Posts

Guest Post by MC Lars

Back in 2005, my former manager at Nettwerk, Tom Gates, gave me a copy of Kusek’s “Future of Music” book.

“Read it,” Gates said.  “It might be interesting to you.”

I read the whole book in a weekend and was inspired to write a song detailing the changes Kusek proposed, many of which have come true.  It seemed crazy then.  Five years later, there has been an ideological shift made very apparent by the new generation of artists and consumers; music isn’t really a physical product anymore, it’s a service that artists provide that they are then paid for (if the service they provide has cultural and/or emotional value).

The song I wrote was called “Download This Song“, and it charted in Australia where I did TRL on MTV.  The YouTube video received a half a million plays and the single was given press in the NME, the UK’s biggest music magazine.  Afterwards, a girl in Texas who was being sued by the RIAA heard the song and contacted me.  I forwarded it to Gates.  Gates sent it to Terry McBride.  Nettwerk paid for her legal fees because one of the songs in her collection was by an artist they managed.  Clearly the ideas in the book and my song had reached a large audience.

It’s honestly somewhat eerie how much of what Kusek predicted came true.  Gone is the ineffectual A&R I described in songs like “Signing Emo” who races to find “the next hit” to get their band on the radio and a $200,000 video that only recoups 10% of the time.  WTF? Gone is the idea that record labels are necessary or even always helpful.  Gone too is MTV’s agency as a music network, platinum albums, and commercial music retailers like Tower Records and Circuit City.

It might seem very bleak to the common music fan, but from an artist’s perfective, things have never been better.  In the independent hip-hop community, thousands and thousands of regional pockets of talented artists working hard to perfect and distribute their material have all popped up across America and the world.  No longer do artists aim to get $1,000,000 advances, a ridiculous and usually unrecoupable amount, but find themselves as part of an emerging middle-class that Kusek predicted would come to be.

Rap crews like Twiztid and the Psychopathic collective have used their underground and independent acumen to build empires and continue to bring tens of thousands of kids to their annual midwest hip-hop festival.  Upstate New York’s Weerd Science have become a credible and influential voice in the hip-hop underground on the strength of their 2005 debut – an impressive feet for a group with no strong label backing or touring history.   Records and regional tours have directly translated to lucrative career music for some of these artists.

The Peter Principal states that in the workplace, “each employee tends to rise to his level of incompetence”.  Basically this means that you will keep getting promoted and promoted until you are unable to do the next job and that there is a subjectively manifested glass ceiling based on one’s ability to do their job.  This is reflected in the music scene because artists now get to become as famous as they care to be or deserve.  If the music is good, it sticks with people.

And this meritocracy is the future Kusek predicted – catalyzed, in part, by the broadband technological improvements made in the last few years.  HD YouTube videos are a click away, downloading speeds have increased and you can get any artist’s discography for free within a  few clicks.  I listen to most of my new albums on Rhapsody because it’s easier than keeping track of the stacks hard drives full of mp3s I’ve collected over the years.  There’s a Zen to music consumption now, one of the new simplicity of it all.

And for the record, I’m living proof that downloading doesn’t hurt artists.  Without the advent of torrents, kids can quickly get any of my albums for free at any time from basically anywhere.  And that’s awesome!  Kids have my albums, even the rare out-of-print ones, because they’ve found them for free online.  Some of them decide to help support me in other ways by buying t-shirts or getting the occasional track from iTunes, which adds up if the net is wide enough.  I then pay my bills with digital sales, college gigs, and international touring.

I can’t buy a mansion in Hollywood, but that was never the goal.  I get by comfortably and will keep making music until I die.  High five!  What more could I ask for?  The 14 year old version of myself would be very proud of how I turned out at 27.

“Music was a product, now it is a service”.

Check out a new favorite crew of mine from South Africa, Die Antwoord, luminaries in the Johannesburg “zef-rap” scene.  In a truly viral word-of-mouth fashion, another artist I’d worked with (Tina Root from Switchblade Symphony) sent me the YouTube link.

“You’ll like this,” she said. “It’s different.”  She was right.

