Remake, Remodel: The Evolution Of The Record Label

Remake, Remodel: The Evolution Of The Record Label 

A MusicTank Report 

by Tony Wadsworth with Dr. Eamonn Forde 

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This pre-draft version is strictly for review purposes only and is not for general dissemination or sharing. 

Remake, Remodel: The Evolution Of The Record Label 

CONTENTS 

Foreword 

1. Introduction 

2. The Artist Relationship 

3. Marketing 

4. Investment 

5. The Changing Record Company 

6. Direction Digital 

7. New Futures 

Credits 

About MusicTank 

FOREWORD 

There has been much talk in recent years, mainly uninformed, about the death of the 

Record Company, and in particular, many gleeful pronouncements about the decline of 

the major labels. 

Although it is clear that the recorded music sector is not the whole of the music 

business, and that the live sector has flourished by comparison in recent years, it has 

seemed to me that it would be very difficult to remove the level of investment that has 

been made by the labels from the music business ecology without inflicting a fatal 

wound to the whole of the music business. The big live acts do after all need to be 

nurtured and developed somewhere. 

A unique opportunity presented itself, when I realised that Tony Wadsworth, a former 

EMI Records Chairman, who knows the industry inside out, would be available to 

compile a report giving a detailed overview of the future of the Record Company. 

Although currently Chairman of the BPI, Tony has no current affiliation to any one label. 

As the industry goes through revolutionary change, it struck me that a detached 

overview from such a well-respected industry figure could be a valuable document in 

the reconstruction of a recorded music sector which has been battered by the advent of 

a series of disruptive new technologies. Tony’s access to a series of very senior music 

industry figures, and first-hand knowledge of the complications of running a major label 

provide a very useful insight into the problems of recent years, as well as a glimpse of 

the changes that point towards a much healthier future on the horizon for recorded 

music. 

Keith Harris 

Chairman, MusicTank 

May 2011 

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CHAPTER 1 | INTRODUCTION 

I think it was about 1995 and I was Managing Director of the Parlophone label when the 

youngest and possibly brightest guy at the label thrust a blank CD-R into my hand. It 

contained, he said, the complete catalogue of The Beatles – the Holy Grail of pop music 

assets. He had ‘downloaded’ it from the ‘web’. It had taken 20 minutes and cost precisely 

nothing. 

After taking a while to process this information, which had been delivered to me in his 

usual rapid fire verbal torrent, I gradually came to the conclusion that, in the words of 

Bob Dylan, ‘things were going to get interesting right about now.’ 

It was the mid-Nineties and a period of unprecedented and continuous growth for 

record companies fuelled by the latest technological sound carrier, the compact disc, 

which had become the dominant format for music buyers only a few years before. At 

Parlophone, this industry-wide growth was boosted even further by a boom in exciting 

new British bands and we were fortunate enough to be working with some of the best – 

such as Blur, Supergrass and Radiohead – who added to an already healthily selling 

catalogue including legends such as Tina Turner, Queen and The Beatles. 

The arrival of the web suggested huge possibilities – but we were in the music business 

and had albums to sell. So our first application of the internet was in marketing and 

communication and we set out to build artist websites to complement the marketing 

monies spent in print radio, TV and posters. As personal emails became a commonplace 

reality, we built databases around artists and genres to keep fans informed of what was 

happening. 

The whole focus was still on selling CDs, signing and breaking new artists – and on 

maintaining that growth. 

Labels were not best positioned to make the link between this new web communication 

revolution and the delivery and packaging of their music. 

With the exception of Sony, record companies were no longer part of electronic and 

technological conglomerates. Philips, the inventor of the CD went on to sell PolyGram 

Records in 1999 and EMI was no longer a player in electronics manufacture. 

CD prices gradually fell from their peak on launch as the format became mass market 

and price differentiation was introduced – with mid- and budget-price CDs expanding 

the available catalogue range and bringing average disc prices down further. Despite 

this, and the fact that new release disc prices were lower in real terms than vinyl ever 

was, there was an ever-present grumble of overpricing from the marketplace. Software 

manufacturers Philips and Sony experimented with additional new formats – notably 

digital compact cassette (DCC) and MiniDisc (MD) – in the hope of prolonging sales 

growth through physical format changes, but none of these formats, nor later high-end 

experiments such as DVD-Audio and SACD, captured the public’s imagination. 

The market growth for recorded music continued for another five years, but beneath the 

surface an increasing number of tech-savvy younger consumers were discovering that 

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the web offered an amazing new way of discovering, acquiring and sharing music – and, 

for now, you didn’t have to pay for it. 

Napster 1.0 provided an easy way of doing this. But it never managed to agree terms 

with the music industry – the finger-pointing and blame game continues and probably 

will forever, but it eventually shut down as an unlicensed site in July 2001. It relaunched 

as a fully-licensed site in 2003 after being bought by Roxio and continues to 

operate today as a subsidiary of Best Buy. 

It took until 2003 for a comparatively seamless, user-friendly digital music store to 

establish itself – Apple’s iTunes. Steve Jobs had done what no one else had managed – 

including the major players of the music industry. He had devised a system which 

combined CD-ripping, a music library and a download store with mainstream appeal – 

all linked to the iPod which took MP3 players into the mainstream. Despite the obvious 

concerns of iTunes’ competitors and record companies alike about its dominance in the 

marketplace, its popularity with the consumer cannot be denied and, eight years on, 

iTunes is the single biggest music retailer in the US, having overtaken Wal-Mart’s market 

share in early 2008 according to NPD Group numbers 1 . 

This digital revolution has changed the music industry fundamentally and has raised a 

myriad of questions about the future of the business and about the roles of the players 

within it. And most of the questions about the make-up of the industry centre on the 

role, and the future, of the record company. 

This report comes at an interesting time: 12 years since Napster; on the eve of the 

iPod’s 10th anniversary and at a time when the ownership and independence of 

both EMI and Warner Music are permanent fixtures on the business pages. Over the 

forthcoming chapters we will explore the reasons for these changes and the way 

they have impacted on the record company. 

Traditionally the record company played a leading role through the signing and 

development of artists and their music. In the pre-digital days, record companies owned 

the means of manufacture as well as the routes to market. So it was essential for artists 

to work with record companies if they wanted a meaningful recording career and global 

opportunities. 

The advent of the internet has changed all that and now we can all make music quickly 

and cheaply and then make it available for anyone in the world to listen within a few 

clicks of a mouse or a few taps on a mobile. 

Given the removal of these once-insurmountable barriers, does this mean that the days 

of the record company are numbered? Surely others are now able to fulfill their 

functions at a lower cost and more successfully? 

The key roles of the record company comprise investment, artist development, 

marketing, promotion and sales. To fulfill these roles, they have developed crucial 

relationships with artists, retailers and the media. 

1 Digital Music Increases Share of Overall Music Sales Volume in the US – last accessed 02.05.11 

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The way these relationships have developed and changed over the years is a telling 

indicator of how the business has changed. 

Record companies’ investment in music is inevitably under threat in the context of a 

declining sales line and a continuing high level of unofficial file-sharing. But new sources 

of investment to replace the primary investor role of the label are sporadic and 

comparatively low level in comparison. Several companies and schemes have appeared 

in recent years, but none have yet established themselves at any significant level. 

The removal of manufacture and distribution barriers means that Myspace and 

SoundCloud and many other destinations carry millions of music tracks which aren’t 

signed to record labels; but the lack of a filter or trusted guidance on these sites means 

that their main contributions to the commercial music industry are in very early artist 

development – or as part of a grassroots marketing plan developed in conjunction with a 

record label (cf. Lily Allen, Sandi Thom, Kate Nash, Jamie T etc.). 

Some artists have experimented with circumventing the record label completely by 

dealing directly with a retailer, often in an exclusive arrangement. In the UK we have 

seen this achieve a reasonable level of sales with established acts such as Simply Red 

and Faithless at Tesco in the UK and Garth Brooks at Wal-Mart in the US. But, to-date, 

this has not happened with new artists and it merely highlights the pivotal marketing 

and promotional role of record companies in music sales. 

The recording industry has come in for a lot of criticism over its perceived resistance to 

the digital revolution: the fact that it was the first industry to have to deal with the 

transition to digital with all its attendant opportunities and challenges resulted in a 

negative public perception and accusations of lack of vision coupled with protectionism. 

But now all other creative industries are having to cope with the same issues and look to 

the music industry – sometimes to learn from our mistakes, but more often to take our 

lead in ways to deal with the challenges that digital presents. 

The recording industry is proving resilient in the context of recorded music sales that 

have been in decline for 10 years 2 and the vastly reduced workforce that comes with 

that. It has had to manage the existing legacy CD business while developing, with no 

existing road map, a digital business that in six years has grown from zero to represent 

over 29 per cent of total revenues 3 – far ahead of other creative industries such as TV, 

film and books. 

In the following chapters we look in more detail at the role of the record company and 

the issues briefly outlined above. To do that, we have spoken with many senior music 

industry figures and forward-thinking new entrants, from inside and outside of 

recording itself, to consider how labels continue to play a pivotal role in the overall 

music industry. 

What becomes clear from all of this is that the record company of 2011 looks very 

different from the record company of 2000. 

2 IFPI reports for years 2000 to 2010 

3 IFPI Digital Music Report 2011 – last accessed 02.05.11 

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Still the primary investor in music, labels are now more determined to get better value 

from that investment through spending more prudently and agreeing shares in nonrecord 

income that is fuelled by that investment. 

This means that labels are now involved in many more areas of the business than ever 

before: some are content to operate as a passive investor, leaving the leg work to thirdparty 

specialists; others are bringing those skills into the record company itself, giving 

themselves more control over more aspects of their investment in artists and music. 

Labels remain the main developer of new artists, but are increasingly doing so in a 

partnering role as artist and managers move away from more traditional transactions. 

So now we see a variety of licensing periods, joint ventures and 360-degree deals – all 

reflecting the increased power of the artist in the relationship, but also the increased 

complexity of the contribution of the label. 

Still the main source of marketing funds in the industry, labels are now speaking more 

directly to the consumer, where previously that relationship was owned by retailers. 

Record labels’ consumer understanding is perceived as a key weapon in their armoury. 

The complexity of navigating the digital marketplace is a theme which we will return to 

time and again. The supply chain which can service this market efficiently in all its 

different varieties, as well as account to all participants fairly, is a huge focus for the 

back room departments of labels. An international digital release, for example, has tens 

of thousands of moving parts. 

Still driving sales from recorded music through transactions with retailers and 

consumers, labels are also increasingly monetising the usage of that music in 

conjunction with other commercial partners, such as TV, cinema, gaming and so on. The 

sales line of a record company, historically comprising single and album sales, is more 

complex and diverse than ever as the value derived from music becomes richer. 

Record companies are adapting – they simply have to in order to survive – and this 

report charts that journey and analyses the complex relationships which have the 

record company at the centre and how these continue to develop in the second decade 

of the 21st century. 

Contents 

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CHAPTER 2 | THE ARTIST RELATIONSHIP 

The evolution of the relationship between the artist and record company. Different deals, 

changes in the balance of power, deal terms, licensing, service agreements, wider role for 

managers and beyond. 

If one thing sets the music industry apart from hundreds of other industries selling 

consumer goods, it is the ability of the product itself to walk and talk. This human 

element makes the relationship between record company and artist complex and 

unpredictable. 

The early years of recorded music consisted of a relationship between the two parties, 

not unlike the Hollywood studio system. Artists were contracted for several records – 

‘sides’ or albums – or for a period of time. The contract was exclusive and usually 

involved payment in the form of an advance and a royalty per disc sold. 

All these costs – including recording, manufacture, marketing and distribution – would 

be fronted by the record company. Some cost elements (such as recording) would be 

recoupable against the artist royalty. Many deals between artists and labels would not 

result in success and would incur losses. These would usually be underwritten by the 

label and subsequently written off in the same way as research and development in 

other industries. 

In recent years, the business relationship between label and artist has changed. As a 

result, the ways of balancing risk and reward have become more diverse. 

Some deals are not wildly different in structure to that described above, but royalty 

payments to artists have improved significantly since the Sixties when royalties were 

stated in pennies. Since then rates have gradually improved, although concerns remain 

from the artists’ side on issues such as packaging deductions, royalty breaks for TV 

advertising and what is and isn’t recoupable. 

However, recent artist deals have started to encompass elements of a partnership 

arrangement in which both parties share both the upside and the downside of a deal. 

On the table in the 21st century in record deals are elements such as fixed-term licence 

periods (as opposed to in perpetuity terms) and profit share rather than straight royalty 

payments. In turn, artists are more likely to sign over a percentage of non-recorded 

music income – such as live income or merchandising – in return for the right deal with 

the right company. 

Essentially, these deals (past and present) are designed to reward the label for the 

financial risk of investing money and company resources in the recording career of an 

artist. They reward the artist for providing the creative element in the form of their 

recordings and time spent promoting them. 

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From straight royalty deals to complex partnerships 

A clear trend today is towards partnership where both parties can feel they are 

incentivised to achieve the same thing. This can spread the risk for the record label 

and increase the participation in success for the artist. 

Brian Message of ATC, Courtyard Management and current Chairman of the Music 

Managers Forum prefers the partnership to be as extensive as possible. ‘I am a big lover 

of 360-degree partnership deals,’ he says. ‘The notion of all income and all costs being 

shared by like minded partners with profits being split in whatever ratio is agreed, 

works for me. The alignment of financial interests is especially key in my opinion.’ 

Message devised a partnership deal for his act Hadouken in 2007 and presented it to 

record labels for consideration. The Atlantic label (part of Warner Music Group - WMG) 

was interested in experimenting with deal structures and liked the band, so the deal was 

finalised with them. Message sums up the deal as follows: ‘Atlantic had a share of all 

revenue streams, as part of a partnership deal, but the act got back their copyright after 

10 years.’ 

Message ultimately felt that the deal proved a step too far for senior management at the 

label who, he says, found it difficult to accept the reversion of copyright after such a 

short term. This is unsurprising as the traditional label model was based on labels 

owning copyrights, and exploiting them in return for royalty payments to artists. 

‘They [WMG] were in the business of acquiring copyrights as that’s the business they 

have always been in and that’s the business they know,’ he says. 

Message believes that the relationship between artist and label can benefit significantly 

from deals along these lines. ‘Blaming the label is often is a cop out for acts and 

managers,’ he argues. ‘But with a JV where the act and the manager are the key decision 

makers, there is nobody to blame! Psychologically and creatively, it makes a whole scale 

of difference.’ 

