Are Record Labels the New Realtors?

The Recording Industry Association of America (R.I.A.A.) has quietly ended its campaign to sue illicit digital music sharing into oblivion, the Wall Street Journal reports.

The first R.I.A.A. lawsuits were filed in September 2003, against individuals allegedly caught sharing music illegally online. By the time R.I.A.A. halted its legal campaign this past fall, they’d managed to issue 35,000 suits, win none of them, spend more money on legal fees than they recovered in settlements, and plunge the industry into a public relations quagmire — all the while failing to stop either music piracy or the continuing decline of CD sales.

Meanwhile, innovations in legal distribution of digital music, especially music-based video games like Guitar Hero and Rock Band, have fueled a major rise in legitimate purchases of digital music, outside the music industry’s traditional business model.

To get a sense of the marketing power of these games, consider this: after Aerosmith’s song “Same Old Song and Dance” (released in 1974) was released for Guitar Hero, online sales of the old song surged, up 446 percent on iTunes and other legal sites for the two months after the Guitar Hero release.

Independent record labels are coming into their own, eating away at the market share of the four major music conglomerates. Musicians, from Radiohead to Jonathan Coulton and many others, are striking out on their own, distributing music themselves online, without having to give up any of their earnings to a label.

With these innovations changing the way we listen to music, and with more on the way, what is the likelihood that major record labels become as superfluous as full-fee real-estate agents, whose commissions rarely add value for homesellers?


Michael

Having worked with independent artists in the late 90s early 00s I have to say yes. Very few of them wanted record contracts in spite of fans asking them to get them.

Marco

Share and let the music play! The majors have continually shot themselves in the foot. Good riddance.

PsiCop

While it's true that the RIAA is no longer suing indivduals, they have not, as it turns out, abandoned their campaign to end music piracy. They've just changed tactics; instead of suing any "pirates" they detect, they will instead order the user's ISP to block them. They're also renewing efforts to get ISPs to collect royalties from users who have access to free music (between $5 and 10 per month per user had once been the target amount). Basically this means every broadband customer in the US would see their Internet bills go up by $5 to 10 per month.

Some ISPs have publicly balked at becoming RIAA's enforcers, but at least one, Cox, has signed on to the plan. It's not unreasonable to expect other major ISPs to become RIAA cops.

Oh, and although the RIAA has announced that they've stopped suing individuals, they are still filing suits anyway! How's that for blatant disingenuity?

The RIAA is perhaps one of the only businesses in the world that treats its paying customers as if they were already criminals. So the fact that they are still suing people -- even though they said they would stop doing so -- shouldn't come as a surprise. Their approach to their own customers is no longer rational, so rationality cannot be expected of them.

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Dallas

There is a new piece to this puzzle now too. All of the major online distributors, iTunes, amazon etc., now sell music DRM free. That's actually really good for consumers.

Xian

The major labels have not tried to change their business to match current market dynamics, instead they tried to force the market to match their archaic business model. It reminds me of another troubled industry...big three of the auto manufacturers, they just haven't asked for a bailout yet.

econobiker

Give the music away for free and, eliminate Ticketmaster and charge out the ears for concert seats with coupons for reductions to people who do buy cds, downloads, shirts, posters, etc...

David

Come on now, isn't that being a little unfair to the realtors? ;-)

Doranne

gone are the days when everyone would go to someone's house and actually sit down listen to the record player together. nowadays when you like a song, someone can email it to you. you listen to it while driving, working out, etc... it's no longer a shared experience

echoclerk

I think the big problem here is that for most bands/musicians particularly early in their careers big Record Labels do add value in the form of upfront financing of Recording, Promotion and Distribution.

Sure after years on a major label someone like Radiohead doesn't need the financial backingof a major label..but for anyone less established 'its a long road to the top'.

joe

like your article on realtors, I don't think that record labels will cease to be of use, but they will need to, and they are, changing.

artists, for the most part, and especially the extremely creative ones, need help to turn their passions into careers. the people at record companies know how to do this, and are therefore valuable. like realtors, record companies are good at marketing their product, but as the barriers of entry to the market are lowered, competition is raised and artist-friendly companies will have an advantage...and with all the depressing news these days, should be a good time for music to make a comeback ; )

GF33

I agree with echoclerk. As noted by Michael Porter in is 2007 updated version of "Understanding Industry Structure", the digital distribution of music actually caused consolidation in the record label industry. Bigger labels became more valuable because they can offer distribution channels access to popular artists in exchange for promotion of new artists, something an independent label is not able to match. Major record labels will always have the advantage of "breaking through the clutter" and being able to "pool the risks of developing new artists over many bets."

