The Digital Skeptic: David Lowery Wants the Maoism Out of the Music

NEW YORK ( TheStreet) -- David Lowery knows exactly why nobody's writing the much-needed funeral march for today's dysfunctional music business.

"We are all afraid of being turned into the next Lars Ulrich," Lowery told me, referring to the drummer for heavy metal band Metallica, who was essentially run from the business back in 2000 when his band sued music-sharing service Napster for stealing songs online.

Lowery has reason to fear: He is a musician with a top hit or two with a band called Cracker, and also a music business professor at the University of Georgia and math geek who has done financial models for derivatives traders.

"It's this survivalist thing," he said. "When you try to have anything close to a rational discussion about how the music business doesn't work, you'd be surprised what starts happening."

When I assured him he was among friends -- that, yes, skeptics of the modern economy really do openly huddle up around these pages for some warmth and common sense -- he figured, what did he have to lose?

"The truth is, the old system was goofy. But the successful bands -- and really the successful music companies -- were built on the shoulders of the failures before them," he explained. Lowery says that early 1990s Seattle grunge bands such as Pearl Jam, for example really came out of the work of bands such as Mother Love Bone. And for all its flaws, the old music business's full catalog of artists spread the risk of those failures among the successes.

"You would throw 10 records against the wall and see which ones stuck," he said. But today, that model is gone. "I wish I could figure out a new way to divide that risk, but now each song lives and dies on it own. And pretending that what we have works is so messed up I can't even say."

The biggest issue? The digital economy struggles to value content it supposedly its based on.

"It commoditizes the content but it is not actually a commodity," he says. "I am not sure if Pandora ( P) or Spotify ever will be profitable, but I do know it only pays off for the Rihanna-scale artist." For the average musician, the streams are too few, so it is still sales of old-school plastic compact discs that puts food on the table.

"Trust me, nothing could be a stupider way to get paid -- dragging those dumb discs around to concerts" he said. "But the $15 I can get at a show is a better payoff than waiting for my Spotify royalties. And I'm not the only one considering pulling my stuff from these streaming services. It's crazy."

"The Web was supposed to be a vastly more efficient way to do business. But my question is, why aren't those efficiencies being transferred to musicians? Where is that money?"

The problem, Lowery says, is that the Web turned out not to disintermediate the world as advertised. That is, it was supposed to rip out all the unneeded steps between musician and customer.

"It actually did the exact opposite. It 're-intermediated' the business," he said. "Musicians now face an entire new generation of middlemen, who all take monstrous cuts." He points out that Facebook ( FB) now charges him to communicate with his fans on his own fan pages.

"They are putting themselves back between my band and my fans," he said. "And they are doing it all at price levels where there is no money left in the larger system to work."

The Maoist music business
Lowery can describe in detail exactly how his business mismanages the value of its products.

"I am in the solid middle class who makes about $90,000 per year from all sources of my music live, royalties and licensing," he says. "And for us, it's a very tricky time to be in the business."

Referring to the piece I wrote last week on the peanuts Justin Timberlake made on his top record of the year, The 20/20 Experience, Lowery filled in the blanks for how the modern industry dollar gets cut up.

"If it was a so-called traditional deal," he explained, "Timberlake probably got 25% of the wholesale prices of the disc, which on 2 million units sold is roughly $9 million." For an artist of Timberlake's stature, that probably worked out to the $2.25 million range.

"But he probably spent $1 million making the album, since a typical major label act is spending about $300,000 to $350,000." Lowery says he confirmed that figure with a source at a major label.

Lowery's calculations: Since those recording costs come directly out of the $2.25 million that flowed to Timberlake's label, his net after costs is probably in the $1.25 million range. Then his managers, staff and other support people get 15% to 20%. Plus all the rest of the crazy touring and support he did. All of which is what eats up 97 to 98 cents on every dollar sold.

"That, believe it or not, is the part of the system that works," he said. Lowery says streaming services such as Spotify or Pandora pay so little that "You wind up in a kind of Maoist environment where nobody really owns anything," he said.

"Considering how lean the total spend on music is by consumers, your choices as a business become very limited," he said. "Is it really a surprise that our industry is struggling?"
This commentary comes from an independent investor or market observer as part of TheStreet guest contributor program. The views expressed are those of the author and do not necessarily represent the views of TheStreet or its management.

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