Why the record labels should have listened to Esther Dyson in 1995

Wired magazine editor Chris Anderson’s post on his Long Tail blog confirms what people at record labels (including those in Nashville where I live) already know: there’s got to be a better way to make money than by selling recorded music.

Quote from Chris:

So there’s big money in live shows (92% of the Rolling Stones’ revenues comes from performance, not recorded music). Sadly for the labels, they don’t get any of it. No wonder they’re so against free music. It only helps the bands (and consumers)!

Recently, I had lunch with someone plugged into the Nashville music industry (something I am not) who told me that five years ago, record labels would advise their new artists to set up a website, but wanted nothing to do with it. Now, record labels demand rights to and revenues from the online properties of artists they sign. Record labels are also trying to get into artist management and tour-booking, as well. As Chris points out, that’s where the money is. My friend, the music industry expert, says: “I’ve never seen a company good at everything.” He then shared his common-sense business wisdom that (in my interpretation of what he said) just because a record label can ship boxes of CDs to WalMart doesn’t mean it can create web properties and produce concert tours.”

This issue is nothing new. Not by a long-shot. Over the years, I’ve seen many well-written and convincing explanations of how one can make money by giving something away for free. The business-to-business media industry was built on a similar business model. Most B2B media companies give away the magazine to qualified readers, recoup their costs and generate a small margin from advertising and then make the “big bucks” by hosting tradeshows, awards programs, seminars, etc. In other words, in the business-to-business media world, they’ve already figured out it’s the “live shows” where you make the money.

I can’t believe it was 12 years ago, but back in 1995, in the magazine Chris today edits, the ever-prescient observer of all things digital Esther Dyson wrote something on this topic that has influenced me since the moment I read it. The July, 1995 issue of Wired magazine (3.07) included an essay by Esther called, Intellectual Value: A radical new way of looking at compensation for owners and creators in the Net-based economy.”

Quote from Esther (1995):

“I am not saying that content is worthless, or that you will always get it for free. Content providers should manage their businesses as if it were free, and then figure out how to set up relationships or develop ancillary products and services that cover the costs of developing content. Or players may simply try their hands at creative endeavors based on service, not content assets: filtering content, hosting online forums, rating others’ (free) content, custom programming, consulting, or performing. The creator who writes off the costs of developing content immediately – as if it were valueless – is always going to win over the creator who can’t figure out how to cover those costs. The way to become a leading content provider may be to start by giving your content away. This “generosity” isn’t a moral decision: it’s a business strategy.”

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