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Music + Technology + Random Nonsense from the Music Industry by Ethan Kaplan, VP Product, Live Nation

Death to the Shiny Disc

Here is a story:

Back at Warners I was in a meeting about “reintroducing” a band to the market, which basically means the last record was a stiff so we needed to “reboot” them. Not dissimilar to what Hollywood does to franchises.

A lot of ideas were floated around: vinyl singles, etc. My statement was “death to the shiny disc!” Basically, eliminate all physical, and go completely digital. Nothing was to be gained by putting out low margin product. This was four years ago. As you can imagine, that statement was met with some glares. I was pulled aside later and advised that the shiny disk still paid for my shiny servers. I didn’t use that catch phrase again.

And five years ago, I posted about what I would do if I bought a newspaper.

Both that post and the “death to the shiny disc” statement are rooted in one thing. Killing the cows.

The CD and the physical newspaper are now Nero playing the fiddle. They are viewed as the mountains that can’t move on the horizon: omnipresent, and sacred. But they shouldn’t be. The CD and physical retail are often pointed out to be that which props up the willingness and ability for record companies to experiment. But to what expense? And is that really true?

Consider for a moment the amount of supply chain management, staffing and processes in place just to produce a CD and get it out to third party retail. And consider the CD itself: a 74 minute bit conveyance mechanism that is pretty much disposable. They are often used just once: to rip the bits.

So in the end, the CD is this:

A once major source of high margin revenue which is now taking disproportionate back line expense to prop up, in order to justify the size of an industry which does not exist anymore. And even if that expense is not significant in hard numbers, the inertia it creates at the resultant diverted and stifled innovation sure is.

It’s time to kill it. Bring it out back and shoot it. And then really take a look at what is left.

When I look at what is left, I see a positive: the ability to transcend media with music products, no longer limited by the 74 minute disk. The ability to add value through art, through sound quality (vinyl or USB/digital distribution) and through multi-modal experiences. The ability to change the notion of what an album is. I also see a time when success is not judged on how many units were shipped by an artist (and resultant sell through), but rather how much money the artist made in net revenue across media. A world focused on ARPU and CAC rather than third party retail supply chain maintenance. A business in other words, and hopefully one that treats artists fairly through accountable representation.

I don’t think this movement is going to happen by choice either. How many planogram iterations will it take until Best Buy or Target eliminate CD’s all together? Or just keep them as end-caps for NOW compilation and Disney pop hits? Two holiday seasons? One? There are no more record stores anymore, save for Indies, and I argue they still have a place for higher end (non CD) content. There are no more Borders Books and Music. And there is much more money to be made in direct-to-fan/consumer retail than there is in third party, if the companies are oriented toward behaving as retailers in staffing expertise and workflow.

And there in lies the issue: orientation. The music business has often, in the last ten years, not operated as a business. It has operated as a simulation of a business that once existed. The reality is, much as newspapers are having to face the fact that there are digital dimes to physical pennies; music companies are going to have the face the fact that when you stack the dimes, it isn’t going to be the sky scraper it once was. There are valiant efforts toward this future in every major, but not as well staffed or funded or universal as they should be.

The adage of Web 2.0 was that small, nimble and enterprising beats large, inertial and enterprise. Every time a company got too big and couldn’t change rapidly, smaller companies would “disrupt” the space by being able to pivot rapidly and course correct easily. Essentially the current stage in the resurgence of technology innovation is born by companies refusing to believe things were immutable, and instead presupposing that entrenchment has driven stasis. Industries long for the days that once were: 15 billion dollar businesses with high margins off 18 dollar product is one such longing. 85% marketing penetration with little year over year churn was another (for newspapers).

And for a lot of people, longing for a time long gone is more comfortable, and easier, and more profitable in the selfish sense than reducing salary down to a dollar and going for broke to change. It’s much easier to keep the cow alive and fed than to kill it. Killing it is sad, scary and irreversible.

