The Entertainment Industry’s problem is NOT copyright infringement…

As a follow up to my earlier post on the NY Times copyright debate

Everyone interested in this subject should take a look at Simon Napier-Bell’s The life and crimes of the music biz in the Guardian.

As I pointed out earlier… copyright (and by extension piracy) is – for the most part – a distraction from the real issues facing the music industry. The real issues surround the fact that innovation has disrupted their business model.

Artists had to pay their own recording costs yet companies ended up owning the records. ‘The bank still owns the house after the mortgage is paid,’ is how Senator Orrin Hatch described it. Could we imagine film stars having to pay the costs of the movies they starred in and then giving the rights to the company that distributed it?

Artists also had to pay a packaging deduction of around 15 per cent. This, despite the fact that packaging rarely cost more than 5 per cent. The remaining 10 per cent was enough to pay the record company’s entire cost of manufacturing the record. All in all, it meant an artist who sold 200,000 copies of a first album would still owe the record company although the record company had made a profit of a million.

Innovation has empowered the artist… production and distribution costs have dropped – thanks to technology like GarageBand and Amazon’s MP3 Downloads.

Copyright’s are not our problem as consumers – they simply protect the right of the artist to do as he or she sees fit with his or her creation. The problem with the music industry was that it was always based on the artist having no choice. If you want to make any money in the music industry you have to sign with a major.

‘People are so anxious to record, they’ll sign anything …’ said singer Tom Waits, ‘ …like going across the river on the back of an alligator.’

They flocked to the majors asking for a chance. The failure rate was still the same. Count the names of every artist who appeared in the Top 100 from 1980 to 1990 – 1,000 perhaps? Multiply by nine and that’s the number who signed to majors and were never heard of again.

Today artists have a choice – and that is what really scares the music industry. When the artist no longer needs the record label for production, distribution and promotion what role is left for the label? If the industry was really interested in protecting copyright – and the artist’s rights to control their work – they would embrace the innovations and celebrate the liberation of artists from the unpleasant needs of the label’s business model – leaving the artist free to set the price at which her or she is willing to sell his or her product. They would assume a consultative role in which they provide services and assistance to the artist in promoting themselves. In short – artists would contract out services to the label – not the other way around.

Again – it is the business model that is broken – the ability to produce, promote and distribute was (and for the most part still attempts to be) the scarce resource in the music industry. The changing reality – with the innovation technology has brought to the industry – is that it is now the artist that is the scarce resource.

The only way for any business to survive such a radical change to the fundamental business dynamics is through innovation. The ability to re-think and re-imagine without the constraints of what has always been done.

That skill is more important and scarce than ever – given the rate at which technology and globalization are making business model innovation occur.

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