A Little History Lesson On How The Recording Industry Works

from the an-inside-view dept

Jon writes in to tell us about an opinion piece from The Guardian written by Simon Napier-Bell — a manager for some big name rock bands, including the Yardbirds and Wham! — giving his historical analysis of how the recording industry killed itself. He notes that it’s somewhat systemic. He goes through example after example that shows that the recording industry never recognized that it was in the business of selling everything having to do with the musician, and always through it was just in the business of distribution. He details, in no uncertain terms, the gangster mentality (and connections) of recording industry execs, that were much more focused on exploiting musicians rather than helping them. He digs somewhat into the economics covered by Courtney Love and others. Much of this has been stated elsewhere, but it’s yet another reminder that recording industry execs are lying when they talk about how their main focus is to “help artists.” If that were true, there were tons of things that the industry would have and should have done differently over the past decade. He also recognizes that there is a place for record labels, but it’s a very different one than in the past, and it needs to be focused on selling the scarce goods related to the music, rather than just trying to sell the music itself.

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Comments on “A Little History Lesson On How The Recording Industry Works”

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Crosbie Fitch (profile) says:

But, sell the music by all means

The recording industry should focus on recording and selling music, not selling copies of recordings.

As we know, copies of recordings cost almost nothing to make.

Music and recording it is a significant cost that a musician’s audience would be very happy to compensate.

So, stop prosecuting the audience for making copies. Encourage them to do so. Save money.

AG (profile) says:

Just give it time

To put this in an economic perspective, consider that for most of the history of the recording industry, it WAS primarily a manufacturing business. Record labels had large investments in fixed assets (or long-term contracts with other firms making these investments) to manufacture records, tapes, and CD’s and distribute them to retail stores. Artists were a relatively inexpensive supplier of raw materials (songwriting and performance), who were in great supply but whose success rate, as the article explains, was about one-in-ten. With such a dismal prospect of cashing in one’s talent, artists couldn’t exactly go out and get bank loans to finance their own recording sessions, manufacturing, and distribution (would you give a loan to a friend who only had a 10% chance of paying it back?). So they went to the loan sharks, aka the recording industry, who fronted them all of the initial investment in exchange for a pitifully small share of the potential return.

The internet and digitization of music has opened up new frontiers for musicians, but the record industry still is incurring the costs of fixed manufacturing assets. It is an established microeconomic principle that a business should only exit a competitive industry if, in the short term, its revenue is less than its variable costs (which are low). Simply stated, the record labels will continue to operate the CD business until they are no longer paying off the manufacturing capital; until that point is reached it is actually more costly to shut down than to operate at a loss. Maybe then we’ll see significant investment in pure-play digital distribution and more creative business models than the old ones that persist today.

My point here is that we can debate the record labels’ morality until we’re blue in the face but the reality is that they held the economic power in the artist-label relationship until very recently. As capitalists, they exploited that power for profit and to make good on the commitments they made to their investments and creditors. They are “helping the artist” no more or less than, let’s just say, the owners of a software firm that pays Chinese or Indian programmers $2 or $3 an hour to write code is helping them. When’s the last time we’ve heard anyone on this blog or elsewhere fret about the low standard of living of this workforce, or how they’re being cheated out of their fair share of profit in the software industry? Many of us have profited in the appreciated value of software companies employing this workforce, and you’re probably running code written by one of them on your computer right now. I sympathize with recording artists, but they are now free to take their own risks and get their own payday, regardless of whether they or others wish to blame past failures and vulnerability on the evil recording industry.

4-80-sicks says:

would you give a loan to a friend who only had a 10% chance of paying it back?

In many cases, it is the record labels themselves which perpetuate this 90% failure rate. They created the circumstances that make it so hard for people to pay them back. They charge for promotion (among other things) and then fail to promote the act enough for them to make enough money to pay back the advance.

Shun says:

Just give it time

While I agree with the central premise that the “music industry” as it is currently constituted is a manufacturing business, I am not so confident that it will go away once the price per unit drops below the price of manufacturing, I really don’t see that happening any time soon. Are the labels still paying off their old CD-pressing machines from the 80’s? They’ll always be able to run their old lines, as long as the electricity flows and the delivery trucks keep coming to the loading dock. Maybe the pure hassle of physical delivery will kill CD’s, but that still leaves digital distribution. As long as they are able to sell a track for one penny, by your argument, they will be able to stay in business, because the marginal cost of making that one track available on the internet is 0.

