Will Music Lovers Care When Record Labels Go Extinct?

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Will Music Lovers Care When Record Labels Go Extinct?And then there were three.

The bidding war for EMI -- the record label behind Katy Perry, Lady Antebellum, and Coldplay -- is over. A consortium headed by Sony (SNE) agreed to pay $2.1 billion for EMI's publishing business earlier this month, while Vivendi's Universal Music was the last suitor standing with its $1.9 billion bid for the label itself.

Breaking EMI in two was inevitable, but the meaty morsel here is that EMI's publishing arm sold for more than the label itself. In other words, EMI's past is more valuable than its present and future.

Need a Tissue?

There aren't too many people mourning the passing of the major labels. The labels and their thin artist rosters monopolize the already limited playlists of commercial radio. Then there's the negative publicity stirred up when the label-backed RIAA went after unemployed moms downloading tracks. Music piracy is a problem that needs to be addressed, but the labels didn't do themselves any favor by making it personal.

Even the fact that Universal will now control nearly 40% of the market -- leaving Sony at 30%, Warner Music Group at 19%, and a smattering of indies battling for the rest -- is unlikely to raise eyebrows with antitrust regulators. Prerecorded music has been a fading industry for years, and herding struggling labels together will only make it that much easier to identify the remains.

The Gradual Fadeout

CD sales peaked in 2000 when the labels sold 942 million units, raking in $13.2 billion in sales. It's been pretty much downhill the rest of the way.

Digital sales were supposed to save the day, but the label-backed MusicNet and pressplay initiatives were too restrictive. It didn't make sense that music lovers had to jump through more hoops to pay for music than the pirated options available on peer-to-peer file-sharing networks.

Apple (AAPL) finally got it right with the iTunes Music Store, which launched in 2003. Labels didn't like the $0.99 price point for singles. Artists didn't like the pricing either, since it found consumers cherry-picking the songs they actually liked instead of paying $9.99 for complete albums. However, Apple's storefront was far better for the industry than the piracy alternative.

Legal downloads should have been the industry's salvation. Record companies -- what were then five major labels and countless independents -- would benefit from the benefits of digital distribution. Labels wouldn't have to worry about pressing and packaging discs. There were no shipping or return hassles. Apple did all of the work, and labels got to keep roughly two-thirds of the sales. Unfortunately, it didn't play out that way. The growth in digital music -- which by 2008 found Apple replacing Wal-Mart (WMT) as the country's largest music retailer -- wasn't enough to offset the serious slide in CD sales.

Internet Killed the Radio Star

What went wrong? The labels will point back to Napster, LimeWire, Kazaa, and other disruptive peer-to-peer networks that swayed countless Web-savvy users to download and share pirated tracks. They're right, but there's a bigger picture that the major labels are missing.

The Internet made it easier to swap virtual mix tapes, but it also armed garage bands with the tools to get noticed. The playing field was leveled as artists set up MySpace music pages and uploaded tracks to the original MP3.com website.

Where would Justin Bieber or Susan Boyle be without YouTube? How many bands are scoring national attention through Facebook fan pages?

For better or regrettably worse, everyone's demo tape is now a click away.

Who says you need a major label for digital distribution? Getting your music on iTunes, Spotify, or any of the popular e-music stores and streaming sites will cost most artists less than a video game. TuneCore charges just $50 a year for an album -- or $10 a year for a single -- for digital distribution across more than a dozen well-trafficked sites. Artists keep all of the revenue. The same applies at SongCast, which works on a different fee schedule. Musicians who want CD and digital distribution can turn to CD Baby.

In terms of getting noticed, setting up pages on YouTube, MySpace, and Facebook are no-brainers, but music-dedicated sites including Bandcamp and SoundCloud are also there for promoting your digital presence.

The opportunities keep coming. Google (GOOG) introduced the Google Music Artist Hub last Wednesday, giving artists a free way to get their music available on what are now 200 million activated Android devices.

Last Round for the Music Moguls

The record companies aren't worthless, even in this scorched climate. Even if CDs go away, there are still promotional, radio, and touring benefits that are easier to secure under a major label. The problem for the prerecorded music industry is that the gap between the signed and unsigned has narrowed.

Even proven bands are finding it more lucrative to leave their labels and strike out on their own. As home recording equipment gets better and cheaper, record companies are no longer necessary to bankroll the once costly recording sessions.

Labels used to love signing artists with established followings, but now those same artists are wondering why they should be tied down to long-term deals when they have the digital distribution tools at their disposal to reach their growing audiences.

There's a new world out there, and its soundtrack is being scored by unsigned artists that you don't know -- yet.

