Tonight, in Los Angeles, the American music industry will gather to celebrate
itself at the Grammys. No matter that CD sales are sinking, that other,
nonmusic media companies are muscling in on its territory, that piracy
continues to threaten it — and that legal downloads are way, way off taking
up the revenue slack. The major record labels know how to throw a party for
themselves, to slap one another’s backs — and, their critics say,
collectively to put their heads in the sand.
On Wednesday, it’s this country’s turn, with the Brits. The big four — Sony
BMG, EMI, Universal and Warners — may be eyeing one another nervously, amid
renewed talk of mergers, redundancies and financial free fall. But it will
be all smiles over the bubbly.
Who’ll pick up the bill? The artists who are getting shafted by the majors’
punitive royalty rates, the critics say. What about the millions we’re
investing in new bands, the majors answer. They can’t both be right.
Well, it depends, of course, on who you ask. “We figure that the value of CD
sales will be 50% less in three years than it is now. We predict digital
growth of 25% per year, but it is not enough to replace the loss from
falling CD sales. By 2010, we will be 30% behind in terms of revenues. We
have to reinvent. We are running our businesses like it is 1982 ... a model
that is so out of date, it’s not true.” So says Ged Doherty, the chairman
and CEO of Sony BMG. He could scarcely be described as a man in denial.
“Go into the Universal car park and look at the amount of German hardware that
needs to be paid for,” says Ian Grenfell, a former executive at East West
records and now MD of Mick Hucknall’s groundbreaking venture simplyred.com.
“Who’s going to pay for that? There is a mechanism to keep artists
permanently unrecouped. It’s not like a bank loan — it’s worse than that.
It’s a bank loan you can never pay off.” By which I take him to mean: they,
and their business model, had it coming to them.
“Recoupable” costs are one of the main reasons opinion is so divided about the
merits of a major-label record deal — and, conversely, why so many new bands
succumb to its temptations. Crudely described, this is the system whereby a
major advances a large wodge of cash to an act, then seemingly arranges
matters in such a way as to ensure that that act remains permanently in the
red. Yet it is that very system that gives the majors the collateral against
which to offer those huge advances.
Independent labels cannot possibly match such munificence. “But we’ll give you
a 50:50 royalty split,” they say (after, crucially, all costs). “No thanks,”
the band say. “We’ll take the big advance, the tour bus, the hot-shot video
director, the jets, the whiff of the big time.”
“It’s too easy to slag off the major labels,” says Nick Ray-monde, who was
part of the team that signed and developed Take That and Kasabian at the
premerger BMG, and now runs a multimedia promotions and management company.
“And it’s a myth that they’re finished and the independents are where it’s
at. They’ve recognised the reality — they’ve learnt really quickly, having
been very slow.” A small operation like his, Ray-monde argues, can start the
ball rolling.
“But once a band get to a certain level, you need more power.” He doesn’t
accept that the royalty split is always unfair. “To do things on a mass
scale, you need to take a hit on the money. Nothing of nothing is nothing.
And the market is so quick. I went away for four weeks in December. Nobody
was talking about Just Jack. Now he’s the 13-year-olds’ favourite new act.
You can’t wait.”
Hucknall’s label was started when the Simply Red singer found himself out of
contract with Warners and reflecting on a career that had earned him in the
region of £20m from record sales while his label trousered about £180m. When
he and his managers decided to launch their own setup, on terms far more
beneficial to them, the consensus among the majors was, Grenfell says:
“It’ll fail. You won’t be able to do it without us. You won’t have the clout
with radio.” With a quantifiable customer base of, in the worst-case
scenario, 800,000, they went ahead anyway. “We felt we’d rather die on our
feet than live on our knees” is Grenfell’s dry description of how they
viewed their options.
In fact, it was a great success, relaunching Hucknall, drastically cutting his
costs and developing a more direct relationship with his fans. A number of
other established but out-of-contract bands, including Radiohead and Oasis,
are said to be considering similar ventures. For a new act, however, the
model is far less viable.
There are signs of new players in the field, which are currently giving major
labels nightmares. “They moan about the telecoms companies,” Grenfell says,
“or Steve Jobs [of Apple] edging into their market, but if you look at those
examples, they don’t care about the ‘tradition’, about how you’re meant to
do things. These are people with uncluttered, unfettered ideas.”
Fans, flocking in cyberspace and buzzing about new bands, represent a
formidable market-research asset. Everyone — advertisers, mobile-phone
companies, live-music promoters, multimedia groups, yes, even record labels
— is after a share. That’s marketing covered. Manufacturing is easy, has
never been cheaper. Power, in the future, will reside in the hands of those
who can source this music, market it and sell the product. Why, just because
they did so before, should that continue to be record companies?
The majors’ response is not, as it was, say, three years ago, one of blind
panic. They are known to be rejigging their royalty rates and, in at least
one case, their overall contract content to omit recording costs from bands’
financial responsibilities. They’re currently squabbling about codified
online digital rights management (DRM), which on the one hand offers them
revenue protection, but on the other is the antithesis of the free-market
digital world we now live in. But they’re also moving aggressively and
convincingly into the download environment. They retain their back
catalogues (their biggest assets), their muscle and their global reach, if
not, any more, their air of invincibility.
It’s all up for grabs now, and the major labels know it. Are they drinking to
a new era in LA tonight — or holding a wake for a golden age that is about
to come crashing to an end? Creativity thrives on flux, so the next decade
should see some great music, at least. Who releases it, and how, remains to
be seen.
Why platinum doesn’t mean rich
You’ve sold 500,000 copies of your debut album. You’re the toast of 2006,
nominated for a Brit, and a breakthrough in America is predicted. You’re
quids in — or are you?
Revenue Not on the income from album sales, you’re not. On a 20%
royalty rate on a base price of £6 per album, and after mechanical royalties
(per-unit payments collected by labels for the manufacture and distribution
of songs), you’re getting £1 for each album, which makes £500,000. If you’re
the songwriter, you’ll get extra royalties for that, of course. And a tour
may generate income from merchandise, at least — though it’s likely that
most of the ticket revenue will be eaten up by expenses.
Recording costs You owe the label £300,000 for making the album, plus
another £50,000 for dance remixes.
Video Then you’ve got some videos to make — say, three, for £50,000
each, only half of which will be paid by the label.
Plus Don’t forget that you’ve yet to pay your manager, your accountant,
your lawyer, your stylist, the taxman — never mind 50% of the costs of TV
advertising. Does the list seem endless? That’s because it is.
America Ah, but you’ll break America, go platinum and be buying
that Malibu mansion in no time, right? Wrong. One British artist sold 3m
records in America, but spent $1.5m to get his record on radio there, where
you pay for airtime.
Profit Loss, more like. Welcome to the big time. DC
