[Bahamut]

That's because of the crooked contracts that the big 4 labels of the music industry foists onto its artists, making CD sales not a viable profit-making venture for the artists themselves.

The tours are the meat and potatoes of income for most artists because of this, unless you go completely independent.

[tptacek]

The crooked contracts in which artists were advanced significant sums of money that they needed to recoup from album sales, which they almost never actually did recoup because the music business is like the venture capital business in that a very few winners pay for a large collection of losers, and so as long as artists were signed to a label and had their albums funded they could afford a middle class lifestyle while producing music full time?

Those crooked contracts?

It is better, moneywise, to be a record label than it is to be a musician. It's better to be a VC than an entrepreneur. But don't confuse that with the fairness of the deal those people offer. It's better to be a financier than a worker for reasons beyond contracts.

[robin2]

For a different take, read Steve Albini's "The Problem with Music" (http://www.negativland.com/news/?page_id=17) in which he does a financial breakdown of what he considered a representative scenario (back whenever it was written):

"The band [...] has made the music industry more than 3 million dollars richer, but is in the hole $14,000 on royalties. The band members have each earned about 1/3 as much as they would working at a 7-11, but they got to ride in a tour bus for a month."

Edit: In light of tptacek's third paragraph, perhaps it's more like a variation on the same take.

[tptacek]

I yield to no HN'er in cultlike adoration of Steve Albini and read "The Problem With Music" 20 years ago in a tfile collection that included his European touring notes with Big Black and the bit about sleeping with PJ Harvey. I'll add that Steve Albini is almost as big a message board dork as we are; you can hunt down his comments on the Electric Audio forum (Electric Audio being his Chicago studio), where Dave Grohl also apparently has commented. It's sort of like an HN where Albini is the Paul Graham. Also, his old food blog is pretty great.

Also, I like Big Black a lot, and even listen to Shellac every once in awhile, and while he'd probably piss all over these selections as boring college rawk, Surfer Rosa and Rid Of Me are two of my favorite albums, in large part because of what he did to both those bands in recording them.

However: I think Albini is extremely biased in his take on the music industry.

First, he's a punk artist and a purist and not inclined to look favorably on mainstream music of any sort (I especially highly recommend the longrunning thread on his forum where his users tried to sell him on hip hop; it features capsule reviews of something like 100 different famous hip hop tracks. Spoiler: Albini wins, hip-hop loses.).

Second, he got screwed over by label management multiple times, most notably during the production of In Utero, where he was scapegoated for Nirvana's own artistic decisions and (unfounded, as it turns out) concerns that the band couldn't possibly live up to the hype from Nevermind. He does. not. like. the kinds of people who work for labels.

Third, he worked almost exclusively with the kinds of musicians who do not end up making a living creating music. This was especially true when he wrote "The Problem With Music". Albini's take on the music scene makes perfect sense if you assume that, with the possible exception of a small collection of engineers and other support professionals, nobody is going to make any money producing music. Albini's favorite band, The Jesus Lizard, is/was headed up by someone who had to leave music to become a lawyer.

But I look at things like the Mega scam, or, for that matter, Youtube and Facebook, and see giant corporations who had no hand whatsoever in creating music of any sort, who couldn't give a rotten god damn about music, and who nevertheless manage to extract tens of millions of dollars from the efforts of people who dedicate big parts of their life creating it.

I find myself unwilling to accept the idea that "it's all the labels fault" and "well people should just sell t-shirts" (and, as it turns out but isn't popular to say, sleep in the back of a dirty van) as a defense for tech companies trying to exploit music.

If you want to start a music startup on the Internet, do at least what the labels did: fund a couple acts and wait for one of them to break out and become a huge success.

[Bahamut]

I also have some knowledge on the industry - I am tied into a musical scene myself. Naturally I have lots of close friends who work in the industry, most through freelancing & some pretty successful (with music featured in big name TV shows, film, and AAA game titles), but a few in decently known/well-known bands.

Not all labels are corrupt - there are some I've heard bands praise effusely. However, all I have heard about the big 4 is pretty damning. Some of the smaller ones out there also suck too.

I speak this as someone who is passionate about music & has many more friends who do music for a living than most. I don't like some of the exploitation of artists by tech companies either, but that's a completely different topic.

[girvo]

I didn't know Albini's favourite band was the Jesus Lizard. I like him even more now. Great post btw

[tptacek]

He and David Yow are friends. I think Yow taught him to cook.

[pessimizer]

>they could afford a middle class lifestyle while producing music full time?

This must be science fiction. They could afford to record their album and maybe go on tour is more like it.

[tokenrove]

Passman's "All You Need to Know About the Music Business" is undeniably less slanted than Albini's piece already mentioned, but I think does just as good a job illustrating how crooked label contracts are if one is not careful. I have never seen contracts in software so bad. It seems to me like you're confusing the legitimacy of the general model with what actually happens in particular in this specific industry.

