Digital Music: Forget the Labels, Forget the Fame

June 5, 2002

How to beat the record labels on the Web, according to venture capitalist Robert von Goeben, is to start tech-friendly record labels and not try to compete with the major labels.

The online distribution of music is not about technology. More than enough technology exists to produce any consumer music service you could possibly imagine. The game will really get interesting when the very heart of the music industry--the creation and sourcing of music--is challenged.

This is a long-term strategy, but the one that could be a success. New web-friendly record labels need to start finding and signing good musicians and distributing and promoting their music using the web. Unfortunately, these labels will probably still need to get CDs in the stores, but should find it worthwhile to experiment with electronic distribution.

In New York magazine, Michael Wolff argues that the music bubble is over and that the reduction of friction in the music economy (an increase in digital distribution, decreased cost of production promotion and distribution, lower cost for buyers) will take the glamour out of the industry.

Other aspects of the business will also contract -- most of the perks and largesse and extravagance will dry up completely. The glamour, the influence, the youth, the hipness, the hookers, the drugs -- gone. Instead, it will be a low-margin, consolidated, quaintly anachronistic business, catering to an aging clientele, without much impact on an otherwise thriving culture awash in music that only incidentally will come from the music industry.

Combining these two theories, the music industry will become much more stratified. There will be a few stars, who are paid ridiculous sums of money for corporate masters, as it is today, but would represent a smaller percentage of the industry. The vast majority of acts will have a smaller level of listenership, but be more profitable and better connected with their listener. Rock/pop/hiphop could become more like the jazz world today. This is one possibility. We'll see what happens...