Remake, Remodel: The Evolution Of The Record Label

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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%
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