Music companies provide a relatively simple service. They find musical talent, produce records and help sell CDs. But the Internet has recently thrown up big challenges, a trend highlighted recently when musicians Radiohead and Madonna sidestepped labels. Music companies should heed the wake-up call.
Their services are becoming less relevant for megastars. And the big names don’t always fill the coffers either. Labels should get back to what they do best—recruiting and developing talent. There are a couple of reasons music firms shouldn’t mind their biggest stars taking off. First, with the Internet and other ways to spread the word, acts with Radiohead’s profile don’t need their help. The cult band’s fans downloaded 1.2 million copies of its latest album in a week, according to preliminary numbers.
That’s four times as many records as the British rockers sold in the first week when they had EMI’s Capitol label behind them. The distribution deal struck with Starbucks earlier this year by Paul McCartney, another artist previously supported by Capitol, underlines the point.
In addition, the biggest stars don’t necessarily make much money for their labels. That’s because after a musician produces a successful CD or two, the economics can swing in the artist’s favour.
And if the next albums don’t do so well, a label can even be out of pocket. A downturn in Mariah Carey’s fortunes, for example, led EMI to pay her $28 million (Rs111 crore) to avoid making more of her records. Moreover, labels aren’t usually in the live concert business—an area where big names still rake it in, and in which Madonna’s new partner, Live Nation, operates.
All this means that for traditional labels, new artists can be just as lucrative as big names—if not more so. Happily, the labels aren’t overly dependent on individual stars either. Madonna’s old home at Warner Music makes no more than 3% of its revenue from any single artist. Sure, parting from big artists can trim revenue and doesn’t look great, but Warner and its rivals could do just fine if they can make a decent fist of identifying and marketing new talent.