The Record Label Crisis
By Patrick Clifton
British record labels are in a crisis. They can’t “break” emerging artists and this is creating a problem that will impact every part of the music industry in the years to come. A new generation of artists is not building fanbases that will buy gig and festival tickets in two, five-, or ten-years’ time, and is not popularising songs that will have ubiquity in our culture once this generation of music fans reaches old age. Independent artist services companies have had success bringing artists to the mainstream but lack the scale and market power that major labels can deploy to turn popular artists into global superstars.
This is what I hear from many senior people working in the recorded music business. To analyse the problem they describe I have talked to a number of industry contacts to get their opinion. Based on these conversations, I take the problem at face value and suggest why it’s happening; I also propose a few possible solutions.
The funnel is a bucket. Before streaming, record labels managed newly-signed artists through a funnel. They’d sign a bunch of acts getting buzz among the A&R community; these would be presented to music journalists and radio producers for support. These tastemakers championed a subset of those artists which led to radio plays and space in retail stores for their first records. A yet-smaller subset would sell enough to receive ongoing investment from their record labels, their success generating enough hit albums to pay the bills. The number of hit acts you got out at the bottom was a predictable fraction of what you put in at the top — so it made sense to feed the funnel with a large amount of artists.
Today, every track sent to a streaming service is available. Exposure is prioritised through technology rather than influence. Playlist programmers make track choices, but the selection of tracks on playlists is exponentially greater than on daytime radio so the two things are not equivalent. The funnel is now a bucket; everything dropped in the top makes it to the bottom, with a very small number of songs and artists gaining visibility and subsequent popularity through DSP technology as well as the network effect of social media and TikTok. (See this Midia blog post for further evidence of the bucket).
Record Label Culture is Transactional: Technology changes at lightning speed but culture change is generational. In recorded music, label culture hasn’t caught up with the switch to streaming. This lag is understandable; according to IFPI, until 2017 most revenue was generated from sales of physical formats and downloads. It was only between ’17 and ’18 that streaming revenue exceeded 50% of the total. It’s no surprise that label employees would focus on the largest revenue segment. To fully understand the ways in which streams differ from sales would take time. The technological basis of streaming, the way apps are optimised for engagement and ongoing playback and the way consumption is marked by momentum shifts, as opposed to sales spikes, requires a completely different perspective.
The evidence suggests organisational structures are still designed to manage music through the funnel. Major label groups still operate multi-label structures where labels within groups compete to sign new artists, and one wonders if this is so that they can maximise the number of potential artists with which to feed the funnel. At label level, publicity and promotion teams push new music to what remains of the music press as well as music radio, and sales teams manage the relationship with streaming services, even though there are no sales taking place. Radio audiences dwindle and don’t play a role in bringing songs to a mass audience like they used to; yet pluggers are still viewed as critical to success and labels send taxis to take radio producers to and from shows, but not streaming programmers who work with much bigger audiences.
The album charts are still the primary measure of success of artist development, even though music fans have cherry picked their listening from albums ever since Apple unbundled them over a decade ago. At least 30% of the streams that make up the chart will come from passive playlist plays; the weighting of the chart between formats means any heritage act with a decent fanbase can drive a top 5 chart position through pre-order of a physical format. This makes it easier for releases with physical formats to have a top 5 chart position than digital only releases; the unintended consequence being a type of unconscious bias against the UK Rap, drill and grime artists who favour that type of release.
Success takes more time than anyone has patience for. In the transactional era, progression through the funnel had to be quick, as tastemakers needed evidence of commercial success to maintain trust in labels’ A&R skills. Chart success was generated in months, as daytime radio was a reliable leading indicator of a hit. In the post-transactional bucket, success takes a long time. A track might be popular, but the next track must go through the same process to find an audience. Algorithms help, but with so much music on offer to a listener — indeed, the entire pantheon of all recorded music — raising awareness of an artist through music takes time. This is within the broader cultural context of the so-called “attention economy”, where consumers are constantly bombarded with different stimuli, from social media to Netflix; and the declining importance recorded music now has in popular culture. The result of this is that it is taking longer for new artists to “break” — however that is now defined — a process that might take several years.
I’m told that strategies for signing artists have not changed that much. Labels still sign a high number of artists in the expectation a smaller ratio will be successful and they’re still giving them a relatively short runway to prove themselves before they move on. The problem with this approach is that whereas in the funnel, only a subset would see their music presented to consumers, in the “bucket”, every new artist is sploshing around trying to get traction. If record labels throw a high volume of new music into the bucket, this dilutes the signals DSP’s detect to generate track momentum between all those new songs . I.e., new music cannibalises itself, and Abba’s greatest hits prosper.
Addicted to Catalogue and TikTok. Streaming services all need full catalogue as they don’t compete on content; since music is presented in a bucket and not a funnel, the classic hits are just as easy to find as new music. This repertoire is the critical set of rights in licensing negotiations, which can drive advances and minimum revenue guarantees; it may also be fully recouped so is particularly cashflow-accretive.
This drives short-term financial upsides, but long-term, this development is problematic for the entire music industry. The combined music ecosystem relies on record labels to sign and develop new acts as a primary milestones in an artist’s career. The cycle of new music releases generates the fan interest required to put tours and shows on sale, as well as (of course) putting songs into the marketplace that live audiences are going to want to sing along to. It generates the imagery that ends up on t-shirts, sold at profit during the shows. We have a situation today where both the artists and audiences are middle-aged and older for some of our biggest live music brands, such as B.S.T, The O2 and Glastonbury — so what will happen in five years, if we can’t address this issue?
