Dear Recording Industry: Stop Whining, Start Making Money – Ian Rogers

Keynote address of Ian Rogers delivered at Topspin – Grammy MusiTech Summit 08 conference.

Topspin is a new product for music and promotion in limited controlled release.

“When your costs are low your royalty rate high and your channel direct, the marginal profitability from the artist perspective can be far different than in the old model, to be sure.”
Two Thursdays ago I had the privilege of delivering the keynote at the GRAMMY Northwest MusicTech Summit 2008 (introduced by the mayor of Seattle, no less!). Below is more or less what I said, or what I intended to say, since I wrote most of this before the presentation. Thank you to Ben London and Michael Stephens for hosting me, and everyone who came to see my presentation.

Hello everyone.

Thanks sincerely for asking me to come speak to you today. It’s an honor to have been asked to kick off this conference. I’ll only take a few minutes of your time, leave some time to ask questions, then you have an incredible two days of discussion on the future of the music business. It’s been quite a week and clearly Change is in the air, and not just in the music industry.

My name is Ian Rogers. I started collecting records when I was five years old. When I was in high school, my dream was to study recording engineering at Full Sail for 13 months and produce records for a living. Then my high school girlfriend got pregnant and I thought a four-year degree might help keep me out of the trailer park, which is how I ended up studying computer science at Indiana University. In 1989 I sold my TV partially because I was broke and partially because I was just more interested in music. I haven’t watched much TV since. I don’t really watch movies. I read Mojo cover-to-cover each month, prefer to have music playing at all times, and still wish I had more time for more music.

I dropped out of grad school in 1995 to go on tour with Beastie Boys, was the Webmaster at Nullsoft running Winamp.com and SHOUTcast.com, sold a company called Mediacode to Yahoo! Music in 2003, headed Yahoo! Music in 2007, and in April left to join a startup called Topspin, founded by Digidesign’s founder Peter Gotcher and Musicmatch alum Shamal Ranasinghe. Topspin’s charter is to be for digital marketing what ProTools was for digital production, a democratizing software toolset.

I realized a long time ago that I’m stuck with music. It’s not like I’m going to change jobs tomorrow and take on video like iTunes did or suddenly get into the video games business. To be honest I wouldn’t be any good at it. Yahoo! tried to put me in charge of Yahoo! Video and I was professional about it, but anyone who knows me would tell you I just didn’t have the same passion for it. Music is my life and digital music is the only game I know professionally.

So it’s truly an honor to be asked by The Recording Academy to speak to you all today. Two years ago when I joined The Academy I was humbled. I’ve worked on the periphery of the music industry for fifteen years, building little music Web pages before there were even Web browsers for Windows or Mac, before Adam Curry’s MTV.com even, when there were just a couple of us who thought the WWW was a better Gopher. So to have finally merged lanes with the recording industry career-wise was a meaningful moment for me, regardless of the backdrop.

The backdrop, of course, is one we know well, a story we’ve heard ad nauseum at this point. Physical sales are decreasing (~20% Y/Y). The “two hit songs for $17 at Best Buy” business is over. Digital sales are increasing (~40% Y/Y) but it’s not making up the difference. Not only is digital not making up for physical sales, as the tracks are unbundled and the model is a singles-driven iTunes business, the actual value of a unit of music continues to plummet.

That said it’s with great respect and with the belief that I’m as big a lover of music as anyone in this room I admit to you:

I don’t care.

The lamenting we read in the press is not the story of the new music business. Continuing to talk about the health of the music industry on these terms is as if we’d all been crying about the dying cassette business in 1995. The difference is that when we moved from cassette to CD the winners were the same (big companies who owned access to cash, distribution, and marketing) and the definition of winning was the same (more units sold for these big companies).

As I’ve been saying for years, the physics of the media space have changed and you shouldn’t expect the winners or even the definition of winning to stay constant, so simply looking at how iTunes replaces CDs doesn’t tell the entire story.

As Chuck D said at MIDEM last year, “There is nothing wrong with the music business, there is a problem with the CD business.”

Music consumption isn’t declining: iPod sales up 59% Y/Y (source: Apple), P2P filesharing volume up 35% Y/Y(source: NPD), audio streaming up 25% Y/Y (source: Accustream). And despite the endless discussions about the “pirates,” there isn’t an unwillingness to pay for music, either: 1.6B decisions to buy music in 2007, up from 1.3B in 2006 (source: Neilsen Soundscan), 40% Y/Y increase in worldwide digital music sales (source: IFPI), 8% Y/Y increase in North American concert revenue — an all-time high (source: Forbes.com), 40% paid an average of $5 in Radiohead’s pay-what-you-want model, Nine Inch Nails self-release generates $1.6M in first week sales, includes sell out of $300 box set in first 48 hours (source: NIN.com).

As you spend the next two days discussing the future of the music business, I’d like to challenge you to consider a different perspective, IMHO the only perspectives that matter, that of the artist and the fan. I see news about the health of the music industry as defined by the stock price of WMG or quarterly earnings of UMG, Sony, and EMI every day. What I don’t see, apart from a few articles on Radiohead and Nine Inch Nails, is an update on how the world is changing from the artist point of view. But I tell you, when I talk to managers and artists they feel it, they feel an ability to take their careers into their own hands, to redefine what success means for them, and that is the emergence of the new music business.

I say this with all respect to our friends in the existing music business. We all know smart people who are busting their asses trying to solve the Innovator’s Dilemma those companies are facing. I’m sure Lyor would love for us to stop focusing on WMG’s stock price and start talking about the artists again.

Today I’d like to tell you a couple stories you haven’t heard yet about how the Internet can help connect artists and fans in a meaningful value exchange, point to a tipping point in the relationship between artists and their partners, and ask you to stop dwelling on past news and start re-framing the conversation around the question of marginal profitability for artists and value to fans. In doing so, I believe we’ll find the path forward.