Record companies are dead, long live the musician!

Record companies live under and like to perpetuate the mistaken impression that the music industry is in crisis. It is not the music industry, it is the record companies themselves really. An increasing number of older bands are preferring to play concerts rather than make albums, since they get to pocket the proceeds (not quite the Grateful Dead, but what is wrong with making money from your own music?).

Think about the last time you bought music on a CD. Did you care much for the record company label? I just bought Kill to Get Crimson, and except for an interesting new clasp on the side of the CD, I cannot tell you anything worthy about the packaging. Yes, I read the credits (I am nerdy that way) and sometimes the lyrics of a song I may have liked. But apart from that, nada.

I can however tell you a whole bunch of stuff about Mark Knopfler and his music, and how it has been evolving over the last few years, although I did not like his experimental album with Emmylou Harris. I have seen him in concert 5 or 6 times, with his fabulous guitars all lined up on stage. I cannot commit right now to his May’08 concert, but come the time, I am confident my Amex concierge will get me plum seats wherever I may be.

The bottom line is: as consumers of music, our relationship is with the musician, his story, the mystery of his song-writing, his musical abilities, not with his record company.

So we cheer when Prince changes his name to thumb his nose at a record company that owned his name, till he is free of the contract. We are pleased that he gives away his newest CD, Planet Earth, for free with a newspaper.

And after years of us shelling out Β£12.99 or Β£15.99 for a CD (yes, that is what we paid in the UK until the stores started to go out of business!), finally a band acclaimed as arguably the world’s hottest rock band asks its fans to name a price for their new album. Radiohead’s In Rainbows will be available for download on 10th October. Free market forces in music buying, anyone?

Five years ago (2002), in our Network Economics class, we were discussing what record companies could do to deal with illegal downloads. Admittedly it was the wrong question! We took record company contracts with musicians as given. However that was what it was, and within those limitations, I raised my hand in class and suggested that record companies should see the on-line communities as an asset, not a threat. With a product failure rate of 95% – which means 95% of artists really do not make any money for record companies, an otherwise unacceptable metric in any sane business in the world – they should consider ways of test-marketing artists with on-line communities to improve their product success rate. They should consider un-packing individual songs and experiment with new ways of bundling (my example was bundling Shakira’s Whenever, Wherever with its video and sell it for a greater price than other songs). They should choose platform agnosticism; after all, they are in the music distribution business, not in the business of increasing licensed installation sites for Real Audio or Microsoft’s Media Player. They should allow customers to be able to make collections of their own choices, rather than being forced to buy a crap album for one good song. And my class laughed! It ain’t gonna happen, they said.

Well, it may have taken an iTunes – and now some renegade record companies – to bring things to pass but they have indeed come to pass. Not that I am a fan of iTunes’s extortionate pricing in the UK!

However the musicians themselves are smarter and swifter than the record companies, my favourite example being Metallica who first held out and then gave in, in keeping with what the fans wanted.

Unless the record labels really change their, er, tune, they deserve to go out of existence. Meanwhile, the bands play on.

20 thoughts on “Record companies are dead, long live the musician!

  1. Hey thats a very interesting post! I never thought of it quite that way. Somehow we feel that musicians cannot survive without record companies and maybe not music either! But the question of illegal downloads is still huge I think and it is bound to eat into the profits of the musicians themselves. itunes I was given the impression was free, but forgive me for my ignorance!
    I don’t mind if the record companies go out of existence, as long as the musicians can stay and make money without them!

    Like

  2. Hey thats a very interesting post! I never thought of it quite that way. Somehow we feel that musicians cannot survive without record companies and maybe not music either! But the question of illegal downloads is still huge I think and it is bound to eat into the profits of the musicians themselves. itunes I was given the impression was free, but forgive me for my ignorance!
    I don’t mind if the record companies go out of existence, as long as the musicians can stay and make money without them!

    Like

  3. Nita: Thanks for your note.

    The traditional music company contracts, in the 1950s, were heavily loaded in favour of record firms. Some even owned the lyrics and the rights to all monies made. Then slowly musicians wised up to things. Even now musicians who are also songwriters make more money than those who just sing.

