THE LEFSETZ LETTER: Market Update

The complaint of the major labels is very real. Their business is evaporating.

Last week's sales were off 12.9% from the comparable week in 2004. This on top of sales decreases for the past half decade. Which now seem to be ACCELERATING!

First explanation. Dearth of superstar product.

Only one problem here. No one's figured out how to BUILD a superstar in 2005. Oh, the majors WANT ONE, they're praying for MANY, but the hits just don't keep coming.

The formula was solid. Get the act on MTV. All over radio. And in every publication known to man. Unfortunately, no one's paying attention anymore. MTV gave up on videos.


Bob Lefsetz, Santa Monica-based industry legend, is the author of the e-mail newsletter, "The Lefsetz Letter". Famous for being beholden to no one, and speaking the truth, Lefsetz addresses the issues that are at the core of the music business: downloading, copy protection, pricing and the music itself.

His intense brilliance captivates readers from Steven Tyler to Rick Nielsen to Bryan Adams to Quincy Jones to music business honchos like Michael Rapino, Randy Phillips, Don Ienner, Cliff Burnstein, Irving Azoff and Tom Freston.

Never boring, always entertaining, Mr. Lefsetz's insights are fueled by his stint as an entertainment business attorney, majordomo of Sanctuary Music's American division and consultancies to major labels.

Bob has been a weekly contributor to CelebrityAccess and Encore since 2001, and we plan many more years of partnership with him. While we here at CelebrityAccess and Encore do not necessarily agree with all of Bob's opinions, we are proud to help share them with you.

Radio's become so predictable that the younger generation has tuned out. There's no central place to break a record.

This is not a music business condition. It's an American business condition. It's the result of choice. Everybody's off in his own self-interest world. And, the barrage of hype from other worlds just rolls right off him. Think of the movie business. Have you noticed you stopped paying attention to the new releases? That you no longer watch "Ebert & Roeper", barely peruse the reviews? BECAUSE THERE'S JUST TOO MUCH DAMN PRODUCT! (Never mind that most of that product sucks.)

You don't read about this in "BusinessWeek". But the customer is fatigued. He's only got twenty four hours in a day. He just can't pay ATTENTION to all the marketing messages. I remember when new release day was a personal HOLIDAY! When I'd trudge down to the record shop and check out the new albums. Now, there isn't a single album I'm waiting to hear. I figure they're all crap. I wait for someone I trust to weed through the detritus and tell ME what's good. All the old filters? They're bought and paid for. Eliot Spitzer only confirmed what the public already knows. That big league infrastructure is a domain of publicists and hand-outs and people on the take. That there's no entertainment NEWS, just fabricated stories. And, if people truly want real news, they go online. To gawker.com. To awfulplasticsurgery.com. Where renegades not beholden to the system speak their truth.

But be clear, it's not just a disgust with business as usual. We live in a Tower of Babel society. The center no longer holds. There IS no center! Jessica Simpson is not the Carpenters, she's not even Olivia Newton-John. There are vast swaths of the public who don't know who she is and don't CARE that they're out of the loop. As for Lindsay Lohan singing…you can complain she's got no talent, but your protestations are cries in the desert. The ONLY people paying attention are prepubescent girls, everybody ELSE knows Lindsay's got no talent and doesn't give a shit whether she had her boob implants removed or not.

Think about this. This is HELL if you're a major label. You're all about the machine. Ramping up records to TAKE OFF!

But they can't take off. Let's just happen to say you get a record moving on Active Rock. That track ain't never gonna cross to Top Forty. There's no path anymore. That record begins and ENDS at Active Rock. The format's not a starting place, it's its own little BACKWATER! Budget accordingly. Don't plan to make a profit after one million, because you're never going to REACH one million. Not the way of the last twenty years, through ubiquitous exposure. That game, if not completely through, is completely MARGINALIZED!

Everybody knows a real musician plays. Nobody thinks all the so-called divas have any talent. And, they might want to buy rap music, but they certainly don't want to hear it performed. Then again, rap music has got a home. In da club. That's where they break acts today. It's like the rock road of thirty five years ago.

But what if you're not a rap act. What can you do?

Either you've got to be satisfied selling a whole bunch fewer records, OR you've got to attack the market a different way.

