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“They say the music business is in trouble. No! The business of selling CDs is in trouble; this is a religion.”
- Michael Rapino, CEO, Live Nation

I was in the weekly Southern California marketing meeting at House of Blues the morning it was announced that Tower Records was going out of business. It was a Friday in 2006, and the marketing departments from LA, Anaheim, and San Diego were all on the conference line. The moment I heard the news I wanted to get up and cheer, but as I looked around I saw only fallen faces. The other cities on the call were silent. A mourning pall had fallen over the rest of the room, but all I felt was a complete excitement. I was the youngest person there.

When I was in high school my friends started burning CDs with mp3s. In June of 1999, same time as I was walking up in my cap and gown to accept my high school diploma, a kid at Northeastern University unleashed Napster into the world. It was a few months later, when I got to college at Boston University, just a few miles up the road from Northeastern, when I first heard about this program everyone was using to find and share music. College has always been the setting for waves of new discoveries, from drugs, to new perspectives. At the fin de siècle, what most of us encountered for the first time in the dorms was high-speed internet, the gateway drug to more hardcore file downloading. Napster spread like wildfire across Boston campuses, and then beyond. At first it never occurred to us that there could be anything wrong about using it. The arrival and adoption of Shawn Fanning’s creation was so inextricably linked with my and my cohort’s transition from high school to college, it seemed like just another new thing that being 18 gave you access to, like nightclubs, or cigarettes. It felt like such a natural technological progression that when Napster was ultimately forced to shut down in 2001 it was hard not to see it as a devolution. That a fellow student’s invention had been deliberately destroyed was a lot easier to understand than the reasoning of the faraway, suddenly ominous music industry. It had the feeling of repression, an attack on innovation itself, let alone on the access it offered, and it left a bad aftertaste.

By the time I was out of college and working in the concert industry it had long become clear that shutting down the iceberg had not saved the Titanic. Things had vastly deteriorated. In the depths of the music industry’s despair, the October 2006 issue of Wired Magazine dared boldly proclaim that “The Rebirth of Music” was nigh:

Record labels have always been the center of gravity in the industry – the locus of power, ideas, and money. Labels discovered the talent, pushed the songs, and got the product on the air and into stores. The goal: move records, and later, CDs. “The labels were never in the business of selling music,” says David Kusek, vice president of Boston’s Berklee College of Music and coauthor of The Future of Music. “They were in the business of selling plastic discs.”

The articulation of this concept of music that could exist on its own, liberated from CDs, or any other physical medium, expressed how I, and my generation, had already understood music to be. When Tower Records announced it was going out of business that Friday morning, the first thing I could think was:

The Future is here!

It was the same month as the “Rebirth of Music” issue came out.

Of course, my desire to celebrate upon discovering music was, indeed, about to be reborn out of the ashes of CD stores was completely out of sync. For everyone else in the room — even though we, ourselves, were in the business of selling something that didn’t come on a plastic disc — it was like the day the music died.

But wait, let’s back up a few months. In the Summer of 2006 Live Nation bought House of Blues. After separating from parent company Clear Channel the year before, the concerts division was rebranded Live Nation, and went on a shopping spree like it was Google. From fan club operator Musictoday, to music merchandising company Trunk LTD, to, seriously, countless concert promotion companies and music festivals around the world, if you were sitting still for too long, Live Nation would buy you. Towards the end of the year, on the eve of the House of Blues merger approval, we gathered for a series of company-wide conference calls with Michael Rapino, the CEO steering the company in this new direction, and it was on these calls that I heard, for the first time, someone in our business who not only saw the same future that I (and Wired) expected, he understood exactly what it meant.

