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]