MUSIC|MEDIA|DESIGN

Just because there are no modern media labels, doesn’t mean we don’t know what one looks like. In this column, we’ll look at the big picture. Today a successful label requires expertise in selling music, and some objective means of connecting artists to fans. To this end, the label must be expert in every aspect of retail sales, including unconventional channels. Just as important, labels must have some expertise in recognizing demand across many markets, including niches. Demand is distinct from talent, just as retail awareness is different from distribution. Lets explore how a major media label might leverage their expertise in a world without hits.

Forget “recording contracts” and “A&R” (artists and repertoire) reps. Today artists no longer need a contract to pay for recording, and fans no longer need middle men to predigest scads of music. Long-tail models are driven by quantities and time or presence. The labels job is to simply exist until the fan discovers songs in their catalog, at which point their role is to deliver the music as seamlessly as possible. In all sales, efforts are aimed at “closing” the deal as rapidly as possible. Any delay in closing and/or delivery can cost sales, or give the buyer time to reconsider or even forget about the purchase entirely. This problem is especially severe in music: As an impulse entertainment purchase, we don’t really need it at all! How many songs or albums do we decide we “have to have”, but forget about once we hear the next song, or pick up another shiny disc? Closing sales has never been easier than the iTunes Music Store, and the variety of products, as well as margins, make it attractive. Specialty retailers provide a similar environment, promoting impulse buys with signage, pricing, and placement. Finding and filling these niches are the job of the modern label.

When we visit places like the iTunes Music Store or CD Baby, not to mention successful bricks-and-mortar retailers like Shake It records, one is immediately struck by the range of music-related products being sold. Shirts, knick-knacks, magazines, greeting cards, and all manner of swag surround the hottest selling CDs. No surprise there: merchandise has been a big part of the bottom line for decades. Traditionally these products have been sold directly by artists, outside the record label’s chain. Artists and their management kept all profits, but sales were limited to venue and web site sales, with some ad hoc retail distribution on the side. While it’s unlikely artists would give up a large chunk of those profits, a savvy label would see opportunity in it’s retail sales chains. Expanding the catalog to include that merchandise, albeit with considerably lower mark-up, could be a valuable service that attracts new artists to the catalog, while simplifying purchasing for retailers.

Low margins are not a problem in many industries. The consumer credit card business is built on making a few pennies on every sale, surrendering the real money (and risk!) to individual banks. In a global economy, these pennies can add up to be quite significant. So the real key, aside from keeping sales volumes high, having a broad enough catalog to attract fans. Quantity matters at least as much as quality. Further, since music is a fashion-like business, where quality’s a temporal concern, it’s almost impossible to prospectively pick hits. We can’t really know what’s going to be hot next year, next month, or even next week. By adopting a long-tail perspective, our imaginary Media Label doesn’t have to. Simply avoiding the real stinkers, and attracting the most forward-thinking artists with an attractive model is sufficient over time.

Time is a critical variable. The value of media is not unlike stock prices: it goes up and down as a function of popularity and success over time. Todays shit-hot record is tomorrows shite. And vice versa. By constantly signing more artists, and carefully limiting inventories, the catalog can grow faster than costs. On-demand or at least fast-turn manufacturing is the norm today, so labels have no need to physically stock every title. In time, there will be no reason to stock ANY title! All our label needs is the long-term license to profit whenever it’s titles sell in any format.

The final element of a modern media label is the most complex. Marketing the catalog and artists is what contemporary record labels think they’re really good at doing. In the next installment, we’ll look at that assumption alongside new demands and methods.

Dave Davis

Every new media is resisted by the established old media. When old business models begin to fail, the law or precedent is used to manipulate and control new ones. While underlying concepts of intellectual property, and the basic constitutional framework our laws are based upon are as relevant as ever, money and the unenlightened self-interests of oligarchies distort (recontextualize) the law. The result: A broken system, founded on archaic models, that truly benefits no one.

Lets start from the beginning. Record labels sprang from the sheet music and publishing world. Live concerts and pop music are equally rooted in the traveling carnival game. Billboard magazine was originally a carny-trade rag, that evolved from the larger touring industry to refocus on music! The music business was built on intellectual property, first in the printed form, and later as recordings. Publishers, later augmented (but not replaced by) recording companies dominated the trade. When it was a print-based industry, the business model looked like what we might call the long tail: Publishers controlled broad catalogs, selling low volumes to many markets. But with industrialization, and the appearance of a manufactured music product that required no specialized skill to enjoy, that model evolved to a hit-driven game, best fueled by stars. Technologically driven companies like RCA were highly vertically integrated: they made everything from the tubes that went into radios and transmitters, but the stations and programming thereon. Re-selling their assets as recorded music leveraged that investment tremendously. Over time both recording and delivery media have become more capable, and less limited. Virtually any idea or content fits on a DVD, if not a CD. Tools of creation, and appliances for consumption are ubiquitous. The gap between artist and audience has been under assault for a century. From a technical standpoint, there is very little reason for any gap at all. What remains is a product of business model, fear, and habit.

