Introduction
History demonstrates that the essence of the music business has changed throughout the years. Before recording technologies were invented, the music industry in Europe had been organised around music publishers who traded in sheet music. Those publishers, along with what we would call today a live performance sector, made up the 19th century music business before the advent of recording technologies (Garofalo Reference Garofalo1999). Even in the early 1900s when recording technology was already in use, the basic product of the industry was not recordings but the production of gramophone cabinets (Huygens et al. Reference Huygens, Van Den Bosch, Volberda and Baden-Fuller2001). Only after the recording technology patents expired in 1914 did the industry's attention move from hardware manufacturing (e.g. gramophones) to recordings. During subsequent decades the nature of the recording industry has been evolving – from concentrating on tangible recordings to perceiving music as a property right (Frith Reference Frith1988; Huygens et al. Reference Huygens, Van Den Bosch, Volberda and Baden-Fuller2001). Therefore, although today it may seem that what is called the ‘traditional music business model’ (Wikström Reference Wikström2009) was a relatively stable model adopted by the recording industry in the 20th century, in reality it was subject to several modifications as the industry developed. The central position of the recording industry in the greater music business was neither achieved immediately, nor is it certain to last (Williamson and Cloonan Reference Williamson, Cloonan and Marshall2013).
In the second half of the 20th century the recording industry, along with the music publishing and live performance business, constituted the core of the music industry. Although for most of the second half of the 20th century the recording industry held the superior position in the more broadly defined music industry, neither its domination, nor even the distinction between the three parts of the music industry, can be taken for granted today. This is not an original claim – a number of scholars during the last 15 years have analysed how the recording industry has lost its dominant position to the benefit of the live music sector (Wikström Reference Wikström2009) and the ‘legal download industry’ (Williamson and Cloonan Reference Williamson and Cloonan2007, pp. 314–15), and how the major record companies have redefined themselves as parts of the copyright industry (Wikström Reference Wikström2009; Rogers Reference Rogers2013). Most of the authors writing about the contemporary transformation of the music industry concentrate either on the perspective of the industry as a whole or on the biggest media conglomerates (which actually to a large extent overlap). This paper adopts a different perspective, concentrating mostly on smaller companies. This focus has a twofold justification. First, despite the fact that small companies – independent record labels – control a relatively small market share, they are considered to have an important influence on the production of innovative and niche music genres (Hesmondhalgh Reference Hesmondhalgh1997, Reference Hesmondhalgh1999). In other words, their contribution to cultural diversity is much larger than their market share implies. Secondly, they do not usually have large back catalogues of recordings which generate profits that can be used to offset low revenues from the sales of new records. Consequently, small labels, if they are to survive, need to be quicker and more determined in adapting to changing market conditions.
Taking into account the changing power structure within various parts of the music industry, one may argue that the decline of the recording industry is only a manifestation of the decline of a certain type of business model (the one based on selling records) and the specific organisational form associated with it, namely, a record label. This raises the questions: what is a record label today? Is this concept still relevant? Does this term mean the same today as 30 years ago when the first CDs entered the market, or over 60 years ago when vinyl records began to gain popularity? Taking these questions as a starting point, the goal of this paper is to examine the directions in which record labels have evolved in response to declining sales of records and the advent of the digital music market. In doing so, the paper offers new empirical evidence broadening the debate on the current transformations of the music industry (see, for example, Wikström Reference Wikström2009; Marshall Reference Marshall2013a; Rogers Reference Rogers2013; Stahl Reference Stahl2013; Leyshon Reference Leyshon2014; Arditi Reference Arditi2015).
There are two research questions that guide our analysis. First, how do record labels react to declining revenues from the sales of records? Obviously the first reaction to declining revenues may be an attempt to cut costs, but the main focus of this research is on what happens when this strategy fails. Secondly, are any patterns discernible in labels’ reactions to the crisis? A preliminary assumption can be made that specialisation in some selected music genres, e.g. hip-hop or punk rock, determines labels’ reactions to the crisis, but it can be expected that other factors are also of importance.
The empirical material gathered during the study makes it possible to answer these questions because it concentrates on labels based in one country (Poland), hence functioning in similar market conditions, media structures and a similar legal environment. While the conclusions may not apply to every record label in the world, the research demonstrates how small and medium-sized labels react to adverse market conditions and what determines these reactions. By doing so, the paper contributes to the literature on the transformations of media industries that are taking place in response to digitalisation and the advent of new communication technologies.
The paper is structured as follows. The next section discusses the economics of a record label in the traditional model. The third section explains how the empirical data was gathered. The fourth section, based on information gained during interviews as well as secondary sources (market reports, industry analyses), shows some specific features of the recording market in Poland. This information can be used to situate the Polish market within the more general picture of the global music market and helps contextualise the analysis conducted in the fifth section, which outlines strategies employed by the analysed record labels to counteract the declining sales of records. The same section also discusses the influences behind a record label's decision to transform from an organisation whose main task is releasing records (e.g. CDs) to an enterprise organised around different music and related, or even completely unrelated, tasks. The final section contains the conclusions.
