The Record Industry: Going Alternative

Plastic Beach, released in early march by Damon Albarn’s virtual band Gorillaz, is what used to be quaintly called an album. These days, though, the songs are just the beginning. With the recorded music industry ravaged by piracy and unable to keep pace with digital delivery, Gorillaz is showing a way forward. Plastic Beach — which debuted at No. 2 on the U.S. and U.K. charts and sold over 200,000 copies in the first week alone — is as much a multimedia experience as it is a record. Buyers are given a special code that they can use to access computer games, manga-style videos and live audio streamed on the Gorillaz website. The band’s label, debt-laden EMI, is so convinced that Albarn fans will want to access all of the extras, it is allowing people to listen to the album for free on the Guardian newspaper’s website.

EMI’s strategy reflects both the weaknesses of the music business, as well as the possibilities for a new future. The crisis in the industry is well known: although sales of songs via iTunes and other digital media increased by 10% to 15% in the U.S. last year, that wasn’t enough to offset the 20% falloff in CD sales, which still account for about three-quarters of the market. Globally, recorded music sales plummeted from $26.5 billion in 2000 to just $17 billion in 2009, according to the latest set of figures available from the International Federation of the Phonographic Industry (IFPI), the antique-sounding industry body.

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Artists have been fleeing the music giants too, preferring to sign with smaller labels or self-distribute their albums as the big companies have tried to force them to sign deals giving away a portion of their live performance and merchandising revenues. Radiohead guitarist Ed O’Brien — who is also a member of the Featured Artists Coalition, a London-based trade union for, of all things, rock stars — says “the music industry isn’t in crisis, the recording industry is; it is an unbelievably good time to be a fan of music and new bands.” Radiohead has opted for the viral route before, distributing its 2007 album In Rainbows via the Internet, asking consumers to pay what they thought it was worth. (The band is now signed with XL, an independent label.) Even a big pop artist like Robbie Williams is looking for a financial investor rather than a record company to fund his next crop of albums as he seeks greater financial control over his work.

A Positive Note
Despite the gloomy statistics and artist defections, the release of Plastic Beach shows that the music majors haven’t run out of ideas yet. For Universal Music, the market leader, this means moving away from the business of selling singles and CDs and investing more in online, subscription-based services — the next generation of the buy-per-song model made popular by Apple’s iTunes. Rob Wells, the head of digital for Universal’s London-based international business, says the company is close to finalizing a deal with the cable company Virgin Media on a new service that would allow consumers in Britain to listen to and download as much music as they want for a fixed fee of about $12 a month. While the average iTunes user downloads about $35 worth of songs a month, says Wells, the new service would be profitable if a large enough number of not-so-serious music fans signed up. In Britain, for example, the average adult buys only two to three albums a year — spending far less than the $142 a year a subscriber to the Virgin Media service would pay.

(See the top 10 albums of 2009.)

Universal’s problem, though, is persuading its rivals to follow its thinking. The other three leading record companies — Sony Music, Warner Music and EMI — are skeptical. They worry that so-called Mister 50s — a term used in the industry in Britain to describe the 30- and 40-something men who spend £50 buying new music on the weekend — would be the only people who would sign up. That would mean reduced revenues per customer overall. Nevertheless, insiders expect those three companies to eventually give in, though they are likely to set limits on the number of songs that can be downloaded.

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To be sure, the momentum behind the all-you-can-listen subscription model is growing. Spotify, a new music service founded in Sweden, has done phenomenally well in the six European countries where it’s currently available, among them Britain, France and Spain. The company started by building a vast catalogue of some 7.8 million songs licensed from all the music majors, which it then made available to consumers for free at www. spotify.com. The only catch: users have to listen to a few advertisements interspersed between their songs. So far, 7 million people have registered to use the website, and Paul Brown, Spotify’s senior vice president responsible for strategy and partnerships, says the company is generating a “decent” amount of advertising revenue to help pay for the music it has licensed.

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New media is being used by record companies now to promote albums too. Plastic Beach’s release is what might once have been called a concept album in the baroque days of Pink Floyd: a recording with no obvious single, which meant that the traditional strategy of radio play wasn’t an option for delivering sales. “We had to find a way of getting away from the traditional approach where there is a flurry of marketing activity for four to six weeks before an album release,” says Nick Gatfield, EMI’s global head of A&R — the man responsible for finding and handling the company’s artists. Since radio play no longer matters so much, the band and EMI partnered with YouTube to “premiere” the album’s first single “Stylo” on the video-sharing site in March. The video, depicting Bruce Willis and the band involved in a car chase, generated a YouTube record of 900,000 views in its first 24 hours, and caused a spike in sales that lasted for weeks, helping to make up for lackluster prerelease orders of the album.

EMI also found a way to breathe new life into the Beatles’ music, 40 years after the group released its last studio album. Last September, Paul McCartney, Ringo Starr and the families of John Lennon and George Harrison agreed to give Viacom the right to use the Fab Four’s songs in its Rockband computer game. Like Guitar Hero, its more popular rival, Rockband allows people to simulate playing rock songs by using plastic guitars, drums and other instruments. The hype surrounding the game tie-in spurred renewed interest in the Beatles, helping to sell a whopping 10 million albums in the four months leading up to Christmas. In fact, the partnership benefited EMI more than Viacom, which only sold 1.2 million units of Rockband — an unusual reversal of fortunes in the entertainment industry, where the gaming business has long outperformed music.

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Screen Gems
Even as the industry explores the potential of digital subscriptions and new media tie-ins, it’s a traditional medium — television — that’s been most successful in keeping the record companies solvent. Last year, the promotional power of television reached its apotheosis in the unlikely form of Susan Boyle, the Scottish woman who appeared on Simon Cowell’s Britain’s Got Talent program in a dowdy frock and untamed hair, and stunned the judges with her remarkable rendition of “I Dreamed a Dream.” Her performance was an instant hit not just in Britain but also in the U.S., thanks to a clip on YouTube and a Tweeting fan in Demi Moore. The video, which has been viewed more than 89 million times, propelled Boyle to global stardom. It’s been a boon for Sony, her record company too: Boyle’s first album was a massive hit, selling 8.4 million units worldwide.

Sony received a further boost this year when Cowell signed a five-year deal with the company to create a 50-50 joint venture to house Cowell’s sprawling television and music interests. The new company, SyCo, will oversee all of the acts discovered on his shows and any new programs he devises, in addition to existing shows like X Factor, another British TV singing contest moving to the U.S. in 2011. Add it all up and 2010 is not going to be the year the music industry died.

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