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. 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 6
This pre-draft version is strictly for review purposes only and is not for general dissemination or sharing. 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. 7
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