The Studio Business
What does the client want?
Economic Reality
Real Life Business Models
Additional Income
How to save money
Your Market Survey
The Digital Time Bomb
Advertising and Sales
Marketing means to listen!
The Future Studio
Record industry crisis
Band Legal Status
Myths of the Industry

     Record industry crisis    

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Music Industry Crisis?  No!
Again, again and again, we read that the music industry is in difficulties.  Nothing could be further from the truth!  Visit any festival, concert or other musical event and you will see increasing numbers of people spending more and more money on tickets and merchandise.  More music is being played and consumed today than perhaps at any time in mankind's history, so to say that the music industry is in crisis is obviously arrant nonsense.
But there is one thing that they are not buying and is CDs.  So let's start again -
Record industry crisis.
The record industry has been spending large sums, trying to lobby various governments and other bodies, such as the European Commission to do something about the fact that they can't sell CDs.  At first they blamed cheap imports, then piracy, then it was file transfers and then it was illegal copying.  The last I heard, they were blaming downloads.  In other words, anybody and everybody except themselves.
The is just a digital version of the old LP and that was launched at the beginning of the 50's.  So the idea of selling about 50 minutes of music on a disk is now over 50 years old.

When the CD came along, it was so much cheaper to produce and distribute and it allowed old material to be sold all over again (so-called back-catalogue) that for a while the record companies must have thought that, as long as you were a record company with a good roster of artists old and new, printing money would be your second choice!
But it could not last.  After the CD boom, the CD bust had to follow.

History recalls . . . 
From 2000 to 2003 record companies were cutting back on new projects and even in some cases, cancelling all new projects all together.  The result is that recording studios that rely on this kind of work were at the time closing in the UK at the rate of about one a month.

Despite this move to just concentrate on a few top acts, record companies have either seen a dramatic fall in profits, or have even suffered record losses.  With the exception of BMG (part of the Bertelsmann trust owned by the Mohn family), all these firms are public companies and therefore under a legal obligation to make a profit.   The fact that they have not done so is largely due to the after effects of a series of technological changes, combined with some poor managerial decisions.

The two main changes were the introduction of the CD and the introduction of the cell-phone.  The record companies would have you believe that recordable CDs, MP3 and Mini-Disc players are the real villains.  But these technologies are primarily marketed by Philips and Sony - both coincidentally record companies!   Also we have been recording our favourite records onto cassettes (patented by Philips) since the sixties.

The cell-phone was the big hit with middle-class teens to twenties, the exact demographic group that accounted for most record sales.  This and the Internet took spending money away from the music industry and helped fuel the recent technology boom.

But this lack of turnover with the young was completely masked by the flood of back-catalogue CD sales.  The 35+ age group were repurchasing old recordings that many already had on vinyl and now wanted on CD.  Most of this boom was in classic rock, The Eagles, The Doors, The Grateful Dead, Tina Turner, Roxy Music, Supertramp and above all the big three: Pink Floyd, Rolling Stones and The Beatles.

Soon, aged rockers were taken out of semi-retirement from their ranches in Utah and Montana, their mansions in Surrey and their castles in Scotland to fire-up the old rock and roll machinery once again, but this time bigger and better than ever.  Ozzie's midgets were on tour, pigs were flying over London and Berlin and Keith played cigarette and guitar at the same time.

Despite all the jokes about Zimmer-frames with guitar amps, the founding fathers of rock and roll were earning money for the record companies in a way that the newer acts appealing only to a younger audience could not.  Pink Floyd performed 'Momentary Lapse of Reason' to 340 huge halls and stadiums and all were sold out.  Tina's 'Wildest Dreams' tour did the same.

The new thing for the young was the artificially created vocal group and Take That, Boys to Men, The Spice Girls, Backstreet Boys and N'Sync had a handful of hits each.  These acts had little musical ability and relied on a set format created by the same producers who had spent a life time creating similar sounds.  Despite all the vapid hype, these acts lacked 'legs' and soon folded or passed into obscurity.

In many ways this was sad because many of them were very good singers and if they had been given a chance to develop their craft, might have turned into good musicians and in the long run have sold more records.  Robbie Williams from Take That went back to basics, re-learnt his craft and is now one of the few young stars able to fill halls and sell records for more than just a few months.

But the record companies were still failing to reach the young.  At the same time, older record buyers had all the back-catalogue they needed and Tina retired.

Inspired by reality television and the fact that in some countries the winners of 'Big Brother' had also been able to sell some records - and in Germany even reached number one - the music industry turned to television. 'Pop Idol' and 'The X-Factor' were born.