But die it must. And it will be a freeing day once it happens. The music industry won’t be the same and it won’t be as big. Many other sacred cows — label imprints, multiple subsidiary companies with independent staffs, multiple offices, separate A&R staffs, to name but a few — might die. But it will be an industry, and a business and revert back to being about talent and artistry instead of fear. About discovery and passion rather than past tense myopia. An actual business rather than a hollow nostalgic simulation.

I remember vividly the promise that the first CD I bought contained. I remember the metal finish on my Sony Discman, the accouterment products I bought to maintain my CD library. And I remember the thrill, just five years ago of seeing my name in the liner notes of a CD I worked on, of getting the first box of CD’s of a new release in the  WEA box and the thrill of Soundscan on Wednesday as a measure of our success as a company.

I will mourn the shiny disk, but celebrate the elevation and freeing of what it contains when it dies.

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18 Responses

  1. Foster Hagey says:

    The many problem as I see it with the music business is speculative manufacturing. Why should a company choose to manufacture products that haven’t been ordered or purchased by customers?

    It is so expensive to manufacture physical product. Sure Warner has the money, and it already has the supply chain up and running, but clearly it has no idea how many people want to purchase a certain CD.

    Weather it is CafePress or iTunes the future of the business is one-to-one manufacturing.

  2. Foster Hagey says:

    What I meant to say was THE MAIN PROBLEM not THE MANY PROBLEM.

    Hooray spelling errors.

  3. Carl Olson says:

    Ah, the shiny disc! I haven’t bought one of those in a very long time. In fact, the last music CD I ever received was sent to me by my musician friend Patrick O’Hearn for his latest album Glaciation. I’ll miss CD’s for one thing… I enjoyed the liner notes :) I did the art direction for two of Patrick’s CD’s and it was such an amazing experience. But it is for the better I believe that the CD die. The older I get the less stuff I want. Bits weigh zero and do not melt in the sun :)

  4. Scott says:

    Ethan,

    I agree with you about the CD going the way of the dinosaur. Like all formats it had it’s positives and negatives but the one thing it had and has over digital media, the mp3 to be exact, is sound quality. Since I have an excellent sound system listening to an mp3 through it is like seeing Apocalypse Now on a 32″ tv, with no surround sound, and wondering what the big deal is. See David Lynch video about watching a movie on a 3″ screen (You haven’t actually seen the movie) to illustrate my point.

    I think physical media can work easily in the future for music releases.

    The CD – Make it on demand. Ship it directly to customer. Very simple just like Warner Home Movie is doing with DVD on demand. No excess stock ever.

    Vinyl – Use the Kickstarter model. If you don’t get X amount of pre-orders for product by a certain date it isn’t made. All money used as deposit for pre-orders is refunded. This is made explicit while signing up for pre-order.

    Lossless Audio – Make this available for those who want a high fidelity recording. It should be standard to offer this.

    You still have to factor in what a band is going to sign after a show when touring. T-shirt? iPod? Flashdrive?

  5. Fantastic article Ethan. It was interesting to get your take on the industry beyond the CD and the product advances that will follow its wake. Curious, do you know what year overall digital music sales outpaced physical? I came from the Fontana / UMG system and at times it was concerning to see the amount of time invested in co-op and physical products, not newer technologies.

  6. Casey says:

    I miss liner notes too. I bought the Eagles “Long Road Out Of Eden” album when I heard they released it in digital format. They offered FLAC files, my favorite, and I was able to buy and download it using my PC running a GNU/Linux OS.
    The Eagles album sounded amazing and most digital music for sale offers a cover image, but I wish they could include videos or maybe PDF files for the liner notes.

  7. Ethan Kaplan says:

    To address some of the comments:

    I should have been more clear that I don’t see physical product going away. I see it as liberated from having to contain a disc. I could be a download code for lossless files (we did this at WMG, especially through Nonesuch). It could be a USB stick (we also did this). Bluray (Neil Young did this).

    No longer is there a need for a disc as a bit conveyance mechanism.

    In terms of digital out pacing physical, AFAIK it was last year.

