With CD sales falling and musicians deserting the big labels to make deals with concert promoter Live Nation, it looks like the party is over for the major record companies. Not quite, writes Jim Carroll
THE GOOD TIMES enjoyed by record labels for many years are over. The profits they trousered during the CD boom are now just a distant memory, as labels grapple with a whole new set of realities brought about the digital revolution. Illegal downloads, established acts running off to do 360-deals with the likes of Live Nation and a huge reduction in overall revenue has meant trouble for all the major labels and many of the independent imprints. An end, of sorts, is nigh.
WHEN DID THE RECORD LABEL WOES BEGIN?
Most observers seem to concur that the mid-to-late 1990s marked a turning point in their fortunes. Until then, labels were enjoying bumper revenues thanks to punters buying CDs of albums they already owned on vinyl. There was a considerable mark-up on the CD format too, which meant that most record companies - especially the majors with sizeable, valuable back catalogues - were making fortunes.
SO WHAT HAPPENED?
Technology happened. The boffins and engineers (some of whom ironically worked at Philips, a company which also owned and operated record labels) who first came up with the MP3 format as a means of audio compression set the ball rolling. From 1995 onwards, music fans began to rip MP3s from their CDs, use audio players such as WinPlay3, and later Winamp, to play them back on their computers and share their music with other fans online via file-sharing networks.
Several other file-sharing networks were on the go before Shawn Fanning's Napster came along in 1999. But Napster became the poster-boy for peer-to-peer services because of its user-friendly interface and the huge volume of music available. By February 2001, 26.4 million people worldwide were using Napster.
THE RECORD LABELS, I IMAGINE, WERE NOT PLEASED?
They were fuming. In October 2000, reps from four of the five majors then in business sued Napster for copyright infringements and the case was decided in their favour, leading to the network shutting up shop in July 2001.
With Napster out of the way, you'd think that the record labels went back to making mad money.
However, there has been a significant shift in the public's perceptions about the value of music. People began to feel that they had been paying over the odds for CDs, many of which contained only a few decent tracks and a lot of filler. Napster users pointed to the fact that they could get their hands on out-of-print albums and songs. More people were happy to download and listen to MP3s. A seismic change had occurred in the market.
THE RECORD LABELS REALISED THAT TOO, DIDN'T THEY?
You'd think so, but many labels refused to accept that the CD game was up and continued to ignore reps from technology and telecommunications companies who wanted to do business with them. Meanwhile, record industry lobby groups worldwide called in their legal eagles and instigated law suits against illegal uploaders. Music fans - and indeed a lot of acts signed to labels - began to wonder if label chiefs actually knew what they were doing.
The problem for those running the major labels was that everything they once took as gospel now turned to be wrong. As a result, many stupid decisions were taken - including giving away free CDs with newspapers, putting all their A&R eggs in the make-a-pop-star-TV-show basket and signing ludicrous deals with acts such as Robbie Williams - in an attempt to shore up cashflow.
With Apple's iTunes music store on the rise and Steve Jobs very much in charge of that relationship, the record labels have tried to get alternative digital shops off the ground.
THEY DON'T LIKE APPLES, DO THEY?
The labels want to have options so that they - not Apple - can control proceedings. This is why you keep hearing about initiatives such as MySpace Music, where the majors and MySpace have come together to kick off a one-stop digital download facility.
However, Jobs and Apple have the industry over a barrel because of the popularity of both the iPod and iTunes. Last week, iTunes overtook Wal-Mart as the biggest music retailer in the United States, while none of the dog-and-pony shows tried out by the majors has worked.
SO, IS EVERYONE IS TRYING TO GET OFF THIS SINKING SHIP?
Well, some people are jumping into the fray. Guy Hands and his Terra Firma private equity group, for example, bought EMI Music for £3.2 billion (€4 billion) last year and Hands's bean-counters are currently working out ways to make the numbers work.
This will involve widespread job cuts, changing the composition of record deals and as much catalogue pimping as they can get away with.
DOES HANDS KNOW SOMETHING EVERYONE ELSE DOESN'T?
It's hard to know. Many of EMI's acts have complained that Hands is not a music man and wants to treat them as employees rather than artists. That fact that these "artists" are no longer producing music of commercial or creative worth may have something to do with how Hands is operating.
IS THE FAT LADY ABOUT TO SING?
There will be room for middle-men overseeing that exchange between the artists who write the songs and the audience which buys them in some shape or other.
While, historically, record labels have always been the ones to invest in and break new acts (note how Live Nation and their ilk are just going after established acts; rapper/mogul Jay-Z is the latest big name to be signed to their roster), they will now have to change the way they operate, so more cuts and changes can be expected from that quarter.
And all the smart, sussed indie musicians will probably join the ranks of XL/Beggars, Domino, Merge or Sub Pop in the coming years.
We reckon you'll be get able to a recording on CD (or vinyl) of the fat lady for quite some time to come.