The role of the artist manager has become more important as the industry has 

recognised and become skilled at exploiting the many potential income streams that can 

be generated by a successful artist. The manager normally is the only person in the value 

chain who is empowered to deal with every one of these income streams and advise the 

artist how best to monetise each one. 

In one sense, artist management is the original 360 deal 4 ; record labels are moving into 

this area, through acquisition and internal organic growth of a wide range of artist 

services across live, merchandise and artist management 5 . 

John Reid, CEO, Warner Music Europe & International Marketing, Warner Music Group, 

says this strategy is core to Warner Music’s thinking, but acknowledges that broadening 

the skills mix is an on-going process. 

4 Cheques, Hugs & Rock ‘n’ Roll: The Changing Face of Artist Management, Dec 2007 – last accessed 09.05.11 

5 Deal Or No Deal? The Great Artist/Label Trade-Off, Feb.2008 – last accessed 09.05.11 

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Wider acceptance by artist managers and lawyers that expanded rights deals can be a 

good thing for artists has helped endorse Warner Music’s belief that this is the right 

direction to move in: ‘We have moved a lot in three years and over the coming three 

years you will continue to see another dramatic shift.’ 

This can be a highly complex job and managers need to decide how best to discharge 

this duty to their client. Increasingly, the record company has a role in this – either 

simply as a monetary investor in the artist (who receives a share of ancillary income in 

return) or as an active partner in the generation of those revenues. 

Some companies are building up expertise in these areas and are in a position to provide 

a centre of excellence which can benefit both the artist’s revenues and, in turn, their own 

bottom line. 

The active and the passive 

As labels have developed their approach to different kinds of deal, two distinct 

approaches present themselves: passive investment in multiple rights and active 

investment. 

All labels lie at different points along the spectrum of active to passive, from one deal to 

another and the pieces on the board haven’t settled yet. Experimentation continues to be 

the key here... 

However, it is notable that Warner Music has developed the nearest thing to a consistent 

policy when it comes to expanded rights deals. ‘We won’t do deals without broad rights 

participation,’ states one Warner executive ‘but we recognise that we have to add value.’ 

Warner evidently is moving to a business model which is nearer to overall artist 

partnership; with a full range of services, including label services, access to market and 

access to capital. They believe this model is better business for both artist and label, and 

are willing to walk away from some artist deals if they aren’t prepared to play ball on 

ancillary rights. 

From an estimated 5 per cent of acts signed to some form of multiple-rights deal in 

2006, Warner now works with 60 per cent of its active global artist roster through 

multiple-rights partnerships. 

The company has geared up for this level of involvement by investing in management 

and promotion companies and drafting in executives from outside record labels 

(agencies, merchandisers, promoters) to fill the gaps in their skill set. 

Some other labels are more flexible in their approach to this shift. One senior major label 

executive described the deal process for a ‘hot act’ as they see it. 

‘Nothing is a deal breaker,’ they said. They look to get participation in all rights, but will 

negotiate down when there is competition. ‘If there is an act that’s really hot – and 

everyone is chasing them – you will end up dropping those terms if that’s what it takes 

to sign the deal.’ 

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Another label MD similarly described their approach as follows: ‘Whatever I have to do 

to get the artist, I will. But my opinion is changing as it becomes increasingly 

difficult to make money just out of recorded music sales. Unless an artist is truly 

exceptional, we won’t be signing them without a share of gross ancillaries.’ 

Universal’s David Joseph, Universal Music UK Chairman and CEO, believes this area will 

grow. ‘Non-recorded revenue is increasingly important’ he states. ‘It’s going to go from 

zero to 10-15 per cent of record companies’ bottom line in the coming years.’ 

From strong resistance to multiple rights deals only four years ago, there has been an 

acceptance from artists and their representatives that this is the way forward. One 

senior artist lawyer says, ‘Is it acceptable? It’s part of the business now. The days of 

labels owning and keeping everything have gone. Now they have to go out and do 

business with other people as they are not making enough out of recorded music.’ 

David Joseph adds, ‘We are managing to get more rights with our A&R investment. Ten 

years ago you’d fund everyone’s touring and see no money back from it because it was 

viewed as a promotional benefit. Now that’s obviously not the case. You’re going to sell 

less recorded music and everyone on the team – and I’d include lawyers and managers 

here – have realised that the way to survive is by making things more equal. If you are 

investing in someone’s live business, it’s only fair you get a bit of return on that 

investment.’ 

Shabs Jobanputra (former President, Virgin Records UK) feels that all sides know that it 

is necessary for survival. ‘They’ve tried all the other routes,’ he says. ‘It’s very difficult to 

take the loss that comes with this business unless you have the depth and power to 

swallow it. There are fewer deals around than there used to be and there is a reality 

from both sides that we are all in it together.’ 

He continues, ‘There’s not as much money on the table now but it is moving to a 

business whereby the artist needs, not just wants, a record company. That had been 

lost in 25 years of CD growth. It was a boom, a bonus, a bonanza. What you have 

now is a better state of affairs.’ 

Multiple rights: a panacea for some, an anathema for others 

Not all labels choose or feel the need to insist on multiple rights deals and some major 

players simply don’t buy into the idea. 

Martin Mills, Founder and Chairman, Beggars Group says that his company looks at 360- 

degree deals every year and is open to review its position. Inevitably, however, he says 

‘we come back to what we are good at’. 

He adds, ‘My personal opinion is that a 360-degree deal is an excuse to make a deal 

more expensive than it need be. That means that in four cases out of five you’ll lose 

more and in one case out of five you will have a resentful artist.’ 

Rather than taking it out of the race, this stance can actually benefit a company like 

Beggars. ‘It has improved our competitive position as most artists don’t want to do 360- 

degree deals,’ explains Mills. 

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The exception for Beggars, however, is publishing where they may look to sign an artist 

to their publishing arm when they do a recording deal, but again this isn’t a deal breaker. 

Alison Wenham Chairman and CEO of independent label trade body AIM says that Ninja 

Tune has been prescient in this area and owns 98 per cent of the publishing of the acts it 

puts out on record. She believes that Domino and Warp pursue a similar strategy. 

Indeed Ninja Tune, like many other independents, as well as majors, is very active in 360 

type deals. 

One artist lawyer feels that this approach may be necessary if such labels are to be able 

to continue to develop and maintain a roster of eclectic artists whose quality is not 

necessarily matched by their sales levels. ‘This way,’ he said, ‘they can keep investing in 

them and put out the third album.’ 

The same artist lawyer feels that it is significant that some labels – who are 

predominantly synonymous with their owner or label head – don’t look for ancillary 

income. These labels have a certain cachet and exist as calling cards; therefore, artists 

who want to sign to them are sometimes willing to lower their deal demands. 

Here the relationship between artist and label is in many ways much simpler. As Emma 

Banks of live agency CAA says, ‘Smaller indies have that personal relationship. You sign 

to Daniel Miller as much as you sign to Mute.’ 

Sometimes an act will sign to a label attracted by its history, roster and reputation – 

effectively to a labels’ brand values. In these circumstances the act may be willing to sign 

for lower terms in order to be in a place in which it feels ‘at home’. 

Deals can still exist at the extremes with less emphasis on partnership across income 

streams; for instance, where an artist is willing to fund their activities entirely in order 

to retain as much of the record income as possible. In this case, they will simply buy 

services in order to get to market – e.g. distribution deals. 

This type of deal is more likely to appeal to artists who have already established a 

following, perhaps through live work or through previously working with a label, and 

who can access their known market in a relatively low-risk way. 

Examples here include Richard Thompson’s own label released through Proper 

distribution and Simply Red’s own label through sales and distribution deal with EMI 

and exclusive distribution deal with Tesco. 

Richard Thompson & Proper 

The legendary singer and songwriter has a series of manufacturing, distribution and 

marketing deals in place with a variety of labels around the world for his recent solo 

11


albums. Among them, he licenses to Proper Distribution for the UK and Europe. This 

allows him the freedom to choose the right label and distribution partners, depending 

on different markets around the world. This arrangement earnt him his first Top 20 

record in 2010. 

Supermarket sweep: Simply Red, Faithless, Nadine Coyle and Chris De Burgh 

Simply Red left Warner in 1998 and Mick Hucknall and his management set up 

simplyred.com to release his new recordings. This made the band one of the first major 

acts out of contract to go it alone in a DIY set up. Releases after that point were handled 

through various agreements including one with EMI Music Services. In February 2010, 

Simply Red released the Songs Of Love album in an exclusive retail arrangement with 

supermarket chain Tesco, with fans also offered priority booking for the band’s farewell 

tour that autumn. Faithless did a similar deal with Tesco and iTunes (for downloads) for 

their The Dance album in May 2010. Girls Aloud member Nadine Coyle also signed an 

exclusive with Tesco for her Insatiable album, put out on her own label, in November 

2010 but it failed to have chart success. Asda also became a retail partner for the first 

time, signing an exclusive deal with Chris De Burgh in October 2010 for his Moonfleet & 

Other Stories album. 

Roy Harper and Believe Digital 

In a deal involving 19 of his albums and a new compilation, Roy Harper made his 

catalogue available digitally for the first time in an exclusive deal with Believe Digital. 

The company will distribute the albums to all major online services, starting in June 

2011, with four albums being reissued every three months. Previously, Harper had only 

made his catalogue available online through his own website. 

Or at the other extreme, the label will not only fully fund all activities, it will provide its 

own exclusive routes into the market that the artist alone couldn’t possibly access – such 

as Syco Records and X Factor. This heavier dependence on the label would be reflected 

in the deals struck between the two parties. It should be stressed though that these 

deals rarely produce long term catalogue for a label and tend only to only sell in the 

home territory – Susan Boyle and Leona Lewis being significant exceptions that prove 

the rule. 

CHAPTER 3 | MARKETING 

Contents 

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New routes for marketing and promotion. From traditional mass scattergun media, to 

micro-targeted two-way communication and D2C. How digital has changed the media, 

marketing and promotional landscape 

As we have said in chapter 1, record labels used to have a monopoly on the supply chain 

and the routes to market. 

In 2011, that is no longer the case; so what sets the labels apart in an age when a few 

clicks of a mouse can result in a piece of music or a video being made available to almost 

everyone in the world via the internet? 

John Reid, defines the functions of a label as identifying, developing and magnifying 

talent. He stresses this is more necessary than ever as there is much more clutter in the 

digital space than there ever was in the analogue one. Label marketing is there, he says, 

to give music ‘a platform and an opportunity.’ 

Clutter, clarity and calm 

The themes of clutter and complexity came up time and again when discussing the 

marketing of music in the internet age 6 . Although it is easier than ever to ‘make 

available’, it seems that ‘cutting through’ with your message requires better and better 

specialist skills which a record label can provide. 

‘The world of simply setting it up at Radio 1 and doing a pre-sell at HMV is gone.’ 

Shabs Jobanputra, former President of Virgin Records UK 

Cut-through is made more challenging on various counts: 

firstly, there are more official releases of commercial music per annum than ever 

before; over 41,000 in the UK in 2009 alone 7 ; 

secondly, because of the proliferation of the online world, the volume is boosted 

by millions of tracks by amateur musicians making the need for a filter more 

necessary than ever; 

thirdly, the media landscape is teeming with advertising messages, both offline 

and online. 

Clearly, the ability to cut through and gain attention for your music is only partly down 

to its inherent quality. 

Traditional media – press, radio and TV – continue to be powerful in bringing an artist to 

the attention of the music fan and a mass audience that is key to mainstream success. 

But even here, disaggregation has resulted in a more complex picture than ever, with the 

dominance of the five terrestrial TV channels being challenged by hundreds of cable and 

6 It Started With A Click: How to Spawn A Viral Hit Mar 2011 & Brave New World Nov 2010 – MusicTank – 

last accessed 09.05.11 

7 BPI Statistical Handbook 2010 

13


digital channels – not to mention online video sites such as YouTube, Vevo, Muzu, Vimeo 

and Dailymotion. 

Radio in the UK is less affected due to the presence of the BBC and its main music 

stations – Radios 1, 2, 3, 6Music and 1Xtra. Despite the presence of many online stations 

covering new music in various niches, these BBC stations are, as Andy Parfitt , controller 

of BBC Radio 1, points out, ‘the only players in the pack with scale’. 

He adds, ‘The fact that you need scale in the market, despite the fact that the 

barriers have come down, is the paradox in all this.’ 

This role of ‘trusted guides’ has made these radio brands ‘stronger than ever’, in Parfitt’s 

opinion. In a world where millions of tracks are available at the touch of a button, 

consumers are looking for guidance and recommendations from online sources such as 

Last.fm, mflow, Pandora in the US and iTunes Genius all provide this in increasingly 

sophisticated ways. But the power of a recommendation from Radio 1’s Zane Lowe, or 

Tim Westwood supports Parfitt’s claim on their importance to the radio brand. 

Print media gives exposure to music more widely than ever, with broadsheets, tabloids 

and monthlies all covering music in their wildly different ways. 

But it is online where it is easiest to get lost in the clutter, with millions of tracks 

available for streaming through Myspace, YouTube and other social networking sites 8 . 

Assessing the impact of an artist has never been more complex with statistics being used 

from a myriad of areas of to gauge the level of demand for an artist or record: demand 

via Shazam, friends on Myspace, followers on Twitter, pre-orders on Amazon, YouTube 

and Google metrics, Hype Machine rankings and so on. All of these factors can determine 

whether a record is supported by radio or by retailers. 

These are the ‘pre-success’ indicators that simply did not exist for record labels or media 

outlets a decade ago. It is no longer as simple as assessing a record’s potential from 

radio stats, video play and TV appearances. 

As one label head said, ‘We are still trying to figure out the “artist dashboard”. It used to 

be about looking at around four things for an act – now it’s a dozen or more.’ 

However, David Joseph, stresses the importance of certain fundamentals. ‘The currency 

is changing but the one currency that hasn’t changed in analytics is how many people 

have gone to the gigs.’ If a band plays one week and 50 people are there and the next 

week there are 100, ‘something is going on.’ 

Parfitt recognises the ‘quasi-scientific approach’ to both selection of music by radio for 

playlists as well as the modern approach to marketing employed by labels. 

He describes the BBC’s playlist meetings as more ‘sophisticated’ than ever – employing 

data, specialist knowledge and research presentations. But, ultimately all this is used to 

8 Too Much Choice? Oct 2007 – MusicTank – last accessed 09.05.11 

14


support the decisions around quality and creative judgement; it is simply more 

‘audience-focused’ now. 

