Four Mistakes That Killed the Record Indstry Before File Sharing
by Jeff Balke.
Most everyone who follows the record industry knows that it is slowly imploding and most don’t care seeing as how its leaders have basically ignored technology and tried to sue people to push their profit margins back in line. But, the demise of the record industry actually began long before technology gave it the final push over the edge. It started in the 80’s with the birth of the CD and the swallowing of independent record labels by major corporations to the point that now there are only four majors left.
In each critical moment, record labels had the opportunity to think ahead and look beyond their immediate revenue streams. Like many large corporations, they were unable to do so. As a result, they forgot that music is about people and they continue to ignore that fact at their own peril.
For myself, I believe the record industry – and this includes radio – made four mistakes that preceded their ignorance of technology and lawsuit happy antics of present day.
1. CD sales are not the same as record sales.
At first, this may seem like semantics, but my distinction is between the actual compact disc – the physical item – and the concept of a record – the music an artist records to put on a CD. When the CD was invented, profit margins for what were once moderate sized labels shot through the roof. If you had a back catalog of good music, you were about to become a millionaire if you weren’t already because everyone was replacing their vinyl with CD’s.
Record profits resulted and multi-national corporations took notice. In much the same way “dot com” start ups managed to convince venture capitalists to back questionable opportunities, independent labels began to entertain offers to sell themselves to the highest bidder. Corporations saw this as a long-term money making venture that would be great for their portfolio and their shareholders.
What they failed to realize is that the CD gravy train would soon come to an end as people finally replenished their collections and went back to their normal buying routines. The years of off the chart sales came to an abrupt end and corporations were stuck with bloated record divisions and they had no clue what to do – the end result when you replace creative minds seeking talent with bean counters seeking profit.
2. Longevity trumps the flavor of the week.
Because labels were feeling the pinch and because they were now subject to corporate budget constraints, annual reports and shareholders, they began to look for ways to cut costs. One of the first places they looked was artist development and promotion. I remember reading about how A&R departments were slashed to the bone and promotions departments saw their budgets cut dramatically.
Labels, in a desperate need to justify their existences, cut off their noses to spite their faces. Instead of trimming corporate expense accounts and the bloated salaries of their higher ups, they decided to rely on things like cross promotion, radio, television and other forms of media to do the legwork their promoters had done previously.
Worse yet, they focused on one-hit wonders and bubblegum pop to push profits ignoring their own rich history and tradition.
It’s expensive to develop an artist. It is common knowledge that for every 12 artists signed to a label, 10 lose money, 1 breaks even and 1 makes enough to pay for the development of all the others put together. It’s a really risky business. But, the small independent labels didn’t care because they wanted to discover the next Bob Dylan or Bruce Springsteen. They knew that one major success could make up for a string of costly failures.
Unfortunately, that equation doesn’t work in the corporate environment. You have to justify your budget every year, every quarter. If the only way to do that was to release lowest common denominator music that would sell fast but fade just as quickly, you did it.
They even managed to forget how they got to this point in the first place somehow missing that what are now termed “heritage” artists like Springsteen, Tom Petty and others were what sustained them over the long haul, not The Backstreet Boys and Britney Spears. Those were bands and musicians developed over years and they didn’t come cheap, but they made up for it in the long run.
3. Destroying the chain of distribution is death.
For years, the way music got from artist to fan was the same. One department (A&R) would discover and develop artists helping them with everything from day-to-day expenses to making records. Another department (Promotions) would take the finished product and promote it using teams of college interns, radio promotions staff and others. They would pass the actual product on to distributors who would send their representatives to record stores to convince stores to buy records. The promotions interns would put up displays in the store and hold promotional events designed to help artist, distributor and record store. The employees at the store would talk to their customers and play the music in the store.
That system worked really well for a very long time. But, once again, the big corporations saw an opportunity to cut costs by making independent deals with big box retailers like Wal-Mart, Target and Best Buy. The result was the death of distribution companies and independent music stores (as seen today with the legendary Morninglory Music going under after 38 years in business) and even chain music stores. This may have seemed like a smart financial decision, but they got it wrong again.
What the suits failed to realize was that the chain of people working on selling music for them was key to making sales. Even now in the age of blogs, people still listen to what others suggest when it comes to buying music. Prior to the internet, those people included DJ’s (we’ll get to them in a second) and record store employees. After your friends, these were the people you trusted to know music.
Even worse, retailers like Target only put about 300 titles per year on shelves out of 3000 or more possible releases, honing it down to ONLY the most salable (according to them) artists and records. A good record store could not only steer you towards a great alt rock record, but also to a blues record that influenced that alt rock band you like so much.
I’m not naive. I realize that with iTunes and other forms of downloading, the days of the music store were rapidly coming to a close, but the labels, instead of acting as partners with stores as they always had, turned their backs on them prematurely before anyone had ever heard of an MP3 or Napster. It not only cost thousands of people their jobs, it placed limited stock on the shelves narrowing the choices for people even further. Like cutting development, they were forgetting that it takes more than just a pretty face and a catchy hook to sell records and the more options you put out there for people, the better your chances of developing artists who will sell for you for more than just a few years.
4. Killing the DJ
I think there is real truth to the idea that video killed the radio star, but the radio industry helped it along by killing off the primary link between listeners and stations: the dj.
Much like the chain of distribution, there was a long history of record label staffs sending music to radio stations where program directors and DJ’s would play what they thought their audience wanted to hear. DJ’s took chances and, as a result, broke artists for labels and made them an awful lot of money. There was always corruption and undue influence exerted on DJ’s, but a large percentage were in it for the music.
When the Telecommunications Act of 1996 was signed into law, large corporate radio empires like Clear Channel destroyed the listener-DJ relationship by flooding markets with stations owned by a signle entity with programming decisions made at a regional level, far removed from the DJ and his/her show. DJ’s were replaced with “on-air personalities” more about selling ad revenue than “spinning hot wax” as they used to say.
While the record industry may not have been directly involved, they sat by and did nothing and even encouraged the centralization of power because it made it cheaper for them to peddle music. They didn’t have to call or visit hundreds of DJ’s anymore. Now, they just went to a central nexus.
Just like destroying distribution removed variety from the shelves of retailers, centralizing programming ended variety as we once knew it on terrestrial radio. In the Steely Dan song “FM” they talk about how FM stations in the 70’s would play pretty much anything from reggae to blues to rock and everything in between. It was all about the relationship between DJ and listener, between people. Once that relationship was destroyed and stations began playing the same narrow play list, people began to abandon radio in droves.
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Long before the record industry was, in their estimation, attacked by downloaders and people believing music should be free, the record industry itself compromised its own business through questionable decisions, corruption and the corporatization of music. Art and commerce always have and always will have a tenuous relationship. But, when the pendulum swings so far to one side, it is no shock when it eventually comes flying back the other direction. So, record execs, the next time you look into a camera or into a room full of onlookers and try to tell us that file sharing and video games killed your business, don’t waste your breath. Instead, take a look in the mirror and you’ll probably find the culprit.
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