  8. Roel says:

    Understanding the redundancy of the physical disc, I have a few concerns. Like going tapeless in the video industry, there is the problem of storage. Without the disc, when your hard drive dies (and it does), without proper backup, you will have to re-acquire somehow the music you will have lost. A mere inconvenience perhaps, but nonetheless.
    More importantly, I am concerned about the quality of the sound of the music (not to be confused with the quality of the music, because I’m very well aware of the subjectivity of that). An MP3 is considered good quality if it’s 320 kbps, whereas a CD is over 1400 kbps… But then I also still play lp’s or records, for that same reason…

  9. Ethan Kaplan says:

    Never said it had to be mp3. Or compressed for that matter.

  10. Eric says:

    Regarding the statement that the “shiny disk paid for your shiny servers” is I imagine pretty true.

    The biggest selling point to a record company 15 years ago was that the large record companies could offer an almost universal distribution system to a band looking to make a name for themselves. Once the CD becomes obsolete so does the music industries main selling point.

    What I find slightly ironic however, is while the CD is slowly dying the LP isn’t and its from a small band of audiophiles that have no trust whatsoever in the people that are mastering and engineering discs. The CD should be the better standard and yet the LPs limitations are what is causing a resurgence.

    Physical media still has a presence among collectors. In response to Fosters comment above “Why should a company choose to manufacture products that haven’t been ordered or purchased by customers?”

    I wonder whether a “Radiohead Model”, download first and purchase the physical product later might be something to think about. The download tests the reception. If the album is good, you can determine a distribution system for a physical product CD and/or vinyl.

  11. Dave says:

    Not to be picky but you might want to say the music recording industry as opposed to simply the music industry as there are many other aspects of the music biz that aren’t directly dependent on CD sales, e.g., hardware manufactures, software developers, etc.

    Enjoyed the post. While I agree that physical product will probably never disappear, it will come pretty damn close. At some point don’t you think everything will be streamed? For a monthly fee, on demand streaming seems like a doable model.

    On a more philosophical note I would say the death of music as art (with exceptions of course) and the birth of it as utter product, the equivalent of a bar of soap, has also reached critical mass.

  12. Brock Aun says:

    This was an absolute joy to read, if only because it’s one of the first times I’ve heard someone with experience on a major label suggest that the next phase of the music industry might not even include a “music industry” in quite the way we’ve come to know it. I’m of the belief that many of the industry models for fine arts have been rendered almost completely irrelevant in the 21st century due to the advent of digital media. Text, images, and music are all essentially free for personal use now, with some exceptions. That doesn’t mean there aren’t ways for artists, writers, and musicians to make money on what they create; it just means that revenue has to come from someplace new. I think new models will be closer to fan-driven patronage rather than product distribution, as you’ve referenced in other pieces on your site. The next big question for me is whether indie record stores can find a way to integrate digital markets and products into their operational models. Otherwise, I don’t see how they can compete against direct-to-consumer packages and DIY vinyl releases.

    Thanks very much for this piece. Having just discovered your website, I’m officially a convert. I’ll be interested to read your perspectives in the coming months as the industry starts to come to terms with the new environment.

  13. David says:

    This is partly in response to Dave’s comment about “At some point don’t you think everything will be streamed? For a monthly fee, on demand streaming seems like a doable model.”

    I bring up my standard point how it’s always interesting to see the old school debate in a non-Spotified country. From a statistic choice of (for example) all my Facebook friends in “Spotified countries” (~250) I would estimate that:
    - 5 people have bought downloads from iTunes during the last year.
    - 150 have during the last year paid 15$ every month for the ad-free Spotify version which you can also use over 3G on your mobile phone, and to sync stuff for offline listening on your computer or phone.
    - All but a handful have during the last year used at least one version of Spotify, for example the free ad-supported version.

    I listen to vinyl, CD’s and Spotify. iTunes and digital downloads essentially do no exist to me. If was to suggest at a party that we should play music through iTunes people would probably laugh at me…

    Not saying that Spotify will have the same effect in the US, partly because of it being a late adopter market for mobile phones and 3G/4G, and partly for other reasons. But, this debate should probably not really take place until a year after the launch over there.