Increasingly, science and data play an important part in the marketing of music. The act 

that can optimise this data and these indicators will, in turn, get to the next stage with 

radio support, press coverage, TV appearances and so on. 

The marketing ability of a record label is clearly a key consideration for an act with 

aspirations for success. Labels that are able to collect data and use it meaningfully to 

benefit their artists will attract new talent. The data that labels use and analyse to 

inform their marketing campaigns will also provide an act with invaluable intelligence in 

other areas of its business. 

The work that labels do in social media 9 in particular can help an artist plan their live 

work and bring focus to the right areas. The traffic to James Blunt’s Facebook page from 

Turkey was surprisingly high and the artist added dates in the country on his tour as a 

result. Likewise, a significant percentage of Plan B’s UK fans were found to be Polish – 

information that would never have been previously available before the age of social 

media. Obviously a record label doesn’t have the monopoly on this kind of data; 

however, increasingly the label is able to provide expertise in data analysis alongside its 

more established marketing services. 

‘A label invests, provides skill, provides contacts and provides context.’ 

Martin Mills, Chairman of Beggars Group 

Record company as brand: the importance of the label kite mark 

Often the label that an act signs to provides the context which immediately ‘puts them in 

a frame and shapes how people see them,’ according to Martin Mills. 

This very quickly provides a shortcut for artists to draw attention to themselves if they 

are on the right kind of label. Some music consumers will make a point of checking out 

an artist’s music if they are on, say, independents like XL, Domino or Bella Union – or 

even major label imprints such as Island or Parlophone amongst others. 

Effectively, a good label generates a kind of trust around itself – working like a kite mark 

to attract both consumers and prospective artists. 

In my own experience of running Parlophone, there were many occasions when artists 

were attracted to becoming part of the label roster by simple dint of the fact that it used 

to be home to The Beatles. Radiohead were certainly influenced in this way. In turn, the 

presence of Radiohead on the roster was influential in the signing of Coldplay. 

For labels to work effectively in this way, they need to be mindful of the image that their 

label projects to the creative community, which is itself a form of self-marketing. 

9 Millennials & The Social Media Explosion Jul 2009 – MusicTank – last accessed 09.05.11 

15


The label as a social network 

The plethora of media outlets – all of them in search of exclusive content to bolster their 

offering – has led to an increase in the transaction of artists providing their time, or their 

music, or a promotional appearance, in return for exposure. This form of marketing is 

important and can be a key part of the record label’s toolbox. 

A label with a stable of successful artists who are in demand by the media can use this to 

leverage exposure for its newer artists. Labels build up long-term relationships with 

media partners and this benefits their roster which, in turn, gives the label a competitive 

advantage. However, the rise of web channels and social media has leveled the playing 

field somewhat and has perhaps reduced this particular advantage of scale. 

However, as Andy Parfitt points out, the media outlet needs to be mindful of the costs 

incurred by the labels in promotional activity. The labels will assess the perceived 

payback in relation to audience reach and exposure. ‘They don’t just agree to it because 

it’s Radio 1,’ he says. 

The role of radio in the marketing plan for an artist has changed recently in relation to 

the ‘windowing’ of music – i.e. using exposure to build up demand before making it 

commercially available 10 . 

In the old economy, this was perceived as value to radio as it had the exclusive access to 

pre-release music and may have attracted listeners for that reason. Likewise, labels who 

were keen to maximise a record’s chart entry would try to increase pre-release airplay 

before satisfying pent-up demand through a commercial release. 

As Parfitt says, today ‘you can get anything you want at any time’ – illegally, if not legally. 

The concept of ‘exclusivity’ has almost disappeared, but he does not necessarily see that 

as a threat to radio. He feels the listeners buy into a DJ or presenter because ‘they play 

good music and have a good reputation. Exclusives are now very hard to control thanks to 

online leaks.’ 

On the label side, since the start of 2011 many are now employing a policy of ‘on air/on 

sale’ meaning that as soon as a record goes to radio, it is available to buy 11 . 

Initial reactions within labels would indicate that they feel this is driving sales better, as 

consumers no longer experience the frustration of hearing something they can’t buy. 

The benefit in reducing online file-sharing is still to be measured accurately, but 

anecdotally, executives feel this can only help. 

The marketing contribution from a label to an artist also includes qualitative aspects, 

referred to by Martin Mills above as ‘skills and contacts’. 

A label develops a network of experts in various fields which can benefit the artist in a 

number of ways. 

10 Is Pre-Release Killing Our Business? Mar 2010 – MusicTank – last accessed 09.05.11 

11 Ringing In The Changes Jan 2011 - MusicTank – last accessed 09.05.11 

16


For example, with the development of artwork and styling, it can help to position the 

band and nurture its image. As Shabs Jobanputra says, ‘Labels provide access to 

knowledge’ 

Andy Parfitt likens the ability of a label to understand the zeitgeist – and to understand 

the end consumer and package and position an artist accordingly – to the role of an 

advertising agency. He cites the work done by Warners in positioning Rumer in the 

market as a good example of this. ‘That’s what the record company, at its best, can do,’ 

he says. 

Marketing is a function that is provided predominantly in-house by record labels. 

Increasingly, however, since the advent of digital, a whole host of service companies 

have sprung up within the industry providing specialist online marketing services. 

Many of these (like Topspin, Bandcamp and so on) are used by the bigger independent 

distributors, enabling small labels and self-released artists to compete. Many 

independent digital distributors (such as IODA, The Orchard and INgrooves) also 

provide an à la carte service which includes online marketing. Smaller acts can use 

digital distribution services such as CD Baby and TuneCore to get their music to market. 

There are many such services providing partial solutions that, when put together, can 

create a suite of services that can start to rival what a label can do in-house. 

Branding and binding 

An additional string to the marketing bow is partnering – where artists and non-music 

brands can work together for mutual benefit. 

This can be an astute commercial way of working for the artist or label, where the media 

spend of a third-party product can be used to benefit the progress of an artist. Likewise, 

the association with the artists can add kudos to the positioning of the brand. Artist 

manager Gary McClarnan has launched a novel spin off from his artist Mr. Scruff – tea! 

He says, ‘Celebrity is supported by record labels being involved, but just as much by 

having marketing partners or working with brands directly.’ 

The benefits of these partnerships appear to be at least two-way, with Gary commenting 

that he sells tea into Asda supermarket on the back of celebrity, but also noting that the 

brand of tea was instrumental in their being offered a stage at the music festival 

Latitude. 

17


Black Eyed Peas 

Undoubtedly the major global act most open to partnerships and sponsorship deals, 

Black Eyed Peas have put their name (as individual members and as a group) to a 

dizzying collection of brands. These include Pepsi, BlackBerry, Levi’s, Coors, Honda, 

Verizon, Samsung, Intel and Bacardi and this prompted the Wall Street Journal to refer 

to them as “the most corporate band in America” 12 . 

Girls Aloud 

Following in the footsteps of the Spice Girls in more ways than one, Girls Aloud freely 

put their names and faces to an enormous amount of products in their lifetime. These 

include Sunsilk, Samsung, Nintendo DS and Kit Kat. Band members have individually 

endorsed numerous products, most notably Cheryl Cole (Coke Zero, L'Oréal), Kimberley 

Walsh (New Look, Schwarzkopf) and Sarah Harding (Ultimo underwear). 

The Saturdays 

And following Girls Aloud, The Saturdays have a “can do” approach to brand 

endorsements. These include Veet, Virgin Mobile and the RARE fashion line. 

Groove Armada 

Simultaneously the most famous and infamous music and brand partnership to date, in 

March 2008 Groove Armada signed a 12-month deal with drinks brand Bacardi that was 

hailed at the time as indicative of the post-label new brand economy. The band, out of 

contract with Sony BMG, signed with the drinks company to front a number of its events 

around the world and released a four-track EP as part of the agreement. Groove Armada 

had previously allowed their ‘I See you Baby’ track to be used in an ad for Renault 

Megane. The deal with Bacardi was not renewed after a year, prompting suggestions 

that it had not been as successful for both sides as anticipated. 

Duffy 

After a careful build around her debut album, the Welsh singer signed an endorsement 

deal with Diet Coke in February 2009. In the TV ad, she was filmed cycling out of a venue 

and through a supermarket, singing all the while, to get her carbonated drink of choice. 

A number of branding experts believe that ad had such a negative impact on her public 

profile and perception that her career was irreparably damaged as a result. 

Retail: re-model 

In the physical world which still provides around three-quarters of retail turnover to 

labels 13 , maximising the profile of an act or an album in-store is all still part of the 

marketing mix. 

The ability of a label to get the most from that relationship – and so benefit its artists – is 

a competitive advantage, particularly in the mass market mainstream area which is 

dominated by supermarkets and non-specialists. 

12 The Most Corporate Band In America, Wall Street Journal, Apr 2010 – last accessed 09.05.11 

13 IFPI 2011 

18


This is obviously less of an issue with the many artists that exist outside of the 

mainstream and the top 40 album chart, and their pursuit of sales will go ahead outside 

the major chains and supermarkets, through specialist independent stores, sales 

through gigs and mail order and, with a little luck, a presence in HMV. 

Bigger labels will negotiate shelf space album-by-album, but also, according to their 

whole offering, by new release and catalogue. 

The presence of a unit of packaged music in store is arguably a piece of marketing in 

itself. Indeed, Rob Salter, Category Director of Entertainment at Tesco, makes the point 

that the wider the distribution a label is able to make for its product around the 

marketplace, the more it will sell. 

2010’s In And Out Of Consciousness greatest hits album by Robbie Williams was placed in 

600 more Tesco stores than normal after a special negotiation between label and 

retailer. Salter is convinced that the additional eight points of market share generated 

for Tesco by this wider distribution was almost totally incremental impulse buy. 

Retailers also figure in the marketing plan when it comes to pricing, which is more than 

ever used strategically at different points in the roll-out of an album campaign. A typical 

example would be the Sunny Side Up album by Paolo Nutini which had started to fall 

down the charts before the release of its second (and arguably most commercial) single, 

‘Pencil Full Of Lead’. In order to kick-start the album back into the charts and gain 

additional shelf space, the price was temporarily dropped and had the desired effect of 

giving the album renewed momentum in-store. 

Marketing and retail go hand-in-hand and physical entertainment retail is a burning 

issue for labels at the moment. The exit from the market of Virgin (which was taken over 

by Zavvi which itself then exited from the high street), Woolworths, Borders and 

countless independents brings fresh challenges to labels. 

Record companies still need retail – and retail still needs music. (Supermarket retailers 

will readily admit that music helps lubricate sales of other items: one statistic shows 

that the value of an average basket of items that includes music is higher than an 

average basket that doesn’t – even after the value of the music has been stripped out of 

the equation.) 

But both parties are having to work hard to make it continue to be a viable business. 

The diversification of HMV into the live arena through its deal with the MAMA Group 

reflects the move by retailers to work in areas other than recorded music. 

It is part of a strategy by HMV to work in areas of the business which can be mutually 

beneficial. Its ownership of a chain of live venues enables it to tie promotional events 

and concerts in those venues together with music sales in-store. Tickets can be used to 

incentivise pre-orders of new releases in-store. 

There is a belief that synergies are available from bundling live and recorded. 

19


Gary Warren, Commercial Director at HMV, cited the example of Tom Petty’s recent 

album (Mojo) in the US where, included in the price of tickets was instant delivery of two 

new tracks, day and date delivery of new album and live tracks available at the end of 

the tour. Here it is clear that an artist like Petty finds it easier to sell tickets than to sell 

new music, but through bundling he leverages his live appeal into his new release. 

Likewise, the linking of physical sales and digital sales is something which is exercising 

labels and retail alike. It is acknowledged that, although physical is the declining format 

as digital grows, retail is able to promote sales in the physical world in ways that haven’t 

yet been mastered in digital. 

Both Tesco and HMV spoke of customer choice where the consumer can get great value 

whichever way they come at a purchase – e.g. a packaged good is sold containing access 

to digital files as well as a disc, and perhaps even access to a subscription service that is 

built in. Likewise, the consumer could buy the album digitally, but be sent the extra 

value physical items automatically. Salter believes that real fans will continue to want 

something over and above the digital file. 

Serving the fan 

Perhaps Tesco and Radiohead have been comparing notes! The new Radiohead album 

(King Of Limbs) was sold direct to consumers by the band and offered an option to buy a 

high ticket physical format. Part of the proposition includes an instant delivery of a 

digital version of the album. 

Radiohead have been arguably the most successful artist to circumvent the label system 

in recent years. 

After 15 years with EMI’s Parlophone label, the band utilised the element of surprise in 

Autumn 2007 when they announced a new album (In Rainbows) and invited fans who 

signed up to their site the opportunity to acquire the album digitally – at whatever price 

the fan chose to pay. The band also offered for pre-order a deluxe version of the album 

for delivery a few weeks later. 

This combination of honesty box self-pricing (arguably inspired by an example in the 

book Freakonomics 14 by Stephen Dubner and Steven Levitt) and high ticket deluxe 

version played with the notion of ‘value’ and simultaneously addressed the issues of 

online file-sharing, real terms price decline in retail CDs, the relationship between artist 

and fan and the desire for quality. 

Brian Message was part of the team that masterminded this release. He said, ‘[Record 

labels are] should be in the artist/fan relationship business but mostly still cling to the 

copyright trading game with its reliance on the controlled distribution model. The digital 

world has exploded this approach and how we monetise what artists do is completely 

different and ever evolving.’ 

14 Freakonomics: A Rogue Economist Explores the Hidden Side of Everything – SD Levitt & SJ Dubner, publ. Penguin; 1st 

edition (18 Jun 2007). 

20


The King Of Limbs album did away with the honesty box mechanism, but retains the high 

value physical package; digital purchase was at a fixed price of £6 for the album, with a 

higher quality audio file available at a premium. 

Message categorises fans’ relationships with artists on three levels – respect, trust, and 

faith. Artists have to earn the respect of fans; then convert that respect into trust; 

and, eventually, to convert that trust into faith. Building communities 15 takes time, 

and can only be achieved over the long-term. Radiohead’s fans have faith in the artist 

and this level of faith enables the band to serve the fan while maximising value to itself. 

This level of faith in an artist is rare in such quantity. This begs the question: how many 

other artists could do it this way? 

