Sympathy for the labels, part 1

4 minute read

I previously commented on the Billboard article about labels’ unhappiness with eMusic, although I got some of the facts of the article wrong—an obvious reminder that I need to sleep on eMusic news before writing about it. The article was the subject of much comment on the eMusic message boards, to which I contributed in a small way. Having had some time to think since then, I’m ready now to expand my comments.

I recently expressed some scorn for the labels’ complaints, including using a rather colorful metaphor that I won’t repeat here. In fairness the labels do have real problems and at least some justification for their complaints, so I feel an obligation to show some sympathy for them and offer some constructive comment. I think there are at least three real issues that the labels are right to be concerned about:

  • Labels are struggling to adapt to a world where CD sales are dropping and digital sales are not picking up the slack, and they’d like eMusic to be sensitive to that fact.

  • Labels are at risk of leaving money on the table by putting releases out on eMusic at the same time they release on CD and to iTunes.

  • Labels don’t have any assurance that eMusic-based revenues are going to show any growth.

In this post I address the first point, postponing discussion of the second and third to subsequent posts.

The sorry state of the music industry is obviously not of eMusic’s making, but it does inform everything the labels think, do, and say. As an outsider not working in the business I can see this as simply an inevitable historical trend: The golden age of the music business began when mass distribution of recorded music became possible at all, and ended when it became cheap and easy enough for anyone to do it. During this golden age (roughly coinciding with the 20th century) record labels were able to profit greatly from their control of music distribution, but that control has now disappeared, and with it the associated profits.

The current turmoil in the music industry is simply an unavoidable consequence of this trend, which the labels can attempt to delay (e.g., through draconian enforcement actions against illegal downloaders) but ultimately cannot stop. The only suitable response is thus to make change [your] friend, as Bill Clinton once said. However those living through this period (including paying—or struggling to pay—for mortgages, health insurance, child care, etc.) can’t afford to be dispassionate, as the whole world changes around them and they struggle to adjust their business models to adapt.

Beyond the competition from P2P downloading and the decline in CD sales, I think there will also be additional pressure on CD prices due to both competition from the used CD market (revitalized by sites like LaLa) and the increasing dominance of Amazon in selling indie CDs (and perhaps now indie digital tracks) as record stores bite the dust. (In particular Amazon may end up being to indie labels what Wal-Mart is to its suppliers.) In the end I think the labels need to plan for a future in which CDs don’t sell for more than $10 and digital albums don’t sell for more than $5. This will likely require some pretty wrenching changes to the cost structures of labels that are already very lean (even starving) operations in the first place.

Customers may or may not sympathize with the indie labels’ woes, especially given that the major labels and the RIAA have done such a great job of painting record labels in general as villains eager to screw both artists and customers. But although the major labels indeed may be a den of thieves (and not afraid to say so), indie labels don’t deserve to be lumped in indiscriminately with them. And in any case eMusic itself has to work with the labels, and clearly has an interest in keeping them at least reasonably happy.

It may be hypocritical of me to say so, given the snarky comments I myself have made in the past, but David Pakman might be advised to make an extra effort to show sympathy for the labels’ plight. It’s not necessarily that he’s seemed dismissive of their problems, but his attitude as conveyed in public comments (Sure, on occasion, a few labels will come and go) seems to be that periodic label defections are just a natural phenomenon that has minimal impact on the overall eMusic business. I actually agree with Pakman on this point; given the amount of music available on the service, eMusic can easily sustain the loss of a few labels here and there. However from a PR aspect label defections constitute a drip, drip, drip of bad news that is especially undesirable for eMusic now that people are raising serious questions about its long-term viability in the face of competition from Amazon and other services.

Stories focusing on the departure of key eMusic employees are another indicator of the PR woes eMusic finds itself in. The implied subtext of such articles is that eMusic used to have people who went the extra mile for indie labels, but now eMusic is just a cold-hearted business that doesn’t care if the labels live or die. Whether this is true or not, showing some extra indie label love might help eMusic lessen the PR impact of any further label defections; this includes both supportive public comments and some actual business moves (as discussed in my follow-up posts).