[InclinedPlane]

Yes, those crooked contracts. Just because the labels give artists an advance doesn't make it virtuous, they're still shady as hell. They are every bit as crooked as classic "company store" based labor practices of old, the big difference is that it's not dancing around the poverty line so it's not quite so malevolent.

Nevertheless, compare a music label advance to a business loan, a mortgage, or VC investment. With a loan or a mortgage the financier takes a risk and puts money behind someone buying a house or building a business. But the obligation of the person on the other end of the risk is to pay back the loan plus interest, and the interest is how the risk of the loan is mitigated. With VC an investment is made in a venture and in exchange the investor is given a share of the venture, when the company is acquired or goes public the investor then owns a decent chunk of a now liquid asset and can either continue ownership or cash out and effectively earn RoI on their original risk taking.

But a music label advance is a very different and far more unreasonable beast. First the label loans the artist money in the form of an advance. Then the label takes majority ownership of the artist's works. Then the label requires the artist to fund production of their next album, music video, etc. out of their advance. The label gives a small share of the profits from the artist's works back to them which they must use to repay the advance. Meanwhile, the label takes a larger share of the profits for themselves. Additionally, the label may or may not spend money promoting the artist, but we should not look at this as virtuous because they are promoting their own products at this point.

The genius of this system is that the amount of money the labels take in from their share of the album revenue is effectively hidden, so artists can't tell how profitable their work has been for the labels. Moreover, by forcing the artists to pay back the loan out of their smaller share of the profits and forcing the artists to pay for album production out of their advance it minimizes the overhead the labels have to pay and increases their profitability while simultaneously making albums look less profitable than they actually are for the labels. Hollywood pulls similar accounting tricks with movies to dick people out of their rightful share of profits.

Imagine a world where VCs took complete control over startups, took the lions share of the profits, and forced founders to pay back initial investments out of a small share of company profits, while also requiring the company to pay developer salaries out of that small profit slice and the initial investment money. Nobody would stand for such a crap system, but many artists continue to allow themselves to be suckered into a similar exchange because it's the norm in the music industry and because most artists tend not to be business savvy.

[tptacek]

In lieu of a long, drawn out thread that neither of us are likely to be too invested in, I'd just suggest you track down David Lowery's piece about the economics of the music industry in the 1990s versus that of the 2010s. He appears to disagree strongly (and compellingly, and with data) with your summary of how exploitative major label contracts were for midlist artists.

You might consider that the acts you & I tend to have heard of are, relative to the market, breakout successes. For acts that achieve unexpected and spectacular success, label contracts probably look pretty terrible; a band generates a huge amount of sales revenue but captures only a small part of it. But for the midlist and down, that might not be the case at all; again: Lowery suggests that the labels lost money on midlist acts while subsidizing a lifestyle that allowed those acts to work in music full time.

Certainly, we can see that in the absence of a thriving label system for music, being a midlist independent musician isn't exactly lucrative. The Arcade Fire can probably afford very nice cars and private jet rides now, but how well are Savages or Low or Grizzly Bear or Spiritualized doing? It's not the labels squeezing them anymore.

[InclinedPlane]

I've read some of David Lowery's arguments on the music industry and I'm not convinced he understands the economics of music in the 21st century.

Personally, my musical tastes run more towards the long tail so I am quite familiar with many musicians who have never been on the radio and are acts you would classify as "midlist". By far the dominant feature of moderately successful musicians in the modern era is that they tend to own the entirety of their businesses. They produce their own music, they sell their music and merch on their own websites and at gigs, and they have an intimate relationship with the planning of their tours and appearances. If they need to they use kickstarter to help fund albums or other projects.

And they make a good living, often at levels of popularity that would be unsustainable if they had to sign away so much of their rights and revenues to a record label.

A perfect example is Jonathan Coulton. You're not going to hear him on the radio but he has monetized his music in a way and to an extent that would not be possible if he were tied to a domineering label. He sells shirts and prints, he does variety shows with friends sometimes, he sells his music by track, album, and box set in mp3, ogg, and flac. He also sells karoake track versions of several of his songs. And he even organizes Caribbean cruises along with several other acts.

Jonathan Coulton is a bit unusual but fundamentally his control over his own music, his "brand", and his business is not unusual these days. A great many musicians across the entire success spectrum have such control, and by and large I think they are doing better than they would under the label system.

When you break it down the label system doesn't make much sense. Somehow they convince artists to sell their work and themselves in trade for a loan. They were able to do that in the past because production and distribution of music was hard to get into and they had an effective oligopoly on the system. Today those functions are not just commodities, they are so inexpensive as to be effectively inconsequential.

I would argue that today signing on to a big label actually benefits the artists that become the most popular far more than "midlist" artists. Many extremely popular artists are not actually terribly musically talented, but they are either interesting, controversial/infamous, or pretty and thus benefit greatly from having a big corporation constantly promoting them. Whereas for artists who have legitimate talent it doesn't seem to help very much to have to wrestle with them over ownership of their "brand" and to be elbowed out of most of the revenue of album sales.