I checked out their “Enter the Ninja” video – the raps were tight, the chorus was very catchy, the visuals were unique, and the editing was dope!  I then researched zef-rap and learned that it is an international postmodern culture that takes every regional hip-hop tradition I could imagine and amalgamates it into one thing.  It’s hip-hop of the future that I had found by the web from a colleague.

This is how it “zef” a uniquely postmodern hip-hop form: In one video, a rapper named Jack Parow “ghostrides” his car, dancing along side of it.  This is a hip-hop tradition that was popularized in the Bay Area in the last decade, a reflection of the car culture being so integral to “hyphy” rappers like E-40 and Mac Dre.  Zef-rap incorporates many regional hip-hop movements into one genre, which is why I’m so in love with it these days!  Would I have heard of this genre otherwise?  Probably not.  It’s all because of this viral video my friend sent.  Now I can’t stop talking about them.

When kids ask me how I got into music, I always tell them this; if you want to have a career in indie hip-hop or any other genre of music these days, you need to be dedicated, come original, and work on building your brand as something real and human that people can relate to.  Don’t expect to make money on albums, labels are essentially just banks that help promote artists as brands, with CDs being their main promotional tool.

Kusek gave me hope when I was starting out that the playing field would be leveled if you believe in your art.  The punk rock ethics that I grew up with as a teenager in the late 90s are very conducive to the new culture of music listening and consumption.

I’d also like to thank Dave for his support through the years and also for getting me into classes at the Berklee College of Music in 2007 – I’ve learned a lot from him and trust you all can too.

Much respect to anyone working to make a career in music.

Welcome to the future!

MC Lars

mclars.tv
mclars.com
comics.mclars.com

My friend Terry McBride was recently interviewed by Carter Smith of Rollo & Grady. Talk about the Future of Music, Nettwerk is doing it now. Here is the interview:

R&G: What made you decide to focus your business on digital products versus physical ones in 2002?

Terry: It was an intuitive thing for me. Obviously, digital had been seeping into our world for about three years and the Napster effect was apparent. Being a small company and working directly with artists, we could really hear and see what was starting to happen. It was a realization that fighting it wouldn’t work; understanding it and being able to grow it was what was going to work. It was a psychological shift for us. It took a few years to get the rest of the company and analysts focused towards that, but that was the psychological shift for me, which means that the company shifts.

R&G: About 80% of your business is from digital sales now, right?

Terry: Yes, that’s correct.

R&G: Why did you drop DRM in 2003?

Terry: I didn’t see any purpose in locking down files; it made no sense to me. People have always been sharing music. Why would I want to stop them? Why would I want to tell them what to do? The way to win was to get them to support my artists, not to force them to do it a certain way. I know I wouldn’t like anyone telling me that.

R&G: You recently spoke about cloud-based servers, mobile applications and smartphones being the future of the music business.

Terry: What’s happened in the last ten years is kind of moot. The next 18 months will determine the future of the music business. It’s a situation where the turnover on phones by the average consumer – now I’m being generous here – is every two years. It’s probably shorter. The smartphones that are starting to dominate the marketplace are specific platforms now open to applications that are being developed outside of the R&D departments of all of the various carriers. Apple, when they opened up their App Store, I think they sold, what, 150 million apps in maybe 9 months. It stunned the world, and Apple is a small player. They might be a noisy player, but they’re a small player within the mobile space. Research In Motion launches their store this month, Nokia is launching Ovi in April and Google has already launched their Android site. You’re going to see millions of applications come onto the marketplace. You’re going to see social filtering of the really good ones, and what’s going to be in there are applications that change the behavioral habits of how you consume music. The need to download music will no longer exist. If anything, it will be a hassle. You’ll have smartphones that can probably handle two to three hundred songs. That’s a gradual download; you’re actually not streaming it. It’s actually on your phone but it’s pulled from some sort of server, whether it’s your own server or a cloud server. To make all of these applications work, you have to have really good metadata, which means that business has to focus its efforts on really good metadata. Rich metadata is going to work with all of these applications. You’re going to see digital maids, digital valets. You’re going to see applications for maybe five bucks a month where you can access all the music that you want, how you want it, when you want it, imported to any device. So why would you want to download? Why would you want to go online to try to find it for free? Besides, something you find free might not work with these smartphone apps. Five bucks is no big deal to have unlimited access. That’s where everything’s going. All of the current arguments and debates are moot. I would even say that the ticker has now started on when the iPod goes away. I think Apple saw that.

