which are being vetted and adopted by 500,000,000 music fans. That's a lot of parts (songs) sitting on a lot of vehicles (artists) that need to be analyzed by numerous recyclers (labels) that have customers (fans) that are looking for those exact parts (songs).
This is what the record labels of the future will have to do to thrive:
This is not a funny joke. I have experience working in both industries and the problem solving skills needed to succeed in one industry are remarkably similar to the problem solving skills needed to thrive in the other.
In this post, I am going to tell you why modern auto recycling is a great model for the record labels of the future.
This post will help artists develop strategies they can use to improve their odds as the music industry evolves to become as sophisticated as the global auto recycling industry.
The Auto Recycling Industry
Consider that every single car on the road will ultimately be recycled; that the automotive recycling industry generates over $30,000,000,000 (billion) in revenue annually; and that auto recycling is one of the most complex, competitive, data intensive and demanding industries on earth, and this is where the music industry is headed.
Roughly Speaking, The Auto Recycling And The Music Industry Are Numerically Identical...
- There are as many record labels as there are auto recyclers (modern junk yards).
- There are several dominant auto recycling groups, but the "indie" recyclers also thrive.
- There are as many automobiles wrecked each year as there are artists performing or recording each year.
- There are as many songs per artist as there are salable parts per wrecked car.
- There are as many automotive manufactures as there are major genres of music.
To begin to absorb the analogy (for the future) hold this in your head: (recycler = label) (vehicle/car = artist) (song = part).
The Complexity of Auto Recycling
Auto recyclers acquire whole wrecked cars for their constituent parts at highly competitive auctions. The cars come from insurance companies that have inherited the cars from consumers after a car is appraised as unfixable (after an accident for example).
When an auto recycler buys a vehicle at auction, the recycler has to rapidly process a complex matrix of information, as every car has numerous parts, and EACH AND EVERY PART has numerous questions that have to be answered before a bid price can be tendered:
- Damage question - Is the part damaged or not?
- Interchange question - Will this part fit on other similar cars?
- Mileage question - How old or used is this part?
- Supply question - Is this same part already in stock and how many do we have?
- Supply question - How many miles are on the same parts we currently have?
- Competitive question - How many of the same part do my competitors stock?
- Competitive question - What are my competitor's prices on the same part?
- Demand question - How often do calls come in for this same part?
- Demand question - How many days did it take to sell the last one of this same part?
- Pricing question - How many times have I lost a sale trying to sell this same part?
- Pricing question - What is the average selling price of this same part?
- Handling question - How expensive is it to handle this same part?
- Capital question - How long does it take to recover my investment in this same part?
- Capital question - How much is capital costing me right now?
Using sophisticated (and FULLY AUTOMATED) salvage buying programs, the answers to these questions are numerically tallied and scored against every other vehicle that the recycler could possibly buy at the auction, as an investment in one vehicle usually means forgoing an investment in an alternative vehicle that carries a different matrix of answers to the questions above.
A typical large auto recycler has to make this type of inventory investment analysis decision hundreds of thousands of times per year. Large auto recyclers carry tens of millions of dollars worth of inventory and the inventory investment decisions are absolutely critical to the success of a recycler.
Remember This Paragraph
Auto recycling is a data driven business. The acquisition of cars for their parts is driven by data. No amount of promotion or marketing by the entity disposing of the car will change the data driven decision that the recycler must make to be profitable.
The Music Industry Will Become a Data Driven Business
The current music industry is a business driven by marketing and promotion. Going forward, any company that puts "record label" on their business card will have to be a business that is skilled at RAPIDLY acquiring, managing, analyzing, presenting and intelligently acting upon - DATA.
Why Data Trumps Marketing?
You can no longer put lipstick on a pig, and it's becoming impossible to sugarcoat shit. There you go; it's becoming more and more difficult to promote anything that can't positively populate the data matrix that equates to great music; as collectively determined by a niche of humans coupled to the Internet. Moreover, the margins are going to remain so thin, AND THE COMPETITION FOR THE GOOD STUFF WILL BECOME SO RAPID AND INTENSE, that there will be no room to make mistakes when acquiring "inventory" to nurture, invest in and to SMARTLY promote.
