Let's start with the obvious.


The music industry, particularly the record labels, are collapsing. There are many reasons for this, although the biggest is that many players are designed to profit from selling music.

That doesn't work too well in a world where most music is discovered via the Internet.

In the world beyond the matrix, record labels will need to leverage open licensing to unlock cultural value. In other words, record labels need to focus on building a community with a culture, and then monetizing that community through advertising and a storefront.

It's a world where record labels become social networks.

You mean like what MySpace is doing?

That's a good move -- for MySpace. But think the approach that will create a lot more value is one in which the artist/identity -- the focal point that creates the psychology of the community -- is at the center. KidMercuryBlog.com is sort of an example of this, as is ActoRonPaul.com. That's also why I am a big fan of blogs as a place where online communities can see their greatest value.

Artists can use their social network to deeply engage their fans, and to shape their musical tastes by incorporating other artists into their social network. This is an example of investing social capital -- something I think will end up being more valuable than financial capital, especially as stagflation continues in the US. It's also an example of how record labels, as well as other institutions that are born in the world beyond the matrix, will grow virally, node by node, rather than through a high fixed cost, infrastructure-intensive approach.