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    What Will Record Labels Look Like in the Future?

    by Jason Feinberg
    August 18, 2009
    Capitol Records building photo by "Steve Minor":http://www.flickr.com/people/sminor/ via Flickr.

    The pioneers of the music industry couldn’t have seen this coming in their wildest dreams. When publishers were selling sheet music in the late 1800s, the idea of people privately sharing their product, independent of location and physical constraints, would have seemed ridiculous. But now record labels have been decimated by the digital shift, and are rethinking their entire business model to survive.

    Even as recently as the 1970s, the thought that consumers would be able to bring the industry to its knees by circumventing the existing structure and barriers seemed ludicrous. Large companies solidified vertical and/or horizontal integration across almost all elements in the supply chain; this practically ensured a stranglehold on consumers.

    The traditional label model that worked for almost seven decades is in its death throes. What's next?"
    i-19034150245e14d37917939b5f797ffc-home_taping_is_killing_music.gif

    Then, as the infamous “home taping is killing music” warning inside record sleeves indicated, the music business (record labels and trade groups in particular) became concerned that blank cassettes were eroding profits. The ability to record songs from radio, a record, or via another cassette meant that people could acquire music cheaply or even for free.

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    It’s worth noting that not all people saw this as the beginning of the end. In 1981 the Dead Kennedys endeared themselves to a legion of anti-corporate youth by printing this message on one side of a cassette EP:

    “Home taping is killing big business profits. We left this side blank so you can help.”

    As anti-establishment as the Dead Kennedys and their label Alternative Tentacles were, I don’t think even they could have dreamed up the situation most record labels would find themselves in during the following decades.

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    The Decline Begins

    Since 2000, most formats of physical music products have seen a rapid decline in sales. Debate flares about the causes, but most people accept that digital file sharing, an audience oversaturated with content, an ever-growing number of avenues for entertainment, the splintering of audiences into niches, the widespread shuttering of brick-and-mortar record stores, and the questionable quality of mainstream music have resulted in severe problems for record labels.

    Each of these individual factors is bad enough, but a coming threat to labels is that the contracts of many career artists are coming to an end. For the major labels, these superstars have always been the profit center. If an artist has built a sizable fan base (usually thanks to the label), the infrastructure now exists to operate fully outside the traditional model. Labels should be prepared to see some level of attrition moving forward.

    The traditional label model that worked for almost seven decades is in its death throes.

    What’s Next?

    Much of the current debate in the music industry is on the role record labels will play moving forward. The majority of label income has traditionally come from selling physical product, which is the area now seeing the sharpest decline. As a result, record companies have experienced a rocky decade, seeing wave after wave of layoffs and massive decline in revenues. In addition, technology and innovative distribution and marketing solutions now give many artists the ability to work outside the traditional music business model. This further reduces the value a label can offer to many artists, especially those in the mid and lower tiers.

    Nobody is quite sure what the future looks like for record labels, but in discussions with a wide variety of music industry professionals, a few common themes seem to emerge.

    Marketing Services

    First, regardless of what is being sold or where the fans are, every artist needs promotion and marketing. Record labels are experts at this, and will be able to provide value here for the foreseeable future.

    “Marketing expertise will always be needed whether it is provided by a traditional label or by the artists themselves,” said Kevin M. Richards, an independent music marketer who has held marketing positions at multiple labels. “With millions of new songs being released as digital downloads yearly, there is no way a listener can sort through all of it and find anything new without some promotion. Some bands will be able to promote themselves and go right to the top of the charts. Others may choose to have an experienced record label assist.”

    i-5f144cbc4d1d0df96d995d6f089d7823-NMT logo.jpg

    Scott Perry, owner of New Music Tipsheet and Sperry Media, agrees.

    “The core roles of record labels will never change — facilitating the marketing and distribution of an artist’s work is essential,” he said. “However, the rights and revenues split will be vastly different, and that will affect the role the label plays in distribution and marketing.”

    Ultimately, labels will need to find new ways to generate revenue from their artist relationships, as the continuing decline in physical product sales will not sustain profitability.

    Missing Profitability

    Sean Adams, editor of U.K. music webzine Drowned in Sound, sees another possible avenue for labels.

