This is old, but it deserves to be watched and rewatched. Enjoy.

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” story of 2007 in the music business was of course Radiohead releasing their album “In Rainbows” basically for free on the internet (honorable mentions go to Madonna for leaving her record company for a promoting agency and Prince giving his album for free on an UK tabloid mag). Riku (head of MySpace Finland) tipped me that the latest issue of Wired had a great interview of Thom Yorke and David Byrne (from Talking Heads) which tells how the ploy eventually went down.

These quotes especially struck me:

Yorke: In terms of digital income, we’ve made more money out of this record than out of all the other Radiohead albums put together, forever — in terms of anything on the Net. And that’s nuts. It’s partly due to the fact that EMI wasn’t giving us any money for digital sales. All the contracts signed in a certain era have none of that stuff.

Byrne: I’ve been thinking about how distribution and CDs and record shops and all that stuff are changing. But we’re talking about music. What is music, what does music do for people? What do people get from it? What’s it for? That’s the thing that’s being exchanged. Not all the other stuff. The other stuff is the shopping cart that holds some of it.

Yorke: It’s a delivery service.

Byrne: But people will still pay to have that experience. You create a community with music, not just at concerts but by talking about it with your friends. By making a copy and handing it to your friends, you’ve established a relationship. The implication is that they’re now obligated to give you something back.

Byrne: You’re valuing the delivery system as opposed to the relationship and the emotional thing… [talking about record labels]

Yorke: You’re valuing the company or the interest of the artists rather than the music itself. I don’t know. We’ve always been quite naive. We don’t have any alternative to doing this. It’s the only obvious thing to do.

A lot of great stuff there. I’ve been juggling this idea as to how “should” a band or artist make a living in the future. For one, I think free downloading is something that cannot be beat, so you might as well give the music away for free. So how do you make money? Simple: concerts. I’m not talking only about Chris Anderson’s vision of free music and expensive gigs, but also selling the music from the concerts as soon as possible! Think about it: a gig ends, the lead singer yells on the mike that “this gig will be available for download on our (MySpace) site in two hours!”. People then can go home and download the show for a fee of, say, 2$ (or free with the code from the admission ticket!). The key here is speed: after a great concert people want the gig as a souvenir so the can relive it and play it to their friends (and brag about being there, of course).

Speed is also important because as I already mentioned, it’s going be pirated anyway so you need to make that quick buck from those who are impatient to download it. Also, I know that having the gig online two hours after a concert is quite fast and that it’s impossible to have the gig remastered, but there’s a catch here: those who downloaded the “raw” version of the gig can download the remastered version for free once it’s online, everybody else has to pay a premium. I’d imagine that a moderately successful band has at least 50 concerts per year. Sell the music after every gig to your most adoring fans and it adds up to a lot of money. If you want to make money in this economy, you better be selling an experience, or at least a souvenir from an experience. And I haven’t even discussed selling the videos or photos from the gig. I’m sure that you can come up with other souvenirs from the gigs that have value to the fans.

Technology firms are waking up to the new realities of the music industry as well. Wired recently proclaimed that the Zune is a better deal than the iPod thanks in large parts to its music store, which has subscription based downloads. Also, sharing music with your friends (via the horribly named “squirting” feature) is pretty cool, and is more in tune with the new realities of the music industry. If I were Microsoft, I would reward anybody who “squirts” a lot of music (sounds disgusting, doesn’t it?) to their friends by giving them more credit for downloading. It’s basically free radio airplay from a band’s perspective. BTW, I don’t know if Microsoft is doing this already, my apologies if they are. I know that the record labels get a small share for every Zune sold, at least. Nokia recently announced that some of its new phones will become prepackaged with music from Universal Music, plus a free one year subscription to the Nokia Music Store. So I guess that solidifies this as a trend now.

So I guess this is where we are going: music given for free and more emphasis put on concerts (with higher ticker prices, I’m guessing) in terms of making money and experiential value. My personal guess is that we will start seeing revenue models for music stores that are reminiscent of Poker Sites: lots of “free money” up front, bonuses for frequent users and those who invite their friends and more innovative pricing models instead of the old “buy one song or entire album”. My guess is that music stores will try to lure people into more expensive subscription models by offering some kind of exclusivity, whatever it may be.

Like it said in the Wired issue from last year, this is great time to be a music fan. But I’m sure that is a great time to be a music entrepreneur as well.

And oh, this is the route that we most often take on our power walks:

That’s me looking over Ruoholahti in the southmost spot of the island. Seurasaari is such a great spot for relaxing walks.