Monday, March 9, 2009

The music industry takes a 360 degree turn

Michael Arrington at TechCrunch posted an item on Sunday regarding a conversation that he had with "a big music label executive." I'll caveat by noting that the executive remains anonymous, and that this is the opinion of only one person, but it certainly provides some fodder for speculation regarding the future direction of the music industry.

First, the executive claims that recorded music revenue will fall to zero.

The labels fully understand that recorded music, streamed or downloaded, is going to be free in the future....CD sales continue to decline by 20% per year, and the only thing that’ll stop that trend is when those sales reach zero. Nothing will replace those revenues.

Second, as the revenue falls, recorded music will become marketing material.

[T]he Internet services being sued today for copyright infringement will be embraced in the future as ways to get the word out on hot new music.

But if the music is being given away, what's left to market? Everything else.

No longer will the labels be tied to revenue limited to sales of master recordings - by then most or all artists will be under 360 music contracts that give the labels a cut of virtually every revenue stream artists can tap into - fan sites, concerts, merchandise, endorsement deals, and everything else.

I encourage you to read the rest of Arrington's post. And regarding 360 music deals, he wrote about those back in November 2008, referencing a statement by Warner Music's Edgar Bronfman:

Bronfman says that every new artist they sign they take rights in every revenue stream. Calls these 360 rights, and that over 1/3 of their artists are under these contracts. He says that they can’t make the investment they need to make unless they have these rights, and their incentives won’t be aligned.

Back in 2007, Depunked explained the economics of a 360 music deal:

Album Sales: The artist will get somewhere between 15-30% which is an estimate of $1-$3 per album sold. The larger percentage goes into the label’s pockets and covers production expenses.

Publishing: Artists get about a dime for writing their own songs and music, more if the song is featured in film or television. The labels now get a cut of that.

Touring: After all standard “touring” expenses are covered (travel, equipment, set costs, staff) the label will now get 10% of what’s left over

Merchandising: We’re no longer just talking T-shirts here. We’re talking endorsement deals, clothing lines, fragrances, energy drinks.. whatever the artist puts it’s name on the record label takes 10% of.

I'm mulling two questions in my mind:
  • Even with the additional revenue streams, will labels make money?

  • How does this affect the economics of going indie vs. going with an established label?
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