Radiohead and their management make the point that they see this as the right thing for 

them, but make no claims as to whether or not it would work for anyone else. 

Yet the principles on which it is based are sound, forward-thinking commercial 

principles, born out of the new economy which can and should be applied to other types 

of project both by labels and artists. 

Of course, neither of these two Radiohead projects could completely circumvent the 

record label system, and the band ensured that it had global physical distribution of 

physical product at retail, by agreeing one-off deals for In Rainbows with labels 

including XL in the UK, TBD in the US, BMG in Japan, Maple Leaf/Fontana in Canada, and 

Remote Control in Australia. 

Retail, it appears, still had a key part to play in the Radiohead story and only record 

labels with their existing relationships were deemed able to make it work. 

Retailers, doing it for themselves? 

It is clear that the way that labels work with retailers in the setting up of an album prior 

to its launch is still crucial to the success of the album and, therefore, the label. Several 

interviewees said that the first couple of weeks’ performance of an album in the 

marketplace will, for the most part, define its success long-term. 

Some artists have recently circumvented the label structure and gone straight to retail 

with their projects, with varying levels of success. 

Established acts such as Simply Red and Faithless have both done direct exclusive deals 

with Tesco for recent albums. Both achieved a reasonable level of sales – so does this 

signal the beginning of a trend of cutting out the label completely? 

The retailers say no; rather, it is all part of an effort to keep trying different things to 

maintain the momentum in physical retail. The intention is not to establish a label. 

15 Meet The Millennials May 2008 & Face To Face With The Millennials Jul 2008 – MusicTank – last accessed 09.05.11 

21


Rob Salter commented that the experience with the Nadine Coyle album gave him better 

sympathy for the challenge labels face and the fact that ‘there is real skill in what they 

do’. 

In the case of less established artists, this is probably a good thing for the retailer – if the 

success of the Nadine Coyle exclusive through Tesco is anything to go by. An almost total 

lack of media profile meant that prime racking in the nation’s biggest retailer counted 

for very little and the album peaked outside of the Top 40. 

Many have pointed to direct-to-retailer exclusives as a great way of seeing very clearly 

where labels actually add value and how the lack of a label’s involvement in these 

projects was sometimes all too clear. 

One major label senior executive, in discussing these types of deals, commented, ‘They 

might have made a bit more money in some cases, but they have always got smaller. In 

every single case, the brand has diminished without the currency of what a label can 

contribute.’ 

‘Anyone who has been in the industry long enough knows it’s about having a talented, 

co-ordinated, focused and enthusiastic team to make something happen; manager, label, 

publisher, agents and publicists.’ 

Gary McClarnan - Founder, Sparklestreet 

‘A label is a connector – the glue that hold everything together-we work with 

marketing and promotional experts internally and externally and pull it all 

together’ 

Chris Ancliff - General Counsel – International, Warner Music Group 

The advent of digital then has resulted in additional complexities, but the benefit to 

labels is that the costs of bringing something to market can be cheaper, based on better 

market knowledge and the speed of getting to market can be faster. 

In theory, this can mean that an act can be launched more realistically and cautiously, 

cutting out the hugely expensive launches which, by the time they get to market, result 

in what one label MD described as ‘those awful head in hands moments’ where the 

budgets have been blown before an act can even get off the ground. 

As Shabs Jobanputra says, ‘The marketing process is more efficient. That’s where it has 

changed.’ 

Contents 

22


CHAPTER 4 | INVESTMENT 

Looking at the record label as investor: as the stakes are raised, is investment under strain? 

What other funding sources have sprung up? Can these truly take the place of the label? 

Traditionally, the primary investors in new artists and their music have been record 

companies. BPI figures claim a proportion of overall income of 21.7% per cent was 

reinvested in music across the industry in 2009 16 . This isn’t necessarily all going into 

NEW artists, but a large part of it is. 

In recent years, as the role of the record company has been under the spotlight, its role 

as primary investor has also been in question. Undoubtedly the sector’s ability to invest 

at such a high level has been under threat in line with the sales, but have other parties 

moved into this space on any scale? 

Spreading the investment risk 

The investment of a label into an artist or catalogue is underpinned by risk and reward. 

Traditional label investment has been made in return for rights to exploit the 

copyrighted recordings of an artist for a period, or in perpetuity. 

As the perceived risk in these investments has grown with the market downturn since 

2000, labels have looked for other means of return to balance the increased risk. 

This has come in the form of participation in further income streams that flow from the 

success of an artist. Increasingly, record companies now have a stake in more aspects of 

an artist’s career (often known as 360-degree deals), partnerships or joint ventures. 

In tandem with the requirement from labels to have a share in these other income 

streams, artists are looking for a more holistic contribution to their career from their 

record label. 

These differing concerns of artist and label are, however, not necessarily conflicting and 

are contributing to a new direction of development for labels. This means they are 

starting to provide more services to artists than they ever did in return for a share of a 

greater part of an artist’s success. 

Record company investment in almost all instances is written off if an artist is 

unsuccessful, so inevitably with a reported success rate for major labels of anything 

between 10 and 20 per cent, the company needs to fund these losses from the profits of 

the successes. This ‘portfolio management’ of investment by labels can mean that 

successful acts feel they are subsidising the failed investments, and so many have 

considered whether the investment role of a label can be performed by other agencies. 

New entrants: putting money where their mouths are? 

Companies such as Ingenious, Power Amp, SellaBand and Icebreaker have entered the 

market in recent years, offering a variety of different models of investment in music. 


23


Marillion 

Arguably the pioneers of the DIY fan-funding route, Marillion (who were out of contract 

with EMI) marshaled 12,000 of their fans to order their next album in advance, before it 

had even been recorded. The album Anoraknophobia was released in 2001 and the band 

signed a distribution deal with EMI after its completion. This has provided a template 

for all of Marillion’s subsequent releases. Other bands, such as Idlewild, have adopted 

and adapted this model where a loyal fanbase becomes a way of funding recording and 

manufacturing costs in advance through pre-orders. 

Madness 

Out of label contract but still a huge live draw, Madness signed an investment deal with 

Power Amp in 2009. This gave Power Amp a share of the band’s different revenue 

streams in exchange for putting recording and marketing spend up front. The first fruits 

of this deal was The Liberty Of Norton Folgate album, put out through the band’s own 

Lucky 7 Records label, in May that year and it went top 5 in the UK. In October 2010, 

Power Amp announced that is delivered a 46.9% return on its net investment within 

two years while the band’s live revenues increased by 30% in the period. The band 

retain all their copyrights as part of the deal. 

Public Enemy 

As fan-funding platform SellaBand expanded internationally, it named Public Enemy’s 

Chuck D as its US ambassador in March 2009. That October he used the platform to raise 

funds for a new Public Enemy album. They struggled, however, to raise the original 

target of $250,000. This figure was subsequently lowered to $75,000 and they managed 

to raise it by October 2010. SellaBand filed for bankruptcy in Holland in February 2010 

but was acquired soon after by a German investment company led by entrepreneur 

Michael Bogatzki. 

McFly 

Previously signed to Island, the band formed their own label (Super Records) and gave 

their Radio:ACTIVE album away in a deal with the Mail On Sunday newspaper in July 

2010. The group then launched the Super City online subscription-based fan club in 

November 2010, charging an annual fee for £40 for priority access and exclusive 

content. It generated over £500,000 in its first two days and within a fortnight had 

signed up 15,000 fan subscribers. 

Existing big players in related areas of the business, such as the live music promoters 

and venue owner Live Nation, have made moves into the area of investing in artists’ 

recordings, but they have done so with limited success. Live Nation did deals with 

Madonna, Jay-Z and U2 among others, with a view to acquiring more rights than just live. 

Some insiders that we talked to felt that this was motivated by the tighter and tighter 

margins that they were forced to endure on major acts’ concert appearances. 

Anecdotally we heard of artists demanding 100 per cent of gross, leaving the promoter 

to make its margin on popcorn, beer and car parking. 

A move into investing in recorded music, it was felt, would open the door to them for 

early talent development. Getting to the acts early would mean that they were less likely 

to be forced into such punishing deals in which the artists kept all the gross. 

24


However, the investment needed to secure the major artists at the start proved to be 

‘financially crippling’ according to one senior label executive. Live Nation has now 

merged with Ticketmaster, another giant in the live sphere, but with a much higher 

margin business. 

Often, going with third-party investment of this kind means working outside the label 

system. It was felt by the majority of interviewees that most of the interest for these new 

sources of finance is in established or heritage artists rather than new and developing 

acts. 

Brian Message felt that it was a threat to existing labels when an established act comes 

to the end of its deal and still has ‘currency’ – as was the case with Madness and Power 

Amp. He feels their focus is not so much on A&R in the traditional label sense but more 

about sustaining an act’s existing profile in areas like live and possibly increasing it. 

Consequently, an artist at the end of their deal with a label may consider alternative 

funding and this would likely be a more realistic option than for an emerging artist. 

Artists with a sales history are much easier for financial investors to get their heads 

around – they have a proven track record and a visible fan base. 

One senior artist lawyer was not convinced by these new entrants and models. They 

said, ‘Labels are still the primary investors; this City stuff is a fad. It’s overly 

complicated. I tell my clients they would be better off with a bank loan and selfreleasing 

through PIAS or EMI Services. That way they keep their copyrights and 

make more money per sale.’ 

Pre-label investment: a new development tactic? 

However, non-label investment can sometimes be borne by artist managers as a way of 

seeding and developing new projects prior to agreeing a deal with a label. 

Anecdotally, this very rarely exceeds £50,000, but is used to fund early live appearances 

and recordings in order to make the artist more market-ready prior to signing to a label. 

An artist that has been developed in this way should arguably give a greater level of 

confidence to prospective labels that see a reduced risk of failure in early development. 

Brian Message feels that labels are looking for acts to be ‘a little more conceived and 

rounded off’ and this requires seed money funding from management. 

In turn, it enables the artist and manager to negotiate a deal which better suits their 

needs (e.g. Mumford & Sons were able to agree an ex-North American deal with 

Universal and then structure a separate deal with US independent Glassnote Records for 

North America). 

This may also enable artists to secure a shorter-term licence for their recordings or a 

label imprint, underlining their independence in their early stages. 

But, as Emma Banks says, ‘You can’t launch a Lady Gaga without way more money than 

most managers have. Incredible talent needs to be nurtured. I don’t know how easy it is 

to do that without finance and expertise.’ 

25


Alternative investment routes are valid, but if you want a chart career, you almost 

always need a label. 

Artist manager Gary McClarnan described himself as more and more acting as an angel 

investor in artist brands, but he feels the involvement of labels is nevertheless still key. 

‘You hear at conferences that there is no need for record labels,’ he said. ‘That is just 

a stupid viewpoint. It’s about having a talented, co-ordinated, focused and 

enthusiastic team to make something happen; manager, label, publisher, agents 

and publicists.’ 

However, most parties that were interviewed for this report stressed that by far the 

leading source of investment in recording artists is from record labels. 

Total A&R spend by record labels in the UK in 2009 was estimated at around 23 per cent 

of industry revenue according to BPI research 17 . 

With the sales line of the recorded sector under threat, this also puts pressure on the 

labels’ ability to sustain the level of investment. There is a perception that labels are 

investing in fewer new artists in the last couple of years. 

One senior major label executive said, ‘It’s harder and we are taking less bets, but they 

are more focused bets.’ 

If this strategy is working, we should expect to see the success rate for artists signed 

going up. Years ago, major labels were criticised for throwing as many acts as possible at 

the wall and seeing what sticks. Evidently, today that method no longer works – if it ever 

did. 

Emma Banks would appear to support that strategy. ‘There is too much mediocrity 

about,’ she says. ‘There was and still is a way of thinking which says, “Let’s sign it and it 

might work.” Today, signing anything because it “might work” is not a clever thing to do.’ 

But at the same time that labels are signing fewer artists, they are signing them for more 

areas of their business. The move towards 360-degree deals was looked at in more 

detail in Chapter 2, but it suffices to say that this spreading of investment across many 

rights is going hand-in-hand with a sharpening of focus on fewer artists. 

At a time when sales of recorded music continue to decline, it is important to diversify 

where your income comes from. Even in countries where the recorded music market has 

collapsed, labels ‘can make back our investment through sales of tickets and 

merchandising,’ according to Shabs Jobanputra. 

He says he prefers deals which involve investing across the whole of an act’s business 

and incentivising overseas licensees across all the revenue and profit areas. ‘This way,’ 

he says, ‘even if certain recorded music markets are moribund, there is still money to be 

made.’ 

17 BPI Surveys 

26


He feels that the historically all-important ALBUM is no longer necessarily the crucial 

component of a deal or of an artists income streams. With some genres, it’s all about hits 

that drive performance income and compilation sales (as well as tickets and 

merchandise). 

Certain types of artist investments are more scrutinised today than they were in the 

past. Emma Banks perceives tour support for artists, where labels fund the losses on 

artists’ touring, is not there to the same extent as a decade ago. This particularly applies 

to international touring, where increasingly UK success is required before the label 

invests in touring further afield. The way of recouping tour support is changing, with 

Martin Mills describing Beggars’ approach as an ‘interest-free loan’ that needs to be 

recouped through tour income or record sales. 

The disconnect between a label investing in artist touring and labels’ rights being 

limited to income from recorded music only has led to a reappraisal of the nature of the 

contract, which we deal with in Chapter 2. 

Less is more: selective signings 

Selectivity is apparent in the highly successful independent label XL, part of the Beggars 

Group. Label head Richard Russell readily admits that one or two signings a year, from 

several thousand that are annually submitted, is about the going rate. But if the label can 

achieve a level of success with most of those, then it avoids the costly advance write-offs 

of a more ‘spread betting’ way of working; it is able to focus its limited resources on acts 

it believes in 100 per cent. It can function with a smaller overhead as at all times it is 

working with fewer artists, and fewer unsuccessful artists means fewer artists ‘dropped’ 

with all the negative knock-on effects to musicians which that entails. 

The focus, for Beggars and XL at least, goes right through to the range of rights that they 

invest in. While many major labels are actively engaging in deals which give them an 

involvement in ancillary rights, the Beggars Group continues to focus on recording and 

publishing rights. 

The danger of all this selectivity in the marketplace is that investment is pushed towards 

the safer end of the spectrum. Several of those interviewed said that UK music thrives as 

it is created in an environment of risk-taking; if that is reduced, there is a danger that 

safe investment brings with it safe music. Also, as sales levels reduce, it could be that 

mid-level artists, who previously broke even or made a small return, would become 

loss-making. This would further push the drive toward focusing on the ‘superstars’ that 

generate the huge revenues. 