  14. Hephaestus says:

    It seems to me that not only is the plastic disk going to go away, but also the cost to consumers for music is going to approach zero. With music being used as a tool to promote bands, and solo artists.

    Also, the record labels are not the “music industry”. The music industry is 5 million bands on MySpace, etc.

  15. @Carl, Casey

    I would suggest that for a digital customer, a website makes wonderful liner notes. In my home three generations, from 15 to 70, frequently open up IMDB when watching a movie, or open up a band website when listening to music.

    From a customer perspective, a website can be a richer experience than liner notes because of the multimedia and hyperlinking possibilities.

    From a business perspective, driving traffic to a website opens up a lot more opportunities to delight your customer, increase value, and drive further purchasing than a piece of paper does.

  16. Mr Klein says:

    Thank You Ethan for such and honest and sober-minded article. Joy to read. :) I agree with You completely. And I’m happy to see that, despite the loud roars of the old music industry in it’s agony, the things are going where they have to – to more openness, back to artist-fan relationships, to more creativity and less manufacturing.

  17. colin seeger says:

    I read your post and felt a wave of deja vu – back in the late 1980′s, when I was Biz Affairs at a major label here in Aust, I made the comment to the Board that unless we got out of shipping plastic by the mid 1990′s we’d be dead in the water. My comment was received much as yours was. Fortunately they regarded me as an eccentric lawyer and didn’t hit me.

    The majors are caught in a Gordian Knot: their business model and rights holdings are based on the least valuable and robust of the copyrights – copyright in a sound recording. They cannot quickly switch in the way nimble indi operations can.

    Their future is problematic while they remain as they are: cumbersome, distant, somewhat aloof – the antithesis of how all labels start, which is the progeny of enthusiasts whose passion is infused into their product and their corporate PR. People actually cared if Jac Holzman signed an act. It was like getting an invitation from Mt Olympus. Now it’s a case of “who? Who cares? Any friend of RIAA is no friend of mine”.

    The majors will have to divest and diversify. Shrink and become human sized again.

    I doubt it can happen. Accountants cannot see how that would work.

    CS

  18. Wayne Greene says:

    pffffffffffffffttttttttttt
    and feh on you ;-)

    Why be so quick to kill off a product that some people, however niche, however decreasing, still want?

    This kind of mono-theistic proclamation is what gave rise to the cd in the first place.

    Since when should one point of view be forced on all?

    90 some odd percent of susan boyle’s recordings were sold via cd.

    **and before the narrow-minded genre-specific fans chime in, let me say it first…
    I’M NOT IN “THAT” MUSIC BUSINESS EITHER.

    I work, and live in the mostly “indie” world.

    VENUE SALES are still a place where cd’s are sold.
    (i’m sure that disposbale recyclable flash memory cards in the shape of a credit card or embedded in a t-shirt are imminent)

    CD’s happen to be a somewhat efficient delivery system for bits.

    And oxidization (sic) theories notwithstanding, seem to last, and not crash like many people’s hard drives.
    (and yes I know cloud will eventually solve that problem too)

    I concur about the supply chain management behemoth that has driven record company and publishing revenue for the last 30-40 years.

    But even that process has been driven to better efficiency.
    Price breaks on lower quantities.
    Use of paper and other materials for packaging
    Breaking out of the 6 inch square mentality
    Manufacturing based on demand, not perceived demand.
    (I’ve heard many stores of product shortages on new titles)

    Except for big name star releases in both major and indie world, manufacturing is not nearly the albatross it used to be.

    The cd will undergo de-evolution-
    thanks Casale and Mothersbaugh brothers ;-)

    Market and Creative forces will leapfrog each other in this evolutionary cycle.

    *************

    Stop hating on the shiny plastic disc.
    It’s not the source of all the evils that music industrieS have wrought on artists, and fans alike.

    That’s the wonderful thing about choices…
    you get to choose.

    wlg

    PS I consume all media in all formats Cd’s, digital, streaming, vinyl, print, ipad, ipod, android phone, cassettes, vhs, whatevs