Maybe there IS money in digital music.

In an age of declining CD sales and rampant online piracy, can the major labels make money from digital music?

The answer just might be yes. The Music Industry News Network is reporting the latest quarterly results for Warner Music Group, and one thing that stands out to me is that their digital revenues are increasing in real numbers, and proportionally.

Specifically,

* Total revenue of $989 million increased 7% from $928 million in the prior-year quarter, and grew 1% on a constant-currency basis.

* Digital revenue was $141 million, or 14% of total revenue, up 9% sequentially from $130 million in the fourth quarter of fiscal 2007 and up 41% from $100 million in the prior-year quarter.

$141M in digital revenue… 14% of total revenue… 41% growth from the prior year. That’s nothing to sneeze at, and it goes a long way in answering the basic question that has kept many from taking the digital plunge, that being “Where’s the Money?”

Sure, we don’t know the costs associated with bringing in those revenues, but I’d argue that they’re proportionally less than their CD side of the business. No waste, no worry, and my bet is more money to the bottom line.

For some of us that proclaim the eventual death of the traditional music industry (yeah, I’m in that group), these figures also highlight the real facts that 1) consumers place real monetary value on premium content, and that 2) consumers are willing to pay for something that they could obtain for free.

That’s all good news. Although we need a radical restructuring of the music industry’s business model, we don’t want the labels to tank. Like any industry that is forced into change, from horseless carriages to cars, from trains to airplanes, from landlines to mobile phones, we need the major labels to survive by better serving their music acts and servicing their customers. They should have the opportunity to thrive through technological innovation and targeted marketing that only the Internet and mobile arenas provide. They should benefit from economies of scale and efficiencies that result from making their massive catalogs available, well, to the masses.

We want them to succeed, and some–those that are willing to weather the change–will succeed.

So here’s to you, WMG. You’ve made money from digital music sales, and the indications are positive. Congrats.

There isn’t any gold in them thar hills, because the golden days are over. But don’t knock copper mining, either–there’s still plenty of money to be made.

Will the Music Industry’s “Last Stand” be a music tax?

Techcrunch recently ran an article regarding the Music industry’s “last stand” as being a music tax. Coordinated via ISPs, NIN’s Trent Raznor puts it something like this:

“I think if there was an ISP tax of some sort, we can say to the consumer, ‘All music is now available and able to be downloaded and put in your car and put in your iPod and put up your a– if you want and it’s $5 on your cable bill.’”

Yeah, that pretty much sounds like a last stand to me. And it won’t be successful.

You could try that (and people have) for mobile phones and such, since access to free mobile content is offset by “convenient” access to for-pay premium content. But for the Internet as a whole that model won’t fly. Nor should it.

The business model for music has changed forever, and there’s no going back (although the industry will continue to try). Due to unlimited digital distribution of legal and pirated content, as Michael Arrington states in his article, the perceived value of recorded music will approach zero. File-sharing is not always convenient, so yeah–some people will pay retailers for quick access to their top acts. But that’s where the price is going–down, down, down. The market–i.e., the consumer–has spoken.

So where does that leave the performer, songwriter, recording engineer, agent, label executive, etc? Like so many industries before, they’re being affected by circumstances beyond their control. They can either stick their head in the sand and fight for their lost cause or look to the future (or look for a new career). It’s not a matter of being right or wrong anymore, it’s about looking for success within a new business model. Either way, it will be nearly impossible to sustain their previous lifestyle.

Unless, that is, they take advantage of these revolutionary changes and seize the moment. Unless they become innovators in an innovative time. You don’t have far to look–some acts, labels, and sites are doing just that. Successfully and legally.

Fortunately, the costs to record, distribute, and transact music have declined dramatically. These days it costs a couple hundred bucks for professional recording software, and anyone can put their music up and give it away or try to sell it. Furthermore, musicians and all content creators now have access to a global audience that was unimaginable just 10 years ago. Obviously, someone has to *want* your music (notice I didn’t say it had to be good), but the good news is that you don’t need a middle-man to be successful. You don’t need a middle-man to maintain your success. You need talent, along with business and marketing sense. You, the artist, can finally control your destiny. So stop complaining about piracy, copyright infringement and copy protection, and find a way to live and thrive by playing within a new set of rules. You may have an argument, but you don’t have a viable solution that won’t end up biting the hand that feeds you. It’s time to move on.

For aspiring musicians, a new world of opportunity lies ahead, and millions of them are taking advantage of it. For established musicians, they’ll have to work a little (harder)–those days of living high on the hog are over. I recently blogged about Paul McCartney and the Eagles finding new avenues for reaching their audience, which is the approach I’d take if I was an established artist trying to hold on to my listeners. They can still milk their (deserved) reputation for all its worth, even in this new paradigm.

For the rest of us, we can enjoy the advantages of this new marketplace, where more music is available than ever before, and for a price of next to nothing.

As we all know, listening to recorded music is only half the experience. Music is not a product, it’s a message. And the musician is the messenger. If I like the message I’ll engage the messenger–I’ll read his blog, I’ll buy his shirts, I’ll pay to see him/her in concert. I’ll pay extra to subscribe to his site and get behind the scenes access to videos, demo takes, or back-stage access. If he reaches and attracts enough people like me, he might just be able to squeak out a living doing what he loves. If not, he’ll have to pick up a day job to sustain his passion (it wouldn’t be the first time that’s happened).