TikTok is another manifestation of pressure to drive short-term success. The service amplifies songs old and new; it is as potent a driver of popularity among streamers as daytime radio was for retail consumption in the transactional heyday. But TikTok is a platform for broadcast at unprecedented scale; it is not designed to drive familiarity with an artist; when consumption migrates to streaming services, there is no emotional connection made as neither medium can contextualise the artist’s life or personality. Thus, many TikTok hits are one-hit wonders. As one industry figurehead told me, “A&R teams are just spending their whole day trawling TikTok.” This need for Tik Tok hits distracts from A&R’s core role, which is working on artist’s musical development for long-term success.
Top, Down; Bottom, Up. In the transactional era, moving music through the funnel was what got it into the shops. Sometimes, if the artist didn’t have a cool backstory, labels would manufacture it, picking out cultural markers magpie-like (think Menswear or Busted) and/or would invest in guerilla marketing, e.g. street teams, to create perceived buzz. The function of marketing after this was to communicate the availability of the release in the shops and to get everyone out to buy. Later, this demand was consolidated into a pre-order window from e-commerce retailers, with the function of marketing after this to generate demand amongst causal buyers. There was a big focus on the first phase of album releases: high chart positions would demonstrate success to tastemakers and a need to replenish stock would give retail confidence in the longevity of a project. Budgets were front-loaded and with music inhabiting a wider space in culture, mass media advertising was often employed.
This top-down approach doesn’t work anymore. Authenticity is a quality that is highly valued by this generation of consumers. Social media exposes artifice, and the conversation around AI and Deepfakes makes the manufacture of buzz seem completely dated. Expensive music videos, radio ads, even paid social — may be obsolete, since we’re no longer trying to turn demand generated by radio listening into purchases at a particular time. There’s a growing body of evidence that suggests new artists who are enjoying success are emerging from scenes they participate in or are creating around themselves. They’re honing and developing their craft as recording and performing artists in this safe space, where their core fanbase come from. That fanbase expands as they release more music and/or as their scene expands into broader geographies. Crucially, they understand the role of social media and are active participants in it, using this to help drive network effects. They might use platforms like Twitch or Discord to engage with their audience. They drop tracks and use data to monitor their growth over time. Given that they’re competing with music that’s decades-old, they don’t mind revisiting songs from their repertoire if those songs blow up. Their generation is used to side hustles, to wearing multiple hats — so these artists are not limited to, or defined by, being musicians — but this polymath identity helps them grow their own brand and expand their audience.
Their success is not generated by the master-plan of their record label. It is generated by two-way engagement with a core fanbase, which grows with time, helped by new music and the accelerating effect of social networks. A record label can help them grow, however, as I hope to explain.
From Consumption to Engagement: earlier in this piece I discussed how culture moves more slowly than technology, and that we’re just catching up with the end of the transactional era. As the head of one of the UK’s best-performing artist services and distribution companies pointed out to me in a chat about some of these trends, music has moved beyond the paradigm of consumption to one of engagement. No longer do music fans wait passively to consume music (a feature of streaming in its evolution, just as much as retail) — they’re actively engaging with it, and with each other about it. The culture continues to lag, but here are some possible solutions that might be tested to help catch up:
Sign Less, Take More Time. Everyone agrees that the pace of presentation of new music needs to slow. Labels should sign less deals, to prevent inter-artist cannibalisation, to help prioritise new music and to allow teams to dedicate more of their time on each individual artist. They also need to be given more time to demonstrate success. This will require different financial goals and longer recoupment windows, but hopefully with less money invested on generating false buzz or advertising that doesn’t work, upfront investment will be smaller as will the project risk profile.
Different Measures of Success. KPI’s and goals are helpful but people always tend to optimise to the metric. So the way the chart is measured helps to encourage a transactional mindset and a focus on a paradigm the industry has moved away from. Not only could we use a different album chart that better represents the momentum shifts of DSP’s; we also should look for different measures of success entirely. It could be about audience size (across streams, sales and tickets); revenue size; share of musical wallet; ability to sell tickets; total digital engagements — or a combination of these factors.
New Purpose, New Teams. The job of the label is no longer to dictate to music fans which new artists they should like. The job of the label is to listen to music fans to see which new artists are resonating, and to then invest in those new artists to accelerate their careers, leveraging their reach to take them global or their A&R expertise to take them mainstream (the foundational value proposition of global record labels). Data analysis to the level you’d find in a tech firm should be a core competency at a record label. This competency will help A&R find the music that is emerging from scenes and micro-cultures and will help new Engagement teams power the two-way relationship between artists and their growing fanbases. These engagement teams will focus on collaborations, activations and events and modest investments in marketing optimised for the channels where fans engage.
Merge Frontline and Catalogue. In any business there’s a risk, revenue and profitability mix between different categories or products — with the highest revenue and profit drivers offsetting low profit or loss-making products or categories. In the round, the business is still profitable. Yet record labels hive off Catalogue music — older repertoire that is normally recouped and therefore highly profitable — into a different division. The labels that signed the repertoire no longer enjoy the financial upside of that music and are in the trenches singularly focused on breaking new music. This exacerbates the pressure to “get hits quick!” and the sense of panic when it’s taking time to build momentum around new music. If labels could take back control of managing and exploiting their catalogues, it could help generate the conditions necessary to extend the time horizon for new artists to be successful.
One of the challenges writing this piece was limiting the scope, as there are so many things that could be changed. But I don’t have a fiduciary duty to shareholders and a need to report quarterly earnings. That is the legal and economic relaity for a lot of record companies, especially the ones that are publicly listed. Change is easier said than done. Perhaps some of the larger indies with private ownership structures can grasp the nettle.
Please get in touch if the article resonates with you and you have ideas to contribute to this discussion.
