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Music Industry Problems: Labels can’t seem to find a way to profit while serving both fans and artists

This is the first post I’ll be writing on Music Industry Problems– there are a good handful of them that keep me up at night, and although I’m secretly working on solutions to almost all of them, it’s important to open up a discussion about these things.

Today’s post is one that I’m obviously very involved in figuring out, as it focuses on record labels. Labels can’t seem to find a business model or a way to profit that serves both fans and artists. Almost anything they attempt either doesn’t make them money, is restrictive upon artists, or isn’t what the fans want. Let’s go through a number of solutions that labels have tried in the past 10 years or so to make money, and break down what’s wrong with each.

Selling albums the good old-fashioned way

Who loses? Potentially everybody.

Depending on who’s trying to sell the albums, usually at least 2 out of the 3 parties involved are going to suffer. Major labels can make a little bit (relative to their size) of money selling albums, but their insane contracts that reduce the artist’s royalties with every paragraph make it a virtually no-gain situation for artists. Most fans also just aren’t crazy about buying albums, no matter who’s selling them- sure, they may buy singles, they may stream the album, but buying the full thing just isn’t what mainstream consumers do. It’s not the solution they want, so fans lose with this model. Smaller indie labels, although they don’t need as many sales to stay afloat, may have trouble making money selling albums. Their agreements with artists are usually much more beneficial to the artist, meaning that the artists will see a higher % of profits, but when there’s not a lot of money to be split up in the first place, still nobody’s winning. Overall, this model can only be synergistic for small labels that are fair to artists, and have that tiny niche of music lovers that still like buying albums. Otherwise, somebody is losing.

Streaming services like Spotify or Rdio

Who loses? Mostly the labels, also artists.

Streaming services are GREAT for consumers. The only real issue is that of curation, but for now fans seem very content having almost the entire world’s library of recorded music on their phones for $9.99/month. Who loses here though? The labels- they may see a bit of money from Spotify streams and the like, but it’s miniscule (and yes, I mean miniscule). It’s good promotion for releases, and great promotion for artists who can still profit off of live show ticket sales, but the labels aren’t making money and the artists aren’t making money from their album either. The reason Spotify still thrives in the music industry is because the Major Labels own it (percentages of it), and as soon as Spotify goes public they’ll make a boatload of cash (and surprise- the artists won’t see any of that). Although it completely fails as a sole model for the industry, it’s certainly not a bad solution when placed into a bigger picture, and for that reason any label I’m ever involved with will always put their releases on Spotify.

Fighting online piracy with lawsuits or anti-internet legislature

Who loses? The fans. And anybody who uses the internet.

I shouldn’t even have to talk much to explain the sheer ridiculousness of this practice. Suing college students who pirated music for 6 or even 7 figures is just anti-progress in every way. Last time I checked most industries seek to serve their customers, not bankrupt them. And speaking of bankruptcy, it’s unlikely that the RIAA/labels will ever see the majority of lawsuit winnings. The fans lose, hands down, and the labels (and sometimes by association, the artists) look like total assholes clueless about running a business. And please, let’s stop it with the legislative bs too (SOPA, PIPA, you name it)- when every tech company out there (making billions more than you are, major labels) says this it’s a terrible idea that will ruin the internet, I’d listen to them. They’re right.

Signing artists to 360 deals that take publishing, merchandising, acting, endorsement rights

Who loses? The artist.

This is one that the fan is almost never aware of, so I’ll leave them out of the equation. And let’s even give labels the benefit of the doubt here- if they can’t make money off of recorded music any more, but they still plan on doing a lot to promote and further an artist, it makes sense that they’ll want publishing and merchandising to be a part of the equation. But when these deals get overly restrictive, very exclusive, and start to include everything and the kitchen sink (acting income? endorsement rights?), it becomes a big loss for the artist. They’re bound to an agreement where literally anything they make money on goes back to the label and is split up according to the screwed up accounting laws of the major label world. (Full disclosure: HEY WTF deals involve publishing and merchandising, but are mostly non-exclusive and the royalty splits are always a straight 50/50 of net profits).

There are some other business models out there, and some I just don’t have the time to discuss in this post, and others are secret projects of mine so I don’t want to give away too much, but hopefully this gives you a little insight into the incredible challenge of creating business models that serve all three parties: labels, artists, and fans.

What do you think? Do you want to see more of these Music Industry Problems posts? Let me know, because I have a lot of other problems I could write about.

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