The Racer Vision

Racer's short-term goal - what we hope to accomplish during the next five or ten years - is to make more good music available to music fans, and to turn their interest into sales for the artists who create that music.

Racer's long-term goal is to go out of business.

What might the future hold?

Technology is changing the entertainment industry so quickly and so profoundly that no one knows what the business will look like in 20 years. One of my favorite visionaries, Alan Kay, once said that the best way to predict the future is to create it. Here, then, is my current vision for the future of the music business:

Music will no longer be sold as pieces of plastic; it will no longer be a tangible product. Instead, individuals will be charged for downloading a certain amount of information, with higher prices for video and lower prices for straight text. You will be able to download something on a "rental" or "purchase" basis; if you "purchase" a piece of media, you will be able to download it as often as you like in the future without paying for it again. If you instead choose to download something on a "rental" basis, you are charged each time you download it, but once you've "rented" it 10 times, the system records it as a purchase, and you never have to pay to download it again. The rental price would always be 1/10th of the purchase price.

Where would the money go?

In order to reflect something of the current pricing structure, and to keep media inexpensive, so as wide an audience as possible can have access to all media, a standard pricing structure would be useful - at least for the first five years or so. I would like to see something along the lines of $10.00 as the purchase price for a full album (say, an hour's worth of music, which is a little longer than many albums are today).

For example, let's say I purchase a new "album" - 10 songs, a total of 60 minutes. Had I rented it, each rental would have cost me $1 (1/10th the cost of buying it). The money is divided evenly between the songwriter(s) and the recording artist(s), so each gets $5. They pay a small fee to the server that administers the distribution of their music, certainly no more than 10% but perhaps as little as 5% or even less. (I believe the Harry Fox Agency, which currently administers mechanical licenses for most publishing companies, currently charges less than 5%, and their activities include fairly extensive auditing in addition to basic administration. Electronic distribution could be highly automated, so a high fee shouldn't be necessary.)

How does this compare to the amounts songwriters and artists currently receive? Well, if a single songwriter is responsible for all ten songs, she or he would currently receive about 70 cents per album sold, so the songwriter is clearly much better off under the system I'm proposing. A recording artist might currently get 50 or 60 cents per album sold (calculated from Passman's "All You Need To Know About the Music Business"); even if the artist is powerful or lucky, the amount would probably not exceed $1.50. So the artist will be much better off, too. The consumer is also better off, having paid $10 instead of $17, the current list price for CDs.

So if CDs are currently selling for $17 and artists and songwriters are getting less than $3 of that, where's the rest going? It looks like the people creating the music are really getting taken for a ride.

However, the rest of that money is going for something: distribution and promotion, both of which can be very expensive.

Distribution takes a big bite out of the total cost of the album, currently. In the future I'm envisioning, distribution as we know it would disappear, replaced by electronic distribution. This means no inventory headaches, no trying to figure out how many copies of something to order for your store; no going to the store and finding them sold out of the album you wanted to buy; no staggering returns if an album was overshipped; and best of all, no chemical processing, no plastic, no shrinkwrap, nothing to contribute to the degradation of the environment (aside from an increase in the use in energy, an increase that would be partially offset by the reduced use of traditional trucking and shipping, and that could be met by increased use of renewable energy sources).

The other main service provided by record labels is promotion. It's likely that artists would still want some assistance in promoting their music, but this could be paid for directly by the artists (who might hire the people who now work for record companies), paying the actual costs instead of signing over the rights to their creations in exchange for promotion and distribution.

In many cases, labels also pay for the recording costs up front, which is a considerable risk. However, artists could instead apply for loans to make their records, so that after the loans were paid back, artists would own their creative works free and clear. (Currently, the recording costs are recouped from the artist's royalties, so that the recording costs for successful albums are ultimately paid by the artists, but the artist typically does not then gain ownership of the work.)

