Greed Sleeves

The music industry is in a tough spot.

I’ve always considered myself a libertarian.  Fiscally conservative, socially liberal.  So keep that in mind.

But what has happened to the music industry is a travesty.  And it’s hard to blame it on government.

But you can blame it on corporate greed.

Remember the original 1975 James Caan, John Houseman movie “Rollerball”?  Where a couple of corporations ruled the world?

It seemed so far-fetched.  Certainly it would be a one world Government that ran things in the future right?

Well, the music label system did just that.  A few big companies owned everything and every artist.  They called the shots.  Recording contracts were ridiculously one-sided.

I know, I signed one.

Let’s briefly examine the “shots called” by the record industry, which until recently has been a profitable automatic teller machine for the major record labels. In general terms, the record label is entitled to receive 85% of net income, and the recording artist receives the remaining 15%. But any funds that the labels advanced to the artist are then repaid solely out of the artist’s 15%. Now here’s the best part of all from the label’s perspective: in exchange for the advance paid to the artist, the label owns the copyrights to the master recordings. This is like taking out a mortgage on a house, repaying the mortgage in full, but the bank winds up owning your house.

But it gets better…for the record labels.

The labels will insist that they will be able to deduct from the artist’s share of income 50% of all marketing, promotion, and publicity costs, 100% of the cost of making music videos (but the labels get to own the videos), and 50% of website costs (but the labels own the website).

And that’s still not all. If an artist signs a traditional major label deal, the contract will call for the delivery to the label of approximately five albums. Since it takes an average of 1-1/2 years from the creation of one album until the recording of the next album, the artist will be indentured exclusively to that label for about eight years. The record companies explain that they need these long terms in order to allow for a reasonable return on their investment. But compare this to other entertainment fields. The film business eliminated its equivalent of this practice (the so-called “studio system”) more than 50 years ago. And if you sign a book deal, you typically sign a book deal, as in a single book. Aren’t film companies and book publishers also investing in “building the brand” of their business?

But what else could a musician/ songwriter/ band/ do?

Well…

Now comes the digital age.  Instead of embracing what the future was the labels held on tightly to the old model.  The model where they were charging $14 per CD.

This after vinyl albums were less than $10.  CD’s were cheaper to make, but remember the story “it was a new technology, there was an up front cost with digital burners and writing data and other stuff you wouldn’t understand”.  They said prices would come down eventually.  But of course they never did.  They liked the profit margin.

So when people started to download music from the Internet, they started suing music fans, kids, old ladies, whomever the hell they could.

You can’t tell me if Capitol or Sony records had put their catalogue online for people to buy (like iTunes eventually did) people wouldn’t have used that service.

But they didn’t.  People were downloading songs, not entire CD’s which hurt the old model.  It went back to the 50’s and 60’s where people actually bought “singles”.  Labels were too used to the profit in their old system.

And when label heads were Clive Davis and the like, in their 90’s, why did they care about the future of the industry.

And by the way when you are a public company it’s all about bottom line and what have you done this quarter.

So, in other words, the last big innovation for the Music industry was the CD and that is where they are stuck.

They are clinging on the CD no matter what and seem to refuse (or try to ignore) that there is now another revolution called digital music.  They didn’t accept that digital music is the successor.

The movie industry seemed to move forward with innovations.  They could have sued people for buying DVD’s I guess, but they just made it work for them.  They also LOOK for new technology to get people in theaters, like better 3D, computer graphics. And other innovations that you just HAVE to see on a big screen.

So it’s a semi-healthy industry.  Not what it was, but still kicking.

The music industry is killing itself and has nobody else to blame.  Unless they want to blame American Idol.  It’s not true, but I’ll go along with it….

.

Gordon Gekko’s famous line.  “Greed is good”.

Clever.

True for a few.

But it has put a serious wound in an entire industry.

An industry I loved.  An industry that helped me get through my life.

And it’s a damn shame.

Thoughts?

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One response

  1. Shawn Ryan

    About the only thing more inefficiently run than a music label is the government. By clinging to the CD like grim death, the music industry has made itself obsolete. When they owned the distribution model, that worked, now they’ve lost it and they’re too far behind the eightball to catch up.

    Back when I was going to music conferences, the labels rarely seemed to be there to find new music. It was: Who can throw the biggest party with the best food, booze and famous people and win that little inside-baseball contest. These folks weren’t staying in Motel 6, either; they had a floor of suites at the Four Seasons plus a fleet of rented SUVs to carry them around. And EVERYONE from the label got to come, included Bobo the Coffee Boy.

    Still, about 326 million CDs were sold in 2010. Rule of thumb is that it costs a label about $2.50 per CD — and that includes signing the artist, paying for the album to be made, distributing and marketing, which includes making videos. Maybe that’s low, so let’s say it’s actually $3 per CD. Labels generally sell a CD to retailers for about $10 so, at $7 profit per CD, you’re still looking at $2.28 BILLION.

    I recently read an interview with Howard Kaylan, half of the Turtles and a professor at Belmont U in Nashville, who said he now makes 79 cents off every 99 cent download of “Happy Together.” The way it should be.

    I also heard an interview with Lyle Lovett on NPR. He said none of his albums had ever sold enough to pay back the advance from the record label (which amazed me) and that he makes all his money from touring. Guess that’s the way of the future — live performance.

    March 8, 2011 at 5:09 pm

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