Economics of a traditional record label
Record labels are defined as organisations that ‘employ artists to make recordings that they hope to market in some way to the public’ (Hull Reference Hull2004, p. 22). The entire set of record labels – companies of different sizes but until recently employing very similar business models – constitutes the recording industry. From the economic point of view, the existence of record labels in the second half of the 20th century was a market response to the high risk associated with releasing records, which was a result of the inability to predict listeners’ preferences and the relatively high costs of making, distributing and promoting the final product.
Record labels found it difficult to predict listeners’ preferences because typical marketing techniques, such as product surveys and focus group interviews, resulted in only very limited feedback (Stratton Reference Stratton1983). Consumers’ motivations and preferences for creative products seem to be more complex than in the case of other consumer goods, and therefore ‘a creative product's success can seldom be explained, even ex post, by the satisfaction of some pre-existing need’ (Caves Reference Caves2000, p. 3). Obviously record labels tried to find their own ways of minimising uncertainty (Artist & RepertoireFootnote 1) but nevertheless most of them operated under conditions of extreme uncertainty, which was a result of the high failure ratio. It is estimated that only about 10–15 per cent of albums recouped the investments made in their production and marketing (Leyshon et al. Reference Leyshon, Webb, French, Thrift and Crewe2005; Greenfield and Osborn Reference Greenfield and Osborn2007). Such a disadvantageous ratio was addressed by most record labels with a repertoire policy that can be called ‘portfolio management’ (Negus Reference Negus1999). Since labels’ managers found it very difficult to predict the popularity of their products, they attempted to mitigate risk by releasing records on several titles. This took place through controlling the execution of property rights in sound recordings, which allowed record labels to ‘compensate for the unavoidable risk of failure’ (Landes and Posner Reference Landes and Posner2003, p. 40). It has been argued that this makes the recording industry similar to a venture capital enterprise (Stahl and Meier Reference Stahl and Meier2012). Consequently, the proper way to analyse labels’ decisions vis-à-vis their repertoires is to perceive them through the prism of managing a portfolio of titles, whereby successful stars earn the label enough money to recoup their investments in market flops. This gave an advantage to the ‘big players’, i.e. labels with ‘deep pockets’ and a large portfolio of signed artists or a large back catalogue of recordings, which enabled them more easily to sustain a series of wrong repertoire decisions than a small label.
The unpredictability of consumer tastes had another consequence: because labels realised that it might take some time before an artist became a star, they preferred to sign artists to long-term contracts. On the one hand, these contracts gave labels an incentive to invest in talent development through a sophisticated system of advances and royalty payments which, if needed, shifted the risk that allowed smoothing out the risk over several titles an artist recorded for a label (Towse Reference Towse and Granstrand2003). On the other hand, these contracts were ‘option contracts’ (Stahl and Meier Reference Stahl and Meier2012, p. 445), which meant that they could be terminated by the label if it found the sales of an artist's records to be unsatisfactory, while artists could not rescind their contracts so easily. Hence record labels managed not only a portfolio of recordings made by different artists (i.e. the ‘stars’ indirectly financed the development of new talent), but also made investments in an artist conditional on sales of his or her previous recordings. For artists this meant that they got royalties from record labels very rarely. As Stahl writes: ‘fewer than 20 percent of artists earn enough profits and royalties to repay their record companies’ financial investments in them (…); only around 5 percent of artists actually exceed repayment and achieve profitability’ (Stahl Reference Stahl2013, p. 11). For record labels, however, this was an efficient way of managing risk in a very unpredictable market.
Consequently, during most of the second half of the 20th century, record labels, regardless of their size, had a quite similar business model. Largely they:
1. organised and bankrolled the recording sessions and release of an album (with the exception of some types of independent record labels which expected artists to deliver a master tape prior to signing a contract);
2. organised distribution of records (either through the label's own distribution chain or with the help of external distributors);
3. organised the promotion of records – radio airplay, music video, press notes, etc.;
4. attempted to control the monetisation of intellectual property rights in ways other than selling recordings (e.g. licensing recordings to movies or commercials);
5. took care of talent development – which meant working with an artist for several years to build a large fanbase, aimed at later translating into high sales of records (Garofalo Reference Garofalo1999; Hull Reference Hull2004; Marshall Reference Marshall and Marshall2013b).
In the 1980s the major record labels implemented a variation of this model called the ‘blockbuster model’. It was based on concentrating investments in ‘a small number of star performers generating a growing proportion of revenues’ (Stahl and Meier Reference Stahl and Meier2012, p. 446). Profits that a label earned thanks to high sales of exceptionally popular recordings were to a certain extent reinvested in new projects.
Since the 1980s another process – that of outsourcing the main duties of record labels – became visible, which in the first instance affected recording studios and the pressing of discs. In many cases, it was no longer economically feasible for a label to own a recording studio or a pressing plant, since external collaborators could be easily contracted. Although the process of outsourcing changed the organisational structure of several record labels, it did not affect the essence of their business model, which until the advent of the phenomenon of file-exchange in 1999 remained largely intact (Rogers and Sparviero Reference Rogers and Sparviero2011).
