Do It Yourself: Modern Music Distribution

On October 10, 2007, legendary rock-and-roll band Radiohead released their latest album, In Rainbows, with an innovative new business model. They sold the album on their website via mp3 download, and fans could pay whatever price they chose, whether it be $0 or $50. This event was widely covered by the media, and proved to be quite profitable for the band. However, some argue that the success was brought by the media. Sarah Lewitinn, co-founder of Stolen Transmissions Records told the New York Times that "for one thing, only established acts with an extremely dedicated fan base could prosper that way. For another, the novelty would wear off quickly." Whether or not Radiohead started the trend, or was merely the most public example, many models of digital music distribution circumventing music labels are beginning to gain popularity. The most successful of these are CD Baby and TuneCore (at right), the latter of which was financed $7 million by Opus Capital on October 27, 2008. These companies distribute music through Amazon MP3, iTunes, Napster, Rhapsody, and more, with no need to be signed to any record label. Artists also retain ownership of the master recordings, and 100% of the royalties. While businesses like these do not help the major labels recover from their already faltering album sales, I think that they are ultimately good for the music industry, because it puts power in the hands of artists, and allows for young artists to grow.

CD Baby's business model works as a percentage cut of income received from the purchase of an artist's work. They keep 9%, and pay the artist 91% of the money made on digital downloads, they also will sell artist's physical CD on their site, of which they keep $4. This is a great way for small bands to have a national distribution for nothing more than the one-time $35 start-up fee. Part of the mission statement for CD Baby reads: "We only sell music that comes directly from the musicians. No distributors... In a regular record deal or distribution deal, musicians only make $1-$2 per album, if they ever get paid by their label. When selling through CD Baby, musicians make $6-$12 per album, and get paid weekly." TuneCore delivers a similar service with a slightly different method of setting up accounts. With TuneCore's setup, the artist pays a $19.98 annual fee per album for maintenance and storage, $0.99 per song, and $0.99 per online store, per album. Once these fees are paid, the artist receives 100% of the income received from purchases of their music, regardless of how popular they are. Cnet writer Matt Rosoff calculated in his blog, Digital Noise, that TuneCore will always be the better deal in the first year, because of the start up fees, but after that, an artist must sell around 370 downloads a year to do better with TuneCore than they would with CD Baby. For large acts, 370 downloads would be no problem at all, and a few established bands have already taken advantage of this, Nine Inch Nails probably being the most notable.

Around the same time as Radiohead ditched their label and tried alternative distribution channels, Nine Inch Nails front-man, Trent Reznor, announced that they too would be self-distributing their album Ghosts I-IV. Their sales system would include a 9-track free sampler, and a 36-track album for $5 available only on AmazonMP3 through TuneCore. In his blog Music Business and Trend-Mongering, Berklee Music professor Mike King does the math and shows that Trent Reznor only had to pay $56.61 to list his 36-track album on AmazonMP3. A TuneCore spokesman who commented on the blog verified this fact: "He did! He paid the same as everyone else, no special deals. I suspect Mr. Reznor can afford it. :)." After being listed, that album went on to make $1.6 million dollars in the first week. This is an extreme example, but makes the point that services like TuneCore and CD Baby have the ability to make an artist's income from record sales directly linked to their success, which is not always the case in the major label system.

Radiohead's system requires that the band be already established, and just making music available is not enough to make it popular or successful, no matter what the distribution channel. Major labels can promote musicians in unrivaled ways, and that is why artists still sign with them, and in doing so, forfeit most of the money made in their name. That's why do-it-yourself distribution is good for the artist. Although it is harder to gain attention as a new band, if any notoriety is reached, there is much more to be gained. More importantly, the success will be based on musical merit rather than marketing dollars. In his blog, Future of Music, Dave Kusek writes: "There is a lot of discussion these days about free music and the decline of the power and influence of the major record labels. However, I would argue that music has always been free in one form or another, throughout history and that the relationship between the artists and their fans - the artists and their patrons is what really matters." In my eyes, distribution companies like CD Baby and ToneCore do more than ever to directly, and globally, connect musicians and fans, and in doing so help pioneer the future of the music industry.