How the Record Label Business Model Died and Why it’s Changing Music Today
For years the music business has been in the dumps. Since the beginning of the decade, consumers have stopped purchasing CD’s in favor of much more convenient methods like downloading single tracks from iTunes and stealing their album of choice from the Pirate Bay.
Most of the “old” hats in the music industry have tried to put a stop to these practices, and have failed miserably in doing so. The simple fact of the matter is that technology has affected many industries, and if you’re not going to change with the times, then you will simply be put out of business.
This is the problem with most music industry vets. Their business model consisted of selling the CD – a cheaply manufactured plastic disc loaded with content with a fairly nice mark-up. The profits were killer when selling a boatload of ‘em – i.e. a CD had to sell a certain volume in order to cover a number of costs:
- the production of the actual music
- the manufacturing costs of the CD and packaging
- the distribution of the product
- the most costly of them all, the marketing and advertising costs
The beautiful thing about operating a record label in the past was that they had a lot of power in the industry that was very hard for anyone to obtain. If you ran a successful label, you had to have each part the operation covered in order to promote and distribute enough CD’s to cover the costs.
You had to have the distribution network down – i.e. at the very least have access to the mom-and-pop indie stores and if you had enough clout, distribution to the big box retailers. A successful label also had access to top-name producers and studios that would ensure the label that the music would be worth investing money into.
Even more importantly, you had to have access to all the press outlets that people consumed to get reviews and ad rates that would be used to sell the product. And of course, as part of promoting the album, they had to have the connections at radio in order to get this music played on the airwaves (which coincidentally used to be the main source for hearing music.)
For the past few years, the music industry has been crying like little school girls because their beloved CD sales have been plummeting. Instead of embracing new technology like the consumer has, they’ve spent their time and money trying to put a stop to it.
The NY Times recently posted this image timeline of music sales in various mediums over time. It’s quite an interesting look at how HUGE CD sales were – and is also an indication of how much money the major labels were raking in during the CD’s peak in the 90’s.
No wonder they’re pissed.
The problem is, their business model is dead. All of the things they once had that made their business work is no longer in their control – EVERY aspect of their business has changed, all except the part that’s supposed to make them money (their actual business model).
Distribution? This was the first part of the problem that, if the labels were smart, they would have done something about as soon as Napster creeped it’s head into the picture years ago. They lost the power of distribution that once proved to be their most powerful asset. Now anyone could share and distribute the same music that consumers would purchase from a CD for FREE over the ‘Net. Why the hell didn’t someone wake up and see they’d be doomed if they kept on going ?
Then came the lowering costs of production. Does a band really need Rick Rubin to make a great album, in a thousand-dollar-an-hour studio? No. Now many can do it on their f’ing Macs, or if they need some production can find it and a decent price.
Still, the labels held on, and sued the pants off their consumers in the hopes of scaring them back into buying their artists CD’s. In an effort to keep whatever sales they had left, they continued to produce acts that they knew would sell to the only audience they had left – the non-technically savvy (i.e. country folk and inner-city types, who didn’t have the money for an iPod or who weren’t educated enough to file share).
In recent years, their beloved radio stations begun sharing attention with another thorn in their side – social networks like MySpace, Imeem, and Last.fm. For the first time EVER, the radio wasn’t the only place to hear new music for free, and also for the first time EVER, the labels didn’t have control over what the masses chose to listen to.
Then bands like Radiohead and NIN took the web by storm, introducing new business models for selling a new release. Indie bands no one has ever heard before are enjoying successes that in years prior would have been very hard to achieve, all because they’ve been able to do things on their own, without the need for a label. And on their own terms.
Finally, the last piece of the old record label model has fallen apart – the marketing and advertising of music. In the past, marketing a band was all about print ads, media placements, peer reviews from big names and big-budget music videos.
Now, marketing is about INTERACTION – direct interaction with consumers and fans. It’s not about creating a fake image, but more about creating an experience with people, developing an emotional relationship with them. And the tools to do so are freely available with things like Facebook and Twitter and other web applications.
It used to be that a band could just create an amazing album, and the labels could buy their success by shoving it down our throats wherever our attention happened to be. Now, it’s not just about creating the album, but more about creating the EXPERIENCE, and that’s not something you can’t pay for. It has to come from the musician or band directly. Those that can use the tools available to interact with their fans will succeed; bands that think their music will speak for itself will not.
All of this has led to the creation of Label 2.0, a new kind of record label with a new set of rules. You see, I’m a businessman – and investing in a band or musician simply based on their talents is not enough to warrant an investment. It’s not a smart business decision to think that the music in itself will be enough to attract a following that will reap profits at the end of the day.
Instead, investors need to see that you can create and interact with a dedicated group of fans before taking a financial interest in a band or musician – it’s the combination of music and experience that ultimately will make a sound business investment work.
Label 2.0 aims to help these musicians learn how to create this experience using the plethora of tools and resources available, mostly for free, online. Just having a MySpace or Twitter account set up isn’t going to get people to fall in love with you and your music; rather, it’ s HOW you use all of these communication and interaction tools that will decide if you have what it takes to succeed.
My partner Greg and I have spent years using these tools to develop relationships between brands and bands alike, and we’ve created an interactive learning environment for you to do the same. Musicians who are serious about making a career for themselves and building a real business plan will be able to learn how to do so from us.
And, just like a traditional record label would do, we’ll be able to see who not only who has the talent and ability to create great music, but also use the resources and tools available at their disposal to create a great experience, and to use that experience to interact and build a rabid and dedicated fan following.
If you think you’re ready to take your career in music seriously, we suggest giving Label 2.0 a shot. Or, you can wait in line with all the other bands who think someone is going to throw them millions of dollars and a lavish rock star lifestyle just because they can play a guitar.
Sorry folks, but those days are long gone.
