Music Industry Revolution: Surviving Amid Chaos

The music and movie industries are in crisis. This is one of the most recurrent news of the last 5 years or so. Much has been written and talked about it, but the numbers are still debatable.

Some say file sharing and piracy are killing the industries, and at first glance, the large numbers of laid-off employees and the alarming deficits could be a sign of that. They are certainly affecting minor labels and artists. However the crisis is much more complex than that.

This is the first of two articles, which will analyze the present CD market crisis from the point of view of its three players: the artists, the music industry and the fans, and will speculate on what solutions are available.

In this first article, we will check the music industry numbers, and take a close look on how our beloved artists earn their living.

Elusive Numbers

Precise numbers on record sales are very hard to come by, but Timesonline published an interesting research, based on numbers from 2004 to 2008, of the PRS (Performing Right Society) for Music and the BPI (British Phonographic Industry).

The numbers show that record labels in the UK had a loss of 26.72% in the period, while show promoters had 70.24% of increased revenues, and the PRS had an increase of 27.10%. [1]

According to the research, artists seem to have improved their revenues in the period though, despite the 26.72% loss from record sales, as they had an increase of 70.24% in revenues from live performances. [1] 

How much loss do record labels have to fear in the short term? In 2003, their revenue was of US$ 12.9 billion, which came mainly from CD sales. The prediction for 2012 is that their annual revenue will have a 29.46% drop, that is, it will be of US$ 9.1 billion, with digital recordings selling almost as much as CD’s, and the average price going from $14 to $10. [2]

And what about the artists? This is a touchy subject, because often artists don’t make much money from records. Another research showed that for an artist to earn the current US monthly minimum wage of US$1,160 they would have to sell the following amounts of recordings:

  • 143 self-pressed CD’s
  • 1,161 retail albums
  • 12,399 track downloads on Amazon/iTunes
  • 1,546,667 streams on Last.fm
  • 4,549,020 streams on Spotify [3]

It’s no wonder most musicians must have a day job in order to pay their bills…

And now we have another element to consider, as there has been a drop in the amount of illegally downloaded/shared music, with 65% of 14 to 18-years-olds who used to download and share music preferring to stream music instead of downloading it. At least they aren’t doing anything illegal, but this doesn’t mean that the situation of record sales has improved. [4] 

Some interesting points can be concluded from these numbers. Without questioning whether download/sharing music is a crime (this is a subject for the next article), at least this situation has made major record labels and retailers review their strategies, which benefits both consumers (by cutting prices) and artists (by offering new options).

These numbers don’t sign the death of the music industry, but instead, they mark a shift in how it does business. Regardless of any blame file-sharers may actually have, the record labels also have theirs. After all, not all of them have been generous supporters of artists, as some claim.

A Conflicting Relationship

In some ways, the current situation is making it more difficult for new talents to earn a living than ever before. Also, both major and minor record companies face the same challenges: decreasing revenues and consequently shrinking offices and less investment on talents, with minor labels having obviously much less resources, and because of this, suffering a heavier blow. [5]

Labels and artists relationships have always been a mix of support and conflict. Recently, former-Dresden Dolls Amanda Palmer has posted an open-letter on her blog about her release of contract from Roadrunner Records. It gives a great insight in the conflicting love affair between artists and record labels.

On introducing, she opens up, “for the past seven years, anything i have written and recorded (solo or with my band, The Dresden Dolls) has technically been owned and under the ultimate control of the label[…]”

Then, in the open-letter, she declares “i would like to take this chance, as we part ways, to thank you for all you’ve done for me and for my band, The Dresden Dolls.

“when we signed with you in 2004, i was a wreck of a human being because I was working too hard to juggle business-ing and musician-ing[…]

“no other label in america would sign us, but you did. all the cool, hip, indie labels didn’t think enough people would like us. they passed.
you saw our potential. for a while you worked very hard for us. you spent money on us, and you helped people find and hear our music[…]

“you stopped helping us when our second record came out in 2006.
that made us really sad.
since then we’ve needed to part ways, but i will never regret signing with you…and i will never take for granted what you did to help my life[...]

“i know that the record business is not easy and that things are getting harder and harder by the day, and i know your jobs are not easy.

“i hope that as the industry teeters you can all find safe harbor, jobs that you really love, and connections with art and people that feed you.” [6]

And that’s the fate of several artists, both minor and major. According to musician and songwriter Helienne Lindvall, the reasons why that happens are various: either the person who signed the artist was fired, and they are left without support, or their record didn’t have a good enough performance, or the label was bought by a bigger one. Check her article to know about the fate of songwriters too. [7]

It has been proposed to the EU member states that if a record label doesn’t make a recording available to the public, the artist has the right to release it, but it is still to be approved, and surprisingly, there are many labels that are against this basic artist’s right. [7]

There’s a puzzling point in Amanda Palmer’s account, which is worth exploring in order to understand the relationship between record labels and musicians.

All of her songs were the label’s property, and she couldn’t take any profit from them, or from anything else she created, because she was under contract, despite the record label having stopped investing in her band in 2006. But that was part of the contract they signed, and there are both worse and better deals in the industry.

