New analysis: Did downloads really kill the record labels? (1 Viewer)

[Wayne Bundrick]

Comparing ANYTHING to the way long distance rates fell after the break-up of Ma Bell is going to be invalid.

The reason long distance rates fell is because long distance really is that cheap. Long distance rates were higher because long distance had been subsidizing local service, which is not cheap. And it made sense that long distance calls would have higher prices than local dialing. But then the government broke up Ma Bell, so it couldn't work that way anymore. Now long distance rates pay for long distance, and the local phone company expects you to pay for a house call to work on the wiring that they themselves installed in your house for free when it was built back in the days of Ma Bell.

 

[mike_decock]

Who is going to cover advertising? Distribution? Order fulfillment? Soliciting?

Independent firms can do this for a percentage of the royalties. The artists can choose to do it all themselves. It doesn't HAVE to be the record labels.

I think the main issue is that the major labels have a monopolistic grasp on too many aspects of the industry.

-Mike...

 

[Lee Scoggins]

For good or bad, there is a reason the music industry is the way it is today.

This sounds like a cop-out to me. Things are bad for a reason so we should not try to improve them.

Puhleeeze!

 

[Lee Scoggins]

I think economies of scale come in to play here. A Chesky-sized operation can be profitable selling 1,000 to 10,000 copies of a single (re)issue. RCA doesn't even break even at that kind of volume.

I think its actually north of 10,000 but I have not seen the numbers recently.
My point exactly! The smaller labels can nurture a more diverse array of talent in the Music VC model than a Universal that needs north of 500K in unit sales.

 

[Thomas Newton]

Bringing an album to market, production costs aside (and that's a big aside) is still an expensive proposition. Who is going to cover advertising? Distribution? Order fulfillment? Soliciting? These are all jobs handled by a label, large or small, when they have control over a product in their territory. How much or little they do affects their return.

I didn't say that record companies would go away -- rather, that their side of the business would be subject to free-market competition (you know, that thing that Americans profess to believe in).

Obviously, both artists and record companies would have some interest in promotion. The artist will want to promote his or her own music, regardless of distributor. Each record company that carries the artist's music will want to promote not just the artist, but its particular "brand" of the artist's albums. A very cheap way for the artist to achieve his or her promotional goals is to release sample MP3s for free on the Internet, or to allow Webcasting stations to play selected songs without paying royalties. As for the record companies, they could differentiate themselves based on factors such as quality of supplementary liner notes and competence at helping customers find other albums that they might like. One could also envision specialty labels whose goal is to make sure that NOTHING stays out of print (using CD burners, if necessary, to provide economical reissues in even the smallest of runs).

 

[Brian Perry]

In a free-market, capitalistic system, there is NO guaranteed right to a return on investment. Record companies may "expect" a return on investment all they like, but this by itself is not sufficient reason for the Government to step in with artificial monopolies to keep the record companies from having to EARN their living.

Has the government stepped in to give the record companies this so-called monopoly? As far as I know, there is nothing legally preventing a corporation from forming that would be "artist-friendly" and that would presumably attract all of the these disgruntled bands. You are right that a company has no "right" to a profit; however, I would counter that no artist has a "right" to make a profit either. It all depends on the contract you sign and the market conditions that follow.

 

[David-S]

I think economies of scale come in to play here. A Chesky-sized operation can be profitable selling 1,000 to 10,000 copies of a single (re)issue. RCA doesn't even break even at that kind of volume.

Ok, maybe i'm confusing the issue here, but couldn't RCA break even on this album, if it only considered this album, and didn't tie it in w/ all the other albums it had?!?

I mean, i would assume that RCA can produce the CD's, etc cheaper than a smaller operation can? And they already have the marketing and distribution set up...

So why is it more cost effective for chesky to do 10k, whereas a larger company would cost more to do it?

I don't know why i'm confused over this, but that just doesn't make sense to me...

 

[Lee Scoggins]

So why is it more cost effective for chesky to do 10k, whereas a larger company would cost more to do it?

