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Remake, Remodel: The Evolution Of The Record Label

Remake, Remodel: The Evolution Of The Record Label

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

Firstly, the sales and distribution function has been simplified over the years, with<br />

centralised buying and telesales negating the need for a huge on-the-road sales force<br />

taking individual orders and pre sales from hundreds of stores.<br />

But the increase in importance of chains of stores has also made it more difficult to grow<br />

an artist’s career unless they have an impressive promotional and marketing story to<br />

tell.<br />

This has made the HMV chain and Amazon business models – which involve carrying a<br />

wide range of line items including new and unproven artists – all the more important at<br />

the early stage of an artist’s career.<br />

As this report goes to press, the financial pages are full of the struggles of HMV as it tries<br />

to retain the confidence of the investment community amid sale rumours and a falling<br />

share price. Several senior label executives expressed the opinion that if HMV collapsed,<br />

’it would be a disaster, as we still have a relatively healthy physical business.’<br />

A further consequence of the rise of the supermarket is downward price pressure and<br />

the related demand for increased discounts from retail. <strong>The</strong> average net realised price of<br />

a single CD album unit has declined by almost 19% per cent over the decade 28 .<br />

<strong>Label</strong>s are clearly wrestling with tighter margins from their retail business<br />

compared with 10 years ago.<br />

This is not even adjusted for ‘real terms’, so labels are clearly wrestling with tighter<br />

margins from their retail business compared with 10 years ago.<br />

Back then, labels would negotiate terms with major retail chains for a two–three-year<br />

contract period. That renegotiation is now more likely to be annual as the physical retail<br />

landscape changes so rapidly.<br />

Recently, the Tesco retail chain has lifted the bar higher than ever by proposing labels<br />

supply product on consignment where the price of the CD (minus a nominal 50p<br />

manufacture fee which would be paid on delivery into the store) is only invoiced when<br />

the retailer actually sells it. As this report goes to press, the reaction of labels to this<br />

proposal isn’t clear.<br />

<strong>Label</strong>s are aware of the danger in the reduction of points of sale at retail, and Derek<br />

Allen, VP Commercial and Sales, EMI, expressed the importance of finding new routes to<br />

market via non-traditional outlets. <strong>The</strong> challenge of dealing with these retailers who are<br />

used to significantly higher margins for their products can be dealt with via bundling<br />

ideas – e.g. packaging the music with a book or a T-shirt.<br />

As retail sales shift to digital, they bring with them new dynamics in the label/retail<br />

relationship.<br />

28 BPI 2000-2010 - average net realised single cd price declined by 18.8%<br />

36

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