Of course, none of those who took part in the X-Factor had the X-Factor (i.e. talent, personality and the drive needed to make it in the music industry).  If they did, they would not have taken part in the first place.  It is one of the unspoken golden rules of show business, that if you want a career, keep as far away from talent shows as possible (unless you have not yet reached puberty).

But at last, the young were watching and buying records again.  The emotional proximity of the fan to the artist was as close as it could get.  Week by week, breathless fans tuned in to see hopes of stardom dashed or realised.   Of course the millions of Pounds, Euros and Dollars generated by these shows go to the TV stations and the producers. 

But this generation of stars were far removed from the like of The Beatles or The Rolling Stones.  These were not musicians who have spent decades learning their craft, these are young kids with nice voices who have been plucked from obscurity by the vagaries of a talent contest.


So where does this leave the record companies?  The big three manufacturers Sony, Philips and Matsushita have already announced as far back as 1996 that they will replace the CD with the video DVD by 2008, perhaps even sooner.

Since then, CD sales have picked up, thanks largely to better music by real musicians, so the live DVD and the CD will probably live side-by-side for quite some time to come. 

And back-catalogue and old concerts are being re-released once again, this time on DVD.  But here the biggest problem is that there are so few performances available.  Most of the older big stars have only had two or three concerts filmed at a quality high enough to be released on DVD.

The economics of DVD are somewhat different.  The capital outlay required to film several concerts with between six and sixteen cameras and combine them with the multitrack recording is far higher than recording a CD in a studio. Also post-production costs are higher.  The audio has to be mastered down to surround sound and the cameras are not live-switched like a TV programme, but each and every camera is recorded throughout the concert so that every fade and switch is perfect.

The making of modern video is often even more expensive, with virtual sets and 3D graphics by top designers.  Some videos are more like film shoots with budgets running into hundreds of thousands.  But experience has shown that pop-video DVDs do not sell as well as live concert videos.

All this means that the risks are higher and in turn also means that the record companies will be even more reluctant to bet on an act that is not already a proven major success.

At the same time, the big artists are demanding a bigger slice of the pie, which in turn pushes up prices for CDs and DVDs and also depresses record company profits on the very acts they look to for all their revenue.

If all that was not bad enough, there is a much more serious development taking place: artists are becoming their own record companies.  Over half of all records sold are either from small independent labels or financed by the artists themselves.

And we are not talking about new acts or small-fry performers.  From Martha Reeves to Madonna, the only action the record majors get is as distributors.  Small acts are getting a thousand CDs run off for under a Pound each. Large acts are tying up international distribution agreements, or in some cases going through local distributors in each and every country.  And Internet sales can be taken care of World wide by the likes of Amazon and the act's own website.

This may leave the record companies all dressed up, but with nowhere to go.

The question the industry is asking itself is  'What will they do now to survive?'

Action and Reaction

A record company is like a wholesaler.  They carry a range of goods (artists) some of whom are cash cows and create most of their profits (big acts).  But most are there to augment the collection and give the customer a fuller service (small acts).  Some ranges a wholesaler carries are minority products that sell steadily but in small numbers and can be sold at high mark-ups (jazz and classical).

One question we have to ask is  'What happens when a wholesaler dumps large parts of his range to concentrate on his star product, the cash cows?'

Another, equally important question is  'If a wholesaler, faced with a downturn in trade, seeks to restrict his market share to cash cows, can he also reduce his overheads to reflect this downturn?'

For a record company to just try to weather the storm, waiting for better time to come, would be the same as putting their corporate head in the sand.  Concentrating on cash cows is just not enough.  The market is restructuring and they should have already restructured with it.

In 1998 Bertelsmann decided to throw everything at a multimedia, Internet-based, audiovisual future.  Books, television stations, magazines and record divisions began a huge restructuring process that is still continuing today.  The rest of the World shook their heads and assumed that they had taken leave of their corporate senses.

The truth (20:20 hindsight is always a fine thing!) turned out to be that Bertelsmann was dead right, but they got their initial strategy wrong.  They imagined a World of virtual shops, similar to their High Street Book Clubs.  In the end, it was the mass appeal of Amazon, i-Tunes and eBay (each with their own very different marketing concept) that were to act as the on-line shops.