All of this is not to say that there is no longer a need for a record label. Quite the opposite: Every artist needs a label more than ever, to provide support of the most conventional kind! Artists no longer need a label to fund recordings, or shape their repertoire, but they need more help than ever breaking through the noise, organizing marketing and distribution. Theres real money to be made with models that focus on aquiring long-tail catalogs and delivering highly customized products in every format, manufactured on demand, and delivered directly to any consumer through his or her preferred channel. In such models, value is added at each boundary. Transcoding, delivery, marketing, and most of all point-of-purchase distribution are all opportunity points. Such catalogs are defined more by size/volume than control. Flexibility, not exclusivity, is the higher value. The problem is, that label doesn’t exist!

No problem.

We will spend the next few weeks thinking about what labels do, and how they might do it better. We’ll propose models that make sense in a world where bits are worth more than atoms, and we no longer need the Big Main Control Man to tell us what we like or want. But remember: this is a conversation, not a monologue. Your comments and ideas matter as much as mine. So please… join in!

Dave Davis

If I ever have a hard time remembering why I get up each morning, I hope I remember to check out this review of Ass Ponys The Okra Years in the  music blog PopMatters.com.

Okra Years was a special release by Shake It records compiling tracks from two older records from the band’s pre-A&M years, Mr. Superlove and Grim.  Consider this post a confession.  I consider the PopMatters review absolution.

A lot of records made locally in the late 80s and early 90s suffered in the mastering stage.  In fact, I was among a group of engineers insisting no mastering whatsoever was superior to the mastering available to us locally.  I’m not sure whether those 2 Ass Pony’s records were mastered by one of the local practicioners, but both testify to my position.  Like many records of the day, both sounded worse than the mixes actually were.  This problem is what led me into mastering in the first place.  The first decade of my career was spent lovingly revisiting many older records where the ball was dropped at the mastering stage.  Okra Years was one of the last significant records to get the full meggila.

I can only beam when I read this review.  It explains what we did, and why we did it better than anyone other than Chuck Cleaver could manage.  It’s always fun to make something great sound right, but much more fun when someone else notices.

Some other notices:

Harp Magazine noted that “the resequencing and omitted tracks do improve the flow, and only hard-core fans really will mourn the missing (no “Ford Maddox Ford,” guys?) and lament the changed—all while they exalt the extras. So the awful truth is that The Okra Years is a misleadingly billed but worthy do-over.”

BlogCritic Magazine says “The Okra Years is among the finest Alternative Rock releases of 2006. Not only is the music brilliant, but Cleaver’s assemblage of songs is tremendously satisfying, creating a roller-coaster ride of chilling, brooding pieces that allow the listener to tumble into the psychotic aspects of relationships, and then speed things up to ascend peaks of wry, eccentric humor.”

A couple good fan reviews in Amazon with a link to buy.

The RIAA just released it’s 2005 sales numbers, spinning it as the biggest disaster since Napster. Yet while gross sales have declined by any measure, it’s impossible to paint 2005 as worse than 2004. That’s because the numbers presented by the RIAA are a pig in a poke, showing only half of the balance sheet. Left out are profits, and a breakdown on the impact of the numbers on artists and fans. When taken into account, last year’s numbers, at worst, hold the line. Well managed companies and most artists, saw real growth in profits, so the real story is the drop in costs associated with new, high-margin markets that never existed before.

Overall, gross sales of fixed media products was down by a little less than a billion dollars, or a little more than 8%. But downloads were up by a little less than half-billion dollars, from the previous year. Taken together, this means gross sales dropped by about $69 million total. That sounds like a lot, until you place it next to the $12 billion worth of music sold in total. Historically that places 2005 among the top 5 years of all time! So, no matter how you look at it, 2005 wasn’t a disappointment. To lose money in 2005 you had to be an intransigent, belligerant, anti-customer crusader, willing to put principle above profit. In other words, a major label or the RIAA.

According to Jupiter Research, the industry average splits for a $14 CD look like this: 20% goes to the retailer, 11% to distributors, 7% to marketing, and 11% of the costs are for manufacturing. That leaves 30% to be split among all rights-holders (including the label, which often took a cut on all of the previous numbers, as well as the rights, through subsidiary/sister companies). For digital downloads the retailer (Apple’s iTunes or Rhapsody) have historically lost money, resulting in a -2% figure. Don’t feel too bad for the e-tailers though: Apple exists to sell iPods, not iTunes! Beyond that, the label’s “distribution” arm or contractor snag 30% of your $0.99 purchase, 3% is spent on marketing, and the cost of goods is pegged at 4%. This leaves 65% to be split among various rights-holders! For subscription download services the numbers are slightly different, but the bottom line there is that rights-holders split 55% of the sales.

