Turmoil Ahead For The Record Industry

By Steve Meyer, Inside Music Media™ Contributor

This past week also saw the shake up in the highest executive ranks at EMI. EMI announced the dismissal of top executives Alain Levy and David Munns. Levy had been Chairman and Chief Executive Officer since 2001, Munns was Vice Chairman. While part of the reason given for the senior management changes is an expected £110 million per year savings, observers wonder whether EMI is restructuring itself for a sale, or just cutting costs to adapt to the new realities of the marketplace.

No one should really be surprised by the EMI announcement. Just last year, Sony/BMG let Don Ienner (Chairman of Sony Music) and Michele Anthony (Executive VP Sony Music) go as well.

These changes at the very top of the executive food chain can be blamed on a variety of reasons. But the simple fact is that as profits shrink in the music industry, BIG salaries and BIG bonuses cannot be justified as they once were when labels made millions and millions in profit year after year in the mid 1980's into the 1990's.

Though the profits generated by CDs were extraordinary in the 80's and 90's, in fact, they distorted the true growth of sales, because if catalog sales were taken out of the equation, the profits would not have been near as healthy and close examination would've revealed that though they were mega-selling multi-platinum artists/projects during this time, the number of REAL artists established with long-term potential, diminished as the focus was shifted to "product" to fill the distribution/retail pipeline and keep profits fat.

And then of course, there was "the damn Internet" and downloading. The labels tried to blame the Internet and file-sharing for most of its problems once real sales declines set in, and their industry association, the RIAA, took up the cause by identifying, then suing, several hundred people a month who had allegedly (some people who were sued did not own computers) downloaded music illegally. The RIAA continues this practice today, though it's had no real effect on stopping people from file-sharing. If anything, it's made people more tech-savvy so they won't get caught in the future. Now there are "darknets" (intranets known only to their users) all over the Internet that fly below detectable RIAA radar.

So, what does this all mean? How does the industry survive?

I envision the major labels as nothing more than digital warehouses and intellectual property owners with huge catalogs and acting as distributors online in the future. There really is no reason for any established artists to be beholden to any label once they reach platinum plus sales levels (we'll see more artists take control of their music like Garth Brooks, Jimmy Buffet, et al) and new artists can break now online via social networking, YouTube, etc.

The real power of major labels will be leveled by ongoing technological developments. They will exist, and the depth of their titles in catalog will allow them to create new revenues. But, the next generations will continue to break music online without major label help...and artists will make the bulk of their money not from sales of music, but touring and merchandising. (It's almost like that now)

Labels should heed the words of Charles Darwin who said, "It is not the strongest of the species that survive, nor the most intelligent, but the one most responsive to change."

Those who respond to the ongoing changes will exist in the future, albeit in different manner.

But don't be surprised to see more executive shake ups, more industry personnel laid off, and more changes in the industry until the new models for the future are designed and they start creating new revenues.

Steve Meyer is one of the music industry's top professionals and publisher of the new media newsletter DISC & DAT.