Friday, April 2, 2010

The New Record Label Business Model:Strategy & Change

On March 18,2010, I attended an academic conference at UNLV in Las Vegas, NV. The experience was awesome and the feedback for my research was humbling. Below is an excerpt from some of the resarch I proposed. Please read! It is a serious look into what labels should be doing to move forward in the future.

Music is fruit for the soul. Music remains a significant part of life for many individuals. The corporatization of music and artists came into existence in America in the early 20th century with the advent of radio. Record labels began to form from the creation of sound recordings and radio. Record labels created the means for artists to get their creative work to the masses. This created a music industry and billions of profits over the last century. Unfortunately, the music industry of today is faced with suffering sales, low innovation and mediocre artistry. Much of this demise of the music business is centered on the major record labels reluctance to adapt to obvious trends and resistance to changing their culture.

The record label must focus on re-inventing itself for the future. A reinvention must happen internally by radically changing their business model. Culture must be addressed first, followed by new recording contract deals and finally the internal process of making records. The problem within the record label structure is the unconditional denial that they must bear the burden of responsibility for the lack of talent, artistry and poor sales that exist. The current business situation that record labels face is a crisis waiting to happen. New business models must be adopted within record labels to stabilize the music industry, improve organizational effectiveness, increase profits and encourage artistry. The change that must take place for record labels to be successful must focus on three areas. They are the Culture, the Deal and the Process.

Change is Needed

Can transformational change happen within major record labels? The short answer is yes. There is hope. One must understand the importance of the record label to the sustainability of the music industry. Record labels are needed but their current model is failing. The music business is one of the most important sectors of the global economy. “Music sales are closely correlated with GDP growth” (Snell, 2001, p. 58). Record labels are classified in two categories: independent and major. Independent and major record labels make up the United States music industry. Dowd (2004) found that there were two types of record labels broken into majors and independents. Major record labels are comprised of the Big Four. The Big Four are Universal Music Group, Sony, EMI and Warner Music Group. Major labels still hold about 70% of the market share. Although their market share is dwindling because Independent labels are growing, the major label’s usefulness is vital to the mass production of music in America.

Therefore, the change and strategy should start with the major record label first. According to Plunkett Research (2010), U.S album sales in 2009 reached nearly 380 million units. Of that figure, 40% was attributed to digital music sales (Plunkett Research, 2010). Record labels are a significant part of the economy and represent big business but change is needed. However, leadership within these dynamic and often complex organizational structures must be willing to accept their current status of internal failure and create a new vision. A vision that will bring about the type of change needed to sustain in this technologically, digitally geared music environment.

The New Business Model

Culture is can be defined as the value, beliefs, rituals and ideology which characterize the internal environment of an organization. Organizational culture is not something that can be changed by attempting to change it directly and it can’t be manipulated (Akin et al, 2009). For many record labels, the internal culture directly affects the artist ability to succeed. Culture in record labels can oftentimes be driven by the leaders and staff. The direction, vision, communication level, loyalty towards artists and recording process can all be determined by the type of culture a record label displays. Some record labels need to change their mental framework. Currently, many record companies have a “profit over artistry” mentality which directly affects the type of artists they sign, the level of productivity of their staff and the support given to artist. The “profit over artistry” mentality is a toxic mental state. With this mental state, record label employees view their main product (the artist) as a tool to reap profits as opposed to a partner who brings artistic talent to the organization thus reaping great rewards. The mindset in many record labels is disappointing. If a change occurs in the thinking of top executives, then this change will trickle down to the team and ultimately the individual level. The artists will be impacted for the better by a culture change.

The elements of culture that must change are belief in all artists, loyalty towards artists, direction of projects and top leadership support. Support is a critical piece to the culture and belief, loyalty and direction stem from top leadership support. If the top leader within major record labels support a particular project or artists, then the staff within these labels support at various levels. Thus, creating a positive culture filled with stronger belief, high levels of loyalty and greater direction of projects. Based on research, the following model characterizes the key components of the culture that must change.

The recording contract is the deal that artists sign which enters them into a legal binding agreement with record labels. Based on an in-depth analysis of a recording contract, the Deal must be a focus of change. Recoding contracts are lengthy, cumbersome, inadequate and full of irrelevant information. A new contractual foundation will radically change the way record labels do business. The deal must be structured so that both parties benefit. It should reduce costs and encourage artistry. In order for record labels to sustain and survive, they must change key parts of the recording contract.

First, all new artists should sign digital deals only. This will reduce cost and minimize risk for both parties. Second, record deals should state a specific dollar amount for marketing, promotion and tour support. Also, artist development should be reinstated within major record labels. Artist development is vital to reducing costs, eliminating waste and lowering the time spent recording a new album. Recording caps should be used for each artist as well. Finally, realistic goals should be set using the “360” deal model. These deals are being used more and more by record labels as a means of taking a percentage of the artist profits in more areas of the business such as merchandising and touring. If 360 deals are to be used, then realistic goals should be set so that both parties benefit. Realistic goals include financial support, sales goals and marketing objectives. Again, change is inevitable and record labels are facing dire times if they don’t accept and adopt some of these principles. The following model identifies the key components of the Deal that must change.

The final change strategy in the new business model is the Process. The internal workings of major record labels are old and malfunctioning. Carrying out change of the Process may be difficult to achieve but is necessary for the label and artists to accomplish goals set in the recording contract. First, the process of maintaining multiple artists on the record labels roster must be transformed. Record companies must release artists immediately if they are not reaching realistic goals. Now, this should only be done if the record label has changed its culture base on the factors identified in this paper. The proper amount of support must be given to each artist before releasing unsuccessful acts. Second, change the recording process. Create recording caps ranging from $35,000 to $75,000 and reduce unnecessary spending. The financial processes within record labels are in an abysmal state. All artists and their management should be able to track expenses and charges made on their behalf. An online database and tracking system should be instituted to eliminate waste and fraudulent activities. Third, define the vision of the project and develop a marketing plan before the recording process. This will create more cohesion and consistency for each project. It will reduce costs greatly and streamlines an already cumbersome process. Finally, set higher standards and more accountability of staff and artists. Record label employees are not challenged to do their best. When failure strikes, the artist is written off, not the staff member. There needs to be more accountability. However, if the Culture is changed from a top-down approach then the Process will be able to transform. The following model identifies the important components of the Process that must change.


  1. I manage bands and solo artists. It's crazy how labels are sucking more money out of artisst. I hate the 360 deals! Online is the way to go but takes more time to get popular and you have no clout with radio play. Labels pay off radio program directors to shove there artists down your throat on the radio.

  2. great read, i would love to ask u a few questions.