In October 2007, a year after Wired’s augury, and after 25 years at Warner Brothers Records, which had release all of her albums up till then, Madonna left the label to sign a $120 million “360 degree” deal with Live Nation. In addition to operating the world’s highest-earning female singer’s tours, which it had already been doing, Live Nation would now also be handling her albums, merchandising, film and TV projects, DVD releases, music-licensing agreements and more, and getting a cut of all of it, hence “360.” This move was so revolutionary that most people didn’t even get it. According to a Fortune article, in November 2007, Live Nation’s stock sagged 30% after news of the Madonna deal. The myopic reaction — based on an understanding of the music industry as defined solely by the already broken record label model in which dumping dollars into artists was nothing but a sure loss — prompted an emergency presentation to analysts and investors, with Rapino having to actually explain how this was an entirely different approach, and why it made sense. “Of course [analysts] have to go out and tell the world we overpaid,” Rapino said in the article, “And we did overpay, if you’re just buying the record. But when you’re buying all those rights, it’s a beautiful deal.” If Madonna does four tours and three albums with revenues comparable to her recent output, it was projected the contract would pay for itself in 10 years with profits from merchandise, sponsorships, DVDs, and on and on.

In a statement issued at the time of the deal, Madonna said: “The paradigm in the music business has shifted and as an artist and a business woman, I have to move with that shift. For the first time in my career, the way that my music can reach my fans is unlimited. I’ve never wanted to think in a limited way and with this new partnership, the possibilities are endless. Who knows how my albums will be distributed in the future?”

But you know what? Who cares how? How had stopped mattering anymore. Under this model, every downloaded song would become not an act of theft, but a process of promotion for all the other things that couldn’t be copied online. As Madonna’s manager, Guy Oseary said in the Wall Street Journal, “In the past, people would tour to promote their albums; today they put out albums to promote their tours. The pendulum has swung, and Live Nation is at the forefront of touring.”

Unlike so much else in the music industry, this arrangement actually works in both the suits’ and the artists’ favor. To a large extent, the interests of artists and their concert promoters are already far more closely aligned than with their labels, and to drive this point home, as part of the deal, Madonna got equity in Live Nation to the tune of 1.7 million shares. A mutual investment between artist and industry is a complete turnaround from the label relationship, which has generally consisted of record companies tossing artists onto the sacrificial fire, hoping to gain favor with the gods. By now, three years later, U2, Jay-Z,  Shakira, and Nickelback have also eschewed the traditional record label route for similar kinds of deals with Live Nation, and no doubt more are to come.

But record labels aren’t the only middlemen Live Nation has sought to remove from the equation. On those company-wide calls in 2006, Rapino talked about the importance of owning the relationship with music fans directly, which included the ticket purchase process itself.  The contracts with Ticketmaster for both Live Nation and House of Blues were to be up within a couple of years at the time of the merge, and they would not be renewed. The idea was for concertgoers to start buying tickets directly from livenation.com, but from the very beginning there was a much greater goal as well. In 2007, Live Nation began experimenting with a program called OPEL — Open Platform Event Listings. Promoters for venues not operated by Live Nation, i.e. its competitors, were invited to have their events listed on livenation.com as well. The program never got too far off the ground (no doubt, for reasons that will become obvious below), but by the time the contract with Ticketmaster finally expired last year, it was already clear that Live Nation’s moves were about far more than even just owning its own vertical ecosystem.

The schism between Ticketmaster’s largest account by far, and Live Nation’s relationship with a company that already had the massive ticketing infrastructure it needed, made it a no-brainer that within just two months of this trial separation Live Nation would seek to buy Ticketmaster outright. Last week, the Department of Justice finally approved, with some concessions, the first big merger of the Obama administration.

Todd Martens writes on the LA Times Music Blog:

In the wake of the Department of Justice giving the green light to a merger between promoter/venue owner Live Nation and ticketing agency/management firm Ticketmaster Entertainment, Mitchell Frank, [owner of  Spaceland Productions, which promotes events at three independent LA venues] suddenly finds himself in the unenviable position of making money for the competitor.

Spaceland Productions has 15 months, Frank said, remaining on an exclusive contract with TicketWeb, the once-indie ticket seller now owned by Ticketmaster. “To make money for that behemoth, it turns my stomach,” Frank said. “I’m an indie promoter, and that’s what I do. So it’s kind of tough to give money to the mother ship.”

Frank was interviewed by the Justice Department and expressed concerns that he said appear to have gone unheard, largely that an approved partnership would have him working — and potentially providing information for — his competitor.