Where I see the music industry running into trouble is with competition. If an artists signs with an indie, and the independent label gives the artist a reasonable return, royalties, etc. then no artist in his/her right mind would sign on with a major, unless that major can keep out the indie, on iTunes, AllofMP3, etc. I guess that is their next move. Try to keep independent labels off of iTunes. I think they’ve pretty much succeeded there.

Oh, and I don’t use software coded by people paid $2-$3 dollars an hour for their coding skill. I use open source software, which by definition was given to everyone, for the benefit of all. It’s possible that the code came from a factory, but highly unlikely, given the miniscule profit potential of open source software. And the big difference between the music industry and the software industry: if my software tanks, you still keep that $2-$3 per hour. If my music doesn’t sell, you give back that $2-$3, as well as the next $20-$30 you make throughout your lifetime, assuming you haven’t starved to death by then.

4-80-sicks says:

Re: Just give it time


Shun: The argument is that since the marginal cost of distribution over the internet is 0, they should not depend on selling tracks for any amount of money in order to stay in business.

Much as open source software depends on many people around the world, so digital distribution can be farmed out. The cost to the labels for that can easily be 0 (or extremely close to the point of being negligible).

I’m a bit confused by your paragraph about iTunes and MySpace, so I’ll leave that one alone 🙂

Sean Raborg says:

Music Industry Morality...

@Just give it time by AG

Alright, you comment annoys me.

Lets, say you come up with an idea for some awesome product, yet you lack the funds to create or distribute your idea, so you come to me to strike a “business deal.”

Now, after a discussing things with you I offer to take on your venture as long as you abide by the following terms.

1. I take 95% of the profits

2. All expenseses that I occur in helping you create and distribute the product comes out of your 5% (basically, all the money I give you is technically a loan)

3. And when everything is said and done, I retain the rights to the product– not you

Welcome to “Music Industry” – One of the last great Exploitation industries around.

Please, don’t defend this industry until you understand how hard it goes out of its way to screw the artists.

Don’t believe me? Then explain to me how artist can have albums that go platinum, yet make no money off them?

… just my two cents.

AG (profile) says:

Re: The cult of the recording artist

In the article cited and the discussion thread above, there is a persistent tendency for “artist adoration.”

People who decide to become recording artists are just ordinary human beings who happen to have a mass-marketable talent, and have chosen to sign a record deal in hopes of making it big.

My point is not that record labels are paragons of morality, but that they are not especially different from the owners of other firms.

Our society places so much value on celebrity, and projects its own desire for youth or rebellion on recording artists, that it has invented a mythology that recording artists are victims of their industry. I am beginning to sense that even a fairly enlightened thinker can fall for this myth.

If the recording industry’s actions resemble that of a pimp, it is only because society’s desire for beautiful, marketable, talented musicians resembles lust. Artists enter into these deals of their own free will, with hopes of selling (or renting) their talent to a mass audience, and sign up with the highest bidder. It is a victimhood of choice. With the exception of the rare prodigy-savant, musicians have other life choices available, and many who have been “successful” might have found a more healthy, positive, and mutually rewarding bargain with society by setting their sights a little lower than international fame.

Don’t believe the hype. Art is divine, but artists are not gods.

Cixelsid says:

Re: Re: The cult of the recording artist

Dude, you went off on a little artist bashing tangent that has about as much to do with the argument as a background voyeur in a cheesy 80’s porn movie.

Sure, other people in the world are getting a shit deal, jesus, you don’t have to search long to find misery and injustice somewhere in the world. But does that serve as an argument as to why artists should get screwed over by their labels?

Don’t answer that, God knows I’ll just fall asleep reading through all your paragraphs of spin.

