No Point in Celebrating Record Labels' Demise

I’ve noticed that many discussions about digital music and the struggles of the recording industries are often centered more on various individual’s ideological beliefs on music than on the economic issues facing the recording industry.

Some people hate pop music and want the major record companies to go away, and the industry to be dominated by indie labels producing less commercial music.

Some people just think music should be free.

Other folks just hate the record companies - perhaps because of their tactics against downloaders, or they hate pop music, how little they pay the artists, etc.

Some folks love digital music and just want the record companies to go on board with it and stop complaining, and continue to embrace and expand upon the trend that started with Napster.

A common thread through all of the various viewpoints is the idea that the old model is dead, the record companies are dying, CDs are dead and a new model is needed.

The problem with the ideological discussions is that they ignore the fact that in one way or another, all music fans are tied into the old model in some way and have something to lose if the record companies are unable to adapt.

Better yet, few people really think about how the old model is driving the new one.

While the old model doesn’t work anymore and is indeed dying, it still created the content, developed the artists and marketed the pop music that drove the demand for iTunes, file-sharing, Mp3 players, etc. Without the old model spending decade after decade producing content, iTunes and Rhapsody wouldn't exactly have much content to sell to people. With so many things still being driven by the content generated by the old model, some thought needs to be given to what happens if the model goes away and the content pipeline dries up.

The current digital music revolution doesn’t exist in a vacuum that makes it immune to the record industry’s struggles.  

In other words, it's somewhat disingenuous to download the latest track from Lil' Wayne and decry the old model, when the old model produced the very song you're downloading to your iPod. If the record companies do indeed die off/aren't able to come up with a new model, the unintended consequence is that the typical music fan is going to have far fewer choices - i.e. it doesn't make much sense for the average music fan to cheer the demise of the record companies, because they’re producing the very product they’re looking to purchase/acquire.

Now I suppose the indie crowd doesn't see a problem with this and would even cheer the demise of the record companies because they see it as the end of pop music, and the creation of a world where music fans begin to embrace the less commercial music they love. To me this is a myopic viewpoint at best for a couple of reasons:

Many of the artists beloved by the anti-pop music crowd are on major labels, major labels that were able to support their less commercial artists with the profits they generated from selling pop music. A label that is struggling to survive due to the lower earnings from selling digital music is going to be a lot less likely to sign the next Jeff Buckley, Tori Amos, Ben Harper, etc. Now it would be great if the more "true artists" would all go the route of Ani Difranco and just release their music on their own labels, but as a fan of Ben, Jeff and Tori I can't ignore the fact that the old model has delivered music to me that I may not have heard otherwise.

The other issue is that music means something different to everyone, and many people really like pop music. I may not like any of the songs on iTunes' top ten downloads for the week, but that doesn't mean a fan of pop music loves their music any less than I do. As a music fan I don't think it's exactly kosher for me to cheer the demise of someone else's favorite form of music, all music fans should respect the rights of other individuals to enjoy the type of music they prefer.  

Finally, let's not forget that the indie labels are dealing with many of the same economic pressures that the major labels are dealing with, and while they may operate more cheaply and have less overhead, marketing expenses, record albums for less, etc, it doesn’t change the fact that the iTunes Math doesn't favor them anymore than it does the majors.

Mind you, I don't write the above as a fan of pop music, I write it as a music snob who primarily listens to non mainstream music, but who still recognizes that the major labels are still supporting many of the artists he enjoys.

Besides, when I go out on the weekends, I don't especially feel like hearing Ani Difranco pumping through the speakers at the local pub/club; I'm a huge Ani fan but she isn't exactly danceable.

At the end of the day if the old model dies and takes the record companies with it, I believe that all music fans will lose something, even if their current ideological beliefs lead them to think otherwise.

The real point is that anyone who listens to music is benefiting in some way from the old model, and if the record companies completely disappear, the current ecosystem of digital music stores, radio stations, concert promoters, etc., will all suffer greatly. As a result, there is little point in celebrating or cheering the demise of the record companies, it would make more sense to cheer for reforms in terms of how they compensate artists and for the development of a new model that allows them to survive and make their customers happy at the same time.

At the end of the day, the record companies are dealing with a situation that's mathematically analogous to Toyota (TM) being forced to sell Camrys for $2.5k instead of $25k, and if they're not able to create a new business model that allows them to thrive like the days of old, there are likely to be significant unforeseen consequences that many music fans aren't considering.

I suppose the counter to this argument will be the fact that Radiohead offered their album directly and the Eagles have done something similar with their partnership with Wal-Mart (WMT), however let's not forget that both of these artists already have an audience that was built via years of working with a major label. A small unknown group wouldn't have that luxury.

 

Disclosure: at the time of publishing the author didn't own a position in any of the companies mentioned in this article; the ideas expressed are solely the opinions of the author and shouldn't be viewed as financial or investment advice.

 

Comments

[Jimmy Lathrop:]

Beethoven, Mozart, Bach, Handel - thank the Lord that their music came out before the Record Industry got their hooks into their works.

The population explosion and fragmentation of the market for consumers have not been good to the record companies. Lyor Cohen and his colleagues pine for the days where we all rushed out to buy the new Led Zeppelin album when it came out. But, like the steamboat and the gramophone, those days are over.

The rise of DIY labels,and a potent online delivery service (Myspace and other online networking sites) have cut the middleman out. A&R and development was an extremely inefficient way of developing new artists.

Those of us who love pop music will always have that "Golden Oldies" radio of 50s and 60s beach songs, AOR radio on the Classic Rock as well as online and digital radio stations to play the new bands. Consumers want to return to singles while the record industry wants to keep pushing albums. The record industry enjoyed one of the biggest profit margins in history when it got consumers used to high CD prices and refused to lower them once the cost of manufacturing plummeted dramatically. They used payola on radio stations shamelessly at the expense of other artists. And now we are supposed to feel sorry for them?