Former-Talking Heads David Byrne authored an article for Wired.com which helps us know what’s behind the record deals, and which options are available for artists. His article and interview with Radiohead’s Thom Yorke are very enlightening, so be sure to read them. [8] [9]

David Byrne candidly describes several kinds of deals in the article, going from the more traditional models, which give artists less control over their work, and the new ones, which allow them total control over how they sell and distribute their work.

About these models, Byrne comments, “not surprisingly, the more involved the artist is, the more he or she can often make per unit sold. The totally DIY model is certainly not for everyone — but that's the point. Now there's choice.”

This variety of options is both good for artists and for the public, who will have more and more interesting music to listen to, but not that much for record labels, who will have to adapt, and quickly, to these new times. The models are:

  • Equity deal – in this model the artist becomes a brand, owned and operated by the label, which gives the company a long-term perspective and interest in handling the artist’s career. That’s the model of mainstream artists such as Korn. The artist gets a lot of money, but they hardly have any creative control.
  • Standard deal – the record company bankrolls the recording, the CD manufacturing and distribution, and the promotion. The artist gets a royalty percentage, but the label owns their work forever. That seems to be the model to which Amanda Palmer had signed with Roadrunner, and is the model Byrne’s Talking Heads had to deal with.
The problem with it is that artists are often in risk of running into debt, as the company banks everything, and also, as Byrne explains, “obviously, the cost of these services, along with the record company's overhead, accounts for a big part of CD prices.

“You, the buyer, are paying for all those trucks, those CD plants, those warehouses, and all that plastic. Theoretically, as many of these costs go away, they should no longer be charged to the consumer — or the artist.”
  • License deal – this model is similar to the standard one, only the artist retains the copyright and ownership of the master recording. The record label has a limited period of time to explore the property, usually 7 years.
Byrne explains that if Talking Heads had chosen this model, they would earn twice as much in licensing as they do now. That model is interesting if the artist made their own record and doesn’t need creative and financial help, but the downside is that the label may invest less in promotion.
  • Profit sharing – profits are shared between artists and record labels. The artist retains the master recording, and the label does some marketing and press. The artist takes a greater share of the sales.
  • M&D deal – this is the manufacturing and distribution deal, in which the artist does everything, except making and distributing the product. Big record labels don’t make such deals. There’s total creative control, and according to manager Michael Hausman, “a lot of artists don't realize how much more money they could make by retaining ownership and licensing directly. If it's done properly, you get paid quickly, and you get paid again and again. That's a great source of income."
  • Self-distribution – total creative control and ownership, but also total responsibility. The artist deals with the whole process from recording to selling, with records are sold in shows and through sites, and promotion is made through MySpace and Youtube, for instance.

Byrne comments that “in practice, especially for emerging artists, that can mean freedom without resources — a pretty abstract sort of independence. For those who plan to take their material on the road and play it live, the financial constraints cut even deeper. Backup orchestras, massive video screens and sets, and weird high tech lights don't come cheap.”

One of the strategies artists, like Amanda Palmer and Radiohead, have been employing, is distributing their recordings through their site and letting fans donate whatever amount they see fit.
Music industry executives felt threatened when this model started being practiced, accusing artists of devaluing music, but to the artist, this is a way of asking fans to value it, and a democratic, and not less profitable, way of distributing their music to the world.

Radiohead released their album In Rainbows firstly on their site on a pay-what-you-want system, with 1 million downloads in the first month. 40% of the fans paid an average $6 for each download, which earned the band about $3 million revenue. Then they leased the album for a label to distribute it on CD (as they own the master recording). [10]

According to Radiohead’s Thom Yorke, that was a good way of reaching straight to the fans, instead of going through the long traditional process, which starts with the artist sending the album about 3 months in advance to journalists, and then asking them to write a review, a way of getting the album in the charts.

Being such a popular band, what they did startled the music industry, and was seen as another nail in its coffin, but Yorke said that wasn’t intended as an attack. “It's not supposed to be a model for anything else,” he commented, “It was simply a response to a situation. We're out of contract. We have our own studio. We have this new server. What the hell else would we do? This was the obvious thing. But it only works for us because of where we are.”

And their daring act paid off well. He revealed that “in terms of digital income, we've made more money out of this record than out of all the other Radiohead albums put together, forever — in terms of anything on the Net. And that's nuts. 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.”

And that serves as a warning to new artists. According to Yorke, “Well, first and foremost, you don't sign a huge record contract that strips you of all your digital rights, so that when you do sell something on iTunes you get absolutely zero. That would be the first priority.

“If you're an emerging artist, it must be frightening at the moment. Then again, I don't see a downside at all to big record companies not having access to new artists, because they have no idea what to do with them now anyway.”

Though file sharing has indeed damaged the music industry, it at least served to expose the problems with the high CD prices and it helped open new possibilities for artists to make a living.

In tomorrow’s article, we will have a look at copyright infringement, the new available options, and the possible solutions.

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