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Record Labels need to reform, or face death

A dramatic title I know, but the time has come where the issue of the record label, and the haemorrhaging of money must be addressed. More now than ever, the role of record labels are becoming lost, portrayed as money making corporate machines. Bands such as Radiohead have already taken the plunge and become independent, using the at the time highly controversial idea of paying what you want (PWYW). But is this model the future? Is the next era of music going to come from totally independent bands, who adopt a similar pay system to Radiohead? To fully understand this, I believe a back to basics is in order, with an overview of what a record label SHOULD be providing bands.

“Most commonly, a record label is the company that manages such brands and trademarks, coordinates the production, manufacture, distribution, marketing and promotion, and enforcement of copyright, protection of sound recordings and music videos; conducts talent scouting and development of new artists; and maintains contracts with recording artists and their managers.” [Wikipedia]

Now while some may argue that Wikipedia is not the most credible of sources, this is in fact a very good, if not long-winded overview of what a record label may do. In summary, a record label is in charge of looking after the artist’s interests. More and more often however, it becomes fuzzy as to where the interests of the artists are not being seconded to the main concern of the labels, which is to generate income. It is easy to immediately say “But record labels generate income to give to artists”, but this is not the case. An industry standard royalty deal for an artist is only 15% of the albums profits. 15% of an album full of songs penned and performed by the artist is shocking poor. Again, some may argue “15% is a good deal when you consider the costs involved to produce the album”, but I counter that by drawing your attention to the sentence again; “A industry standard royalty deal for an artist is only 15% of the albums profits. This means 15% of everything made once all expenses are covered. To add to this, artists will have to pay an income tax on these earnings, meaning they will be taxed on their 15%.

At this point I feel I should mention the types of record label. In essence there are two kinds of record label; the major and the indie (independent). The major labels are also known as “the big four” – Warner Music Group, EMI Group, Sony Music Entertainment and Universal Music Group. A report in 2005 [found here] showed that between them they owned 71.6% of the global sales share, which is a phenomenal amount, and demonstrates the huge power and influence they have over the industry. In contrast, the independent records are theoretically more passionate about the music, often specialising in one genre of music, and while they do not have the capital or workforce of the majors, are occasionally able to release a chart-topping album.

Independents theoretically allow an artist to gain more royalties, and quicker, but in practice this is a double-edged sword. While an artist might gain a higher % of royalties, they still will not see anything until all costs have been recouped. This could take longer as the budget does not allow for high marketing costs, so sales may be slower. Also, the artist is likely to receive a smaller advance, making living more difficult if sales are slow. The lower costs however could result in money being recouped quicker, especially if the label has a deal in place that allows use of a major labels distribution channels.

The other alternative would be to go it alone. Very few artists who attempt this method actually succeed, and those who do will very often do so through being spotted by talent scouts for a label. Lily Allen was scouted through MySpace, due to her continued efforts in improving her music. She was able to support herself however on particularly affluent parents, which is not the case for every budding musician. Going back to Radiohead, they were already an established band, who although were tied to a label, had done incredibly well for themselves, and therefore could afford the huge production costs of the album. It is also a good idea to remember they would have been earning royalties during this period from their other albums, thus earning a living while recording, something a dedicated recording artist perhaps couldn’t do. Marketing was cut down by all of the hype surrounding their PWYW system, but is this feasible with newly recording artists?

The chances are it wouldn’t. This is simply because there is too much risk involved with such a strategy. Recording an album is not cheap, quite the opposite in fact. With the cost of recording, mastering, and producing an album easily running into the tens of thousands, if not a lot more, only the most rich, or adamant musicians are going to be able to risk loosing that. Of course the process can be less costly, perhaps compromising on recording quality, less post production work, opting for a digital only distribution process and other measures, but the costs will still be a noticeable hit on most bank balances.

While finding actual earnings from the PWYW downloads of “In Rainbows” is impossible to do, Thom Yorke is quoted as saying that they earned more money from the albums’ downloads than the last 6 of their albums put together.