Overall, there is a feeling that advances are generally lower, and the days of the mega 

advance are gone, and this is not felt to be altogether a bad thing. 

One senior industry artist lawyer said, ‘Inflated advances are significantly less frequent. 

My experience of big advances was that they were normally a disaster because the 

pressure to recoup instantly was huge – and they never did – and the artist was quickly 

dropped.’ 

27


Beyond the financial: investment in nurturing talent 

Brian Message believes that over-investment can crush acts’ creativity. He describes an 

artist on his books that spent £150,000 making their first album, £25,000 on album two 

and he estimates the next one will cost nearer £12,000 when it is finished. He says that 

belief and trust in acts is of paramount importance – and in such circumstances, 

investment can be kept tight. 

The fact that this money is non-returnable in unsuccessful cases is important. 

One label MD we spoke to commented, ‘Venture capital (as a source of investment) will 

come after you and want that money back and shut you down if you don’t give it back. 

Record companies don’t do that.’ 

But mainly the fact that it comes bundled with a set of skills and expertise from the 

record label has probably resulted in labels continuing to be the dominant source of 

finance. 

For new acts, this is especially relevant, with Martin Mills commenting, ‘If you are 

developing a new artist, I’m not sure if money is where you need to start. You need to 

start with buzz and profile.’ 

Shabs Jobanputra says that it isn’t as simple as just funding a record. ‘It’s about how you 

take it to market,’ he says. ‘It’s timing. It’s understanding. It’s nuance. Hundreds of tiny 

decisions in a campaign that can lead to success or failure.’ 

Alison Wenham states, ‘Investment is not just about money. It’s belief, it’s infrastructure, 

and it’s administering and promoting rights around the world.’ 

‘The power is where the money is’ 

Emma Banks. 

The financial sector remains very reluctant to invest in the creative arts, preferring to 

put their money into tools and services such as SoundCloud and Songkick. They will, 

however, back creators and copyright holders with a proven track record and a clear 

revenue history. 

This means that, for investment in new talent and those creating new IP, the onus once 

again falls on artist managers, publishers (to an extent) and a few fan-funded vehicles; 

but the biggest backer of this new creative talent remains record companies. 

One artist manager informed us that most investment models are not interested in new 

acts so for a breaking artist they have to rely on a manager making that initial 

investment and they will then take the act to a label to bring them to the next stage. The 

City was not, they said, prepared to get dirt under their fingernails in this way. 

For Emma Banks, the best approach is to invest, take a cut of ancillary income but not 

necessarily insist that you as an investor are the best person to run the other areas of an 

act’s career (such as merchandise). 

28


She stated bluntly that no one would invest in an act unless they have proven some 

commercial potential. Investors, she said, simply won’t invest in you if they don’t know 

who you are. 

Gary McClarnan believes there is scope for outside investment in acts, but it is – by 

necessity – limited. ‘Of the private equity groups that are putting money in here,’ he says, 

‘Power Amp are the ones that have applied their money at the greatest percentage.’ 

While the investment terms may have to change, he firmly believes that the label still 

sits at the centre of the investment ecosystem and that the DIY model can only take 

creative talent so far. 

‘Anyone who has been in the system and the industry long enough knows it’s about 

having a focused and enthusiastic team to make something happen,’ he says. ‘Maybe 

the cookie-cutter approach to running labels and signing bands has disappeared. But 

anyone with any nous knows it’s about a bespoke, fitted suit. That hasn’t gone away at 

all. If anything, it’s become more precise. That’s because the budgets are lower and the 

need for quality people is even more important. On a manager’s part, it’s become even 

more of an effort to find those right partners.’ 

The first 360? 

OK, it probably wasn’t the very first time that a label had agreed a deal to invest in all of 

an artist’s income streams in addition to recorded music. But it was certainly the highest 

profile. 

This was the deal between Robbie Williams and EMI, concluded in October 2002, at a 

time when the artist’s first solo contract, signed by EMI in 1996 was coming to an end – 

and he just happened to be the biggest selling solo recording artist in the world. 

He was signed on a worldwide deal to EMI in the UK and I was the Chairman and CEO of 

EMI UK at the time. 

Needless to say, every major label wanted the deal, so whoever he decided to sign with 

was going to have to come up with something very attractive indeed. 

Having already got rights to his first three solo albums, EMI had an advantage as artists 

are loathe to split the homes of their catalogue if they can help it. 

Robbie’s managers Tim Clark and David Enthoven are among the most experienced but 

also most forward-thinking managers around and their unstinting belief in his potential 

was a major factor in his success to that point. Likewise, EMI had displayed faith when it 

signed Robbie as he exited Take That and the relationship had been hugely successful 

for both parties. 

In early discussions, artist management expressed an interest in a ‘joint venture’ (JV)- 

style deal. Most JV deals at the time were simply shorthand for the same old deal but 

with a higher royalty. 

29


But Tim, David and EMI all agreed to explore a real joint venture – one in which both 

parties had a stake in ALL income streams, not just an agreement on recorded music. 

Tim Clark 18 comments, ‘We wanted to make sure this deal was a little more 

groundbreaking than simply trying to get as much money as possible and putting up with 

the record company owning all the recording rights and not being involved in anything 

else.’ 

The contract gradually took shape over several months, and all major labels offered 

against the same basic structure – this drove out any complacency from EMI that the 

deal might automatically be theirs! 

But Robbie re-signed with EMI in a deal that was widely (and often inaccurately) 

publicised in the national and international press. 

The arrangement gave EMI a substantial minority share in the profits from all of Robbie 

Williams’ non-record income – including live, merchandise, sponsorship, publishing and 

so on. Sharing in these additional income streams enabled EMI to offer much larger up 

front money guarantees to Robbie than could ever be the case in a simple record deal. So 

he was effectively securitising the next few years of a portion of his income in return for 

up-front guarantees. 

EMI and Robbie formed a new company (called In Good Company) to manage these 

activities and income and I was EMI’s representative on the board. 

For the first time, we were able to sit with the artist managers and discuss Robbie’s 

plans across the whole gamut of his business, knowing that we had a stake in all of it. 

This gave the relationship a much clearer feeling of being one team, rather than artist 

and record company. 

As Tim Clark 19 says, ‘While the deal with EMI was not perfect in every respect, it has 

pointed to a better way of an investor working with an artist, and the artist being able to 

control their own rights and to exploit those rights in a much more complementary and 

managed way.’ 

We were able to optimise sponsorship deals, which not only provided income for the 

artist, but to also look at ways of dovetailing this activity into the marketing plan – not 

just for a tour, but also album releases. This could, in turn, make the marketing budget 

go further. 

Robbie was one of the most prolific, as well as successful, acts on the EMI roster, but 

when it came to a discussion of postponing the release of an album due to the burden of 

touring activity, EMI was able to take a longer view, helped by the knowledge that it was 

also earning from the tour itself. 

18 Quote taken from Robbie Williams: Celebrating 20 Years In Music (given away as a supplement in Music 

Week in October 2010) 

19 (ibid.) 

30


It gave me and the rest of the team at EMI working on Robbie Williams a wider 

perspective, much closer to that of the artist manager. It also gave us an insight into the 

different business models involved in touring, ticketing, merchandise etc. – all of which 

provides a good knowledge base for the consideration of future deals of a similar type. 

As the artist builds into a brand, as Robbie did, it was essential for all the different areas 

of the business to complement each other and to share the same brand values and the 

structure of our deal was conducive to this. 

As with everything, the deal wasn’t perfect. Its structure was actually two separate deals 

– one for recordings and another for everything else. 

Each party earned a different share from each deal and so there would sometimes be a 

disconnect between the aims of one party versus the other – but these were much less 

than they would have been had the deal been a plain vanilla recording deal. 

It would certainly have been purer to the initial goal if the deal could have been one fully 

integrated joint venture where all incomes and costs were taken into account before 

profit shares or dividends were split. But, nevertheless it was a groundbreaking 

arrangement that kicked-off the debate on the pros and cons of record labels getting 

involved in income streams outside recorded music. 

And most importantly, it worked for both parties. The deal moved into profit for EMI as 

the company benefited from an all round relationship with Robbie Williams at a 

commercial peak – both live and on record. 

As David Enthoven 20 sums it up, ‘It was a good deal. Financially it was a great deal for 

him. And he absolutely deserved it. And EMI have not complained about it.’ 

The debate over ancillary rights agreements continues today, but we know that at least 

two of the major labels say that 100 per cent of their new signings in 2010 covered at 

least some ancillary rights in addition to records – and that’s progress. 

Contents 

20 (ibid.) 

31


Chapter 5 | THE CHANGING RECORD COMPANY 

As the landscape around it changes, so too must the record label. The boom years of the CD 

album have given way to a more fractured market as downloading and streaming change 

how consumers experience music. New areas beyond record music are ventured into and 

the trick for many is in the balancing act of running two parallel businesses. 

‘Record companies are changing – for the better. I don’t see them being replaced’ 

Howard Jones, Sheridans 

‘Labels are changing but not fast enough compared to if they were starting with a 

blank sheet of paper’ 

Brian Message, Courtyard Management & MMF 

With the advent of digital, it has become clear that ‘legacy’ industries need to adapt 

dramatically – or die. The century-old recorded music industry is no exception and all 

the signs are that it has chosen to adapt. It’s had no choice. 

In this chapter we look at how resilient an organism the music label is proving to be by 

examining the changes in the way it does business and the changes in the actual 

business it does. 

A set of key indicators is a good starting point for examining the change in the make up 

of the business carried out by labels in the last decade. 

From the start of the millennium to 2009, the sales mix has changed radically for 

companies. 

Singles 

In 2000, singles were a physical CD format, priced between £1.99 and £3.99 and were at 

a low ebb. Only 55m singles were sold that year. Compare this to 2009 and the story is 

very different – with 152m single tracks sold, the lion’s share as downloads 21 . 

The advent of digital had three key effects: it reduced the price of a single track to 79p- 

99p (even 29p in some promotions); it enabled the consumer to ‘cherry pick’ tracks so 

that the album format was disintermediated and songs could be bought individually 

(effectively, anything could be a single); and online availability enabled the fan to 

impulse buy. 

This led to the huge boom in singles sales volume that we see. But this was spread 

across many more titles. This is easily exemplified by the statistic that the average #1 

single in 2000 sold 118,700 in the week. Despite the almost threefold increase in market 

sales, a #1 in 2009 sold a weekly 92,900 on average 22 . 

21 2009 – physical single sales 3.1m, digital single sales 149.7m, 152.7 in total - ERA UK Statistics 2010 – 

last accessed 09.05.11 

22 BPI Statistical Handbook 2010. 

32


The additional track sales were coming from the cannibalisation of album sales through 

the ability to cherry pick individual album tracks. 

The importance of track sales – compared to albums – was emphasised by Shabs 

Jobanputra who felt that the need to release an album by certain types of artists wasn’t 

necessarily a given. 

In relation to the act Swedish House Mafia, he said: ‘I’d rather just keep having hits and 

compilations…They sell us more tickets and build our brand and we may come up with a 

greatest hits in three years’ time. Is the consumer really waiting for what we think they 

want? We can bundle hit tracks with tickets and T-shirts.’ 

The head of another major label was also of the opinion that DJ acts make more sense to 

be signed for a number of tracks with ancillary rights rather than an album deal. 

‘If you invested £1m in an act and they sold 100,000 albums, you would probably drop 

them,’ they said. ‘But if you had ancillary rights, and the feeling was that progress was 

being made and everyone likes it, you would probably stay in business with them.’ 

Clearly, for acts operating within certain genres, the interest generated by a hit single 

doesn’t always have to be monetised primarily by the release of an album. The 

implications of this include the ability for the label to embark on an artist’s career single 

by single, reducing the risk involved in committing to an album project, not just in 

relation to costs, but also creatively, as the artist sees the market reaction to their music, 

and develops their direction in relation to that. This can make the whole thing fresher, 

which is key to the appeal of pop, dance and urban genres, all of which can change 

radically in a short period of time. 

Albums 

Although the overall volume of album sales is only down 4 per cent over the last decade, 

the net price at retail has declined by 28 per cent. Albums are better value for the 

consumer than ever in their history, but sales haven’t increased due to the consumer 

using the facility to purchase tracks, rather than the whole album 23 . 

The sheer range of music available to the consumer, either physically or digitally, has 

rocketed in the last 10 years. The number of new release albums in the UK has doubled 

from 19,312 in 2000 to 41,184 in 2009 24 . 

For the consumer, this is great news as they have more choice than ever before. 

For the record company, it brings new challenges: twice as many new releases that need 

to be entered into the supply chain to get to a flat sales line. 

The additional complexity of the supply chain brought about by the advent of digital 

makes this an area in which record labels have to be on their game. The requirements of 

digital services can vary enormously, which means that a new release has to be 

23 OCC/Kantar 


33


delivered in dozens of different formats with technical variations. This is a long way 

from the simple origination of a compact disc. 

The management of this complexity has become a requirement and a specialty of the 

record company. 

As Martin Mills says, ‘More is required of a label as it is a more complex business 

today, even down to boring things like managing metadata.’ 

The balancing act of running two parallel businesses 

From more or less a standing start as late as 2003, digital sales now account for over 20 

per cent of the recorded music market in the UK 25 . The major focus of companies in 

looking to the future has been on digital and new models of business, and the growth in 

online sales is the result of this. 

But at the same time, the vast majority of the sales line continues to be the physical CD. 

Record companies have to manage two parallel businesses – each with very different 

dynamics. And they are doing this while managing a declining overall sales line with a 

resultant pressure on overheads. 

Boyd Muir Executive Vice President and CFO, Universal Music Group International, 

highlights the difficulties with shifting into new business avenues. ‘It probably takes 80 

per cent of our effort to do 20 per cent of the business,’ he says. ‘I spend a huge amount 

of my time figuring out things we don’t know about.’ 

Complexity was often cited in talking to industry people in relation to the making sense 

of data. 

Forecasting income and cash flow, as well as budgeting, has had to evolve quickly from 

models that were driven primarily by album and single sales income to models that aim 

to capture all income streams to give a total revenue picture. 

As Shabs Jobanputra says, ‘We have a per-month target of revenue and profit, regardless 

of releases.’ 

