The Risk Record Labels Take

Steven Knopper of Rolling Stone reported this past week that Lady Gaga will need to undergo hip surgery and will have to cancel the remainder of her Born This Way Ball tour. Gaga and her concert promoter, Live Nation, will have to refund close to $30 million in tickets, and due to doctors orders, most likely, will not see Gaga gross another $161.4 million like her 2012 world tromp.

You can read Knopper's full article here.

If anything, Gaga's tour cancellation proves the huge risk that record companies take on when they sign a new artist to their roster.  There has been a lot of negativity cast on the record companies introduction of the 360 deal, which allows them to take a percentage of the artist's entire revenue stream from record sales to touring, merchandising, and sponsorship income. Truth is, the record executives had to push for this new standard contract because musicians have moved away from selling tangible products such as CDs into offering a service to their fans.

For the record companies, artists, and their management a service based business provides a different set-of risk elements for the brand. The biggest in this instance is the concept of inseparability. Under this theory concert goers expect Lady Gaga and nobody else when they purchase a concert ticket, pay for parking, and buy a beer. And as we are witnessing with the current Gaga situation, once the brand must separate the artist from the equation there is no money to be made.

While I will not go on to justify record companies and the 360 deal, I will cut them some slack. Very few business models take on this level of risk and require the hefty investments they are willing to fork over. To get an artist "off the ground"  a record label will invest hundred of millions of dollars in crafting an album, promoting the artist and their music, establishing a brand presence online, in social media, and in the national market, and then fork over more money to establish a tour, merchandise, another album, etc.

That is a huge investment for any company, and while insurance will probably cover the losses for Gaga it often does not, leaving record companies hanging when their product, the artist, gets sick, injured, or goes AWOL.  I encourage all musicians out there to think about this when the time comes to sign that deal. It will help you respect where the label is coming from and provide you with a more educated bargaining position.

2012: Physical Music Sales Aren't Dead, Country Rules, Adele is Still Queen, and UMG Dominates.

Well, it's that time of year again.

The time of year when most Americans are in the gym, at least for a month, because they all made the same New Year's resolution.

That time of year when you have your first heart attack because you haven't been in a gym for eleven months, or because you got that first credit card bill itemizing all of your holiday purchases and the interest you will be paying on them until next Christmas.

And it's that time of year when Nielsen Company & Billboard serve up their Music Industry Report, and we learn once again that physical sales are down, digital sales are up, and the music industry is still in turmoil.

Go ahead and read this year's report here.

Here is what this music business insider surmised after reading this year's report:

1. Physical albums are dying, but they aren't dead just yet.

Here's a big surprise physical album sales fell 12.8% in 2012 continuing the decline of tangible music transactions. But the funny part is that even though this category continues to decline at rapid numbers it still controls the market share. Physical sales were at 198 million units, and of that CD sales were at 193 million, while digital units were at 118 million.  So even though we all think physical music transactions are completely dead. They really aren't.


2. Country is king (or queen).

This isn't your granddaddy's country music anymore. Gone are twangy songs about loosing your dog, your trailer, or your wife. Today's country is closer to pop and classic rock with artists such as Jason Aldean and Taylor Swift boosting the entire genre to new sales heights.

Here's looking at Country's amazing numbers:

Total Album Sales: +4.2%
Digital Album Sales + 37.8%
Digital Track Sales + 12.8%
Taylor Swift: #2 for Top Selling Albums, Top Artists, Top Digital Albums, Top Physical Albums, #3 for Top Internet Albums, and #3 for Top Artist Airplay, and #1 for Top Streamed Artists.

3. Adele's success of 2011 was so massive it boiled over to 2012.

“Adele’s album, 21, is the first album ever to be the top seller of the year for two consecutive years."

Adele released 21 in 2011 and the album's success was so huge that it actually propelled it to top the 2012 sales charts. The new British mum took first place in Top Selling Artists, Albums, Digital Albums, Physical Albums, Internet Albums, and #2 in Top Artist Airplay.

4. The album continues to die.

In the digital world TEA stands for Track Equivalent Album. It takes ten tracks to make one full album. This helped push digital album sales up 14.10% for 2012, however when we factor in physical albums and true digital albums into the mix total album sales fell 4.4% for 2012.

5. Purchasing EMI payed off big for UMG.

With a controlling interest in EMI's assets UMG dominated the market share of the remaining major labels. They beat out their nearest competitor Sony Music Entertainment in all six categories between two and seven percent.