Since 1999 record labels have been faced with declining sales of records, although it should be noted that the crisis affects some markets more strongly than others (Marshall Reference Marshall and Marshall2013b). For example, in Japan music sales fell from US$4,593.3 m in 2002 to US$4,422.0 m in 2012, while in the US they fell from US$12,325.7 m in 2002 to US$4,481.8 m in 2012 (RIAJ 2004, 2014). Diminishing sales of records were also witnessed in smaller markets, for example in the Polish market, although it should be noted that local factors often caused the process to have different dynamics from the case of the US market (see the fourth section, on ‘The context of the Polish music market’). Several reasons for the declining sales of records have been discussed in the literature (Leyshon et al. Reference Leyshon, Webb, French, Thrift and Crewe2005; Styvén Reference Styvén2007; Marshall Reference Marshall and Marshall2013b), with the advent of the Internet and file-exchange services being the most obvious, albeit not the only ones. Regardless of how the crisis occurred, it made it difficult for record labels to construct balanced portfolios of records and therefore to spread the risk over several titles. Consequently, many record labels faced losses that forced them to look for new sources of revenue. As it will be shown in the fifth section, on ‘Four responses to the crisis’, while in many cases such new sources of revenue were discovered, they moved some record companies quite far from what would have been called ‘a record label’ in the second half of the 20th century.
Data description
The analysis presented in this paper is based on research into the Polish recording industry conducted by the authors from July to December 2013 for the Institute of Music and Dance and the Polish Music Information Centre. The main part of the research consisted of 50 in-depth interviews conducted with representatives of record companies (see Appendix). It was estimated that around 200 actors operated on the Polish music market and were involved in phonographic activities; therefore it was decided to conduct a sufficient number of interviews to allow for showing all the diversity of labels and to ensure the inclusion of specific or extreme/rare examples. When choosing respondents, two criteria were applied (purposive selection): variation due to music specialisation and diversity of the organisational entity of music labels. As a result, the respondents were representatives of companies releasing diverse music genres such as pop, rock, rap, punk, reggae, folk, jazz, classical and experimental music. Moreover, the labels included in the study varied in terms of the size of their organisational structure; hence both the Polish divisions of large international music companiesFootnote 2 as well as the one-man do-it-yourself labels were represented in the research. The interviews were conducted from September to October 2013. The shortest interview lasted 37 minutes and the longest more than three hours. The average duration of the interviews was approximately 80 minutes. Interviews took place either at the headquarters of the company or in other places indicated by the respondents.
The majority of respondents were men – only five respondents were female. They held the following professional positions: owner, president, director (either executive, artistic, etc.) and manager. This diversity was mainly the result of the different organisational structures and sizes of the various recording entities surveyed. However, all the respondents had in common a comprehensive knowledge of the company they represented and the rules and processes governing the music market. The respondents’ average seniority in the music industry was about ten years.
Respondents were asked questions about, among other things, the changes caused by the emergence of new media and the Internet, the distribution of recordings in both the old and new music formats, publishing and rights management, types of contracts signed with artists, the degree of recognition of the main actors on the Polish music market, the structure of their record labels and career paths of their employees, methods of market analysis and research, and other issues.
The context of the Polish music market
During the last 25 years, the Polish recording market, like the entire Polish economy, has been undergoing a transition from a centrally planned to a market economy. All the trends that have been taking place during that time in the developed recording markets (transition from cassettes to CDs, 1990s boom, falling sales after 1999) took place as well in Poland, albeit in a more rapid fashion. These circumstances forced some Polish record labels to develop high adaptability skills, which makes them an interesting object of study.
In order to assess the evolution of record labels in Poland it is necessary to present some recent developments which have been taking place in the Polish music market. This is where Marshall's conceptualisation of the recording industry as a ‘series of concentric circles’ with a ‘hegemonic mainstream’ in the centre, followed by ‘integrated’ and ‘peripheral’ countries comes in useful (Marshall Reference Marshall2013a, pp. 3–4). According to this classification, the development of the Polish music market during the last 25 years can be described as a move from a ‘peripheral’ (in early 1990s) to an ‘integrated’ (in the second decade of the 21st century) country. ‘Integrated countries’ have their musical economies ‘very tightly integrated with the legitimated industry, although extrinsic companies tend to dominate the intrinsic ones’ (Marshall Reference Marshall2013a, p. 3). In short, the Polish market can be characterised by the following statements:
1. It is a market where the ‘domestic repertoire’ is strong – among the 100 bestselling albums in 2014, 48 were by Polish artists (50 in 2012 and 48 in 2013, respectively) (ZPAV 2015b).
2. It is a market where the ‘majors’ hold over 50 per cent of the market, yet the independent sector is strong (although exact numbers are difficult to obtain, some respondents estimated that independents have about 35 per cent of the market).
3. It is a market in the early stages of the transition from physical to digital formats, i.e. a market facing declining sales of tangible records, which so far have not been offset by an increase in digital sales.
