Lessons from the Industry Formerly Known as "The Record Business"

by James Barton and Brian Message

A record company's value used to be measured by the acquisition, protection, and exploitation of copyrights. Exploiting those copyrights by selling songs is an easy business model to understand and used to be the foundation of a very healthy global industry. Historically, the record business was the heart of the music industry. Sell a lot of records and you were a successful business. And artists also succeeded through record sales: they became household names when they had sold a lot of records.

From the business perspective, artists and songs could be viewed as interchangeable commodities. If any given artist failed to deliver hits, another waited in the wings to take their place. This impersonal approach allowed the music industry to grow extremely profitable by simply selling "product."

But the sale of recorded music has taken a battering over the last decade, and it's no longer smart to judge an artist's commercial viability on record sales alone — not least when there is a new generation who questions the need to pay for recorded music at all. For many artists and their managers, record sales are now just one of many revenue streams and one of a number of factors with which to judge success.

Despite this dramatic change in the marketplace, many struggle with the concept of uncoupling success from record sales. It doesn't help that most measures — the charts by which many fans learn about new music — are still based on this notion. For emerging artists this is particularly precarious, since careers are too often ended early if a first set of recordings fail to sell.

So how should a "content producer" behave in this new environment? And what lessons can we learn from this new model of value? Here are the two keys:

1. Do not treat artists as commodities
2. Value the artist-fan relationship as highly as traditional rights

Smart managers realize every artist is a standalone business that generates income from multiple revenue streams. A manager's job is to create those businesses and run them well. This requires thinking globally and being agnostic about which revenue stream or territory is the most important. As long as those channels can deliver the aesthetic the artist wants and make a profit, the business is a success.

But the business of relationship building is not a quick one. Artists have to earn the respect of fans, convert that respect into trust, and, eventually, convert that trust into faith. Building communities takes time, and it can only be achieved over the long-term. In this model, artists can no longer be treated as interchangeable hit makers.

The key to artist-management success is identifying talent early and developing it cost-effectively over a long period of time. Artists — and their art — are the only real assets. The systems and structures that surround them should be treated as a means to maximize the commercial value of each artist. As such, the traditional music industry — be that companies that make and distribute records, publishers who collect performance royalties and create sync opportunities, concert promoters, or merchandisers — should be regarded primarily as service providers to artists.

As the digital age gathers pace, managers must engage in the shaping of the music landscape. That landscape is still plagued by a mindset that regards copyright as an instrument of control (which further limits commercial exploitation to traditional models) rather than as a remuneration right that can generate revenue wherever a market may be. The future is about accepting consumer behavior and looking for as many ways as possible to monetize it.

In addition, managers must also simplify the complex structures of the industry and create healthy businesses based on monetizing the behavior of consumers and those businesses that wish to use creators' works for their own profit. Without a simpler, better structured digital market, the direct artist-to-fan business will struggle to grow. Moreover, it will undermine the modern-day manager's opportunities to improve their artists' business.

Managers must also figure out alternative investment for artist businesses. Traditionally, it was the record business that invested in new talent. Restricting investment to direct rights exploitation keeps the emphasis on making money from record sales, which keeps the "investment risk" for would-be investors high. A viable alternative would be a market for investors to put their money into artists' whole businesses, where artists retain rights and investors participate in all the profits.

The music industry was the first of the creative industries to be affected by the disruptive nature of the internet. But it's not all bad news. Disintermediation has forced a focus on talented individuals who produce great art. One of the jobs of their managers is to create an environment that allows them to do so. Ways of collecting fans and connecting them to artists are ever changing, but by embracing new technology opportunities, creative businesses will flourish. Other content producers take note.