The Record Labels Lost Their "Bullet"

I’ve long been saying that music will be free (or close to it) within the next ten years. I’ve been saying this for the past three years and I think I am going to be right.

Heck, music is free now for a huge number of people who see no problem stealing it from sites on the Internet. And it costs next to nothing right now if you buy music from iTunes for 99 cents a download.

The record labels are in a bad way. In their our parlance, they've lost their bullet. Upward growth is not likely. They are on the way to being a mid-chart industry.

The record industry spent its capital fighting the future and who wouldn’t? Theirs was such a great business.

You make a vinyl record, press it and sell it for far more money that it costs to manufacture it. Then, you make CDs on material that costs next to nothing to produce and mark it up to insane prices while at the same time forcing your customers to re-buy their entire album library.

It’s hard to feel sorry for record labels that have had it this good for so many years.

But now, they have it real bad. They’ve lost control of their market.

Apple has become their boss. When negotiations begin again between Apple and the labels within the next few months, Apple is in the drivers seat. They can dictate the terms and the record labels have very little they can do about it.

Once when Steve Jobs went to label executives asking for a chance to sell music for 99 cents, they thought he would help them stamp out the piracy that was running rampant in the music business at the time.

Piracy has gotten worse.

While it is true that iTunes sells a ton of music, it still represents a very small part of the record labels’ total revenue. You might think — these poor labels, they can’t get a break. Well, they made their own bad luck.

It’s true that they couldn't do anything about the Internet — the chief tool for swapping music, but they resisted it with all they had and now it appears they have lost. Insiders at some of the labels are very concerned about the viability of their companies in the long haul. Heck, in the short haul!

But there are ways the labels could survive or even thrive.

If, ISPs would come on board and agree to offer their customers a monthly subscription option, they could be rolling in dough again. But that is not likely to happen. ISPs would want an increasingly large piece of the pie and they would be in the driver’s seat. Plus you can bet there would be a lot of lawyers suing each other with so much money at stake.

In fact, subscription models which haven’t been all that popular with consumers to date still have lots of potential, but their success is based on the advent of universal WiFi. What good is having a subscription to every song ever made if you can only listen on your computer? And even if you accept that mobile delivery can be an option now, you’d have to increase the battery life of cell phones.

It just could be that help is on the way, but not in time for the four remaining major labels.

One way the four major labels have shot themselves in the foot is their inability to come up with the next thing beyond hip-hop. Hip-hop is arguably threadbare at this point. Is Nelly's "Tip Drill" the future of hip-hop? Decency and language issues aside, hip-hop has driven pop music sales for a long time.

Too little consideration has been given to the labels own failure to develop new hit genres. Is it because these hitmakers suddenly became deaf? No. Probably because they suddenly became consolidated and did what every other media company did — cut costs at the expense of the product.

Who is coming up with the next trend?

Not the labels. Look toward file-sharers and social networkers.

So as Apple gets ready to take it to the labels, it is heartening to know that while the labels couldn’t stop the technology that enables music piracy, they could have cooperated with new technology and even sharpened their skills in finding, arranging and marketing the next big thing.

Maybe it will take their demise to breathe life into the record business.

When I teach the music industry students who will be the moguls of the future, I often think that I might have a new age Sam Phillips in my presence. The music industry — particularly the record business — may have an encore when it gets smaller and not larger because small means they have to be focused on content and large means they focus on economies of scale.

Isn’t it Apple’s Steve Jobs who always says “think different”.


To email this post to a friend, click the email icon below

To receive my Tuesday post by email, subscribe below