In 2001 sales of the two main audio formats were 10.3 million copies (cassettes) and 14.4 million copies (CDs), worth US$115.8 m (RIAJ 2003). In 2012, 9.1 million copies of CDs were sold, while sales of other physical formats were negligible (0.4 million copies; IFPI 2013). Looking merely at the volume of sales it can therefore be seen that the Polish market underwent a significant decline,Footnote 3 although when taking into account the value of sales in local currency it may be claimed that the downturn is over. The year 2014 was the first that brought about an increase in value of sales of both physical formats (up from 272.6 million PLN in 2013 to 279 million PLN in 2014) and digital formats (up from 52.7 million PLN in 2013 to 69 million PLN in 2014; ZPAV 2015a). The year 2014 was also very good for vinyl sales – their value increased twofold to 12 million PLN, which constitutes an almost 4.5 per cent share of the market.
In 2012 digital sales generated only 9 per cent (in terms of value) of recorded music sales, while in 2013 this figure was 15 per cent, and in 2014 20 per cent (IFPI 2013; ZPAV 2014, 2015a). Digital sales in Poland lagged behind because most global leaders entered local markets only in 2011 (iTunes) and 2013 (Spotify). Based on the examples of other markets, it can be expected that the debut of streaming services will lead to a significant increase in digital sales in the next few years. At the beginning of the second decade of the 21st century, however, record labels in Poland found themselves caught in a hiatus between the declining market for tangible records and the slowly emerging digital sales.
The declining sales of traditional records, combined with the relatively slow increase in sales of digital formats, naturally resulted in diminishing revenues for record labels. The empirical material gathered during this study suggests that this has had two consequences. First, record labels are less willing to finance the production of recordings than just a few years ago. In the case of small and medium-sized record labels it is often expected that an artist will already have a recording ready prior to signing a contract. This reduces the record label's role as to pressing, promotion and signing deals with distributors (distribution is usually outsourced). Secondly, such a redefinition of the role of record labels affects the contracts signed with recording artists. Standard long-term ‘option contracts’ (Passman Reference Passman2011; Stahl and Meier Reference Stahl and Meier2012) are superseded by profit-sharing deals, signed for the release of one album only. In most cases only the biggest players sign long-term deals, but even in these cases the contracts are shorter (e.g. three albums instead of the six which would have been common in the 1990s) and advances smaller (if any). While in the case of an average record label this reduction of investments into talent is a logical reaction to the declining sales and revenues, there is no single pattern of behaviour when it comes to deciding what to do next. The following section employs the empirical data gathered during the interviews with representatives of 50 music companies to show the most common ways of dealing with the crisis of the traditional business model.
Four responses to the crisis
Analysis of the empirical data reveals the existence of three types of approaches by record labels to the declining sales of records. While there are labels which implement one of the three approaches described below in its pure form, there are also cases when labels decide to choose only some aspects of a selected approach or combine chosen elements of two approaches. Additionally, there is a large group of labels that, despite making some efforts to counteract the declining sales of records, have been unable to develop a coherent approach. Since in most cases these labels are attempting to survive without implementing any radical changes to their businesses, we labelled their actions ‘a survival approach’.
Approach 1: 360° deals and the move towards ‘a music company’
The first type of approach is based on an active search for new ways of monetising a record label's relationship with an artist. How this is done differs from label to label, but the most radical version of this approach is the signing of 360° deals with every artist that a label cooperates with. In 360° deals ‘the record label participates in and receives income from a range of musical activities beyond the sales of recordings’ (Marshall Reference Marshall2013c, p. 78). This constitutes a significant change for a label, leading to its transformation into something which, instead of ‘a record label’, could be called ‘a music company’. In most cases labels opting for such a strategic move need to have a publishing arm and a division which organises and manages the artists’ live performances. Building the former does not require significant upfront investments, as it mainly involves specialised knowledge, which can be gained by employing a lawyer experienced in intellectual property law. The latter, however, may be more capital and labour intensive. Therefore, some respondents stated that their labels implement 360° deals gradually, only signing them with debutants rather than established artists, as these give such labels the opportunity to ‘learn by doing’ without taking too much risk. Other labels sign contracts which were called by one of the interviewees ‘300° deals’, with the 60° lopped off being the responsibility to organise live performances, a task which requires significant investments and know-how.
One of the respondents, however, related the story of a record company that has been signing 360° deals with each of their artists and therefore can be treated as an exemplary case of the implementation of this approach. This label was started in 2001 by a person with experience at a major label, who left one of the big music corporations and took with him artists dissatisfied with that company. Therefore, when the new label was established, its main goal was to release the records of these artists, giving them better terms than they had with the major record company. Over the course of time, as the label strengthened its position with early sales successes, it decided to move towards synergy of different activities, i.e. to combine promotion, publishing and management all together:
Our company is a quite unusual company. (…) We are practically the only company in Poland – maybe not the only, but the first – that works in the 360° model. We represent all the possible rights of our artists, starting with their public image, through live performances and all activities related to their phonographic actions. We even help them during the creative process in a recording studio.Footnote 4
This change in strategy was associated with the label's new business objectives: the promotion of interesting artists, the development of new talent, and the making of records that they feel are valuable. It should be emphasised that the label was established at the beginning of the over ten year long downturn in the sales of records. Therefore, the structure of the company had to reflect both the aforementioned change of strategy as well as the systematically exacerbating market conditions. The interviewee stressed that he addressed this situation with a move towards the synergy of different activities, i.e. the combination of promotional impact, publishing and management. This approach turned out to be a great success, because with that move the label managed to anticipate the changes in the market conditions and, to a certain extent, immunise itself against the wave of diminishing record sales.
