Houston, Do We Have A Problem?

A Very Brief History of The Music Business And Reasoning Behind The Tanking Market For Music Sales

Most of us have read about the issue. Those of us in the music business are certainly experiencing the issue. The issue is that nobody wants to buy a CD anymore. Or is it? Let’s be clear – CD sales quickly going down the tubes is a tip of the iceberg problem. It’s the result of many self-inflicted injuries of the decision makers in the music business, including, but not limited to, greed, arrogance, and just plain clumsiness. It’s also the result of fast changing technologies, and a rapid shift in the attitudes of music listeners toward how they consume music. Notice that I didn’t mention illegal downloading, P2P, or increased leisure time spent playing video games. Those are obstacles, not problems. In one form or another, every business deals with some type of challenge to the way they do business or the way their products are sold. The real problem in this particular instance involves both the history of the music business and the inability of that business to recognize that the artist and the consumer, with a little nod from the Internet, were demanding that this business change course.

The media has provided us with all of the facts and figures with regards to declining CD sales, so I won’t bore you with all of that. Is it as bad as it sounds? You better believe it – like, waking up with a bear in your tent kind of bad. I can say, at least from where I sit, that the standard record label structure, and thus the record label conglomerates of the present are deader than a doornail. Please indulge me in a little history.

Modern record labels really started back in the 1930’s and 40’s. They figured out early on that they could take artists and their music and own a huge chunk of it. The artists weren’t prepared to do business with sophisticated organizations, and, in some cases, the mafia. Little know fact here – the mafia in Chicago and Detroit are the guys we have to thank for our modern day recording contracts. Anyway, these companies figured how to make a lot of money by distributing records through stores, and songs through the radio, which in turn helped to drive more records being sold in the stores. I’m in no way suggesting this was a bad or unethical move. As a manager, I have complete disdain for how much of a percentage the label takes peddling the creative work of it’s stable of artists – especially now. In reality, though, the record labels were just charging a certain ticket price for admission. If you wanted any shot whatsoever of your music being heard, then the marketing and distribution of those songs went through a record label. Period. The price of admission is around 88% of all record related proceeds and at least half of your publishing. You wanna dance – you get to pay the cover charge.

As the business matured through the decades, the entire scope of the music business came to be defined by the release of a record, or an eight track, or a tape. You see, new music drove the machine, and the machine made the vast majority of their money from hyping new records. Labels marketed new records with radio, PR, media events, etc. Artists followed suit by launching tours to support their new records, and by crafting merchandise to sell at their shows around the theme of their new releases. Through the process a lot of folks made a lot of money – managers, agents, labels, lawyers, and the list goes on. Comparatively speaking, the folks that tended to get the shaft were artists. Their record deals were bad, and sometimes their lawyers or managers took them to the cleaners. Don’t get me wrong, some artists made a ton of money. I say “comparatively” because back then, and up until about 5 years ago, any artist making a ton of money had others around him/her/them that were making more – a lot more.

Anyway, a funny thing happened on the way to the bank. The music business was trucking along just fine and then something happened that would ultimately bring an industry to its knees. Sometime around 1983 or 1984, the music industry released the compact disc. You see, this shiny, small CD that sounded so good had a little problem that nobody paid much attention to at the time – it was a digital recording that could be copied as soon as computer technology caught up to it. And catch up it did.

The second and final ingredient in this recipe of disaster for record labels was the modern advent of the Internet. Not only could you burn CDs on your computer, but you could also send songs to all of your friends. Man, talk about instant distribution. So let’s flash forward to the present. The number one type of file sent over the Internet is peer-to-peer, and those usually contain ripped content like music. Even if you feel bad about downloading music for free (that puts you in a serious minority, by the way), you can go to iTunes, or any number of other online store and buy music for .99 cents a song. All of this, plus other factors, devalued the price of a CD. I mean, seriously, 11 songs isn’t worth $16, especially when I can, and do, get it for free. You should listen to me on this one. Heck, I love music so much that it’s what I do for a living. I’m really skimming the surface here, but you get the picture. If CDs are worth somewhere between nothing and just a little, then the music business has a full-blown disaster on its hands. All of a sudden record companies are bleeding money, which causes the distributors of music to get killed, which causes music stores to go out of business, which tightens supply to the market, which benefits the internet and,………..well, the downward cycle kills an entire business.

My next article will discuss the record label’s various interesting responses to the record sales crisis.

Chance Hoag
Platform Artist Management
10-31-07