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wFriday, January 17, 2003

Fair Trade Music Public License (FPL) - L.Davie

The End of the Superstar Machine:
A Proposal for Reforming the Music Industry
by Loren Davie

We see a lot about the music industry in the news these days. Legal battles about online filesharing, dropping revenues and the seeming inability of the recording industry to create new memorable Artists fill the news. There seems to be a lot of hysteria, but not a lot of
information on the underlying issues that drive the current crisis.

Simply put, technology has made the current business model of the recording industry obsolete. Of course, this kind of sudden obsolescence as a result of technology is hardly new or unique: where is the typewriter business today?

Stakeholders in the Music Supply ChainI don't think that the old system has particularly served the interests of most people. Neither the musicians who make music, nor the listeners who buy it have profited significantly. The
current system has primarily benefited the middleman, concentrating power and wealth into the hands of a few; to the expense of everyone else in the music supply chain. Consider:

Listeners: Their constitutional fair use rights have steadily eroded over the years. Extensions in the scope of copyright have favored only copyright holders, not copyright users. (For more about this, see Larry Lessig's book, The Future of Ideas). They have also allegedly been the victims of illegal price-fixing by the major labels.*

Musicians: Recording contracts are exploitive and, in some cases, career-destroying; resulting in “successful” acts essentially working at below menial labor rates (Editor's note: See "Courtney Does The Math" Salon piece, linked in the "Articles of Note" box at the left)while making millions for their recording companies. (For more information about music industry economics, see Steve Albini's article: The Problem With Music).

Investors: To a critical Investor's eye, the music industry is displaying some serious dinosaur characteristics. Its response to new technology is not to adapt to it, but rather to run from it, deny its existence and then try and roll back the clock on it using legal and legislative maneuvers: a losing strategy in the long run. The music industry is caught in classic Innovator's Dilemma, unwilling to adopt a new paradigm because to do so will cannibalize its existing business model. (For more information about Innovator's Dilemma, see the book by the same name by Clayton M. Christensen.)

The Marketing of Superstars

The central fixture of the conventional music industry is the superstar. Essentially, the music industry markets only a few new Artists each year, spending a large amount of money on each Artist. Because of the high costs associated with marketing an Artist this way, the Artist has to sell a large amount of CDs in order to make money, and be considered a success. In fact, most don't recoup their expenses and are
subsequently dropped from the label after an album or two. (The “grace period” in which an Artist is allowed to build an audience before becoming profitable has become smaller and smaller over the years).

What makes it all work is that once in awhile the industry finds an Artist with true mass appeal, sells many, many CDs and covers the cost of all the other Artists on which it has lost money. This Artist is retained for what is usually the rest of their career (up to 7 CDs) and marketed over and over again. Everyone else is out on their can in short order.

The origins of superstar marketing can be found in the nature of broadcast media itself. When you are promoting a recording Artist over radio or television, you have very limited bandwidth. As a result, that bandwidth will be preserved for the Artists with the broadest mass appeal, because anything remotely “niche” or “fringe” doesn't maximize the use of the expensive airtime. For example, to get decent rotation on a radio station in the United States costs about $300,000. You'll need to sell a lot of CDs in order to
make that money back.

The terrible tragedy of superstar marketing is that it has created a great chasm between listeners and Artists.
The industry basically dictates that Artists either be superstars or be consigned to total obscurity, never to be heard by most. I can't tell you how many times I've heard people say “I can't find any new music that I like. I don't know how to look for it and I'm afraid to risk money on unknown bands.” At the same time, on the other side of the chasm, there are lots of Artists and bands that wonder how they can reach an audience, to sell enough CDs to make a living doing what they love. The chasm serves no one but the owners of the one bridge that spans it: the conventional recording industry.

The March of Technology

However, there is now an alternative. Technology has advanced to the point where the chasm may be crossed without taking the conventional recording industry's bridge. After all, in the end this is just about putting Artists and listeners together, isn't it? Let's look at what's changed:

Recording: At one time recording was very expensive. In order to get a professional recording, you had to go into a studio where they charged hundreds of dollars per hour. This was beyond the means of individual Artists, so record companies were necessary to underwrite the cost. However, modern digital recording technology makes professional recordings possible for far less money than before. These new recordings are affordable to individual Artists, allowing them to finance their own recordings.

Desktop Publishing: Graphic design and layout were also very expensive at one time. However, the desktop publishing revolution, powered by the personal computer, has made low cost creation of CD jackets and inserts possible.

Manufacturing: Another source of expense, when CDs could only be created in factories and jackets and inserts printed in large quantities by a press, it would create a drain on capital for Artists that they couldn't support. However, CD-R burners and laser printers have made it possible for product to be created one at a time, making it possible to match the demand for the recording, no matter how great or small.

Promotion and Distribution: Before the Internet, promotion had to be done through mass media channels like radio and television. Similarly, distribution was accomplished through agreements with retail chains and localized distributors (called “rack jobbers”). Now music can be promoted online, with one-to-one marketing, ordered online and shipped to its destination.

The pieces are all here. What is still required is a coherent business model that incorporates these methods into a new integrated way of marketing music. However, I think that we should go beyond inventing a new business model that is merely tech-friendly. I think we should take this opportunity to infuse the music industry with a dose of integrity that has been sorely missing from it.

Taking a page from the fair trade movement on coffee production, I call my proposal “Fair Trade Music”.