This label's activities in the fields of music publishing and artist management are reflected in the current structure of the company. It consists of two complementary segments – one dealing with the production of records and publishing, and the other with the management of the artists and running a concert agency. Every artist associated with this label has an individually assigned product manager who deals comprehensively with his or her interests – from the development of new tracks to the organisation and coordination of live tours. The interviewee believes that this model is beneficial both for the label and its artists:
At the moment we work with twelve artists,Footnote 5 with whom we have daily contact. They must be satisfied with our service. We really care about them. Basically, as long as they are satisfied with our service, we are happy with our work.
Even though the label cooperates with a relatively small number of artists, since its duties go beyond merely releasing records its business is quite labour and capital intensive:
In the last few years our artists played more than three hundred and fifty concerts each year. Each artist's manager is present at every concert. (…) We work with more than one hundred and forty people when it comes to concerts. We sign specific task-contracts with more than one hundred and forty people: musicians, music producers, sound engineers etc.
The high costs and skills necessary to fully implement this approach limit its use to a specific group of labels. If a label is small, it needs to have significant advantages over its competitors before it can offer artists 360° deals. These include major label experience, which results in having specific know-how (e.g. on music publishing and the economics of contracts), and having a network of contacts in the live performance sector and in the media. Another factor which seems crucial is having a star signed to a contract which, as in the example discussed above, helps reduce a label's risk when investing in the development of music publishing and live performance operations, as they are to a certain extent underwritten by the star's popularity. Finally, artists releasing works under such a label must show promise of bringing in revenues from sources other than selling records. This means that labels implementing this approach will focus on artists who attract the attention of live audiences and show promise in terms of bringing in publishing revenues. In the context of the Polish market this means a rather mainstream repertoire, although some respondents representing labels implementing this approach declare that, apart from pop and rock, they release such diversified genres as electronic music, soul, RnB, jazz and world music.
The implementation of this approach by a growing number of labels has three profound consequences for the music market, as broadly defined. First, the labels implementing this strategy are no longer constrained by the need to have a recording hit from time to time. Such labels still construct ‘portfolios’ of artists, meaning that they need to cooperate with both successful stars and promising artists that should be ‘developed’, but they are more flexible when it comes to the composition of such portfolios. Obviously if a record sells well, this is welcomed by the label; however, if the sales are low it does not necessarily mean that the whole project has failed – profits can still come from touring or the exploitation of a songwriter's rights. Labels can therefore not only offset losses from the sales of one record with profits from the sales of another, but also substitute the lack of profits from sales of records with income from touring or publishing. It should, however, be emphasised that our respondents prefer a balanced approach, where all three sources of income are equally important. Secondly, labels implementing this approach have to enter the live performance business, which had been relatively independent from the recording industry during most of the history of the music business. This may mean not only increased competition in the live performance business, but also potential ownership links between record labels and established concert promoters. Thirdly, 360° deals have significant consequences for the labour relationships between artists and record labels. As noted by Stahl and Meier (2012, p. 454), these deals ‘extend and intensify existing patterns of control, appropriation, and vulnerability long characteristic of record industry talent relations’, and for most artists, especially emerging artists, they mean a change for worse. Since our respondents represented the stronger party in these relationships, it is not surprising that they expressed no such criticisms. Yet the concerns expressed in literature (Stahl Reference Stahl2010, 2013; Stahl and Meier Reference Stahl and Meier2012) are justified and should be taken into account during future studies on the evolution of contractual relationships in the music industry.
Approach 2: Artists’ brand name as the main asset (aka ‘sell what can't be downloaded’)
The second type of approach is based on monetisation of an artist's brand name. The ideal model of this approach is that implemented by hip-hop labels, which are run by an artist-entrepreneur who legitimises the business among his or her followers. In practically all analysed cases, such a label, after achieving some success with the sales of records, started production of clothing outfits related to the hip-hop culture which exploited both the owner's and other signed artists’ brand names. If successful, a clothing subdivision can become bigger than its mother company, i.e. the record label. This leads to the formation of an interesting symbiosis – on the one hand clothes bring in bigger profits than selling records, while on the other hand the clothes sell well because of artists’ brand names; hence one cannot exist without the other. One of the respondents shared the story of a company that, under one banner, carries out two types of business activities: as a record label and a clothing production department. What is particularly interesting is that the clothing department dominates the music section, both in terms of employment (about 75 per cent of all employees work in the clothing department), and number of the products (the clothing department offers a greater number of products) and revenues. Another respondent explained that in the case of his label the clothing department ‘absorbed’ the music department:
[Our] music label is a part of a much larger hip-hop clothing company (…) music and clothes go hand in hand. Every major rapper in Poland a few years ago came up with the idea that this is a great business, or it is a sort of fulfilment of youthful dreams to produce their own clothes. (…) Co-owner, who is also our label's most famous artist, opened the clothing department and now the majority of our staff works there. Only me and another guy work in the music section (…), but it has to be said that sometimes we are working in the clothing department as well, because music and clothes complement one another. (…) Even though theoretically they are two separate trade branches, in the case of hip-hop they usually exist together.
