*Writers note: In this article, I am going to be a little harsh on record labels. I work with wonderful record label people every day. Heck, I genuinely like most of them. They care deeply about their artists and work hard to make sure that those artists are promoted effectively. Please note that this is not an attempt to disparage these wonderful people from their genuine efforts. My beef is not with them, but the overall structure of record labels today.
The fascinating thing about the dramatic decline in CD sales is how the music business, in particular the record labels, have chosen to react. I use the word fascinating in the same way I would in describing a really bad NASCAR wreck – I sure hope nobody gets hurt, and I know I’m probably not supposed to feel this way, but the wreck is so spectacular in it’s destruction that I can’t help but watch.
Keep in mind that record labels were the Big Dog. Everything revolved around record releases. An artist’s only shot at getting heard was signing a record deal – usually a very bad one. The labels controlled pretty much everything but touring, and touring was directly linked to how many albums you sold. In responding to this crisis, the record labels choose to react in several very strange ways. Below, I’ve listed the major reactions and made some comments on each. Record labels:
1. CHOSE TO SUE THEIR CUSTOMERS, INDIVIDUALLY. Seriously. I’ll bet the PR team wasn’t invited to the meeting where they came up with this one. I don’t know who’s crazier, the guy that said, “Hey, I’ll bet we can scare the crap out of our loyal customers by suing some of them for illegal downloading. That way, our customers will be so scared that they will have to buy our overpriced product,” or the rest of the folks who said, “Gee, that’s a good idea.” The funny thing is that, as a manager, this tactic didn’t surprise me at all. I can’t tell you how many meetings I’ve been in on behalf of one of my clients where these types of arrogant tactics have been used. Sue your customers? Think about it. Labels have been strong-arming industry folks and artists for so long that they didn’t even consider that this tactic might horrify normal people.
2. CHOSE TO LEAVE THEIR CORPORATE STRUCTURES PRETTY MUCH INTACT, EXCEPT FOR WHEN THEY WERE FIRING A PAINFUL PERCENTAGE OF THEIR WORKER BEES. I work in a particular niche of the music business – Christian music. Now I don’t know how other labels have done it, but I’ve got a serious birds-eye view of how a lot of the labels have handled cost cutting in our particular industry. Instead of lopping off the heads of senior decision makers who’s job it is to see the trends and steer their businesses in the right direction, or holding A&R people accountable for actually signing talent people want to hear, they fired many of the helpless people that make a record label work – marketing folks, support folks, accounting folks, etc. That’s not how it works in the real world. I just read about Stan O’Neil this week. He was CEO of Merrill Lynch. Those guys just had to write off $7 billion due to bad deals in the mortgage security arena. Stan didn’t make those deals, but Stan sure got fired. He got the ax because he was the leader.
3. CHOSE TO SIGN THEIR NEW ARTISTS TO DEALS THAT ARE FAR WORSE THAN THEY WERE FIVE YEARS AGO IN AN ATTEMPT TO BLEED AS MUCH CASH OUT OF SAID ARTIST AS POSSIBLE. On the surface I kinda get this. If your business is in the tank one of the things you do is to try and maximize your income from the deals that you are doing. The problem is this – you can’t trump up deals in your favor while at the same time drastically reducing the services you provide because you’re firing a good chunk of your staff. You can’t have it both ways. At some point someone looks at the deal and says, “Hey, how can these guys take even more of the money when they can’t come close to providing the service they did even 5 years ago?” My take on this is simply that some labels forgot a long time ago that their primary customers are the artists they sign. It’s their job to serve them because they are the moneymakers. Artists are not a product. Artists are people. If a label thinks the person buying the CD is their primary client then they have blown it.
4. CHOSE TO ATTEMPT TO GET INTO THE MANAGEMENT BUSINESS WITHOUT HIRING ANY MANAGERS TO HELP THEM. For the past three years, we’ve heard the endless rumors about labels starting in-house management companies to manage their artists. I get this. If a business starts to tank, then it’s natural to seek alternative revenue streams that coincide with their current model. The problem is that many record labels have carried their same “king of the hill” mentality to the table on this issue. Management/Record Label relations have never been 100% on the same page. A manager’s job is to look at their artist’s career from a 15,000 ft. level and consider all the factors. A record label’s job is to sell records. Sometimes the mutual goals line up, and sometimes they don’t. Sometimes record labels look down on managers because they feel that managers get in their way, mess things up, or just plain suck. In many instances, I’d have to concur. There are some really good managers and some really bad ones. The trick is that a good manager or bad manager is not defined by his or her relationship with a record label. I think that many labels feel that managers don’t do squat. From personal experience, I can tell you that mentoring young artists, negotiating every aspect of their careers, and running point on everything from radio, PR, endorsements, touring, etc., is hard work. Any label that thinks they can sign one of these 360 degree deals and figure it out on the back end is going to get skinned, big time.
