MUSIC BUSINESS
April, 2009

WHY MUSIC, LIKE ANY BUSINESS, NEEDS INVESTMENT

By Mike Iacuessa
"Nobody's buying records? Because they suck!...Once upon a time it took an army of very talented people to make great records. Writers, singers, musicians, producers, arrangers, engineers and now you have to do it yourself? No wonder everything sucks!...Nobody is born a great performer. Nobody is born a great songwriter. The Beatles were a club and bar band for five years. And then continued playing covers for five albums." - Steven Van Zandt of the E Street Band speaking at the 2009 South by Southwest Festival

"Critics who speak of the victims as 'fat record and film companies' are evoking tired caricatures, which I don't believe the majority of people today accept certainly not those who have recently spoken to an aspiring music professional, a film producer, a TV researcher or the owner of an independent music label." - Paul McGinnis, U2 Manager

You hear about a band. People tell you they are going to be the next Led Zeppelin. You'd be skeptical for sure but you'd probably go check them out, desperate for something on that level in this day and age. Now imagine if you went to their show and what you saw was a powerful collection of raw individual talent playing together with amazing chemistry. So, what is next for them?

If a major label had the foresight to sign them, they'd probably screw it up somewhere down the line. The turnover in those jobs is high and the person who brought the project in to the label might not be there to push it a year later. And the tried and true path - the independent label - is less an option in the current state of the music business. Turns out that while Internet downloading may have struck a blow to the major labels, in the end it also increased their share of the market, at least when it comes to the traditional side of the business.

There was a time when labels developed artists. It was widely accepted that it could take three albums for a band to find itself. Often major labels would leave it up to smaller independent labels to test the market with an act first. Up until the 1990s, a gold record (500,000 copies) could keep a major label thrilled with a band. However, if a band doesn't go gold quickly now, they will get dropped. Major labels are in the business of dealing mostly with bands that have potential to sell in the millions (platinum status), which also means dealing in music that is easily marketed to the masses and is as commercial as possible.

Many indies, however, were happy if an act sold 5,000 and perhaps topped out at 50,000, at which time a major label would certainly come calling to buy out the contract. One can therefore see how there were simply more career opportunities.

The problem over the last decade has been that independent labels have struggled the most with changes in the industry. The notion that music could be obtained for free created a chilling effect on investment, perhaps a far greater loss than royalties themselves. Conglomerates like Universal and Sony have deep pockets. They can cover their losses and transfer money from other divisions to keep their music departments running. Independent labels need cash flow and, for many, it dried up or worse, prevented a startup in the first place. Today, any conversation with someone in position to provide the venture capital is going to begin with, "Can't people just get this for free?" And that is a hard one to get past.

Indie labels had always been the heart of the industry, from the race records that recorded blues and jazz in the early part of the 20th Century; to the days of Sun bringing the world Elvis Presley, Johnny Cash and Roy Orbison; to the rise of punk in the late 1970s; Def Jam and rap in the 1980s; and the alternative music of the 1990s. Nirvana began its career on Subpop, then a fully independent label. Metallica's career started with the formation of a new record company, Megaforce, when all the major labels had rejected them.

In times of recession even, these labels thrived as major labels cut back. But now, for the first time in recorded music history, the indie labels have failed to step up and fill the music void, especially when it comes to rock.

Today, independent labels still make up an estimated 80% of new releases every year but, according to Soundscan's 2008 figures, their percentage of sales have fallen to below 15%. A particularly large drop occurred between 2004 and 2005 when their share fell from 27% to 18%.

The major labels are often accused, and sometimes accurately, of treating artists poorly but at least they fronted the money for their careers, a high risk investment to be sure. Investing in music has always been a gamble. Major labels regularly budget between $100,000 to $300,000 for a debut album.

For a major release, a producer needs to be paid an advance to cover two to three months of his/her time. Then studio time has to be booked. The tracking/recording process can take up to three weeks and often longer. Professional recording studios range between $400 to $1,500 per day. An engineer generally costs an additional $300 to $350 per day. Then the album has to be mixed, meaning more studio time. The world's top mixing engineers generally work on just one or two songs per day and charge up to $60 per hour. Then comes the mastering stage which can run several hundred more dollars. And after the completion of all that, there are still promotional and advertising costs to consider. Not factored in are the hundreds of hours the musicians themselves put in writing and rehearsing their material.

For an artist without major financial backing, the ability to compete in the marketplace therefore is difficult to say the least.

It is true that with the advent of home recording equipment, musicians are able to make their own recordings much cheaper but the quality rarely matches that of a professional studio, not to mention the second and third sets of ears available with an engineer and producer involved or the difficulties of not having a professional environment to work in. The Beatles may not have had access to today's technology but some of the professional equipment they did work with was still superior in quality than what is sold as consumer gear today. Back then, for example, a Neumann U87 microphone cost $25. Today, the very same now-used microphone can run you $1,800. And the Beatles had Abbey Road to work in and producer George Martin to assist their development and write string arrangements for them.

Music, like any business, requires investment. There is still an abundance of people who think CDs only cost a dollar to make and that mistruth demeaned the history of recorded music, every bit as damaging to the industry as the major labels greedily jacking the price in the other direction.

Mike Iacuessa is a music producer and founder of the Independent Music Foundation.

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