Perspective: Recording industry should brace for more bad news

The recording industry is facing yet more bad news.

Forget about Warner Music Group's plummeting stock price, or the shrinking retail floor space. Forget about EMI's announcement this week that it's cutting 1,500 to 2,000 jobs. At least the new owners of EMI are recognizing that they bought into a dead industry and are trying to confront it head-on with significant changes in business strategy. It remains to be seen if the suits who now own EMI can navigate the shark-infested waters of a business that feeds on schadenfreude.

The big problem that EMI, and by extension the rest of the industry, faces is the sudden stampede of brand-name artists away from the traditional recording companies. The Eagles are with Wal-Mart, Madonna left Warner for Live Nation, a concert promotion company. EMI has lost Paul McCartney and Radiohead, and Coldplay is said to be threatening to leave. Last week, the label's biggest seller, Robbie Williams, announced that he too would be leaving the label. All pretty devastating.

Record companies have always depended on the revenue and cash flow generated from platinum-selling artists to finance new talent. If that revenue stream disappears, how can they compete?

The case of Robbie Williams is very interesting and will probably be studied in business schools for years to come.

The case of Robbie Williams is very interesting and will probably be studied in business schools for years to come. Williams' managers, Tim Clark and David Enthoven of IE Music, are two of the most savvy, straight-shooting entrepreneurs in the business. They worked diligently to build Williams into a global superstar and then broke industry tradition by virtually creating a new music industry model, the 360 deal. They formed a joint venture between Robbie and EMI. For 80 million pounds ($157 million), EMI got a minority stake in the venture, which included all of the revenue that Williams generates--concerts, record sales, merchandising, sponsorships.

At the time, EMI was assailed for being a sucker, but the reality is that it made a great deal and it has more than paid off. This model has since been duplicated by Linkin Park, Madonna, and several other artists. It has become the rage du jour in record label business affairs departments and hailed as the model that will save the business.

But what Clark and Enthoven realize is that the point in time has come where major artists can do it themselves. First you had the Radiohead experiment. The band has been criticized by industry and media types for botching it and leaving a lot of money on the table. The important issue is that Radiohead made a bold first step, no matter how successful it was. Now artists like Williams can take full control of their assets, and enlightened managers like Clark and Enthoven can implement groundbreaking models that heretofore have been stymied by old-school thinking.

If you're a big enough star, you just don't need a record label anymore. In fact, even if you're an unknown, Clark and Enthoven have shown that you don't need a major record company behind you to be successful. Backed with money from London-based venture firm Ingenious, they just made a deal for a new singer named Sia with Starbucks. The Sia record will enter the charts in the Top 40 in its first week of release.

I don't know if Williams will sign with another record label or not. I really doubt it. The bottom line is that music has lost its economic value to consumers. But it still has emotional value. People will never stop listening to music. They've just stopped paying for it. So the challenge comes in figuring out how to capitalize on that emotional value. There are lots of ways to do that and guys like Williams, Clark, and Enthoven are sure to find them and transform the landscape.

Biography
Wayne Rosso is the founder of Mashboxx.

More Perspectives

[katopotato2008]

The Writing is On the Wall...

It's a matter of economics. Record companies have served in the past as middlemen - between musicians and the consumer. Prior to the internet, mass distribution of media was complex, relatively expensive, and there were significant barriers to entry. The internet has changed this. The traditional distribution channels are slowly disappearing. The distribution of music through downloading is very inexpensive. The power is now in the hands of the artist.

[michaelo1966]

We'll pay; we just won't overpay

Whether it's music, video, medicine, law ... whatever. As the world shrinks the suits have done well so far, but the same economics of outsourcing and disruptive tech they've loved so much is coming right back at them. Only suckers watch TV ads anymore, everybody knows to stop at webmd to do research before showing up to the doctor, sites like idivorce allow people to do their own legal work... Whatever. The old distribution models based on hoarding outlets for goods and embargoing information are dead or dying. The companies that will survive have to deal with and embrace that.

[jltnol]

willing to pay for content, BUT

Agreed.

I'm willing to pay for content.. BUT not content wrapped in the
same package as in years past. The ability to buy what you want
instead of what they record companies want to sell is the only
way to go.

HEY CABLE COMPANIES.. your next! Be forewarned. No more
paying for 350 channels when all you want is the best 15 or so.

If that shrinks the choice, fine by me. Is anyone watching all
those old tired TV reruns anyway?

[megaboylv]

the good news

fans will pay...they just now demand value... not BS

marketing is not an accident; and not gifted from the heavens...without it; you are just left with the long tail

in the long tail: artists starve; in the middle tail: they need a new eco-system and that will depend on new platforms; new models; new partners.

Fair democratic, scalable communities

check out www.deeprockdrive.com

[dascha1]

To clarify - Recording Industry or Recorded Music?

As I understand it, there are music artists and then there are great-
sounding voices as personalities who push New Media forward.

Thanks!

[imacpwr]

Tired of music industry telling me what kind of music I like!

quote: "The Sia record will enter the charts in the Top 40 in its first week of release."

It will? Why? and what about all the hundreds of other songs out there that were just released? Top 40 acording to who? Who's playing God and telling me who I will prefer to listen to next week?
This is exactly why (in addition to annoying commercials) I hate to listen to the radio anymore! I'm sick and tired of some music mogal telling me who I should be listening to on the radio and then having those same 40 hits played over and over and over till they've finally brainwashed the public into believing those top 40 songs are good when in reality most of it is trash.

[Johntycn]

Decline in recording industry.

Let's face it, since the demise of the Beatles Jimmy Hendrix, Cream et al the turgidity of the stuff turned out by the recording studios is only matched by their seeming inability to market any real talent. A couple of decades of nearly groups and vocal talents that only sound better after a drinking session hasn't helped either. Many of the songs of today are not only sub standard, they do not even deserve the name of song. I'm a musician, I should know.

[xyxax]

ive worked in music retail for over 30 years
and have seen first hand the demise of the
industry and the consequences, as for new
media and choice ..
be careful what you wish for.!
while having a choice of tracks and artist content is a great feature of digital media
the downside is you cjoices will reduce as your focus becomes more narrow and the market solely
determine what they want to hear and consume, while this all sounds very democratic it is also very myopic, and you rarely discover anything new as human nature goes with what it knows.
I fear we will end up with a very homogenised music scene and while the previous music scene was not perfect there was a lot of variety, however the emergence of the independent music industry may help but its a tiny voice in the cocophony of the didital domain.
I always enjoyed interacting with customers , getting to know what they liked suggesting different things and throwing a curved ball every know and then and seeing how people react to what they hear!
self determined search engines dont really cut it.!

[Skipper311]

Ahhhhh, this is the kind of heart warming story you read to your kids in bed at night. Makes my day everytime I hear Record Labels flailing in the deep zone. For decades RL's called lopsided shots on artists and consumers with impunity - only because they could. Now the tide has poetically flipped in favor of the artists and consumer. Why are they doing this? - because they can. Looks fair in my books.