A Public Trading System for Artists.
The news about Radiohead's pricing model is the latest point along the trajectory of change in the music industry. It's yet another indication that technology has irrevocably altered it's future and it's fitting that the latest direction would be turned by Thom Yorke.
The band's decision to name your own price is indicative of their personality. It strips away the superficialness the band works to avoid but that typically surrounds other major artists. It cuts to the heart of what truly sets their value - the interest, satisfaction and loyalty of it's market i.e. - the fans.
This is the latest in a string of news by other major artists. Nine Inch Nails, Oasis, Madonna and others have dropped their major label support and are opting to go Indy. With Radiohead's latest move they are now pushing back against the dominant player of digital distribution as well - ITunes. All of this signals a move toward complete artist control, autonomy and ability to establish their own market value independent of the industry.
Given it's current coarse how soon will it be before we see an artist go public? For a major artist it would be one of the few ways to unlock the true value of their product. If you look at the Rolling Stones last touring year and analyzed what they grossed it would probably be in the hundreds of millions (probably about $180 million, I'll make a point to verify this later). If the Rolling Stones were a public company how would you price them?
Given the longevity and universal appeal of their product and the ability to franchise the assets I would say it be far more than what they currently gain in their arrangement with the labels. Would it be out of the question to think that the Rolling Stones have a market value of perhaps $1 billion? In many cases the market value of the artist is almost always undervalued because the companies (artists) do not get to set an individual price for their products.
The distribution channels typically lock the artist into a to regulated price with no way to differentiate. This is because almost all ticket and digital sales are controlled by two companies - Ticketmaster (IAC) and Apple. Because of their virtual (and perceived) monopoly they can set the price by which others have to follow. There are no market forces to correct this. Radiohead is trying to set in motion those forces much the same way NBC is by removing it's products from ITunes.
If the music industry is to continue it has to develop a mechanism that allows the market to establish the value of it's products and companies (artists). A trading system that allows for direct investment by the public would be a great way to do that. The market potential of the Rolling Stones and other large artists is completely unrealized and it is the public, particularly the fans, that should set the value.
This model also helps establishes a better way to fund the next upcoming artist. You can imagine an entire venture community created for incubating new artists and developing them for public sale. This will be the value of the management and PR firms in the future as they begin to apply their services and become the new VC and angel investors of the industry.
In this model you'll also develop new ways to appropriately assign and manage risk and this is where the Labels can apply their expertise. They know how to identify and aggregate artists and develop entire sub industries and genres. In the new model the record labels become rating services and investment banks. The AR guys become industry analysts who do technical analysis and the label owners become the fund managers. In the future I can choose to put my money into Coheed and Cambria or the Fantasy Metal fund much the same way I can choose to either buy Microsoft or a blue chip mutual.
Rights to use and and remarket products would be much simpler as well. Does DRM really matter when your goal is to establish the overall value of your brand and company rather than trying to maximize each transaction? And it may be possible that the model swings back around to something like this but they'll be better ways to maximize those transactions when artists are competing with each other directly. Competition will establish the best way as apposed to a handful of large companies that control the industry.
It won't be long before either a new trading platform comes into existence to make this happen or existing ones are modified to support this new scenario. The Hollywood Stock Exchange has been around for some time and it's started to build a platform for music. Could they actually turn themselves into a real trading platform? I don't think it would be too far off for one of the Internet only labels like MySpace Records to use it as a financing vehicle for some of it's artists. Whoever moves first to make this happen will be in an interesting and powerful position (I hope I'm part of it :) ) . It's what has to happen to make the industry viable .
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