Wow. Makes you wonder whether any of the guys running these shops took Business 101 in college. From the looks of the list above, it would be pretty easy to suggest that the label folks were busy taking 500-level classes in Arrogance and Sidestepping Responsibility. The fact is that the problem faced by record labels is somewhat common in the history of business. It happens all the time – Changing Technology And Consumer Habits Renders An Industry Obsolete. How do you think the guys that made trains feel when someone introduced the airliner? How about the typewriter people when the word processor showed up? The list goes on and on. This is business and this is America. You adapt or you get to take your ball and go home.
The record labels are going to do what they want. Some will survive, many won’t. The good news is that this scenario has nothing to do with the death of music. People love music. Music is not going anywhere. It’s the way people consume it that is going to be different.
My next article will address where Platform sees the future of music going, and what we are going to do about it.
Chance Hoag
Platform Artist Management
11-2-07
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2 comments:
Chance,
I, like you, have spent two decades in and around the music business, and you and I know that we could name the label people we've known with business degrees on one hand. The entertainment business is fascinating because it draws people into the business not because of the business, but because of its trappings. This has caused record label leaders to hire people who are not qualified other than the fact that they love music. Loving music is important, sure, but that's just Step 1.
One of the terrible realities of the past five years in this town is that the kids are not getting trained. That's because the middle managers have been fired, and have either been replaced by kids who are making $30,000 a year or their jobs have simply been eliminated.
You have a self-fulfilling prophecy in marketing and sales where the entire industry is heading in directions only because they simply don't know any better. They don't know what they don't know.
The industry used to attract the best and brightest young talent -- designers like Buddy Jackson, photographers like Mark Tucker, and musicians like Keith Thomas. I don't know anyone -- literally -- who used to work in the industry who wants to go back. They have been told that their role now is relegated to working for minimum wage (literally) and agree to work for hire contracts that no creatively-driven industry would never embrace.
I am excited about the future, but it is difficult to feel much sympathy for the labels. For the past five years they have squeezed everyone who works for, in and around the industry hoping that a solution would drop into their laps. Now when the chickens have come home to roost, and the marketplace jumped over them with iTunes and iPods, they are left with meaningless law suits and shrinking revenues that can never be recovered in retail sales.
Problem is, their industry has never really been about the end user (aka the customer) until now -- and these folks have no skills, infrastructure or interest in getting to know their customer. The labels have sold billions of CDs and don't have a single name, phone number, or physical address for any of them.
I don't know a single artist who will sign "management" deals with their label unless they have no other option. And the marketplace is providing options very, very quickly.
Here's a plan they COULD do:
Partner with the artists to create all sorts of content, big and small, free and expensive, and 90% digital delivery. Cut deals on a per-product basis, with costs recouped from areas where that product gets exposure. Find partners out in the market to produce, co-sponsor and distribute these items as needed.
Artists retain ownership of their intellectual property.
It may be too late anyway. With Live Nation buying the whole industry behind the labels' backs, I suspect the artists are now too wise and wary to trust their labels.
I am truly excited about the future of music, because I am convinced that the marketplace will respond to the needs that are emerging. I plan to be a part of it.
It's tough to understand the value proposition labels offer. Today, they are little more than quasi finance/private equity companies - extremely heavy handed finance/private equity companies for financing recording and a video and obtaining distribution.
With technology driving recording prices down, it no longer is that significant that a record label can provide the means to a professional recording.
One might then say that financing a video and getting distribution is still an attractive benefit of being allied with a record company.
However, if one is not getting video or air play in Wichita, Kansas, for example, then its usually pointless and costly to have the album in stock in Wichita stores. People will have little reason to search out and buy the album.
Well, people in Wichita could find out about the band through the Internet or tour - well then you'd be better off and get better margins convincing them to make an immediate purchase decision and purchase via the band's site or at the show.
Previously, record companies provided more value. A big label deal often meant one got tour support, promotion and radio play.
Very few record companies today provide any advantage in those areas, which nowadays, have really increased in importance to breaking a band.
Overall, I see the value that record companies provide as not justifying the inequity of most record contracts [unless something has suddenly changed about record company practices].
Like they say, I never brought some unknown band just because they were on some record label. Likewise, if I liked a band, I never did not purchase them because they were not an a prestigious record label.
Richard - pub., Christianconcertzine.com
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