Scott Supak

"...Aerosmith's song "Same Old Song and Dance" (released in 1974) was released for Guitar Hero, online sales of the old song surged, up 446 percent on iTunes..."

My wife's question to this: so, they sold 446 or them?

HW

@ 8, Doranne-

People still share the experience of music by going to concerts together, making and sharing CDs, etc. Long gone are the days of records, and good riddance, I say. People can share when they like, but also have very convenient music wherever they like.

Vidal-CMS

The issue of illegal downloading is surly a leech impeding the function of a competitive market. Since many can download for free, it's hard to choose to buy. It's a pity that it's destroying the music label industry. But, it's the truth. And as Xian said "The major labels have not tried to change their business to match current market dynamics, instead they tried to force the market to match their archaic business model". This is a good point, because internet has changed the face of demand and supply.
In my opinion, Record label companies must concentrate on two goals: Record label companies' chance to survive is in being able to take artists waiting to become big and making that possible quicker. This way, more and more artists will become credible, and on their way to the top record label companies can take a share of the profit. Second, would be to continue fighting illegal downloading, and I would have no comment on that because I do not know how to fight criminals online :-P.

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JoseAngelCMS

To steal music is not something that people should be doing, but since free music gives you the same satisfaction points as bought music does, but for free, people tend to illegally download music from the internet.
The music industry has been damaged, but the damage won't go away, unless all these different free downloadable sites are destroyed. People know the take risks by downloading the free music, but there are some people that have thousands of songs. If they were to download legally all these songs, they would spend thousands of dollars on these, so they would most probably download the songs illegally if crossed with the opportunity to do so.
Different agencies, which purpose is to reduce the amount of piracy can be created, but new free downloadable sites are created even quicker, meaning that the market for free music will always be out there for those who know how to use it and are willing to take the risks involving the crime.

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jorge

I went to the beach with my teenage brother and his friends the other day and I noticed a couple of things - kids still love music, they are always passing around an iPod and discussing music just like I did 12 years ago, nearly everyone plays an instrument to some degree and they're all great musos and some still carry around a pen-and-paper to write out lyrics. Most of them buy music of iTunes and they all go to heaps of gigs. Of course some of them are non-creative and spend way too much time playing WoW, but others of them have heaps of ideas and are always doing things off of the computer.

Point is, I don't think we need to be afraid of the technology killing our enjoyment of music. The new generation evolves to handle it in their own way. The culture will change but it won't be for better or worse, it will just be an evolution.

sarahCMS

Let's be honest here, illegal downloading will not go away, unfortunately people always manage a way to get things for free. The fact that it is illegal will restrain few "consumers". So, if this is a sunk cost already let's then find another way to solve the crashing of record companies. Perhaps the full songs could have certain code which does not allow to be reproduced. This way only part of the songs recorded could be downloaded, definitely this will be a huge cost for the record companies. In order to know if it's worth it, they must examine this cost. This proves the economy how efficient the internet has become to consumers. Sellers, not so much, since people nowadays not only steal music online, but are able to find certain products at lower prices. This way they are able to buy the products they want at a lower price than the main store or supplier.

ShUn-CMS

By being rational, one chooses to achieve the incentive with the least cost. That is in this case, getting tons of musics/videos for free and easily - no need to go to the video store (time is money) wait in the line etc, simply download. However, a rational person would realize that it is illegal to download and wonder whether it is a moral thing to do. As my cool econ teacher said today, it's all about one's honour code - one's expectations about oneself - whether getting arrested/losing the reputation is important to him/her or not. In addition, think about the artists/music comp who make money by selling their discs/dvds but no longer can because of the internet criminals. Subsidizing the cyberspace is one solution, but it's all up to one moral code.

James K

If music is digital, it will be pirated.

The big record companies still have useful functions, but the bulk of their business cannot be saved.

They will shrink/fragment into recording studios, management agencies, gig organizers, etc.

The market will similarly shrink/fragment, though there will be more music more easily available than ever before.

None of this is bad.

PedroCMS

To #14:
Well, think of it this way:
If a person would offer you two apples(suppose you love apples) one free of charge and another for a price of $1.00 US dollar, and you could only choose one...which one would you choose? Well, any rational person would take the free one because you don't give up anything of value in exchange for the apple thus allowing you to enjoy the apple to its fullest and at the same time have that $1.00 for something else such as 4 jawbreakers.
This decision comes naturally to the rational human psicology and we should't be having multimillion dollar industries sewing individual people for acting out of rational self-interest.