Record companies are built upon a suspect business model that runs rampant in the media business. Instead of each release making a modest profit, record companies—not to mention movie studios, book publishing houses and a myriad of other, similar industries—have long relied on the massive profits of one huge hit to cover the losses of a series of flops.
This model, which endured for decades, finally became untenable in the late-'90s when file-sharing services allowed consumers to get music for free, and cheap and plentiful CD burners allowed people to manufacture their own discs. Services such as the infamous Napster clogged the networks of college dorms and the suburbs, profits declined steeply at major and independent labels, and the music industry faced a brave new world.
At first, the record companies fought back in the courts. A series of high-profile lawsuits were filed by the Recording Industry Association of America on behalf of the rights holders whom the association represents. These suits had the wrong effect: instead of scaring downloaders into submission, they often brought scorn from music fans as the most high profile of them involved the well-funded industry organization attempting to gain restitution from minors, college students and other sympathetic defendants. By late 2008, the RIAA announced it would cease to bring lawsuits against illegal downloaders and instead would attempt to work with Internet Service Providers to stem the tide.
But nothing has yet worked to get record sales back to anywhere near where they were in 1999, just prior to the atomic bomb that Napster and other P2P file-sharing networks dropped on the industry. In the meantime, labels are changing the way they do business, in an effort to keep their heads above water. Massive layoffs at the major labels and the shuttering of smaller ones has been the effect of the rapid changes to the way the industry operates, but these changes raise the question, "What is the state of the modern record label today?"
Diversification has become the buzzword in the music industry as labels attempt to capitalize on the elements of the music business that weren't their province even 10 years ago. The increased proliferation of what are known as "360 deals" in the last decade has changed the way business is done. Instead of an artist employing a different company for his or her music publishing, distribution and management, a single company will now take care of all of those elements, in addition to merchandising and concert promotion—two lucrative elements that are not subject to downloading.
"The physical product has definitely dwindled … I'd say 50 percent over the past 10 years," explains John Dunham, promotion and marketing at Universal Music Canada. "That said, we're still realizing ways to get the bottom line taken care of through legal downloads, ring tones for phones, ring tunes. We're also branching out into merchandising and doing merch for quite a few of our domestic acts. We have 360 deals with bands like Stereos where we're covering everything from the distribution of CDs to management to booking. Those are all avenues we're taking to hopefully stay above water."
The 360 deal is an endeavour that is gaining steam amongst major labels, and the business model is working both ways, with labels starting management and production arms, and production companies—the highest profile perhaps being Live Nation—creating record labels, but having a holistic structure has long been the province of smaller independent labels like the Toronto-based Six Shooter Records.
Founded as a label by Shauna de Cartier in 2000, Six Shooter got its start as a way to put out records for the Luke Doucet-fronted band Veal—a band managed by de Cartier—which was having trouble finding the right label. Though Veal broke up, Six Shooter's first official release would prove to be Doucet's debut solo album, 2001's Aloha, Manitoba, and Doucet continues to be managed through Six Shooter's management arm. De Cartier sees plenty of advantages for both artist and label to take a holistic approach to an artist's career.
"The pie has shrunk so much in music that in order to be a priority [with a label] you need a company that works with you on a holistic level on your entire career," de Cartier says. "If you have a label that's not your management company they'll give you a push around the time the record comes out and that push might last six weeks or three months but that doesn't last for the full length of an album cycle—it might be two years until you put out another record. When those functions are intertwined, a manager works with you all the time—there's no break, it's just constant. So when you go on your third tour of a record, if your management company and label is the same, chances are that label will support that tour through marketing initiatives, whereas if they were separate companies it would be very rare for a label to support that third tour—or even a second tour."
But the changes that the Internet has wrought can't simply be fixed by labels moving into new areas of the music business—something has to be done to change the fact that sales of recorded music are too low for the industry to properly function. Sales being what they are permeates aspects of the industry that consumers think little about, and those sales have an ongoing effect on the viability of an artist not just in the short term but over the length of their career.
