The Music Industry: Is it Defined Too Narrowly?

There is a great post over at The Long Tail written by Chris Anderson about how everything in the music industry is actually up except for CD sales. By the way, if you haven’t checked out The Long Tail you should…interesting stuff.

Everywhere I look these days people are talking about the decline the music industry is in, but what exactly are they talking about? As Anderson points out, the only aspect of the music industry that is really down is CD sales. Granted, CD sales account for a large portion of the music industry, but consider some of the other areas that make up the industry as a whole. Concert tickets, merchandise, digital tracks, ring tones, music licensing, and vinyl singles are all on the rise.

If you define the music industry as the sale of compact discs, then of course, the future of music industry has probably never looked worse than it does right now. If, however, you define the music industry in broader terms to include things such as concert promotion, merchandise, licensing, etc., then the state of the music industry might not be as terrible as many people think.

This is why the major record labels are trying to reinvent themselves by coming out with these new “record deals” that demand part of an artist’s tour, merchandise, licensing, and publishing revenue streams. This topic really calls for its own separate post, but if I were an artist looking for a record deal, I would be VERY LEERY of signing with a major record label that wanted any part of these additional sources of income, regardless of how large of an advance they offer.

Part of the reason major record labels have developed the shady reputations they have is because they have shenanigan accounting practices. For example, many major record labels still charge artists for items such as “breakage,” which came about over fifty years ago when music was distributed on shellac records that easily broke during transport. Have you ever tried to break a CD? Its nearly impossible. Additionally many major record labels still charge artists for “research and development” on the CD. The cost of research and development for distributing music on the CD has been recouped ages ago.

The point is this, if record labels are going to start defining their role in the music industry in broader terms, are you going to trust them with managing part of your tour, your merchandise, your licensing, or your career? I once had a professor who spent over thirty years in the music industry tell me that to his knowledge, there has never been an audit of a major record label that didn’t reveal that the record label owed an artist more royalties than had been paid.

If the major record labels have such “creative” accounting practices for record contracts, I can only imagine what they might do with a contract that includes additional revenue streams such as touring, licensing, merchandise, etc.

Defining the music industry in broad terms may provide a positive outlook for an industry that seems plagued by negative news. If the major record labels begin defining their role in the music industry using a broader scope, (as some already have) I hope they change a lot more about how they conduct business.