Last Friday night I attended a Nine Inch Nails concert in Philadelphia with Chris Cera of Vuzit (thanks Chris for your help with this post). At 43, Trent Reznor can certainly still grab an audience by the throat and shake it. It was a fantastic show; the kind of show that has you checking to see if there are other tour dates within driving distance.
During a short break in the sonic and visual mayhem, Reznor spoke for a moment and told us emphatically to steal his music. Later, on my way to the car after the show, a member of the band Cube Head was handing out sharpie-labled home-burned demo CD’s in the parking lot complete with a hand drawn “copywrong” marking. It was an interesting contrast between established artist and emerging talent and how they are both figuring out how to make their way in the post-vinyl post-jewel-case economy.
I’ll come back to that theme in a second, but first a brief aside. Chris (who has some background in real time video processing) and I were blown away by the amazing stage show; it was geek manifest and a video processing tour de force. During about 1/3 of the show the band played sandwiched between at least two giant video monitors, the one in the foreground transparent when its pixels were dormant and opaque when lit up.
The source video for the display was sometimes heavily processed local camera inputs, sometimes it was prerecorded, and sometimes it was electronically generated. Whatever the source, it was frequently and heavily modified by the audio inputs or by the movements of the artists on the stage. With a sweep of his hand Trent would wave away the static hiding him from the audience and then moments later it would fill back in. It’s hard to explain but the effect was very cool. Cool enough that trying to figure it out started to distract both of us from the music. There are some videos out there of it in action but none that I found really capture the full effect. Let me know in the comments if you find one.
The next day, still curious about how the stage show was done, and with Reznor’s call to “steal my music” still in my head, I poked around on the web looking for more info. One of the most interesting things I found was this story about Nine Inch Nail’s Year Zero Alternate Reality Game. The way Reznor used this new gaming medium as an extension of his canvas rather than as a promotional stunt (and the nascent geekness it suggests) makes me think he has a much better than average chance to figure out the post RIAA world. Or, it may just be that with the state of distribution being what it is, he realized that while promotion might move more units, it would do it in a way so loosely coupled to monetization as to be pointless.
His comments in the story’s sidebar make me think it is probably the latter. In particular: “So a couple years ago I realized that music essentially is free now. I’d prefer, it wasn’t, but it is. And hey, I’ve had a pretty good run. I can still make a living touring.” …. “I feel that the right model hasn’t revealed itself yet.”
Here’s the thing, I’m not convinced it’s going to reveal itself. Or, more likely, it has revealed itself and he already knows what it is: “I can still make a living touring.”
When it comes to income, I don’t think there will be another Rolling Stones any more than I think there will be another Microsoft. Reznor’s creative partner Rob Sheridan hints at the same thing in his amazing piece on the state of the music business written last year. He does a masterful job of parsing all the deck chair rearranging going on in the industry today but what he is unable to do is offer a meaningful business model to replace it.
Everyone is fishing for the answer (see item #1) but more and more I think it’s just not there. After all “sell records” was not some complex business model come down from on high. I can’t help but think that if there was an equally effective replacement someone would have thought of it by now.
That’s not to say I don’t think new and better music distribution and monetization models won’t be invented, I just don’t think they will capture and concentrate as much value as the one that is dying before our eyes did. I suspect the balance between linear (touring) and leverage (selling stuff while you sit at home) has simply and irrevocably shifted toward the linear.
When the Victor Talking Machine Company (their original factory seen here from my office window in Camden, NJ) made it possible for an artist to be in more than one place at the same time, they gave the performing artist the gift of leverage (e.g. Enrico Caruso booming out over the Ucayali River in Werner Herzog’s great film Fitzcarraldo. If you haven’t seen it, trust me, Netflix it).
The key to the whole system was the low marginal cost of the recorded disk and the important fact that it still served to support a constrained distribution channel. The key constraint being that it enabled point of sale monetization of the entire value chain of production, marketing, and distribution. In fact, it worked so well, that it set up a system where recording companies were able to harvest higher than economic rents for their services and leave all but the most popular artists either on the outside trying to break in or in near-perpetual indentured servitude once they did. The long tail was neither; it was truncated and compressed by the recording company’s stranglehold on distribution. This established the long running artist’s resentment of their record company’s. Despite the compression though, the recording was such a leveragable medium that touring, the artists original source of income, was often reduced to promotion for the disc.
As everyone knows, the digital audio file is even more frictionless than the disk. It is even better at creating duplicate Enrico’s and freely distributing them around the world. It provides the performing artist near perfect leverage in their quest for attention; they can be anywhere in the world finding any audience. The musical attention economy has become a near-perfect meritocracy (of course merit is a slippery thing in this world). Unfortunately, and paradoxically, the digital audio file is in a sense too frictionless and it severs the connection between distribution and monetization. It’s not contained like the vinyl record or the disc that followed it and, therefore, it effectively snatches the gift of leverage back from the artist.