Chesky employs lower cost employees and uses minimalist miking techniques which also work to keep costs down. Chesky is more flexible because of its low cost business model.
In the record business, economies of scale work with respect to things like per-CD replication costs going down, but they do not work to bring down overhead like graphics, A&R, and other things until the CD has sold 100s of thousands of copies. Here a small label like Chesky has an advantage.
It is the difference between fixed (overhead here) and variable (replication/artwork costs) costs.
Hope that helps.

 

[mike_decock]

So why is it more cost effective for chesky to do 10k, whereas a larger company would cost more to do it?

Let's say with a 10K run, the label makes $10/disc wholesale and it costs $2/disc to manufacture. That means the label gets $80K.

Now, consider how many people work at Chesky. Let's say 50 people (I really have no idea, but it's a number). In an organization that small, people or small groups of people are departments and there's a minimal amount of management overhead. Let's say 40 people dedicate 2 weeks to the project, that's 3,200 hours. If the average wage is $25/hr, your cost to do the project is $80,000.

Take RCA. You've got 5,000 people at that company (again, I have no idea, but it's a number). Naturally, not everyone is involved in the project, but by the time you finish counting the managers, art departments, etc, etc, etc, you may have 120 people involved in the project.

Even if these 120 people only spend 1 week to get the project done (less work on average per person), you've put 4,800 hours into the project. Again, assuming the average is $25/hr, that would mean their cost is $120,000.


-Mike...

 

[Thomas Newton]

Has the government stepped in to give the record companies this so-called monopoly?

Yes. It's called copyright.

The purpose of copyright is to provide an incentive for creators to act in the public interest -- to create more works that must eventually revert to the public domain. The purpose of copyright is not to create monopolies for their own sake. Monopolies often lead to bad things -- some of which were anticipated by the Founders, others of which they probably did not anticipate (like record company demands to be able to attack other people's computers and networks with impunity).

In the record industry, abuse of copyright has gotten out of hand. The record companies have amassed hundreds of thousands of copyrights on virtually our whole recorded musical history. They use the resulting money and power to keep artists (the creators whom the copyright incentive is supposed to reward) at a disadvantage, and to attack the rights of the very public that granted the copyrights in the first place.

This is called "biting the hand that feeds you" -- and an appropriate response on the part of the public / Congress might be to subject that part of the music industry to free market competition. No sound recording monopolies in the hands of record companies => no chance to abuse them.

By preserving copyrights for artists, and establishing compulsory sound recording royalties (similar to the ones for melodies/lyrics) it would be possible to avoid throwing out the baby with the bathwater.

 

[Thomas Newton]

Second, having a free-for-all where anyone who wants to release music simply pays a licencing fee also ignores the business aspects of releasing records: there is a monetary investment which is coupled by an expectation of a return.

I thought of another possibility. There could be a period of one to two years during which the band could license an album or song on an exclusive basis. After that, the rest of the copyright period would be subject to non-exclusive, compulsory licensing.

Thus, the company that does the initial promotion gets the initial sales. But you get the benefit of competition for the back catalog items that nobody's promoting extensively any more.

 

[Lee Scoggins]

By preserving copyrights for artists, and establishing compulsory sound recording royalties (similar to the ones for melodies/lyrics) it would be possible to avoid throwing out the baby with the bathwater.

A very good point. In my venture model for music, the way this would happen is the Music VC and the musician would work out the deal specifics.
Better to let the "free markets" work their magic than rely too much on government regulation and music industry honchos. I do agree that some government such as the copyrighting process is essential.

 

[Lee Scoggins]

I thought of another possibility. There could be a period of one to two years during which the band could license an album or song on an exclusive basis. After that, the rest of the copyright period would be subject to non-exclusive, compulsory licensing.

This is way too restrictive in my opinion.

Here's another way to go.

The Music VC negotiates an equity-based deal at the beginning of the relationship. This grants him X years of exclusivity to the music.

X years is negotiated by the artist and his agents and the Music VC. If X is less than the time to payback for the Music VC, then he can either walk away or bear the risk.

The artist' flexibility is preserved. Remember the artist can also bring in other parties with pieces of his equity to help commercialize older material if need be.

I would assume for most cases that the Music VC get the same percentage for each major work (album, set of lyrics) in perpetuity. This will create additional incentive for other Music VCs to set up shop and create competition.

As much as I want to improve the world of the musician, one must also create incentives for change agents like Music VCs.