    Contracts got better but remained unfair to musicians by and large. A very large chunk of the ‘value’ of the recording contract was money that the musician had to spend to use the record companies’ equipment and recording infrastructure. Slowly major musicians started setting up their own recording studios. Some even set up their own labels to promote other artists as well as their own music in some cases.

    In all this, the record companies’ muscle was in retail distribution. However with the web making music universally accessible, that grip started to loosen. Networks like Napster and Kazaa may have been illegal in early days but they paved the strategic way so Steve Jobs’s iTunes can now suck music consumers dry.

    Of course, record companies cry blue murder. In 2000, I wrote an article – sadly even I do not have a copy – for which I interviewed the e-strategy bigwigs of some major record labels. Their arrogance and lack of awareness was astonishing!

    The music industry’s changing dynamics make a great case study of how technology dis-intermediates and re-intermediates if necessary. Yes, the web makes it all ruthless and I imagine bad acts have nowhere to hide. But it also allows the music consumers access to a wider range of artists – networks like MySpace lubricate the path to that possibility at a very low cost – which can only be good for the music industry.

    As I mentioned, it is not the music industry that is in crisis, it is the record companies, who have been sounding like a broken record for years. Time to swap it for a soft-download πŸ™‚

    Thanks for reading.

    Like

  4. Nita: Thanks for your note.

    The traditional music company contracts, in the 1950s, were heavily loaded in favour of record firms. Some even owned the lyrics and the rights to all monies made. Then slowly musicians wised up to things. Even now musicians who are also songwriters make more money than those who just sing.

    Contracts got better but remained unfair to musicians by and large. A very large chunk of the ‘value’ of the recording contract was money that the musician had to spend to use the record companies’ equipment and recording infrastructure. Slowly major musicians started setting up their own recording studios. Some even set up their own labels to promote other artists as well as their own music in some cases.

    In all this, the record companies’ muscle was in retail distribution. However with the web making music universally accessible, that grip started to loosen. Networks like Napster and Kazaa may have been illegal in early days but they paved the strategic way so Steve Jobs’s iTunes can now suck music consumers dry.

    Of course, record companies cry blue murder. In 2000, I wrote an article – sadly even I do not have a copy – for which I interviewed the e-strategy bigwigs of some major record labels. Their arrogance and lack of awareness was astonishing!

    The music industry’s changing dynamics make a great case study of how technology dis-intermediates and re-intermediates if necessary. Yes, the web makes it all ruthless and I imagine bad acts have nowhere to hide. But it also allows the music consumers access to a wider range of artists – networks like MySpace lubricate the path to that possibility at a very low cost – which can only be good for the music industry.

    As I mentioned, it is not the music industry that is in crisis, it is the record companies, who have been sounding like a broken record for years. Time to swap it for a soft-download πŸ™‚

    Thanks for reading.

    Like

  5. Mahendra: Thanks. What I do remember clearly is the loud laughter in the class! It is always a great test for ideas which are off-beat. It also reminds me how rapid the pace of change has been in this area.

    Thanks.

    Like

  6. Mahendra: Thanks. What I do remember clearly is the loud laughter in the class! It is always a great test for ideas which are off-beat. It also reminds me how rapid the pace of change has been in this area.

    Thanks.

    Like

  7. Mahendra: Thanks for reading and for your kind words!

    And I note he wrote the article after I did, too πŸ˜‰ Yesterday this blog post appeared on WSJ to my surprise.

    Thanks.

    Like

  8. Mahendra: Thanks for reading and for your kind words!

    And I note he wrote the article after I did, too πŸ˜‰ Yesterday this blog post appeared on WSJ to my surprise.

    Thanks.

