The music industry needs to get into the groove if its distribution model is to survive 20th century digital disruption
It was all so simple back then. Around 1890, when it was discovered that 5-inch wax discs of dubious sound quality could be played on new-fangled gramophones, recorded music became available for consumption. For more than a century, the disc evolved through hard rubber, celluloid, shellac and vinyl, joined along the way by tape and compact disc. Yet, from Elvis Presley to Elvis Costello and beyond, the only way a music fan could access recorded music remained simple and static: a record company distributed records/cassettes/CDs to shops on a sale or return basis. To further square the circle, the major labels often owned the plants that pressed vinyl records, most famously EMI’s factory in Hayes, West London, which also made records for other labels such as Island.
Record companies were kings of their domain. Their A&R department – artists and repertoire – specialised in procuring the acts, the producers, the musicians they used and the studios they recorded in. They paid for the acts – or, more accurately, loaned them money as an advance on future earnings – to record singles and albums. They promoted those acts to radio stations and the music press. If the acts didn’t sell, the label dropped them, writing off the advance. If the acts did sell, they received royalties, which were deducted by the label from the money owed on advances, recording costs and promotion.
“Think of it as a golden circle,” says Gennaro Castaldo, director of communications at the British Phonographic Industry, (BPI) the music industry’s quaintly named trade association. “Record labels and artists were on the inside, radiating music. Fans were on the outside, pulling in music they wanted – or were influenced – to consume.”
Ian McNabb, singer with The Icicle Works, who had hits in the UK and US in the 1980s, signed to three major labels. “The advances were simply to keep you going on a day-to-day basis,” he says. “My royalty statements always began with a minus figure. I’d get about 29p an album, but I never left a label owing less than £250,000. You sold records, they gave you more advances, so you were always in hock.”
Laws of supply and demand
Acts moaned – it was virtually a contractual obligation – but the system that served Louis Armstrong, The Beatles, Led Zeppelin and Nirvana held firm. The 1970s punk revolution transformed the business, but the method of getting music to consumers remained the same. Even punk business maverick Geoff Travis never contemplated overturning the supply system; instead he started his own label, Rough Trade.
There was flexibility too. As the labels owned the presses, they decided what to press and could react swiftly to unforeseen events. After Elvis Presley died in 1977, he sold 200 million albums in four months. His label, RCA, switched all their pressing plants worldwide to Elvis product and ran them 24/7. In 1997, when Elton John’s ‘Candle In The Wind’ – his tribute to Princess Diana – sold 33 million copies, PolyGram’s CD pressing plants ran on overtime. Shops ran dry, but for hours rather than days.
New technology arrived. While 8-track cartridge, DCC and MiniDisc fell by the wayside, cassettes and compact discs were co-opted by the labels. The CD’s greatest gift to record companies was that it persuaded a generation of music lovers in their 30s and beyond to buy their old record collections all over again at higher prices. The first commercially available CDs, one of which was Billy Joel’s 52nd Street, were released in Japan in 1982, and CD sales overtook vinyl in 1988 and cassette in 1991.
There were quixotic tilts at the old order. The arrival of the blank cassette that could record from radio or vinyl caused such consternation that the BPI launched their Home Taping Is Killing Music campaign in 1980. Yet, in reality, home taping was promoting music. Blank cassettes were prone to breaking or shredding and the sound quality was mediocre. When people liked what they’d taped, they usually bought an album or a single.
Then, at the very moment the industry appeared to be at its zenith, it collapsed. In 1991, few noticed when Munich’s Fraunhofer Institute invented the MP3, which compressed files of music. On this new fangled medium, consumers could hear music and upload new and existing videos, tracks and concerts. Yet the industry ignored the future to focus on the prosperous present: in 2000 a record 2.46 billion CDs were sold worldwide and over half of music sales were on compact disc. For the record labels, though, the revolution they hadn’t seen was the equivalent of Johannes Gutenberg inventing the printing press.
“Digital, download and MP3 were disruptive, game-changing technology,” says Castaldo. “The industry wasn’t sure whether the emerging models would prove commercially viable. It took time to understand the new dynamic and its opportunities. The industry had always shaped distribution via its relationship with retail, but the internet operated outside that. There was suspicion to overcome, including how best to embrace the internet to enable a sustainable commercial return.”
A new dawn for distribution
The revolution was slow but steady. It wasn’t until 1997 that MP3.com enabled users to access music online, while downloading took another year until eMusic.com offered MP3 files for download. When student Shawn Fanning unveiled Napster, the first peer-to-peer (PP2P) file sharing network, in 1999 and the iPod made MP3s portable in 2001, record labels suddenly looked doomed. “An entire generation grew up thinking paying for music was a mug’s game,” laments McNabb. In 2014, digital revenue overtook that of CDs.
There was carnage in the industry. Labels contracted, merged or closed. With the demise of EMI, PolyGram and BMG as standalone conglomerates, there are just three majors: Universal, Sony and Warner. Some major artists licensed their music to record companies (Kraftwerk had been doing it since the 1970s, when few had the clout or nous to follow), which reduced the label’s role to marketing and distribution. No label emerged unscathed, but some began to employ the download generation.
