Culture blocks innovation in music production

How the music industry’s historic romanticism contributes to overspending and risk aversion

Almost everything about the music industry has changed over the last decade from the available production tools to the way fans consume music. Yet one thing that has remained unchanged is the unwavering position of the major record labels at the center of the industry, holding more than 80% market share. To some, this is truly puzzling. In an era of cheap, high-quality production and essentially free distribution, how have we not seen a rise in DIY artists? Why are successful artists who have already proven their potential continuing to ink deals with the majors?

A record label provides value through capital and relationships for two services: production and promotion. On average, a newly signed artist will receive $500K-2M in capital. Large promotion budgets arguably make sense; given the proliferation of musical content that is created and distributed, it is expensive to cut through the noise. Large production budgets, however, are more difficult to justify. With countless innovations in recording technology, production budgets should be drastically falling rather than increasing. The major roadblock to this reduction in spend is culture.

Where does the money go?

Production cost is largely driven by the pre-production process, during which artists will get access to teams of songwriters and producers to create their album. The cost of producers can easily send budgets north of two million dollars, depending on who gets involved. The most famous producer in pop is Max Martin, who has had countless number one pop hits for artists such as Backstreet Boys, ’NSync, Britney Spears, Katy Perry, Taylor Swift, and the Weeknd. When Martin gets involved, record labels front around one million and share 8–10% on the backend not including the songwriting royalties.

Why is so much money spent?

Does blowing a few million dollars on Max Martin guarantee a hit record? Martin has an excellent track record, but the unanswered question is how well would these artists have done without his help? He is working with artists who are working on their second, third or fourth album and who have achieved successful results in the past to justify record labels investing these large sums into new production. Behind the justification for these budgets lies a false sense of security. Labels and artists feel pressure to recreate past success, spending millions to buy a safety net. Once a few million dollars are spent in production, even more money must be spent in promotion in order to recoup the production investment. Furthermore, artists have come to expect this sort of treatment once they reach a certain level of success. Lavish production expenses are a part of the ingrained romance and culture of “making it” in music. With artists expecting this process, and producers such as Martin with track records justifying high sticker prices, the industry continues to capitulate.

What is the solution?

What if record labels slashed these production budgets and reinvested that capital into promotion? Or into new talent to further diversify their portfolios? Or into technology to open up new revenue opportunities for artists? Assuming the capital base of the majors, primarily generated from catalogue (i.e. old) music, does not dry up any time soon, reduced production spend will require a seismic shift in the culture of the industry. It will require recreating the romance of production for artists in another way.

Libby Koerbel loves to analyze ambiguous questions, listen to live music, and meet new people. She is an expert strategist with experience at the Boston Consulting Group, Pandora, Universal Music Group, Muzooka, and Pritzker Group Venture Capital. She is currently a MBA student at the Kellogg School of Management.

This post is a part of a series on how millennials discover content. Read some of the initial findings on millennial trends & new music discovery, as well as some musings on: your adventuresomeness quotient, framing uncertainty, curation wars, music tastes, sticky subscription models, and abundance.

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