Digital Initiative Summit: Who Has the Power in the Music Industry?

 
 
With inexpensive recording technology and distribution, today's musicians can push their work in front of many new audiences. But to make money, they must learn the instruments of business.
 
 
by Christian Camerota

The music industry likes power. Power chords, power ballads, even Towers of Power.

The balance of power in the industry, however, has been completely upset with the advent and rapid proliferation of digital music. Who calls the shots today? What impact will this power shift have on artists and the music that consumers encounter?

Those questions were debated at the "Digital Music: Recreating the Industry" panel on March 30 the at the Digital Initiative Summit at Harvard Business School.

"It's interesting to think about the source of power changing," said Felix Oberholzer-Gee, the Andreas Andresen Professor of Business Administration at HBS, who led the discussion. In the old model, he said, economies of scale regulated success and performers had to be big to spread out high fixed costs. Now, as a result of the way we produce and distribute content, the economies of scale are basically gone.

"You still see big companies like Spotify, but what's their source of power?" Asked Oberholzer-Gee. "Network effects. Now, we pair lots of ears with lots of advertisers and we create a different form of power, but where the underlying source is similar."

"When you think about the power question, you now have to think about how the searchability of an artist can influence the kind of music you ultimately hear [as a consumer]," said Jim Lucchese, a panelist and CEO of Echonest, which was acquired by Spotify last year. "But the nature of a fanbase and how they pay for your product--that's not new…it's just that direct production-to-distribution opportunities are creating a blurrier line about what and where content is."

Lucchese and Oberholzer-Gee were joined by music industry veterans Mark Kates, the founder of Fenway Recordings and former president of Grand Royal Records, and J Sider, the CEO and founder of BandPage, an online service that allows musicians to post information and connect with fans. Their conversation touched on power dynamics, as-yet-untapped areas for future digitization, and a question from the audience: is anyone ever going to be able to make money in this new environment? To the latter question, Sider suggested that musicians need to learn a new set of skills.

"If you're a musician and you were coming out 20 years ago, you would have had to go through a rigid system to distribute your product to an audience," Sider said. "Now, you're an independent business and you can market yourself. You can start at a low cost to record and post something online.

"As an example, let's say I sell socks. Before, I could only sell socks at a Walmart. Now, I can basically set up my own little shop in Times Square to sell my socks. Of course, that means I have to be the business person and think about the nuances of that, but there's also a ton of traffic coming by and I don't have limitations on how much money I can make."

In other words, musicians today have massive potential to reach an audience, "but you have to think about it like growing a small business in order to be successful."

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About the Author

Christian Camerota is assistant director of communications at Harvard Business School.

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