How Are Record Labels Handling Business With Downloads?
How Are Record Labels Handling Business Amidst The Download Free-for-All?
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by C. Zawadi Morris
In the spring of 2009, the band Coldplay announced they were giving away their nine-track live album, “LeftRightLeftRightLeft” as a free CD download on their website. Soon afterward, Nine Inch Nails also decided to give away their band’s entire new album entitled “Slip.” What was this business of giving away an album? Weren’t record label giants hemorrhaging from major losses in record sales? (In the meantime, I downloaded the free albums).
The following fall, independent artist, Res finished her live performance by spelling out the web address to where anyone could download her entire new album… also for free! Were the indies in the free giveaway game too? (While I pondered, I downloaded her album too).
Something was happening in music, across both the major labels and with independent artists. Something was changing. Again. And so soon, considering we’ve only recently come to fully understand the last major change, which took place during the last decade, from 2000 to 2009, when the traditional music industry business model (for the way music is produced, marketed and sold) was turned on its head. Before, digital CD technology was developed by the producer to serve the producer. Later, with the explosion of the Web, that same technology became accessible to all; the consumer became the developer to serve primarily… himself.
John King (2nd from left) at Chung King Studios“The music business has shot itself in the foot by not having stayed up with the current technology,” said John King, founder of Chung King Studios, one of the first and oldest studios to record hip-hop music. “Because they haven’t used digital watermarking or any of the protection devices, you can’t blame people for stealing music when it’s $21 for a CD.”
“The reality today is that anyone can bring a product to market,” said Maurice Bernstein, president and CEO of Giant Step Music. “You can make a fairly good quality music project in your bedroom; you don’t need to manufacture the product to bring it to market and you can use all of the social network sites to build a fan base and market yourself.”
Bernstein founded Giant Step with Jonathan Rudnick in 1995 as a concert promotions and lifestyle marketing company. Over time, it evolved into a successful mid-size record label, launching such acts as Macy Gray, Donnie, Jamiroquai, Zero 7 and Zap Mama. By early 2000, Bernstein started noticing the fast-changing music landscape precipitated by advances in digital technology, and he moved quickly to adjust. He got out of the music label business and converted the company back into a music marketing agency, where he said the company is doing tremendously well.
Giant Step markets artists like Erykah Badu“New technology has made our job easier, because there are many more ways for us to communicate with people than there ever was before, and now things are viral,” said Bernstein. “In 2010, there’s a plethora of ways to communicate with people that are quicker, easier and cheaper. The possibilities are infinite.”
The landscape has, without question, changed. It’s a virtual music free-for-all.
Yet, major labels have managed to hold on, and with a degree of success: You need only look at some of the top-selling new artists of last year– such as Lady Ga Ga, Drake, Keri Hilson and the Dream—to know that success and fame in the music industry is alive and well. So what’s keeping the major labels afloat, if not record sales?
According to Bernstein, the music industry continues to thrive because the record is no longer the focus. The record has become a mere marketing tool used to raise the stock of something far more pliable, far more sustainable: The artist.
Julie Dexter of Ketch a Vibe RecordsThe three main pillars of music industry revenue are recorded music, live music, and PRS revenues (royalties collected on behalf of artists when their music is played in public). Even when records were selling, music label executives looked to tours, royalties and endorsements for by-product revenues. But now that internet and digital technology have rendered music as an inalienable right, the focus has shifted squarely on the artist. PRS revenues and concert revenues are no longer the by-product, but the goal.
“When you’re a major-selling artist like Coldplay, giving away an album is not really giving away that much,” says Julie Dexter, an Atlanta-based independent artist and owner of Ketch A Vibe Records. “It’s a great form of promotion that builds loyalty amongst your fan base. If the album is good, they’ll spread the word, then your popularity increases. At that point, you can market or sell whatever you want.”
So it turns out that Bernstein’s prediction that the music industry’s focus would move toward marketing was spot-on. His prediction for the coming years is that the internet will serve as a tool for laser-marketing to audiences with highly specific tastes and lifestyles. But, he adds, to be meaningful, the marketer will need to know his or her base and know it well.
“That’s why we have created a community of what we call ‘power users,’ early adopters, culture vultures,” he said. “They are the first touch points with new artists. If our power users like something, they’re influential enough to do something about it, or they’re plugged in enough to tell their friends. We’ve built this relationship over 20 years.”
And that’s where major labels still have an advantage: A promotions budget and a popular brand name. Today’s major-label artists make a record, then spend the next couple of years doing everything but make music. It’s a response to the times, in a world where free music has become a right, not a privilege. With revenue from album sales stripped away, they turn their attention to other things, like endorsing makeup, judging reality shows, pushing liquor, selling bras, etc.
But King believes there’s still hope for reviving a revenue stream through record sales, with a sales model that is compatible for today’s technology junkie: “I think the future is brighter than the present. I think the big companies will turn into a bank and publisher for some of the smaller labels,” he said. “People will be required to upload a label’s or ISP’s software, and if you download music, it will go through a tollbooth.”
In the meantime, it remains a double-edge sword for indie artists. Technology enables them to “do it yourself” successfully. And with profit margins on each record sale that much greater, they can make a steady living. But the big-sized fame eludes them. In the end, heavy and steady doses of promotions are a requisite, in order to be heard over a chorus of a billion others online.
Some independents are trying the album giveaway strategy, hoping to make it up in revenues from live shows. But according to Dexter, that’s taking a huge gamble.
“I’m trying to be like the majors! I want to sell out shows and sell some bras too,” said Julie, half-jokingly and half-seriously. “But right now, my music catalog is my pension, and I can’t afford to give away an entire album totally for free. Nope, that ain’t happening.”
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