Fair Trade Music

How Fair Trade Music works:

Artist Control of Recording: The (relatively modest amount of) money for the recording is fronted by the Artist. Modern digital recording allows professional quality recordings to be made
for a fraction of what they once cost. Because the Artist has paid for the recording, they own the copyright on it.

Fair Trade Music Public License

Free Promotional Tracks: Certain tracks (say, no less than 10%) on the recording are
released under a special license that allows them to be freely traded, burned, downloaded etc., for non-commercial purposes by anyone. The license would require the Artist to be properly attributed and may or may not have additional restrictions (for example, the right to sample the track and use it in another work). The promotional tracks (described above) are freely posted around the Internet
(on P2P networks, on websites, on free promotional CDs, etc.). The buzz generated by these tracks becomes a major component in creating exposure for the Artist.

The license could be called the Fair Trade Music Public License or something like that.

Value-Added Product: CDs (or other music products) are created with a “value-added” approach, similar to DVDs. Multimedia features, Artist interviews, passwords to private websites etc., are bundled with the music recording on the CD. The value-added approach lets the listener know that the CD is something truly worth purchasing, and not worth the effort to assemble from online downloads.

Fair Use OK: Forget about DRM (digital rights management) technology. Artificial devices to control copying are both doomed to failure and an insult to the listener (as well as an erosion of their Fair-Use Rights). We went through this with software in the late eighties and early nineties, and it was abandoned as a failure.

Just-In-Time Manufacturing: The CDs are distributed over the Internet, and they are burned to order. This allows the Artist to match the volume of manufacturing with the demand for the CD, no matter how great or small.

A Fair Trade Music Public License (FPL) creates a music industry that is more equitable in its treatment of the various stakeholders of the music supply chain. In addition, it satisfies both fans and creators of musical genres that are not marketable through mass media channels. Fair Trade Music, employing today's technology, opens up all sorts of levels of success, filling the chasm. It is no longer necessary for an Artist to be a superstar in order to be successful.

FPL Certified Classifications

In order to let the public know when a CD is created and marketed under the Fair Trade Music system,
I propose that we label CDs with an appropriate logo, such as “Certified Fair Trade Music”. I imagine that along with those words would be a box with three characters in it, each character being an “F” or a dash (“-”). The first character would stand for the recording, the second character would stand for promotion, and the third for distribution. (Imagine the digital indicators on a CD, “AAD” and so forth.)
A CD that was labeled “FFF” would come from a master recording that was owned by the Artist, contain not less than 10% of tracks released under the Fair Trade Music Public License, and created to order. A CD labeled “-FF” would satisfy the last two requirements, but the master recording would not be owned by the Artist.

Fair Trade Music Group

Of course, there would have to be some sort of organization to be the certifying body and to promote the Fair Trade Music concept, so we should create the “Fair Trade Music Group” to do so. They would control the Fair Trade Music trademark, making sure that its meaning wasn't diluted. (They would ensure that if you were calling your work “Fair Trade Music” then you met the above criteria.) “Fair Trade Music” and the number of F's that a recording had would become a positive differentiation for the album, along the lines of “Organic Vegetables” or “Environmentally Friendly” (or Fair Trade coffee, for that matter). Listeners would know that by buying a Fair Trade Music album, they weren't only getting music, they were supporting something positive.

Keeping in mind the three points of view on the music industry discussed above (Artist, Listener and Investor) lets see how Fair Trade Music stacks up.

Benefits of Fair Trade Music

For the Artist, Fair Trade Music offers:

Control over their music.

The ability to reach their audience, regardless of its size. The music marketing chasm is removed.

Person-to-person exposure.

Ethical differentiation from the conventional music industry.

For the Listener, Fair Trade Music offers:

No erosion of Fair Use Rights

A wider, richer music industry from which to obtain music (making it less likely to suck).

Risk-free exposure to new music through online promotional tracks. (No more: “I walk into a record store and I don't recognize any of the names. I don't know what to buy.”)

The knowledge that they are directly supporting the Artist, not the middleman.

For the Investor, Fair Trade Music offers:

An end to Innovator's Dilemma for the music industry: Fair Trade Music is in harmony with the current state of technology.

New, unexploited markets: niche music enthusiasts that have not been reached by the conventional music industry using mass marketing techniques.

Diversification of risk: the industry no longer depends on blockbuster sales from one of twenty top Artists. Instead, commerce is spread amongst many different acts and listeners. Businesses
built to support this model could do quite well.

Peace along the music supply chain: an end to the legal battles that rage between Artists and record companies, and now between record companies and listeners (the P2P lawsuits, such as Napster).

Unless you happen to be one of five large media companies, you have nothing to lose and everything to gain. Fair Trade Music provides the music industry with the overhaul that it desperately needs. It is in harmony with current technology, it fills the “marketing chasm” in the music business and it creates a richer, more diverse music environment. Isn't that worth striving for?


Larry Lessig's “Future of Ideas” site:

Steve Albini's article, “The Problem With Music”:

Music industry price fixing:

Loren Davie is a singer-songwriter and the CEO of epijam, a music distribution and marketing company specializing in Fair Trade Music, and the Author/Originator of the FPL (Fair Trade Music Public License concept, and the associated Fair Trade Music Group and Fair Trade Certification System.

*The five majors settled a lawsuit concerning alleged price-fixing between 1995 and 2000 by paying $67.4 million. The lawsuit said that the industry kept CD prices artificially high by using a practice called “Minimum Advertised Pricing” (MAP), in which record companies subsidized advertising for music retailers in exchange for the stores agreeing to sell the CDs at or above a certain price.

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