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How David Pakman Shortchanged Role Of Record Label

November 03, 2014

I respect David and his accomplishments in the music space, but his blog “The Artist’s Share” misses the mark.  The piece wrongly assumed that labels pay royalties to artists and simply keep the rest.  This is not the case.  Let’s take a closer look at the value labels actually bring to the table.

First, the numbers.  A label P&L (balance sheet) looks far different than the blog portrays.  Labels don’t “keep more than 80% of the money they receive” – labels invest that money in finding and developing talent, marketing and promotion, and distribution.  Fortunately, there’s a wealth of facts and figures in a report -- “Labels At Work:  The Music Business In The Digital Age” -- we submitted to Congress this summer.  Here’s some food for thought:

•         In the last decade, the major labels spent more than $23 billion on talent, of which roughly $18 billion went to artists.  Artist royalties have increased by 36% over the last decade as a percentage of label revenue, remaining steady in dollars as label revenues have plummeted. 
•         Artist royalties alone are three times more than label operating profit.  That’s right – at the end of the day artists receive 3x what the label does, and that doesn’t include money such as  endorsements that artists derive once their careers are launched by the labels’ investment.
•         Labels spend more as a percentage of their revenue on R&D – finding and cultivating artists – than other industries such as pharmaceuticals, biotech, computer software and high-tech hardware.  And yet successful new music releases remain elusive – 80% of releases sell less than 100 copies and roughly 95% sell less than 1000 copies.

What’s behind these numbers?  A lot of work.  Labels spend tens of thousands of hours on the road and online to find great artists; connect great musicians; and bring together the producers, engineers and technology to bring a song to life.  Labels design campaigns for a new release and tours, and help build a fan base to launch a career.  And let’s give credit where it is due:  labels have reinvented their businesses by creating the infrastructure and licenses necessary to bring music to fans everywhere.  One illustration?  Look at the dozens and dozens of digital services – a diverse array of consumer-friendly models -- licensed by the major record companies listed on www.whymusicmatters.com.

These financial and creative investments show labels are far from mere “middlemen” as the blog states.  Many recognize that today labels are more important than ever.  Let’s face it:  ideas from a decade ago like the “long tail” or that artists could easily and single-handedly develop a massive online audience have been laid to rest by the cacophony of the Internet.  How many thousands of bands toil in obscurity on YouTube and other places online?  How many other entertainment options are thrown in the faces of consumers every day?  Bottom line:  competing for consumer attention is more intense than ever, and labels provide a critical role to help artists break through the clutter and find an audience.

And let’s not forget that the labels’ creative and financial fuel seeds and supports an entire music ecosystem.  Music drives terrestrial and online radio, digital retailers such as iTunes and music services such as Spotify, and touring companies and ticketing services, just to name a few.  And countless others benefit from music’s draw, whether YouTube or bars and restaurants.

So I come back to the point David cast aside at the beginning of his blog -- how to sustain and ensure a healthy music ecosystem so investments in music like those made by labels continue to flow.  That requires continued work by labels to build partnerships and help open new markets in an ever-changing world.  But it also requires others to step up, such as terrestrial radio paying for music and others paying older iconic artists for pre-72 recordings.  And in a world of converging functionality between music services, we need rational rate structures to ensure a fair return to artists and labels lest their critical investments to create music dry up.  But that’s a subject for another blog.

Steven Marks
Chief, Digital Business & General Counsel