R&G: So their primary focus will be to promote the iPhone?

Terry: They’ve been pushing the iPhone more than anything, and when they opened up their App Store, their intuitions were proven right. It is the App Store that has driven iPhone sales.

R&G: Do you think the major labels will sign off on these applications?

Terry: I don’t think they have any choice in the matter. It’s really just a subscription model, but it’s the application. A subscription model has never worked to date because it’s always been a hassle. It only works on your laptop, you can’t port it between devices, and it’s always streaming and always a pain in the ass. Last.fm and Pandora have been nice, but transferring that around has been really difficult. The applications coming with these smartphones will change all that and make it a hassle not to use them. Downloading will seem like a hassle two years from now. It will be like, ‘Download something? Are you nuts? Here, I can instantly access it. Watch, I’ll just type it in and my valet will go find it for me.’

R&G: Your valet, meaning your filter?

Terry: It’s an app. You’ll program your valet to look at what your 20 closest peers are listening to and create something for you to listen to. Maybe you’re a Led Zeppelin fan and all you want to hear is Led Zeppelin today. Maybe something bad happened and you want to listen to Sarah McLachlan today. Your valet will do that for you, and your digital maid will clean up your library for you.

R&G: That will be huge. It will make music consumption easier for the end user.

Terry: I always call it the hassle factor. It’s a hassle right now to be part of a subscription model. It’s even a hassle to download. These smartphones are radically going to change that. I mean, with Shazam you go, ‘What is that song?’ and you can instantly know what it is and instantly buy it, if that’s what you want to do. Slacker is the first one that comes close to being a digital valet. It’s only going to get better. Anyone with a really good idea can actually make it happen. You’re going to see this coming out of garages and university dorms, not Apple and Blackberry campuses.

R&G: You’re a member of the RIAA. What are your thoughts of them monitoring ISP usage?

Terry: Here’s my whole view of this, and this hasn’t changed for quite a long time. Out of all of the sharing of music, who’s making an economic return? Whoever is should then share that with all the people that allowed it to happen, creating a nice alignment of interests to grow any business. A lot of the providers have viewed music as free content, while at the same time paying for the cable content to grow their networks. They’ve been making money off the backs of the artists without any compensation for the artists at all. I think that’s fundamentally wrong. I’ve also said it’s fundamentally wrong to go after the consumers that are using that opportunity. That’s not the right approach either. The phone companies and the cable providers have gotten away with murder in this whole situation.

R&G: What’s your opinion on music blogs?

Terry: I love music blogs because they’re music fans. They’re authentic and passionate about music. They’re no different than me. All they’re doing is spreading the word about stuff they like. The authentic will rise to the top, which is why I like aggregators like The Hype Machine. I think it’s brilliant. It’s a great way of seeing what music fans are talking about versus some other filter. I’d rather the filter be a social filter, and then you can go into niches. Maybe it’s a bluegrass filter or a country filter or a hard rock filter or an ambient filter. Whatever. Those people are really passionate about that music. You know what? That’s what it’s about. Songs are not copyright. Songs are emotions.

Read more great interviews at Rollo & Grady here.

I have know Terry McBride for many years now and have had the privilege of working with the entire Nettwerk team on overall strategy a while ago. I am very proud to see some of what we worked on taking shape. What I love about Terry is his ability to act on ideas very quickly and make things happen one way or another. He is not afraid to experiment. He is also not afraid to take risks and transition his revenue model to something that makes more sense and is sustainable.

He got out front very early on in forming a “network” of companies to manage artists, promote tours (remember LillethFest), create merchandise, distribute both physically and digitally, publish writers and integrate the marketing. He tried memory sticks, free downloads, free stems for people to mash up, artist-owned labels, viral and crowd-based marketing.

I met with him in Vancouver a month ago and am preparing a video interview. In the meantime, here are some excerpts from a fine piece by Mark Glaser at PBS.