Companies like Bertelsmann and AOL-Time-Warner are clearly looking for an overall synergy effect between all their divisions: film, TV, music, games, publishing and Internet.  In national markets they are looking for deep penetration (TV coverage, pages of newsprint, sales) with few artists.  In international markets they are looking for massive sales tied to films and/or games and high profile marketing campaigns.

The major players have clearly decided to leave the minority tastes to small companies that can cater to that kind of market.  Should a local, up-and-coming band show the potential to become an international star, they can always buy them.  It is cheaper to buy a proven hit - they argue - than to cultivate 10, 20, or even more acts in the hope that one of them will become a hit.  More importantly, a major release can be done in weeks, rather than in years.

In the past, record companies used to have to sink large sums of money into releasing several albums from an act before it became a hit.  With DVD and the need to sell worldwide, entry level and start-up costs are much higher.  There is no way that a company can afford to release a DVD, without knowing that it will sell.


The pattern of things to come is already emerging. The large record companies, the so-called majors, will continue to dominate the international market and parts of the national markets. Often they will be working as marketing and distribution companies for stronger local labels, or for artists with the finances to record and manufacture their own DVDs or to have the majors perform the manufacturing for them on a commission basis.
The coming product is the concert DVD and the big and unresistable trend is for the CD to be sold for a small fraction of what the CD companies would like them to fetch.  Perhaps 2, just 1 sounds more reasonable.  Prince and others have found that it makes more sense and is more profitable to be paid to give them away.  It certainly ensures market share!

The rest of the market will be covered by labels catering to local markets or minority tastes. The classic rock band and would be pop star will have to finance their first recordings themselves. The results will, in many cases, be fairly poor as too many will try to make their own recordings on cheap systems targeted at the consumer. Starved of money, these independent releases will mostly flounder, no matter how good the artists behind them might be.

This anaemia of the exchequer will mean that small independent releases will be largely shunned by radio and the record buying public. Not only will they find it very difficult to get air-play, but cheaply made videos will ensure that they get absolutely nowhere with the likes of MTV, VH1 and Viva.

But it is not all doom and gloom. Some smaller, independent labels are not as small and not as independent as they may appear to be. Some are getting larger and forming formal relationships with the majors. Some are investing real money in making videos for their top acts and some are even thinking in terms of large scale concert videos.

Although the classical gateway function of the majors disappeared a long time ago, things just may be getting tougher for bands that cannot raise substantial funds. But then, who said the music business was easy!

