JULY 2000 IN

What’s Happening to the Major Record Labels?

Classical. Seagram’s. A&M. Arista. Enough said. Or, if you’re not in the record business yourself, the story is this: The major record labels are simply not as vital today as they were in years past, or even at the beginning of this year. For four decades, the major labels had the uncontested leading position in the music business. Now, that status is slipping away.

The handwriting has been on the wall for some time. Once, there were seven major labels. Now there are four. Losing a record deal, which used to signal the end of a recording career, now may be no more than a bump in the road. The industry used to create one trend after another, but that pattern ended in Seattle almost a decade ago. Only about half of the hottest concert tickets this summer are major label acts — and even more telling, there is no way to pick out the major label acts without looking them up on the Internet.

What’s happening to the major record labels? It’s no mystery. They are being squeezed financially. It keeps getting harder to promote a record, simply because of the way it is harder than ever to get the public’s attention. But as the cost of promotion keeps rising, there is no way to increase revenue. The record-buying public won’t pay higher prices or buy more records.

The inevitable cutbacks let the major labels concentrate their efforts on fewer and fewer releases — but that means they are involved in less and less of the music that people actually listen to. Much has been made of the disappearance of the classical division, but classical is not the only musical genre to be cut. Folk, jazz, heavy metal, progressive rock, and other major categories of music have been quietly disappearing from the major labels’ catalogs. Cutbacks are also affecting the staff at the record companies. Word from the inside is that the new management has no realistic strategy to turn things around, further cutbacks seem inevitable, and morale is low.

The major-label business model is to blame. The model is based on mass distribution, an approach that can make a significant profit only when a product sells at least a million copies. The cost of the promotional effort that is supposed to push a release up to that level pushes the break-even point to around two million copies. At the same time, the system is so inefficient financially that the most successful recording artists get only about 5 percent of the price consumers pay for records — and the average recording artist earns nothing at all in royalties. For most recording artists, the record industry needs to find a different business model, one that does not center around mass promotion and mass distribution.

In the meantime, a major record deal is not a money-making strategy for most artists. Courtney Love is suing to get out of her record deal because, as she explained in a recent speech, she has realized she has little hope of making a living from it, but she thinks she can make money from her work elsewhere: “Now artists have options. We don’t have to work with major labels anymore, because the digital economy is creating new ways to distribute and market music. And the free ones amongst us aren’t going to. That means the slave class, which I represent, has to find ways to get out of our deals.” It remains to be seen how well the new, Internet-oriented distribution models will work. But they won’t have to work very well at all to work out better for recording artists.

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