Major Labels

6 Reasons Why Major Labels Are Still Screwed

image from 2011 could prove to be a spectacular year.

Spotify may launch stateside. Google Music might start cloud-based music storage off with a bang.

Apple may convert into a subscription service.

Slacker will offer on-demand music streams and may capture substantial market share. Sony is bringing their own service called "Music Unlimited" to market.

Make no mistake, this could be the biggest year that the music industry has seen in quite some time.

Amidst all this excitement though, there are still reasons for concern.

Even if everything above goes as planned and impacts the major labels positively, they still have a winding road ahead of them. Their product strategy is lacking, piracy has proven hard to force underground, and they are their own worst enemy.

Here's why the major labels are still screwed:

1) The Format Replacement Cycle Is Over. Throughout the history of record industry, the introduction of new formats has driven profitability and dug them out of decline. There appears to be zero new formats that are capable of achieving CD era revenues. Digital music has failed to generate a new format replacement cycle and nothing in sight looks like it will perform much better.

2) Music Piracy Can't Be Forced Underground. The harder labels have tried to force music underground, the more mainstream the activity has become. 

The second that they shutdown one file-sharing client, another turns around, bends the rules, and fits between the cracks of copyright law. MP3 Rocket now downloads directly from YouTube – no p2p technology involved. Speaking of cracks, others are embedding storage devices into walls and creating networks that don't even connect the Internet. Music piracy will only evolve – not die.

3) Complete Lack of Creative Leadership. Major labels are full of leaders who preserve the status quo by sticking with feasible but relatively unoriginal solutions. New research says that creative people are looked down upon and shunned from positions of leadership. This means that those who desire to move the record industry in profitable new directions are likely to be turned down for promotions in favor of those with more practical solutions. Thus, the old way of doing thing remains and after one digital decade has ended, not much is different.

4) The Music Consumption System Is Broken. Here's what fans want. Here's what the major labels provide. Now, if the space between those sentences were equal to the distance between the Earth and the Sun, we might be close to characterizing how far divorced from reality the music consumption system is.

There is a vast chasm between what the Digital Natives want and what the major labels sell. If nothing is done, the gap will only widen. Entire generations aren't being catered to properly and until the consumption system is adjusted to reflect known fan behavior, major label decline will only continue. Piracy will worsen.

Future music products are needed and now. Otherwise, fans will go elsewhere.

5) Major Labels Are Their Own Worst Enemy. Call it "The Hulu Problem." The company is controlled by the major TV networks and has been enormously successful. So much so, that they are now the worse enemy of the people that endorsed it. People love Hulu. What's cannibalizing regular TV viewership? Hulu.

What's the solution? Kill Hulu. If your biggest success is also your greatest enemy, it's sort of a big problem. Major labels are in a similar situation. If Spotify, Slacker, Apple, and Music Unlimited turn out to be enormously successful and digital downloads and CDs decline more, all hell will break loose. If killing off the future of your business is the only way to preserve the future of your business, that might be the main reason why the major labels are still screwed nowadays.

6) [Add Your Fantastic Reason Here!]

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  1. Content.
    If artists are able to do everything that a label used to do for them (distribute, promote to masses, find a recording studio), the incentive to provide content for the labels disappears. The ONLY two things that labels can really offer are money and manpower. With services like Kickstarter and a small business approach to running your own career (interns? employees), the labels will soon find themselves without any artists to promote.

  2. Free.
    The major labels, in fact NO company, can’t beat free! Especially in a time when the economy has lost SO much of an influx of money due to declining business models. Every business that produces content that can be found in a digital form is losing money and slowing going bankrupt. The only industry that seems to be doing relatively okay is the film industry and that’s because movie torrents take longer than other files to download, they’re charging more for 3D films, people still enjoy the experience of going to a theater, and they were already making SO much money to begin with. The experience part is a big part still. The only way other companies have been able to keep revenue coming in is to embrace the experience part of their business. The other two big industries that are hurting financially are the music and porn industries. In music, musicians are playing more shows and trying to maintain a revenue stream that way, while in porn, the performers are actually making cheaper and more private calls to their fans because there is less film work and it’s paying less! :0
    I always wondered why the major labels didn’t go after Apple and other companies that produced mp3 players. In this situation, you can tell what people to do, but they won’t listen if they don’t have to. Why allow other companies to easily sell devices that allow and promote users to download as many songs as they possible can? The result? Those users are going to do whatever they can to fill those devices and since purchasing all the mp3s would prove difficult monetarily, they’re going to get them for free whether it be borrowing music from friends or downloading mp3s! I’m pretty sure that there has been NO bigger promoter of downloading mp3s (paid OR illegal) than the same companies that have put an mp3 device into the hands of almost everyone in the civilized world (I’m looking at YOU Apple).