    Like

  9. Shefaly, Great post…thanks for pointing me in this direction.

    I noticed your third sentence: “An increasing number of older bands are preferring to play concerts rather than make albums, since they get to pocket the proceeds”…

    That was the thought that prompted me to say that “content” is heading towards “zero” and artists and other content creators (journalists, bloggers!) will have to think of other ways of earning their fees… [post link: https://global-themes.com/content-now-officially-free/ ]

    In case of musicians, more concerts and tours is the obvious answer…But I wonder what options does a blogger have? get more ads on his/her site?!

    Like

  10. Shefaly, Great post…thanks for pointing me in this direction.

    I noticed your third sentence: “An increasing number of older bands are preferring to play concerts rather than make albums, since they get to pocket the proceeds”…

    That was the thought that prompted me to say that “content” is heading towards “zero” and artists and other content creators (journalists, bloggers!) will have to think of other ways of earning their fees… [post link: https://global-themes.com/content-now-officially-free/ ]

    In case of musicians, more concerts and tours is the obvious answer…But I wonder what options does a blogger have? get more ads on his/her site?!

    Like

  11. Shantanu: Thanks for your note.

    The reason why there is a preference for concerts over making new music is mainly due to the structure of existing contracts that the artists have/ had with record companies. Those contracts allowed the artist only to keep a small % of the record sales proceeds while leaving concert monies all to be pocketed. When we hear headline number recording contracts, the artists still had to pay for costs from that big ticket sum!

    Some old order remains while there are also changes afoot in the traditional set-up in more ways than one.

    In the old order:

    The Police re-formed but are not likely to make any more new music.

    Some older groups like the Eagles are producing new music (mediocre though, but that is for another discussion).

    In the changes section:

    Madonna recently signed a recording AND touring deal with a small music and management firm. [See: https://news.bbc.co.uk/2/hi/entertainment/7047969.stm%5D

    Hybrid models also exist. Page-Plant are reuniting for a concert (old order), making non-committal noises about new music together, while Robert Plant has also worked separately with Alison Kraus to produce a new album whose release coincides with Page-Plant/ Led Zeppelin’s O2 concert.

    As for bloggers: I think the blog as a business is yet evolving. Om Malik’s gig, I am sure, makes a neat sum; Guy Kawasaki on the other hand made a sum total of $3500 (or so) in his 1st year of blogging. He has since added sponsorships and job advertisements and his 2nd year may look different. I shall check with ContentSutra to see how they make money although it would be a stretch to call them ‘bloggers’.

    The hard answer in my view is: very few bloggers will make money from blogging. Those who do will probably be leveraging the blog to make money elsewhere (or the other way round) rather than making money on the blog.

    Thanks.

    Like

  12. Shantanu: Thanks for your note.

    The reason why there is a preference for concerts over making new music is mainly due to the structure of existing contracts that the artists have/ had with record companies. Those contracts allowed the artist only to keep a small % of the record sales proceeds while leaving concert monies all to be pocketed. When we hear headline number recording contracts, the artists still had to pay for costs from that big ticket sum!

    Some old order remains while there are also changes afoot in the traditional set-up in more ways than one.

    In the old order:

    The Police re-formed but are not likely to make any more new music.

    Some older groups like the Eagles are producing new music (mediocre though, but that is for another discussion).

    In the changes section:

    Madonna recently signed a recording AND touring deal with a small music and management firm. [See: https://news.bbc.co.uk/2/hi/entertainment/7047969.stm%5D

    Hybrid models also exist. Page-Plant are reuniting for a concert (old order), making non-committal noises about new music together, while Robert Plant has also worked separately with Alison Kraus to produce a new album whose release coincides with Page-Plant/ Led Zeppelin’s O2 concert.

    As for bloggers: I think the blog as a business is yet evolving. Om Malik’s gig, I am sure, makes a neat sum; Guy Kawasaki on the other hand made a sum total of $3500 (or so) in his 1st year of blogging. He has since added sponsorships and job advertisements and his 2nd year may look different. I shall check with ContentSutra to see how they make money although it would be a stretch to call them ‘bloggers’.

    The hard answer in my view is: very few bloggers will make money from blogging. Those who do will probably be leveraging the blog to make money elsewhere (or the other way round) rather than making money on the blog.

    Thanks.

    Like

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