It’s partly due to the fact that EMI wasn’t giving us any money for digital sales. All the contracts signed in a certain era have none of that stuff,” he added. Unfortunately his quote is ambiguous and rather invalidates the point, as if they never earned any money from digital downloads from albums, then it simply logical that they would have earned more on this album.

Staying on the digital distribution front, I feel no argument about music is complete without mentioning the highly controversial subject of file sharing. In 1999, Napster was one of the first, and certainly one of the most prominent P2P (peer to peer) systems to come around. Offering free music to all who utilised it, its days were numbered from the start. Attention was drawn in 2000 when Metallica and Dr Dre (who interestingly ((apparently)) shared the same litigator) sued Napster for distributing their work. Moving on to 2011 and the battle over piracy continue, with governments around the world attempting to prevent it through a manner of different ways. Some are calling for IP’s (Internet providers e.g. TalkTalk, BT or Sky) to ban access to the sites, or cut people off who are prolific downloaders. Others are taking more direct action, taking site owners to court, and imprisoning them for a year.

It is irrefutable that p2p is reducing the profits of record labels, but their new approach of suing individual users of the networking protocol [Source 1], has proven to be unsuccessful. All it has achieved is cementing the viewpoint of their supposedly greed driven motives. And while it is very easy to point the finger at file sharing as the cause of ever raising CD costs, and record labels massive losses, but an article by The Guardian [found here] shows that pirates are 10 times more likely to buy music, which would make them the largest sales audience. While the test is hardly conclusive it is evident that pirates are just as love with the music as anybody else, and are willing to support it, but perhaps not take a risk on it. It has been proposed in the past the PWYW is the way to counteract pirates, but this is never going to happen, as the record labels are so unlikely to relinquish control and risk failing to recoup their costs. It is interesting to point out though that the Artic Monkeys actually came to prominence through the P2P networking. Handing out free CD’s at gigs, which were promptly ripped and shared online drew the attention of scouts who eventually signed the band up.

Record Labels have not been completely unwilling to give changing technology a chance, which is just as well as technology has taken massive strides to providing music to people. One such platform is the ever-dominating streaming platform Spotify. For a while this was heralded as the new era of music, offering seamless integrating with operating systems that allowed access to it’s 15 million strong catalogue of songs, while at the same time allowing you to import songs from your local library to build the ultimate media library. Best of all it was free, unlike an ecosystem I will come to discuss later. The hype soon died though, with a business, which was proving to be financially non-viable without ever increasing the amount of adverts played, and then in May 2011 it drastically slashed away its already reduced amount of playback time, in an attempt to force users onto a subscription account. An amusing comment – the first one I believe – on the Spotify blog when they announced this cutback, immediately denounced the company and claimed he would immediately go back to pirating. Issues have been raised with the levels of pay Spotify pay per play, here for example, and might come to explain why not only some record labels are still not signed up to it, but why artists such as Adele and Coldplay are telling their labels not to allow their works onto the service. It could however be argued that with increasing subscribers, the service will begin to afford a higher rate of pay, but to many the incentive is not there when they can easily source the music on torrent websites for free, and in the process remove the limitations on play, and the requirement for an internet connection.

Their launch in the USA was exactly what Spotify needed to boost user figures. As of September 21st 2011 Spotify was boasting an impressive 2 million subscribers, up 400,000 from June. [Source 2]. The reference article also alludes to a potential surge of users when Facebook step up a gear to offer the music service they have touted. Already integration has been seen between the two platforms, to the delight of some and the horror of others. To get a Spotify account you now need to link with Facebook, which has come with the usual outcry of privacy concerns, although personally I fail to see the issue with people knowing your music tastes, unless it is something as horrifically eclectic as Rebecca Black, the Cheeky Girls, Rolf Harris and Justin Bieber – on a continuous loop. Surprisingly it would appear that Spotify will continue to grow, being offered on a plethora of devices, and soon to be available to Virgin Media TiVo subscribers for FREE for 6 months, which will no doubt do wonders for their figures.

