For 20 years Bob Lefsetz has published the Lefsetz Letter. Bob has had stints as an entertainment business attorney, head of Sanctuary Music’s American division and consultancies to major labels.
In a recent post on his blog, he laments the future of labels and radio. Agree or not, Bob raises a lot of interesting questions on subjects we should be thinking about and discussing as an industry………
Last week I spoke at something called CIC, which stands for “Concert Industry Consortium”, Pollstar’s annual gathering of the concert geeks. And what a gathering it is, this ain’t no usual conference, EVERYBODY in the touring industry shows up.
And hanging in the lobby after I was done, I was bullshitting with Lewi, Strasburg and the assembled multitude, and Jim suddenly looked at his watch and said there was a panel he wanted to attend, about money. I’ll follow Lewi anywhere, so I followed him through the hotel, to hear what I figured was a discussion about getting paid at the gig. Boy was I wrong. This panel, entitled “Money Talks”, although chaired by Adam Friedman of Nederlander, was made up of VC’s, “venture capitalists” for the uninitiated. They were talking about the business BEHIND the business.
One had invested in HOB (House of Blues for those not up to speed on acronyms). There were issues of scale. Which they tried to address by purchasing Universal Concerts. But this didn’t do the trick and they ultimately sold out to Live Nation. Why did they make money? Because of the great real estate deals they’d made. Developers had cut them a break on rent because of the foot traffic the clubs generated. I’m sitting there listening to these guys thinking that I need an MBA, they’re talking about stuff I don’t know about. Oh sure, I’m aware of ROI (return on investment), but it went deeper than that. They talked about going public in just a few years, to get their money back, that was the PLAN! Then one said…in five years he expected there to be no music on terrestrial radio.
Saturday afternoon I had lunch with Craig Kallman at the Peninsula. I ran into Coran Capshaw and his Red Light team in the lobby. Sitting in our banquette at the Belvedere, Monte Lipman stopped by along with the manager/record label dude controlling Taylor Swift. Monte asked me if they were [screwed]. I said yes, the major labels were on the downslope. And then solutions were proffered. Monte said his attorneys indicated it was all right for the label to be the manager. Kallman said the Warner guys were going the other way. Then I reminded everyone of Donna Summer, whom they were too young to know the story of. How she got out of her contracts with the Bogarts and their label because of conflict of interest. Being the manager and the label in California was TOUGH!
Then, Craig and I got into Paramore.
This was Atlantic’s first 360 deal. And it was a success. The label was learning all about t-shirts, ticket prices. Their goal, according to Craig, was to build slowly. They didn’t push radio on the first album, even though stations were playing a track. Now, on the second album, they’re ready to push the button.
And it was then that Craig said the basics hadn’t changed. You still had to pay for price and position at retail. And radio still sold records. But then I told him the story of the CIC money panel…what if radio evaporated?
Be sure, labels are talking about terrestrial radio. That’s the one that garners enough ears to sell tonnage, well, at least the mass numbers major labels still hope for. If music leaves terrestrial, THEN WHAT?
Let’s say satellite grows. It just might, after the merger goes through (which it probably will, if you followed Whole Foods/Wild Oats). There’ll be a radio in just about every car. Net in the car is eons off. But, even if satellite grows, there are a ZILLION DIFFERENT STATIONS! And unless satellite changes its business model, to advertising/no monthly fee, how many people are actually going to subscribe? Will people play iPods in their cars? Only listening to what they already know?
What about Net radio… The majors have done their best to reign it in. They want contraction. In order to sell records. If everybody’s a broadcaster, there’s no accumulated mass, marketing is too expensive, you can’t reach everybody. But, are they winning? It certainly looks like there will be more Net stations than terrestrial outlets.
So, are the major labels going to experience another swipe at their business, a major hit to their business model and bottom line? The Telecommunications Act of 1996, which allowed radio consolidation, was bad enough. That hurt the labels significantly, other than Top Forty, almost no radio format sells significant product…the public has tuned out, because of bland, homogenized programming peppered with commercials in extremis. But what if Top Forty is gone?
Sure, there’s an issue of monetizing Net acquisition of product. But the major label model is based on mass marketing, via radio. Oh, for a while there, MTV helped, but now that’s gone. It’s about getting one of the few slots that a mass of people are paying attention to. If music leaves terrestrial radio, do majors become minis, do they lose their one last advantage?