Kickstart, crowdfunding, and the future of media

If you’ve known me for long enough, we’ve probably had a conversation or two about the future of the music and movie industries. These industries are undergoing massive changes right now, largely driven by changes in technology over the last decade that are rendering existing business models obsolete.

Media industry supporters go crazy over the Internet and piracy, support things like SOPA, and bemoan the “death of music” or the “death of writing” or whatever it is they are involved in, claiming that without robust legal protections against piracy, music, writing, and movies will go away. I don’t buy this argument because these various industries have only existed for 50-100 years, and people have been creating music and writing for far longer (obviously movies are a modern phenomenon, but the point remains).

To explain further, let’s focus on the recording industry. Although they claim they are all about creating music, their business model is actually built on the distribution of music, not its creation. Music itself has been around since the dawn of humanity – the oldest known instrument is the Divje Babe flute, from some 40,000 years ago. Modern recording companies, however, have only been around since the early 21st century. The invention of phonograph in the late 19th century allowed music to be recorded and distributed for the first time in history, and by the 1920’s the technology had been perfected and modern recording companies were born.

Eventually, the record was displaced by the 8-track tape, then by the compact cassette, then by compact discs, but for each of these, the recording industry’s business model has been about the production and distribution of these physical goods. In other words, the recording industry is actually not a creative industry, but a manufacturing industry. It’s not selling music; it’s selling physical tapes, records, or cds.

And this was very valuable: cost effectively manufacturing cds requires a significant capital investment, and getting them physically shipped all over the world requires a lot of logistical expertise and money. Because their manufacturing and distribution expertise was so valuable, the recording industry made a lot of money and was able to align related industries to support it: radio was a key marketing and advertising channel, driving additional sales, as were live concerts.

Record companies like to claim that their business model is really centered around finding new artists to publish, but the only reason for narrow talent acquisition is because of manufacturing cost and scale issues. Sure, a recording session in a studio can be somewhat expensive, but it’s nothing relative to the cost of ramping up manufacturing and distribution of physical media. So their business model required fewer artists to sell more records. Thus the hunt for talent.

Advances in technology and the introduction of the Internet have rendered the two strengths of the music industry worthless. Now that all music is digitally formated, manufacturing expertise is no longer needed, and since the Internet allows digital files to be distributed world-wide at near-zero cost right into consumers’ homes, distribution expertise is no longer needed.

In short, there is no fundamental reason for record companies.

But, they do provide a valuable service. Even if the cost of recording (studio time) is small relative to the cost of manufacturing and distribution, it’s still large relative to most starving artists’ bank accounts. And that’s where Kickstarter and crowdsourcing come in.

This last weekend, two independent artists – a video game creator and a music artist – both posted projects to get community funding for their work. They both raised around $1,000,000 in 24 hours – directly from fans, completely bypassing publishers, and ultimately at a far lower cost than the recording industry model would support.

The recording industry has been buffeted by the winds of change for a decade, but continues to cling to its old business model. That model’s not going to survive another decade. Some of the companies will, but not in their current form.