THE LEFSETZ LETTER: Top Ten Problems

1. Misconception Of The Internet

Physical sales were greatest at the height of Napster. That's no mystery. Everybody was EXCITED about music. People who never bought a CD, who never listened to music radio, were suddenly acquiring music again. Proving the axiom that the Net is a GIANT opportunity to get NON-BUYERS consuming music.

To replace physical sales with digital sales is to completely miss the point. The key is to make everybody not consuming music today a CUSTOMER. Think of it like the cell phone. Cell phones have been around for twenty years. But they only became ubiquitous in the last five years, when the price dropped dramatically and users had a clear idea of what the charge would be.!


Bob Lefsetz, Santa Monica-based industry legend, is the author of the e-mail newsletter, "The Lefsetz Letter". Famous for being beholden to no one, and speaking the truth, Lefsetz addresses the issues that are at the core of the music business: downloading, copy protection, pricing and the music itself.

His intense brilliance captivates readers from Steven Tyler to Rick Nielsen to Bryan Adams to Quincy Jones to music business honchos like Michael Rapino, Randy Phillips, Don Ienner, Cliff Burnstein, Irving Azoff and Tom Freston.

Never boring, always entertaining, Mr. Lefsetz's insights are fueled by his stint as an entertainment business attorney, majordomo of Sanctuary Music's American division and consultancies to major labels.

Bob has been a weekly contributor to CelebrityAccess and Encore since 2001, and we plan many more years of partnership with him. While we here at CelebrityAccess and Encore do not necessarily agree with all of Bob's opinions, we are proud to help share them with you.

Labels could point to tethered subscriptions as an innovation, but it fails the basic tenet of consumer culture. You must deliver what the public WANTS! Home video didn't explode until the market shifted from rental to cheap ownership. What makes the music business think it's different? Furthermore, the threshold to get into the market must be exceptionally low. Sure, maybe not free like Napster, but built into the ISP fee for a couple of bucks.

Once you get everybody consuming music the benefits trickle all the way down the food chain. People want to see music live. They purchase merchandise. The whole sector is healthy. But fearful that they might lose out in the future major labels are thwarting innovation in the marketplace. Either they can get with the program or see a shadow industry built up around them. Wherein indie acts give their music away for free and make it up on the ancillaries. A lame business model compared to actually selling the music, but that's exactly what the labels don't want to do. People want unlimited unprotected MP3s for one low price. Actually, this is what they've now got. It's just that it's free. CHARGE THESE PEOPLE! Make the old lady in Arizona a music consumer again. Don't try to drive people to Starbucks to purchase outmoded CDs, get them to download music while they're answering their e-mail. Get people talking about music. DON'T kill the goose that laid the golden egg, EMBRACE the Internet.

2. Exposure

You can't buy something if you don't hear it. Oh, print/net writings can help, but it's a well-known maxim that nothing sells music like airplay. It's just that there IS no airplay. Terrestrial radio, which dominates in market share, LISTENERSHIP, plays VERY LITTLE new music. And, as a result major labels are signing fewer acts and only those that radio is interested in. Is it surprising that sales have tanked? Sales are greatest when the public HEARS the most new music. But the major labels don't want to embrace other avenues of exposure because they don't reach enough people. They want to sell MILLIONS of copies of an act's debut record. How in the hell is Internet radio airplay going to help them?

It's not. Because, INHERENTLY, Internet airplay is niche. As is satellite radio. With scores of music channels on each service. This frightens the major labels. They can't reach critical mass. Their reaction? Try and stop the advent of these new technologies. For fear of losing market share. Keep the indies out, keep the landscape for yourself. Unfortunately, this is a losing paradigm, for the majors have already lost mindshare. They can either get with the program now, or just see their revenues continue to erode. Major LABELS should be pushing satellite radio subscriptions, Internet-listening. They should be PROMOTING new places to expose music. Ultimately knowing that THEIR business model will change. That they will return to the model of forty years ago. Signing many acts, recording them cheaply, trying to find a market for each, and waiting for one or two, or three or four, of these QUALITY acts to blow up because the public EMBRACES them.

3. Guarantees

They hurt the major labels. And they hurt the touring business.

Unfortunately, in order for guarantees/advances to go down, labels will have to start paying royalties. ACCURATE royalties. And they're going in the other direction.

But this guarantee-mania in the touring world must end. Maybe an act's COSTS can be guaranteed. Their RAW costs. But upside should be shared between the act and promoter. Acts demand high guarantees, promoters fearful of losing the act to someone else pay them and the public ends up with an overpriced ticket.