The newly formed Live Nation Entertainment… has the ability to book concerts, sell tickets and merchandise, and, with management company Front Line, direct access to such name acts as the Eagles, Jimmy Buffett, Neil Diamond, Van Halen, Fleetwood Mac, Christina Aguilera and more.

“That’s where the concern is,” said Jordan Kurland, whose Zeitgeist Management represents Death Cab for Cutie, She & Him, Grizzly Bear and more. “When you look at the intersection of Ticketmaster, Live Nation and Front Line? Information is power, and they will have a lot of it.”

Addressing the company’s vertical integration powers would have been a near impossibility, said one Washington, D.C.-based antitrust expert familiar with the proceedings. Many, including Mickelson in the Tribune, have cited the 1948 U.S. Supreme Court antitrust decision against Paramount Pictures, which essentially stated that Hollywood studios could not also own the theaters that had exclusive rights to show their films.

“The courts have been very favorable to vertical integration for 40 years,” said the antitrust expert, who agreed to speak only on condition of anonymity. “I like going back to Paramount vs. U.S. also, but that’s a very old case, and there have not been any vertical mergers blocked in about 40 years.”

In 2008, Ticketmaster had a market share of more than 83% for major venues, according to concert-industry tracking publication Pollstar. Its nearest competitor’s share was just under 4%. The Department of Justice said that breaking up prior contracts with Ticketmaster and TicketWeb would have done little to preserve competition in the ticketing space, adding that “a lot of the [venues] would not have wanted that.” The department estimates that 20% of Ticketmaster’s exclusive arrangements will expire each year and intends for venues and promoters to have more options when they do. In the meantime, however, Ticketmaster already retains information such as emails used to make purchases. Many of those emails came in through tickets bought to Live Nation events, but, then again, others did not. Now that Live Nation and Ticketmaster are one, who do all those ticket-buyer emails belong to? Live Nation Entertainment now has access to an enormous share of not only the concert industry, but of the actual concert-going population. Perhaps not 83%, when all is said and done, but still, through its competitors, it’s inevitably larger than what it actually even owns itself.

In the olden days, when labels dominated the system, they still had to share power with one another. The upheaval in the music business over the past decade, however, as the recording industry more or less tried to stick their fingers in their ears and go lalalalaalalalala hoping to ignore it into going away — oh, wait, they DID try experimenting with suing their own fans to see if that might be a viable way to make money — left the industry vulnerable to someone, anyone, with a clear understanding of changing consumer behavior, and the unclouded vision to see where the game was going. Not that it’s exactly the same, but after the Soviet system collapsed in the 1990′s, Russian organized crime exploded because basic government functions — such as social security, the pension system, some electrical grids, dispute settlement and the distribution and protection of property — either disappeared or were hopelessly inefficient. Organized crime had the impunity to take advantage of the general chaos, but just as importantly, if not more so, in the void left behind by the state, it had the actual organization.

Though, thankfully, this isn’t post-collapse Russia. The Justice Department said in legal filings that the merger, as initially proposed, would eliminate competition in the market for ticket sales, creating less pressure on the fees charged and potentially less innovation. No existing player, they said, would have the resources to compete. So in order for the $889-million deal to proceed, the two companies had to agree to make room for a couple of rivals. Under the agreement,  Ticketmaster will give Anschutz Entertainment Group access to its technology so that AEG — which owns and manages nearly 100 venues including Staples Center — can create its own ticketing service. Additionally, Ticketmaster agreed to divest a subsidiary that provides software for venue operators to sell their own tickets. But for Live Nation, ticket sales are just the tip of the iceberg. Even as tour revenues are rising, the margins in the concert industry are, as they have always been, anemic. According to Fortune, Live Nation’s cash-flow margins were 4.3% in 2007. Which is why what Live Nation is really after isn’t just being the iTunes of tickets but something that the other players in the music industry never understood they should have been after all along — or at least not until it was too late.

