Jun 22, 2015 ยท 13 minutes

"Own your audience," Ryan Leslie said onstage at Pandoland last week.

I just spent ten days in Tennessee, plied with whiskey, sun, smoke, and food as fried as I feel right now. I did it for you. Some of the insights I came upon -- like Leslie's line above -- were said in front of hundreds of observers. Others were mumbled between booze-soaked breaths in a downtown bar. Here are the seven things I learned about the collision between technology and music told from one of the hottest music festivals in America and "Music City" itself, Nashville.

1. Labels aren't the victims, and we're going to replace them.

For all the complaints leveled at Spotify and Pandora that streaming platforms are sucking artists dry, performers and fans are starting to wise up to the fact that record labels -- as they have for decades -- are the ones keeping the lion's share of the revenue created by music. According to a study by Ernst & Young, labels take home over twice as much as companies like Spotify, over four times as much as songwriters and publishers, and over six times as much as performing artists.

And labels hoard these payments while doing less than ever for artists who, thanks to the dramatically lower production and distribution costs of the digital content age, lean on labels largely for promotion and little else.

Of course, that "little else" can be a huge boon to a small, rarefied group of artists. That's why labels shouldn't be eliminated, they should simply be reinvented -- or, if necessary, replaced. It's still virtually impossible, for instance, to get your song played on terrestrial radio without the help of labels. And while that medium's popularity is slowly eroding, as of April 2014 terrestrial radio still made up 81 percent of America's lean-back listening hours, with Internet and satellite radio only making up 11 percent and 8 percent, respectively. Pandora's CFO Mike Herring, told me on the Pandoland stage that it may be "10 years until [the] majority of cars have a music option more useful than AM/FM radio."

Nevertheless, pretty much everyone -- except for the majority of people working for the major labels -- agree that the way record companies are set up today needs to change.

"Labels are struggling to figure out what their model is for the next generation," Herring said.

But is anyone doing anything about it? Yes, and one of these label reinventers is Ryan Leslie.

Leslie is an R&B/hip-hop performer and songwriter who recently scored around $1 million in seed funding from investors like Ben Horowitz and Paul Judge to launch his company Disruptive Multimedia (DMM). DMM operates like a traditional record company, in the sense that it offers representation and marketing resources to artists. One of the biggest ways it differs from major labels, however, is that it will offer artists much smaller marketing and production advances -- advances which artists have struggled to recoup, particularly in the new economic paradigm of streaming music wherein even hugely popular artists receive payouts over a much longer timeframe instead of getting a big amount upfront.

"Historically, labels sign big advances, you get some radio play, and those artists get a bump in income,” Herring said. That's since changed, as Leslie discovered firsthand when, despite selling 180,000 copies of his Motown Records debut, he failed to earn enough to pay back the $100,000 advance he received from his label. As a result, he walked away with nothing.

But by making DMM's advances smaller and easier for artists to pay back, will they be too small to have a real impact on musicians' careers?

Leslie says the idea is to make this money go farther than the labels currently do, and the key to accomplishing that is through data. After Leslie sold far fewer copies of his sophomore Motown release, he asked the label, "Why didn't you market this to the people who bought the first album?" Their response: They didn't know who bought the first album.

This was back in 2009, and while it was still inexcusable for labels to know so little about an artist's fans, today this consumer streaming data is more prevalent and powerful than ever. The technology Leslie's team has built helps artists visualize where on the globe their biggest fans live and it also allows them to reach out to listeners via SMS in ways that don't feel spammy or terribly intrusive. Moreover, DMM provides more pieces of streaming data directly to artists than the big platforms do.

There's no guaranteed template for success in music nor any other artistic pursuit; no pitch deck that can make up for talent, timing, patience, and luck. But consider the financial returns Leslie's seen since adopting a model that's much leaner than that of the major labels. Again, he saw zero revenue from selling 180,000 copies on Motown. As for his first self-released album? He sold far fewer copies -- only 12,000 -- but took home $160,000 for him and his small team in album sales alone. He announced on stage at Pandoland that since going alone he's made the same number of dollars as he has Twitter followers on album, merchandise, and ticket sales: $560,000.

