 In the days of physical product, if I had a big hit record and you had a big hit record, both of us would drive people to the stores and there's a better chance that people would buy a record. Today, if I have a big hit record, it's taking money directly from you. What's up? What's up? What's up, everybody? I'm Brandon Shawn. I'm Cory. And this is yet another episode of No Labels Necessary Podcast. Today, we have a very special guest. Obviously, you guys know we love to bring education and information to the upcoming artists and managers and music professionals. And today, we have Don Passman, the author of Everything Well, All You Need to Know About the Music Business. This is literally one of the cornerstones of Music Industry Bibles that I've recommended several times over. It's been recommended to me several times where I'm like, oh no, I already read it. This is one of those key scriptures almost when it comes to music in terms of information that many have built their careers off of. So, Don, pleasure to be able to speak with you, man. Thank you for your time and like looking forward to the questions that we get to ask and hopefully bring more value to the artists. Oh, thanks, Brandon. And thanks for having me on, guys. For sure. For sure. I mean, just getting right to it, right? You're updating, all right. All you need to know about the music business. There's been so many iterations. The first one that you wrote was, when was it again? 1991. 1991. I just got here. I just arrived. But now we're on the 11th edition that is coming out tomorrow, actually, when we're recording this interview. It's probably going to be out already by the time it drops. October 24th is the release date, 2023. The 11th edition has there been a bigger shift in terms of the level of update that's required this time versus other times in the past? And if so, why? Well, the biggest level of shift was when we went to streaming, which happened in the last edition of the book. But ever since the beginning in the music business, music has always been monetized by selling something. So for example, it was a piano roll or it was sheet music, it was wax cylinders. It was always monetized by selling something. And in that world, when you bought a CD, it didn't matter to the artist or the record company, whether you played it once a thousand times or you never took it out of the shrink wrap and used it for a doorstop. It was the everybody got paid the same. In today's world, it's based on streaming and the whole economics are based on how many times people listen. So the more listens to the songs that I get, the more money I'm going to make. And the reason is because the money is allocated by taking all of the income from the subscription service, all of the subscribing money, all of the advertising money, putting it in a pot, looking at the total number of plays that month for all the music, dividing your plays by that total. And that's the percentage of the money that you get obviously after the digital service provider takes their share. But that's what goes back to the label and the artist, right? So it's completely based on how many shares, how many listens I have compared to everybody else's listens. Well, that's a very different world and ways that aren't exactly intuitive and that you don't necessarily think about. So for example, in this world, the more plays that I get, the less plays you get. And that means that the more money I make, the less money you make, because it's a finite pool. In the days of physical product, if I had a big hit record and you had a big hit record, both of us would drive people to the stores and there's a better chance that people would buy our record. Today, if I have a big hit record, it's taking money directly from you. So it's a really different ecosystem and the company's whole marketing strategy had to shift toward how do I get as many plays as I possibly can. Yeah, it's like a music hunger games, right? I didn't talk about that way. Well, I like that. It really made sense when you think about the investment that's gone into market shares as a whole, which then leads to catalogs, right? Because that's where so much of the market share already is. What are your thoughts on the increased investment in catalogs and where that's taking us? Well, in terms of you mean these mega-million-dollar sales that you read about with artists selling their catalogs, is that what you mean? Yes. Well, I have very strong opinions on that topic. For the most part, I think it's a mistake for artists to be selling, even though my own self-interest would say, I should encourage the sale because I make money on it because I do. If I'm going to do a large deal, I'll get a fee for it. But historically, everybody who sold their catalog is pretty well regretted it. Michael Jackson bought the Beatles catalog for $47 million. Today, it's probably worth a billion or close to it. And there are a number of stories of people who sold their income streams, and now every year, they make a third of what they sold it for if they'd kept it. So it's also an exercise of, what are you going to do with the money? Once you sell your catalog and you pay your taxes and you pay the expenses of selling, you have X dollars left over, if you invest it, can you make what the catalog was making? Do you have the upside that the catalog would have had? So for the most part, I think it's a mistake for people to sell. Now, having said that, there are situations where it makes sense. For example, an older artist where they have heirs that either don't know what to do with the catalog or will kill each other while they're trying to run it because they're greedy and worried about somebody taking advantage of them. Or if you have a need for cash and you're desperate, of course, that's a possibility. Or sometimes it's an estate planning move because the value of your catalog goes into your estate and there's a tax on it. And if you don't have the cash available to pay the tax, you might have to have a fire sale. So maybe you want to do it more orderly. So there's some reasons to do it. But a lot of the time, I don't think it makes sense. If there's such a strong argument to keep it, and so many people have experienced regret in selling, what do you think the gap is between the amount of artists who are selling these catalogs? What are they missing? Why are they selling? What are they seeing in the atmosphere or who are the people who are there maybe handlers telling them to convince them to sell? What's the gap there? It's hard to say. I mean, people sell for all kinds of reasons. Some people just simply want the cash and they want to guarantee that the income is not going to go away and the value is not going to go away. And it's true that catalogs are