Longtime Motley Fool contributor Rick Munarriz does not own shares in any of the stocks in this article, but his band Paris By Air was signed to Columbia Records from 1987 to 1991. The Motley Fool owns shares of Wal-Mart Stores, Google, and Apple. Motley Fool newsletter services have recommended buying shares of Wal-Mart Stores, Apple, and Google. Motley Fool newsletter services have recommended creating a bull call spread position in Apple and creating a diagonal call position in Wal-Mart Stores.


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Mekhong Kurt

I suppose the only ones of us who will actually *miss* them are those old enough to actually remember vinyl records. When I was a kid in the 1950's, my parents even had a collection of 78's, plus, of course, 45's and 33's!

People too you to have any memory at all of vinyl records have very different outlooks towards labels (who, as this article rightly points ought, sure do seem to love shooting themselves in the foot -- repeatedly) will, I suppose, look back on that whole era in much the same way I looked back on wax cylinders from around the turn of the 20th century: curiosities, but not something I really wanted to have.

The traditional labels (and movie studios) really have only themselves to blame. They used to treat performers quite poorly.

I'm not defending piracy -- it's a huge problem, and not just in the entertainment industry, of course -- but the music industry is committing slow suicide via death by a thousand cuts. In that sense, and just IMHO, good riddance.

November 23 2011 at 12:11 AM Report abuse rate up rate down Reply
topmind

The odd thing about downloading music is that you can record whatever comes thru the radio or TV and no one cares. Of course, you may have to wait a bit to get the tunes you were looking for, but recording radio music is not piracy?

November 20 2011 at 12:03 PM Report abuse rate up rate down Reply
Avid

After the RIIA went after kids and crashed my computer more than once I said I would never buy another CD and that was in 2000. I owned the cd's I had on my computer and I did not share them, however I copied them so I could put 600 songs on a cd so I could play in my truck without having to change the cd and they didn't like it. I also mixed the music they way I liked not they way they mixed them. When Napster became legit I bought many single songs from the 60's 70's 80's and 90's then they made it only good for 1 year and I said screw that and no more buying music. Many people I know have done the same thing and buy records or used cd's and keep a computer off line to still burn my own cd's of the music I want to listen to in the order I want. So if the RIIA and the recording labels go bye bye I won't lose no sleep.

November 20 2011 at 8:44 AM Report abuse -1 rate up rate down Reply
erkskindl

This entire article is just a piece of rubbish PR. Essentially designed to promote the cause of digital music and the immense profits that are made off of selling an essentially invisible, non physical product. Mass record companies don't generally care about quality anymore. It's all units sold and if that means no packaging as well, all the better.
It is not a case of the public not wanting an actual physical product. Many prefer it. It's just that convincing everyone to look upon the CD as some antiquated boring thing is exactly the direction they prefer you to take. Notice that Motley names Apple and Google, two companies they own stock in and recommend. So yeah, it's good for those companies if everything goes digital and the lowly CD is sent packing.

But I say cherish the CD. It is an awesome creation. Many companies (such as Project Records) does a quite beautiful job of designing covers to enclose their CD's in. When you hold it in your hand you really feel like you're holding something special. This is an experience that does not come from digital downloads.

The CD will always live! It is the most amazing recording medium. It is exquisite on so many levels.

I say LOVE the CD! LOVE IT!!!!!

November 20 2011 at 2:50 AM Report abuse +2 rate up rate down Reply
Fred

Konrad and Ron are dead on. As modern recording technology started to appear in the 50s, we aimed to what used to be called "hi-fidelity", i.e. reproduced sound that closely matched the real thing. Stunning speakers, amplifiers turntables and later reel-to-reel tapes gave us near-live sound. While there was some debate RE analog/digital, the CD continued the march to technical excellence in sound reproduction.

For the first time in my life, the technology is heading backwards in quality. I understand and accept the cultural and business reasons for the demise of the old recording industry - as I accepted free agency in baseball - and I love the near-universal access, distribution and popular and artist control of recorded music.

I just wish, a niche of quality would survive. I hope it will in Classical and Jazz music where fans truly understand the need for it. Just as the LP has survived in a limited way to meet demand, I believe the CD will for Classical, Jazz and the top popular artists. Sure the CDs will have to cost more, but higher cost for quality has been the principal for eternity.

November 19 2011 at 11:50 PM Report abuse +2 rate up rate down Reply
Konrad

Digital dowloads are ok but not CD quality. I do download singles but not albums. If there are more than three song I want on an album I will buy the CD. Besides, downloaded music is not tangible unless you burn a CD. If 45's were still produced I would be still buying them. They will probably screw us again just like they did with vinyl, just stop producing so your forced to buy what they want you to buy.

November 19 2011 at 5:58 PM Report abuse +2 rate up rate down Reply
Ron

MP3's SUCK in terms of quailty and depth! They better sell WAV's instead or we are going back to the tape days!!!

November 19 2011 at 5:32 PM Report abuse +2 rate up rate down Reply