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june 11, 2006:
the record company of the future

In my work as a music and media futurist I often get this question: So what should a “next generation” record company look like? How would all these ideas be realized? Well, first of all, the so-called “Record Company of the Future” (RCOF) is not actually a record company at all; rather, it’s a music company. This may sound like a trivial peculiarity but it is actually a very important distinction.

While the “Record Label of the Past” often served as a bank, or a venture capitalist, or simply the underwriter (and, of course, as the essential gatekeeper to distribution), the RCOF finds, grooms, develops, accompanies, and takes care of promising artists and writers. The RCOF guides – but not autocratically controls – their careers, and is in charge of many facets of an artist’s branding, marketing, and revenue-generating activities. If this sounds a lot like what a manager or an agent usually does, well, it is; and therefore managers will either be part of RCOFs (or indeed, start them) or work in close conjunction with them. And we are not talking about prolonging the “dysfunctional family” mode of operation that has unfortunately become somewhat of a standard in the music industry, as far as the relations between artists, managers, record labels, and publishers are concerned. RCOFs will source music through a vast network of reallife and virtual “stringers” and A&R scouts who simply listen to and gauge a band’s buzz around the world, whether online or offline. (This very differentiation will of course cease to be meaningful in less than 18 years as all of us will always be online.)

New artists will, quite literally, surface in online and mobile forums and communities where the so-called “distributed selection” by the users (i.e., rating, tagging, and viral marketing by the fans) reigns supreme, and these new acts will cut their teeth in clubs and venues around the world, just like they always have and always will. But instead of only one venue they now have hundreds at their disposal. Window-shopping for new bands may have never been easier. (But be forewarned: Real talent will still be just as scarce.) RCOFs will not usually own the artist’s recordings or compositions outright. Rather, the RCOF is appointed, and continuously re-appointed, to be the warden of the artist’s interests, for a certain time period that can be very long or very short, depending on both parties’ performance. But clearly, longtime alliances will be most fruitful and will probably be more common, overall. Simply put, the RCOF makes money not off but along with the artist, and I would put the percentage somewhere between 15% and 30% of the artist’s her total revenues. The often lamented “plantation deals” that the major record labels pursued are now truly a thing of the past. Because the RCOF needs to be able to do any and all deals that involve the artist’s activities – and this is very likely to include placements in motion pictures and shorts, mobile campaigns, ads, games, video/TV, and the like – the RCOF needs to represent both the artist’s compositions and his or her master recordings. As a result, RCOFs are likely to only sign up artists that either write and perform their own music, or that can provide both rights via solid and cooperative third-party relationships. The RCOF’s revenue streams will consist of many different components, with smart B2B software solutions handling the bulk of the transactions as well as their administration. The actual sales of what used to be considered “music products” (i.e., downloads, CDs, vinyl, etc.) will likely only contribute around 30%–40% of the total, on average. RCOFs will thrive by providing music (and the artist!) as a service, and will be very keen to pursue revenue-sharing deals rather than fixed-fee deals. Think Google Adwords + music; think PSP + XM + Urge.

Since significant revenues will be derived from a myriad of traditional and new types of public performances (i.e., terrestrial and digital radio offerings, webcasting, the use of music in audiovisual works, music services for retail locations, rich media advertising, etc.), RCOFs will shoot for always getting the maximum exposure for an artist so that his music can easily be discovered anywhere in the world, as quickly and effortlessly as possible, and will focus on driving “netplay” as well as airplay. Once either voluntary collective or compulsory licensing finds its way to digital music (which it will, without a shadow of a doubt – just like it did in radio), the RCOF will be 100% ready because it has already left behind the “distribution economy” and embraced the “attention economy.” Other very important revenue streams will include deals that provide for revenue sharing from advertising that is connected to the artist’s work or appearances (and by this I mean new, smart, opted-in, user-endorsed advertising!), product tie-ins and sponsorships, live concerts and concert recordings, commissioned works, special products, and much more. The RCOF will, of course, use advanced B2B e-commerce and fast asset management tools to license direct, and in a (semi-)automated way, wherever possible. All royalty accounting will be completely transparent and available online, 24/7. Click, look, count, cash in. Rights markets will boom. New artists will be sent out on the road and the Net, to cut their teeth and prove themselves. The artists’ own responsibility (and by extension, their managers’) will be increased by a considerable order of magnitude because the “Rolls-Royce or bicycle” attitude of the past is gone for sure.

Now, until an artist/writer has achieved a certain level of exposure and can therefore drive meaningful revenues, most RCOFs will tend to invest a lot less money into an artist’s career than they used to. Marketing will be 750% smarter and 75% cheaper, and there- fore the pressure will be on the artists to get attention for themselves, as well. More responsibility, more cash. The concept of a “label,” though, will still be alive and well, and is likely to have a resurgence, since having signed with a respected RCOF brand will still guarantee the market’s attention, at least to some degree (see ECM Records, Putomayo World Music, Nettwerk Records, Blue Note, Domino, K7, etc.). All in all, RCOFs will make a lot more money – and be a lot more profitable – than the current editions of “record companies,” but they will be based on much less obsession with control and on an equal footing with the artists/writers and their managers. And they will have to prove themselves, again and again, just like the artists have to, every time they get on the stage. I reckon that many RCOFs will reach a certain size and will then find it hard to get bigger without losing their individual approach to their artists, thereby following the overall trend towards the creation of dozens of niche-market operators rather than a handful of mass-market dominators. Soon, the music industry may go back to its roots: providing a service, finding and managing good artists that share the revenues, and giving the power back to the “People Formerly Known As Consumers.”