Notes from the underground: what the ailing record industry can learn from a successful subway musician

Washington Monthly, Sept, 2003 by Nicholas Thompson

Every two weeks or so, I pack up my Taylor acoustic guitar, fill my backpack with CDs of my music, and head down into the New York City subways to busk away. I make good money, and I get to watch and study people, too. For example, I can now tell from about 50 feet away whether a woman is likely to give me money.

If she's walking fast, wearing headphones, angrily porting a briefcase, or chasing down one of her children, that's an easy no. She wouldn't throw a dime into Jimi Hendrix's case. Other women, who are more aware of their surroundings, have greater possibility. Usually it boils down to makeup and midriffs. If the woman is decked out, she may look at me, but only to see if I'm looking at her. But if a woman is dressed casually, walking slowly, and thinking about something beside herself, she's likely to listen for at least a few moments, and then I have a decent chance she'll enjoy the music, stop, and maybe buy an album.

This is but one of the lessons I've learned from performing in train stations that I think could be helpful to the floundering music industry, or at least to the many talented musicians stifled by it. These lessons haven't gotten me rich, but I've sold about 500 records in the subways playing sporadically since releasing my new album in January. I make more money down there per hour than I do as a journalist. And while my sales and profits have gone up, the music industry's have gone down. Sales of recorded music in the United States have dropped by more than a 100 million units in the past two years, and, after decades of steady gains, industry revenues have dropped 15 percent over the last three years.

Different experts will give different reasons for the decline. The music industry itself blames its customers, or more specifically young people who download music for free from increasingly popular file-sharing networks. Others, such as Josh Bernoff of Forrester Research, blame competition from video games and other entertainment. Whatever the reason, it's clear that the music industry's old model of doing business isn't working so well in today's market. That old model relied on labels plucking out a handful of bands they believed would sell big, and investing millions of dollars in production, promotion, and marketing to get them the time on the radio dial or the space in the record stores they required to catch fire. The industry defended itself against complaints by saying they were simply meeting the demands of popular taste.

In truth, there was always a tautological element to this argument. The music industry functions like a cartel, and the public's preferences have always been limited by the choices they were given. Now that the market for music has changed, and CD sales are declining, the record industry is hiring lawyers and lobbyists to squelch the new technologies that are changing the music business. Over the last few months, the Recording Industry Association of America has issued hundreds of subpoenas to college kids who swap music over the Internet. Meanwhile, the industry's lobbyists have convinced Sen. Orrin Hatch (R-Utah), himself a songwriter, to float the idea of allowing companies to remotely slag computers whose owners used them to download movies mad songs.

But the industry's efforts are counterproductive. About 60 million people in the United States have already swapped copyrighted material

over the Internet, and that number isn't likely to shrink. The times are a changin', and record companies should learn to how to profit in this new environment. With all the modesty required of a guy who doesn't make enough money on a given night to buy front-row seats at a Mariah Carey concert, let me offer a few pointers.

Number One: Drop the price of CDs

When I first started playing in the subways, I experimented with different prices for my albums: $2, $5, $8, $10. I sold slightly more CDs at $2, but far fewer at $8 or $10. The sweet spot seemed to be a price of $5. Later, I gave up pricing my CDs altogether when I got a ticket for selling CDs in the NYC subways. Now I post a sign saying that my CDs are technically free, but they cost something to make, and people should pay what they want. Occasionally someone will take one for free. Sometimes a passerby will drop $20 into my guitar case. But the mean, median, and mode are all, again, $5. This could merely be the measure of what my music is worth. But my strong sense is that five dollars is what people will pay for a CD they like by a musician that they've never heard of.

So why does the average CD sell for more than $17? It's not the manufacturing cost. My last album cost me about $1.10 for each CD manufactured. I had high quality work done at every step, from the mastering to the packaging. People who print larger runs have vastly lower costs.

True, recording solo acoustic guitar is vastly easier than a full band, but even industry-produced acoustic guitar albums sell for that price. That means the companies are either reaping cartel prices or most of the money is just going to the layers of middlemen: the redundant producers paid by the hour to fine-tune albums, the marketers, and the promotional photo shoots. If you're U2 or the Rolling Stones and sell millions of albums, such expenses may be perfectly worthwhile. But drooping industry sales figures and my own experience suggest that for the vast majority of artists, the industry is going to have to drop the price of its CDs--maybe not to $5, but certainly closer to that than to $17.