Everything's viral now. That doesn't mean you should hire a viral MARKETING team. What that means is word SPREADS, but slowly, from one trusted source to another. I tell you, you tell your friend, top down marketing is on the decline, because of the lack of trust. So, it comes down to quality. How can you reach one person who will tell everybody else. Reread "The Tipping Point" for instruction. BUT, major labels don't want to start a trend, they want an act to emerge FULLY-GROWN! Like Britney Spears. They want a new act to DEBUT at number one. What they call artist development is reaching platinum in a year. Whereas the old artist development, building something credible over time, is the only game that's left. But, it's a game the majors don't want to play and aren't prepared to play. Because revenue comes in VERY slowly and it takes A LOT of people to fuel the enterprise.

But it gets worse for the major label. Because their model is to sell recorded music. As an album.

The album is dead. History. Oh, believe me, acts will still make more than a single. But, the music will be released constantly on the Web. This is the only way they'll be able to keep their fans' attention. But how will you acquire this music? How much will be charged? All we know for sure is everybody will have a lot of music and it will have a low aliquot per track price. That's DEFINITIVE! The buck a track iTunes pricing is as irrelevant and FALLACIOUS as the $100 videotape. Yup, that's right. Videotapes used to cost a C-note. Because studios didn't get a cut of rental revenue. But then, when formats changed and the price dropped, DVD became an OWNERSHIP format. But don't equate movies with music. They don't make a thousand movies a year, whereas that many music tracks are cut every day before lunch. Which brings us back to the original point, who's gonna wade through the shit? And, we all don't have the same taste, so you've got to be able to LISTEN to all the recommendations to decide what you want to keep.

Which brings us to piracy. Is piracy hurting the major labels?

Sure, but less than they say. I'm not talking about PHYSICAL piracy, the counterfeiting of discs, I'm talking about P2P and burning. You see, a great percentage of the material traded is on a TRYOUT basis. The threshold of acquisition is so low that you might as well go through everything everybody recommends. This is good for music, but bad for the labels as they see the market. They've lost control. What's a track worth? How are they going to stop this? Even though it CAN'T be stopped.

Call it the iPod effect. There are now enough of the players out there. It's like broadband. Remember when the goal was to keep the site simple, because of 56k surfers? Now, fuck the slow surfers, if they can't afford a broadband line, they can't afford to buy your product ANYWAY! There was a tipping point. At about 25% broadband penetration. Now, at approximately 50% broadband penetration, we've got video ALL OVER the Web. It's even being SOLD! (Remember how long it used to take to DOWNLOAD a tiny clip back at 56k?)

People no longer want the CD. At ANY price.

And, as we've seen above, a buck a track makes no sense. It doesn't fit their desire. To check out and own more music.

Sure, there's rental, i.e. Rhapsody & Napster. But the dominant iPod is not rental and we're an ownership society. This battle cannot be won.

So, the major labels are geared up to sell a product nobody wants in an ineffective manner. That's like driving a truck towards a cliff.

Sure, catalog will be worth something once the new paradigm is monetized. But how long will they leave the P2P money on the table. How long until they realize everybody ALREADY is acquiring a vast personal library far exceeding the size of all those previous?

You know the major labels are off their game because they can't seem to generate stars anybody wants to see. Billy Joel can sell 50,000 seats at an indoor stadium in SYRACUSE and Eminem and every other hot rapper TOGETHER can't even sell out an arena in a metropolis. Wow!

Will we have stadium shows in the future?

I'm not sure. I wouldn't bet on it.

Then again, modern word of mouth is on steroids. Because of e-mail. You can reach more people very quickly.

But, as stated above, the main criterion is quality. And, development is VERY slow. For once you push the button on something, you kill its credibility.

The game has changed forever.  We're seeing the evidence now.  With lousy CD and ticket sales.  It's not just a matter of hanging in there. The days of yore are NEVER coming back. No matter how many people the RIAA sues. No matter HOW low you make the ticket prices on new acts. One must get down in the pit with the people. Where they live, on the Internet. And, you must KNOCK on their door, not beat it down with a battering ram. And ASK them whether they'll check out your new stuff. And, not bug them thereafter, hounding them to buy a remix album or the same album one more time with two new tracks. You're going to have to leave it in the consumer's hands. And, if the consumer likes it, if Mikey likes it, he'll tell everybody and will buy EVERYTHING you're selling.

This is the majors' worst nightmare. Because they have very little control.

But the dirty little secret is they've ALREADY lost control.

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