Wednesday, November 26, 2008

What's Fair?

Today's New York Times reports that for the first time, Atlantic Records' digital sales surpassed their CD sales. According to Tim Arango:

At the Warner Music Group, Atlantic’s parent company, digital represented 27 percent of its American recorded-music revenue during the fourth quarter. (Warner does not break out financial data for its labels, but Atlantic said that digital sales accounted for about 51 percent of its revenue.)

With the milestone comes a sobering reality already familiar to newspapers and television producers. While digital delivery is becoming a bigger slice of the pie, the overall pie is shrinking fast. Analysts at Forrester Research estimate that music sales in the United States will decline to $9.2 billion in 2013, from $10.1 billion this year. That compares with $14.6 billion in 1999, according to the Recording Industry Association of America.

One of the more revealing quotes came from John Rose, a former label executive at EMI:

“It’s not at all clear that digital economics can make up for the drop in physical,” said John Rose, a former executive at EMI, the British music company, who is now a senior partner at the Boston Consulting Group.

Instead, the music industry is now hoping to find growth from a variety of other revenue streams it has not always had access to, like concert ticket sales and merchandise from artist tours. “The real question,” Mr. Rose said, “is how does the record industry change its rights structure so it captures a fairer percent of the value it creates in funding, marketing and managing the launch of artists?”

The word "fairer" jumps out of that last sentence, as if none of these artists would exist or find a market without them. That's true to an extent. A lot of perfectly good music never finds mass audiences, while a lot of mediocre nonsense blows up, but "fairer" implies that somehow the artists they signed hoodwinked them into bad deals, and that the poor, babes-in-the-woods innocent label executives are no match for all those sheisty, conniving artists out there who live to take advantage of them.

Besides, Julie Greenwald, president of Atlantic, says later in the article that the labels are spending less on artists than they used to, which makes the concerns about fairness even more dubious:

“I think we’ve figured it out,” said Julie Greenwald, president of Atlantic Records. “It used to be that you could connect five dots and sell a million records. Now there are 20 dots you can connect to sell a million records.”

In making that transition to a digital business, the music business has become immeasurably more complicated. Replacing compact disc sales are small bits of revenue from many sources: Atlantic Records’ digital sales include ring tones, ringbacks, satellite radio, iTunes sales and subscription services. At the same time, record labels — Atlantic included — are spending less money to market artists. In the pre-Internet days, said Ms. Greenwald, “we were so flush, we did everything in the name of promotion.” Among the cutbacks are less spending to produce videos and to support publicity tours when a new album is released.

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