The Telegraph
Since 1st March, 1999
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Music industry has to rethink its ways of doing business

New York, Feb. 19 (Reuters): From newcomers Norah Jones and Coldplay to old-timers Bruce Springsteen and Sting, a glance down the list of this year’s music award nominations could leave you wondering why the industry is in such dire straits.

There appears to be no shortage of musical talent around yet many executives attending this week’s Brit Awards in London and Grammys in New York will be going easy on the champagne, given that the industry faces another year of sales declines.

Despite jibes that it has become a slave to manufactured bands and TV talent-show artists, many experts argue that the industry’s problems lie in the way it does business, not in the music.

With youngsters more likely to be playing video games or downloading music for free off illegitimate websites than buying CDs in stores, the $34 billion industry urgently needs a new business model.

“The music industry needs to radically re-think its way of doing business.

“But first it needs to get back to what this is all about: artists,” said industry consultant Nick Henry-Stoltz.

Another problem is that many labels became fat and complacent during the 1980s when sales got a boost from the emergence of the CD.

Some argue that executives lost touch with what the industry was about as they revelled on million dollar salaries.

At the same time, the major players went on a campaign to snap up as many smaller rivals as they could. That has resulted in five giant music groups: Universal Music, Sony Music, Warner Music, EMI and BMG.

All now answer either to bigger media conglomerates or directly to shareholders, placing increasing pressure on them to churn out profits.

The reality is that the music industry isn’t like any other industry. Predicting a hit is near impossible and nine in every 10 albums lose money in the US.

The cost of promoting talent has also soared.

Executives estimate that major-label releases need to sell 500,000 copies to break even. Labels get little change from a million dollars when launching a new pop artist, while promoting an established star can run into many millions.

All of which makes music an uncomfortable partner with shareholders and profits.

Such dynamics may have encouraged some of the major labels to be more short-term in their approach rather than developing long-term careers, some executives argue.

However, long-term international acts, such as U2 and Madonna, not only generate big bucks from selling multiple albums they also create a catalogue providing a steady stream of royalties into the future.

EMI, the world’s number three music group which discovered the Beatles, has made this a cornerstone of its new strategy.

“Creating long-lasting stars is what matters now,” says EMI’s recorded music chief Alain Levy, who points to UK band Coldplay, which is up for a Brit and a Grammy, as an example.

Signed by EMI’s Parlophone label in 1999, the label took its time developing the band. Coldplay went on to break America, selling 5.5 million copies of their first album Parachutes.

Their second album A Rush of Blood to the Head looks set to beat that.

In the meantime, EMI and its rivals have been slashing jobs, scaling back their rosters and declaring war on piracy.

EMI, the only stand-alone music company of the big five, has also held “informal talks” with Warner and BMG in recent months about a possible tie-up in an effort to cut costs further, sources close to the companies have said.

But as global music sales look set to slide another six per cent this year after an estimated 10 per cent fall last year, the industry acknowledges more fundamental change is needed.

“The industry needs to think of music more like content,” said Martin Dodd, a creative guru at Zomba, which fostered the careers of Britney Spears and ‘NSync.

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