    “It’d be interesting if any of the promoters buy any of the labels, and start to invest in touring acts, but I’m not sure the oil tanker that is the music biz can turn quite that quick,” he said.

    i-c3efd4ec2ac52ba60dc4abc717b5b1dd-drowned in sound logo.jpg

    This addresses the core problem. Labels’ traditional revenue streams are drying up and no business can flourish without sustainable income. A remapping of revenue sources is inevitable and has already been put into practice by many labels via so-called “360 deals.” Pulling from tour revenues seems to be a logical progression, especially since the new paradigm for many labels is that records exist to promote the tour, rather than the opposite which was true for decades.

    To this point, Scott Perry adds, “The bank is broken, and until investing in an artist’s career is proven to be a profitable endeavor, it will be difficult for any artist to find a benefactor to fund the labor necessary to push an artist beyond their sphere of friends and into a larger network.”

    Brenda Walker of Rebel Content is a marketing consultant and content producer. She feels smaller labels will continue to quickly adapt to new revenue sources.

    “Smaller labels, often owned by managers and artists in partnership, will increase their focus and expertise in direct consumer marketing and distribution, both online and mobile, packaging music in a variety of ways,” she said. “Because they are nimble and will control comprehensive rights for licensing, they will grow revenue from multiple channels — recordings, licensing, merchandise and live performance.”

    Alternate Models

    Although labels expanding their reach into additional streams of existing revenue should allow for their continued existence, many people are discussing the notion of completely rewriting the core music business model.

    Walker feels a scaled-down shell of the current model is in store.

    “The major labels will look more like music publishing and even stock photography companies, focused on maximizing income from exploiting licensing opportunities. Their operations will scale down, but they will not go out of business,” she said.

    Adams offers up a much different model.

    “I think corporate patronage is the only viable model,” he said. “Something that mashes up Levi’s ads in the ’90s and the Starbucks’ label…I really don’t see anyone else who values music in such a way and sees an upside to being associated with the emotional relationship people have with music.”

    Regardless of one’s opinion as to the future of record labels, the consensus is that the traditional model no longer works. Certain functions will always be required, but where the funding comes from and how revenue is generated will be significantly different. No one solution is guaranteed to work, but forward-thinking artists and labels are already starting to change their businesses to once again find sustainability and profit.

    Jason Feinberg is the president and founder of On Target Media Group, a music industry online marketing and promotion company. He is responsible for business development, formulation and management of online marketing campaigns, and media relations with over 1,000 websites and media outlets. The company has served clients including Warner Bros. Records, Universal Music Enterprises, EMI, Concord Music Group, Roadrunner Records, and others with an artist roster that includes The Rentals, Flipper, Thin Lizzy, Sammy Hagar, Primus, Poncho Sanchez, Ringo Starr, Chick Corea, and many more. You can follow Jason on Twitter @otmg

    Tagged: business models future music industry record labels
    • Excellent summation of the current situation for the music business.

      I come from the other side of the conversation, ie. the one concerned with the quality of music and a concern for artists’ well-being. It’s a different conversation, I know, but some points are still relevant.

      For one, it’s unfortunate what little assurance that labels can provide for artists’ success, and it’s certainly evident that new models presented by the industry, are far more business friendly than independent artist friendly (http://www.guardian.co.uk/music/musicblog/2009/aug/17/major-labels-spotify).

      I wouldn’t want to suggest that business success is not important. Indeed it is essential, but I will say that what my own company, Weathervane Music (http://weathervanemusic.org), is trying to do, is place some of that for-profit risk (ie. artist selection, funding for recordings and to some degree, promotion) in the hands of a non-profit organized community. The model is similar to the way in which member supported public broadcasting works, with maybe a little bit of the Small Business Incubator model mixed in as well.

      We produce a curated series of high quality audio and video recordings featuring select independent artists (the Project Series, already in its first year). The project is supported by charitable contributions and sponsorship, and any potential revenue from the audio recordings ends up going mostly to the artist (we retain a small portion for our expenses, there is no “recoup”).

      If we are successful, we’ll be handing off great independent artists to the for-profit industry. Of course that success will depend on our ability to assemble a strong, ready and willing community of supporters, as well as effective marketing and promotion of Weathervane.

      Either way, I think the industry would do well to look at supporting a non-profit endeavor such as this, as it will ultimately relieve some of the risk they face. If we do our job right, artists will be well prepared for easy licensing with the industry, they will have a completed recording (we hope with better and better known producers and engineers as we go), and whatever exposure comes with being a part of the Project Series.