Almost all respondents representing hip-hop labels acknowledged the profitability of this approach, which was humorously highlighted by one respondent in the following words: ‘What can be called the best seller? Clothes, because [unlike music] it is impossible to download them.’
Although hip-hop labels were also hit to a certain extent by the declining sales of records, they benefit from the strong need of fans to identify with their favourite artist. This can be exploited by implementing a strategy in which an artist's brand name becomes the central asset managed by the label. Clothes endorsed by a hip-hop star are a very attractive product in their own right, so they are used as a way to encourage fans to buy music. This is done, for example, by selling bundles of CDs and clothes, which for customers means getting clothing at discount prices if they also pay for the music.
It should be noted that the implementation of this approach is mostly limited to hip-hop labels. As will be shown later in this paper, a respondent representing a punk rock label also sells clothes, but does so only because of business necessity, drawing a strict boundary between music (a ‘proper’ product) and ‘gadgets’ (an ‘inferior’ product). In the case of hip-hop labels the clothes and records are seen as equally important products, which reflects the more general features of hip-hop culture. It should be noted that this way of employing an artist's brand name was not invented by Polish rappers, but is an imitation of the strategy used successfully in American hip-hop (Negus Reference Negus, Forman and Neal2004). This may mean that the application of this approach beyond hip-hop labels may be problematical.
Implementation of this approach fundamentally changes the business side of running a label. Although most of the respondents implementing this approach claim that releasing recordings still brings them profits (albeit lower than selling clothes), it can be easily imagined that music can become a ‘loss leader’ that attracts listeners to buying clothes. Two consequences of this approach should be discussed. First, copyright is no longer the record label's most valuable asset. Copyright still matters if records sell well and to the extent that citations from lyrics can be used to sell clothes, but the primary vehicle for generating a label's income becomes a trademark. Since an artist's logo sells clothes, its value becomes a primary concern of the label's managers. Trademark, like copyright, is an intellectual property, yet there are some significant differences between them (e.g. protection of a trademark can last forever), and these differences may have consequences for the functioning of such labels.
A second consequence of the implementation of this approach refers to the label's repertoire decisions. The respondents we interviewed seemed to treat decisions about releasing new records and new lines of clothing separately. If, however, selling records continues to bring lower profits than selling clothes, then at some point decisions about signing new artists may become subject to an evaluation not only of an artist's artistic qualities and potential for selling a large number of records, but also to the potential of his or her trademark. If a label manager's primary concern becomes whether a new artist will sell clothes, can we still talk about a recording industry?
Approach 3: artificial scarcity, international markets and independence
The third type of approach is based on an attempt to redefine the market. It may take the form of looking for interesting – from the label owner's point of view – niches, which means taking into account both aesthetic and economic criteria. In some cases this approach, following the ethos of the 1980s do-it-yourself labels (Hesmondhalgh Reference Hesmondhalgh1997, Reference Hesmondhalgh1999), may even take the form of questioning the economic aspects of a label's functioning.
At least two variants of this approach can be distinguished. The first is based on the internationalisation of sales – music recorded in Poland is released mostly outside the country. This requires making records of artists who will appeal to foreign listeners and be able to sell their records on the international market. This approach is often implemented by small labels which enjoy the position of ‘experts’ in one particular music niche, e.g. experimental music. Such labels realise that since the market for their music genre in Poland is relatively small, being able to reach foreign consumers becomes essential to the label's survival. A respondent representing a label that specialised in electronic and experimental music, free improvisation, noise, jazz and minimal music admitted that Polish consumers of their records are such a small group that he knows most of them in person. In order to survive in such a small market, the label must look for sources of revenue abroad. There are at least a few international markets with significant number of buyers interested in electronic and experimental music, such as the German, American, French, English and especially Japanese markets. A few years ago, however, even despite the better condition of the recording market in general, reaching such consumers was difficult. Only with the development of social media and the growing popularity of e-shopping have market niches sparse around the globe become available to such labels. The interviewee explained that since listeners purchase music in various formats, some of the offer is sold digitally via music aggregators (Galuszka Reference Galuszka2015), some via the label's website, and some thanks to the use of the services of music distributors of physical and digital media from Germany, the USA and the UK. This use of several types of distribution chains (multichannel distribution) by small labels specialising in niche repertoire can be regarded as another innovation brought about by the advent of the digital music market.
