Major Labels Struggle to Survive

It is a fact that the music industry is in recession. In the aftermath of 2008, when miserable record sales and widespread file-sharing destroyed profits for major labels, the music industry is now scrambling for new ways to get their hands on your hard-earned cash. Competing with “free” isn’t easy, and the industry has shown it’s ready to adopt creative attitudes toward music consumers and free distribution, while simultaneously trying to implement new business models that force money into their pockets via taxes or subscriptions. It’s time to take a closer look at these schemes.

If you work for a music company, your job is in peril. Despite the boom in digital sales, all the big companies have resorted to cutbacks and layoffs, as more and more of their content is downloaded for free. For example, Virgin closed its megastores, EMI fired one-third of its workforce, and MTV parent Viacom announced 850 layoffs worldwide. This is just the tip of the iceberg, as nearly all major players undertook similar cost cuts, and continue to do so in 2009. In light of the greater economic crisis, unemployment leads to less consumer buying power, and a vicious circle propagates, with less consumption leading to fewer profits, leading to more layoffs.

For the music industry, file-sharing is the root of all evil. In Ireland and New Zealand, labels pressured Internet service providers (ISPs) and governing bodies to cut-off Internet connections if users file-shared. In the US, the Recording Industry Association of America (RIAA) had its appeal rejected in the Jamie Thomas prosecution, a lawsuit that was the cornerstone of copyright infringement regulation. However, such a defeat did nothing to deter the RIAA, as they have hunted digital distributors like Project Playlist and Spotify with lawsuits and mandatory blanket licenses. Ironically, the RIAA said at one point that they were walking away from new lawsuits, which turned out to be, unsurprisingly, a false promise. As if that weren’t intimidating enough, now the top RIAA lawyers are occupying the U.S. Department of Justice, undoubtedly to promote their anti-piracy agenda in Washington.

The four major labels (Universal, Sony BMG, EMI, Warner) also stirred up controversy with attempts to remove licensed music on Youtube, lawsuits against digital distributors like Songbeat and Facebook, and pushing obligatory taxes for university students. Taking the lead from New York Governor David Paterson, who wants to establish a 4% tax on all digitally delivered entertainment, the major labels are working with the British government in order to do the same in the UK, and have already started the process on the Isle of Man. By taxing all citizens for media downloads, the labels are being unfair to people who don’t file-share, essentially forcing money out of people’s pockets. What’s worse, the money from these taxes might not even go to the labels, used instead to fund government institutions designed, paradoxically, to persecute file-sharers.

The “downloading tax” might be a last ditch attempt to control our wallets, but it can be likened to the common subscription-based business model, which digital music services should be employing in the coming months. Apple Inc., with the success of the iPod and iTunes, controls enough of the market to deal with the industry on its own terms, but other mobile manufacturers like Nokia, Blackberry and Sony Ericsson want to start their own mobile distribution using subscription models instead of charging per song. The industry giants have suddenly realized that mobile music sales are their salvation, allowing Apple to sell tracks without copyright protection software (DRM), and rushing to strike deals with Apple’s competitors. Still, the new developments don’t give much freedom to consumers; downloaded tracks won’t always be burnable or transferrable to other devices.

Business models adopted by some indie labels go in a completely different direction. Open Your Eyes Records partnered with a file-sharing site to take advantage of their amplified distribution. Nine Inch Nails released their complete album for free download. Asian media mogul JY Park currently focuses on developing talent, not sales, stating that advertising and films are enough to counterbalance low CD earnings.

The major labels’ shifting from rich to poor in just a few years is unprecedented, and they’re reaching out for a handhold as they slide down a steep cliff. People download, and indie labels seem to embrace that fact, focusing on other money-making ventures like live performances, video games, and cinema. Perhaps for the first time, we’re seeing the independents achieve parity with big business. The Internet has equaled the playing turf, and has allowed you to voice your opinion through the only means the industry understands: your wallet.

Photo via audiojungle.net