Disclosure : I represent defendants pro bono who are being sued by the Recording Industry of America in Federal Court for allegedly violating copyright laws.

If you are feeling any Sympathy for the Record Industry (no pun intended, Long John!) feel free to visit my colleague Ray Beckerman's web site how our friendly record companies are dealing with their impending extinction. Remember how horse and stable owners tried to ban cars from the road?

recordingindustryvspeo.../

2008 Aug 31 01:30 PM

[DHJ:]

I think one assumption that is made is that the old model delivered you the artists you love and you would not be able to enjoy them without it. The opposite could be true and you may be enjoying these artists despite the old model or you may not be enjoying many other artists today that you have not heard of because of the old model.

While some people enjoyed the economic fruits of unjust systems in the past like child-labor, slavery, or pre labor union industrialization, it did not mean that those systems should not have ended or that people should not have cheered their demise. I am not saying that the record companies are evil in the same way that these unjust economic models are, I am just trying to point out that just because a business model produces something that is near and dear to our hearts, or even something that is essential for everyday life, it does not make that system necessarily worth saving or replacing.

Musicians make music for the pure joy of it. I know because I am one. Don't confuse the delivery system with the music you love. While the current system may favor one kind of music, the demise of that system (the record label system) will not cause the music if favors ("pop" music, whatever that is) to disappear entirely if there is an audience for that music. If that audience was somehow artificially created though the marketing of the major labels and once the majors are gone there is suddenly no demand for this music, then that is because there is no audience for it without billions being spent on marketing.

Most artists would make music for free. In fact most musicians make large investments both financially and in terms of time before anyone "discovers" them. Perhaps the demise of the majors will encourage people to broaden their horizons a bit and discover all the amazing music that is out there. I am not just talking about some weird independent band but great pop and mainstream music that is just not being pushed for whatever reason. Perhaps the lead singer doesn't look "marketable" and the majors won't touch them. Don't assume that the music people are hoping will get heard if the majors should stop dominating what gets heard and what doesn't is all strange and esoteric, its not.

I think the old model worked, but it worked like pre minimum wage law factory's worked. It would be nice to see a model that empowers the artists more just as workers today are more empowered than they were when they first started working in factories, at least in much of the world. The demise of the record labels does not guarantee this happening, but their power being diminished is key and I see no need to prop them up.

Being a musician and knowing people who worked in "the biz" I can say that from my point of view the old model is extremely inefficient. It rewards neither the people who make the music or the fans but instead the major labels and the people who work for them. Sure some music has gotten made as a byproduct of this system that otherwise would not have gotten made. A lot of this was "by mistake"
in that some A & R guy thought this band was going to be the next big thing and they got to record a few amazing albums before they got dropped because they never "delivered the goods" financially.

I feel this is for the most part backwards looking. Yes overall I would say that I am glad we had the major labels in the past rather than didn't have them. The question now is should we still have them and what role should they play. They unquestionably have a huge catalog of amazing music available to pull from and I would be surprised if they did not figure out some way to keep profiting from this fact alone, even if they never record another artist again.

The landscape has changed dramatically. When I started making music one could not easily record or distribute music on ones own. Now you can practically do it without trying. This is not to say that there are not some new hurdles for up and coming artists, perhaps there are even more then before. However I think almost any artist - perhaps with the exception of someone who is the direct product of the present system - would choose a system that empowers them as artists more. Sure the covers and marketing may not be as slick, but its the music that counts, at least thats what us musicians like to think. Perhaps people will start to see more of a one to one relationship between their patronage and the artists they love and want to support? If you download so and so's music for free they the quality of the product they deliver to you may suffer since you are now stealing directly from the artists themselves and not the "evil record label."

Its time for something new. If the quality or quantity of music falls off steeply I am sure Adam Smith's invisible hand will figure out a way to compensate artists enough so that they can afford to make music of a better quality. However, I think the landscape has changed forever, and will continue to change, in such a way that it will shift power away from these dinosaurs and into the hands of the people in which it rightfully belongs, the artists.

Sorry for the long response, I had a lot to say obviously, and I don't have time to edit this, so please forgive any typos, grammatical, or punctuation errors.

2008 Aug 31 04:04 PM

[AT57:]

All you need to do is see how the RIAA has chosen to move forward on behalf of the 'big three' to understand why they will never be able to gain the trust of music consumers. It's not a great idea to sue your customers, especially if a large percentage of them don't know, or care, that they are doing something illegal by sharing music. Further, instead of being in the forefront in ways to use the Internet as a distribution system, they chose instead to use their resources to drag webcasters through an ongoing legal battle into giving them a performance royalty that stifles new entrants into Internet streaming and forces those in that industry to decide whether or not it's worth being in business only to pay 70% of your income to the RIAA, like Pandora now does. Next on their agenda is to force traditional radio and satellite radio to spend millions in legal fees to undo the specious 'willing buyer/wiling seller' model that the RIAA's lawyers confused the Copyright Board and the judges into believing was the only standard for a performance royalty. They are also very far down the road toward alienating traditional radio by fighting for a performance fee for analog transmission, even though the 'door opener' was the Digital Millennium Copyright Act of 1998, which pertains ONLY to digital performances. Evidently, record compaines no longer acknowledge that radio was, and to a lesser extent still is, the primary promotional vehicle and catalyst for people to be exposed to both new music and old music that these companies need to sell, and while I'm not happy that they may not survive, they brought this on themselves.

2008 Sep 01 02:28 PM