The music industry is in upheaval. Much of the finger pointing is directed at online file sharing, but not everyone in the industry thinks that lawsuits and takedown notices are the path to restoring the business. While the proliferation of pirated music is most certainly a problem, the same technology that enables it has been used by some to establish a new way of doing business. They see the changes in the industry not as an evil to be fought but  an opportunity to take advantage of how new demographics want to interact with their favourite music and artists.

The most important factor to consider with this younger demographic is their involvement through the internet. While this increases their propensity to download songs illegally, it also means that if given the opportunity to engage and interact with an artist online, they will jump at the chance.

“You can’t legislate or litigate people’s behaviour, but you can monetise it,” says Terry McBride, CEO of Nettwerk Music Group, which manages artists such as Avril Lavigne and Barenaked Ladies. Rather than targeting the audience for going online and getting the latest from their favourite artists, McBride says that the industry needs to learn how to make money from these activities.

“Fans attach emotional luggage to songs. The monetisation of that emotion is the value of music, not who owns the copyright,” he says. “This is a pretty big shift in thinking and it changes how you look at a lot of different things.”

To illustrate this new approach, McBride discussed the preparation work that went into the release of Avril Lavigne’s album The Best Damn Thing. Traffic information from her website was combined with information on where people were downloading her previous CDs in order to build a worldwide snapshot of her fan base. This data was then used to build a plan that catered to fans’ interests.

One of the most important factors discovered in the process was that fans in Asia outnumber fans in Western markets. McBride says that in order to better connect with these fans, Lavigne recorded the chorus of “Girlfriend” in seven other languages – including Japanese and Mandarin Chinese. Her official website was also redesigned to make navigation easier in Asian languages.

The end result? Merchandise sales increased, Europe proved a strong market and Asia saw a definite uptick in sales according to McBride: “Doing everything we’ve done, we’ve made more than the last record”.

The millennial generation, he says, wants these new ways to connect with artists, wants to get the music on their terms and do with it whatever they please – whether that is sharing it with friends or remixing it to their tastes. But all these ideas are tough for industry veterans to swallow.

“It’s a generational issue,” McBride says.

Breaking free
Some early attempts by bands to tap into the way younger generations want to get their music have proven that for established artists, donation models or releasing certain tracks for free can be quite lucrative. Radiohead was one of the first big names in the industry to try this approach when they released their In Rainbows album with a model that allowed fans to pay whatever they wanted – even nothing.

The end result was that Radiohead received an average of US$6 for each album downloaded, bringing in a total of about US$3 million. This was better money for digital music than the band had ever made previously, in part because their previous contract with their label, EMI, meant they got no compensation for digital sales.

Similar attempts have been made by less well-known artists with much less success. Nine Inch Nails (NIN) frontman Trent Reznor produced Saul Williams’ The Rise and Fall of Niggy Tardust, which was released for free with the option of paying US$5 to support Williams. But without a pre-established, large fanbase to draw on the result was not spectacular. In a letter to fans, Reznor said that he was “disheartened” by the number of people who paid – in the two months following its release, only 18% of people who downloaded the album had paid.

Drawing on some of the lessons learned from producing Niggy Tardust, Reznor released NIN’s next album, Ghosts, its first since leaving its record label, online. The first nine tracks of Ghosts were released online for free, with the other 27 tracks available for download or on other media – including blu-ray DVD and old-fashioned vinyl – at prices ranging from $5 to $300. Within a week of Ghosts’ release, NIN had brought in over $1.6 million in revenue according to a statement by Reznor.

On the road again
LiveNation, the concert promotion company, has even turned to the internet in order to supplement its revenue streams. Beginning with the signing of Madonna in 2007, LiveNation has been making waves in the music industry as it has snapped up big name artists – including U2 and Jay-Z – from their record labels. These deals cover everything from tour promotion to merchandising and, in the case of some artists like Jay-Z, album production.

Building on this buzz, LiveNation is now set to sell MP3s online through artist-specific pages (as opposed to iTunes’ database-style layout). The tracks will have no digital rights management restrictions, meaning users will be able to play them on any computer or music player of their choice. Though details are still forthcoming on how LiveNation will use its new online platform, with the backing of its growing stable of big name artists and three of the four major labels, it’s sure to make a splash.

It’s clear that from the myriad ways being taken to find a new model for the music industry that the old one is on the way out. It will not disappear completely because there are still some things that a big label can do best – large-scale marketing for one. But in the coming years there will no longer be a single model for how to make money from music.

While this new landscape is full of uncertainties, for those who choose to dive in and work with their fans and listeners, there are plenty of opportunities to thrive in the post-CD world.


A more discerning listener
While younger audiences are interested in free or cheap MP3s, the same offerings may not appeal to more mature audiophiles. MusicGiants, launched to the public in 2005, is an electronic distributor of high-definition music. According to its CEO, Scott Bahneman, the company is targeting listeners who have high-end home theatres and require premium content. They have licensing deals with most of the major record labels and provide high definition audio for what they call “high discerning” customers.

“We were never designed to feed media for portable players,” Bahneman says. “We’re focused on a high quality experience for more mature customers.”

He says that part of the reason for the music industry’s suffering is because it has allowed its quality to dip. Looking back, as the industry went from vinyl to tape to CD, the quality remained strong. However the jump from CDs to MP3s was when the “wheels came off” – and not entirely because of file sharing. The high-compression, low-quality recordings in MP3 format have had a real impact on the ability of industry to sell their product he says.

“MP3 is the equivalent to Ford going back to the Model T – I just don’t get it,” Bahneman says.

An example of an artist trying to buck this trend, Bahneman cites John Mellencamp’s recent release of “Life, Death, Love and Freedom” as an audio DVD. Featuring uncompressed audio, the tracks on the DVD are said to be almost identical to the original master recordings.

How did it fair? Rolling Stone named it the number five album of the year and it ranked seventh on the Billboard chart, with 56,000 copies sold in the first week.