 

[Thomas Newton]

The Music VC negotiates an equity-based deal at the beginning of the relationship. This grants him X years of exclusivity to the music.

...

As much as I want to improve the world of the musician, one must also create incentives for change agents like Music VCs.

If the Music VC is making a deal with the artist along the lines of "$X cash up front, in return for Y% of revenue for Z years," I don't see why exclusive access to the music has to be a part of that.

In this scenario, the Music VC is making a financing deal. If multiple record companies compete to sell the music, and they all pay the artist, then the Music VC gets Y% of that set of revenue streams. The Music VC would not be cut out of the action, but would benefit from the efforts of all of the record companies who chose to sell albums.

 

[Keith Paynter]

The theory of 'one or two good songs per album' applies to retro compilations, too. Not only that, but in some cases, different compilations from the same record company which cover the same musical period will have several songs duplicated!

Not only do I hate having to pay for 2 or 3 good songs on 1 CD, I also hate getting them again on another CD that has a couple of songs that I didn't find before!

To paraphrase those damned infomercials: "How many compilation CD's would you have to own to get all YOUR favorite hits?" If they archived original singles for download I would be comfortable with that, and in high quality form I would be willing to pay a couple of bucks. I bought a lot more singles than LP's in the late 70's and early 80's, new and classic. As it is, I like the business model that file sharing provides for hard-to-find vintage songs: FREE! I have made great personal high-bitrate MP3 CD's strictly from downloads, and when I play them to friends and colleagues, they tell me there's not a song in the bunch they don't recognize. And until such a time that the record companies get back to the idea that singles can sell, they won't see me buying new music product, just high quality remasters of 20 year-old crap CD's.

One of the treats of the 45 rpm single at their height was the unreleased b-side. Two high profile 80's albums come to mind: Phil Collins - No Jacket Required and Bruce Springsteen - Born In The USA. Every single relased by The Boss on that album had a leftover studio track, and in the case of 'My Hometown', buyers were treated to the high-powered live version of 'Santa Clause Is Comin' To Town' (heard only on radio stations to that point, and later played to death in various cover versions using the same arrangement - most notably The Pointer Sisters), and 'Pink Cadillac', available only on the b-side of 'Born In The USA', then turned into a horrendous cover (by Aretha Franklin).

Other 45 rpm singles featured vocal-less remixes of original tunes (such as Wham's Wake Me Up Before You Go-Go and Ray Parker, Jr.'s Ghostbusters)) so you could sing along to real versions of your favorite song 15 years before anybody ever heard of the word 'karaoke'.

Singles were designed for radio play, rarely playing out any longer than 4 minutes, and people who bought the album it supported would often find full-length versions of these songs on the long-play LP. (David Bowie's Let's Dance comes to mind.) Sometimes the single held the advantage (Pink Floyd's Another Brick In The Wall Pt. 2 features the trimmed-off rhythm track intro removed in the LP's continuity editing).

There is a viable business model in the hit single, if record companies understood that to make it successful, they have to make it both good quality affordable. You can't get much more affordable than low-res, 128Mb, free...

 

[BrianB]

There is a viable business model in the hit single, if record companies understood that to make it successful, they have to make it both good quality affordable. You can't get much more affordable than low-res, 128Mb, free...

You know, a lot of them /already do/. Sites like CDNow, Amazon, mp3.com epitonic.com all feature legal free quality downloads of "singles" from known bigtime artists.

 

[Lee Scoggins]

You know, a lot of them /already do/. Sites like CDNow, Amazon, mp3.com epitonic.com all feature legal free quality downloads of "singles" from known bigtime artists.

Yes, but these are contracts set up by record labels that may or may not benefit sufficiently the artist. If they controlled more of the process, it would all be more fair.

 

[BrianB]

I didn't say it was fair, Lee. Keith said labels should put out mp3s as singles. I was just pointing out that they already do.

 

[Keith Paynter]

Actually I'm not referring to MP3s in the standard 128Mb format. Someting closer to 860Mb, roughly half the data compression of a standard 16 bit .wav file. (I understand that this would be problematic for 56k dialup surfers).

 

[mike_decock]

CD Players Glued Shut to prevent piracy.
-Mike...