Changes in the Music Industry
Copyright June 2009 by Keith Holzman,
Holzman Solutions Unlimited.
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I've been spending some time lately reviewing my book, "The Complete Guide to Starting a Record Company," endeavoring to be sure it remains relevant and up to date. This got me to thinking about "change" in the record industry. What kind of changes have there been, and over what period of time have they occurred?
Comparing current industry practices and methodologies to those when I first started in the business some forty-five years ago, there's been tremendous change in almost everything we do. The only real constant is the desire of some well-run and intelligent labels to release really good music.
When I started at Elektra, we were considered to be a major-minor -- not a large label but one of significance and a consistency in volume and quality of releases. The large labels at that time -- Columbia, RCA Victor, and Decca -- did not have a "lock" on the market and they, as well as all independent labels, were distributed by a wide variety of regional distributors. In fact they didn't have their own networks until Columbia built theirs in the late sixties.
The next significant wholly-owned distribution network was formed by WEA in the early seventies after the acquisition and merger of Warner, Atlantic and Elektra by Warner Communications. In fact prior to the establishment of WEA, Elektra was distributed through 26 regional distributors, each of whom had a thorough understanding of their local markets. And each had its own publicity and promotion staffs who worked local press and radio. One of the major factors in the forming of WEA was so that the three labels could improve their access to retail stores and rack-jobbers, and to gain greater control over all aspects of their marketing.
Compare this with our current situation. There are four major label groups, three of which (Universal, Sony, and EMI) are owned by multi-national conglomerates. Warner Music (since its separation a few years ago from Time Warner) is owned by a financial consortium. Each of these entities has its own distribution systems, and each has separate divisions that take on distribution responsibilities for affiliated and non-affiliated independent labels. Many of these "indies" are wholly owned by the parent of their distributor.
The main function of these large distribution companies is to get music into the ever-shrinking retail and digital-download marketplace.
Truly independent labels are distributed by a small handful of independent distributors, but unlike the situation of forty years ago, these distributors are essentially national in their scope. Their prime function is to get CDs into retail stores. Many of them also want control over digital distribution, but smart label owners may try to avoid this. The pie is only so big, and the more entities who try to take pieces out of that pie leave less for the label.
These days it's very difficult, if not impossible, for a new artist or start-up label to get any kind of formal distribution. Distributors can't afford to bother with them until they've achieved some significant level of success on their own, and on their own it's very hard to sell significant quantities of CDs. It's a bit of a "Catch-22!"
As music sales have steadily declined since the late-90s, labels have found it increasingly difficult to make ends meet -- just like the world-wide economy at large! So the more that pie is divided, the harder it is to remain financially viable and stable.
According to Nielsen Soundscan, U.S. album sales this past May were off almost 18 percent from May of 2008, while cumulative sales for the first five months of 2009 were off 13.4 percent from the same period last year. And there's no improvement in sight!
This is one reason that American record labels have been lobbying Congress to pass a law requiring radio stations to pay performance royalties for all the music they broadcast. It may not happen this year, but one hopes it'll be a reality before long. As I've written previously <http://www.holzmansolutions.com/articles/76-aug07.html> the U.S. is one of very few countries -- along with China, North Korea and the Congo! -- where radio stations are not required to pay record labels and their artists for over the air broadcasting of music.
Another change, particularly for larger labels, is with their artist agreements. Since the industry has suffered so much with the falloff in CD sales and the increase in illegal downloading, the majors and many other labels, during the last couple of years, have attempted to augment their income by establishing so-called 360 deals with their artists. In other words, they try to reap a portion of all of an artist's potential income, not just from the sale of recordings. I don't think this is fair to the artist unless the label actively helps market the artists live shows and takes an active role in all of the artist's endeavors. I wrote about such deals in April of last year. For more information, see http://www.holzmansolutions.com/articles/84-apr08.html.
One of the positive changes of the last ten years has been the use of the Internet as a major marketing tool, despite the disadvantages that resulted in massive illegal downloading from the internet. Artists' own websites and blogs, plus pages on Facebook, MySpace, etc. have helped expose artists to an interested public.
Another positive change has been the development of sophisticated music-creation software on inexpensive home computers that's enabled many artists to create their own music and release it to the public, totally bypassing indie and major labels. Moreover, many of these artists have found it useful to start their own labels to market their music and make it available to a wider audience.
I think it's this focused, entrepreneurial drive that will, in the long run, be a positive change as more creators take it upon themselves to enhance the world of music.
Keith Holzman -- Solutions Unlimited
Helping Record Labels
Manage for Success.
Copyright 2009 by Keith Holzman, Solutions Unlimited. All rights
reserved. Adapted from "Manage for Success," Newsletter #98,
Keith Holzman is the principal of Solutions Unlimited, a management
consultant specializing in the recording industry. A trusted advisor
and troubleshooter, he is a seasoned music business senior executive
with extensive experience in all aspects of running a label. He was
President of ROM Records, Managing Director of Discovery Records,
Senior Vice President of Elektra, and Director of Nonesuch Records.
He publishes "Manage for Success," a free monthly email newsletter
devoted to solving problems of the record industry. You can subscribe
at his website <http://www.holzmansolutions.com>. Keith is a member
of the Institute of Management Consultants and has served as a
panelist for the National Endowment for the Arts, and as a board
member of many arts organizations. He can be reached at
Keith is also the author of the recently published "The Complete
Guide to Starting a Record Company" available both as a 235-page,
printed spiral-bound book, as well as a downloadable E-Book.