Gorillas in Our Midst: Searching for King Kong in the Music Jungle

Abstract

As veritable venture capitalists in entertainment acts, record labels now invest considerable sums to find needles in haystacks – an elusive group of potential successes that can sell enough albums to pay for the many other acts that can not. This financing system is now increasingly nonsustainable as market audiences have abandoned the historic promotional venues of broadcast radio and physical retail. Consequently, the major record companies now come to develop new financing models for distributing, incubating, and monetizing talent. New revenue-sharing contracts, joint venture deals, and coalition arrangements now involve independent labels, new technology providers, artists, concert promoters, advertisers, and related agents. The issue before the industry is now one of transactional and organizational efficiency, in so far as it implicates the ability of institutions to reshape contracts and make music production and distribution more profitable. The respective consequences of each phenomenon will be more money, shared risks, and new customer options. The present loss of power and influence that major labels will now experience presents room for new agencies and business models that will engage the efforts of the more effective innovators at major companies, a generation of competitive new players – concert promoters, talent managers, merchandise sellers, general advertisers, and social networks - and emerging power players – News Corporation, Apple, Google, Yahoo, and Live Nation. New hierarchies will emerge that bring order out of increasing complexity, and present opportunities for sharp investments that can capitalize on them. The new market will evolve critically in response to present quandaries: 1. The center of the music industry will move from the sale of the compact disc/digital track to the integrated promotion of the entire recording act. 2. Major and independent labels will more equitably share in revenues from concerts, merchandise, and publishing, while artists will receive a greater share of label earnings. 3. Major labels will continue to reduce A&R, marketing, and administration costs by picking up successful acts from independent labels and self-promoting artists. 4. Recording artists and labels will tap new revenue streams, such as online advertising and brand sponsorship. 5. More relationships will increase involve new players who are now on the periphery of the recording business.