now selling historically higher on a multiple basis than they've ever sold in history. But think about who the buyers are. The buyers are fairly sophisticated financial people and they're betting the other way. They're betting that the catalog is going to be more valuable as time goes on. And we know, for example, that the rates on streaming for songs are going to go up. It's already built into the statute in the US. We know that subscription prices are going to go up in the future. We don't know when, but it will. And those things are going to increase revenue for the catalogs as they tick along. So there is potential upside for it. So I can't speak to everyone and I'm not against somebody if they as long as they understand it and make a reasonable decision saying, yes, I understand that, but I want to sell. I want to take some chips off the table. I want to de-risk it. Maybe they'll sell half of it instead of all of it, something like that, so they can hang on to a part and keep some upside. So there are reasons that it gets done. But I can't explain, you know, sometimes I don't think it makes sense. Sounds like the artists are hedging their bets against where the industry is now. These investors are looking at where they think it'll go. This seems to be comfortable. We have more faith that the industry will become more profitable than you may necessarily have. Yeah, I think so too. Okay. So a question I kind of had while just looking through everything is we're on the 11th edition and one thing you hear a lot is that the music industry is a very fast-paced, fast-changing environment. We've talked a lot before about this seems to be one of the great skills that all people in the music industry have is adaptability and being able to move with the changes. So in your research for these different editions, have you ever been able to quantify and put a number on like how often the music industry experiences significant shifts? Is there a number that you've done like every nine to whatever 15 months the industry goes through something that can completely change everything? Is there something like that that you found in your research? Not in any specific time period, but if I look back at prior editions of all you need to know about the music business, there was a huge change when CDs came around. There was a change when cassettes came around, although cassettes were already there by 91. New configurations and now streaming tend to shift the model in the industry. Sometimes there's new legislation, sometimes there's just a new practice and a new way of doing it. I think the DIY, do-it-yourself of artists these days is a shift in the industry because you couldn't do that 20 years ago. The reason being that the record companies were really gatekeepers. In other words, to get a record in the stores in the days of physical product you needed the expense of manufacturing the product, you had to ship the product, you had to get the stores to take it, you had to get paid by the stores, then you had to tell people about it and to tell people about it meant radio and to get on radio you needed a lot of clout with the industry because they have relatively limited playlists or to get on television you need the clout to get on TV when nobody's ever heard of you. Those were the traditional ways of doing it. Right now anybody can get their music out in a matter of minutes. In fact, every day, and this was a piece of research that I found fascinating, 100,000 new tracks are uploaded every day and so how do you break through the noise? That's the real game now is that, you know, yes it's easy to get my music out but how does anybody ever know about it when there's, you know, hundreds of millions of pieces of product out there already? Let's talk about the fact that most artists fail to understand that it doesn't take forever to monetize your audience. We had an artist literally begin to take off and make $20,000 from his brand new audience in the same month. But how is that possible? It's because we're in a new era baby. Yes, you want to continue to build a relationship over time but the first time you make money from your audience can happen today if you understand the new age music marketing funnel for artists. So if you want to hear about this approach and how you can apply it to yourself, I made a completely free video to watch at www.knowlabelsnecessary.com slash monetize. You got to make sure you put the www or if you're on YouTube you can find the link in the description and check out how we help monetize artists for completely free. I promise it'll completely change how you see things. So one thing that I heard you say was basically referencing the change of the medium in which we consume music being an impactful moment in shifting the music industry every single time, right? From cassettes to CDs, MP3s, whatever streaming, right? Whenever that medium changes just going to be just some major changes in the industry as a whole. But what about making music, right? So you think about instruments, then you have the digitized instruments and now we have AI. That's an entirely different beast and so many people are afraid of what AI is going to do to music. How do you see AI-generated music impacting the industry? Yeah, and I have a whole section on AI in the new edition of All You Need to Know About the Music Business because it is such a fascinating topic. There's a lot of legal questions around AI. Interestingly, the law in America and most of the world is you can't get a copyright in AI created material. In other words, you can't protect it from somebody else using it once it's created. You can only get a copyright for human creations, not for machine creations. And so that part makes it pretty interesting. The issue of AI sounding like other artists I think is a problem, although it seems to have gotten a bit better. But I think that's out there and potentially an issue because artists want to protect their brand and want to be able to protect their sound and not have their sound used in a way that they consider demeaning or below what they would do. And also there's an economic issue because as I talked about earlier, the way that the money gets divided, it's based on the number of plays that month. So if you include AI in those plays and nobody gets paid for the AI, a chunk of the money gets set aside that would have gone to the quote, AI plays except they just keep it. And then the rest of it gets paid to the artist. So that means that what goes to the humans is diluted by what's done in the AI. And the companies, of course, are all over this. So they're trying to fix it contractually by saying they can't use AI to reduce how much the companies get paid, which I think they'll be affected with. But it's too early