The value that people might pay for in distribution now (higher bit rates, convenient discovery, etc.) will attract some dollars, but the music loving consumer in aggregate is never going to pay as much for music in the future as they did in the past. Back then they were paying for the binary decision of having music or not. Incremental qualities simply won’t monetize at the same rate even if a replacement mechanism to capture it is created.
Value isn’t being added in traditional distribution and consumers know it, they aren’t going to pay for what they aren’t getting. Also, since the long tail of attention is no longer truncated by the music industry’s artificial barriers, some of the revenue that does remain in the system is going to shift away from the artists at the head toward those down at the tail. There is going to be less money spent on music and what’s there is going to be distributed more broadly.
As an aside, the electric production companies should thank their lucky stars that electricity won’t fly through the ether as easily as music moves across a network. Here we are after deregulation and the electric generation companies are still getting paid. Their product is unbundled from transmission, but transmission still makes a nice point for collection and monetization.
For the artist seeking attention this seems like a bittersweet time. Make great music and be discovered. Instead of assailing the gate keepers with demo tapes, find an audience through this new frictionless medium and new alternatives to the traditional marketing machine like Pandora, Last.fm, and various p2p networks. But, when you get the attention, then what?
For the artist trying to make a living welcome back to 1890. Cube Head and Reznor are both wage slaves now and the tour isn’t about promotion, it is the product again. The linear / leverage balance is leaning back to linear and if you want a model for how you will make a living, look no further than Adelina Patti. She was a typical opera singer of the 1890′s who made her living touring in the last years before the Victor company changed the rules of leverage. She toured all over the world and as she got more popular the venues presumably got bigger. It was artistic piece work but with good pay and decent perks.
By the way, If you’re a future Polyphonic Spree with all those mouths to feed in the split, I think the post-leverage music business is going to be especially difficult for you. You might just be screwed.
Leverage is dead and frictionless distribution killed it (“video killed the radio star”… and audio files killed the rock star). Well, maybe leverage isn’t dead, but if it’s still alive, it’s alive the way that guy in the wheel barrow is still alive in The Holy Grail. Picture iTunes in the wheelbarrow and you get the idea. Even if it’s not dead, what Reznor is acknowledging is that it has shrunk to the point where it is no longer going to be the driving force in an artist’s income.
Reznor has an open mind and is clearly preparing himself for a transition into a post RIAA world, but I can’t help but think he’s going to find a world that is changing as much for him as it is for the record companies he assails. The music industry is clearly a dead man walking, but what I think I’m realizing is that rock stars as we know them are relics too.
It’s the same mechanism that is happening to proprietary software companies. The huge valuations of proprietary software companies are based on the leverage inherent in the proprietary software business model. But when a Red Hat comes along selling services and giving away the IP (to over simplify a bit) they are implementing a “cut the legs out from under the old guard” strategy. They will win, or at least force the old guard to shift models. When it’s over though, they’ll have a business model that will never achieve the same enterprise value per unit of distribution that the old model did. It’s easier now for a software company to find and reach an audience, but the subsequent monetization won’t achieve the same multiples on units shipped.
The sad truth is that even with the shift to a services model, the Red Hat’s of the world probably preserve more leverage than a recording artist does in this new open IP paradigm. They can always hire more people to provide the services that are the key to monetization in their new model. They don’t have to try to clone the software’s original developer.
However, unless all of us music fans start liking NiN cover bands as much as the real thing, Reznor’s leverage in an era where touring is his primary source of income is near zero. He’s not the infinitely duplicatable Blue Man Group, he’s a modern opera star whose income will be capped by the number of seats in the auditorium and the number of dates he’s willing to do on the road (On the other hand, it would be hilarious if he franchised the NiN concept and sent cover bands to small clubs all over the place).
So, what does all of this mean for Trent and Cube Head? I don’t really know as this whole post is mostly conjecture. What I do know is that Trent has already made his money so he’ll be just fine. Touring is where his art is expressed and he can still get paid doing it so life should be good. He’ll probably be paying his taxes with tour income while he’s lifestyling off the golden egg the old system laid right before it went to goose heaven.
If Cube Head is good enough, they might just take advantage of frictionless distribution to ride up a more meritocratic power curve in the attention economy. If they are great, they might even find themselves at the head of the curve. When they get there though, they’ll likely find themselves on a hill instead of the mountain they remember from all those episodes of MTV Cribs. Oh, and they’ll probably be touring their asses off. Pretty much exactly like that 19th century opera star. I really don’t think they’ll be sitting at home between tours watching the point of sale scan numbers and cashing their royalty checks.
With the disaggregated production -> marketing -> distribution channel value chain I have absolutely no idea how Timbaland is going to get his pay on. That remains a mystery.
By the way, if I’m right and Trent Reznor is a bit of a closet geek, I bet he also has Google alerts set up for himself. So, just in case,… Hey Trent, awesome show the other night. Absolutely kick ass. And by the way, I bought tickets to your show right after I downloaded The Slip.