The Complexity of The Music Industry - The Data Matrix
The cool-looking, pointy ball in the diagram above is a Matchkey from a Boston-based company called Matchmine. A Matchkey is a mathematical representation (shown graphically here) of your personal interests, tastes and preferences in movies, music, video and blogs. In reality, everyone has one of these things conceptually growing and evolving in their head.
I am not sure how Matchmine represents or calculates music, but here's how Hit Song Science does it:
"Our analysis application is able to "listen" to any CD and isolate patterns in many musical events, some of which are melody, harmony, tempo, pitch, octave, beat, rhythm, fullness of sound, noise, brilliance, and chord progression. This is a process called Spectral Deconvolution. Each song is then mapped onto a grid we call the music universe and is positioned according to its mathematical characteristics. Each song is represented by a dot on the universe and the songs on one end of the universe are vastly different from songs on the other end of the universe. Songs with mathematical similarities are positioned very close to one another."Like Hit Song Science's application, your subconscious brain also does the Spectral Deconvolution thing to form a Music Matchkey in your brain. Every time you interact with music using your mental Matchkey - a data event occurs:
- You listen to a song and a computer ups the play-count by one.
- You buy a song and a computer ups the buy-count by one.
- You share a song and a computer ups the share-count by one.
- You stream a song and a computer ups the stream-count by one.
- You comment on a song and a computer ups the comment-count by one.
- You rate a song and a computer records your rating.
- You listen to a song, but you don't buy it.
- You skip a song repeatedly because you are tired of it.
- You repeatedly hit the next or seek button because you can't find more of what you like.
- You negatively commented on a song
Think about a song as a keyhole. If the pointy ball above (remember, everyone has one) fits into your keyhole then a data event will occur, and if it does not fit into your keyhole, a negative data event will occur. Someone's matchkey fits when melody, harmony, tempo, pitch, octave, beat, rhythm, fullness of sound, noise, brilliance, lyrics and chord progression match your keyhole. (Please - no keyhole jokes on the comments.)
This Is What I Told You So Far:
- Auto recyclers purchase vehicles at auction for their constituent parts.
- Every part has a data matrix that must be analyzed prior to bidding.
- The amount of data that a recycler processes and analyzes is huge.
- If a recycler's analysis is not driven by his data - he's fucked.
- In music - it's becoming impossible to put lipstick on a pig.
- Margins in the music industry are thin and getting thinner.
- Competition for the best artists/songs is going to heat up.
- Every human has a mental Matchkey.
- Using your Matchkey generates data events.
- Every song is like a keyhole.
I estimate that there are four million artists in the English-speaking world creating ten million new songs per year; which are being vetted and adopted by 500,000,000 music fans. That's a lot of parts (songs) sitting on a lot of vehicles (artists) that need to be analyzed by numerous recyclers (labels) that have customers (fans) that are looking for those exact parts (songs).
This is what the record labels of the future will have to do to thrive:
- Obtain the bulk data that is generated by the matchkey-driven events described above.
- Use the data to generate new "master" matchkeys that represent large pools of humans.
- Insert these "master" matchkeys into as many keyholes (songs) as possible.
- Sign artists (or do song deals) with artists that have the highest frequency of matching master matchkeys to keyholes.
- Laser promote the matching keyholes to the humans from the pool that have the exact or similar matchkeys.
- Do this repeatedly, rapidly and with as little friction as possible.
- Start learning how to do it now because your competitors will.
- Get ready for scenarios where competition to sign the best (songs and/or artists) comes down to an auction.
- When this day comes - re-review the strategies auto recyclers use.