Chris Ancliff General Counsel-International, Warner Music Group, talked about the range 

of product types in digital (streaming, download, subscription etc.) and how this knocks 

on into the complexity of contracts and royalty accounting. ‘It needs more dedicated 

people to be looking after deals with services and telcos and a label can provide these 

people,’ he says. ‘A label brings an understanding of the marketplace.’ 

Alison Wenham highlights the importance of labels’ skills and infrastructure in 

managing the often-complex picture of licensing as ‘rights management is more 

complicated today so acts really need an expert.’ 

25 Combined digital revenues across singles and albums now account for 23.4% of the value of the 

recorded music market – ERA UK Statistics 2010 – last accessed 09.05.11 

34


Overheads and employees 

Individual company overhead numbers are unavailable, but a very clear picture of the 

situation can be seen by looking at the numbers of people employed in the UK by record 

companies. 

Over the decade, these have fallen from 6,200 to 4,582 (a decline of 26 per cent) 26 . 

through label mergers and consolidation of functions within companies. 

Over this time we have seen the Sony BMG merger (green-lit 2004), the consolidation of 

Virgin Records into EMI (2007), and the preparation for sale, and subsequent sales, of 

Warner Music and EMI (early 2011, ongoing) – all of which were connected with major 

overhauls of the companies’ structures. 

Clearly the employees of 2009 have to work smarter and harder than the employees of 

2000. They have also had to develop a lot more skill sets and understand whole new 

parts of the business. 

Howard Jones, Senior Partner, Sheridans, feels that this is leading to a new type of 

entrepreneurial music executive being attracted to labels. ‘There is definitely a new 

breed of executive and they are hungry, and very competitive,’ he says. He adds that 

companies are incentivising them across all new income streams. ‘It is hardwired in 

them that these are the areas they need to be working in,’ he argues. 

The move to digital obviously provides opportunities for labour-intensive functions 

such as accounting, manufacturing and distribution to be streamlined. But until, or 

unless the business shifts entirely to digital, optimal economies can never be realised. 

Retail 

The picture at retail is very different to the start of the decade. 

The rise of the supermarkets in music can be seen as a double-edged sword. The 

additional distribution afforded by these multiple sites meant that casual and impulse 

buys increased. Accordingly, at the top end of the chart, supermarket sales drove 

additional volume. 

This in turn was further driven by discount offers, often funded by the supermarkets 

themselves to drive footfall and market share. 

These low prices on the biggest selling products had the knock-on effect of making it 

difficult for other music retailers, including specialists, to compete. 

Over the decade, supermarkets’ share of sale has moved from 13.8 per cent to 35.4 per 

cent. In the same period, we have seen the closure of Woolworth and the decline of the 

independent record outlet from 967 to 293 sites 27 . 

For the record company this has had several consequences. 

26 BPI Surveys, 2007 

27 OCC/Millward Brown 

35


Firstly, the sales and distribution function has been simplified over the years, with 

centralised buying and telesales negating the need for a huge on-the-road sales force 

taking individual orders and pre sales from hundreds of stores. 

But the increase in importance of chains of stores has also made it more difficult to grow 

an artist’s career unless they have an impressive promotional and marketing story to 

tell. 

This has made the HMV chain and Amazon business models – which involve carrying a 

wide range of line items including new and unproven artists – all the more important at 

the early stage of an artist’s career. 

As this report goes to press, the financial pages are full of the struggles of HMV as it tries 

to retain the confidence of the investment community amid sale rumours and a falling 

share price. Several senior label executives expressed the opinion that if HMV collapsed, 

’it would be a disaster, as we still have a relatively healthy physical business.’ 

A further consequence of the rise of the supermarket is downward price pressure and 

the related demand for increased discounts from retail. The average net realised price of 

a single CD album unit has declined by almost 19% per cent over the decade 28 . 

Labels are clearly wrestling with tighter margins from their retail business 

compared with 10 years ago. 

This is not even adjusted for ‘real terms’, so labels are clearly wrestling with tighter 

margins from their retail business compared with 10 years ago. 

Back then, labels would negotiate terms with major retail chains for a two–three-year 

contract period. That renegotiation is now more likely to be annual as the physical retail 

landscape changes so rapidly. 

Recently, the Tesco retail chain has lifted the bar higher than ever by proposing labels 

supply product on consignment where the price of the CD (minus a nominal 50p 

manufacture fee which would be paid on delivery into the store) is only invoiced when 

the retailer actually sells it. As this report goes to press, the reaction of labels to this 

proposal isn’t clear. 

Labels are aware of the danger in the reduction of points of sale at retail, and Derek 

Allen, VP Commercial and Sales, EMI, expressed the importance of finding new routes to 

market via non-traditional outlets. The challenge of dealing with these retailers who are 

used to significantly higher margins for their products can be dealt with via bundling 

ideas – e.g. packaging the music with a book or a T-shirt. 

As retail sales shift to digital, they bring with them new dynamics in the label/retail 

relationship. 

28 BPI 2000-2010 - average net realised single cd price declined by 18.8% 

36


Says Derek Allen, ‘We don’t have to ship units in the digital space, but the battle is about 

getting space on the home page to drive sales and pre-orders. The lines between sales 

and marketing in digital are really blurred now.’ 

At least one major label is looking to put the digital sales team into its marketing team in 

the near future. This underlines the importance in the marketing mix of positioning and 

profile in digital retail. Traditionally, the sales team would own the retail relationship, 

but switching that to marketing reminds us that the old model of the label ‘selling’ 

product to retail is outmoded. The emphasis now has to be optimising the profile to the 

consumer. 

Non-retail income 

As well as digital increases, there is growth in non-retail income. This is a variety of 

income streams derived from recorded music, but which tends to gear more towards 

usage and B2B (business-to-business) rather than transactional retail sale. 

Part of this is performance income – the income earned every time a recording is played. 

With the expansion of media outlets, the opportunity to derive income in this way has 

grown accordingly. PPL is the organisation that collects and distributes this money from 

the use of recorded music on behalf of labels and performers in the UK. In the 10-year 

period to 2009, PPL income to record companies has grown by 40 per cent 29 and has 

become a key component for bolstering the margins of companies. For a small label, 

with relatively low sales, this income stream can sometimes be the difference between 

break-even and loss. 

In a genre driven by hits, such as pop, performance income is a significant part of the 

overall income mix. 

Likewise the usage of music in other areas, such as computer games has bolstered 

income lines for labels in the short term. Meanwhile, some releases have seen minimal 

retail sales, but attracted significant income from their usage in a computer game. In 

turn, this can also lead to a knock-on effect at retail. 

So labels are organising themselves in such a way as to maximise these high-margin 

income streams. This can be seen by the increasing size of ‘secondary’ or ‘strategic’ 

marketing departments, especially in major companies, even in the context of an overall 

reduction in headcount. 

Links with brands, TV and movies through synchronisation and licensing deals are 

important to the business – both for the income that it generates as well as for the added 

exposure that can result. Often this exposure can be as important as a TV appearance by 

the act or radio rotation in launching a project. 

In the growth years, these income streams were seen as icing on the cake. Now they are 

increasingly proactive and professional, bearing the burden of responsibility for the 

company’s bottom line more than ever. 

29 PPL 

37


The use by John Lewis of Ellie Goulding’s version of ‘Your Song’ gave the artist a #1 hit 

and enabled Universal to extend the sales-life of her debut album. Derek Allen cites the 

example of the brand deal with Rimmel which forms a key plank in the marketing plans 

for Parlophone artist Eliza Doolittle. On top of this, the BlackBerry partnership with 

Tinie Tempah gave additional and complementary exposure to the artist throughout his 

debut album campaign. As Allen says, ‘All this stuff is at the front end of a campaign now. 

It’s not an afterthought.’ 

Compared with decade ago, the teams who deal with commercial brands and 

synchronisation are now much more involved with the day-to-day marketing teams 

in a label as they command the power to provide crucial profile (and income) to a 

launch campaign, rather than being seen purely as a form of secondary 

exploitation. 

TV, movies and theatre 

Increasingly, labels are actively involved in the production of properties that involve use 

of their music in other media such as TV, film and theatre. 

Over the years, labels have dabbled with theatre, mainly through providing investment 

in other people’s projects. Examples here include Universal’s long-running involvement 

with Mama Mia and EMI’s stake in Queen’s We Will Rock You. 

Neither of these productions used the original recordings that the labels had rights to 

but the interest and profile resulting from the productions gave a marketing platform to 

the catalogues of Abba and Queen in the same way that a traditional tour might have 

done. It also created a further income stream for the record company in each case. 

More recently, Universal has taken a more proactive approach, being instrumental in the 

launch of the West End musical Dreamboats & Petticoats, which was inspired by the 

compilation album series of the same name. 

On TV, the most successful music-related show in the UK, X Factor, is produced by Syco 

in a JV between Simon Cowell and Sony Music. As well as being an income stream in its 

own right, the show produces a stream of new acts (voted for by the public), many of 

whom sell significant quantities of music and are released through Cowell’s JV label with 

Sony. 

The trend is for labels to bring in expertise in these areas to maximise their chances of 

making work. Universal Music brought in Lesley Douglas from the BBC to run its global 

department where she and her team are active in the production of TV and radio 

properties related to Universal artists (e.g. Take That, Girls Aloud, The Saturdays) as 

well as working with third-party brands and broadcaster. 

As music production budgets in TV are increasingly under pressure, this type of 

programming serves a purpose for the broadcaster, as well as the label. As labels get 

further into their own TV production, the danger of record companies restricting artist 

performances to their own label TV properties, or at least prioritising these over similar 

third party opportunities will need to be monitored. 

38


What the industry needs is good music TV first and foremost 30 , and third party investors 

into TV properties should not be frozen out. 

Independent label Warp has been involved in film production since 2001 and there are 

evident synergies between its cutting-edge use of video directors, such as Chris 

Cunningham, and its involvement in original British films like This Is England and Four 

Lions. 

A different approach to marketing and promotion 

As the landscape changes, the organisation of labels has to adapt to continue to be 

effective. 

This is especially relevant in the way that labels deal with media and retail. After initially 

organising digital marketing as a standalone expertise within labels, they are now most 

likely to be fully integrated into label marketing departments. Labels very quickly came 

to understand that digital marketing is more efficient than traditional methods and so 

increasingly music marketing is digital marketing, and traditional channels, such as 

press advertising, are falling by the way side. (See Chapter 3 for more on this.) 

Promotion in the music industry relates to the way it deals with broadcast media – 

namely radio and TV. Andy Parfitt is aware of a more businesslike approach to 

promotion from labels: 

‘We are very conscious of the fact that the partnership has got to be even,’ he says. ‘It’s 

not a partnership if you are spending a ridiculous amount of money to get an act onto a 

late-afternoon TV show that’s not going to do anything for you. We are acutely aware of 

what has happened to the cash lubrication of the industry. We have seen the downsizing 

of record companies.’ 

As referenced in chapter 3, at the start of 2011, most labels started to adopt the policy of 

‘on air/on sale’ – i.e. no longer would radio have the exclusive ‘window’ to play a track 

up to six weeks before release. Artists, managers and labels increasingly believe this 

leads to lost sales or drives users to P2P sites. Parfitt is in agreement with this new 

approach when he says, ‘In reality, you can get anything you want at any time. If you 

hear something, Shazam it and go to LimeWire, you’ve got it.’ 

He doesn’t feel that ‘on air/on sale’ is necessarily a threat to the exclusivity of radio. 

‘Listeners buy into the idea of a DJ because they play good music and they have a good 

reputation,’ he argues. ‘The exclusive has disappeared.’ 

Merchandising and direct-to-consumer 

Labels have moved into the areas of merchandise and direct-to-consumer (D2C) sales, 

mainly through acquisition of existing players with the specialist skill sets needed to 

operate. Universal bought Bravado (the leading player in merchandise) while EMI 

acquired Digital Stores to bring in D2C expertise. 

30 I Want My MTV, Apr 2007 – MusicTank – last accessed 09.05.11 

39


Both of these areas depend on careful management and specialist skill to avoid costly 

pitfalls. 

As David Joseph says, ‘D2C is something you have to be real experts in. We are very 

quietly doing it and I’m making sure we are being incredibly responsible in what we’re 

doing, providing proper customer care and the best service. We are building a business 

very nicely and have been for a couple of years. You have to look at it from the music fan 

and the customer experience point of view – you need to have quality stock and delivery 

around it. There has to be a totally great experience.’ 

A key part of D2C is enabling e-commerce on artist websites. Fans need to be able to go 

to an artist’s site and buy everything there. Some products may be sold direct, some may 

be through affiliate sales (via Amazon, for example), but ideally the transaction should 

appear to the consumer as being through one site and in one basket. 

Brian Message summarises D2C as monetising the artist/fan relationship. He feels that 

record labels are held back by being traditionally reliant and skilled in a consumer 

product model. 

‘You are in a relationship game and that is so different to the consumer product game,’ 

he suggests. ‘It’s a massive difference.’ 

He believes that artists and management have a lot to offer in this space and that labels 

should form partnerships with acts to really drive D2C. He cites the McFly initiative as a 

great example of how to work relationships with fans. ‘Why did McFly only offer 10,000 

pioneers on their online fan club?’ he asks. ‘Because for all the ones that didn’t get 

pioneer status, you need them to be jealous. It’s a badge of honour. You’re playing the 

relationship game.’ 

A resilient organism 

Clearly the diversification of labels into a new kind of business – which Howard Jones 

describes as moving from ‘high risk/high return, to high risk/high returns (plural), as 

they increase the areas they are making money from is dependent on the development 

or importation of appropriate skills and experience. 

Alison Wenham of AIM cites a recent survey that suggests that only 20 per cent of the 

organisation’s member labels have recorded music as their primary source of 

income and more members than ever state that their primary source of business is 

‘another music-related business’ 31 . 

The sheer range of activities outside of recorded music that are pursued by labels, big 

and small seems to underline that for most players, diversification is the key to survival. 

Contents 

31 An AIM survey showed that 22% of AIM members stated their label is their primary source of income in 

the most recent survey. 29% state their primary source of income is another music related business that 

they own - AIM Annual Membership Survey, 2010, Aug 2010 

40


CHAPTER 6 | DIRECTION DIGITAL 

‘The market is less closed now because of digital’ – Martin Mills, Beggars Group 

‘I feel good about digital. I feel optimistic about it’ – David Joseph, Universal Music 

Group 

The future of digital music services is in their achievement of scale’ – John Reid, 

Warner Music Group 

Brief history 

The technology that made the sharing of music online within the reach of most people 

with a computer gathered momentum in the late-1990s and came at a time when 

leading music markets were enjoying double-digit annual growth from the CD format. 

