Record Labels Becoming Obsolete?

I’ve been thinking about the RIAA recently, trying to decide whether they’re just plain stupid, over-zealous or if their current ‘sue everybody’ modus operandi is part of a strategy to keep control of something that’s slowly but surely slipping away from them.

Multiple studies have shown that piracy simply isn’t effecting the music industry enough to warrant their reaction. In fact, studies have shown that peer to peer networking is, in essence, acting as free advertising for them.

However, they’re blaming every drop in sales on piracy, and going out of their way to sue individuals who’ve downloaded a couple of tracks. I can understand going after the ‘big’ pirates. The people who download an album, duplicate it and sell it for profit. But a college student who downloaded a couple songs?

You see, on the one hand, ‘big’ pirates are making a profit and directly stealing money from the labels. Money is going to them that should rightly be going to the artists.

However, I think a lot of these other ‘small time’ pirates are people who think like me. Sure I like music, but I’m not ‘into’ music enough to actually spend any money on it. I’ll listen to the radio in the car, but unless I really, really like a song, I won’t buy it.

While this isn’t an ‘excuse’ for piracy, or makes it any less illegal, it’s the “I’ll take it for free” syndrome. If you can get it for free, you’ll take it. If you have to pay for it, you won’t bother.

So, long story short, if someone like me downloads a few songs, they never would have actually bought the track anyway, meaning it has no effect on sales. (Of course, if you want to listen to a song, you should pay for it, but I think this makes my point…most ‘small-time’ piracy takes very little money from the labels).

But I digress.

Well, I have a theory about the RIAA’s actions, and here it is:

The RIAA (which is an association of record labels) is currently in a massively powerful position. Everything is on their terms.

Let’s look at this from the point of view of an up-and-coming band.

If you actually get noticed by a label, you have absolutely no power or control. It’s either step up, or step aside. Don’t like the contract you’re offered? Don’t like the changes the label wants to make to your line-up or music? Tough. There’s a few hundred thousand other bands out there behind you, waiting for your spot.

In other words, the label can make a ton of money off you, of which you’ll see very little, and there’s nothing much you can do about it if you want to see your album in stores.

It’s standard practice to make musicians pay for their own wardrobe, music video production costs, studio time, advertising costs etc. In other words, all of those costs come out of your share of the profits.

Long story short, you can sell a million copies of your album and net millions of dollars, but the lion’s share of it goes to the label. Only if you become insanely popular can you start to dictate terms. So only after you’ve made the label a ton of money can you get fair treatment…if you haven’t signed a long-term contract.

Well, let’s fast forward a little bit.

In the past, if you wanted to record your band, you basically had a tape-recorder in a garage. Anything even close to professional level equipment was prohibitively expensive.

Today, it’s easy enough to have a professional level recording setup in your own home. You don’t need a bank of mixers, you just need a mid-range PC and a copy of Adobe Audition. Making your own CD’s? Easy!

So, point one, you no longer need a label to record your band.

So what about promotion and distribution? Surely you need a label for that?

Well, not really. Set up a website and sell your CD’s through there. You don’t have to pay a commercial disc-pressing service to make 50,000 copies and hope they sell. Buy a stack of CD-R’s and a labeler and make them as you need them…or sidestep CD’s all together and sell the MP3 version directly from your site.

Chances are you won’t sell nearly as many copies as you would going through a major label, but the beauty is, you don’t really have to. Once you’ve paid your webhosting and bandwidth fees, you keep every penny you make.

For example, the current average royalty payment to the actual artists is between 8% and 25% depending on the popularity of the artists. So we can assume that a brand new band will make 8% if they’re lucky. But first, they only get royalties on 75% of their total sales because 25% goes to pay for packaging costs. Then, after all this, they lose (as previously stated) recording costs, touring costs etc.

Let’s look at a typical example:

Sell a million albums at $15 a piece. Gross income, $15,000,000 dollars.

$15,000,000 –minus 25% packaging costs = $14,625,000

8% royalties on 14,625,000 = $1,170,000

Minus $300,000 recording costs

Minus $200,000 promotion costs

Minus $100,000 touring costs

Minus $200,000 Music video costs

Final Total = $370,000

[Average costs and percentages taken from howstuffworks.com]

So, sure, you make $370,000, but considering your album made fifteen million, it hardly seems fair. Sell 20,000 albums yourself at $15 a piece and you’ve made almost as much.

So, what does all this mean?

It means the RIAA may be realizing that the music label is slowly becoming obsolete. Why go through a label when you have the ability to record, produce, promote and distribute your music on your own?

Yes, it’s highly unlikely you’ll become as rich and famous by self publishing as you would going through a major label, but this technology is still in its infancy, and it’s not so far fetched to believe that self publishing may become much more popular (if not the norm) in the next few years.

When we realize this, we see that it’s in the RIAA’s best interests to blame any drop in sales on piracy. Maybe part of the reason for the drop in sales is that people are buying more music from self-publishing indie bands.

People buying music directly from bands means no money in the RIAA’s pockets, so their constant lawsuits against individuals could be construed as an attempt to convince the ‘powers that be’ to give them yet more power to control online music sales.

File sharing and P2P networks are a great way for independent bands to get their music ‘out there’…which is exactly what the RIAA doesn’t want.