The RIAA says labels lost $69 million in sales last year, but every penny of that drop was in sales of lower-profit CDs and fixed media. But digital-delivered media grew by 174%. If we assume half of all digital sales last year came from the less-profitable subscription services, rights-holders saw profits of $302 million for 2005, versus just $109 million in 2004. While poorly managed companies might be able to squander a nearly $200 million of extra profits individually, it’s hard to believe an industry is collectively that dumb, or mismanaged. If they are that poorly managed, their wounds are self-inflicted, and of no concern to the public at large.

When we add in ring tones and other new markets with even higher profits for the label, the truth becomes clear. While gross sales may be sliding, people’s consumption of purchased music is actually UP, even by the RIAA’s own published numbers. And not by a little. In 2004 the industry sold 814 million physical units or individual products (e.g. CDs, DVDs etc), which dropped 8% to 748 million in 2005. When you add in digital sales, this decline looks different: total units amounted to 143 million in 2004 which then expanded to 383 million in 2005.
Altogether the labels sold 957 million units in 2004, versus 1131 billion units in 2005. The biggest falling categories in 2005: Vinyl, as usual, slipped more than 25%, while the CD single fell by 11%. Yet never before in the history of the music industry have 1.13 BILLION songs/albums been sold. In the industry’s salad days, they rarely cracked 1 billion units! More people bought more music in 2006 than ever before. I’m not surprised that the media ignored this critical fact.

While the RIAA and labels rightfully love the CD, consumers, shareholders, and artists would be wise to look closer. The market-driven shift away from CDs to digital-delivery media has been good for everyone. Choice is always good and positive to consumers, as well as artists. Having a product for every taste used to be a luxury, but digital delivery eliminates production/inventory, and suggests new packaging, uses, and quality options to further improve the experience. iTunes and Rhapsody don’t just offer more selection and variety than any bricks and mortar retailer, they never run out of product. There are no inventories or backorders, only sales. The resulting boom in sales demonstrates a Republican truism: removing the fixed media tax heated up the broader market. Consumers bought more music legally with the money they were saving (the gross drops).

By turning impulse into easy money the labels made more profit in 2005 on lower sales! Without returns and risky inventories to maintain, the ability to sell an entire catalog ad infinitum is suddenly reality. The implication of the RIAA’s 2005 sales numbers is undeniable and clear. They have replaced money losers and potential mark-downs with an ideal widget. Marketing, of course, remains an expense, and that expense will eventually move to digital media. The inherent efficiencies of these new models are undeniable, so the key becomes management. Good, basic business managers can transform a label’s catalog into an efficient, reliable money-press.

I saved the best for last. The shift away from the CD has not been kind to major label artists with conventional contracts that penalize their earnings in digital-delivery, and rely on the labels accounting practices to get paid. But at the other end of the spectrum, we’ve seen the emergence of a new middle class of artists. Artists who were dropped or fled the majors have discovered a comfortable living can be made simply by letting their fans know they’re alive, and making cool songs. These artists can benefit from the shift away from CD, just like major labels. Indeed, they benefit a little more: The cost of manufacturing is the single largest hurdle most independent artists face, so any relief in this area is welcome.

It’s worth mentioning that the industry’s expectation of ever-growing gross sales, alongside ever widening margins and lowered costs is unrealistic. Since 9/11 every other industry has learned to stretch margins in order to survive on lower gross sales. The Wal-Mart effect is becoming an economic law in consumer products: Over time the cost of goods must decline or perception of volume must increase to maintain volume. Smart, well managed companies make a choice: Adapt to the Wal-Mart rules or die. Adaptations are many and diverse, but successful ones do not include crippling products (copy protection, lawsuits), and collusive distribution practices that hurt sales.

The CD has been a great for artists and the industry. By any definition, it was the first new media product: Digitally stored, algorithmically coded, randomly accessible, and easily transcoded to be used any and everywhere the fan desires. These qualities transformed the entire industry and paved the way to the generation of products emerging today: Higher profit, lower cost, more easily delivered, and ever more diverse and customizable. 2005 was the first year of the modern era of music and recording. The new models brought to market last year are better for all concerned than the products they replace. Welcome to the 21st Century.

Way back in 1999 The Ass Ponys recorded Some Stupid With a Flare Gun.  

Great reviews followed starting with this one (originally in Spin) by the “Dean of Rock Critics”, Robert Christgau.

In Music We Trust covered them in Issue 31, back in 2000.

Like most things, it’s available on Amazon.com even though it’s out of press (the label, Checkered Past is long gone), where fan reviews average 5/5 stars last time I looked!