Andrew D. Todd (user link) says:

The Cult of the Rich Recording Artist

The technical barriers to entry in the music business are not really all that compelling. They are no greater than the barriers which writers have long been overcoming. Nowadays, with computers, typing is ubiquitous, but it did not use to be. In L. Sprague De Camp’s handbook for science fiction writers, written in 1975, back in the typewriter era, there is the advice that a professional writer must learn to type. There is even a very active tradition, going back a couple of hundred years, of the author as printer (Benjamin Franklin, Virginia Woolf and the Hogarth Press, etc.), and the personal website is only the most recent incarnation. There was a certain type of writer who not only printed his own work, but went out on the street and sold books or pamphlets from a satchel slung over his shoulder (*). The same kind of reasoning applied to music would be that a serious musician must develop the skills to be his own sound engineer. If recording equipment is too expensive, then he must learn enough electrical engineering to build his own equipment. What it comes down to is that the artist is at too much of a disadvantage if he has to rely on someone else to finish his work. Middle class artists routinely learn whatever skills they need and buy whatever equipment they need. There is the well-known “artists and lofts” phenomena. A good artist, that is, a painter or a sculptor, has all the essential aptitudes to be a good carpenter. Therefore, struggling artists rebuild buildings to work in, so as to save on rent, and then sell the buildings (or long leases). Thus they make a living by carpentry if they cannot do so by art per se. By 1975, audio cassette tapes were coming into use, and they were soon followed by videocassette tapes. For a period of time, tapes were the preferred medium for distribution, and for both kinds of tapes, a typical player was also a recorder. Read-only CD’s did not last very long before being superseded by laser-written CD’s. The same thing happened with DVD’s. The “read-only window” was only about five years in duration, less than the lag between different kinds of equipment which were still in use at any given time. The real issue, of course, is simply the social class basis of popular music. Being middle class is about being in control of your own life. Being subproletariet is about being “done unto.”

The movie/music industry has about as involved Mafia connections as any industry except garbage hauling. Popular entertainment traditionally has a kind of blurred boundary with prostitution, which is of course a long-recognized organized crime business. “Showgirl” or “French Actress” was traditionally a euphemism for a prostitute. The ancestral form of modern popular entertainment in the nineteenth century was the music hall. The music hall was itself an innovation, superseding the traditional streetcorner performer. Every town had a music hall, and big cities had multiple music halls. The music halls employed large numbers of performers, but, in order to keep the costs down, the music halls didn’t pay the performers very much, not really enough to eat regularly. The performers were expected to make up the difference with a bit of prostitution, or some other “grift.” Performing on the popular stage, as a singer, actress, or dancer, was an unremunerative occupation which prostitutes did by way of advertising. This comes across in the short stories the great French writer Colette wrote from her own personal experiences backstage, circa 1900. In one episode, a desperately hungry little ballerina does a B-girl routine in order to trick a strange man into buying her a ham sandwich, and escapes before he can claim his quid pro quo.

Jazz music is the great ancestor of nearly all modern pop music. However, jazz comes from New Orleans. Until 1917, New Orleans had a legal brothel district, Storeyville, located where the Iberville Projects were later built. The legal brothels were all fitted out as nightclubs, with all the usual trimmings such as restaurants and live orchestras. All the great jazzmen were employed by such places, and naturally did various kind of related work, which made them pimps. The curious thing about “pop” music is that it is an essentially plebeian art form, appealing to the emotions rather than the intellect. The pop musician sings his pain, in crude personal terms. You cannot perform jailhouse rock with full credibility unless you have been in jail, and most people in jail are there because they cannot afford bail.

In the United States, mechanically reproduced entertainment, that is phonograph records, radio, and motion pictures, took off at the same time as Prohibition (1920-33), the period during which the sale of alcoholic beverages was banned, and alcohol was treated as an illegal drug. This meant that a drinking establishment was axiomatically a criminal business. Entertainers below the star level, who could not expect people to make a special trip to hear them, were perforce mob employees. That meant that the music, movie, and radio businesses had to give the mob a piece of the action in order to gain access to the performers the mob owned. Existing music halls tended to be converted to moviehouses, and there, too, the pre-existing stakeholders had to be paid off.

The entertainment industry became mob-controlled, because it grew out of prostitution, which was itself mob-controlled. The mob was an effect rather than a cause. It grew up to control a cluster of “reprobated practices.” These reprobated practices naturally used the underclasses, simply according to the logic of slavery. Symphony orchestras were never mob-controlled, because that kind of music was not reprobated. Businessmen would pay to have their daughters taught to play the piano or the violin by someone who was a member of the symphony. At a higher level, the best musicians tended to become official composers, with what amounted to civil service posts. In our secularized age, that works out to teaching in the music school of a state university.

