label 2.0

2007. június 20. - Pléh Dániel

Not long ago, music industry executives, media analysts, journalists, and everyone else smartened up.  Sure, the disruptive digital transition was bruising major labels, but a broader industry was being buoyed by a ravenous consumer demand for music.  Calls for the death of the music industry were simply misguided.  Predictions involving the death of the record label, on the other hand, were far more accurate.

But are record labels really headed towards extinction?  Applying the current model, which relies heavily on recorded assets, the answer is yes.  But if labels manage to diversify themselves quickly, and redefine the traditional definition of what a label is, the answer changes.  And increasingly, that is what majors are doing.

The latest example comes from Universal Music Group, which recently moved to purchase Sanctuary for £44.5 million, or $88.3 million.  Sure, Sanctuary is a deeply troubled organization, and terminals at Heathrow have less baggage.  But the allure of a company like Sanctuary is its diversified approach, one that traverses recording, publishing, merchandising, and live concert areas.  Those are all integral parts of the artist universe, and areas that the traditional label hasn't typically played a role in.

But what about all of the activity surrounding newer digital and mobile formats? Does that count as part of a diversification strategy?  Full-track OTA downloads, online downloads, subscription-based platforms, ringback tones, on-demand music videos ... the list is endless and proliferating.  But for the most part, newer formats have failed to rally a cash bonanza.  Sure, ringtones ignited a multi-billion dollar bonfire years ago, but consumers are mostly shifting away from transactions involving recorded assets.  And diversification within recorded music is mostly failing to offset physical declines, at least in the current snapshot.

That is forcing labels to broaden their outlooks, and embrace an even wider source of revenue.  And in that light, more experiments are bubbling.  Once recent example comes from Den of Thieves, an original programming initiative at Warner Music Group.  And publishing units at major labels are continuing to license emerging music formats.

Artist contracts themselves are also starting to change.  Perhaps Robbie Williams will always be branded the deformed guinea pig in this arena, thanks to an oft-criticized mega-deal signed in 2002.  The broadened contract, an £80 million ($159 million) agreement, failed to popularize Robbie in the United States and saddled EMI with a massive liability. 

But five years later, the underlying strategic thinking of the Williams deal is now gaining steam, especially given the dire revenue situation at major labels.  In 2002, diversification deals represented a forward-thinking approach.  In 2007, they are part of an urgently-needed shift, one that labels will increasingly embrace to ensure their own survival. 

In an earlier era, majors had the luxury of popularizing a star and missing out on subsequent revenue streams.  Now, an implosion in recorded music sales is making that structure increasingly unworkable.  Survival demands a modified and more far-reaching approach.

So, the diversification train is started to roll, but can labels broaden themselves sufficiently to survive?  Perhaps, but a massive void has already been created, one that spells immense opportunity for well-oiled independent labels, aggressive management agencies, publishing groups, and almost any other group of smart, music-focused entrepreneurs.   Suddenly, labels are not only struggling against nosediving CD sales.  They are also facing a powerful class of emerging startups, a sector that is just taking shape.

But where are the billion-dollar, label-replacing ideas, tailored for modern, digitized consumption habits?  The digital music space is already bubbling with innumerable startups and fresh ideas, but who will develop, market, distribute, and license artists in the future?  In other words, where are the next-generation labels, management firms, and publishers, or combinations thereof?

It's amazing to think.  The music industry is rife with disruptive upheaval, nosebleed financing rounds, and high-stakes drama, but the game is really just getting started.  And forging the future market is an increasingly-powerful consumer, one that is playing by rules that disregard traditional models - and existing law, for that matter.  That demands a different approach, one that will radically transform the current roles that the label, management group, and publisher play. 

Can majors play on that future stage?  Maybe, but only if their models diversify radically beyond recorded music, and only if this process accelerates tremendously.  Because diversified labels have a c

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