The Future Of Major Labels
The value chain of the music industry has seen significant disruption in the last 20 years, led by the creation of the mp3 turning music into a digital product. Peer to Peer file sharing software Napster threatened to break the value chain completely before Apple offered the music industry some hope with iTunes as a way for consumers to digitally access recorded music before the more recent evolution to DSPs such as Spotify and Apple Music.
The value chain of recorded music pre digitisation
The value chain of recorded music post-digitisation
An aim of many companies is to create a highly differentiated offer in their part (s) of the value chain and hope that other parts of it become commoditised, making competition interchangeable in all sections of the value chain apart from their own. This singular point of differentiation in the value chain will most likely allow a company to create high-profit margins for themselves, whilst leaving low margins throughout the rest of the value chain where each competing product or service could be swapped with little loss or gain.
The record labels and publishing companies historically used their scale, capital and expertise to sign and promote unique artists under long term contracts, which made their offering highly differentiated within the value chain of the recorded music industry. Consumers are interested in hearing music from their favourite artists and the labels had almost complete control over that music, if not the artist themselves via the contracts they negotiated. The digitisation of music and more broad technological changes created some adjustment to the different parts of the value chain of the recorded music industry. Although manufacturing and distribution were not highly differentiated in themselves, they required large amounts of upfront capital, which is not something artists traditionally have early in their careers. The digitisation of music meant rather than manufacturing and distributing thousands or millions of copies of CDs, all that had to be done was to duplicate a digital music file, which can now be mostly done at the point the consumer interacts with the music. This change to the latter part of the value chain altered the basis of the relationship between the artists and the record labels that wanted to sign them, giving the artists more leverage to negotiate as I’ve previously covered in the Wu-Tang and The Masters of Negotiations.
With many other parts of the value chain being easier to fund directly without the support of a record label or publisher, record labels will need to find new ways to differentiate themselves and provide unique value to artists and therefore be uniquely differentiated by having exclusive access to their music. The answer lies in one of the unchanged parts of the value chain, marketing. In a recent article from Billboard.com there was a very apt comparison:
“What does a soda bottler have in common with a record label? Plenty.”
The point the article goes onto to make is different to one made here but I don’t think there could be a better comparison than fast-moving consumer goods companies such as Coca-Cola and the recorded music industry. The basic strategy of most FMCG companies is to find or create good products and then create a formidable and sustainable brand for that product via marketing. If an artist can now directly and cheaply cover the other elements of the value chain (distribution and recording), and there is no manufacturing cost, marketing is the one part value chain that offers an opportunity for the labels to create real value and become highly differentiated.
For decades, TV, print and point of sale advertising were the rinse and repeat approach to marketing and brand building in the music industry. With the inception of the internet and then social media, the landscape completely changed. Artists have a direct connection with fans and this created both new opportunities and also new challenges. Creating an audience where the playbook can be changed on a whim by the social media platform, meant that using these platforms to build an artist’s career has become a rare and valuable skill.
The most recent and well-publicised platform to highlight this marketing opportunity was social media app Tik Tok and it’s contribution to Lil Nas X and his hit “Old Town Road”, which became the longest-running number 1 hit of all time. From Lil Nas X on Time.com:
“They (Tik Tok) really boosted the song. It was getting to the point that it was almost stagnant. When TikTok hit it, almost every day since that, the streams have been up. I credit them a lot.”
From reading a number of other insights into the Old Town Road story its clear Lil Nas X is playing down the strategic work that went into creating the hit, however, regardless of whether this was luck or judgement from Lil Nas X’s team, the power of platforms such as Tik Tok to blow up an artists career is undeniable. The TikTok memes generating over 6million streams in the US alone.
Examples of User-Generated “Old Town Road” memes
The response from all major labels should be to build this capability in house. The constantly changing nature of how the platforms work and which platforms have the biggest audience means that this will not be a one-time investment, however, if a label can be at the forefront of this type of marketing it creates a hugely differentiated offering for artists when they are picking between the majors, independent labels and going it alone.
One response to this challenge from the majors has been to find a bridge between delivering this value to artists without the need to build the capability in house. Instagrammer ‘I’m Just Bait’ has amassed 3.4 million followers through resharing videos, which they are now leveraging with the backing of Sony/RCA. The creators of I’m Just Bait partnered with tastemaker Abdi to create the ‘We Are Blk’ label under the Sony/RCA imprint to release artists such as Yxng Jamz. Creating a wider ecosystem, the Instagrammers ‘I’m Just Bait’ have moved onto the DSPs directly with their BaitList Playlist (see below) amassing over 190,000 followers on Spotify.
Whilst this approach of offering external partners opportunities to create their own subsidiary label has been fairly common historically, it has mostly been reserved for those with more established careers and therefore leverage. The dynamic has shifted from better established, veteran partners to newer upcoming partners. The trend of offering external, non-artist partners this opportunity in return for their ability to spot and sign artists through authenticity within their network is now joined by the huge upside of these partners also having an engaged fanbase to immediately market new music to.
The value in these types of deals is fairly straightforward, although not ideal. Getting to participate in the revenue created by new artists that the major labels wouldn’t have been able to sign and getting better access to audiences they couldn’t reach is better than no access at all.
The longer-term issue with not building best in class in marketing, social media and community management capabilities internally is that the major labels will always be dependent on third parties to provide the value to artists that persuade them to enter into recording contracts, therefore losing out on leverage to get higher margins or longer contract terms that for so long have been the core of the label’s revenue drivers.
Extra research by Dushiyan Piruthivirajah.