Pop music is a music of social disintegration. To understand modern pop music, one must also understand the assembly line mass-production factory, and the Faustian bargain it made with the worker. The mass-production factory was an artifact of transition. In any given locality, barring massive immigration, it only lasted for a single generation, before moving on somewhere else in search of cheaper labor. Factory work was so brutally hard that it was unattractive to anyone who had a skilled occupation or the education for a middle-class job. Factories recruited peasants, because hand-cultivation was about the only work worse than working on an assembly line. The son of a peasant came and worked on an assembly line, and made good wages, good enough to buy a house and send his children to school, so that they could be something other than factory workers or peasants. Everything has a price, however. The price of wealth was cultural discontinuity. From the perspective of the children, their grandfather was an ignorant and wretched peasant. There might even be a language disconnect, with the grandfather speaking only the language of the old country, and the children speaking only English. The children’s father, on the other hand, spent his days doing something incredibly boring in a factory, which he did not want to talk about, and which left him in a state of chronic fatigue, prone to sudden and irrational anger. This left the children deprived of a sense of identity. They were cultural orphans, ready to be recruited by someone like Elvis Presley. The mass worship of someone like Presley or Britney Spears has a certain sinister family likeness to the mass worship of someone like Adolph Hitler or Josef Stalin. The child is taught to adulate someone who does not even know that he exists, and who has no concern for his welfare. This can only happen when parent-child relations have gone catastrophically wrong.

To take one example, I had never heard of Britney Spears until she called herself to my attention by becoming a noisy RIAA spokesperson. Then, of course, it was necessary to research her a bit. Examining a few of her lyrics, I noted that these are the voice of a beggar girl, on the street and dealing with her boyfriend-pimp in terms of crude power, trying to avoid being reduced to the condition of a prostitute with her customer. There is a persistently materialistic strain running through the songs, preoccupied with the getting of consumer goods. Stars are not stars because of some unique talent, but because they can represent themselves as a simulacrum of the audience, while simultaneously emphasizing how rich they are. The idea is that the audience can then imagine themselves being rich.. Someone like Britney Spears has to act out in public at regular intervals in order to maintain her slum-girl standing, hence the drugs, drunk driving, and whatnot. Britney Spears’ songs are not the voice of a middle class girl, with mummy and daddy protectively visible in the background. The condition of middle-class childhood is to be given everything which it is right for one to have. Pop music singers are, in other contexts, the natural prey of the slumlord. The record companies are able to sign them to iniquitous contracts because they do not have family lawyers to take advice from. One additional aspect of underclass culture is that organized crime is ubiquitous. Businesses which deal with the underclass on a regular basis are apt to get roped in, on a quid pro quo basis. I found it exquisitely significant that one of the first victims of the RIAA lawsuits turned out to be a twelve-year-old girl who lived in a housing project. No one else would buy into Britney Spears’ debased values. Books, on the other hand, are an essentially intellectual medium, essentially middle class, and book authors concede very little to publishers.

One important implication for the recording industry is this: the assembly line wave has passed through the United States, and exited again, bound for China. The special conditions which caused young people who were not slum dwellers to identify with slum dwellers, and even with pimps and prostitutes, will fade. Relations between parents and children will become much more healthy and vital, because they are no longer arguing across a class barrier, and this will tend to exclude the RIAA. Children are naturally interested in whatever it is that their parents do, or whatever their parents like. Commercial youth culture can only succeed by default.


(*) Interesting sidenote, the French term for eighteenth-century contraband writings, “colportage,” or “peddling” as the dictionary would have it, translates literally as “carrying on the neck. One envisions a shifty character, with his satchel crosswise over his shoulder, sidling through a market crowd, selling dirty and/or politically subversive books, while keeping an eye out for the police.

Ed Reid and Ovid Demaris, The Green Felt Jungle, 1963
An interesting book about the boundary between the entertainment industry and the mob in Las Vegas.

Robert Phelps, ed., The Collected Stories of Colette, 1984, Part II, “Backstage at the Music Hall”

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