If you were to remove selling plastic discs from the entire music equation, the most profitable thing on the table becomes not just concerts, but the larger relationship between artists and fans. It’s why labels are pushing their own “360 degree” deals now (not that they really had any other choice, seeing as their primary revenue stream dried up like a fossil fuel) but inevitably, since labels don’t own or operate their own venues, it’s a smaller circumference. The Wall Street Journal recently wrote about the notable example of Lady Gaga, whose merchandise, touring, and Polaroid, Estée Lauder, and MAC contracts revenue is basically the tent-pole holding up all of Interscope. It’s the relationship artists have with their fans that drives the sales for everything else their brand is connected with, and owning that relationship is what the rebirth of music…. of the music business is really about. Right now, with the ability to book its own concerts, sell its own tickets and merchandise, and manage its exclusive artists all under one roof, Live Nation Entertainment has an entirely unprecedented model for owning the complete fan relationship from tickets to trinkets. A decade after Napster, the relationship with music fans IS the music business, and Live Nation is after owning that business on a massive scale. After the B.C. / AD digital changeover, control of the music business has shifted from the recording to the performing side of the industry, and Live Nation isn’t so much a monopoly in the music industry as it actually IS the music industry. If not yet fully in application, then in its model.

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We believe:

• Nothing is more important to Artists than the relationship with their Fans….We call the total value of these relationships an artist’s Band Equity™, and it is our mission to help artists maximize this.

• Active Fans are the best promoters of music on the web. Fan attention has become fragmented across the web in a way that mass marketing no longer makes financial sense (see the demise of radio, music TV). Today is the age of social networks. Artists cannot be everywhere they need to be at once, so they need to focus on activating their most rabid fans to promote them in every corner of the web.

• A Music Community is more valuable if includes all of the members of the community. We believe that fans, labels, venues, and other folks all deserve a voice in the community if it is going to be representative of the entire music ecosystem. At ReverbNation, we invite all members of the community to take part.

at first glance you notice a slick design, and an interface that makes, as the client said, myspace look like fisher price. but 10 seconds later the extent of the sophistication going on here begins to dawn, and as you continue to discover what reverbnation is actually set up to do, you understand that this is way beyond just another community site, this is an incredibly powerful broadcast tool. one developed with an impressive understanding that the new channel is now a fragmented channel. this, by the way, does not mean it’s a broken channel, but rather it is a new kind of channel. one that broadcasts like a prism rather than a laser beam, and exists, as the reverbnation mission statement points out, “everywhere at once,” rather than being confined to any one particular medium.

if you are a musician, or if you are responsible for developing the strategy for how brands spend their advertising money, you really ought to check what reverbation is doing, as it is a model for how to approach the business of message dissemination in the future–and by that, i mean now:

ReverbNation provides innovative marketing solutions that musicians need to compete, cooperate, and differentiate in an increasingly noisy online environment. Unlike typical “closed” communities, artists use ReverbNation as their home base for approaching marketing and promotion across the Internet as a whole — be it via social networks, blogs, or the artist’s homepage. Tools like TunePaks, FanReach, and Widgets give the artist the power to spread their music and information virtually anywhere. Real-time stats then provide a 360-degree view of how the music is spreading, who is listening, and which fans are actually passing it on to their friends and posting it on their pages.

the most impressive offering for artists through reverbnation, isn’t even the array of features, but the way all the tools are enhanced through a seamless integration into the rest of the social media world. a strategy that can be summed up in one word: widgets.

here’s an example of a widget in action on a facebook profile:

in one slick little box you get:

• the band’s upcoming show schedule–which is incredibly easy to create since reverbnation also has venue profiles, allowing you to add ten shows in about 2 minutes.
• direct links to buy tickets to upcoming shows
• an email list signup form– reverbnation’s free FanReach email service allows artists to create targeted messages to fans based on age, gender, and location which is more sophisticated than the offerings of many email list service providers, and their service also lets you include music and a show schedule automatically in every email.
• the widget even has a freakin “Also join Street Team” option for people signing up!

to get all these features before you would have had to go running around to a bunch of different service providers, and then work to continually integrate all the features individually into every online location where your band had a presence–and that’s all resting on the assumption that all those features were compatible with each other, and most importantly, that a bunch of musicians had the necessary marketing acumen to even understand all the features they needed in the first place.