  3. as soon as someone comes up with an alternative to the mp3? An App that can’t be easily cloned or played without a licence or music account?? that might change things?? ( or am I foolish?)
    Record labels are run by guys in suits who like to spend their time congratulating themselves on how great they are. they really don’t have much interest in music, they are interested in profits. sadly I have met many execs over the years and they are self interested and delusional.
    They forgot about the fans, (the consumers) and they were incredibly slow to act on the role the internet was clearly going to play. Why they didn’t just buy Napster and get on with it I will never know.
    I doubt that record labels will evolve quickly enough.
    However the sad thing is that record labels have brought us many great bands and artists over the years, almost inspite of themselves. Every label has a few real die hard music fans who love new bands and new music, and it is these inspired individuals who have helped bring us many of the great new albums and singles of the last 30 or 40 years. And don’t forget the Indies…and the great work they have done.
    Sadly all these people are now rapidly heading for the scrap heap because freetards won’t pay for music and record execs won’t evolve fast enough.
    I still hope that there can be some sort of music business left as ironically it has brought us some great moments of popular culture.

  4. This is yet another one of those articles that has many criticisms and offers no constructive thoughts on viable solutions to the problems etc. Everyone can write a list of things the labels etc do wrong but can you suggest what they should be doing to make things right and to guarantee a viable future for themselves and the industry? No, of course you can’t.

  5. Saying the article has no solutions isn’t really a counter-argument. Personally I don’t think the big labels can be fixed if they stay big. They were founded to find and record music during a time when they owned the technology. Nobody else could make records then. That part of the business is now utterly short-circuited and although they have no residual function they still have big offices and well-paid staff. 360 degree deals? Why? Each of those functions already has specialist providers. I’d say their only future (as record labels) would be to downsize massively and concentrate on re-packaging what they own.

  6. Chancius wrote, “I always wondered why the major labels didn’t go after Apple and other companies that produced MP3 players.”
    They tried: see the case “RIAA v. Diamond Multimedia,” from 1999. (12 years ago, wow!!!) My probably-oversimplified summary of the ruling is that a playback-only device did not violate copyright laws because it was not the device making the copies.
    In general, court rulings have not favored attempts to block physical products because they might be associated with copyright infringement. (“Grokster” is an attempt to roll back the “Betamax” ruling somewhat, but in order to avoid a complete reversal of “Betamax”, the court distinguished between physical products and businesses.)
    Disclaimer: I am not a lawyer!!!!

  7. There are no solutions. You’re all going to be having the same conversations 10 years from now. This is an intractable problem that’s not going anywhere.
    Keep waiting for technology to solve the problems technology creates, we’ll check back in 2021 and see how that worked out.

  8. Technology is solving problems. It is just not solving the problems of the record labels. 🙂
    Quoting endlessly from Clay Shirky’s essay “Newspapers and Thinking The Unthinkable”:
    “It makes increasingly less sense even to talk about a publishing industry, because the core problem publishing solves — the incredible difficulty, complexity, and expense of making something available to the public — has stopped being a PROBLEM.”
    Emphasis mine. Replace the word “publishing” with “record label,” because the function of a record label was to make music recordings available to the public. And that is no longer a problem: children, literally, can now do it.

  9. love this time we’re living in
    i compose a tune, i put it on youtube, i put it on my free download website
    i network, i build a fan base
    makes every day a whole lotta fun

  10. Too much of this is in the context of pop music. What about all thos epeople that may want a new Mile Davis album? Trust me, not all are willing to just buy the music without the liner notes and artwork. And this applies to a lot of catalog, most of which is controlled by the majors.
    Sure you can give away music for free, but if you’re a new act, you’re just another crab in the bucket clamoring for attention. And who says your music is worth three-plus minutes of my time anyway?
    Just because you can make music and become your own label doesn’t mean squat if you can’t connect with fans. It’s all meaningless unless you have something to say. Sorry, but all the millions of rappers out there rapping about “da club” and booty call crap
    is getting old.
    Bottom Line: Don’t write off the labels yet. It’s been a painful lesson, and there’s still too much old dead wood at the top, but they will continue, in one form or another.

