How will a dollar of music revenue be distributed in the future? The chart above shows the progression of how a single dollar in music revenue has been distributed in the past as technologies have evolved.
Pre-1990, major labels were responsible for the entire lifecycle of music production and consumption.
During the 1990s, computers dramatically reduced the cost of producing music recordings and CD duplications, increasing the number of independent labels (Indies). The increased competition drove the costs A&R (Artist Development and Recording) and production down. However, to get music played on the radio and get CDs distributed to stores let alone acquiring shelf-space required the Indies to close a distribution deal with the major labels. The result: major music labels enjoyed oligopoly profits from their stranglehold on distribution.
Post 1999, the Internet downloads of MP3s became the number one method of consuming music worldwide. The vast majority of this music consumption and sharing is illegal and conducted over Peer-to-peer networks: under the radar.
2005 onwards, the opportunity in the new music economy is in marketing and distribution.
Michael Masnick (of Floor64) presents some astute observations on a potentially new business model for the music industry used by Nine Inch Nail's Trent Rezner. The core of the presentation is the "formula" that is the basis for making money in the music business in the digital era:
Music $$ = Connect with Fans (CwF) + Reason to Buy (RtB)
What made Reznor so interesting as a case study was the fact that he's done it so many times in so many different ways that he, by himself, represents a great example of how you can approach this simple formula in an infinite variety of creative ways.
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