Remember, the music industry is going to be driven by data. Your data is not going to pop out on someone's screen unless it's exceptional. If you take anything at all away from this post it should be this final paragraph:
If your songs do not cause data events to occur (described above) your career will die from obscurity. You need to make sure data events are happening to your songs. This is the primary reason I advise unsprung artists to make their MP3s available for free and paid download everywhere. You may miss out on a few thousand dollars worth of MP3 sales, but you should consider the forgone sales as an investment in your data and your ability to:
- To be found by record labels.
- To be found by programming directors.
- To be found by fans worldwide.
- To mushroom above and out of your geographic area.
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Reader Comments (6)
A nice analogy. Nothing new though. All the questions you suggest here are basic components of the Product part of the Marketing Mix in relation to music. I'd say that the labels have been asking such questions for ten years or so now (barring the iTunes bit, of course ;) )
One other thing - have you any idea what it costs to hire a great producer? Bands who have such financial means are usually signed and the label handles the issues. People who read this blog for the most part don't.
Krzysztof,
- Which labels are NOT hit/marketing driven?
- Which labels aggregate the data from - 50,000,000 music fans?
- Which labels use the data from say - 20,000,000 music fans?
- Which labels couple that data to - Spectral Deconvolution?
- Which labels are using automated systems to listen to - 500,000 songs per year?
- Which labels invert data to market - just a song?
- How many labels do song deals?
- How many labels do all this - that are nimble and efficient?
I thought that was the point of the post? Sorry, I will have to be clearer in the future.
This won't seem so "basic" when Apple starts doing it and all of the labels look around and say "oh shit".
It should cost no more than $3,000 MAX. to produce one great song with a qualified producer/engineer. I have seen a thousand indie bands spend more than that on an album. Now that's nothing new...
Baffling.
I thought this was a pretty exceptionally fresh angle, and I've been passing this on to people all day who agree. I guess we're all hicks, though.
Anyways, having marinated on this today, I've got a couple questions.
First -- as this massive volume of data gets amassed, won't it be 100% proprietary? I don't imagine that Apple or Warner will be making their metrics available to anyone, especially as it becomes the raw meat of their actual business and revenue streams. Can you envision any methods for building a public-domain database?
Second -- do you have any pointers for someone unfamiliar with massive database management? I'd like to get a general sense of HOW professionals corral terabytes of information. What kind of tools are they using? Even if you could just point me towards a couple industry publications, I can take it from there.
Once again, refreshing stuff and great brainfood. I'm very grateful that you make this stuff public, Bruce.
Bruce, I beg to differ.
What we're seeing here, to me is:
1. a reversion to a singles market, as opposed to an albums market (and that only came about in the 70-ties)
2. the proliferation of new market research tools (made possible by the Internet), which simply allow wider sampling of data
So, in principle, there is nothing new.
I don't think it will help the industry, or musicians. The music business has been market driven for some years now and it shows everywhere - radio formatting, major label releases, etc. I don't think that the Pussycat Dolls, for instance, where signed on the basis of their artistic merit - they are a product designed from a marketing perspective. The life-span of such products is naturally short - based on changing fashion and how long the lead singer can remain physically attractive. What you are - I hope unknowingly - suggesting, is that labels actually expand this approach with the new data made available. It's gonna be like the playlisting programs used in broadcasting, except worse.
To clarify this point of view: the marketing approach to product development fails when used for innovative products: people won't tell you they want something they don't know. It follows that an innovative product has to be backed by a strong promotional campaign in order to gain a sufficient sales base - only then can it be developed with the marketing approach,
Now, arguably, every single artist is an innovative product, for two reasons:
1. a new act will not be a substitute for an established act, at least with respect to fans of the latter
2. the fact that an act is similiar to one already performing does not of itself guarantee that it will sell, nor does dissimiliarity (or originality) guarantee that it will find a niche
Hence, two things are needed: a filtering system for selecting the acts with the greatest potential and a sufficient promotional push to establish the selected ones. The Internet will not help us with the former (for reasons stated above) - the most probable result is that it will further the tendency to release bland, but good-looking artists designed to appeal to the lowest common denominator. As for the latter - the Internet is swamped already, so getting through to people will require a huge amount of effort - and the big players are naturally in an advantageous position here.