  11. With the argument no longer about equitable pay for musos the big companies, be they EMI or Youtube, can adapt any which way they need to in order to carry on making money.
    Meanwhile, things have got a whole lot worse for artists, who still need to use the structures built by big business in order to make a living.
    Granted, in theory, a new artist can build a following and a business that will make them money in the long term.
    But in reality the amount of time, skills and, most importantly, stake money needed are going to be impossible to source for most.
    The crowing from people celebrating the demise of the major labels seems premature and hollow – as if there is a qualitative difference between one huge capitalist enterprise (EMI) and another (Apple).
    As if there’s an ombudsman who will legislate for fair play as artists battle their way through the PR muddle. Inevitably it will be those who can access some kind of financial backing who will have longer term success. It would be fascinating to read an article on how class (at least in the UK) affects an artist’s chances nowadays.
    I mourn the loss of opportunity brought by the 360 deal and proof of viability now being insisted on by the majors.
    I regret the stars and genius songs who/that will sink in the overflow of uploads.
    I hate the mediocrity of intent that the interweb fosters. A Rocknrollband PLC or a haberdashery – the choice is yours, pop kids.

  12. Passion, having a musical vision for an artist’s future, scouring the countryside looking in every dive for another unique artist or band that dared to push the envelope utilized by a person with a special kind of neverending love for what they were doing, these were the kind of men and women that made the music business so great. The times and the culture were so different that breeding these kind of people may be impossible. However, different times call for different solutions. The answer will be found through a combination of attrition, collaboration, unification and engagement. I will explain my vision for a solution in a new blog post.

  13. The Major labels have a far more profound problem than what’s been mentioned above and that is that is that they can no longer sustain the business model. It was this time last year that Paul Rogers’ article published in the LA Weekly discussed the demise of the Major Label A&R profession. And here we are a year later and continuing to witness the decimation if not
    outright elimination of the Major Label model. It has become apparent that in the face of new economic realities, the Major Labelbusiness model that flourished for years cannot be sustained in its
    current form. The market-leader, Universal has already announced cuts for 2011 of over $138-Million in a massive restructuring plan even after several rounds of layoffs. I imagine that one of the first orders of business for Doug Morris, the new CEO of Sony
    Music, will also be trying to reposition Sony to deal with the new market realities facing the entire Music Industry that have put both Warner and EMI on the selling block. There are currently TEN interested parties in Warner Music’s assets (that also includes several inquiries into Warner/Chappell, the publishing powerhouse). At no other time over the last forty years have two major labels been for sale at the
    same time. The more interesting question rather than who purchases these companies is what will they do with these companies and what business will they actually be in.
    Over the last several years, I’ve often wondered which
    Major Label would be the first to abandon the Front-Line Business altogether (i.e. the signing and marketing of new recording artists that was once the heartbeat of any record label). There is a belief
    in the industry that if BMG Rights Management purchases the assets of EMI from Citibank that EMI will no longer function as a ‘Front-Line Label’, but will be limited to only marketing the existing music assets and catalog.
    The economic model of what we once knew as the Major Label system — worldwide infrastructure, large number of highly-paid executives, the signing of talent to long and fully-encompassing 360-deals, the marketing of
    their music to the widest possible audience via mainstream media outlets — may simply no longer make sense since we now live in a world where none of that can be sustained. Yes, we’re aware of the normal responses that Major Labels are good for the so-called ‘Pop Superstar Acts’ of the world such as Lady Gaga, Black Eyed Peas, and Beyoncé, but the reality is that there are simply not enough of these kinds of big sellers today to justify the continuation of the
    Major Label model. It’s also very important to note that what constitutes success today is counted in singles sales and not album sales(where labels have traditionally made the majority of their money).
    It’s a sobering statistic to note that despite having five Top-Five Singles including two #1 Hit Singles, Lady Gaga’s album only sold 3.4-million copies in the U.S. The Black Eyed Peas, who also had five Top-Five Singles including three #1 Hit Singles, only sold
    3.6 million copies of their album. What’s never spoken of in these situations is, ‘What did it cost to sell each one of these 3.6-million copies?’. Labels used to be able to rely on traditional big-box retailers
    for sales of albums. Those same big-box retailers have for some time now effectively declared music just another loss-leader to get their customers into their stores. When those retailers continue todrive down the price of music to unsustainable margins for the labels,
    what then? The retailers simply move on to other loss-leaders and drop music altogether (we’ve already seen the shrinking of space retailers have allocated to physical product). Have the labels
    effectively made albums the loss-leader for singles, and will singles simply become the loss-leader for touring or merchandising?
    It’s like the great line by Jack Nicholson’s character
    in the film As Good as it Gets spoken to a room full of patients waiting to see their therapist. ‘What if this is as good as it gets?’ The brutal answer staring the Major Labels in the face is that is if
    this is as good as it gets, then it’s simply not enough. There’s no more real payoff left for the Majors when they hit these massive homeruns — certainly NOT THE KIND of payoff they need to sustain
    the Major Label model.
    Ritch Esra

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