of course, it doesn’t stop there, this widget slices and dices and plays music too. here’s another example from one of the glitch mob’s member’s profile:

it doesn’t just let you embed a playlist, it lets you create portable online music player! this means that folks don’t HAVE to stay on your profile page to listen to your music. they can be doing anything else on the internet and still listening to your serenade.

the fragmented channel, remember? it’s everywhere all at once.

there are sooo many more features that reverbnation offers that to even get a grasp on all of them would take me the rest of the day, and then i’d have to spend more time tomorrow writing about them, but i should think you get the idea at this point.

i can imagine part of the hindrance in reverbnation’s adoption is the sheer complexity, and wide array of their offerings. it’s been confused for a myspace competitor, but in reality that is a complete misconstruction of what it looks like reverbnation is setting out to do. during the many company-wide conference calls that took place in the process of House of Blues’ acquisition by LiveNation, michael rapino, livenation’s CEO, continually stressed the importance of the consumer relationship to the future of the concert promotion industry–about which, as the largest concert promoter in the world, livenation has a right to claim to know a thing or two. (if “reverbnation” picked its name in complete ignorance of “livenation” i would be tremendously surprised).

the big difference, of course is that livenation owns the venues. but in reverbnation’s case, they are setting up to own a channel. one that is deftly suited to broadcast to a fragmented audience. and if you were paying attention then you’ve also realized that it is a model for the future of message-distribution itself, also known as advertising. connecting the needs of artist, fan, and venue into a symbiotic “ecosystem” is the same as connecting the consumer, the brand, and the “venue” for a brand experience into one constant feedback loop.

now go listen to some beats:

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after months of work on street scene 2007, the festival kicked off last night with muse headlining. these photos were taken from what the industry refers to, technically, as the “poser decks.” (i’m 100% serious; should you happen to ever find yourself there, you now know what you will have become). it’s a pretty epic view though, and kind of endemic of a marketer’s perspective in a sense. this is pretty much the view you have to maintain throughout the whole process of marketing a festival, so it’s a pretty fitting vantage point from which to finally see it come to fruition.

among the many highlight moments was getting to see panic! at the disco perform i write sins not tragedies live, which is a song that still manages to elicit excitement every time i hear the track’s opening pizzicato notes since its music video not only features lucent dossier, but it’s also the reason behind how lucent ended up going on tour with panic! in 06–the precursor to their “nothing rhymes with circus” tour.

oh, and i’d like to give a little shoutout othe folks at imeem, for running our battle of the bands contest–which is actually always one of my favorite parts of a music festival promotion strategy. the winning band was monte battalion, but there were so many genuinely talented musicians and bands that participated in the contest, it was actually really hard to chose. imeem should be really proud of the caliber of the creative community they’ve got.

stage right poser decks:

who let these people backstage?

(katie k of the dresden dolls’ post war trade, jonny cota of skin.graft designs, me)

panic!

poser decks stage left:

MUSE!!

i <3 gratuitous crowd shots:

muse’s biggest fan:

just fucking cool:

these giant balls were sooo awesome and cute!

noooo! don’t pop it why’d you–

oh! they’re full of confetti! yay do it again!

the best. you’ve got to be the best:

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when i worked at house of blues, every so often we’d have social events with all the other people working in l.a.’s concert marketing industry. people from goldenvoice, livenation (at the time this was a separate company from house of blues), nederlander, etc. lots of people in attendance had even worked at one of the other companies prior to their current position, so to a great extent the people showing up already knew one another well anyway. the real benefit of attending such an event thus wasn’t even really to meet people from whom to gain new insight so much as to validate your own membership in the industry. i think this quintessential misunderstanding leads a great deal of “networking events” to confuse the goals they are trying to fulfill by focusing their outreach inward vs. extending it out. (intra-industry vs. intER-industry).

last week i went to twiistup, an event for “mingling with other techies in a lively atmosphere of tunes, videos and inspiration.” i am not a techie by any stretch of the imagination, and i actually hate mingling (mingling is like the thing cows do in the holding pens on the way to the slaughterhouse. they… mingle.) so mostly i was going for the “inspiration.”