“At the vanguard of the movement of crowdsourcing music and putting the fans in control is Nettwerk Music, a record label and band management service in Vancouver, BC, that has become synonymous with digital music and alternative revenue streams. The label completely revamped itself in 2002, putting digital music and Internet promotion at the forefront and downplaying physical CD sales. Fans have been able to remix albums by Barenaked Ladies and rapper K-OS — even before his new album comes out — and Avril Lavigne has racked up millions of plays and possibly millions in revenues on YouTube.

The driving force behind the digital makeover of Nettwerk is CEO Terry McBride, a man who has helped pay legal fees for people sued by the RIAA for sharing music online. After McBride took such a strong stance for digital music — and away from CD sales — he started speaking more at conferences and talking to the media to spread his vision for a “digital valet” service. He thinks we will all end up paying $5 to $10 per month for access to all music, TV and movies, with a digital valet that knows our tastes and finds media for us.

While most music labels have been squeezed by the shift to digital music, Nettwerk has had growing revenues, McBride told me, and he expects 80% of the company’s 2008 income to be from digital and alternative revenues — and not CD sales.

“In 2007, about 70% of our sales on intellectual property was all digital, and this year it will be around 80%,” he said. “A lot of physical sales comes from our bigger artists and we do print-on-demand for our smaller artists, for their mail order or for touring…My stance on file-sharing did not match what my brethren in the music industry believed. I remember giving a keynote speech three or four years ago, and having a lot of pissed off people.”

When did you realize how important digital music would be vs. physical music and CDs?

Terry McBride: We started our whole change internally in spring or summer of 2002. We did it really quietly. We had one of these executive team summits. We looked at where everything was going. We looked at the fact that 25 million [CD] sellers would be 5 million sellers. The fact that million sellers would be quarter-million sellers. And how our existing model would work within that. Would we take the same stance, to protect the castle and fight, or was there a different way of doing it?

The interesting thing then was that we had the initial digital data to look at. We saw a lot of what was happening. And we said, ‘Where will all this be in five years, and will we be ready for it?’ There was a conscious decision made at that meeting to get out of the physical music business. So we decided to retool our whole company and over the next two years, that’s what we did. For a company that had had an attrition rate of 1% or 2%, a company of 120 or 150 people, over the next three years we had a turnover of almost 25% a year as we changed almost everything.

Rather than have a marketing team with marketing meetings, and promotion team with promotion meetings and sales team with sales meetings, we got rid of all that and created silos. We created three teams that had everything from Internet to traditional marketing to sales to IT to promotion — all in one group, and got rid of the meetings. So everything you needed for an artist was in that group. There was no heads of marketing. We shifted from 12 traditional marketing people to 3 traditional marketing people and 8 or 9 Internet marketing people.

Then we aggressively went after every DSP [digital service provider] that was interested in music that we had, and we set up a team to deal with the programming of metadata behind what we were actually doing…All of our marketing is not around albums but around bands and brands. Our marketing is about understanding the social elements of songs, of music, of emotions.

Fortunately we’re a growing business right now. We didn’t protect the castle. We also made the switch at a very good time to make the switch. Avril had broken, Coldplay had broken, Dido was doing amazing, Sarah [McLaughlin] was doing amazing. The Barenaked Ladies were doing amazing. We were flush with cash. If we made those changes now, it would be very very difficult because money is much more tight.

You have been pushing many bands to start their own labels. How did that start?

McBride: That came from a point of view of how do we get collapsed copyright. How do we get an authentic relationship between the artist and the fan? How can we remove everything that we possibly can from the relationship — or between the relationship — of the artist and the fan. Artists owning their own copyrights and being able to be in direct communication is a far more authentic relationship.

There’s a risk and reward to that. If an artist is signed to a major label, then the manager has no risk, but then you’re only getting a commission from publishing and master royalties combined, maybe a maximum of $2 [per CD sale]. With an artist [label], we had to finance it, but we were commissioning off a $5 or $6 net [per sale]. So obviously we get a much better commission, but it’s a much higher risk. With these artist imprints, it takes two to three albums for them to work.

