10 years ago I was a small time hip hop DJ who did some clubs and radio. Before I became a programmer, my dream was to become the next Puffy. I studied the industry big time (reading books, talking to people inside, doing interviews) and still do. I also worked security for years for the main purpose of being able to interact with the people behind the scenes (managers, promoters, etc). So even though I am not an expert, I know a decent amount about the music industry.

First of all I see some talk about how you can predict a hit. No, you can't. You have basic formulas that you know can do okay but a hit is usually a surprise. No one could predict Adele would be as big as she is now. Her first album was very good but it did not pick up steam in the US market. Lady Gaga was bounced around as well. She was almost dropped from her record label until Akon picked up the slack and was able to do something with her. Basically what I'm saying is that after something is made you may be able to tell that it is going to be big but you have to craft it first. While crafting it, you are not going by formula but what feels right. You don't know that it is going to be a hit while you are making it.

Second, you have to understand the record label model to be able to disrupt it. The point systems, mechanical royalties, publishing, different rules for selling overseas, etc. This is what the labels are good at. This is the moat to their castle. In the past, (before around 2002 or so) record labels would put out a bunch of artist and see which one stuck. They would lose money on 80 - 90% of their artist because all they needed was one or two to make it big to make their money back. Minor artist would also be able to make the label profits through the use of singles. But the record labels gave up the singles model for the larger profit margins of albums. Now it is different.

Now they have to be real careful who they put out. The profit margins are a lot thinner now than what they used to be. Piracy is one reason but a bigger reason is the more places for people to be able to spend their disposable income. The record labels did not make a pivot to change the way they did business when the economic problems hit. Instead the industry shrunk down and now we have less labels. But they are still doing business in the same fundamentally screwed up way that they did in the past. In their mind, why change something that has worked for over 50 years. Think Kodak and the reason for their recent bankruptcy.

The one thing they did change is how to make artist pay more for the squeeze that the record labels are feeling. New artist these days have to bring to the table a built in fan base. The label then will try to expand that base. For the most part, if you want to be signed to a record label these days then they have to know that you have a track record with fans. Take an artist like Whiz Khalifa. He already had a big buzz when the record labels signed him. He could have made a lot of money staying independent. But most artist want the international fame that accompanies the major record labels. So he signed with them so they could push him internationally. In the past having a buzz would help you get signed but it was not the only factor. Now in most cases, you HAVE to have a big buzz.

The labels are also making the artist pay more in a new type of deal structure. This signing is called a 360 deal. In the past, the deal basically was that an artist would receive a (relatively) low amount of points on a record put out. This is especially true if you were a new artist. But it didn't matter because if the record did well they could tour off of it. The tour and merchandise money was basically the artist only. This is how they would get rich. Now record labels have made sure they get a part of that money as well. A 360 deal makes an artist have to cut the record label in when it comes to merchandising and tour money. AND they still get low points on the album. You either accept this new industry practice or you do not get signed.

The record labels are ripe for disruption. New artist are available all of the time. But you not only have to study what the labels got wrong, you also have to study what they got right. First, musical talent is only part of the equation when it comes to selling music. People have to be personally invested in the artist. They have to like them and think that they know them. Record labels are experts at this. An artist either has to relate to the consumer or the artist has to be someone they idolize. Think of it like the Fanboy trap that we see when it comes to tech. Go to any gossip blog site. People argue about the artist as if they know them. Some people love them for no reason and others hate them for no reason. But the key factor is that they love talking about them. So if you build software to disrupt the industry, this has to be in the equation. Your service has to allow people to have a personal connection with the artist. None of the music services now do this. They let you listen to the artist but the connection is already built in from somewhere else. I would say the best right now at doing this is Youtube. But even Youtube could do a lot better job of it. MySpace was kinda on the right path but bad design decisions killed that.

Second, a new service to disrupt the industry would also have to think about the people who make the artist what they are. The stylist, the make up people, the manager, the promoters, the background singers, and etc. An artist is a package. And you would have to allow for that package to be dealt with in a new disruption model. The record labels feed a lot of people and a lot of those people are vital for a record and an artist to be pushed.

I have a lot more that I have to say about this subject but I have already built up a wall of text so I'll cut it here. I'm a little bit passionate about this topic because I have seen for years how the label system screws both artist, DJ's and fans. They need to be brought down and brought down hard but it will not be easy. The one thing that you will find is that most artist have no business sense. They want to be able to create and that's it. We see this line of thinking with some software programmers as well. But programmers usually keep a steady job. Most artist have a short shelf life. It's not until they are broke that they realize how they have been screwed. Before that happens though, they love the industry.