Creating a Merit-Based Music Economy: Compulsory or Blanket Licensing for Interactive Subscription Services

A5. The Ramifications of High Risk

The pervasiveness of risk in the music business strongly shapes the balance of power in the industry, and the balance of the kinds of music that tend to succeed in the industry. High risk creates a "high friction" market that skews everything.

Risk is Infectious: Once you've taken the leap to take a big risk, other additional risks begin to seem less incrementally risky. In addition to radio promotion, you start spending more on the initial record production, you start thinking about producing a video, you start spending more to put on a major-venue live performing tour, and so on.

What this means is that a label will spend huge amounts on other things associated with the production and mass marketing of an album, above and beyond the radio promotion cost alone. This can expand the risk by another factor of ten -- instead of risking only hundreds of thousands of dollars you may now be risking millions. The risk, already high to begin with, because of mass media's bottlenecks, is now even riskier. That makes success that much scarcer. The stakes are even higher.

Leverage of the Gatekeeper: Well, obviously Joe Blow on the street can't afford to play this game. Someone must invest heavily in the ante-up just to come to the table, and those investors are the gatekeepers to the game. Mostly the major labels are those investors, and because they largely control the gates, they can dictate most of what goes on in the business, with the mass media accepted as a given.

The mass media gave them this leverage, and they have wrapped themselves around the leverage, embracing it, sustaining it, and maintaining their unique position of power over the industry. They seek to preserve the bottlenecks, because their power comes from the dependency on their risk-management through those bottlenecks.

In addition to mass promotion, the major labels control most distribution of records to retail music stores. Because of the combined market share of major label distributors, retail stores depend heavily upon them for stock. They know that major labels have the promotional clout to move their titles in much larger volumes than smaller players, so the majors get preference. Also, to get even minimal stock (say, 5 units per store) into a majority of stores spread out in many cities all over the country requires manufacturing a very large number of records in the first place, without knowing if they will all be sold.

If you want to get a record into many stores, you will have a much harder time if not distributed by a major label. Without effective distribution, even the most effective promotion will be wasted because your customers will not be able to easily buy your product.

Major labels may sometimes complain about the risks (such as the difficulty of promoting a record on radio), but these comments are at best disingenuous, since their dominance is built on the presence of risk. Their whole business is strategized around it.

Tyranny of the Majority: One of the secondary effects of mass media on the music business is that the market is addressed as a group rather than individually. This affects the balance of music culture much more profoundly than many people realize.

The way mass marketing shapes radio programming is something I like to call The Muzak Effect, based on the kind of empirical experimentation the Muzak company did for years, as it designed and produced background music for businesses.

The Muzak Effect: When programming music for a whole group, you must choose music that all people in the group will tolerate, instead of music that individuals in the group are passionate about.

Individual tastes in music are much more varied than the collective agreement within any typical consumer target market. And, much music that some fans are positively passionate about often prompts more negative passions in others, while music that is merely tolerable has a greater chance of being tolerable to others.

Take even just ten quasi-random people, all of a similar age, gender, income and geographical location -- the marketing business calls these similar demographics. You'll generally find that they have rather widely diverging tastes in music.

Try to find music that all ten can tolerate well enough in a radio program not to switch the station. You'll find they only agree on a small subset, out of all the music that they individually like. And, if you ask them how much they like the music they all agree on, it turns out it usually isn't all that much. They tolerate it, but their personal favorites are generally not included.

Conversely, if you ask them about what their most favorite music is, it's very unlikely that all nine others would also like it. Maybe a few others in the group might like it, but usually not all. And even if they don't dislike it, it's usually not their favorite music.

Music is personal. Mass media are impersonal. At the end of the day, it's a bad fit.

This means the more successfully a radio program satisfies a large group of people enough for them not to switch the channel, the less likely the program includes music that any individual listeners are passionate about, aside from the most peer-driven target markets (you guessed it: the kids). The great success of mass music carries with it the inevitable failure of music that many individual fans call their favorites.

When people talk about popular music culture being broken (as opposed to the music business being broken), this is usually what they are talking about, whether they know it or not. The music market is currently structured in a way that does not serve individual music fans' with their passions, but simply gets them not to turn off the program.

And then fans make their purchase selections mostly from those choices. In business terms, there is no measurable difference between mere tolerance and real positive passion. As long as the listener is still listening, the ads have ears and the radio station is making money. And, the record labels are getting promotion for their products.

The Untapped Market: It seems in many cases it hasn't worked. Anecdotal evidence from the grass roots suggests many active fans don't listen to music radio regularly or even at all. They just can't stand it any more -- the hits don't work, with them.

And as a group their tastes are fragmented enough that they don't add up to big enough chunks for group-wise programming to be profitable, either for radio ad revenue or for record promotion. So they are simply lost to the mass media marketplace, entirely. And without a strong alternative to the mass market, they are increasingly lost to the recorded music business overall.

Once they fall out of the recorded music market, the industry ignores them. Labels and stations are looking for market share, not expecting to grow the market. But some people think revenues from recorded music could as much as double if the complete untapped market were reached.

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