David RD Gratton

What's Really Happening to the Music Industry

April 26, 2005

What's really happening in music.
The 80/20 rule is being obliterated.
Everyone in business - especially sales - knows about or has experienced the 80/20 rule. Eighty percent of your revenue comes from the top 20 percent of your customers. It's a truism in most industries including the music industry. The 80/20 rule is a guideline and not a hard and fast rule. But it is easy to see that until the last 5 years record labels made 80 percent of their revenue from 20 percent of their artists. And it probably would be even accurate to say that 20 percent of all would-be-musicians took 80 percent of all available music revenue. This 80/20 rule is nicely summed up in Chris Anderson's long tail blog.

Below is an illustration of the long tail.

Why does the long tail exist in music?
1. Success breeds success.
If you already know and like someone chances are you will buy their music. For example, Bo Bice will probably no longer be in the long tail since he has hit it big with American Idol.

2. Some people like Jazz.
.... or non-mainstream music and musicians. Tricked out accordion punk bands may have a small committed local following but they are unlikely to catch on to a larger audience.

Area [A] represent bands which are economically viable. Area [B] represents those which are not. Major record labels deal only with area A, which under point number 1, reenforces the long tail.

So what has happened in the last 5 years?
1. The computer has made the recording of professionally engineered music in your basement not only possible but affordable to almost anyone.
2. The Internet has made the distribution of music almost free.
And what did major labels do pre-1999? They produced and engineered music. They distributed music. (They stopped artist development sometime in the 80s.)

The Internet affect of the long tail.
All bands (with a label or not) have ready access to near-free distribution. If they can find their audience they have a much higher probability of becoming economically viable. This shifts the dividing line between area [A] and area [B] to the right.


The computer affect on the long tail.
With the ability of more artists to record high quality music will extend the tail of the curve with more artists, and it will shift the back end of the tail up. It is reasonable to assume that higher quality recordings will attract more purchasers/fans of the music. YEAH! for independent labels and artists.

Here is the painful part for the labels. Buyers of music have only so much money in their pocket if they start buying more music from the long tail they stop buying it from those artist in the power part of the tail hence the left side of the curve shifts down. OUCH! for the major labels.


Even though major labels are seeing decreasing sales, total music sales for the industry are almost certainly up! And this has NOTHING to do with illegal downloading. Mark Cuban suspects the same citing how other digital media with the same issues as music labels are showing increased sales.


What's Really Happening to the Music Industry

Hi David Thanks for the compliment! MVine's a genre-free, independent record label and as such, we offer full label facilities to artists that we sign. We put a huge amount of store by developing our artists carefully by expanding their fan-base, having input on production if required and discussing marketing and distribution with them. Revenues are split 50/50 between label and artist. The way we see it, we need to offer our artists and customers as much choice as possible in the way they chose to consume music. Individual tracks can be downloaded from MVine for 99p, featured artists can sell their existing product through MVine as downloads or physical CDs(as CDbaby and others) and our fully signed artists have their CD in our shop. We also have a 'bricks and mortar' distribution system in place for physically getting product into record stores. We're not averse either to p2p networks - all publicity being good publicity etc. Marketing-wise, we're combining 'real world' and internet marketing techniques to make sure that we explore all avenues for developing new markets for artists. The info that we get from the data on the MVine virtual venue means that we can isolate and address very specific markets for individual artists that they wouldn't normally be aware of. That way, everyone wins. http://www.mvine.com

What's Really Happening to the Music Industry

Hi Kerry, First, kudos to you and your team for addressing the neads of independent bands and musicians. However, I do not understand "MVine is basing all future signings to the label on the recommendations of the audience". Are you a label? If so what services are you offering as a label? One of my positions is that distribution is no longer an issue. There is no longer a need for that service. DRM, in my opinion, is the way present labels are trying to maintain control over distribution. As such "labels" need a new role if they are to maintain relevance. In fact that new role is their old role: 1. Artist Development 2. Development of new markets/outlets for music

What's Really Happening to the Music Industry

"If they can find their audience they have a much higher probability of becoming economically viable" - absolutely! Which is why we've set up MVine, the genre-free independent record label, with a FREE virtual venue at www.mvine.com. Here unsigned and own-label artists can expose their music to the on-line audience, receive feedback, sell downloads and expand their fan base. MVine is basing all future signings to the label on the recommendations of the audience - positive feedback is everything and there is no competition involved. Take a look and let me know what you think - there is much discussion to be had! http://www.mvine.com