This is all well and good, and while Spotify have some way to go before being crowned the new king of music distribution there is already a platform sitting at the throne. Indeed, the softly aforementioned platform, which revolutionised the way people interacted with their music when it was introduced 10 years ago. The Goliath of the music world, arguably the one service that has any hold over record labels – iTunes. When introduced in 2001, it was a rebranded Sound Jam MP, but was treated as new, and hugely exciting to consumers, who were able to rip and burn CD’s using the software, and it’s functionality only increased with in 2003 the iTunes Store opened. Offering initially 200,000 songs, within the first 18 hours 275,000 tracks were downloaded, which is a simply staggering statistic; more so when considering that that was only in America. The store did not become available in the UK until 2004, where 450,000 tracks were sold in the first week. Online distribution had succeeded. Finally, people seemed happy to pay for music, in return for a refined system that allows easy management and the ability to copy across onto their iPods. Their strength and control over the market is exacerbated by their strong negotiations, and the fact they have been able to sell 16 billion songs as of 4th October of this year. Their main persuasive point when they started was to include DRM on all of their tracks, preventing you from copying and distributing the tracks, securing the closed ecosystem, which still succeeded. ITunes now serves as the biggest music marketplace in the world, and artists get a bigger cut from each sale, so it acts as the best solution to the growing financial and ethical state of music. It only further bolsters it position by introducing iTunes match and iCloud, both of which encourage utilising their service.  There is the downside to iTunes however, and that is that the company now has the power to exert so much control over the music industry, that a fall out with Apple could lead to your music not making it to the store, and the album will almost certainly fail.


So what have we looked at through this study? That the current state of music is at the point where there is a need to reform the structuring otherwise the whole system will collapse. People are tired and angry at how the record labels behave towards musicians, and the money required to produce an album and have any chance of success is so astronomically large that there is a dependency culture, which makes musicians essentially powerless to refuse the labels conditions.

A few people have attempted to break the mould, and while some have succeeded, very often they never reach the stardom they perhaps deserve. Platforms such as Spotify, or Rhapsody offer an alternative way to get music out, as does slowly dying MySpace site, but none of these are close to offering a totally viable solution to breaking into the industry without huge financial backing that so often comes from labels. What is the solution? It is very hard to answer that question. ITunes, while giving more money to artists, which allows those how have self-produced earn a very healthy profit, still requires music to be registered with the appropriate authorities. I believe that piracy has become such a huge occurrence partly due to people’s unwillingness to spend on an album that may not meet their expectations, but also because of the prices that albums are being released at.

An alternative could be to sign artist up on 360 contracts, which entitles the potential to buy into profits from tour income, and merchandise, and then sell albums as loss leaders. This will entice curious listeners to buy the album “on a whim”, and this in turn has the potential to increase the artists fan base; who are more inclined to buy gig tickets, which is where the money is to be made now a days. A secondary idea is that rather than recording albums, artists just record singles, reducing recording costs, and reduce the turnaround time for profits. These can be sold at a cheaper price then an album, and will play well with the iTunes store option to buy individual songs over an album.

The last idea I have come up with to solve this issue is to make the whole music industry a charity, where musicians have to bid for the right to get funding for a deal, or perhaps it is presented to the public, who can donate money for a small proportion of royalties, or discount on gig tickets to future events. Such an idea mirrors the writing industry, where authors can publish an idea for a book which the public then “buy shares in”. [1, 2 and 3]


If the Record Industry does not sort out its business model soon though it will cease to exist. It is simply out-dated, out of touch with people’s needs and rapidly running out of time.



Leave your thoughts in the comment below. Agree, disagree, it doesn’t matter, let’s discuss.


UPDATE: Universal are purchasing EMI – See here