Retail Music

Turn the Beat Around: The Retail Music Industry

Barrett Strong learned that if he wanted money, Barry Gordy of the then-fledgling Motown Label was going to make him earn it. Reportedly the recording session, according to Rolling Stone magazine, went into overtime and beyond as Gordy kept making him play until his voice was raw. '(Money) That's What I Want' turned out to be one of the first major hits for Motown, and the money did indeed follow, at least for the label...   

There’s a parable that says, ‘Do what you love and the money will follow.’ There’s something to the self-selection behind choosing career paths in today’s Service economy that rings truer [sic] than in the Agrarian and Industrial economies of days past. Unfortunately for the many masses of ‘aspiring’ artists, there are only a few examples of artists with their own record deals and a wealth of wannabes who dream of their big break. Unfortunately, the evolution of the record industry's dynamics suggests that getting a record deal is getting even harder than it has been before.

The industry itself is struggling to find itself amongst significant challenges such as piracy, diminishing returns and an onslaught of artists able to produce and distribute their own music.

Evolution of a Media

It is instructive to understand that the record industry had a great deal to do with their own destruction. Tracing back the way music was sold, controversies like Payola, and their habitual bad treatment of artists’ rights, there’s not a lot of people short of entertainment attorneys that can offer major industry labels much solace.

Simply tracing the physical way that music was marketed to the end customer in the retail channel is instructive. Originally music came in various forms that were less than optimal in terms of performance and portability. Eight tracks are the classic example. You could get your favorite song if you were willing to fast forward three other songs you may or may not have wanted to purchase. Record albums were probably optimal in terms of length and as an artistic choice more compelling, but they lacked the portability of tapes. Cassette tapes were questionable in quality, and you still had to play the fast-forward and rewind guessing game.

Then came compact discs and the first foray into the digital revolution. In the late 1980s, cassettes and vinyl were replaced, for the most part, with CDs. These commanded a much higher price point than records or tapes. It was a golden era for the record companies. The cost of producing an album didn’t rise, nor did the relative cost of the medium it was sold on. The proliferation of sales in commercial jingles and soundtracks led to even more sales of CDs. 

The seemingly inherent advantage of digital quality led many listeners to abandon their earlier record collections by ‘upgrading’ to CDs. Thus, the back catalogues of many popular titles kept the growth of the industry at all-time highs. Because the innovation to copy compact discs was limited through litigation and access to technological hardware capable of the task, the closest thing to cannibalization of new music sales was the resale of used CDs. Several artists railed against the sale of used CDs since they received no royalties from the resales, but the real threat was already in the wake of the industry’s trajectory. 

The existent threat was the digitization when tapes and vinyl were converted to CDs. Eventually the wellspring of technology that allowed copying compact discs broke. Folks were able to burn their own copies of their friends’ CDs. Piracy ran rampant. An unnoticeable loss of quality (for all but the most trained audiophile) came with a digital copy, whereas replication of a tape or record ultimately led to ‘hissing’ and background loss. In terms of economics, a burned CD was at least closer to a perfect substitute. The cover art and packaging excluded, the end product of piracy was noticeably enhanced by the record companies’ decision to go digital. 

By this time, record labels’ he decision of the  to offer their entire product line in digital format was a sunk cost. When economists talk about sunk costs, they often use the phrase, ‘bygones are forever bygones’. That is to say, sunk costs are real costs because we can measure them. We just can’t do anything about them. For the decision making moving forward, sunk costs are irrelevant. The tide had changed.

Bundling

The second karmic comeuppance of the switch to digital format is the approach that production seemed to view the idea of a ‘single’ or hit song. Traditionally, an act tried to create one track that played well on the radio dial. The theory, as it went, was that airplay on the radio led to increased awareness. This led to increased retail sales in addition to the royalties from airplay. As a result, artists on the fringes could create one song and put out an album of ‘filler’. It went against the true nature of an artist to put out part of a whole and half-ass it to get it out on the market, but the nature of the game gave rise to the term ‘one hit wonder’.

It was possible to buy a single. It came with a B-side track that typically wasn’t nearly as commercially viable and essentially amounted to a throwaway track in the case of a one hit wonder. The hitch with a single record (45 rpm) or tape was that it sold at a significant premium over what the album would have cost if divided up equally. The record company and the artist got their return on investment in so much as the single sold well. 

As music became available in digital format, the notion of bundling was called into question on a second front. If copies could be pirated outright, they also could be parsed into separate tracks, and technology again caught up with the decision to sell music in digital form. This became most evident in the late 1990s with digital file transfer.

Suddenly the merits of an artists ‘Greatest Hits’ on a separate CD no longer made sense. If you could get individual tracks that you didn’t have on completed albums simply by downloading them, the record companies’ entire repackaging strategy of those single songs fell completely off the map. Eventually the piracy aspect was offset somewhat by paid downloads, but the foregone revenues from the sunk cost of the switch to digital format continued to accrue.

On the Road Again

A case can be made that live music is a superior if not complementary experience to enjoying music on a run, driving in your car, or chilling at your pad. To be sure, a great deal of the (financially) successful bands make a good portion of their money touring. The two work together, though. Without a hit record, going on tour promises to be a disappointing set of shows to half-sold out venues and boxes full of unsold, overpriced T-shirts.

There is a story where the band the Byrds went on tour for thirty days spent $300K, came back, and did the math and found that they had broke even. When presented with the story, Jim Morrison countered, 'Yeah and look where it got 'em.’ 

AE - 09.17.2012