      The reach of most modern marketing these days seems to be so directly to the consumer that there is little community built around music. Sure bands have their own fans, but I am talking about communities with broader interests built around the group shared experience of music. We think this, and a certain amount of ACTIVISM on behalf of an artist’s ability to make money from their music, is an essential missing ingredient before a capsized industry can right itself.

    • To me, this was the most important quote in the article:

      “To this point, Scott Perry adds, ‘The bank is broken, and until investing in an artist’s career is proven to be a profitable endeavor, it will be difficult for any artist to find a benefactor to fund the labor necessary to push an artist beyond their sphere of friends and into a larger network.'”

      I’ve been an investor and know other investors. It’s hard to get anyone to put money into music (other than as a corporate or private sponsor), if you can’t offer a reasonable chance for at least a return on investment.

      Sure, there have always been angels in theater and in film, and most do lose money, but they know, going in, that the risks are high. Occasionally the returns can be high.

      I’m not comfortable, though, investing my own money into anything that looks like it will lose money. So it’s important to me, and presumably other potential music investors, to see business plans which can show a likely return.

    • Laurence Stevenson

      I think it depends on what a ‘record label’ is. And to me it’s about artistic integrity.
      Warner Bros. are one kind of thing. But something like the ECM label is another. To me, I don’t care about the mechanics of what they do but I am interested in them as a ‘node of trust’. Somewhere I can go and know with some consistency that I’ll hear something that delights me.( And I’ll buy. I’ve dropped about $200 Cdn on ECM so far this year, mostly through iTunes. I trust Manfred Eicher’s choices.)
      When I was younger (somewhere in the middle of the last century, the record label was important as the ‘go-to’ place to get stuff you’d like. So Island Records had King Crimson, Jethro Tull and John Martyn. Harvest Records had Pink Floyd and Deep Purple. And there was an awareness that there was a fair bit of artistic consistency the label choices that you could trust. For instance, I didn’t buy much Polydor as they were all over the place with what they represented.
      So maybe it’s a more a triumph of the accountants over the A&R men that is part of this?

      • Sunny D

        Wow. I really like what you said about a ‘node of trust’. Years later, I’m reading your comment and find it awkward to reply. Have your thoughts changed since?

        Will you say new record labels built around the concept of the internet will maybe need to be communities of trust?

    • Rahul

      Yes, Laurence, you hit the nail on the head. A label is no longer a brand. It’s an investment fund. If you’re looking to buy a medication, you don’t go to Fidelity to see what companies their funds invest in, you go to a company like Merck that you might trust for your needs and see what they produce. (I know… Merck… hah, but please get the point… or maybe the point is that they’re doing the same thing.)

      And yes, trying to invest in music is frighteningly difficult. People don’t buy recordings these days (on the whole… we are an exception). Money comes from having your music featured in a movie or ad or TV show, merchandising, touring… even venues are catching on and starting to charge bands a portion of their merch sales at the show. On the flip side of that, sites like Reverb Nation are sharing their advertising revenue with the bands on the site.

    • while the traditional label is indeed broken, this is also a ripe time for artists to wake up to put in some of their own leg work for marketers to take an interest in promoting their music. aside from the major 360 deals, there recently has sprung up independent VC’s who are partnering with proactive artists and realizing it doesn’t take ginormous numbers to meet MDRC’s for example. partnerships and patronage via co-copyright ownership may be the best way to go rather than the traditional master-slave model.

      that “major labels will look more like music publishing” is also a likely possibility since the “fluff” of traditionally marketing products is over-hemorrhaged–relying on star widgets. the perception of publishers is that any marketing, or sharing, stems from the song, and it can be arranged or recorded in a multitude of ways. if the labels realize this fundamental value of songs it may also serve them to joint venture with publishers to provide one premium licensing fee to cover each song recording as opposed to fighting each other over usage rights and rates from (dying) distinct services.

    • This is all good news really. Rather like the reorganization of the big film studios back in the day. Those studios still exist and are essential to film making they are just no longer the only beneficiary of the prosperity manifested by a big hit flick. As was mentioned in Buster Keys comments, the “slave/master relationship” is no longer business as usual in the music biz… this is good stuff! More for money the artist. More options for the listening public. Win/win.

    • There’s a nexus where all these things come together, and I’ve seen it happen with my own eyes.

