October 30th, 2007Radiohead raging against industry machine
They also show the vicious response the big record corporations are willing to take in the face of industry change. The first event was the announcement by English band Radiohead that they would be releasing their new album digitally on a pick your own price basis (plus a transaction fee of little more than $1). The band had recently come off contract to one of the majors and it is not surprising they should take this particular step, in view of the treatment meted out to artists by big labels. Record companies have a long history of mistreating artists. Given the big four (Universal, Sony BMG, Warner and EMI) together hold a market share of between 70-80 per cent they have all of the power in contract negotiations, especially with wannabe rock stars. Nearly all records fail, so to protect themselves from financial loss, the companies pass the costs of production to the artists. Royalties become payable only after the record has gone into profit, and those royalties can be reduced if there has been any expenditure on promotion. So a hugely successful record can see nearly 95 per cent of the profit go to the record company after minimal initial outlay. The same is not true of the independent labels which tend to share risk with artists. It has always been like this: the independents foster new talent and art forms, the majors buy and then exploit them. In the US, it took Sam Phillips at Sun Records to start artists like Jerry Lee Lewis and Elvis Presley. The big labels didn’t see a future in rock ‘n roll. It was the same story with launching the Beatles into North America, which took years. White kids in New York and the mid-West only discovered the blues after Chicago-based Chess Records made it popular in the UK and the Animals and the Rolling Stones took it back to the US in an English format.
Add to that the slow start to punk, hip-hop and the rest and we see an industry-wide reluctance to adopt new formats. The problem for the major studios is they will do anything they can to avoid change in the marketplace. This brings me to the second event of the past fortnight: the successful prosecution of a Native American mother of two for file sharing. The heavy-handed response of the industry was something learnt from the television and movie industries when, ironically, they took on Sony over VCRs: sue together, get others (especially artists) to join the suit and go for an early injunction. For some reason the majors are terrified their industry will be destroyed by people listening to and sharing music online. The evidence they present for this is a 20 per cent decline in record sales over recent years. Unfortunately, this evidence does not hold up. Yes, sales have declined, but there are many reasons for sales fluctuations, including the general economy, prices, changes in distribution, promotion and changes in tastes. It is not the first one. The economy has been pretty good over the past few years with plenty of discretionary spending. It could be the prices: the internet is free (if illegal) and people get tired of buying whole albums in order to hear one or two songs. What has definitely not caused the slump in sales is file sharing. Oberholzer and Strumpf, two outstanding economic analysts, have demonstrated clearly there is no relationship between file sharing and a reported sales decline. It is even possible some sales have actually increased through better exposure. Getting a record heard against increasing ad time on radio, shortened play lists and a reduced music component in MTV has left the internet as a major promotional tool for bands and the independent labels. Sales slumps have happened before, in the early ’80s for example, probably due to the decline in popularity of disco music. So why are the major labels reacting the way they have? Well, change is hard to cope with, especially if you are a big organisation with a profit-driven reward and punishment structure. It is far easier to blame this new-fangled internet thing than to question if, just maybe, musical tastes are changing. One day the major labels might realise that it really is about the music.
Nigel Pope is an Associate Professor of Marketing at Griffith University.
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