For Music Industry Entrepreneurs – Some Thoughts, Some Questions

I have been observing the online music industry becoming more and more dysfunctional by the day. Pandora, one of the real juggernauts of the space, is up for sale. While wildly popular, the business doesn’t make much money. Unclear, if it ever will.

On the other side of the spectrum, I am close to a few extremely talented musicians who have a hard time finding a business model with which to survive.

Long ago, record labels used to take musicians under their wings, fund recordings, sell albums, make and pay royalties. With the advent of the Internet, that model has gone to hell. Today, record labels do not have a business model to survive, really. The unit economics are dreadful. And the musicians are in a sorry position.

One thing, though, is clear and urgent: music needs to be created. Music should not be silenced.

With that core idea in mind, I am wondering if a next-generation record label business model can be created, as follows:

• Label will take an artist under its wing like days of yore
• Focus on a specific genre in which it has real expertise, passion, understanding
• Invest, say, $5000 in creating a body of recordings and then market online using all the different digital channels
• Consumers will listen to this music for free, and discover new artists
• Label will focus on getting the first set of 20 live gigs, say, at $250 each. This pays for the original $5000 investment.
• After this, label markets the artist at $500 per live gig, and the next 20 will generate another $10k which label and artist split 50:50.
• Next step: label markets the artist at $1000 per live gig, and the next 20 will generate another $20k which label and artist split 50:50.
• So on …
• Further investment in producing recordings and marketing them are made as appropriate, to give further boost to the gig fee structure.
• Over time, label develops a portfolio of regular clients / venues and also a portfolio of artists whom they represent.

If the label can spot and lure real talent, the above formula provides a path to much greater levels of revenues.

This is a small business, not a massively scalable ‘Unicorn’ style idea. However, music needs to survive, and for entrepreneurs who are passionate about different genres of music, and are looking to build businesses within those genres, this could be a business model to explore.

I have seen some dysfunctional business models in certain genres where so-called record labels charge a significant amount of money to get an album out, with the artist having to foot that hefty bill. This model simply doesn’t work. It tips the balance towards artists who can afford to play this game, rather than artists who are actually the talented ones. In fact, these record labels often publish shit because they want the revenue.

I am curious if any of the readers have experience with my proposed model or variations thereof.

You can take any of these ideas and execute on them, morph them, mash them up with other ideas of your own. If you want help with building any of these businesses, feel free to join the 1M/1M program. We’ll be happy to help.

Photo credit: Will Fisher/Flickr.com.