Over the past month, I received a significant amount of feedback on my recent MediaShift article, What Will Record Labels Look Like in the Future?. People from all areas of the music industry reached out and shared their feelings on future business models, and strategies for moving forward.

Regardless of their background, practically every person I spoke with agreed on a core set of truths about the future of record labels (and the industry as a whole). The consensus is that:

  • Financially, the current situation most record labels find themselves in is not sustainable, especially for companies whose main source of revenue is selling music as their primary product.
  • Sales of digital music have not come close to replacing the revenue lost from the decline of physical sales. Overcoming this requires a significant shift in label expenditures, and revenue sources.
  • Investors are finding it very difficult to find opportunities that have an acceptable chance of return on investment. This applies to releasing music, as well as ancillary services and products around music.
  • Power is shifting away from labels and back to the artist and management. Labels still provide valuable services, but, for the first time in decades, they are no longer the center of the industry.
  • The ultimate power now rests with the fan. The dollars they spend are being fought for harder than ever before. At the same time, fans are demanding more content than ever before.

Here’s what the experts had to say.

Feedback From the industry

Paul Resnikoff, founder and publisher of music industry news site Digital Music News, has a bird’s eye view of the entire music industry.

“I just wonder if music can ever be monetized to the same degree; I think that [NBC’s Jeff] Zucker really hit the nail on its head with his ‘“analog dollars to digital pennies”:http://www.nytimes.com/2008/03/10/technology/10online.html?_r=1’ comment,” Resnikoff said. “It might resonate for years to come.”

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George Howard

George Howard, the former president of the Rykodisc label, an advisor to Carly Simon and an assistant professor of management at Loyola University in New Orleans, feels financial sustainability is directly linked to an artist providing more assets directly to their fans.

“Record labels in the future will concern themselves with all the heretofore locked assets that an artist has, and [with] utilizing music as a sort of gateway to a more dynamic relationship between artist and constituent,” he said. “It will be a direct relationship — no middle-man. There will be an increased focus on so-called sentiment analysis, and utilizing the social media tools to create an accelerated word of mouth.”

Jay Coyle, owner of Music Geek Management and a direct-to-fan marketer agrees that the responsibility falls back on the artist.

“As for the future, I think it really relies on the artists themselves forging a small team to build and execute what the major labels used to,” he said. “I don’t think the old model is totally dead, but more success will be found with hard working managers and artists…who focus on direct-to-fan marketing and sales. If they feel they need a label involved, then all parties need to do their fair share of working hard for equal rewards.”

An Entirely New Model

Fanscape CEO Larry Weintraub is an industry veteran with 25 years of marketing experience. His extensive work in social media has given him insight into the relationship between the brand and the consumer. He has constructed a start-to-finish scenario of what the record company of the future looks like:

The record company of the future is a one or two person operation. It’s the artist and if the artist is not a business person, it’s their ‘manager.’

The artist finds a way to record their music on the cheap. Whether they record it live at a club or multi-tracked on their home computer, it costs them very little. If they want to spend a little more, they have a job and put a little cash aside each month.

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Larry Weintraub

With the finished product they go to Craigslist and find someone who can help them do their artwork for next to nothing.

Armed with a finished album and a nice piece of accompanying art, they give their music away to the world. It’s available to stream on their MySpace page; it’s available for free download in exchange for an email. To the paying world, it’s available on a site like CDBaby.com that also helps them upload the music to iTunes, Amazon, Rhapsody, and everywhere else. When the artist plays a show, they sell their “burned” CDs for $5 with a copy of the artwork and a personal letter saying thank you. They give each paying customer three extra burned copies to give to their friends.

Music is free. And they realize this. If people are willing to pay, they may do so. But the music is the gateway to the live show, the T-shirt, the licensing for a movie trailer.

Then they promote their album by managing a fairly simple website; a MySpace page will do. They respond to every single person who makes a post. They blog about what is going on in their lives. They ask for opinions about the music. They respond graciously. They have a YouTube channel for live performances, they have a Facebook page and a Twitter account. They communicate with their fans. They let them in.

The chances for becoming a star are slim. But they always have been. Now the artist is in control. They are not indebted to a major company that doesn’t really care about them. It’s up to the artist to make things happen.

The Artist’s Perspective

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Steve Vai

Multiple Grammy Award-winning guitarist and independent label owner, Steve Vai has seen all sides of the record label equation. After years of major label releases, Vai recently released his new DVD “Live in Minneapolis: Where The Wild Things Are” on his own independent label, Favored Nations. (Disclosure: my company is managing the marketing for the DVD.) He offered an artist’s perspective on the future of releasing music.

“The two things that will always be needed in the music business are the content (the artist and their work), and the people that know how to sell it (the labels or the glorified marketing team),” he said. “The brain muscles between these two entities are usually pretty different and nary do the twain meet. The way in which we create, record, distribute, purchase and play music will continue to evolve into technology that we are not even comprehending at this time; but there will always be the need for music to be made and for someone to know how to market it to the audience that craves it. Because ultimately there is a vital need for people to be stimulated by the music that resonates with them. It satiates the soul… for a time. “

*****

Stay tuned for part three of this series, which will offer more thoughts from a variety of industry professionals.

Jason Feinberg is the president and founder of On Target Media Group, a music industry online marketing and promotion company. He is responsible for business development, formulation and management of online marketing campaigns, and media relations with over 1,000 websites and media outlets. The company has served clients including Warner Bros. Records, Universal Music Enterprises, EMI, Concord Music Group, Roadrunner Records, and others with an artist roster that includes Har Mar Superstar, Flipper, George Thorogood, Steve Vai, Robben Ford, Chick Corea, and many more. You can follow Jason on Twitter @otmg

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