The appearance of Napster 1.0 enabled the tech savvy to make available their complete 

music collection to other users for download. Free. 

For reasons that people on every side of the debate will disagree about forever (was it 

the intransigence of major labels, who could not conceive of ceding control of their 

valuable copyrights, or lack of willingness from Napster’s investors in to agree a deal 

which fairly compensated creators and investors in music?), Napster 1.0 was never 

licensed and became the godfather of countless unofficial file-sharing technologies and 

communities which sprung up in its wake. 

Suddenly the leading music markets such as the US and Europe were experiencing a 

level of online piracy on a par with the physical CD piracy which had hampered 

developing markets such as Russia and China for several years. 

Initially users of these networks were by no means clear that what was going on was 

unofficial or that no money was going back to artists and labels. 

Since then, the recording industry has fought a rearguard action, investing in a 

combination of legal routes, consumer messaging and lobbying for new legislation as 

part of an effort to establish a market environment which is conducive to the flourishing 

of new digital business models 32 . 

In the UK, legislation which was voted through Parliament in the dying hours of the last 

Labour government in April 2010 provided the first acknowledgement that online 

piracy was the responsibility of network owners, as well as content owners. 

Its provisions for dealing with the problem, which by now affects ALL creative content 

industries – not just music – were not perfect, but it was a start. Since then, the Digital 

Economy Act has been the subject of a judicial review brought by BT and Talk Talk, and 

its implementation currently seems a long way off. 

32 Let’s Sell Recorded Music, Mar 2009 – MusicTank – last accessed 09.05.11 

41


However, there is also a body of opinion that says that P2P isn’t really the issue, and that 

the problem is major corporations trying to defend traditional and outmoded business 

models and not developing sufficiently compelling new ones quickly enough . 

Meanwhile, the industry has experimented with a variety of digital business models 

since the advent of Napster 1.0. 

In 2001 AOL Time Warner, EMI and BMG teamed up to form MusicNet, described as a 

digital music platform. Around the same time, Sony and Universal Music created a joint 

venture in the shape of Pressplay – an online music store. 

Neither of these models got off the ground due to limited catalogue range, stumblings 

over the cross-licensing of catalogue and also because the labels had very little 

experience in retailing and consumer marketing (indeed their price points and usage 

terms, restricted by DRM, came in for huge criticism at the time). 

It was the launch of Apple’s iTunes Store in 2003 in the US (and 2004 in Europe) that 

provided the first commercial digital music offer to capture the imagination of the 

mainstream consumer. 

Fully integrated with Apple’s hardware (computers and iPods) through the iTunes 

ripping and music management software, the iTunes Store provided a compelling 

consumer experience in fixed-line downloads and part of the key to its success was its 

simplicity of use. 

The positive knock-on effects for the take up of Apple hardware from the music store 

enabled Apple to invest in iTunes with powerful marketing campaigns, the costs of 

which could be justified because of the cross-marketing benefits. It is unlikely that 

iTunes could have afforded to make such a big noise had it been a standalone digital 

store that wasn’t part of something bigger. 

The iTunes model has dominated the digital music market with an estimated share of 

over 70 per cent of the total market – despite a raft of new entrants and start-ups. In the 

UK alone, there are over 60 digital business models licensed by music labels – all 

offering access to music in a variety of ways. 

Despite this enormous diversity, in March 2011 a report by independent label trade 

body AIM showed that just three services made up over 94 per cent of total indies global 

digital revenues – iTunes, Amazon MP3 and Spotify 33 . 

Amazon’s service uses its massive consumer database to sell music as MP3 in direct 

competition to iTunes and uses price differentiation as a marketing tool, often 

undercutting iTunes (with tracks for as little as £0.29 compared to a general standard of 

£0.79 on iTunes). The Amazon download service dovetails very smoothly into the 

iTunes music management software but, despite this, it remains a distant second to the 

Apple service. 

33 AIM Submission To The Hargreaves Review, Mar 2011 – last accessed 09.05.11 

42


Spotify is chiefly a streaming service which also offers downloads through a partnership 

with 7digital. Consumers access Spotify in one of two ways – advertising-supported or 

premium subscription. 

The ad-supported level enables users to stream almost all tracks in the Spotify catalogue 

for free, interrupted by audio advertising messages every few songs. The basic 

subscription level for £4.99 a month removes the advertising messages while an upper 

subscription tier of £9.99 a month enables tracks and playlists to be cached on a 

computer or mobile device for offline play, ‘tethered’ to each registered device where 

they remain for as long as the subscription is current. 

Total digital revenues in the UK in 2010 were £225.8m. This was 27.4% of total sales 

revenue versus 2009 when digital accounted for 20.3% of sales revenue 34 . Digital is still 

very much the growth area for recorded music sales, but some feel that growth is 

stalling and revenues started to plateau in the US last year and even slip slightly in 

Japan. 

We shall look at the possible reasons for this later, gauging the opinions of key industry 

players on what the barriers to growth are and what they believe to be the drivers of 

growth in the future. 

But first we will look at how digital sales change the dynamic of aspects of the recorded 

music market. 

Singles 

Digital has revived the singles market significantly. The single-track download format 

has made the singles chart more vibrant, current and instant. The recent move to ‘on 

air/on sale’ – where singles are commercially available at the same time as they appear 

on radio – makes the most of the capability with digital for impulse purchase. 

High rating TV performances, from the X Factor to the Brit Awards, can be made 

commercially available within hours of the performance and this has proved compelling 

for fans of pop music in particular. The chart impact of Adele’s performance of ‘Someone 

Like You’ at the Brits February 2011 being a perfect example. 

Late March 2011, Mercury Records announced that it was no longer manufacturing 

physical singles, a clear indication that the shift to digital – of the singles market at least 

– is almost complete. 

However, some feel that single track downloads ultimately bring an overall value 

reduction. According to lawyer Howard Jones, ‘The biggest mistake the record 

companies made was allowing single track downloads.’ 

Martin Mills is sympathetic to this view, believing digital has revived the singles market 

for pop acts but killed their album business where the real margins lay and where 

profits tended to be made. 

34 BPI Surveys 

43


‘I am very happy with the digital download market,’ he says, ‘but then our fans tend to 

buy more albums. Our tracks-to-album ratios are about 2.5 to 1, whereas for majors it’s 

more like 12 to 1.’ 

Clearly the alternative music repertoire of the Beggars Group lends itself naturally to the 

album format, and the label group has made a deliberate policy to put more of the focus 

for sales on to the album format. This leaves singles primarily as snapshot showcases for 

the album, rather than important revenue streams in their own right. This is in marked 

contrast to the strategy of labels with a more pop or urban flavour. 

Release schedules 

Digital formats enable artists and labels to optimise release dates as there aren’t the 

huge stock commitments and movements as with the physical world. Also, digital sales 

themselves can provide up-to-the-minute market information to inform and modify the 

marketing plan. 

Universal saw the rapid online take-up of the singles by new artist Jessie J and 

successfully brought forward her planned album release by a month in February (2011). 

As David Joseph says of the decision and the online analytics that informed it, ‘The 

internet is telling you when to release something and when not to.’ 

Music discovery 

The internet has created many new ways of discovering music and many of our 

interviewees commented on how healthy this was, especially in leveling the playing field 

for artists, and enabling artists to succeed on merit – rather than by dint of huge 

marketing budgets. 

Martin Mills notes, ‘The beauty at the moment is that the two big digital payers – 

iTunes and Spotify – are pretty much barrier-free, be you a big player or a small 

player.’ 

Music discovery in the past was mainly through radio, TV and the press, with bigger 

companies being able to ‘work’ these channels better than small labels because of their 

scale and budgets. 

Different types of discovery mechanisms exist in the digital space and are changing the 

landscape completely. They include: 

Blogs – where hundreds of music fans recommend their favourite music to those 

who find them, with services like the Hype Machine and elbo.ws aggregating 

what is happening on blogs and ranking the most popular and written about new 

acts; 

iTunes Genius – an algorithm designed to assess what is in your iTunes library 

and recommend similar music (the recommendations tend to be driven by 

genre). Apple also launched its own social network within iTunes called Ping in 

late-2010 which links through to Twitter and lists what music people are buying 

or liking; 

44


Last.fm – using the Audioscrobbler technology, it offers recommendations based 

on what other users, with similar tastes to you, are listening to; 

Spotify – playlists can be easily compiled on Spotify and links to them shared 

through email, social media such as Facebook and Twitter as well as aggregated 

on dedicated sites such as ShareMyPlaylists. Spotify also uses its own version of 

‘scrobbling’ to generate the “related artists” and “artist radio” features on its site, 

based on listening statistics; 

mflow – this UK-based business model enables consumers to ‘follow’ other 

consumers whose recommendations they find relevant and useful. 

Recommendation is in turn rewarded through credits to buy further music; 

Pandora – currently only available in the US, its approach is to analyse the core 

musical components of tracks and match similar songs. They tracks are all 

dissected individually by musicologists; 

Amazon – arguably the biggest recommendation engine in the world given the 

scale of its customer base, it uses customer purchasing of CDs and downloads at 

the core of its music suggestions (saying ‘People who bought X also bought Y and 

Z); 

Social media – users of sites like Twitter and Facebook can quickly share details 

of what they are listening to through links to services like Spotify and we7 as well 

as YouTube clips and even SoundCloud embeds. Other more dedicated sites 

include Songkick (which makes concert recommendations) and GetGlue which, 

akin to Foursquare, lets users ‘check in’ to the types of media content (TV shows, 

movies, music) they are consuming. The next generation of social media apps like 

LoKast and Flowd are bringing geolocation into the mix. 

Barriers to growth in digital 

One senior executive in a major label said, ‘There are decades of legacy built into 

everyone’s mindset and thinking. Most people are so resistant to change. People are 

fearful that if they do something new, it will go wrong and spell the end of the end of the 

business they have worked in for all these years. The reality is they have to take risks 

and back new ideas. That way there’ll be a future, but just clinging on by the fingernails 

to the past is just destined to fail.’ 

This executive underlined an issue that many in the industry feel – that new business 

models, especially digital, can only happen if people are willing to experiment. 

Whether there is sufficient willingness to try out new things is a matter for debate – but 

the fact that over 60 business models have already been licensed in the UK indicates an 

openness to try things out. The BPI has set up an Innovation Panel designed to bring 

together labels and digital retail businesses, including start-ups, to share consumer 

research in order to help services develop their offerings. 

45


Brian Message feels strongly that more risks could be taken and supported (by the 

industry). 

‘The risk-averse, short term focused, almost business affairs driven agenda of many 

organisations has been a material problem in our industry,’ he says, ‘especially when it comes 

to the digital world. We need to be more dynamic. Do your model, put it out there. If it’s not 

right, you’ll learn what needs to be fixed, so then fix it. Get off the launch pad and make it up 

as you go along. I still can’t quite believe that the artist recording contract has evolved little 

from that used in the 1980’s, yet the marketplace has evolved beyond recognition.’ 

For a while, price was dominated by iTunes’ fixed prices of £0.79 and £0.99. This lack of 

flexibility was felt to hold back growth, and lately price experimentation has been more 

common (both higher prices for in-demand tracks and lower prices to push catalogue). 

On top of this, eMusic offers bundles of downloads in return for a monthly subscription 

while Amazon tactically moves prices up and down. Today, subscription services offer a 

whole new articulation of pricing. 

The release of In Rainbows by Radiohead in 2007 was a radical experiment in value and 

pricing. Consumers were invited to set the price they pay for the digital download, 

delivered via the band’s site from release date. However, they were also able to pre 

order the album in a deluxe physical format for around £40, or await the conventional 

CD release (distributed through XL Records in the UK) for the more conventional price 

of around £10. Subsequently, the digital album was made available through iTunes for 

£7.99. 

‘The era of free music has increased music consumption dramatically, but we are going 

to receive less per unit of consumption,’ says Martin Mills. He believes this gives greater 

scope for price flexibility. 

Brian Message believes that licensing needs to be opened up further and identifies that the 

inability of rights holders to act collectively, partly because of competition laws, as holding 

them back in negotiations with service providers. He also believes there needs to be a mind 

shift away from seeing copyright as an instrument of control in the digital space as control of 

copying is impossible. Rather, the focus should be on copyright as a remuneration right, 

much as in the licensing of radio. He proposes a collective licensing solution to correct what 

he believes is market failure in the digital music market. 

‘Rights holders don’t know the possibilities and the potential money to be made out 

there in the digital space,’ he says. 

Alison Wenham has a similar view when she says, ‘The lack of innovation in licensing 

continues to be a problem and could be holding back new services and the market.’ 35 

Doubts over the potential value derived from digital services can also be a barrier to 

growth as new services suffer from either lack of investment or lack of licensed product. 

35 Celestial Jukebox May 2008 – MusicTank – last accessed 09.05.11 

46


One executive highlighted the low margins from the à la carte download 36 , and says that 

it reinforces iTunes’ dominance in the space, as they are the ‘only company who can 

afford to scale the business.’ 

Some labels and artists hold product back from Spotify in the belief that the low returns 

go only a little way to compensate for loss of higher-value physical sales. This may be 

viewed as a little short-sighted and could slow down the growth of such a service as it 

will only be through the achievement of real scale that returns will start to make sense. 

Spotify is now up to 1m paying premium-level subscribers in Europe (15 per cent of its 

active user base) and at that level the earnings for the music producers starts to be 

meaningful. 

Alison Wenham says that Spotify is ‘shaping up as a good business for the indie sector’ 

and manager Gary McClarnan agrees that ‘micro payments are starting to show their 

worth and to show that money can flow back easily’. 

Meanwhile Geoff Taylor suggests that ‘windowing’ in subscription services may be a 

way forward – where premium subscribers get all new titles on release day (as an 

incentive to subscribe) while users on the free tier might have to wait a little while 

longer. ‘This is a way to maximise value and prevent cannibalisation as well as meet 

consumer needs,’ he says. 

The trade-off between low unit price and scale is a serious issue for rights owners – an 

ISP music model could involve a small additional payment bolted on to broadband rates, 

for example. Such a model could result in downward price pressure for music, but on the 

other hand it would quickly have scale. However, to date, an ISP model in the UK is yet to 

successfully launch. Sky Songs met a rapid demise, and Virgin is having widely 

publicised difficulties getting its store off the ground. 

