The Changing of the Music Business

Universal Music Group says that the traditional music business isn’t dying (at least not as much as it seems because the 6% decrease shoots up to a 1% decrease when you account for the strengthening of the dollar against other currencies.

What happened? CD sales are still declining, of course. But Vivendi said the rise of digital music–that means you, Apple (AAPL)–is finally beginning to balance out some of the decline. Digital sales increased 33 percent in the first nine months of the year, the company said.

And then Live Nation has announced that they will begin selling DRM-free MP3s for their artists making LN a one stop shop for everything involving your favorite artist (so long as they are a Live Nation/Music Today band).

Essentially, Live Nation is turning into a microcosm of the music business at large. If you’re a fan of one of its bands, you’re going to spend money on them eventually, whether its a concert ticket, a T-shirt, a CD, fan club access to exclusive “VIP” content, an MP3 from an artist page or whatever. And when you do, Live Nation will be there to take a slice of the pie — a savvy business strategy when no one knows for sure where the bulk of music revenue is going to come from.

This touches on something I got from Kevin Kelly’s True Fan thoughts from several months ago. Musicians don’t need record labels to do most of the stuff for which they used to need record labels. They don’t need large advances to record in expensive studios (they can record in Garage Band). They don’t need help with distribution (they can upload their music themselves to iTunes and social networking sites). And they don’t necessarily need marketing help (they can use Facebook and MySpace to organize street teams, directly target their fans, and create and manage a community that increases a fan’s passion for the band).

Many savvy bands will be able to manage all of this (the community especially) themselves, but many also won’t or will not want to. I think this is going be where music businesses of the 21st century make their money. The record label dinosaurs can stick to their business model, or they can adapt to offer community management services from which they may once again become prosperous.

I’ve always been envious of Music Today as someone who used to work for a band (and I’m still sending out CDs twice a month! How’s that for long tail?). They figured out that it’s mostly impossible to make any money offering services to bands because band’s don’t usually have any money. The way to make money off of bands is off of their fans. That will always be true.

The Changing of the Music Business

Round Up of a Weird Weekend

I’ve been sick, so maybe this only amuses me, and if so, well, sorry. But this weekend, I came across news that spam was up, spam was down, spam was lucrative (enough), and divine intervention as evidenced by a seemingly unironic collocation of sentences from the AP.

Alaska Gov. Sarah Palin said Wednesday she would consider serving in the Senate if God gave her the opportunity and Alaskans wanted her to take the job. The state’s senior senator, Republican Ted Stevens, fell behind as the count resumed in his re-election bid.

Round Up of a Weird Weekend

Does Spam Make Any Money?

3 spam posts in one weekend? Why not?! I’ve often wondered abut the economics of email spam. Clearly it was making someone money, otherwise we wouldn’t get nearly so much. So how much does spam make? Via Schneier, the answer is not much, but enough.

Spam is all about economics. When sending junk mail costs a dollar in paper, list rental, and postage, a marketer needs a reasonable conversion rate to make the campaign worthwhile. When sending junk mail is almost free, a one in ten million conversion rate is acceptable.

Does Spam Make Any Money?

The Innovator, the Imitator, the Idiot

I liked this quotation, and wanted to save it for Googlesterity

“Buffett once told me there are three ‘I’s in every cycle. The ‘innovator,’ that’s the first ‘I.’ After the innovator comes the ‘imitator.’ And after the imitator in the cycle comes the idiot.”

-Theodore Forstmann, quoting Warren Buffett

The Innovator, the Imitator, the Idiot

Michael Lewis Blog?

Can someone, preferably, the man himself, start Michael Lewis a blog? Best known for the books Moneyball and Liar’s Poker, he’s also had articles/columns in The New York Times, Slate, The Los Angeles Times, Bloomberg, Portfolio (no author page), and almost assuredly The Wall Street Journal (again, no author page). Shouldn’t there be a central repository of all these articles in chronological order updated as a new one is published?

What inspired me to write this post, though, was the fact that he’s popped up 4 times in my RSS in the last week, so he may as well have had a blog with its own feed.

He moved his family into the biggest mansion in New Orleans to better understand the “acceptable lust” Americans have for a bigger house. He sarcastically muses about how the former CEO of Goldman has treated his former employer since becoming Secretary of the Treasury. He looks on the bright side of economic crisis. And he’s writing a book about the meltdown. Also, here’s a bonus article from last year I never got around to commenting on. This one includes the quotation, “If there’s been a theme to John’s life,” says his brother Nelson, “it’s pricing tail”, though it’s about figuring out what to charge for insurance against cataclysmic events that have less than a 1% chance of happening.

Michael Lewis Blog?

Economics: A Question

I’m studying economics for the first time this semester. I suppose I’m a little embarrassed that it’s taken me this long, but better late than never. Our text is specifically about micro-economics and public finance.

Reading the introductory material, I can’t help but notice (clearly, in print) something that I’ve suspected for a long time: economists think that people are robots. With the caveat that I’ve only read three chapters of this textbook, so far it seems to me that all of the economic theory (Pareto efficiency, welfare economics, etc) depends rather strongly on people being good little rational choice-making utility maximizers.

Thing is, I don’t feel like a mechanically rational utility maximizer, and I don’t think anyone else really is, either. Can someone who’s studied more of this than I have point me to some readings in one of the following two categories?

  1. An economist making reassuring noises that, yes, these things are only models, and as a result they’re only abstractions and approximations, and only a very shallow thinkier would take all of this perfectly literally.
  2. A serious thinker making a critique of rational choice and utility maximization as the underpinnings of (micro-)economics.

Thanks, smart people of the Internet!

Economics: A Question