In my vision, this system would apply to all media, not just record albums. That means radio (instead of choosing from what's available at 3:00 PM on the 50 stations in your area, you can choose from anything that's been broadcast anywhere in the world), television (your cable system no longer carries 70 channels; instead, you can elect to see three episodes of MASH, followed by the highlights of an auto race, then the votes cast at yesterday's city council meeting, then a documentary about Zaire), films (available from the same source as television programs) ... everything. That means that individuals will start racking up very high media bills, at $1 an hour for radio, or (let's say) $5 an hour for video. How can anyone but the very rich afford all this?

Where would the money come from?

The answer is the same as it is now: advertising. The important difference is that individuals would be able to choose which ads they see. A random listen to my favorite radio station turns up ads for cheap beers (which I never buy), fast food places, grocery stores, television programs, jewelry stores, and car dealers. I don't plan to buy a car or a piece of jewelry anytime within the next five years. I definitely consider it a waste of my time to have to sit through these ads, and I consider it a waste of the advertiser's money (although some advertisers think it's important to reach people who aren't candidates for their products).

Suppose that, instead, individuals could select the commercials they wanted to view. This would eliminate a lot of the wasted messages, and would certainly encourage funnier, more creative advertising.

How would the financial side of this work out? Currently, a single 60-second ad on a rock station during the mid-afternoon, when they have about 85,000 listeners, costs $150 ... less than 2/10 of a cent per listener. (This figure is for a particular station; of course, it varies from city to city and station to station.) In my case, however, I have no interest in the product being sold in at least 4 out of 5 ads, so the cost per useful listener (that is, per potential customer) may be as high as 9 cents per listener.

Here's another way of evaluating the cost of ads. I placed print ads in a number of music magazines promoting Racer's free sampler. The ads cost me 50 cents per respondent (based on how many people requested samplers) and up.

If the advertiser paid 10 cents per person who downloaded their ad, it would take about 10 ads to pay for an hour of radio. That's fewer ads than I hear on my radio station now, and the advertiser would win, too, by knowing that the people who downloaded their ad was interested in it. Of course, if advertisers paid 25 or 50 cents per person, it would take far fewer ads to pay for an hour of non-advertising media.

It may be, too, that I've overestimated the appropriate cost of an hour's worth of audio or video. Maybe it should cost 10 cents to listen to an hour of radio, and 50 cents for an hour of video; then a rental would turn into a purchase after 100 downloads. I've pulled those numbers out of thin air, trying to stick to multiples of 10 to keep the math simple.

I need to research this further, but I believe ASCAP and BMI pay the songwriter and publisher less than 20 cents when a song is played on the radio. (The recording artists currently get nothing when their songs are played on the radio in the US; in other countries, the recording artists and the publishers both get money for airplay.) If that's so, then an hour of radio (15 songs x 40 cents (20 for the publisher/songwriter, 20 for the artist, just to make things fair), divided by 85,000 people - the number of people in the example city used above) would cost next to nothing. 10 cents an hour would easily cover payments to the people who created the music we're listening to.

At 10 cents an hour for radio and 50 cents an hour for video, I could listen to 50 hours of audio a week and watch 15 hours of video a week for $12.50 a week, or $50 a month. That's only twice a typical cable bill - and it assumes NO COMMERCIALS. The cost would be lower anyway because "purchased" programming (any albums you already own, for example) would be free, and the remaining cost could be offset by however much advertising you wanted you consume.

But have you really thought this through?

There are a lot of problems with this vision, as there will be with whatever reality eventually unfolds. Most of the people whose livelihoods now depend on the current distribution mechanisms would be dismayed and frightened to see their jobs disappear. The privacy and accounting issues are formidable. Power and control could become consolidated in the hands of a few, shutting out independent artists more completely than they currently are.

There are a lot of ramifications to this scenario, some of which I've thought about but haven't written out yet, and many of which haven't occurred to me yet.

Still, I think there are a lot of worthwhile ideas in this vision. I heartily welcome the critiques and visions of others; please send comments, ideas, improvements, and alternatives to vision@racerrecords.com. I'd like to compile the responses and post them in a document here online, so please let me know if I have permission to quote you.

This page was last updated on March 3, 2004 by Kristi Wachter.