Are Record Labels really obsolete or are musicians becoming crash test dummies?

It was quite the conversation with drummer James Michael Davis of Nemesys and music industry insider from New Jersey, President/Founder of Fallout Entertainment Group/ARK Recording Studios Kenny Colgate with their point of view on my Facebook page that began from my post Are Record Labels really obsolete or are musicians becoming crash test dummies?

Kenny Colgate also happens to be my mentor in the music industry as I intern with Fallout Entertainment Group artists since January 2010,
teaching me the music industry past and the new changing digital music
industry of the present.

Kenny is a great teacher with much insight from his 30 years experience consulting, recording and himself a musician playing bass
guitar, and always encourages me to keep asking questions and voicing my
opinions as I continue to learn the many angles of this business. Kenny
highly recommends and encourages me to continue reading many books on
bios and music marketing, reading blogs, and speaking with as many
people that is affiliated with the music industry as I can and when I
need that added information he is always there to fill in the blanks,
but also knows I need to research so I can come to my conclusions and
start discussions, throwing out ideas to see what sticks.

Kenny read my previous post and complimented me on bringing up the question if Record Labels are obsolete, because it is a question that is
arising more these days as the industry is changing fast and furious.
As all know many continue to scramble to find the answers while trying
to make it in this business whether they are a major label who are
struggling with keeping profits alive, to the many Indie labels and
Indie artists looking to find that yellow brick road to follow and that
is no easy task, never has been in the history of artists an easy task
but as I found out on many levels is becoming easier for those upcoming
bands and Indie labels in some ways yet much more competitive and
difficult in many other ways.

Kenny had this to share with me from an industry insider that helped me understand from the artists point of view where they’re at in this
crazy, competitive but loved business by so many.

This is an industry insiders take on this subject and I agree with it completely its rather long, but I think worth the read…

Are record labels obsolete? Not 100% on that, more like their business model is obsolete… good news for the independent artist because
no longer is a label deal the ultimate goal for a band… there are
options:

The RIAA (which is an association of record labels) is currently in a massively powerful position. Everything is on their terms.

Let’s look at this from the point of view of an up-and-coming band.

If you actually get noticed by a label, you have absolutely no power or control. It’s either step up, or step aside. Don’t like the contract
you’re offered? Don’t like the changes the label wants to make to your
line-up or music? Tough. There’s a few hundred thousand other bands out
there behind you, waiting for your spot.

In other words, the label can make a ton of money off you, of which you’ll see very little, and there’s nothing much you can do about it if
you want to see your album in stores.

It’s standard practice to make musicians pay for their own wardrobe, music video production costs, studio time, advertising costs etc. In
other words, all of those costs come out of your share of the profits.

Long story short, you can sell a million copies of your album and net millions of dollars, but the lion’s share of it goes to the label. Only
if you become insanely popular can you start to dictate terms. So only
after you’ve made the label a ton of money can you get fair treatment…if
you haven’t signed a long-term contract.

Well, let’s fast forward a little bit.

In the past, if you wanted to record your band, you basically had a tape-recorder in a garage. Anything even close to professional level
equipment was prohibitively expensive.

Today, it’s easy enough to have a professional level recording setup in your own home. You don’t need a bank of mixers, you just need a
mid-range PC and a copy of Adobe Audition. Making your own CD’s? Easy!

So, point one, you no longer need a label to record your band.

So what about promotion and distribution? Surely you need a label for that?

Well, not really. Set up a website and sell your CD’s through there. You
don’t have to pay a commercial disc-pressing service to make 50,000
copies and hope they sell. Buy a stack of CD-R’s and a labeler and make
them as you need them…or sidestep CD’s all together and sell the MP3
version directly from your site.

Chances are you won’t sell nearly as many copies as you would going through a major label, but the beauty is, you don’t really have to. Once
you’ve paid your webhosting and bandwidth fees, you keep every penny
you make.

For example, the current average royalty payment to the actual artists is between 8% and 25% depending on the popularity of the
artists. So we can assume that a brand new band will make 8% if they’re
lucky. But first, they only get royalties on 75% of their total sales
because 25% goes to pay for packaging costs. Then, after all this, they
lose (as previously stated) recording costs, touring costs etc.

Let’s look at a typical example:

Sell a million albums at $15 a piece. Gross income, $15,000,000 dollars.

$15,000,000 –minus 25% packaging costs = $14,625,000

8% royalties on 14,625,000 = $1,170,000

Minus $300,000 recording costs

Minus $200,000 promotion costs

Minus $100,000 touring costs

Minus $200,000 Music video costs

Final Total = $370,000

[Average costs and percentages taken from howstuffworks.com]

So, sure, you make $370,000, but considering your album made fifteen million, it hardly seems fair. Sell 20,000 albums yourself at $15 a
piece and you’ve made almost as much.

So, what does all this mean?

It means the RIAA may be realizing that the music label is slowly becoming obsolete. Why go through a label when you have the ability to
record, produce, promote and distribute your music on your own?

Yes, it’s highly unlikely you’ll become as rich and famous by self publishing as you would going through a major label, but this technology
is still in its infancy, and it’s not so far fetched to believe that
self publishing may become much more popular (if not the norm) in the
next few years.

When we realize this, we see that it’s in the RIAA’s best interests to blame any drop in sales on piracy. Maybe part of the reason for the
drop in sales is that people are buying more music from self-publishing
indie bands.

People buying music directly from bands means no money in the RIAA’s pockets, so their constant lawsuits against individuals could be
construed as an attempt to convince the ‘powers that be’ to give them
yet more power to control online music sales.

File sharing and P2P networks are a great way for independent bands to get their music ‘out there’ which is exactly what the RIAA doesn’t
want.

Kenny Colgates final thought regarding the Indie Bands he works with who are associated with Fallout Entertainment Group to me:

To follow up Amanda, I think you can see why obtaining touring, promotion and marketing capital is so important at this point for any
Fallout Artist, everything else is DIY with a budget behind us we
basically can do everything a label can (though most likely on a smaller
scale) and the beauty is if any Artist we work with becomes an
attraction to a major then said Artist of course has the option to sign
that deal.

Many thanks to Kenny for his encouragement to voice my views as I continue to learn newly emerging into the industry with my questions
and own ideas as he and many others help me along this long and winding road. (had to throw that in, what’s writing about music without some famous music lyrics)

Check out my next post with the discussion I had with James Michael Davis and his take on the new digital world emerging and how he and his
band are succeeding in the Indie industry.