Future Technology

When I am trying to work out what will happen to a market in the future (perhaps, as Shakespeare put it "Fool's errand!") I find it helps to look at a similar market that has already gone through the same process.  One of my models for the record industry is publishing.  (Please note, 'record' not 'music.  The music industry is doing OK, it is the record industry that is in trouble.)  The whole desktop publishing (DTP) scene went through the IT revolution first, simply because words and pictures do not require much data and the input and output devices were already available and simple to use and cheap to buy.  So if you want to understand what is to happen to all the other branches of the media, you might like to look at what happened to publishing.
Just as ProTools was not the first DAW out there, Quark Xpress was not the first DTP system out there.  More importantly, there was no direct digital path from keyboard to printer.  The four colours had to be printed onto sheets of celluloid called galleys, using a process developed after the war called phototype.  These galleys represented the printing plates on the machine.  Once DTP had arrived, this was done using an expensive A0 laser printers.  This was very similar to the multitrack tape recorder, in that one had to physically deal with sheets of celluloid galleys and I can remember scratching off minor blemishes with a knife, before sending the A0 galleys to the printers.  A bit like cutting tape with a razor blade really.
First out off the blocks was Aldus Pagemaker on Mac and then on PC with a very early version of Windows.  That was back in 1985 and when I saw Pagemaker, I knew that this was the start of something massive.  I had a similar feeling a few years later, when I saw a prototype of a audio recording programme for PC and Macs.  The wonderful thing about Pagemaker was the extreme simplicity.  This also meant that it did not do anything very sophisticated, i.e. no punch-outs, drop shadows, drop-caps and that sort of thing, without creating them separately as a TIF file.  Two years later, Quark Xpress was launched and, because it had all those tools we had been missing in PM, it became the de facto DTP programme used by everyone.  When Aldus was bought by Adobe, they invested heavily in bringing out a deeply sophisticated version of Pagemaker, that they called InDesign. 
Today, in publishing, there are just no physical in-between processes anymore.  The galleys have disappeared, to be replaced by pdf files that are assembled on a virtual galley for printing on an all-digital printer, in a process known as computer-to-plate.  The first time a human touches anything is when the bundles of wrapped magazines come off the roller-belt and are stacked on pallets.
In audio, there are still several physical in-between steps.  Even if we carefully avoid making a master CD or putting anything onto tape, even if we make an image file of the final CD and ftp that to the pressing plant (and nearly all mastering studios send a physical CD nowadays and nearly all pressing plants want a physical CD, simply to avoid confusion) there is still the glass master process and all the packaging and placing of CD into their jewel cases and putting into boxes. 
There is one huge difference between publishing and the record industry and that is how the final product is consumed.  If I wish to consume a published product such as a book, magazine or newspaper, all I have to do is pick it up and look at it.  A copy of the National Geographic published 50 years ago, looks exactly like a copy published today.  There are style differences of course, but that is another issue.   We consume publishing by picking up a written text and reading it. We have been doing this for thousands of years.  Modern plate-to-paper printing has allowed this process to be mass duplicated for nearly 700 years. 
One thing that many in publishing forget or miss completely, is the tactile nature of the printed page.  Each publication has a different feel to it.  I have a 200-year-old atlas with massive double-page maps that have been hand coloured of the various parts of the World.  I also own a few more modern atlases and they have a different feeling.  Next to my bed, I have a first edition P.G. Wodehouse and several folders of essays on economics (which I get sent as part of my work as a member of a think-tank, though those that know me, will point out that this involves more tanking than thinking!)  Touching a plastic folder and reading computer print-outs is a different tactile experience to touching a 50-year-old book.
Recorded music is a very young technology and is complicated to consume.  It has been around for about 100 years and you still need a device of some sort to listen to the product.  Until the CD came along, the cylinder and then the various types of disk were also very tactile.  No product in consuming music was as tactile as the LP.  Unwrapping the cover, reading the cover, pulling the disk and feeling (and hearing!) that static tingle of a freshly pressed LP coming out of its sleeve for the first time, looking at the patterns that the grooves containing the music made, placing the LP onto the record player, wiping it with a static cloth, perhaps spraying some water onto the disk and then cleaning the stylus and placing it onto the record - these were very tactile products.
The CD is completely the opposite.  The brittle case often breaks on opening, but then we all have spare cases.  Inside is a piece of plastic and one piece of paper.  That's it.  For less than 10p you can make a copy in case you scratch the original - and doing so takes only a few minutes.  The machine in the office will make a colour copy of the limp piece of paper, just 12 by 24 cm, should you want one.
The CD has a few marginal advantages for the consumer, it can be made a little longer and the dynamic range can be made greater.  Also, the highs can be made louder.  These two last points do not please everybody, some people liked the slightly compressed and evened-out sound of the LP and not everyone wants to hear every cymbal crash as sharply and clearly as if you were standing right next to it.  Also, this sharpness does not reflect real life.  If you attend a concert, the filter effect of humid air rolls off the top end, as soon as you are standing some distance away.
So although the CD is technically slightly better than the LP (20 minutes longer and greater dynamic range) it is less of a product.  It may be lighter, easier to manufacture and take up a fraction of the space, but for the consumer, it feels more like the plastic folder of computer print-outs than the Wodehouse first edition.
Another major factor in the change of fortunes for the record industry is the complete change in cost structure.  In the 60's, building a studio was very expensive.  Today, it is cheap.  In pure numbers, the figures have remained very much the same.  The figures after the Pound or Dollar sign are not so very different today.  The same has happened for the amount of money you could earn.  If you earned 6,000 back then for a hit single, that was the price for a new Rolls Royce.  Today, you will still earn 6,000 for the same hit single, but that is now very, very little money. 
The equipment may have gone down in price, but one cost has shot through the roof in recent years and that is the building.  Back in the 60's, a city centre studio may have occupied a building worth 10,000 or 20,000. Today, that property will be worth many millions and, in business terms, no place for a studio that is making a loss anyway. 
The task the record industry has to set itself (but probably will not) is to find a replacement for the CD that is as nice to touch, feel and experience as the LP, but also as easy and quick to manufacture as the CD.  The only White Knight on the horizon is the live concert DVD video, but here, the danger is that the record companies will make the same mistakes they made with the CD.  In other words, by cutting costs at every corner, whether appropriate or not, they will debase the very essence of the product.  
If the labels make the same mistakes again and allow the DVD to feel cheap and allow poor product (amateurish recordings made from the FOH live desk, acts that do not perform well on stage, cheap lighting, miming, poor camera work, poor editing)  then we will see the whole downward spiral start all over again.


The Byre Recording Studio