      If labels are truly investment opportunities, then the key to getting investors is both demonstrating and minimizing risk. The very glut and alternative distribution channels that “broke the bank” now give rise to a way to do it.

      We’ve had lots of customers come to us with nothing but their music, then accrue sales, then work to build momentum, and then use the results to show trends, show growth, prove that they’re investors.

      Soulja Boy did that. They were able to parley real data acquired from sales in iTunes, data organized and available to them as TuneCore artists, and then prove themselves a good investment to a major.

      So as I see it, what’s really changed is the world of A&R–how something gets “banked on” can depend less on tastemakers now and more on results. The gamble will always be there, but the game changes.

      –Peter
      [email protected]

    • JESUS EL RE’TARDIO

      People need to stand up and pin their ears back when this guy(Scott Perry)speaks.He’s like the EF HUTTON of music. I’ve followed this young lad for some time,i.e.Sony,Beggars Banquet etc.He speaks the truth the music industry is and has been in trouble for some time now.There has to be a fix for the industry,it might not be an easy fix,but it can be fixed.Shutting down Napster was an step in the right direction for the label and
      artist.What else has been done lately?

    • This was an excellent summary piece. I would have liked to have seen even more detail. Some of the previous MediaShift articles I’ve read have been amazing — really standout pieces that go into far more depth than any “blog” posts would.

      I don’t know what your situation with your editors is, but personally, I’d love to see you stretch out on these topics.

      There’s a much bigger ecosystem of experiments you could explore.

    • Nick

      “home taping is killing music” still make me lmao
      music will still last if the major record labels die off as long as the band still only make their money off merch, maybe they’ll cut out the middle man like every band ever did when they were just starting and print their own cd’s

    • People don’t buy recordings these days (on the whole… we are an exception). Money comes from having your music featured in a movie or ad or TV show, merchandising, touring… even venues are catching on and starting to charge bands a portion of their merch sales at the show. On the flip side of that, sites like Reverb Nation are sharing their advertising revenue with the bands on the site.

    • “Those studios still exist and are essential to film making they are just no longer the only beneficiary of the prosperity manifested by a big hit flick.”

      I’d revise that. The film industry is about to enter a huge tail flip. It is only too slowly beginning to feel the pain of customer power, through the p2p networks. It will be savagely decimated like its little sister, the music industry. And once in a blue moon, some little film will generate $2000 profit thanks to the viral effect and people will say, “See, the new paradigm shift – power to the people”.

    • Simon Wilkins

      Record labels in the future will look like this:

      http://www.payforandownloadyourmusicmediahere.com

      or

      http://www.downloadthelatesttvtalentwefound.com

      to supply media from TV programming sources-why pay for A&R and distribution when you can make money from showing the auditions when the fledgling artists come to you, charge for phone call voting, and charge TV companies to show the “talent” show

      Should you win, you really would be famous for 15 minutes as it will be 15 mins before the next idol/talent/x-factor show comes on sponsored by a rival record company!

      Some artists of course will continue to provide material direct from their own websites direct to their fans completely bypassing the record company altogether!

    • Very interesting and comprehensive summation. We’ve been doing a lot of thinking about emerging music models as a company (ex. http://www.life-connected.com/2009/09/reznors-music-model-shareable-streaming/)

      Trent Reznor and Radiohead both represent really great insider viewpoints (if juxtaposed–which makes the discussion much more rich) who are thinking about how to monetize their own music. I’d check out the first 10 minutes or so of Reznor’s Digg Dialogg interview for some very insightful, well-articulated thoughts.

      As far as what record labels can do, I thought this RWW post was quite interesting on the distribution front (though I’m not too personally compelled by the notion), especially since–as Radiohead has articulated–I think we’re moving more and more towards single-based (rather than album-based) models for music sales: http://www.readwriteweb.com/archives/forget_the_itunes_lp_apps_are_the_new_album.php

    • There is of course a divide between major and independent labels – small labels have traditionally been a sort of unifying force for similar artists, and this role will become more important in future. More people may begin to use labels as a way of finding new music, rather than trawling through the infinite choice of the Internet…

    • ashley emans
    • music has been around since forever. i don’t mind if record label companies won’t exist in the future.

    • Thanks for the great outline of how things are looking for the industry. I do agree about people being able to make money on things other than the album. I have a great deal of friends who have been getting their music on television shows and that has made them a good deal of money and fame. the music industry like the publishing industry is going to have to change, they simply have no choice

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