Sure, the great deal ratio is due in large part to the great A&R tools Music Xray provides to industry professionals to help them quickly and easily identify the music they are seeking but it’s also partially due to Music Xray’s modest submission fees.

What?

Yes, it’s true. Submission fees, as small as they are, require musicians to filter their own music and submit only the songs they believe are the best for each opportunity. When musicians don’t over-submit, the industry professionals are less overwhelmed and the quality of what they hear on Music Xray is significantly higher than almost anywhere else. That keeps the industry professionals more engaged on Music Xray.

Less competition:

Then, there are the musicians who have not yet understood how the changes in the music industry of the past decade have changed the A&R process. Many do not believe – based purely on principle – that they should have to pay anything at all to have their music considered by the industry. They do not realize that even the ways of the past that seemed free were not free and did not come with guarantees their music would be heard and considered.

Those later adopters, who remove themselves from the equation, create a smaller pool of competition for the early adopters – and therefore more deals.

Greater competition outside of Music Xray:

If 3500 deals were done on Music Xray, it stands to reason that there were 3500 fewer deals available outside of Music Xray – meaning that it’s getting increasingly difficult to find deals elsewhere and that’s to say nothing of the increasing challenge of breaking through the noise and clutter to distinguish yourself and your music.

Remember, there are literally millions of emerging musicians and millions of new songs created and posted online every year. There is no way the industry can filter through all that music to find what they are seeking “out there in the wild”. That’s why Music Xray is changing the game and small submission fees are one of the reasons it works.

If you haven’t been following the evolution of the traditional music business, there’s a lot to catch up on but let me give you the quick overview:

To begin with, Warner Music Group is for sale. Both BMG (which sold its recorded music assets to Sony a couple years ago) and Sony are in the running to acquire Warner but rumor has it that Yucaipa Companies (a holding company focused on private equity investments) is in the lead and is aligned with Sean Parker, co-founder of Napster and Facebook. EMI is also on the block after falling into the hands of Citigroup when EMI’s financial backers defaulted on their obligations to the financial giant. Meanwhile, former Universal Music head Doug Morris has moved over to lead Sony Music while all of the aforementioned companies fight over their share of an ever-shrinking market for recorded music sales.

What’s more, the major labels have not been doing a good job breaking new artists. A recent IFPI report showed that total sales by debut artists in the global top 50 album chart in 2010 were only 25% of the level they achieved in 2003.

Needless to say, artists and their managers have been trying to regain their revenue via other avenues such as touring and merchandise sales (T-shirts & trinkets). However, high ticket prices, ticket sales gimmicks and sub par shows are jading fans who seem to be flocking to fewer and fewer shows. Live Nation, the world’s largest concert promoter reported a whopping 10% drop in ticket sales in 2010.

All this is happening at the same time that more music is being created by musicians and heard by fans than ever before. The dichotomy of thriving demand for evermore-abundant art while the traditional music business is failing has perplexed many industry watchers. But as with every disrupted business, the opportunities for entrepreneurs abound and what we’re seeing in the music business is an exciting emergence of the structures that will define the industry for at least the coming decade.

So, that brings you up to speed with where things stand. Now to address the question I asked at the top: How will fans experience music in the digital age?

A recent report by Edison Research found that in the 12 to 24 age group, music radio listenership fell by nearly half in the past decade, from two hours to 43 minutes per day and radio fell from the number 1 means of consuming media to number 3 behind Internet and TV. On the other hand, music consumption via the Internet is on the rise with personalized streaming radio company Pandora leading the way and competitors like CBS’ Last.fm and Jango making great strides too. Pandora has even partnered with some car companies to have their system streamed to drivers, taking an even bigger bite out of traditional, terrestrial radio.

One of the more recent trends are online music lockers. Think of them as personal hard drives that are out there on the Internet where you can store your music collection and stream it to a connected device like a smartphone, a car or home stereo system or your computer any time you want. There is some legal controversy around these types of systems but everyone expects these types of solutions to move forward and become fairly ubiquitous – not just for storing your music rather for storing ALL your files. Good-bye hard drives, altogether. But will they be the way music is consumed?

The problem with the online music locker solutions is that they still require consumers to own digital files of music which either have to be ripped from CDs, purchased online or pirated and you won’t be able to have unrestricted listens to anything you don’t own. That seems so last century given that almost anything anyone would ever want to hear can already be easily found online – even if only at Youtube. Therefore, I’d place my bets on all-access on-demand music streaming services.

“What?” you ask.

On-demand streaming services already exist in the US but they have gotten less attention than they deserve. Companies like Rhapsody and Mog offer consumers a monthly subscription model in the $5 to $10 per month neighborhood and they allow you to stream music to any Internet connected device on demand. Not like Pandora, where you get a selection of music that is generally targeted to your taste but otherwise not within your control. These services let you chose what you want to hear, when you want to hear it and they have almost every song ever recorded available with only a few exceptions. The company that, by far, is generating the most buzz is Europe’s Spotify, which is preparing for a US launch. In Europe, they’ve already reached 1 million paying subscribers. A couple great things about their service is that it is completely integrated with Facebook which makes sharing your music and playlists both easy and legal and you can store up to 3,000 tracks for offline listening and swap them out for different tracks any time you want. Services like these make it completely unnecessary to own music at all. Why would you if you can have access to an unlimited library of everything that’s ever been recorded?