On the subject of producers: it SHOULD cost $3000 max., but I know from other sources that it costs more - if we are talking about great producers (i.e. ones with a proven track record). Plus, hiring such a producer might be difficult in view of having to compete with offers from signed artists. Plus, a professional producer usually expects a royalty entitlement and may not necessarily be convinced that the song will sell enough copies for it to be worthwhile. Plus, there are legal hassles.
My advice for independent bands would be the complete opposite: learn to produce your songs yourselves. Technology makes it possible now to make great recordings at minimal cost. A large investment in production is only justified if you are certain that you'll be able to sell enough copies - and that usually requires intensive promotion.
Krzysztof,
You will have to wait for my next post to continue the debate on everything but your last paragraph. On your last point – your advice – that I have a bit of time to respond to…
Krzysztof said: “My advice for independent bands would be the complete opposite: learn to produce your songs yourselves. Technology makes it possible now to make great recordings at minimal cost. A large investment in production is only justified if you are certain that you'll be able to sell enough copies - and that usually requires intensive promotion.”
My Advice is exactly the opposite of Krzysztof’s:
My message to artists: Don’t edit your own work. Collaborate. Find a great producer/engineer in your area and rely upon him/her to edit and improve your work. A great writer never edits his own work… A producer can add tremendous value. The reason there is so much crap out there is due to the fact that too many artists can make their own music as Krzysztof describes.
I find that artists naturally don’t like “confrontation”; it’s probably easier to fight with your computer than it is to debate with a producer; and that’s where too many artists are making a mistake. Technology is not a substitute for humans. There are great engineer/producers in every city. Find these people and PAY FOR the collaboration. Listen to the last ten albums they produced first, and then surrender some creative control to the people that do this for a living (I know – doing this for a living has been tough). Look for the people that will give you the most pushback, and for those are not afraid to be critical of your songs or style.
Investing in (paying to have someone help you improve) your best song(s) will yield more results than spending the same amount of money promoting a song you created on your own - using your computer and your own gear.
All of the promotion money in the world will never again be able to hide a bad song. And, on the flip side – great songs will be found without spending much money at all on promotion. As an investment, I would rather have 10 great songs and no promotion money, than $30,000 earmarked for promoting one OK song.
The industry is going through a transitional period. Invest in songs and stop worrying about promotion. If your songs are great, they will be found.
As for costs… I absolutely know that you can find great, qualified producers and engineers (some that are even great songwriters) to help you write, engineer and produce a song, and you can get it done for under $3,000 a song. If someone is helping you improve your writing – then yes, you should be sharing in the publishing.
I think the bigger problem is this: most artists don’t know if they have a good song or not. There are ways to find this out, and letting the producer pick from your catalog is one way to start. More on this later…
Krzysztof’s advice was OK for 2005, 2006 – churn out songs and hope someone finds you and invests in massively promoting you. The world is changing rapidly. Think of a song as a virus; if the virus is weak, it dies a quick death. If the virus is strong, it will spread throughout the world. As I said in my post: the music industry is going to be driven by data and not by marketing. Data can transmit a virus; marketing cannot.
-Bruce
I think the 'bands should produce themselves' thing has been going on a while now, and all I can see is them copying each others production, while all forgetting to write songs
If some of these guys spent less time in front of Pro Tools trying to copy Trent Reznor's new bass drum sample and more time crafting their songs then we wouldn't have to listen to so much brilliantly produced bland
Everyone seems to talk in absolutes. There aren't any. Some artists can self produce, others can't. Some will never be able to run their own careers, others will be able to.
Just because we have the internet doesn't mean human nature is going to be any different. The more the web infiltrates our lives, the harder we will look for the unique.
At this point in time though, I feel that the internet is just creating clones. The first thing you do when you start to 'do it yourself' is to try and recreate everyone elses sound. I've seen many artists get waylaid by the tech, and by the time they've mastered it, they just sound like everyone else and their time has passed.