A second version of this approach is based on specialisation in terms of music in niche formats, such as vinyl, deluxe formats (e.g. with hand-made covers) and even cassettes. In some cases this approach comes with an ideological message about the superiority of analogue formats – such labels treat not releasing music in digital formats as their mission. In other cases this approach is adopted for business reasons – there is a market for analogue formats but it is too small to attract the bigger labels, which leave it to niche specialists. Such records may not sell in large quantities but they have higher profit margins, which makes them attractive to small labels.
One of respondents explained that his label (specialising mostly in electronic and experimental music) sells not only CDs and vinyl releases but also cassettes, which surprisingly are among the best-sellers. For customers, buying the cassette is also a purchase of the digital version, as all the cassettes are provided with special access codes to download the digital version. According to the respondent, most fans do not listen to these tapes, either because they have no such equipment or they simply prefer to listen to music from an MP3 player. Nonetheless, cassettes sell quite well because listeners enjoy having a tangible artefact and treat buying them as a kind of financial support for an artist they like. In addition, the cassettes are very handy physically and this label sells a lot of them during concerts, when selling a vinyl might be unwieldy.
Both versions of this approach may also be combined – a label releases records in analogue formats and sells them on global markets. One of the analysed labels (specialising in improvised and electroacoustic music) implements a very orthodox version of this approach: it declares that vinyl is the main medium for listening to music and therefore it does not have any digital music formats in its offer. The respondent admits that a CD has some advantages, as it is a good medium for promotion purposes inasmuch as it is cheaper than vinyl and therefore better suited to the promotion of specific records. Nevertheless, their main products are vinyl records, which are mostly sold through a distributor in France who delivers them to the physical and online stores across Europe. Contrary to other small labels that try to implement this approach, this label is not only selling their records abroad, but its repertoire consists mostly of foreign artists. Therefore it can be seen as an example of a truly successful internationalisation of a label's operations, combined with a very conservative approach when it comes to the format in which their music reaches listeners. The label is inspired by the ethos of the independent record companies of the 1980s – selling traditional formats (CD, vinyl) without engaging in any relationships with the large music corporations and distributors. As explained by the interviewee: ‘It is kind of underground phonographic action, we do not make agreements with Amazon, iTunes, Napster, etc.’ This attitude has earned that label a great deal of respect among small labels. It has been invoked by other respondents as an example of success built on traditional music formats sold on the transnational niche music market. What is particularly interesting is that this label is recognised not only among other colleagues in the electronic and experimental music scenes, but it is also referred to as an example of good practices by the respondents representing other music genres (e.g. independent labels specialising in rock music).
It is worth noting that, in contrast to the approaches discussed earlier, this approach does not change the essence of what a record label is: these labels rely above all on revenues from sales of records and face the economic constraints typical of this type of economic activity. Four things make it easier for these types of labels to sustain their operations during the adverse economic conditions. First, they successfully use the new media to sell and promote their music internationally, which helps them overcome the geographical barriers faced, for example, by the independents in the 1980s. Secondly, since companies adopting this approach are usually small, they are rarely able to finance the rental of a recording studio – these costs must be paid by the artists themselves. This helps these labels keep their costs to a minimum, which lowers the number of records that need to be sold to break even. Thirdly, some consumers highly value tangible formats, especially if the records and their covers are of exceptional quality. This enables these labels to base their strategy on reinforcing an artificial scarcity of music – a task which, given the overabundance of digital formats, may be quite a logical step for small labels. Finally, most of the labels representing this approach are not focused on direct profit for their owners. For the majority of respondents representing these labels, having a record label is not their main professional work, i.e. not a major source of their income, but is rather a kind of leisure activity, a hobby or an opportunity to further develop their personal passion for a certain type of music. One of the respondents summed it up by saying that for him a record label is not about doing business, but is a hobby which often needs to be financed out of his own pocket. Although it can be claimed that this type of approach is nothing new (Moore Reference Moore2007; Strachan Reference Strachan2007), the current economic constraints are quite different from those of 30 or even 15 years ago, which makes this strategy quite an attractive alternative for some labels, if not for economic, then at least for personal reasons.
Survival approach
A significant number of respondents represented labels that have not yet developed a coherent business approach to the problem of declining record sales. Contrary to the previous approaches, their actions do not have a common ground, except perhaps the goal of survival of the label. Therefore we called this quasi-strategy the ‘survival approach’. It is usually based on a conservative approach to signing new artists and releasing new titles, combined with an attempt to capitalise on the label's existing assets. This means that a label, being almost sure that its next releases will not bring profits, tries to survive by selling its services to other market players. For example, if a label owns a recording studio, it rents it to external artists. Some labels whose owners are experienced in sound engineering combine the rental of a recording studio with selling mastering services.
