People decry the major record labels (Universal, Sony/BMG, Warner and EMI - in that order of size) as evil, killers of freedom, backward, idiotic, and stifling. They bemoan the by-gone days of a label nurturing an artist through their career into an artist of meaning. They classify them as controlling (ie: requiring DRM), or underhanded (ie: Sony root-kits DRM), or just plain terrible. I completely disagree. In my view, they are neither good, nor bad, they simply are companies operating under a business model in a market economy. Their model may not be optimized to take full advantage of market forces, but they are operating relatively soundly from a business standpoint (at least a business that is in a position to tolerate losses). A good way to think about the labels is as Venture Capital firms; where they provide capital, guidance and networking to entrepreneurs (in this case, artists). In the past (like the 1950’s-1970’s) the labels operated as seed and early stage funds, selecting artists they believed in, then used their capital and funds to grow them. Now however, they operate more as mezzanine funds where they take artists who have established them selves (to some degree), add additional capital, bring in additional executive support (ie: mega-producers), money for marketing/distribution and thereby drive up the value and increase sales. As such, they perform a valuable service by fostering the growth of viable talent. They have enhanced their portfolio by offloading risk onto smaller labels and/or the artist themselves and focused their use of capital on moving those acts forward. They also subscribe to the 80/20 rule (although I am not sure of exact numbers on that) on returns, as would a VC. However, here is where the analogy departs ways. What is missing out of the labels is a willingness to overhaul operating models to align more fully with an active and growing market. If a VC were to operate as the labels do, they would quickly reduce the value they provide and their returns would fall (which is what is happening to the labels now) and they would never raise another fund. So, to bring the labels back to a reasonable space, they would need to overhaul their models for distribution. They do creation, brand identity and sales just fine, but they are missing valuable, underused channels for distribution. And without distribution, there is no sale. While that change seems to be starting, it’s very slow - and it’s not because labels are money grubbing evil places or they are idiots, or don’t see the writing on the wall. The culture of the label is driven a command and control hierarchy, one where there is a start at the bottom and work your way up mentality; and outsiders are not welcome. It’s a traditional American corporate structure with control at the top and not much in the way of empowerment (except at the producer and A&R levels). This mindset of control permeates all levels of change in these organizations. That type of entrenched culture of makes it difficult to enact change in any sweeping way. And since the majors own the vast majority of performance rights, and the current environment is not open to new distribution, it makes it tricky to open any new distribution channels with out them. If the majors want to take advantage of new market opportunities, they are going to have to enable change in their organizations. To do that will require executives who have deep experience in driving cultural change through an organization. And I believe those executives will only be hired when the losses become so great that the labels can no longer sustain current models (which they still can at the moment).
Originally published on WordPress on January 09, 2007. Migrated to this blog on May 29, 2025.