I read a fascinating article over at ZeroHedge the other day. It was entitled: How iTunes Destroyed The Music Business In 1 Simple Chart (www.zerohedge.com/news/2015-05-24/how-itunes-destroyed-music-business-1-simple-chart)

Chart showing a annual decline in US music sales

Chart showing a annual decline in US music sales

The main point of the article was that, in the early days of the internet, online sites came out to share music and the industry fought back hard. From the article:

“The music industry was the first entertainment business to confront the digital transition, although it was not exactly a willing pioneer. Rather, it was thrust into this role as a matter of survival, as it grappled with the rapid rise of online piracy in the early 2000s.

The music industry was incredibly slow to respond to the digital transition. Napster, the original music piracy site, burst onto the scene in 1999, but it wasn’t until 2004 when Apple iTunes debuted that consumers grew more and more primed to free music. This was a serious error and haunted the music industry for years thereafter, costing the industry multi-billions in annual sales.

The rest of the entertainment industry has taken note and, as a result, all other entertainment sectors, including video, have been comparatively quick to embrace digital distribution. The music industry, rather than focusing on a legal digital download service, initially focused all its effort on shutting down Napster by way of a copyright infringement lawsuit. Ultimately, the industry prevailed and the courts shut down Napster in mid-2001; however, this was a pyrrhic victory. By the time Napster was shut down, the pirates had moved on to the next new thing: decentralized peer-to-peer file sharing, led by Gnutella. Unlike Napster, these piracy sites were virtually impossible to shut down because there was no central server storing the files. Shutting down Gnutella would have been tantamount to shutting down the entire internet.” 

This recant of what happened is exactly true: The music industry tried to destroy digital downloads. But what the writer fails to mention is that the music recording industry (record labels) have always been anti-technology since even the early days of radio! I think it is important to understand the history of the recording industry then all of this anti-technology might start to make sense.

When radio began, the record labels tried to stop them from playing their records that’s why early radio had only live music, talk shows and radio dramas.(The record labels didn’t like their music being played on the radio at first, because when songs are played on the radio, only the music publishers get paid.) It wasn’t until the start of Rock and Roll music and DJs like Alan Freed that the labels figured out that if DJs played their records, then kids listened, and then those kids bought those records.

Duh! Maybe the labels have always been run by rocket scientists and chimpanzees?

But, like I said, record labels have traditionally been “anti-technology” and I can’t foresee that ever changing.

Let’s go back to the start of the “music industry.” You’ll need to understand the history of the music industry to see why this is the way it is and why it is probably the way it always will be.

One hundred and twenty years ago, the only “music industry” was music publishing, i.e., “Sheet music.” Performers got paid to perform live, but the big money was having a “Hit!” (no radio, TV, or even record players back then). Having a “Hit” in those days, meant writing a song, getting it down on sheet music, and having people buy that sheet music and those customers playing those songs on their piano or banjos at home… Thereby selling the composer lots of sheet music.

It went like this for years.

Then, one day, the record player was invented. Suddenly a new business was born; the business of performing a song, recording it and then having people buy your recording. Whereas, before, the musician could only make money by writing a song and selling sheet music (music publishing) or being paid to perform live, they could now make a recording and sell it. The recording industry was born.

But, can you see that the publishing industry and the recording industry are two very different things? For music publishing, this new “recording” business was nothing to the music publishing companies excepting a new revenue stream. They got paid because someone recorded a song… Back in the early days, people all recorded songs written by someone else…

It goes like this: In 1880, John writes hit songs, sells sheet music of his songs, and gets paid for each sheet music sold as well as getting paid to perform live.

In 1925, Anthony writes hit songs, sells sheet music of his songs, and gets paid for each sheet music sold and he gets paid to perform live. If Anthony performs any of John’s song’s (either live or recorded), John gets paid a royalty because John wrote that song. The publishers love that.

Even if the record company spent tons of money on a new recording of John’s song covered by Anthony, John and the publisher gets paid even if they didn’t lift a finger. When John gets paid, the publisher gets paid.

So, you see, the publishers get paid because of ownership of the song. The performer only gets paid for performance of that song; be it live or recorded. This is why John Lennon and Paul McCartney made so much money on the Beatles; they wrote almost all of the songs. Basically Ringo and George only got paid for the actual performances live or on record. If I, Mike Rogers, make a recording of “Hey Jude” only John and Paul get paid. If I go to Karaoke and sing a Lennon McCartney song, or that song is on a TV commercial, John and Paul (and the music publisher) gets paid.

This is why, today, the record labels have a contentious relationship with the music publishers: The record labels spend tons of money on studio recordings and making music videos in order to produce a “hit.” They only make money on each unit (CD, vinyl, etc.) sold. But the music publishers get paid every time a song is sold, sang at Karaoke, put on a TV commercial, played at a radio station or on TV or downloaded.

Once again, generally-speaking, the record companies only make money every time a physical unit is sold. So if a song becomes a massive hit, the record labels are happy because they sell lots of albums…. But the publishers are ecstatic because they get paid every time your sister Judy sings that god damned Lady Gaga song at Karaoke!

So, now you understand why the record labels hate music downloads and have always been anti-technology: they always have been and probably always will be; they do not get paid unless a physical product is sold (or they get an extremely small margin on downloads). The music publishers get paid, no matter what.

Sure, there’s a vinyl resurgence, but it is still a drop in the bucket…. And, these days, even new Apple computers are coming out without CD players. I know lots of people who don’t even own a CD player!

So considering how music downloads are dropping and people have changed the way they listen to music, do you think the major labels have a good financial future? I don’t…

But I do see opportunities for smart Indies music people!

So, did iTunes and music downloads destroy the music industry or did record labels shoot themselves in the foot and destroy the music industry?


This article dedicated to Aya Fukuta, Ken Nishikawa and John Flanagan


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