[jonnathanson]

The entertainment conglomerates will kill off plenty of digital distribution pipelines in the coming years, but ultimately, they'll kill themselves if they don't wise up.

Amazon, Netflix, and now Microsoft are getting into the original content business (MSFT is actively poaching TV execs to lead its new content division). Facebook has a few folks in Hollywood already. Google has been trying to make content deals for years now, and it's only a matter of time before it gets more sophisticated about doing so.

What's to stop digital music services from going directly to artists, and acting as labels? All it takes is one or two big hits to prove the viability of the model. And promoting self-owned artists through organic and inorganic discovery within the digital services can effectively replace the massive marketing efforts that major labels currently rely upon to break out new artists.

A recent, slightly analogous example: Few execs in the network TV business took AMC seriously until it produced "Mad Men." After that, people took notice, though many assumed it was a fluke. Then AMC produced "Breaking Bad." Suddenly, this basic cable channel -- this two-bit backwater -- was on the map in a big way. The rise of on-demand and time-shifted viewing sufficiently democratized content discovery, allowing a relatively small outlet to produce high-impact hits. AMC's rise arguably could not have taken place in a pre-DVR, pre-on-demand world. I suspect many more small shops will generate big shows in the coming years. And some of those shops will not be traditional TV, or even cable, networks.

I'm not as familiar with the dynamics of the music business as I am with those of the TV business. But I have to imagine that they follow a roughly similar pattern.

[Full disclosure: I work in TV, though increasingly, I will probably be saying that I work in "content." The world is slowly becoming network-agnostic, and it's only a matter of time before it becomes medium-agnostic in earnest.]

[MatthewPhillips]

Those companies are getting into content because they have no choice. Content owners have priced Netflix's old business model out of existence. Music, on the other hand, is ridiculously cheap. Spotify pays based on how much the music gets played. If they become a label they have to start giving advances to artists, a considerable risk.

Think about it, if traditional label struggles with people no longer buying full albums, how is a subscription label going to survive on $10/month?

[jonnathanson]

"Those companies are getting into content because they have no choice."

That's precisely my point. In an oligopolistic market, when the oligopolists (the entertainment congloms) overplay their hand, new entrants emerge to compete with them. Sometimes by choice, and sometimes by necessity. In this case, what's happening is what you're describing: distributors are getting priced out of carrying the product they distribute; ergo, they will need to create their own product. This is what I mean by saying that the entertainment companies will "kill themselves" if they keep squeezing distributors for much longer. They don't have viable distribution pipelines to compete with these distributors, and their ignorance of that fact will be their downfall.

In the long run, it's much easier and less expensive to create a great show (or album, or film) than it is to build, grow, and maintain a great digital distribution company. The distributors will have an easier time getting into the original content business than the content companies will have getting into distribution. Time and economics are on the distributors' side in this battle.

"Think about it, if traditional label struggles with people no longer buying full albums, how is a subscription label going to survive on $10/month?"

A traditional label's economics depend on getting consumers to buy albums in excess of $10 a pop, or tracks at $1 a pop, because the label bears so many costs in producing and marketing its music. It spends a fortune on advertising, promotions, executive salaries, and so forth, and it passes all of those costs on to the consumer in the form of CD prices that are astronomically higher than the raw price of the discs themselves. Present-day a la carte music pricing is still, by and large, reflective of the marketing and overhead costs of these labels.

If you take the costs of running a traditional label out of the equation, and build a label from the ground up -- entirely digitally -- you can avoid a lot of the costs that traditional labels continue to bear. For instance: if a company like Spotify or Pandora were it to court its own artists, it would not need to spend a fortune on marketing and advertising. It could rely on the mechanics of collaborative filtering, organic search, and word of mouth to get its artists discovered by users. As for the $10/month pricing, that would depend on generating enough new artists at scale, so that users felt satisfied by the overall selection on the subscription service.

[morty16]

>If they become a label they have to start giving advances to artists

Why?

Logic now costs $200 and a MacBook. I daresay that most musicians pay far more for their instruments than they have to for a production studio.

The idea that you have to invest $$$ to produce an album (hire Timbaland as a producer, spend megabucks on marketing and A&R) is more a byproduct of the blockbuster music market than a logical necessity. If you want to produce a blockbuster, spend blockbuster money, but don't assume that this is the only path to success (success defined as being able to make a living as a musician).