April 23, 2014



Making Music and Making Money

#2 April 2014

Breaking news first: Our macro economic view, described in my last newsletter from February, is now confirmed by harsh numbers in the IFPI Music Report 2014.   2013 Revenues of recorded music are further down by $600 million worldwide.

Also confirmed: The “Blockbuster trend”, i.e. superstars like One Direction, Eminem, Justin Timberlake, Robin Thicke, Macklemore & Ryan Lewis, and Avicii earn more while the vast majority of all mid-tier artists and music makers earn less.

Here are some real numbers, thanks to Nick Thayer:
Nick got lucky, because he can do something live as a DJ and make at least some money to survive. How about all others? Songwriters, producers, musicians who can’t tour?
And another fact confirming my general trend analysis from February:
The US Labor Department has reported teaching as the largest income portion of US-based artists now, proving that consumer interest is shifting towards making music.  This is relevant, because it increases the number of music makers worldwide and further grows the global music inventory, pressuring the existing market and further lowering prices.
Last month, Jeremy Rifkin published a great article in The Guardian, viewing the dilemma from a general economic point of view. His headline:  “Capitalism is making way for the age of free” or how the internet of things is enforcing an economic shift.

Here is how he put it:
“Over the past decade millions of consumers have become prosumers, producing and sharing music, videos, news, and knowledge at near-zero marginal cost and nearly for free, shrinking revenues in the music, newspaper and book-publishing industries.”

He then went to the crux of the problem:   “If information goods are to be distributed at their marginal cost of production – zero – they cannot be created and produced by entrepreneurial firms that use revenues obtained from sales to consumers to cover their [fixed set-up] costs … [companies] must be able to anticipate selling their products at a profit to someone.”

Or in other words, if no one makes a profit, there will be no incentive to create new music anymore.
Well….I personally believe that’s not the final outcome, as music carries something very important: our life stories, our emotions, our memories – priceless to most of us, and there will always be a new story to tell. But the point is taken and the question remains how music makers can get paid for their music?

One solution is government subsidies to cover up-front costs mixed with sponsorships and donations. That’s how classical music is still in existence, at least as a live version. And this is an important cultural conservation to make sure future generations will have a chance to discover great music from past centuries. As humans, we have to be able to understand, learn and “feel” our ancestors to design the future.

But leading US Economists Lawrence Summers (former US Treasury Secretary) and J Bradford DeLong (Professor of Economics at the University of California in Berkeley) are against the government-driven solution because “….this will most likely destroy the entrepreneurial spirit”. Instead, they supportshort-term monopolies to ensure profits, declaring that this is “the reward needed to spur private enterprise to engage in such innovation”.

That sounds right, but in a world where “…a growing legion of prosumers is producing and sharing information, not only knowledge, news and entertainment, but also renewable energy, 3D printed products and online college courses at near-zero marginal cost on the collaborative commons, they are even sharing cars, homes, clothes and tools, entirely bypassing the conventional capitalist market…” – the real question I have is:
Who is the entrepreneur and who is the consumer in this new world?

In our music sector, more and more people are making music, but at the same time also consuming music and using music in their personal and professional videos and general communication. A hundred million times every day.

And if prosumers are “….entirely bypassing the conventional capitalist market” what is the driver of the new economy ?

In the last 7 years I have tried to find my own answers and a practicalcompany design, now introduced and deployed as the Gideen platform.

It starts with two very simple but radical changes:
1. We don’t use a system where musicians, music consumers and music marketers make money on the back of one another. Instead, we set the rules to align the economic interests such that either all make money together or no one makes money.

2. We treat everyone as music enthusiast, who is sometimes a music entrepreneur, sometimes music maker, sometimes music consumer, sometimes music marketer – like in real life. So there is no hierarchy anymore like…I’m the big record label boss and you are the small musician…., or … I’m the investor/shareholder and you are the employee…..everyone plays multiple roles in this game (not at the same time of course, as you can’t be on stage and backstage simultaneously), but today you play one role and the next day another.

The interesting part of this change is that it eliminates the existing knowledge, network, and power imbalance, fundamental to the structure and the economic success of the existing hit-driven music industry.

I know that’s scary for all who are in power and enjoying maximum revenues right now – but it is an inevitable change – not because of me or I say so. It’s the overall development in our society enforcing it.

I’m sure Gideen is not a perfect blue print, but it is a beginning of a more radical change. And you can fight this or join it. You can be part of the problem or make yourself part of the solution.
Let me leave you with why we will never run out of new music:

And don’t forget: Music making is fun, just enjoy it. Please tell me your ideas, opinions, and let’s try to find the best way – because we are all in this together.

Heiko Schmidt
Malibu, California
Bio: Heiko Schmidt is the CEO of Gideen, a new music/tech venture based in Los Angeles. Gideen creates a new secondary market place for music with little to no revenue, combining new innovative business models and technology to scale crowd sourced exploitation on an international level. Heiko is a seasoned music industry executive and serial entrepreneur, combing 21 years of music and technology education with 25 years of professional experience. As one of just a few music rights specialists with a deep knowledge of multiple, domestic and international markets, he pioneered various new strategies and innovations within the industry (www.parasongs.com). Heiko has founded and ran music production, music publishing, music and media marketing, artist management companies and record labels in the United States, Germany, Japan and Australia.