Record labels need to adapt to survive in the new digital age – how are they changing their classic business model to do so?
Record labels have long played a vital role in the music industry, signing artists to contracts, funding recording, and marketing expenses, and taking a percentage of the artist’s earnings in exchange for their expertise and resources. This traditional business model has helped launch the careers of many successful artists, including Madonna, Michael Jackson, and The Beatles.
However, the rise of digital music has had a major impact on the record label industry, leading to declining sales and increased competition from streaming services. As a result, record labels have had to adjust and evolve their business models to stay relevant in the digital age.
Sales & Streaming
Following the rise of streaming and the decline of sales, record labels have been forced to adapt by partnering with streaming services rather than competing with them. While initially resistant, many record labels have partnered with streaming platforms like Spotify, Apple Music, and Tidal to promote and distribute their artists’ music while receiving stock and other exclusive benefits. These partnerships help record labels reach a wider audience and generate revenue through streaming royalties.
In the past, record labels relied primarily on album sales as a primary source of revenue. But album sales have declined significantly with the shift from physical to digital music. In fact, according to the Recording Industry Association of America (RIAA), streaming now accounts for the majority of music industry revenue, with 75% of total revenue coming from streaming in 2020. While the industry has since recovered from declining revenues in the 2000s, this shift has put pressure on record labels to find new ways to generate income, leading to an increased focus on partnerships with streaming services.
In addition to partnerships with streaming services, record labels are also focusing more on touring and merchandise as sources of revenue. With the decline in album sales, touring has become an increasingly important way for artists to make money. Record labels are now investing more in supporting and promoting their artists’ brands, offering more merchandise options for fans, and issuing broader “360” contracts to artists to cash in on these sales. Merchandise can include various items, from t-shirts and hats to more unique items like limited edition vinyl records or autographed posters. By offering multiple merchandise options, record labels can give fans more ways to show their support for their favorite artists and generate additional revenue – and the biggest opportunity for merch sales is when a musician is on tour.
While live music has always been an important part of the music industry, the decline of music sales and fragmentation of revenue sources has made the sector more important than ever. In the new digital (and post-covid) era, many artists have turned to live streaming and virtual concerts to connect with their fans and generate revenue from across the globe. Record labels are now investing in these virtual experiences to market their artists and reach untapped audiences.
Music Ownership
In contrast to the 360 deal, another way that record labels are adapting to the changing market is by signing shorter-term or more flexible contracts with artists. In the past, record labels often signed artists to long-term contracts that gave the label broader control over their music and career. But in the digital age, many recording acts are opting for shorter-term or more flexible contracts that allow them more control over their music and give them the ability to adapt to changing market conditions.
One of the most influential examples of this shift is Taylor Swift‘s master recordings controversy. In 2019, Swift publicly criticized her former label, Big Machine Records, for selling her masters to a third party without her consent. The controversy sparked a larger conversation about artist rights and the traditional business model of record labels, where the copyright for an artist’s recordings typically remained with their label indefinitely. In response, some record labels have started offering more flexible contracts or allowing artists to retain ownership of their masters. In particular, the frequency of “exclusive licenses” being issued from artists to their labels has increased, with Beyoncé, Sara Bareilles, Caroline Polachek, and Harry Styles licensing their latest projects to their labels directly or through their own imprints.
The Taylor Swift controversy highlights the ongoing debate about the role of record labels in the music industry and the balance of power between labels and artists. While record labels can provide valuable resources, manpower, and expertise to help artists succeed, some artists argue that the traditional business model is outdated and overly restrictive. As the industry continues to evolve, record labels will likely have to adapt to the changing demands of artists and find more equitable ways to work together.
Moving Forward
Looking to the future, it’s clear that the record label industry is in flux. Some experts predict further consolidation, with a few major labels dominating the market. Others believe that independent labels will continue to play a significant role, particularly in the digital age. And with the increasing importance of live music, record labels will likely continue to invest in touring and other live experiences as a way to generate revenue.
The future of the record label industry is uncertain, but record labels will have to continue adapting to the changing market to stay relevant. This might mean forming new partnerships, exploring new sources of revenue, or finding more flexible ways to work with artists. Regardless of the challenges facing record labels, it’s important to remember that they still have a vital role in the music industry. Record labels provide valuable resources and expertise that can help artists succeed, and they have a proven history of discovering and breaking new talent.
As the industry continues to evolve, it’s important for record labels to find ways to adapt and innovate while still supporting and uplifting artists. By staying true to this mission, record labels can continue to play a crucial role in shaping the future of the music industry.
“RIAA 2020 Year-End Music Industry Revenue Report.” RIAA, Recording Industry Association of America, www.riaa.com/wp-content/uploads/2021/03/RIAA-2020-Year-End-Music-Industry-Revenue-Report.pdf.
“Taylor Swift: Scooter Braun ‘will own my music for eternity’.” BBC, BBC, 23 Nov. 2019, www.bbc.com/news/entertainment-arts-50478236.
