The Venture Capital Model for Music (Long)

Discussion in 'Archived Threads 2001-2004' started by Lee Scoggins, Sep 18, 2002.

  1. Lee Scoggins

    Lee Scoggins Producer

    Joined:
    Aug 30, 2001
    Messages:
    6,394
    Likes Received:
    0
    Real Name:
    Lee
    I think I just brainstormed out a new business model for the music industry.
    Imagine this... [cue dream time music from Wayne's World]
    In the future there are no major record labels.
    [Add doomsday scenario from your favorite science fiction movie]
    In the future, artists must attract a new form of backing: venture capitalist that works solely in music.
    The "Music VC" looks for new talent and then signs them up by agreeing to pay for the first record album or single. In exchange the Music VC gets a percentage claim on all record royalties.
    The Music VC takes the artists over to his office where he has a staff of graphic artists, retired musicians and arrangers, lyricists, recording engineers and creates a master tape and full art work for the initial CD (SACD?[​IMG]).
    Recording engineers may even form an artists’ collective as could any other specialty like art designers, lyricists, etc.
    The Music VC takes the artist over to the local JVC pressing plant manager who gets paid upfront the cost of replicating the discs.
    The Music VC can lower risk by initially releasing single or several songs on MP3 site (low compression please!). Many Music VCs may band together to create highly efficient and legal download sites as agreed to previously by artist – a condition of their funding.
    In some as yet undetermined split, the artist collects a portion of the sales revenue minus all production costs put together by Music VC.
    Production costs include session fees (engineering, tapes, mics, labor), back office financial keeping, any fan base management, art work generation, modest amount of A&R work, etc.
    Music VC essentially owns equity musician’s catalog. Maybe 20-50% of first album and lower percentages of latter releases accrue to Music VC for his willingness to take a risk.
    Better Music VCs develop relationships with certain entertainment outlets like Radio, Entertainment Tonight, CNN, Fox News, HBO, etc.
    At the end of the day, the musician owns direct equity in his own content.
    There are no loans made up front in cash that have to be paid back, so the personal finances of the artists are more conservatively managed.
    Really high quality talent can attract more Music VCs so they get better terms and better distribution which may mean more traditional outlets.
    Tower and other retailers contract directly with Music VC who manages distribution.
    Since entire business model is run as private equity function, Music VCs can attract funds for investment from Wall Street, bypassing current system of shareholders providing capital to highly inefficient entertainment conglomerates that earn low returns.
    Music VCs can raise capital on Nasdaq once big enough.
    Artists can raise capital on Nasdaq once big enough.
    [I also am tempted to say we can short the artists we think are fads or outright suck. [​IMG]]
    SUMMARY OF PROS AND CONS:
    Upside
    Good talent (and bad) gets rewarded based on subjective merit.
    Everyone can get funded.
    Lower costs in production system due to specialization.
    Movement away from “star system” where only million unit sellers are rewarded.
    Ability for the Music VC to take chances that major record labels shy away from.
    Music VCs have role of financier and producer. They aggregate all the right people to launch first CD and subsequent releases.
    Ability to specialize in genres where expertise can be developed. This should prove better than major labels myriad mix of niche labels and mimic the best of independent producers. Maybe Chad Kassem of Acoustic Sounds is the first Music VC based on his superb work in Blues genre.
    Downside
    Less synergies with large interests in multiple entertainment media (cross-promotion)
    Music VCs may take time to develop their own sources of capital like early technology VCs.
    Requires risk-reward mindset not currently ingrained in today’s business.
    What do you think?
    Isn't this a better world for artist, Music VC (producer), and, most importantly, consumer?
    [​IMG]
     
  2. Lee Scoggins

    Lee Scoggins Producer

    Joined:
    Aug 30, 2001
    Messages:
    6,394
    Likes Received:
    0
    Real Name:
    Lee
    Wow, I though there would be more interest in this. Maybe we needed a more exciting title. [​IMG]
     
