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July 13, 2007
The record labels change
Some time ago, I posted a few items about how I agreed with the idea that the music industry needed a new business model that stressed live performance over easily copied recordings (see this, this and this).
Now, the industry looks like it is going that way. According to a recent story in the Economist (The music industry | A change of tune), the record labels trying to moving into the larger business:
Seven years ago musicians derived two-thirds of their income, via record labels, from pre-recorded music, with the other one-third coming from concert tours, merchandise and endorsements, according to the Music Managers Forum, a trade group in London. But today those proportions have been reversed—cutting the labels off from the industry's biggest and fastest-growing sources of revenue. Concert-ticket sales in North America alone increased from $1.7 billion in 2000 to over $3.1 billion last year, according to Pollstar, a trade magazine.
Frustrated record companies have responded by trying to get their artists to spend more time promoting records and less time touring and endorsing products, says Jeanne Meyer of EMI, another big record label. “Sometimes you've got a tug of war going on,” she says. Yet the more labels spend on marketing pre-recorded music, the more they raise their artists' profiles and boost their other, more lucrative, sources of income. Pre-recorded music, no longer the main cash cow, increasingly serves merely as a marketing tool for T-shirts and concert tickets. The best seats for The Police's world tour this summer cost over $900; the group's entire catalogue on CD costs less than $100.
Record labels have come up with a remedy: the “360° contract”. Instead of settling for a cut of CD sales, they increasingly offer artists broader contracts that encompass live music, merchandise and endorsement deals. Such deals, also known as multiple-rights or all-rights contracts, are particularly important in regions with rampant CD piracy, such as Africa, Asia and Latin America. “The market has made it necessary—we've got to look for something else,” says Manuel Cuevas, an industry executive in Mexico City. His company, the Mexican subsidiary of a major label, decided earlier this year to adopt the 360° model. “It's a discussion you have with every new artist now,” says EMI's Ms Meyer.
Although record labels like the idea, artists are unsurprisingly less keen. Few established artists have accepted 360° deals, though the labels trumpet the exceptions, including Robbie Williams, the Pussycat Dolls and Korn. It is more profitable, the artists say, to stick with artist-management agencies, which have traditionally handled the job of cultivating careers beyond the realm of recordings.
Management agencies are also considered to have more respect for their artists' interests. Record labels, for example, have been criticised for obtaining rights to the names of artists and bands for use in internet addresses. Some clauses stipulate that name ownership applies even after contracts expire or artists die. This can prevent musicians from launching websites to promote tours, sell merchandise, and communicate with fans as they see fit. “Record companies don't exactly give many artists the warm, fuzzy feeling,” says Gary Bongiovanni, the editor of Pollstar.
Musicians with small fan bases and little business experience are much more receptive to the idea of 360° deals. There is no shortage of aspiring artists, and some will become big names. Juha Ruusunen, the founder of TWU, a small management agency for heavy-metal bands based in Jyväskylä, Finland, says European labels have begun to sign up new talent with 360° contracts. As record labels move more aggressively into the artist-management field, Mr Ruusunen worries that his agency might struggle to compete.
I'm not sure that the agencies need to worry that much. They just need to stay competitive with the labels in what they can offer. All this sounds like the old days where the record companies controlled everything an artist did. At least it worked that way in the movie industry in the heyday of the studios. That led to some of the biggest names breaking away and forming their own studio -- United Artists. Maybe the same thing will happen, and that will give the agencies the opening they need.
In the meantime, it is a good sign that the labels have caught on to the changing game. It is a lot better than their old strategy of trying to hold back the tide by suing every kid who downloaded a song.
Posted by Ken Jarboe at July 13, 2007 8:42 AM
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