7. NEVER SIGN WITH A RECORD COMPANY
When the big four record companies failed to embrace “Napster,” and peer-to-peer file sharing, they sealed their fate and precipitated their own demise. The traditional value of a record deal has always been tied to the very high cost of recording and radio promotion. Each time a label committed to record, and release, an album, it was obligating itself to a million dollar investment. Every time an A&R man signed an act he risked his job. In this day of diminished CD sales signing new artists is not a top priority. When albums cost hundreds of thousands of dollars to produce, the role of record companies was imperative. In The music Renaissance that is no longer the case. With the technological advances provided by ProTools and other low cost, digital recording systems, anybody can make a record with minimal investment. The second major contribution from the record companies, and their sub labels, was attached to their control of broadcast radio. At the height of the postmodern record business a large portion of the AM and FM radio formats were dominated by genre specific programming. The record companies fueled this process with millions of advertising dollars. These expenditures created the most competitive environment in the music industry and often the monies were expended through illegal activities known as “Payola.“ However, with the ubiquitous proliferation of the iPod, radio no longer has the universal relevance it once enjoyed. Today, music fans rarely access their music through the various radio outlets, radio is a default destination. In the digital age, personal choice of niche genres is more important than being fed formula music, chosen by record executives and radio programmers. When music is free for the taking and acquired on demand from every genre, word of mouth provides the relevant form of promotion. Fans collect files, not CDs, and radio is no longer a dominant force in the promotion process. Artists must promote themselves and grow their fan bases on the Internet. They have direct access to the potential customer; and a free mechanism for promotion of their personal appearances and merchandise. Most album sales will take place at live events, where the bonding experience between artist and fan is most intense. After all the deductions built into record deals dilute the artist's share, they net only pennies from the brick and mortar sale of a CD. Records sold by the artist directly to their fans net a profit of ten dollars or more. There is a reason that the superstars are abandoning the system that brought them to prominence. With the advent of three-sixty record deals, whereby the record company participates in all the artist's income streams, the situation is even worse. In the music renaissance acts will not be built from the record company penthouse down; they will be built from the cyber-grass-roots up. By the time they discover your Internet presence and come forward with their fat check books, you may no longer need them. The success of your business will not be dependant on expensive recording or radio airplay. Your long term interest will be best served if you own your publishing copyrights and recorded masters. Don't ever sign with a label.
Cash In Hand Fooleth No Man - Eagles
As the major record companies struggle to adapt to the digital age, they continue to reap handsome rewards from the exploitation of their extant catalogs of recorded masters. The cost of a digital download, or ringtone, is virtually nothing; yet the price to the customer is the same as with a plastic and paper delivery system. With the high profits from digital sales surpassing the numbers of paid hard copy transactions, the labels are treading water. They are not investing in new artists.
At the height of the postmodern record business, a number one album would sell a million or more units. Today, the number one slot can be reached with sales of only one hundred thousand. The primary promotional tool for music is the Internet where the posting of songs and video is virtually zero. In the past, the labels controlled the process, now the fans are in charge and A&R men are forced to follow the trends rather than create or lead them as they have in the past.
The corps of personal mangers, who represent the interests of artists in the game, have long battled the corporations for a fair share of the profits. Fairness has never been achieved. At best, a recording act received a tiny fraction of the gross receipts from record sales. Now the tables have turned and the established artists are asserting their power in the music industry economy.
The consolidation of radio station ownership has narrowed the possibilities and tightened the play lists. Stations have lost the "local" flavor and are locked into a formulaic approach mostly dictated by the record companies. In the concert business, ticket prices have skyrocketed and live events have become occasional luxuries, rather than the regular, habitual practice of music fans.
The most profound effect on the record business has been the defection of classic artists from their labels. The artist formerly known as Prince, later identified by an esoteric symbol, and now known as Prince again, shocked his record company by giving his album way for free with the purchase of an English newspaper. The great band Radiohead, shocked the industry by offering their album for free, asking only that the fans pay whatever they thought it was worth. Ironically, the net profits, far exceeded what they would have earned through normal brick and mortar sales.
The most dramatic desertion of the postmodern system was the path taken by the Eagles with the release of their "Long Road Out Of Eden" double CD. After careful consideration of the pros and cons of major label distribution, Eagles manager Irving Azoff recognized that the tightly controlled radio airplay, available to classic acts, wouldn't amount to much. He skipped the middle man and went directly to the biggest seller of recorded product, the mighty Wal-Mart.
Confident of the support of a huge fan base, hungry for Eagles' product, Azoff accomplished an unprecedented agreement with the retail giant. He made an exclusive deal that gave Wal-Mart sole distribution rights for North America. Traditionally record companies placed product in stores on consignment. If they failed to sell, records were returnable to the manufacturing label for full credit. A record shipped was not necessarily a sold record. Irving had a better idea.
In return for the privilege of exclusivity, for a three year period, Wal-Mart agreed to pay a guaranteed flat price for over three million units. The cost is speculated to be somewhere between five and eight dollars a piece giving Eagles one of the biggest pay days in the history of the record business. They reserved the right to release the album through traditional outlets in foreign territories, adding millions more to the gross sales. No artist ever made a better deal for an album, and the combined global sales make "Long Road Out Of Eden" one of the biggest sellers of the decade.
The Wal-Mart type deal is only feasible for a superstar attraction with a large and devoted fan base. But, the principals can be applied to baby bands as well. In an era when artists can create low cost recordings and promote them for free on the Internet, there survival may well depend on keeping the high profits from CD sales in house. Record companies are imposing 360 degree deals on new artists. They offer cash and airplay at a time when the efficacy of both is in doubt.
A band with a thousand fans, and an efficient booking mechanism, can survive without a record company's support. A talented act, with a good live show, can prosper and build their own record company. They can own their masters and keep one hundred percent of their publishing, box-office and merchandising receipts. Most importantly they can control their own destiny by never signing with a record company. If they offer you millions of dollars, you can have fun weighing the option and considering the possibilities. By then, you probably won't need them. But, if you do decide to sign, license your masters for a limited term, so that in the end they are returned to you.