And if Leslie can replicate that kind of success for even a handful of artists, he may have found that new model everyone's looking for.

2. Data is everything to artists, but it's often out-of-reach. Whose fault is that? That's right, labels.

As for why these big platforms don't currently give up this information to artists, Leslie says it's a matter of user privacy. In part, he's right -- however he's also being magnanimous. According to conversations with people across the industry, there's a lot of listener data that Spotify and Pandora want to give directly to artists, but they are pressured by -- guess who -- labels to make them the gatekeepers of this information. That way, labels can exert that much more control over their stable of artists, who are denied access to this data directly.

Leslie says artists need this access in order to determine their own destiny.

"Own your audience," he said onstage at Pandoland.

3. We don't know if people will ever pay for music again... and even the guys whose jobs depend on it aren't convinced

Since the days of VHS rentals and cable TV subscriptions, consumers have been accustomed to paying for access versus ownership when it comes to video. This has borne out in the digital age in the millions who pay monthly fees to Netflix, Hulu, and other VOD services.

But the same is not true for music, which has followed a model of collection and ownership that was decimated by Napster, resurrected a little by Apple and iTunes, then decimated again by streaming services. And so the question of whether fans will pay to essentially "rent" music from Spotify or Apple Music is far from resolved. Only around 25 percent of Spotify's 75 million users pay for a subscription, and largely paid-only services like Rdio have failed to attract huge numbers of users.

Apple hopes to change this -- after all, it has 800 million credit card numbers on file and needs only to convince 10 percent of them to pay $9.99 a month to eclipse Spotify. But observers throughout the industry at Pandoland were unsure whether it can pull this off.

“For a lot of people, music is background,” said Michael Sippey, a former VP at Twitter and SAY Media. “There are the super-fans that will buy and pay for music, just like there have always been.” Even at the height of the music industry in the 1990s, however, these paying customers only dropped $28 a year on music, which is far less than the $120 a year Apple's asked. The company tried to convince labels to agree to a more reasonable $4.99 subscription fee but the record companies, in their infinite greed, rejected this proposal.

But not everyone's convinced that consumers will refuse to pay for music on a significant scale and opt instead for ad-supported services -- which, for now at least, simply cannot sustain this industry.

“My kids don’t understand commercials — it’s massively distracting," says Marc Ruxin, former CMO of Rdio. "I think lots of people who grew up with those services will not go back to ad-supported services. I think there is a Netflix moment where you realize the history of recorded music is available online, offline, in cars, in Roku boxes, in almost every device you have. People won’t be satisfied with an ad-supported model for much longer.”

Herring sees things somewhere in the middle.

“The way Americans consume music culturally hasn’t traditionally been paid for," Herring said, "Television and cable have convinced people they should pay for video content, but music hasn’t gone through that same transition. [Pandora] isn’t trying to change that over night, but rather to monetize as well as we can, delivering this great radio, ad-supported product, and then later on other forms of revenue.”

This wishful thinking -- that ad-supported models will become more sophisticated and lucrative and that eventually listeners will pay once again -- is nice to hear. But it doesn't help artists right now.

4. Apple's dominance of streaming music is no guarantee

A few days ago, I wrote that Apple has some huge advantages over Spotify as it readies its much-anticipated streaming service, Apple Music. While I stand by that argument, not everyone is so convinced that Apple will take over music distribution as it did with iTunes in the 00's. At its core, the discussion over whether or not Apple can succeed is the same debate held by Sippey and Ruxin over whether large numbers of people will pay for streaming music. That's because while Apple will offer a number of free trials, its core product is paid-only.

Ruxin said, “I think the biggest hurdle to building loyalty and addiction in music is getting credit card numbers,” which again, Apple has 800 million of these card numbers. “Apple’s got a chance to leverage all those credit card connections and have people initiate.”

Sippey disagrees, reiterating that paid streaming is a tough sell for consumers, and suggesting that if Apple can convert paid users, it will do so through exclusive content.

