How record labels can survive

by Cosmo Lee

Record labels aren’t obsolete yet. In fact, they probably never will be. Products sell better with publicity and marketing behind them. That comes with money. Labels aggregate money in ways that individual bands can’t. One can’t download an album if one doesn’t know it exists. Bands usually don’t have the resources to buy ad space or solicit interviews. Labels theoretically do.

Imagine a world where labels don’t exist, and where bands only promote themselves via MySpace and YouTube. That would be catastrophic. Not only would there be a glut of information, it would be undifferentiated. Even with downloading, people won’t stop reading magazines and websites (well, maybe magazines, given the state of publishing) to learn about music. Information overload plus limited time makes filters necessary. Likewise, record labels are filters of taste, and sometimes quality.

If they don’t change business models, however, they’ll be obsolete in their current forms. This is obvious. The question is how labels should change. Answering this requires understanding the current models. Here’s the dominant one. Band or label finances making of album. Band signs rights to album over to label; label promotes album. Label makes its money from album sales. Unless band sells vast numbers of recordings, it makes its money from touring.

But one problem is derailing this whole model. People aren’t buying albums. (Well, they are, just fewer and fewer each year.) Note that the above model has only two income sources: album sales and touring. (For simplicity’s sake, let’s ignore radio and TV airplay, which are usually negligible in metal.) Labels own the former, and bands own the latter. Thus, labels ostensibly get the shaft because bands seem fine. People are still willing to buy overpriced tickets to see nostalgia acts. But if labels hurt, bands hurt. No album sales = no capital for making records and promoting them. Until bands are smart enough to figure how to promote themselves – which will probably never happen – bands and labels need each other.

Thus, they need to solve this “people not buying albums” problem. They’re not doing it very well. Admittedly, it’s a multi-front war. CD’s are too expensive. Albums generally suck (all filler, no killer). People have less money to spend in today’s economy. One solution making the rounds is the 360 deal. In such a deal, labels not only make money from album sales, they also take a cut of tour revenue. Maybe they’ll provide tour support in exchange. However, bands are going to let labels encroach only so far on their traditional revenue stream. And if a band is so desperate for a deal that it signs away its touring income, then it deserves the consequences.

I propose this solution: stop selling albums. Give them away. Or at least drop the prices way, way lower. The price that people want to pay for albums is irreversibly trending towards zero. Albums aren’t like cars, where higher prices connote quality. People are perfectly happy to listen to 192 kbps MP3’s on iPod headphones. In other words, they’re happy with crap. Crap should not cost much. CD’s should cost no more than $10. MP3 albums should cost no more than $5. Prices should be low enough to persuade people not to download illegally. As I’ve said before, illegal downloading has costs: time, effort, and occasionally the risk of prosecution. If Joe Downloader requires 15 minutes to find and illegally download an album, he might be willing to pay $3 to have it immediately and legally. A positive experience will lead to more purchases.

In 10 years, the price of CD’s will likely be moot. Increasingly, computers are being sold without CD drives (the MacBook Air, ultra-portable netbooks). As Internet and Bluetooth come to dominate information transfer, physical media will become obsolete. (The big exception, of course, is vinyl, which will never go away. But it’s too expensive and too niche to pay a label’s bills, unless that label is Nuclear War Now! or Southern Lord.) The first thing I do when I get a CD is rip it to my hard drive. I’m not even burning CD’s anymore. Of course, people still buy CD’s. Labels shouldn’t ditch CD’s entirely yet, so as to serve that market. But that market is shrinking, so labels should gradually phase out CD manufacturing.

Giving away albums may become inevitable. When digital media replace physical media, profit margins should stay in line with consumers’ sensibilities. Manufacturing and middlemen drive up the costs of CD’s. Those are gone with MP3’s. Sure, $8.99 for an MP3 album at Amazon is less than a $12.99 CD. But it’s still too much. $8.99 should get me a used CD, not a sonically inferior MP3 album that lacks artwork. Faced with an $8.99 MP3 album, Joe Downloader will likely take the extra 15 minutes to get it free illegally.

Giving away albums may not seem to solve the “people not buying albums” problem. The trick is to make them buy other stuff – preferably, stuff that’s not downloadable. T-shirts, for example. People will always buy t-shirts. If I ran a record label, I would make it into a merch operation. Treat the album as an ad. Give it away. Spread the word. Use it as a loss leader to get people in the door to check out other goods. Wal-Mart does this brilliantly (and evilly). Instead of paying for CD manufacturing, use that money to make shirts. Hire good graphic designers. Make shirts people actually want to buy. (People make good billboards. Also, bands generally design ugly t-shirts. Labels can do so much better.) Let bands sell those shirts on tour only if you get a cut.

Now, t-shirts may not be perfect economic replacements for CD’s; it’s easier to store 1000 CD’s than 1000 t-shirts. But people are much less willing now to pay $15 for a CD than a t-shirt. Additionally, CD’s are dead-end income sources. A CD need be bought only once. (Unless it’s on Roadrunner, where it inevitably gets reissued a year later with a dubious bonus track or repackaging.) People will buy multiple t-shirts for bands in the course of an album cycle. And t-shirts are more likely than CD’s to increase in value over time, on eBay, and so on.

In other words, record labels need to become brands. How often do you see people wear record label gear? Century Media should rebrand themselves as “CM” (like Calvin Klein’s “CK”). Kids should be walking around with zip-up hoodies with “CM” in huge gothic letters. Metal Blade should start a fashion line called “Blade.” (P. Diddy’s Sean John clothing line probably far eclipses his Bad Boy label in revenue.) Victory should drop its bulldog mascot, especially since they have nothing to do with hardcore now. Prosthetic should get an in-house graphic designer (like Orion Landau for Relapse), because their artwork usually looks like Photoshop exercises. Nuclear Blast should sponsor MMA fighters, with that nuclear logo across fighters’ asses. And Southern Lord needn’t change one bit – they’re practically at the stage where music is incidental to its physical artifact.

To recap, record labels should:

Ideas, comments, suggestions?