As you know, I’m with an online publisher, and yes–the same is happening with books and video. Just look at the plummeting price of video downloads and the shortened life cycle of movies. All publishers that depended on assessing value based on restricted distribution means or non-market-based pricing of digital content are in for a surprise. The growing pains we’re in now with music recordings, due to radical industry-to-market non-equilibrium, are already touching these other content industries.

Either way, it’ll be an exciting ride.

Flux vs. Ning–Is there a clear winner? Not yet.

In my never-ending quest for a “community in a box,” I was originally quite enamored by Flux. Their site offers several layers of services- 1) fShare, a social networking tool for sharing content; 2) Flux Lite, for sharable customized profiles, and 3) Flux Custom, their “full community” offering. Flux Custom is structured as the competitor to Ning (which I’d posted about earlier) , so I thought I’d give it a shot.

First of all, let’s be fair and say that all of these applications are still in beta. Flux is upfront with that, and recognizes that some bugs exist.

Registration for Flux Custom was easy. You then get an email where you’re able to set up the basic site preferences for your community site–name, logo, etc. You also get a follow-up email from a real Flux representative, which goes a long way in my book.

You can edit the themes and layout of the main community page, and customize the individual community widgets.

I haven’t populated the widget blocks yet–that’s what a community does–but so far I’m encouraged. I did run into some glitches and error messages, but many seem to have been resolved. I’ll bang on it a little more.

Bottom line–these guys are worth looking at, and Ning’s no longer the only game in town. Now everyone can have their own community!

Mobile books, collaborative fiction, and Twittories

I’d previously posted elsewhere about what I consider to be the next wave–mobile publishing. More people have cell phones than have laptops, and content generation–videos, photos, messaging, blogging–is becoming the primary reason to have a cell phone as opposed to, well–talking. It was only a matter of time before people took to authoring books via these portable devices.

My bet is that it’s not going to take long for this Japanese phenomenon to run its course through the rest of Asia and Europe, and possibly even here in the Americas. As a matter of fact, Podcast Network CEO Cameron Reilly has launched a collaborative writing initiative he’s calling Twittories–fiction written via the Twitter mobile application.

I can see that. Fiction–especially short stories and poetry, can lend itself to this model. Who knows, this just may be what it takes to get this thing off the ground here in the US.

Back in the day, us Lulu stalwarts used to evangelize the “4C’s”–Content, Collaboration, Community, and Commerce. It’s still difficult to find the commerce needle in the collaboration haystack, but eventually someone will–especially in the realm of user-generated content.

The “Community Question” for Business–Build, Buy, or Join?

The “Community Question” haunts almost all companies with an online presence, and shapes both our day-to-day and strategic approaches to eventual success. Furthermore, there’s no doubt that online communities are the life-blood of today’s ecommerce sites–eBay, Amazon, and Lulu (where I work) depend on their communities for feedback, return traffic, repeat business, site stickiness, viral marketing and brand reinforcement. Your community is your strongest asset and staunchest ally. Be kind to your community because, in truth, it’s not your community. They own you, and will quickly turn on you if you slight them.

But, for better or worse, your online business definitely should have a community around it (see where community ranks in “Top 10 Things To Do As a Startup“) . A strong, dynamic, and exciting community is a significant competitive advantage and serves as a barrier to entry for others trying to gain traction in your space–especially in new markets.

On the other hand, building a successful enterprise requires focusing on your core strengths, i.e. those specific efforts that will deliver superior products or services for your market. Unless you’re like Flickr or YouTube–that is, depending on ad revenue or social network effects–your core strengths will not be community technology. As a matter of fact, companies (large or small) can easily get distracted by spending development cycles on important, yet non-critical, community platforms and infrastructure.

Avoid the temptation. There’s no need for you to build a better blog, a better profile management system, a better photo arranger, or a better widget. Why? For one, you’ll always be behind the curve because this isn’t your space. You didn’t hire your engineers to be experts in this field, and they’re not. Two, you’ll never know which one of the top 20 widget functionalities you’ll need–which will add the most value, and there’s a good chance you’ll pick the wrong one. Three, by the time you pick one to work on, and even if it is the right one, before you deploy it there will be 20 more newer cool applications to emulate. You’ll get distracted. In essence, you’ll catch yourself looking at every pretty girl (or every cool community app) that walks by while your competitors are focusing on the “one thing” (whatever that is) that brings success in your market.

So what’s a company to do to take advantage of the community phenomenon?

There are two paths, actually.

* Subcontract the development: If you can’t avoid the NIH (“If it’s Not Invented Here we won’t use it”) approach and decide to build your own community tools, then subcontract these efforts through an external engineering house to meet your specs. But don’t spend your key development resources on this project.

* Buy, Rent or Join “off the shelf” community platforms: This option was the primary reason for writing this post to begin with, but I caught myself needing to post the preamble above. But recently there have been several compelling “community in a box” hosted applications that have caught my attention–namely Ning, Flux, and Wetpaint, which I’ve been investigating. At this point each deserves it’s own separate post, so we’ll start with Ning tomorrow.