“I pay for Netflix and I pay for HBO and I pay for Amazon," Sippey said. "But it’s about the content. I pay for Netflix because of House of Cards and because of Orange is the New Black, and I pay for HBO because of Game of Thrones.”

Ruxin, however, is less convinced that users care about exclusive content when it comes to music.

“Spotify had the exclusive window to Led Zeppelin online,” Ruxin said, but that this exclusive in and of itself didn't boost Spotify's subscription base. It certainly didn't boost its paid subscriber base which has held steady as a 25 percent portion of the whole almost since the service first launched. “I don’t think exclusive content, as it relates to a catalog that big, matters.”

Finally, is Pandora worried about Apple? In addition to offering on-demand streaming, Apple will revamp its iTunes Radio offering, which is a direct competitor to Pandora. Surely a certain amount of anxiety is understandable whenever Apple makes huge overtures in your space. To no one's surprise, Pandora's CFO Herring deflected these concerns. What is surprising is that Herring's argument against Apple is perhaps the most convincing of the three.

“We think about the music first," Herring explained. "We think about delivering the highest-quality listening experience as our top priority. It’s never going to be the top priority for Apple; music is going to be priority 632 for Apple.”

And we all know that when it comes to less urgent priorities -- like wristwatches (priority #167) and set-top boxes for your TV (priority #432) -- Apple often fails to impress.

5. For music startups, there are plenty of problems to solve that don't involve "playing music"

In every breakout session and fireside chat I moderated, I made sure to ask what advice these established executives and entrepreneurs had for people looking to launch digital music startups. The answers, while they varied a bit, all contained this sentiment: Don't be a content provider.

The licensing arrangements that Spotify and Pandora have to put up with are simply too expensive and complicated for a small upstart to tackle.

“Stay out of the 'playing music' space," Herring said. "The royalty situation is going to get worse before it gets better.”

But, you might ask, isn't Herring simply trying to keep competitors out? No, he assured the crowd at Pandoland, and I believe him.

“I’m not a venture capitalist, but I would be surprised if there were a lot of venture companies out there looking for streaming businesses to invest in.”

This notion was echoed by Ruxin, who knows a thing or two about running a music startup, having raised $3.1 million for his company TastemakerX before selling the company in an acquihire deal to Rdio. He says that just like with Netflix, the biggest problems in the music space are around discovery and curation.

“It’s 25,000 movies and nothing to watch," Ruxin said. "I think it’s more a discovery and navigation issue than a library issue.”

The truth is, the smartest minds at Apple and Spotify still haven't figured that out. And while you might not build the next multibillion dollar public company by solving this problem, there are worse ways to achieve a solid exit while also making streaming music a little less terrible for users.

6. Women are still marginalized in the music industry

Or at least they are in Nashville's contemporary country music scene. Just ask Annie Bosko who spoke onstage at Pandoland (left) about how to some observers in country music, women are considered "tomatoes" while men are considered the "lettuce" -- in other words, the core ingredient -- of the space's metaphorical salad.

Annie Bosko at PandolandAnnie Bosko at Pandoland

I got the same vibe when I walked into the Listening Room in downtown Nashville where the "Song Suffragettes" were playing their one-year anniversary. The group is devoted to creating opportunities for women in Nashville's country music scene -- opportunities which are harder to come by than you might expect.

Indeed, as someone who's knowledge of modern country music is largely limited to whatever breaks through to the mainstream, I had no idea the scales were so out-of-balance. In fact, I can probably name more female country superstars than male.

But Bosko told Sarah Lacy onstage at Pandoland that although the female artists who do make it big become huge, there's an overall drought. In fact, it makes me wonder: Is that true in other genres or micro-scenes?

7. What are the drugs of choice for America's young music fans?

Adderall and, troublingly, meth. The Pando team was offered on numerous occasions at Bonnaroo the opportunity to purchase crystal methampetamine. We stuck to weed, booze, and (doctor-prescribed) Adderall, thank you very much.