We’ve found in the digital space, that you will sell anywhere between 25% to 50% of your volume from your catalog upon release of any new albums. So you are layering intellectual property. In the digital space, where you don’t need to buy shelf space, if you create the right metadata behind what you’re doing, and market it in an effective way — you’re not marketing the new album, you’re marketing the brand. By the time you make it to album three, you are selling as much of the catalog as the new album, but you don’t have the cost with the catalog and everything starts to make sense.

So I had to get people here to believe in this, and stop people from having a heart attack over the equity we were tying up, which we had no ownership in. But proving the model that you have have an artist like State Radio, which is a great example of an artist who makes a couple hundred thousand dollars a year from intellectual property, which will help finance the next album.

Chad [Urmston of State Radio] just played to 2,800 people with a $25 ticket price in New York on the weekend. He’s marketing a brand, he’s not just marketing intellectual property. Now it all makes sense. He’s happy, he owns his future, his audience has grown with him really well. Now everything makes sense to him, where initially he was unknown and had to work from the ground up.

The Internet marketing team and his manager did a spectacular job of understanding who his tribe is and would be. Out of the eight artist imprints that we launched, seven of them are very profitable, but it took time and selling the managers on the fact that there were no commissions to be made to a certain point. If they signed an artist to a major label there was instant commissions. And it took the lawyers years to get their heads around it because they just didn’t believe in it. It’s taken time, but now the managers are looking at a very steady cash flow, and the artists aren’t fighting for their creative freedom but actually using their imagination — and those are two very different things.

For the marketers of music these days, how has their job changed? It used to be about talking to radio and retailers. Now is it about search engine optimization (SEO)?

McBride: Search engine optimization, the ability to write basic code, understanding how social networks and blogs work together, how to connect that interaction back to the sale of music or monetization of behavior or crowdsourcing music. It’s understanding all of those things, and having a very imaginative marketing plan around the artist vs. around a product. It’s really brand marketing. What are the artists’ causes? Are there cause alignments? Are there other brands we can hook up with to align our causes? And if the other brand is bigger, can we give them free music and get exposure to their audience because it’s like-minded tribes?

It’s basically social marketing. It’s understanding social tribes and peer-to-peer interaction that the social networks have taken from a small group of 20 of your peers to 250 of your peers. And not focused on recommendation engines, but the social aspect of recommendations. So it’s not a computer making the recommendation, but social groups doing it. Looking at the technology but not using it for what it was meant for. That’s what the creative arts do. The technologists build something with a certain purpose in mind, and then the creative people take what the nerds have done and take it in a completely different direction than what people saw coming.

You’re doing a lot of crowdsourcing of music, where you put out pieces of music and let people remix them. Is that about engagement and interaction more than business?

McBride: Well it’s both. We started initially with T-shirts. We found out that the T-shirts that the fans designed — even if the artists didn’t like them — the people who went to shows liked them more than the ones that the artists designed. That was consistent whether it was Barenaked Ladies, or Avril or Sarah — the fans’ T-shirts always sold more. The fans would do the designs and vote up the ones they liked, and filter them to the top, and we would take the top 3 voted designs and put them in production. And they were consistently the top sellers out there.

In 2005, we took it a step further by releasing Barenaked Ladies songs in stems [pieces of the music tracks]. That sparked the idea for the guys who created Rock Band. That was more of a remix. Now I’m more about the mix; to hell with the remix! We have an artist named K-OS, and we released all of the stems two weeks ago, and the fans have not heard the album. It’s not due out until March, so they are actually mixing the album. So we will release physically and digitally the artist version and the fan version. And when we go to radio, we will service the artist version and fan version. So we are taking it the rest of the way.

You can even take it beyond that. With K-OS, we’re thinking about having the audience vote on which 10 to 12 cities he plays in Canada. We might even take it one step further: pay as you go not as you enter. And maybe when you leave you get a copy of the fan mix for your donation, so there’s karma pricing on the exit. Let’s take this whole tribal/social interaction the whole way. Everyone including Nettwerk has dabbled with it. We have probably dabbled more than any company with a wide assortment of artists, so we have a good idea of what works and what doesn’t work. But with K-OS it’s the first time we’ve gone all the way with it.

Read the whole PBS Interview here.