New Century Music Business Model

Posted in Artists and Writers, Music Creation, Music Industry, Music Marketing, Music Publishing, The Future
The music company of the future will be based around the combination of artists and artist management, publishing, touring, merchandising, and recordings. The artist’s brands will drive the business, and the economics will make the financial risk more tolerable and the return on investment more predictable. Instead of betting on a traditional 10-to-1 recording model that requires the huge success of CDs sales for a few artists to work, the New Century business model can work on much lower volumes by spreading the risk across multiple revenue streams.
The New Century business model combines the functions of a record label, management company, publisher, and merchandiser into a single entity. The company signs artists to deals in which the artists own the masters and license them to the company for a limited time. Artists create their own recordings and the company takes this music to market in digital and hard formats, creates merchandise to sell, and provides management and tour support for live performances. The company also acts as the publisher for all songs written while under contract.
The New Century model increases the potential return on investment for each artist signed by aligning the interests of the artist, manager, label, and publisher into a single entity that splits all revenue sources. This model is based on lowering the cost of production, distribution, and promotion for all parties to minimize the risk of financing a new act.
The New Century model is not unlike what bands like Phish and String Cheese Incident are already doing within their own companies, and similar to the model of an independent record label with a publishing arm. You can also see this model taking shape with companies such as Nettwerk and Sanctuary. The major change is the integration of management and touring into the business mix in a shared manner. That way the company can take an integrated and synchronized marketing approach across all the revenue possibilities and try and maximize income and opportunity. This model is particularly interesting in light of the negative effects of free music distribution via P2P networks on recording and mechanical income. By maximizing the revenue potential by including touring, publishing, and merchandising in the mix, the company can try new creative marketing approaches that leverage freely distributed music to drive other income streams.
Record companys today
are trying to scoop up rights that go beyond the traditional recording income, such as has been recently reported in an LA times story.. EMI has apparently offered the band Korn an estimated $15 million upfront — more than twice what the band might expect from a traditional recording contract in exchange for at least 25% of the band’s publishing, merchandising and touring revenue as well as profit from the group’s albums.
A&M/Interscope recently signed the band Pussycat Dolls to a deal that incorporates promoting the group’s cosmetic line in exchange for sharing in all revenue the band collects, including profit from a Las Vegas nightclub the band owns.
When Warner Bros. Records signed My Chemical Romance in 2003, Warner got both recording and merchandising rights. Label executives said information gathered from merchandise retailers helped them persuade radio stations and MTV to play the band’s songs and videos.
The big problem with this approach is that the labels have to do a lot more than just negotiate hard for these rights. They have to actually develop merchandising, publishing and touring capabilities within their own organizations. Without that, the band is simply just giving up future income in order to get a record deal and a bigger advance - and the unhealthy pattern of the relationship between artist and label simply continues.
New entities need to be established to make these new models work. Artists and their managers have to be very careful that they do not mortgage their futures for a record deal today. The New Century Model requires a completely different way of thinking about marketing and artist managment than has traditionally been done before. It is not as simple as bowing to pressure from the label to get that fat check.