“Take Ed Sheeran,” says Castaldo. “You needed investment to help his talent reach a wider audience. It doesn’t just magically happen: to market simultaneously across the globe, you need expertise. Moreover, investment and marketing can take up half of record company revenues – in other industries the R&D spend is typically much less. There’s risk too: for every Sheeran, Sam Smith or Little Mix, many more acts don’t make it. The music industry promotes UK culture, drives exports, attracts tourism and provides the content for the live sector. Take UK grime: it started out underground, but it can reach a global, more mainstream audience by working in partnership with record companies.”
21st-century supply chains
The digital revolution has created an intriguing diversity of supply models. McNabb asked fans and Facebook followers to buy his current album Star Smile Strong, in advance. Based on previous sales, he knew he would sell roughly 4,000 copies via pre-orders, plus his usual 15-20 at shows and spikes occasioned by airplay and reviews.
“I do everything through the internet,” McNabb says. “Vinyl is expensive and I don’t know how many I’d sell. The payment rate is so small on downloads I view it as promotion. My overheads are low, but I’ve got a mortgage of £1,500-£2,000 a month and a few years ago I was selling vintage guitars to pay it. I’ve turned things around by sheer hard work, recording and touring. Right now, I’m optimistic that I’ll make it to the end of my life without having to get a proper job.”
New artists without a fanbase require old and new thinking. In 2017, in theory, the major labels treat each act differently, depending on their genre (grime needs to be underground; country requires a more traditional approach) and their commercial level (Sheeran doesn’t require an introduction or to build a fanbase; a newly signed act does).
“Our labels have to be incredibly nimble,” says Selina Webb, executive vice president of Universal Music UK. “There is no homogenised approach in terms of consumption platforms, revenue streams or reaching audiences. We think of ourselves as entrepreneurs in partnership with artists. That might sound daunting but it’s what makes these incredibly exciting times.”
Steve Malins manages acts old (John Foxx and Blancmange) and new, such as Gazelle Twin. “The last Gazelle Twin album, Unflesh, we released independently with a distribution deal. They took 20% and we had to sell 1,000 CDs and 500 vinyl albums to make it work.”
Malins hired a digital PR team to engage “tastemakers”. With a buzz building, they posted videos, opened an online store to sell individual tracks pre-album-release and hired a live agent. Unflesh featured in many publications’ ‘best of’ lists. That enabled Gazelle Twin to join the lucrative festival circuit, increasing exposure and sales.
“The album sold enough to re-press, but it’s hard to make money on record sales. We try to see the bigger picture, where record/digital sales are one of many income streams. Gazelle Twin owns all her copyrights because the days of signing to a label and that being the focus are over. There’s a new album soonish and we’re looking at all possible options.”
In 2016, 123 million albums were sold in the UK, according to the BPI. The cassette is long gone and at 47.3 million, CD sales were still declining (although the actual rate of decline is slowing) and vinyl was enjoying its 10th successive year of increased sales, albeit to just 3.5 million albums from under 300,000 in 2007. In vinyl’s pomp, major labels pressed their own records. Today there are just a handful of privately owned plants (EMI’s presses have become The Vinyl Factory). Even so, Sony – which had not pressed vinyl for almost 30 years – opened a vinyl pressing plant in Japan in June.
The rest of 2016’s sales were streaming (44.9m), track equivalent albums (9.8m) and digital (18.1m). People still want music, that much is self-evident and the free-music generation has been followed by one that understands that paying for music is the only way to keep it alive.
“The 17-year olds of Generation Z understand that they invest in the creative process by paying for music,” says Castaldo. “This means the industry can now engage directly with consumers through heightened use of social media, rather than advertising or broadcast promotion.”
As a result, even in an ever-changing landscape, which streaming will dominate for the foreseeable future, the surviving labels themselves remain key.
“In an age when anyone can create music and digital services are overflowing with content, the role of the label in elevating the best content and breaking artists globally is essential,” says Webb.
“Think of the marketing and promotion channels that need to be coordinated: labels help with radio promotion, digital and playlist marketing on services including Apple Music and Spotify. Labels are experts at expanding artists’ revenue streams, including film, television, theatre, merchandise, touring, ticketing and sponsorship. These partnerships position artists for long-term career success.”
How To Distribute An Album In 2017
How Ian McNabb released Star Smile Strong
Write songs including ‘Mystic Age’ (which features Professor Brian Cox).
Secure £15 pre-orders on Facebook – 1,500 signed.
Record drum tracks at Elevator Studios, Liverpool for free, plus studio engineer payments. “They wanted to say I’d recorded there. I thought: ‘Thank you, Baby Jesus’.”
Record and mix rest of album at studio of producer Ciaran Bell. “It’s just a little room. He has Pro-Tools.”
Send off artwork.
Decide how many CDs to order on top of the 1,500 pre-purchased. “I ordered 3,000, with another 1,000 at a lower rate, ready to go. I know how many my last album sold, so I base it on that.”
“When the CDs arrive, they’re usually shrinkwrapped. Myself and my 83-year-old mum sit in our front room, take the shrinkwrap off so I can sign them, hand address every envelope and take them in sacks to the post office.”