Another example of a similar approach involves running a music club, where artists signed to a label play live. For instance, an owner of a label specialising in ska, punk and alternative music admits that the contracts that his label signs with their leading artists oblige them to play promotional concerts in a music club cooperating with the label. This practice shows the label's awareness of the growing importance of revenues coming from live performances, yet it does not constitute such a complex, overall approach to the problem as that demonstrated by labels which sign 360° deals. Similarly, although this label uses its website to sell clothes and even non-musical products such as detective books, it is not treated by the label owner as an element of a well-thought-out business strategy (as in the case of hip-hop labels), but rather as an unfortunate business necessity. The respondent, who has been running the label since 1989, admits that recent years have brought about significant changes in consumers’ attitudes towards music: ‘Unfortunately the music market has become strongly attached to gadgets, and now these gadgets are selling better than the music.’ The label sells these ‘gadgets’ only for financial purposes – to earn money and have extra resources to sustain phonographic activities. This allows the label to survive, but not develop like the labels implementing the first and second approaches described above. Unfortunately, replicating these approaches in the case of this particular label seems unlikely: at the time of this writing punk rock artists in Poland do not seem to be willing to sign 360° deals or enter in merchandising partnerships, nor does the label owner believe that this is what record labels should do. Based on our empirical material it is difficult to speculate as to whether this is genre specific (i.e. every punk rock label behaves or would behave in this way) or whether it results from the label owner's unique attitudes and beliefs.
Conclusions
Running a record label has always been a rather demanding and risky job. However, during most of the second half of the 20th century at least one thing was clear: the label's job was releasing recordings, and if they brought profits, reinvesting them in the search for the ‘next big thing’ (Negus Reference Negus1995). Finding future stars and talent development was a difficult endeavour, so record labels attempted to reduce their uncertainty by investing in a number of projects at the same time, hoping that some of them would turn out to be hits. This model worked as long as listeners were buying records, which means that in recent years it has been weakened, as fewer recordings are sold each year. This situation has forced record labels to look for new sources of revenue. The empirical data presented in this paper show that there is no single model for dealing with the crisis.
The first conclusion is that record labels, regardless of which approach they choose to deal with the adverse market condition, still think in terms of managing a portfolio of artists. In other words, they still find it difficult to evaluate in advance the chances of succeeding in the market of those artists whose records they consider releasing. In contrast to what was done during the second half of the 20th century, however, many record labels today rely on a variety of factors when signing an artist—not solely on past and potential record sales. Depending on the strategy they adopt, labels may also take into consideration revenues from sales of tickets to live performances, publishing rights, merchandising rights and other factors. Is this phenomenon changing the nature of what a record label is? Based on our empirical study, the answer is ambiguous. On one hand, indeed for some record labels most of their revenues come not from sales of recordings but thanks to the production of clothes or the organisation of live performances. On the other hand, however, all our respondents, even those that claim that ‘records don't sell any more’, still think to a certain extent like record labels in the past, i.e. that their job is to work together with artists to popularise their music. In other words, it seems that this business is still about music, but that the sources of funding have changed. Therefore, instead of announcing ‘the death of record labels’, it seems justifiable to say instead that the concept of a ‘label’ or ‘the recording industry’ is evolving. Similar conclusions have been reached by other researchers (e.g. May Reference May2007; Marshall Reference Marshall2013a; Rogers Reference Rogers2014).
The second conclusion is that there is no universal strategy that can be applied by every label to deal with the declining record sales. In other words, what works for hip-hop labels may not work for punk rock ones. Additionally, which strategy is chosen differs from case to case and it is difficult to make definitive categorisations. What seems to matter is whether a label has certain competitive advantages (e.g. major label experience, a network of contacts, having a star signed) and the ability to embrace business opportunities which emerge with the advent of new communication technologies, combined with the label's owners’ opinions on what a record label is or should become.
Finally, it should also be noted that in the future, when music streaming services such as Spotify or Deezer will hopefully start to bring in noticeable revenues for record labels, their businesses will be subject to further changes. It would be particularly interesting to analyse how this will affect those labels that implemented the approaches described in this paper.
Acknowledgements
The authors would like to acknowledge help from Anna Iwanicka-Nijakowska, Aleksandra Jagiełło-Skupińska, Mieczysław Kominek and Katarzyna Korzeniewska. Patryk Galuszka would like to acknowledge that part of the paper was written when he was Junior Scholar at the Central European University's Institute for Advanced Study in Budapest. This work was granted financial support from the Institute of Music and Dance, the Polish Music Information Centre and the Ministry of Culture and National Heritage of the Republic of Poland.
Appendix: List of labels interviewed
4EVER MUSIC
Aloha Entertainment
Ars Mundi
Bearton
Bocian Records
Bołt Records
CD Accord
DUX
ForTune
Green Star Music
Instant Classic
Jimmy Jazz Records
Karrot Kommando
KAYAX
Lado ABC
Latarnia Records
Luna Music
Mathka
MaxFloRec
Mik Music!
MJM
Monotype Records
MTJ
Musica Sacra
Musicon
Muzyka Odnaleziona
My Music
Nasiono Records
NIFC
Paris Music
POLMIC
Polskie Nagrania
Preserved Sound
Prosto
Radio Katowice
RAF
Rockers Publishing
Si Music
Silverton
Soliton
Sony Music Polska
STX Records
SUN MUSIC Records
Szpadyzor Records
U Know Me Records
Universal Music Polska
Victor11
Warner/Parlophone Music Poland (formerly EMI)
Wielkie Joł
Zoharum Records