  3. John Watson

    John Watson Screenwriter

    Joined:
    Jul 14, 2002
    Messages:
    1,937
    Likes Received:
    0
    Its a big subject, and I suppose the term "cultural industry" grates a bit on many. But a few comments.
    Where the overall standard of success is money, and no amount of it is enough, then we will support only the big ones. Millions of people have been proud to go home with Michael, Garth, Celine, or Britney albums, and they are even prouder that these performers have made millions, because it authenticates their (the fans) worship. Never underestimate the bad taste of the masses.
    But the corporate business model of the last decade - growth, mergers, super-stars (performers and managers), is somewhat in tatters now. Having worked in large organizations for several decades, I have come to assume they are irrational machines, controlled by sociopaths who thrive on chaos. Only occasionally do they efficiently produce something of value to the society they "serve"
    In spite of the superstar, and the constant effort to create new ones, the "market" actually seems to accelerate fragmentation of taste. Look at the changes from the days of the Beatles, and a few networks, to the incredible proliferation of performers and outlets or venues today. Narrowcasting for niches...
    As far as I can tell, there are many niches where people who work hard enough can make some money and keep their creative urges intact. If anything, technology has made specialization, and modest profit, possible for a few. Hi-quality sound can now be produced from modestly costing machines. I believe that many artists however, lack the business acumen to realize much of that modest profit. They need a manager.
    Your Venture Capitalist seems to be a vision of that sympathetic manager. The happy blend of good management and creative talent is probably always scarce. By the time they are raising funds on NASDAQ, the blend has been lost?
    PS - you might have called the post Searching for a New Faust...
    [​IMG]
     
  4. Lee Scoggins

    Lee Scoggins Producer

    Joined:
    Aug 30, 2001
    Messages:
    6,394
    Likes Received:
    0
    Real Name:
    Lee
    John,
    Thanks for your feedback.
     
  5. mike_decock

    mike_decock Supporting Actor

    Joined:
    May 21, 2002
    Messages:
    621
    Likes Received:
    0
    I think this model seems workable, as long as the radio conglomeration gets scrapped at the same time. Right now, radio stations are nothing but the marketing tools of the big labels.

    I'm a rabid music lover and I can't stand the radio anymore. Do we really need 10 stations in every town playing R&B/Rap/Hip-Hop along with 1 classic rock and MAYBE 1 classical station?

    If DJs had full control over their playlists and would take requests from their listeners (sounds like the days of old, huh?), artists would succeed on the popularity of their songs, rather than popularity being created by endless repetition.

    I remember hearing a story where the first Elvis Presley single hit the airwaves at a local station. The DJ spun it and got so many calls he played it over and over again. Seems inconceivable in today's world, huh?


    -Mike...
     
  6. Lee Scoggins

    Lee Scoggins Producer

    Joined:
    Aug 30, 2001
    Messages:
    6,394
    Likes Received:
    0
    Real Name:
    Lee
     
  7. mike_decock

    mike_decock Supporting Actor

    Joined:
    May 21, 2002
    Messages:
    621
    Likes Received:
    0
    What if the VCs owned the stations but were limited to owning only one station in any market (FCC regulation)?

    -Mike...
     
  8. Lee Scoggins

    Lee Scoggins Producer

    Joined:
    Aug 30, 2001
    Messages:
    6,394
    Likes Received:
    0
    Real Name:
    Lee
     
  9. John Watson

    John Watson Screenwriter

    Joined:
    Jul 14, 2002
    Messages:
    1,937
    Likes Received:
    0
    Radio GaGa, yeah, that's the ticket... Like you Lee, I cannot listen to contemporary commercial radio.
    In Canada we have CBC, and there's one weekend program my wife and I enjoy, tends to be roots music, but crosses genres and eras.

    Does America's Public Radio offer a channel for exposing new music? Where knowledgeable (sp?) deejays who are not in the big label's pockets can create programs?

    College radio used to be good. Mind you my college radio days are a few decades ago, but maybe that is another venue.

    Almost sounds like America needs pirate radio (even in the early 60's British pirate radio would bring otherwise inaccessible rock to Brit youth).

    PS - by cultural industry I was just highlighting the difference between commerce and art, and commerce wanting to turn EVERYTHING into a commodity
     
  10. Lee Scoggins

    Lee Scoggins Producer

    Joined:
    Aug 30, 2001
    Messages:
    6,394
    Likes Received:
    0
    Real Name:
    Lee
     
  11. mike_decock

    mike_decock Supporting Actor

    Joined:
    May 21, 2002
    Messages:
    621
    Likes Received:
    0
     
  12. Lee Scoggins

    Lee Scoggins Producer

    Joined:
    Aug 30, 2001
    Messages:
    6,394
    Likes Received:
    0
    Real Name:
    Lee
     
  13. mike_decock

    mike_decock Supporting Actor

    Joined:
    May 21, 2002
    Messages:
    621
    Likes Received:
    0
     
  14. Lee Scoggins

    Lee Scoggins Producer

    Joined:
    Aug 30, 2001
    Messages:
    6,394
    Likes Received:
    0
    Real Name:
    Lee
     
  15. mike_decock

    mike_decock Supporting Actor

    Joined:
    May 21, 2002
    Messages:
    621
    Likes Received:
    0
     
  16. Lee Scoggins

    Lee Scoggins Producer

    Joined:
    Aug 30, 2001
    Messages:
    6,394
    Likes Received:
    0
    Real Name:
    Lee
     

Share This Page