In Europe, Spotify offers a completely free version that is supported by advertisements. In the US, it is unclear what their free service will be like because the labels are putting extra restrictions on Spotify in the US. Music companies are concerned that the revenue they will derive from streaming services like Rhapsody, Mog and Spotify won’t replace the revenue they generated from the sales of albums – and they’re absolutely right.

Gone are the days when consumers had to buy 11 songs they didn’t want so they could hear the one song they did and gone are the days when the major music companies controlled distribution. Those days aren’t coming back and that means the supply-side of the music business (labels, promoters, managers and artists themselves) have to change and adapt. All of this is great for the consumer but it represents some serious changes for the music industry and those changes, how they are shaking out and what they mean for the artists and business people that make the music industry run are what I will cover in parts II and III in the coming days.

Subscribe to the blog to be alerted when those posts are available.

I’m not going anywhere. I will remain as chairman and will continue in a key executive roll after the hand-off.

We’ve obtained much of the funding we need to get the job done and while I’m confident we can do it with our current team, I believe Music Xray could use the skills of a seasoned entrepreneur/executive in this space who has previously taken a company from our current stage through a successful exit. There are a few in my network to whom I’m reaching out and we’re also meeting new people. There’s no rush but sooner is better than later given all we have to do in 2011.

Any interested candidates should contact me directly.

We launched our new site out of beta on January 20, 2010 at MIDEM and since then Music Xray has grown very quickly. As an example, our opportunity emails were reaching about 12,000 artists in January. Today, just ten months later, that number approaches 200,000. Traffic and revenue have been growing too and we’ve gone from a team of three to a team of 12 people – soon to be more.

Over the same period, we’ve gone from hosting a few dozen opportunities to hosting thousands. Top music industry professionals at major and independent labels use Music Xray to source songs and talent and so do music supervisors, celebrity artists, advertising agencies, music bloggers, journalists, producers and more. Just about anyone who conducts A&R as part of their business is finding that Music Xray’s enhanced A&R tools help them get the job done faster and more efficiently. The site also helps them lower costs while reducing risk when it comes time to invest in the music and talent they find.

Today, just in time for 2010 it’s back as the SongCat Blog (http://song.cat).

Everyday we’ll post three songs. Site visitors vote for the best one. Each day’s winning song will go on to the following day to face off against two new songs. Songs that do exceptionally well make the Blog’s wall of fame and may be publicly reviewed in The Huffington Post or elsewhere.

Anyone can submit their music for free to have it considered for the Blog. I hope people like it and that it provides exposure to well-deserving musicians.

It’s important to note that much of the interview I did for this story was based on initial work I was involved with in this field from 2001 to 2005 at a company I co-founded called Uplaya. That didn’t come through in the published piece. Uplaya was granted a patent in this field in 2006 and that obliged us at Music Xray to change direction in our research and development. Currently, while Music Xray uses a mix of technology and human skills to predict the future success of music, we do not offer a straight, technology-driven hit prediction service.

1 Page from the BBC Focus Feature.

What is happening to the music industry?

In short, the traditional music industry has been beaten, battered and completely transformed by a perfect storm of new technologies. It actually started with the introduction of the CD back in 1982. Music was digitized and encoded on the CDs which we all bought to replace and enhance our vinyl collections. Then, along came the MP3 which enabled us to compress those CD song files down to manageable sizes and file sharing began. The next nail in the coffin of the traditional music industry was the emergence of MP3 players led by the iPod and digital retail led by iTunes. Once people became used to that, who wanted to carry around a CD case? Finally, the plummeting cost and decreasing technical knowledge required to make a decent sounding recording sounded the death knell for the major music labels, the backbone of the traditional music industry.

The music labels were society’s music filters. They were responsible for finding the best talent, nurturing it, promoting it and distributing it all over the world. But the labels were also incredibly inefficient. For each act they successfully promoted and on which they turned a profit, there were dozens, even hundreds of failed acts and artists in whom the labels had invested and had lost money. Few industries would have been able to operate with such numbers but the music industry had thrived under this system; mostly due to the large amounts of cash that were made with every success. With new technologies affecting almost every aspect of the ecosystem (from song creation to mass distribution) the labels could do little to prevent the demise of their business. Seeing opportunity before them, entrepreneurs emerged with ideas about how the whole industry could be run more efficiently.

Today, music is increasingly sold as digital files that you download to your computer and then put on your mobile device such as your iPod. Other services are increasingly enabling you to stream music on demand. Under that arrangement, you never actually own any music. You simply have access to all of it all the time. Physical music retail stores are going out of business and soon won’t exist as stand-alone shops.

Anyone can record and upload a song.

