Redefining the Role of the Record Label

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In Business Week’s recent article titled The Big Record Labels’ Not-So-Big Future, they point out the complete erosion of a business model that used to make them a lot of money. Selling CD’s at $15+ means that they make a lot of money, selling songs at $0.99 on iTunes means they make a little bit of money. And with CD sales falling at 13% a year they don’t have much time.

Already major artists are defecting from the labels. RadioHead and Nine Inch Nails have declared their independence from their labels, while Madonna dropped her label and has signed with Live Nation, the concert company.

The labels need to focus on the fact that their traditional value add, is not so valuable any more. PC and web based production, discovery, promotion and distribution options completely undercut the economics of a traditional label.

Digital is the new paradigm. Who needs a record label to handle marketing and public relations anymore? Musicians can just set up a MySpace page and talk directly with their fans. Record labels used to help court radio stations, too, to get music on the air. Now you can zip MP3 copies of your first single via e-mail to anyone in the world.

The opportunities for the labels will be in carve outs that focus on services that still add real value and new business combinations that extend their ability to capture revenues from other parts of the value chain.

That’s why Madonna went with Live Nation. They offered her a great deal and a set of services that allow Madonna to capture more of the value from the extended value chain. Live Nation intends to capture more revenue and profits relating to the delivery of the entertainment, not just the sale of music. By selling T-shirts, parking passes, VIP party passes, secondary tickets and DVDs as well as broadcasting shows live they generate more profit. And if they can gain direct access to fans through ticket sales they can generate even more profit related to the ongoing delivery of entertainment.

It’s no longer about discovery, production, promotion and distribution of records, it’s now about the extended delivery of entertainment and advertising, and the management of that value chain for profitability.

[tags]music, digital music, itunes, records, record labels, Madonna, Live Nation, digital media value chain[/tags]

2 thoughts on “Redefining the Role of the Record Label

  1. Why are you positioning Flom as the knight in shining armor to save EMI in North America? EMI is an international organization first and foremost. This duffer cannot see past the US mainland. He does not have a legitimate entrepreneurial bone in his body nor does he have the financial discipline or administrative acumen to be EMI’s North American Chief (not to mention the head of the recently formed Capitol Music Group). He is a jammy, silver spooner that always had money from day one, partied extensively in the 80’s and 90’s, went to rehab, had the backup of father-lawyer-power broker Joe Flom for protection (along with Azzoli, Morris et al). He is old guard that cares more about how he looks rather than the company and its employees.
    EMI has been in a state of flux post the ejections of Levy, Munns (who appointed Flom), Slater, Gavin and the defection of Bandier. This has allowed Flom to fly under the radar of real financial scrutiny as the priority was to get the Terra Firma deal done post haste. The focus was on this transaction not what Flom was doing in the States. If Gavin was left in place (at least for the transition period) he would have put a stop to alot of the heavy spending that has artificially made some of Flom’s records look successful. This is someone that should be in a leadership position?
    Jason was always protected in his 26 years at Atlantic. When he had a big record it was forced then as his ‘big’ records are forced now. He is not building any long-term careers. Do you really think that Red Jumpsuit Apparatus has been a profitable venture? That record along with 30 Seconds To Mars (who he inherited) and many others have all been pushed through the system using the old paradigm. Has anyone looked at the recording, video and promotional expenditures? These will not be career artists nor will their follow up albums have any traction. They mean nothing internationally. He has not built or associated himself with any career artists at EMI. The financial pit that he is digging will only deepen.
    Jason needs platinum records to justify his existence and ego among his music industry “executive” peer group. He is already wealthy (from birth and Bronfman’s payoff to get him out of the building). He has no incentive to be thrifty. He wants the accolades. He wants the red carpet. This is not the discipline necessary of a leader in this industry’s current age. Without his RIAA endorsed plaques he sees himself as a loser, an outsider, someone who has gone cold. Do you really think it will take the private equity finance brethren at Terra Firma more than a few minutes to figure this out. They want profitability. That is their certification. That is the credo that they abide by. If you look at the top 5 releases that Flom has taken credit for since taking his post you will see that all have been financial misfires. Misfires using EMI’s money to make himself look good, at the expense of the company.
    What about A&R? Very overrated. His historical knack for finding bands was entrenched in using phone research and/or spotting regional airplay on small labels and scooping from that trough. Would a more effective model (assuming you subscribe to this form of talent scouting) not be to hire real, mathematically inclined statistical analysts utilizing customized software tied in to web metrics fractionation?
    Executive team? One only needs to take a look at who he has surrounded himself with. Bring them across the pond and they would be immediately detained at Her Majesty’s pleasure!
    Digital? Bloody awful. There is no expertise here. This bloke is still living in the 1990’s. He is just another recycled relic of the old machine. Mr. Hands, make changes before another English institution is flushed down the loo.
    — Posted by Ken Berrie

  2. What is this all about? I didn’t even mention Flom or EMI or anything that you seem to want comment on. Please explain why this comment relates to the new roles for labels?