Touring is about demand. If you're doing lousy business, you shouldn't make much. Beyonce, Eminem and his pals… The losses they incurred must be made up by ripping off the public on all the REST of the shows. These losers should shoulder some of the financial loss for not delivering what the public wants. The business SHOULD BE about delivering what the public wants. A desirable act in the right-sized venue for the right price. Those issues have been back-burnered as agents and managers fight promoters for the most bucks. It's bullshit.

4. Disinformation

Suing file-traders reduces file-trading.

If the present business model is not sustained, no one will make music.

The labels are just giving the people what they want, the urban music on Top Forty radio.

The industry spin machine is on overdrive. The people reporting the story know nothing about the business, so they just repeat the bullshit. And the consumer scratches his head. This isn't the world HE'S living in at all.

There's no trust between the business and the purchaser. The lies are just widening the gulf.

The fan used to be in bed with Warner Brothers. And Bill Graham. Figuring these entities were CUSTODIANS, looking out for them. Ain't that a laugh.

Or, as John Lennon once sang, GIMME SOME TRUTH!

5. Marty Bandier

Who won't go to a percentage rate on publishing. This is what happens when you've got consolidations/monopolies. EMI Music Publishing is SO big that it dictates. Same deal with Universal in the label sphere. There can be no new music business distribution models if there's still a penny rate for publishing. Yes, the labels want a reduction, and that's unfair. But negotiation must begin. This stalemate is just hurting the business. In the form of lost sales, as people STEAL the music.

6. The Perception That The iTunes Music Store Is The Savior

The iTMS is great for Apple, it's death for the labels. They were once IN the singles business. It was only when they got people to by ALBUMS that the business blew up, that multinational corporations wanted to own labels, for the cash they threw off. You've got to get more than a buck, or a hypothetical $1.29 with variable pricing, from each customer. You don't buy a car one wheel at a time! And, even once you've PURCHASED the car you can't get a single option. There are option PACKAGES! Want 17" wheels? Then you've got to get a sunroof. Want xenon headlights? Then you've got to get heated seats and mirrors. The auto industry learned that you can only make it by hiking the sales number, the PRICE! Get MORE money, not LESS. Or, in the alternative, you can't buy JUST "The Sopranos" from HBO. You've got to go for the 24/7 service. SOME people watch HBO all the time, others once a week. But this is how you get more money, by giving people NO CHOICE! Creating something SO GOOD that they'll go for the whole enchilada.

7. Endless Hype

By trying to reach every last potential customer the labels are turning off the acts' core audience. The CORE sells the act to others, and is there for the next album. Treat the CORE right. Screw the casual buyer. Let him come along for the ride (via cheap, all you can eat subscriptions), but don't let him be the FOCUS of your marketing. I mean do you really want to own the album of the act playing dumb, talking irrelevancies on the "Today Show" set? We're selling belief. Leave the belief out, and you've got a crippled business.

8. Mass vs. Niche

There are always going to be a few Celines, some Mariahs. Who play to the lowest common denominator and sell millions of records while being despised by many along the way. Music is not television, nor movies. Those two mass media are inherently expensive. Records should be made cheaply for a specific audience. Not expensively for a theoretical everyman who doesn't exist. Look at cable television. There are three hundred channels. Other than the networks, everybody's appealing to a small SLIVER of the populace. Same deal in music, but WORSE! Because anybody can make a record, there's no filter. So, make something GREAT, not MARKETABLE. Something about MUSIC, not looks. And use the music as kindling to get something started. And make another record before you've reached everybody with the first. Under the rule of satiating the core audience.

9. Commercialization

Credibility. It rarely existed in Top Forty, but the money was never in Top Forty. Clive Davis got everybody's head twisted into making Top Forty hits. But, check Mr. Davis' catalog. Nobody even wants WHITNEY HOUSTON today! Never mind all the lesser acts Mr. Davis purveyed. It's about building a catalog. That sells forever. THAT'S why Warner is worth so much. NEIL YOUNG, not 2 Live Crew.

10. Lame Fat Cats

If you're smart, if you're innovative, you don't enter the music industry. Where there's no upward career movement, where brand/copyright bullies thwart your every move. The business likes it the same as it always was. So, if you're an entrepreneur, if you've got new ideas, you work in gaming, or computers. Where someone RESPECTS you. Your ideas. The fact that you're in touch with the street.

Look at the insane industry salaries. The absence of any power, never mind reasonable salaries, for twentysomethings. Look at the constant layoffs. THIS is an inviting place to start a career?

ULTIMATELY, young true believers will revolutionize this business. They'll fight the powers that be. Release the records themselves. Try to find a way around Clear Channel. Take the digital sphere into their own hands.

As far as I'm concerned, the sooner the better. Because the kids know it's all about the MUSIC, whereas the fat cats think it's all about the MONEY!

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