Dunham cites chart positions as one of the things being affected by the function of the Internet in the dissemination of new music. Whereas he used to be the one bringing a hot new single to a radio station, that station may have found the single on the Internet months ago in a leaked version and added it to the playlist immediately—an act that has a catastrophic effects on the way the industry functions.
"If radio station X adds a single from an artist two or three months earlier than we were targeting, it affects the national chart number. What we focus on is getting all the radio stations to add the single at the same time so the chart number goes up steadily, and those chart numbers affect [how] the next single from the artist [does on the charts]," he says, shedding light on the domino effect that bad chart numbers caused by the sporadic addition of a single to radio playlists can have on an album—such as record stores stocking less of it and its sales coming out flat. "If the record comes out and it only charted at a low number, people think it won't sell well."
The idea that getting into the promotional side of the music industry will save labels is also suspect as a long-term strategy as sales dwindle across genres and generations, and artists that haven't been on the road in years are forced back onto it because their back catalogues no longer generate the income they're used to—which has the effect of crowding the marketplace and stretching consumer dollars.
"The live sphere is very competitive; you have all the old people dusting off their rhinestones and getting out there and everybody having to tour," says de Cartier. "People say, 'Oh it's fine to steal music because you can always tour,' but not everybody can tour. People get sick, or they have babies, or they die and then what about their families? Touring is one aspect of making money but it shouldn't be the only one."
Copyright laws in Canada don't currently prohibit file sharing, but a new law on the table has de Cartier hopeful that things will change sooner rather than later—even if, as she notes, the proposed law only prohibits file sharing and doesn't contain any provisions for penalties for misuse of intellectual property.
"I think we're in the dark period of the wild wild west and I don't know how long it's going to take and I don't know if me and all the independent companies like me will be able to survive through this time," she says.
In the meantime, smaller local and regional labels continue to pop up, lured by the lower cost of the means of production afforded by bedroom studios and the increased competitiveness of the manufacturing sector, aided by globalization. These much smaller labels are incredibly successful on their own terms—terms which include doing what they do strictly for the love of music, with no hope of making a living off the music industry.
Founded in the Summer of 2004, Pop Echo Records remains one of Edmonton's best-known boutique labels, home to local artists such as Outdoor Miners, the Whitsundays and Tim Gilbertson. The label focuses on limited-run projects by bands it loves as well as quirky special editions through its newest venture, 99 sevens, a collaboration with music blog Weird Canada which sees an artist release a seven-inch in a limited run of 99 copies, available at one show only.
Label founders Travis Dieterman, Graham Johnson and Jeremy Franchuk started Pop Echo hoping it would resemble Factory Records in terms of its artist-friendly ethos and its success, but quickly found that starting a mega-successful label is not as easy as putting out what they thought was the hottest track on the planet and watching it sell out. Still, explains Dieterman, the label has paid for itself for six years and though the founders all have day jobs, the label provides satisfaction for its owners in addition to its value as a place to hear music not being put out by anyone else.
"We've never taken pay from it in six years. At first that was, of course, the plan, but it just wasn't a feasible thing. We went into it having no idea at all about running a record label. We thought we would put out the records, they'd all sell out and it would be easy money, but that's not so," he laments. "Starting out we thought we could be a national player, compete with Mint and Paper Bag and all those kinds of labels, but we just don't have the resources or the money to compete with that. In the last two years we've really shifted the focus of the label from trying to do big, national releases to just doing smaller, more regionally-focused releases."
That shift has meant that in the last couple of years Pop Echo has done considerably better than when it started out—though the dream of being the next Factory Records is a distant one. Still, for the three founders, the satisfaction of putting out good looking releases by artists they love is enough for them to keep going.
The majors and larger independents don't have the same luxury, however, and diversification remains the best chance for survival—apart from a sea change in both copyright laws and consumer attitudes towards intellectual property. De Cartier's hopes that this is simply a dark period for the music industry, that artists and managers and labels will soon emerge into a new dawn, remain tempered by the near-constant shuttering of labels and record stores, as well as the fact governments move slowly and change won't come tomorrow.
"The Internet is revolutionizing how we live. We're still figuring that out—it's still in its adolescence. I think as a society we will figure it out," she says, but adds, "I'm not holding my breath." V