Notes from the Underground

Every two weeks or so, I pack up my Taylor acoustic guitar, fill
a backpack with CDs of my music, and head down into the New York
City subways to work as a busker. I make good money, and I get to
study human nature, too. For example, I can now tell from about 50
feet away whether a woman is likely to give me money. If she’s
walking fast, wearing headphones, angrily porting a briefcase, or
chasing down one of her children, that’s an easy no. She wouldn’t
throw a dime into Jimi Hendrix’s case. But if she’s dressed
casually and walking slowly, there’s a decent chance she’ll enjoy
the music, stop, and maybe buy an album.

This is but one of the lessons I’ve learned from performing in
subway stations that I think could help the foundering music
industry, or at least help the many talented musicians stifled by
it. These lessons haven’t gotten me rich, but my CD sells well, and
I often make more money per hour down there than I do as a
journalist. And while my sales and profits have gone up recently,
the music industry has done less well. While their CD sales appear
to have improved recently, the upturn is minor compared to the 15
percent drop in industry revenues over the last three years.

Different experts give different reasons for the general
decline. The music industry blames young people who download music
for free from file-sharing networks. Others, such as Josh Bernoff
of Forrester Research, a Boston-area technology consulting firm,
blame competition from video games and other entertainment.
Whatever the reason, it’s clear that the music industry’s old
business model isn’t working so well. In that model, the major
labels plucked out a few bands they believed would sell big and
invested millions of dollars in the production and marketing these
performers needed to catch fire. The industry defended itself
against complaints by saying they were simply responding to popular
taste.

In truth, the music industry functions like a cartel, and the
public’s preferences have been limited to what they’ve been given.
To counter lagging CD sales, the record industry is hiring lawyers
and lobbyists to squelch the new technologies that are changing the
market. Last year, the Recording Industry Association of America
issued hundreds of subpoenas to college kids who swap music over
the Internet. Meanwhile, the industry’s lobbyists have convinced
Senator Orrin Hatch (R-Utah), himself a songwriter, to float the
idea of allowing companies to access and even destroy computers
whose owners used them to download movies and songs.

But these industry efforts are counter-productive. About 60
million people in the United States have already swapped
copyrighted material over the Internet, and that number isn’t
likely to shrink. The times they are a-changin’ and record
companies need to figure out how to profit in this new environment.
With all the modesty required of a guy who doesn’t make enough
money on most nights to buy front-row seats at a Mariah Carey
concert, let me offer a few pointers.

One: Lower CD prices

When I first started playing the subways, I experimented with
different prices for my albums. I sold slightly more CDs at $2, but
far fewer at $8 or $10. The sweet spot seemed to be $5. Later, I
gave up pricing my CDs altogether after I got a ticket for selling
them. Now I post a sign saying that my CDs are technically free,
but they cost something to make, and people should pay what they
want. Occasionally someone will take one for free or drop $20 into
my guitar case. But the usual is, again, $5.

So why does the average big label CD sell for more than $17?
It’s not the manufacturing cost. My last album cost me about $1.10
for each CD made, with high-quality work done at every step. And
larger runs have vastly lower costs. True, recording solo acoustic
guitar is much easier than a full band, but even industry-produced
acoustic guitar albums sell for that price. If you’re U2 or the
Rolling Stones and sell millions of albums, such expenses may be
perfectly worthwhile. But for the great majority of artists, the
industry should drop CD prices — maybe not to $5, but certainly
closer to that than to $17.

Two: Branch out

The New York City subway has two good places to perform: the
platforms where the trains stop, and the hallways leading up to the
street. In a hallway, everyone hears you for a few seconds; on a
platform, you get far fewer people, but they hear you longer.
Hallways, it turns out, work great for playing music that’s
instantly familiar. I often share my favorite station with a
talented hallway musician who plays Beatles songs, the kind of
music that in three notes can jar a pleasant memory for huge
numbers of people. The instrumental guitar music I play, on the
other hand, is fairly complicated, and I don’t make a penny when I
try to play in the spot where the Beatles troubadour sings. But on
a platform where I have roughly three minutes between trains
coming, I have time to win some ears and make some sales.

One might think that my only audience would be the Birkenstock
nature lovers and 14-year-old kids carrying their first guitars —
and I do well with that crowd. But I also do well with middle-aged
black couples, 40-year-old white couples with kids, white
blue-collar workers, and the Ecuadorian immigrants who sell jewelry
in my favorite station. In fact, I’m more apt to know whether
someone will like the music based on the way that they walk than on
their age, sex, or apparent income.

The music industry tends to divide both bands and audiences into
broad formats: alt music, hip-hop, modern country, and so forth.
Though these categories are accurate to a degree, they exist
largely so record companies can fine-tune their promotion efforts.
Unfortunately, most bands and artists can’t get to first base
unless their music fits one of these formats, and there are many
types of music — like mine — that defy set genres. Indeed, it’s
almost guaranteed that somewhere in the cracks between these
formats, the next big thing in music is brewing. But the music
industry has not yet figured out how to profitably micro-market
innovative bands to scattered audiences.

Three: Embrace file sharing

Fortunately, the Internet allows a wide audience to sample a
huge array of music. File-sharing networks and free downloads off
an artist’s Web page are roughly like playing in the subway. The
Internet can connect artists with a potential audience at almost no
cost, while exposing listeners to artists and styles they may not
hear on the radio.

I profit tremendously when people download my music. The free
cyber-samples make listeners more likely to attend my concerts and
request my songs on the radio. On the other hand, big artists do
indeed lose with file sharing, and it’s their profits on which the
industry depends for survival. That’s why the big names tend to
fight the trend. But it’s a fight they will eventually lose, and
that won’t be a bad thing either for bands or for fans. Much as the
movie industry figured out how to profit from the VCR, record
companies should look harder for ways to profit from the Internet.
They’ll probably succeed when they learn to be more nimble and pay
more attention to the particular tastes of a diverse audience.
Meanwhile, file sharing helps small artists find their audience and
make a decent living — a truer expression of the free market in
music. Record companies will just have to get better at serving
their customers.

Nicholas Thompson is a senior editor at Legal Affairs.
His latest CD, Lend Me Your Ears, can be purchased at
his Web site,
www.nickthompson.com.
Reprinted from
The Washington Monthly (Sept. 2003).
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