WaTunes: The Elimination of the Major Label Model

March 9, 2011 at 8:34 pm Leave a comment

Source: Hypebot

image from 3.bp.blogspot.com The four major labels have a far more profound problem which is that they can no longer sustain their business model.

Last year, around this time, writer Paul Rogers' published an article in the LA Weekly that discussed the demise of the major label A&R profession.

Here we are a year later, continuing to witness the decimation, if not outright elimination, of the major label model. It's now apparent that, in the face of new economic realities, the model that flourished for years cannot be sustained in its current form. Universal Music Group has already announced cuts for 2011 of over $138-million in a massive restructuring plan even after several rounds of layoffs.

I imagine that one of the first orders of business for Doug Morris, the new CEO of Sony Music, will also be trying to reposition Sony to deal with the new market realities facing the entire music industry that have put both Warner and EMI on the selling block. There are currently TEN interested parties in Warner Music's assets (that also includes several inquiries into Warner/Chappell). At no other time over the last forty years have two major labels been for sale at the same time. The more interesting question rather than who purchases these companies is what will they do with them and what business will they actually be in.

Over the last several years, I've often wondered which major label would be the first to abandon the front-line business altogether (i.e. the signing and marketing of new recording artists that was once the heartbeat of any record label).

There is a belief in the industry that if BMG Rights Management purchases the assets of EMI from Citibank that EMI will no longer function as a 'front-line label', but will be limited to only marketing the existing music assets and catalog. The economic model of what we once knew as the major label system – worldwide infrastructure, large number of highly paid executives, the signing of talent to long and fully encompassing 360-deals, the marketing of their music to the widest possible audience via mainstream media outlets – may no longer make sense.

We now live in a world where none of that can be sustained. Yes, I'm aware of the normal responses that major labels are good for the so-called 'Pop Superstar Acts' of the world such as Lady Gaga, Black Eyed Peas, and Beyoncé, but the reality is that there are simply not enough of these kinds of big sellers today to justify the continuation of the major label model. It's also very important to note that what constitutes success today is counted in singles sales and not album sales (where labels have traditionally made the majority of their money).

It's a sobering statistic to note that despite having five top-five singles including two #1 hit singles, Lady Gaga's album only sold 3.4-million copies in the U.S. The Black Eyed Peas, who also had five top-five singles including three #1 hit singles, only sold 3.6 million copies of their album. What's never spoken of in these situations is, 'What did it cost to sell each one of these +3 million copies?'

Labels used to be able to rely on big-box retailers for sales of albums. Those same big-box retailers have for some time now effectively declared music just another loss leader to get their customers into their stores. When those retailers continue to drive down the price of music to unsustainable margins for the labels, what then? The retailers simply move on to other loss leaders and drop music altogether (we've already seen the shrinking of space retailers have allocated to physical product). Have the labels effectively made albums the loss leader for singles, and will singles simply become the loss leader for touring or merch?

It's like the great line by Jack Nicholson's character in the film "As Good as it Gets" spoken to a room full of patients waiting to see their therapist:

'What if this is as good as it gets?'

The brutal answer staring the major labels in the face is that if this is as good as it gets, then it's simply not enough. There's no more real payoff left for the majors when they hit these massive home-runs — certainly NOT THE KIND of payoff they need to sustain the major label model, which is why they may abandon it.

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