in an interview with entrepreneur.com, john c. head III dean of MIT’s sloan school of management, and david s. evans, vice chairman of LECG europe and visiting professor at the university college in london, co-authors of the Catalyst Code, talk about one of the most profitable business models in today’s economy, the “catalyst business”:

You ask yourself, Are there two groups you can profit from getting together? A catalyst business serves two or more distinct groups of people who benefit from interacting with each other, but need help to do so efficiently.

this kind of perspective for hybridity and creative collaborations speaks very much to the kinds of opportunities that all the inward-focused networking events are missing. as a marketer, what piqued my interest in twiistup wasn’t about the latest, most obscure, soon to be hip, “underground” apps or widgets or whatevers, but rather the reasoning behind their creation. what, exactly, about this particular app or widget or whatever did the creator consider relevant enough to the current social climate to warrant all the time invested into its creation? you don’t need to be a techie to appreciate that question, but what i discovered is that unlike “what does this do?” or “how does this work?” in an environment teeming with people creating products that beg the question, the answers are in notoriously short supply to “why does it matter?”

schmalensee says:

I don’t want to put down technology guys, because somebody has to make the idea work, but at the end of the day, the creativity comes not in writing the code, it comes in seeing the business model and thinking it through from a business point of view.

The key is not that you have to be an expert in the technology, but you have to not be afraid of it. You have to not say “Oh, I’ll never understand that”….Where you make the money [is] not in the new “gee whiz,” but what the new “gee whiz” can do for people.

part of the problem is that it’s not always so simple to see the forest in the context of an outside perspective when you’re in the thick of the overgrowth. being so mired in the details makes articulating the thing’s overall relevance much more difficult. this is then ever more reason why “networking” events should reach out to a broader range of industries. it’s not simply that non-technologists can benefit from overcoming the tech-phobia, it’s that everyone can benefit–that is, catalyst strategies are born—from overcoming industry xenophobia.

evans says there are probably more opportunities to start catalyst businesses now than ever before and proposes the reason for this is that many of the elements that you need to start a catalyst business (i.e. communications technology) have become easier to get. but i would argue there is another, just as powerful force involved here: culture.

in the rise of the creative class richard florida presents the idea that there is a distinct demographic segment, comprised of knowledge workers, intellectuals and various types of artists, with its own particular predispositions and proclivities. beyond just the nature of their occupations, this “creative class” is also defined through commonalities in many of its members’ lifestyles and values. i think there are two particular ways in which the attributes of this expanding cohort relate–not coincidentally–to the kind of business model evans and schmalensee see expanding as well:

1. the creative class grows through the very processes that catalyst-businesses enable. the creative field of technology merged with the creative field of music, develops whole new fields within music/audio technology. likewise with technology and art, and so on.

2. this group (which fills about 12% of all U.S. jobs) is disproportionately responsible for the development of the contemporary cultural landscape, passing on the very values of hybridity that fuel the catalyst-business model to industries and fields beyond just the creative class itself.

evans and schmalensee might say that what connects a fashion designer and a web entrepreneur, is that, for instance, the former would need the latter to stay competitive in their online presence, but that’s just scratching the tip of the iceberg.

what industries of all creative flavors have in common is the necessity to take the significance of cultural trends into consideration. whether you are working in technology, music, design, marketing, entertainment, business, or really anything else where what’s going on in the greater culture matters, then being able to accurately distill, develop, and disseminate cultural relevance can mean the difference between success and failure. literally. is there anything successful that WASN’T relevant to its time?

(….ok, van gogh is coming to mind…. but i’m telling you: it’s a short–posthumous–list.)

it seems then that a good way to avoid a fate of irrelevance would be to explore the directions that the industries driving culture in tandem with yours are leading culture. a great forum for jus such an exploration (on any scale) is a “networking” event.

for the creative class, culture is the raw material ALL of us work with, and all of us have a hand in shaping different aspects of it. it’s why the answers to the “why does it matter?” question are so important to me, and should probably be to you too. one of the goals for any significant networking event aiming to provide value to this particular yet disparate demographic segment then, should be to apply this approach towards a greater industry hybridity.

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now the fun part begins…. actually beefing up the “participate” section…

but the lineup ain’t too shabby either…

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