Since the introduction of Napster, it is common knowledge that the recording industry has had a hard time coping with larger changes in traditional listening practices. The digitalization of music predicted the end of CDs and record labels. However, is this really the case? Since digitalization there has been a continuous growth in the consumption of music. Although the sales of CDs decreased extremely since 2000, the consumption of music has increased with the ability to download, both legally and illegally. Since actual records are disappearing in our everyday lives, will there still be a place for record labels?
So far, so good
When the effects of the digitalization of music were visible, a lot of entrepreneurs took their chance to make it in the music industry. Since the MP3 was introduced, Indie labels around the world rose in large numbers. It was clear that with the establishment of peer-to-peer file sharing programs the traditional business model needed to be adjusted drastically. Instead of fighting illegal downloading, entrepreneurs searched for a solution to make it attractive again for consumers to buy music. It was not necessarily the case that consumers did not want to pay for music, they just wanted to consume it with the flexibility that the Internet offered. What consumers really wanted was a small file that they could bring along on a MP3 player.
There are several reasons why entrepreneurs saw this change as an opportunity in the music industry. First, with the introduction of the computer and more importantly, the Internet, the recording industry became easily accessible for everyone. There are a lot of different ways to publish and promote new music for free nowadays. Second, it was purely the recording industry that was in a crisis; the rest of the music world was doing fine. The market for live music expanded greatly in the last several years. It is not surprising that an extensive part of an artist’s income comes from the sales of concert tickets. Concerts are also the number one place to sell CDs and merchandise. Thus, the traditional business model that focussed solely on the sales of CDs had to completely turn over. As a result, the 360-degree contract came into practise. This contract holds that a record label not only generate profits from the sales of music, but from the complete spectrum of activity including live performances, merchandise and the licensing of music to be used on television and in films. With the 360-degree contract, the focus is not so much on producing physical formats, but rather about the owning and exploiting of copyrights which are essential to make profit in a world where different types of media entangle in more complicated ways. Today, music is used in all kinds of media like videogames, films, commercials, etc. With this new business model record labels received access to profitable media outlets from which they were excluded at first.
The additional values that labels provide for artists are services, such as branding and giving access to a valuable network.
Thus, the contemporary record label should focus less on the production and sales of physical formats and concentrate more on the services a label offers. Those services are the only thing that most artists cannot do by themselves through Internet; we all know how easy it is for unknown artists to release and promote their music online. The additional values that labels provide artists are services, such as branding and giving access to a valuable network. Branding demonstrates the greatest potential for artists and labels have to find a way to differentiate themselves. The best example I can think of in the mainstream contemporary music industry is LADY GAGA, her identity and lifestyle are what people love about her and her music. But same goes for artists on a smaller label and even independent label, whether it’s THE XX or SIGUR RÓS. As far as networking is concerned, record labels can organize events as a way to promote unknown artists on a stage besides bigger ones.
For now, record labels have found a profitable way to be of importance for the music industry.
But will it stay this way?
The future is an uncertain adventure
Even though a lot of people will have different ideas about this, I think there is still a role for labels in the future. Among their core activities, they principally function as a bank. They will endow artists with a loan to produce and market music. Besides this, they spend a lot of time discovering, developing, marketing and promoting artists. Their role is skilled, costly, and one which no other sector is yet willing to play. Record labels have to invest a lot of money in an unknown artist to cover the advance, recording costs, tour support, video production, and promotional campaign. Within the music industry they are the only one willing to take these larger risks.
Only the artists themselves might be prepared to invest a lot of money in their music career. As mentioned before they are also able to take big steps without a label through the internet. Even if a well-endowed new artist can invest large sums of money in their career, it takes a lot of time to gain exposure. As a result, it is a bit like running a business as opposed to being an artist. And let’s be honest, we’ve not seen a self-released, wholly self-supporting artist reach the scale of someone like BEYONCÉ. At least not yet. We are still in the process of that change, if this is ever about to happen at all. The online platforms available are important though, since artists have to start out on the DIY path. The goals of A&R managers shifted a bit: their job is now about finding artists with an already existing fanbase and proper following on social media – just being talented is not enough anymore. They are looking for dedicated artists who are actively trying to pursue their success on their own instead of just passively sending demos out.
Labels drastically lower their risks by involving the general public in their decisions and by signing motivated bands.
As we’ve seen, the core business of a record label is investing in artists in order to expose them to larger audiences. Numbers published by IFPI show that labels spend as much as 15,6% of their revenue on artist development, this is a higher percentage than what is spent on R&D in the technology, software, and pharmaceutical industries. Record labels on average spent 18 months to two years developing an artist before signing a deal, because it takes a lot of time and effort for an artist to find their sound, understand their audience, and create a certain buzz.
Record labels turn out to be not only important for artists who want to make it in the music industry, they also have an important role as intermediary.
Record labels function as a bridge between artists and consumers. They filter all the information available and – since digitalization – this is a lot.
Most of us have a very busy life and don’t want to put a lot of time and effort in filtering the good music from the bad. A label makes this selection for us and give us some kind of guarantee on the quality; at least that’s supposed to be the job.
Not only do individuals profit from the effort that labels put into the selecting process, but radio stations and programmers of venues and streaming services rely on it as well. Periodically, venues, radio stations, and paid streaming services discover artists and put them on their program or playlists. But still, it takes more to sell music to a wide audience than just putting it on a playlist. So far, the A&R division of streaming services produces a playlists with unknown artists. Until now, this has only been an instrument for labels to find new artists and not a replacement of the A&R division of a record label. Record labels are competing with other ‘middleman’ companies like streaming services that can easily get artists’ music to the public for a fraction of the costs.
Although I believe that record labels will continue to exist – at least in the following years – that does not mean that they won’t develop further in the wake of digitalization. And maybe years from now, the streaming services themselves will act as a label with an expanded A&R division, a marketing division and an artists management department. Or new distribution and media services will help independent artists to keep the control over their own structures. Who knows? But to this day, record labels have the best skills concerning discovering, developing, marketing and promoting new artists. Their value as a gatekeeper is still much appreciated by other sectors in the music industry. The only thing that we do know for sure is that in the rapidly changing music industry a lot can happen overnight. Let’s see what the future will bring.