Mobile operators and handset manufacturers are becoming important partners for 

music releases and music services. The first major development here was Nokia’s Ovi 

Music Unlimited (originally launched as Comes With Music in the UK at the end of 2008), 

although the company announced it would cease operations later this year in 27 of the 

33 markets it is live in. 

Streaming music services, however, are seeing significant success by partnering with 

mobile operators to bundle a premium access offering into a user’s tariff package. 

Spotify, for example, has a deal in the UK with 3 Mobile (where a 24-month premium 

subscription is offered as part of certain mobile data packages) as well as a deal with the 

Telia telco in its home country of Sweden. Meanwhile, in France, Deezer signed a 

partnership deal with Orange in 2009 and said this bundled offering was critical in 

making it the biggest music subscription service in France with over 700,000 users by 

the start of 2011. 

Cloud-based services and digital lockers, which enable the consumer to access their 

music anywhere, are also seen as an exciting way forward and both Apple and Google 

36 How Do You Divvy Up A Download? Feb 2007 – MusicTank – last accessed 09.05.11 

47


are believed to be close to launch services in this space while 7digital has a locker 

system in beta. 

While anti-piracy concerns and different views between rights holders and service 

providers on rates of payment is holding some services back Amazon’s went ahead in 

the US and launched a non-licensed cloud service recently (Cloud Drive). Also Catch 

Media launched My Music Anywhere, a fully licensed service, with Carphone Warehouse 

in 2010. MMA launched in Best Buy UK stores in 2011 and Catch Media expect to launch 

a similar licensed service in the US this year. 

Both Rob Salter at Tesco and Gary Warren of HMV supported a hybrid physical and 

download solution. In this model, the consumer would be offered downloads – either 

included in the price when they buy the CD or as an inexpensive extra. Again, agreement 

on rates, especially music publishing in this case, seem to be holding these types of 

service back. However, high quality download site Bleep is now able to offer a download 

as added value with CD or vinyl purchase on much of its catalogue through agreements 

with several small independent labels that make up much of their offering. 

Rob Salter sums up the issue when he says, ‘For some consumers, there is no value in 

the disc; for others, all the value is in the disc. What you can’t do is sell them it twice.’ 

Is this something the publishers will want a double mechanical for? 

‘The publishers’ problem is not selling things twice,’ he says bluntly, ‘it’s selling them at 

all.’ 

Martin Mills feels that the consolidation of the majors has had a huge impact: in the 

digital sphere this is significant as a service would find it hard to launch without 

Universal on board ‘as they are just so big’. 

Alison Wenham identified a problem of labels demanding big advances from new 

services which crippled them and left nothing on the table for either marketing or indie 

product. She added that she feels this has now changed and that labels are now being 

more realistic. 

Overall , the feeling is that digital is coming through its infancy and that we are moving 

into a productive period with new services and the requisite scale that comes with it, all 

subject to four key factors: 

Legislative measures to protect the legal market; 

Experimentation from investors in new models; 

Creativity and risk-taking in licensing; 

Flexibility in pricing. 

The more digital the business becomes, it brings with it clear business benefits such as: 

Cost efficiencies; 

Better margins; 

Less stock obsolescence; 

Better market information and speed of response; 

Fewer barriers to new quality music; 

48


Easier and more accurate business planning due to smoother revenue numbers 

and less unexpected product returns; 

More overall consumption of music across more artists; 

A more compelling consumer experience. 

It was notable that the heads of the biggest independent (Martin Mills) and the biggest 

major (David Joseph) were both highly optimistic about the digital future of music. 

So, although the majority of recorded music business is still based on CD sales, the 

DIGITAL business is growing, maturing and diversifying. 

In certain sectors and genres of the business (e.g. singles, alternative new release 

albums etc.), digital has already out-paced physical; but overall it is still insufficient, in 

terms of revenue and returns, to compensate the decline in CD sales. Nevertheless, 

although still in its infancy, the digital landscape is starting to map out the possible 

future directions for music sales. For a business less than a decade old, that is real 

progress. 

Contents 

Chapter 7 | NEW FUTURES 

After a painful decade, labels are changing what they are and what they do, but recorded 

music remains at the very heart of it all. Rather than being scattered to the four winds, the 

pieces are starting to fall together into place. With some difficult lessons learned, just what 

might the record companies of tomorrow look like? 

Writing this report has been a great opportunity for me – having worked in labels most 

of my life – to take the temperature of the industry three years after my departure from 

EMI. Being away from the day-to-day realities of a label has enabled me to write with the 

benefit of a little distance and perspective, meaning it has been possible to identify the 

key trends in the ways the industry is shifting and to meet the challenges it faces. 

That distance has hopefully also enabled me to be a little less partisan than perhaps I 

would have been had I still been absorbed in the daily running of a record label. 

The shifting balance of power that comes with a radical change in the market can result 

in factions, dogma and finger-pointing between different areas of the wider music 

industry and the setting up of reductive (antagonistic) dichotomies: major/indie; 

recording/publishing; management/labels; retail/labels etc. 

There is a clear tension between protecting existing interests/businesses and creating a 

radically new music industry. But what is striking is that across the industry the appetite 

for change has never been healthier. 

49


Take for example this quote (from chapter 6) and guess its source: ‘There are decades of 

legacy built into everyone’s mindset and thinking. Most people are so resistant to 

change. People are fearful that if they do something new, it will go wrong and spell the 

end of the end of the business they have worked in for all these years. The reality is they 

have to take risks and back new ideas. That way there’ll be a future, but just clinging on 

by the fingernails to the past is just destined to fail.’ 

It may surprise some to find that it comes from a senior global business executive at 

Universal Music – Boyd Muir. 

This complements perfectly the view of a progressive artist manager Brian Message 

when he says, ‘Labels are changing but not fast enough compared with if they were 

starting with a blank sheet of paper.’ 

So, it is clear that if labels had nothing to lose, change could be more rapid. But life just 

isn’t that simple. 

Not only is the UK record business worth over £1bn a year (retail prices) 37 – it also 

provides the fuel which powers the rest of the wider music industry. This comes in the 

shape of investment in artists and recordings of around £200m a year and marketing 

budgets of around £170m 38 . 

Both these pots of money have been under threat since the market downturn at the start 

of the new millennium but it is interesting to note that investment in talent (A&R) has 

suffered significantly less than the sums poured into marketing which have fallen by 

almost £100m since 2002 39 and probably also reflect the increased efficiencies brought 

by marketing in the digital world. 

So to maintain a high level of investment, I believe it is in the interests of the wider 

industry for this transformation to be evolutionary rather than revolutionary. 

Having said that, are labels maintaining a healthy balance between protecting the legacy 

business and developing the new one? 

Many think this could have been done better – especially in the early years of the 

market’s development. 

Consolidation of the major labels is a reality that some feel has held back the growth of 

the digital market. Martin Mills points out, for example, that a new digital service simply 

could not launch today without Universal as it is just so big. 

This power, some say, puts a lot of responsibility in the hands of the bigger players and 

is a cause for concern. 


38 BPI Surveys - A&R investment was £201.5m and marketing & promotion was £169.2m 

39 BPI Surveys - A&R investment was more or less the same in 2002 as it was in 2009. Marketing & 

promotion fell by about £100m in the same period. 

50


Alison Wenham of AIM feels the industry still needs to mature to a point where the 

market leaders should see their role as flag bearers, facilitators and market openers. 

Are market leaders in our industry simply hanging on to what they have got at the 

expense of everyone else? Wenham says that she sensed that bigger labels in the past 

were asking for big advance payments from new services and crippling them before they 

got off the ground – but she feels that this practice is changing and labels are becoming 

more realistic. 

Certainly Boyd Muir’s earlier quote would suggest that risk-taking was more in the 

current mindset than protectionism – and that is encouraging. 

However, in an example where the legacy business is under threat through the current 

problems experienced by the HMV chain, major and independent labels (as we go to 

press) are offering to change a trading model that has existed for decades by dealing 

with the retailer through consignment – where they only pay the label when they sell a 

product. Sometimes risk-taking and radical thinking are as necessary in protecting the 

legacy business as much as in developing the new economy. 

As well as the financial importance of labels to the wider industry, one thing that became 

very apparent was the concentration of skills and experience inside record labels. The 

range of these skills is arguably more extensive than in any other sector of the music 

industry. 

Artists who sign a record deal look for a partner to add value through the ability to 

access the services provided by the company. The labels that attract artists are the ones 

whom the artist feels will make the best partner for them. Sometimes artists will accept 

less money to be on the ‘right’ label. As artist manager Gary McClarnan says, ‘Budgets 

are lower and the need for quality people is more important than ever.’ 

Labels are developing in-house skills in digital marketing and the management of 

‘ancillary’ incomes at a rapid rate. They see this not just as a way of justifying the signing 

of new income streams but also as a way of developing competitive advantage in artist 

signings. 

But what it has also done is make the label, as a business sector, future-proofed and 

protected from new entrants – as we have seen in previous chapters. It simply isn’t 

enough for an entity to offer big money and attractive terms in order to displace the 

record label. The best investment comes bundled with skills, as many have found to 

their cost. 

Artists’ relationships with labels continues to evolve, as evidenced by the multiplicity of 

deal variants currently in the market. Pressure from forward-thinking artist managers 

combined with a willingness by labels to experiment with new ways of working has 

meant that the ‘one size fits all’ and life of copyright recording deal is no longer the only 

game in town. 

New digital business models present challenges in the dynamic between artist and label 

to ensure that everyone feels fairly rewarded by the new business. 

51


This can be difficult when most models need to achieve scale before they make sense for 

either party. And that takes time. 

The onus has to be on the labels as the dealmakers to increase transparency and to 

share information wherever possible with artists as the market develops. 

In a market which has been, on the face of it, in decline in the selling of its primary 

product (recorded music) for a decade, it would seem perverse to conclude this report 

on a note of total optimism. But that is exactly what I did feel at the end of this process. 

This move from old to new is a transition that was never going to be smooth. The ability 

for music to be accessed unofficially, easily and for free made sure of that. 

In all the discussion about the effects of disruptive technology, and how the industry has 

reacted to it, it is easy to overlook one basic fact – more people are listening to more 

music in more different ways than ever before. The problem is not one of demand; it is 

an issue of how to make money out of it. 

As we have seen in previous chapters, some artists and entrepreneurs have harnessed 

this technological change to create a world outside of the label structure. Some have 

made it work, and some haven’t been so fortunate. There has always been a commercial 

record business which has existed outside of the traditional label structure, but the 

technology has enabled this part of the business to experiment with new and exciting 

ways of developing their commerce. Often they are starting from a blank sheet of paper 

and feel able to take risks and experiment with new models ahead of the mainstream 

sector. 

But the rate of transformation of the record label, driven by a fight for survival, has been 

impressive. Of course, if we were starting from scratch, we may get to where we want to 

more quickly – but we aren’t. 

The past decade has seen labels: 

diversify their business; 

broaden their skill sets; 

manage their costs more efficiently; 

work with a wider variety of more flexible artist deals; 

communicate better with the consumer. 

As the market becomes more complex, they have consolidated their position in their 

core functions which remain fundamental – finding and developing talent and taking it 

to the marketplace. 

Only labels do that and these core functions define them. 

So how well are they doing it? 

In the UK itself, British music makes up 63% of the top 100 album sales in the first 

quarter of 2011 versus 52% in the same period 2010 40 . In the first quarter singles chart, 

40 Q1 Sales Analysis: Albums, Music Week, 16.04.11 – last accessed 10.05.11 

52


five of the top 10 are UK versus only one last year 41 . And UK artists continue to sell all 

over the world – making it second only to the US as an international provider of music. 

For investment to continue at a level to sustain the quality and success of British music, 

several things need to happen: 

new income streams developed by labels need to continue to grow at rates of 

between 5 and 10 per cent per annum; 

the decline of the CD format must be managed by innovative marketing concepts 

and retail support; 

new digital business models need to continue to be enabled and encouraged by 

labels and need to achieve scale; 

legislation to curb online piracy has to be swiftly implemented. 

If all these different factors fall into place, I believe it will ensure a return to growth for 

the recorded music sector. In so doing, it will secure the levels of investment needed to 

keep UK music a commercial force to be reckoned with. 

And at the heart of that growth will be a record industry that has successfully evolved to 

meet the demands of a new era of music consumption. 

The future is here and isn’t going away. 

Contents 

41 BPI Research 

53


CREDITS 

Sincere thanks to the following people who gave generously of their time and shared 

their thoughts in interviews conducted for this report. 

Alison Wenham (CEO, AIM); Andy Parfitt (Controller, BBC Radio 1, 1Xtra, Popular 

Music and Asian Network); Boyd Muir (Executive Vice President and CFO, Universal 

Music Group International); Brian Message (Chairman MMF and Courtyard 

Management); Chris Ancliff (General Counsel – International, Warner Music Group); 

David Joseph (Chief Executive, Universal Music UK); Derek Allen (VP, Commercial and 

Sales, EMI); Emma Banks (CAA); Gary McClarnan (Founder, Sparklestreet); Gary 

Warren (MD, Content & Talent, Mama Group); Geoff Taylor (CEO, BPI); Howard Jones 

(Senior Partner, Sheridans); John Reid (CEO, Warner Music Europe & International 

Marketing, Warner Music Group); Martin Mills (Founder & Chairman, Beggars Group); 

Rob Salter (Entertainment Director, Tesco); Shabs Jobanputra (Former President, 

Virgin Records UK); Tim Clark (IE Music); Rachel Stones (EMI Music); Chris Green 

(Director of Research & Information, BPI). 

ABOUT MUSICTANK 

Unique among the music business’ many and various interest bodies, MusicTank is the 

country’s leading, independent, sector-specific business development network for the 

UK music industry. Established in 2003 to inform and guide the future shape of the 

music business through engagement with industry, change and innovation, MusicTank 

continues to enjoy a growing and enviable reputation for its ongoing and far reaching 

programme of think tanks, conferences and events and has become the accepted 

provider of quality debate and analysis to the business. 

Bringing hot topics into sharp focus and helping pinpoint the opportunities created by 

disruptive technologies, it facilitates the circulation of innovative ideas, best practice 

and cutting-edge strategies for increased innovation and productivity. 

MusicTank is one of University of Westminster's sector-based Knowledge 

and Business Development Networks. 

www.musictank.co.uk 

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Contents 

55

Remake, Remodel: The Evolution Of The Record Label

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