On the music creation side of the value chain, the cost of recording and producing a song has fallen through the floor. What used to cost tens of thousands of dollars and had to be done in a professional recording studio can now be done in a bedroom on a laptop computer. This is a great development that enables creative talent to emerge even in the absence of musical ability or even any musical knowledge. On the other hand, it has caused a veritable avalanche of new music to pour onto the web — much of it of dubious quality. Even the largest physical music stores couldn’t carry much more than 10,000 titles. That’s nothing compared to what’s now available at the click of a mouse. MySpace alone is said to host over 10 million acts. Other sites that cater to artists have hundreds of thousands of bands signed up to their services.

It is a jungle out there! How can the fans find the needles in the haystack they want to hear? How can the artists locate their future fans? It’s the fundamental problem the labels were solving but now they can’t do it effectively. There’s too much music for them to even try to filter effectively and nobody wants to buy their CDs anyway, so how can that work even be funded? The sale of digital files isn’t even coming close to compensating for the loss of revenue on the sale of physical goods so now there’s much less money to compensate for the labels’ inherent inefficiencies. In fact, most insiders believe recorded music will cease to be paid for by the end consumer. It will instead either be free (built into the cost of marketing other products) or built into the cost of other services you pay for such as your Internet and cable TV bill or your mobile phone service. It will feel free and the actual revenue generated from the distribution of recorded music will be a fragment of what it has been historically. So, where does that leave us?

Fortunately, it’s all going to be OK. There are dozens of emerging companies that are taking on these challenges and there are some really good ideas. It’s interesting to see the variety of approaches. Most agree that the currency of exchange for recorded music will be the attention of the fans instead of their money. If an artist can get attention they will be able to sell tickets to their shows, license songs to soundtracks and get money for endorsing products. The labels held the key to getting access to big opportunities but now the artists and their managers have to find other avenues.

In spite of the reduced barriers to music creation and access to easily have your song distributed to all of the digital outlets (see services such as TuneCore or The Orchard) it still almost always requires mass exposure in order for a song to really take hold and begin to earn some money. That means that once a song is created, it still requires enormous effort, time and resources to “push” and promote that song within the industry. Songs must still come to the attention of someone who has an opportunity. The gatekeepers, such as music supervisors in Hollywood, ad agencies, program directors and video game designers remain and will continue to remain in place playing a valuable role.

So, real change will come by leveling the playing field and by giving individual artists equal access to mass-exposure opportunities. This is the challenge we’re trying to solve with our new Music Xray service. (Pardon the plug but I can’t describe the solutions to the industry’s toughest challenges without describing our own solution since it represents our best thinking and thus my opinion).

Think of Music Xray as a kind of YouTube for songs in that each Music Xray represents one song. Each Music Xray get s a unique URL (just like a YouTube video) and each Music Xray can be embedded elsewhere around the web (again, just like a YouTube video). But that’s where the comparison with YouTube ends because a Music Xray is more than just an embeddable song player. Each Music Xray comes with a stack of modules that open and close (see here) and each module contains specific information about the song, such as its lyrics, how many times it is mentioned on Twitter, in blogs, how many times it is traded on peer to peer networks, what it’s market potential is, what kind of license under which the song is available, what other songs it sounds like, among much other information. In addition to providing all of this information to the song owner (and anyone else they want to share it with), having so much information on each song allows us to provide a free filtering engine to the entire song buying music industry.

Imagine you’re an advertising executive and you want to license a song for your next ad campaign. You want something that sounds like “Brown Sugar” by Rolling Stones, which has 130 beats per minute, has the words “Russian roulette” in the lyrics, that has at least a 50% chance of becoming successful in a particular market, that already has a growing number of fans and an available license. The filtering system at Music Xray will soon provide that level of detail and that level of filtering ability. It will be a revolution in how that part of the business operates.

The important thing for artists is to have their music in databases of this sort. The one at Music Xray is particularly attractive because it will be open to anyone in the industry who wants to leverage Music Xray’s search capabilities. For a song owner, having their song in the Music Xray database will make it discoverable by anyone and reduces the work artists must do to promote their music within the industry once they’ve recorded it. It also reduces the work that music supervisors have to do when filtering hundreds of songs for each opportunity.

How will music consumption work?

From the music fan’s perspective, music recommendation engines will become a ubiquitous part of our lives, and not just for music and entertainment products but for many consumer goods and services. You’ve seen the ads for Angie’s List which compiles and features customer reviews of household and professional services. Amazon has been recommending books and other products for years based on what others with consumption habits similar to yours have purchased. This is just the beginning of where recommendations and “relevancy filtering” is going.

The best recommendation systems will be very sophisticated. They will expose you to enough of the “familiar” for you to feel like the system “gets” you and understands your tastes. They will expose you to enough of the “new” for you to feel like you are growing and evolving in your own unique direction. They will also keep you sufficiently in tune with your peers and with those who are like you for you to feel like you belong to a larger collective. They will know the difference between you at age 25 and you at age 45 and they will know which products you buy for yourself and which you purchase as gifts for others — an important distinction for companies when making future recommendations.

There are a number of problems for the music industry to sort out but things are taking shape. One thing for certain is that the fans will not suffer. There is now and there will continue to be more music available than ever before and it will become easier to find and enjoy. It will cost less and more artists will earn a living making it.