to tell where it's going to go and how it's going to go. I mean, use properly, it could be an enhancement, it could be a tool like Pro Tools or something as a way to make your recordings better. But it's very, very new. And it's very scary beyond the music business. I mean, what AI is going to be capable of doing and the speed at which it's becoming faster and faster and better and better is a proposition that's going to be a concern throughout the world and almost every industry. Well, you say that companies are trying to get it where the streaming companies aren't able to use AI to reduce the share. Are you talking about the record labels? Yes. And the publishers, publishers meeting the people to represent the songwriters. Why do you think that they'll be successful in making that happen? Because they have a lot of clout with the digital service providers, with the streaming services. I mean, the streaming services and the record labels and publishers are in a mutually assured destruction. There's no business without their product and then there's no marketplace without the digital service providers. So they have to figure out a way to get along. Seeing everything that you've seen, I would like to hear your opinion on a concept that I've kind of observed. I feel like oftentimes the labels, the publishers are slow to innovation, but they use the leverage they have of a catalog to then latch on to whatever the next thing, whether it's a TikTok popping up, okay, yeah, you're driven by music. And now we want to somehow figure out a way to deal with you so we can leverage or Spotify doing what they're doing. So there's always other innovations that are happening that they could create somehow in-house. But for whatever reason, they kind of just wait to see what was going to happen next. And then use the leverage of the catalog to muscle their way in. Would you say, one, that's a fair assessment? And two, why do you think they behave in that way? Well, I think it's an accurate assessment, but I don't think there's anything negative about that. In the same sense that the publishers are not in the business of providing digital services and neither are the record labels. So they would not be doing that in-house. It's very expensive and takes a lot of personnel and a lot of investment and a lot of money to do it in the same way that they may not own the real estate where their offices are. They're not in the real estate business. They're just in the music business. So the fact that someone wants to go and spend the money to innovate, then when it gets to a point to where it makes sense, they'll get involved with it and they'll let them use their product or they won't, depending on whether they think it's a real business or not a real business. Because there were a lot that came and went in that process and the labels would just soon let someone else take it. Also, any one label to do it would have to get the label from the other product. Nobody wants to go to a site that only has Warner Music. I'm making this up because the consumers don't really care what label an artist is on. In fact, a lot of people don't even know what label their favorite artists are on. They just want to hear the music they want to hear when they want to hear it and can't blame them for that. So I don't think there's anything wrong with the way that they're doing it. And it's sort of typical in any business when there's innovation. It tends to come from the outside, not from the established people. And so I think it's just part of the ongoing pattern. Yeah, I love that answer. And this is kind of rooted from the idea of AI being able to take over the label's market share. But then on the flip side, there's another threat to a label's market share, which is the rise of the independent artists. How are labels from your observation kind of responding to that? Are they going to be a nice coexistence? Or are they trying to figure out how to minimize that? What are you doing? I think the labels are responding to it by chasing the artists that are able to do it themselves. There's a whole section and all you need to know about the music business on exactly that, which is why artists have more power than they've ever had in history. And the reason is that the labels aren't so much investing in developing artists as they are watching for data and seeing which artists are to get some traction. So you have to start it yourself. You have to get something going and you have to build a buzz and you have to build a thing. And I have a whole section about how to do that. It's not an in-depth thing because that's not the thrust of the book, but I think it's essential to what's going on now. And because the labels have made that decision, they're now chasing artists that all the other labels are chasing because they all get the same data. And so you get these bidding wars and new artists who've never put out a record are getting the yields that used to be reserved for superstars, both in terms of big advances, owning their masters, getting profit shares, all these things that new artists could have never dreamed of 20 years ago. Wow. What you're saying kind of makes me think about a lot of times we view this, a lot of the improvements in the industry to be almost like a social good. And now they want to give us their rights. So now that we've educated so many artists to do these types of deals, we're getting better deals. But a lot of it just really sounds like a result of a changed landscape. And the labels are just being reactive to that, not necessarily changing because artists are more educated. Yes, maybe some of it, but it's just like, well, this is a new playing field and we have to adjust based on the risk that we're taking now, right? Yeah, I think that's right. And I think they made a conscious decision not to take these risks. And this is the consequence of it, because they're now, you know, getting in this FOMO battle and spending huge amounts of money. Awesome. Awesome. Well, appreciate your time, Don, man. Again, everybody, all you need to know about the music business is a critical read for anybody who wants to be in the music business. Coming out tomorrow, again, this might already be out, but this is the 11th edition. You definitely want to update because these new topics, when we talk about AI, I want to make sure I don't want to miss some of the primary updates like that. I got to add it over the metaverse, which we need to get a chance to get into. That's a huge topic. I have a lot of questions about that. And just the numbers in general, which you can tell Don is very burst in. So, appreciate your time and love the perspective. Everybody go check that out. And that's yet another clip. I'm Ray Manshine. I'm Cory and this is Don. We're out.