THE LEFSETZ LETTER: The Major Label Game

It's beginning to look a lot like Detroit. Where claiming it was only giving the public what it wanted, GM drove itself to the brink of bankruptcy. And Ford had to decide it was not going to be the Ford of yore, but a much smaller company. Both entities failed by having no vision. Believing that the way things are today, they will be forever more.

It starts with the SUV. Making more money per giant SUV than car, GM threw all its development money into remaking trucks like the Suburban. Sound like selling CDs to you? That ten dollar wholesale number looks pretty good to the major label. So, it wants to forestall its evisceration. As market conditions work against it.


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.

Toyota. The Japanese company knows it's about innovation. So, it pours tons of money into hybrid engines. Then, lo and behold, gas prices rise and a fickle public is INTERESTED in driving a car that gets twice as good mileage. It's kind of like the Administration. Who could FORESEE that radical Muslims would fly airplanes into the World Trade Center? Well, with the oil cartel dictating prices and said prices being higher in most of the developed world, it was OBVIOUS that prices would rise, but GM did nothing to prepare for this. At least Ford eventually developed a Hybrid Escape. Then again, would you buy a Ford? Not most people. Since they believe Toyota is the mark of quality.

Speaking of quality. Does ANYBODY other than the major labels themselves believe that they purvey the BEST acts? Maybe the biggest selling, which they trump up with promotional dollars like Detroit sells cars to rental companies, but certainly not the best. Would you rather own a BMW or a Chevy? Turns out the BMWs of the music world, those based on what's under the hood, those that perform and are not all gloss, are increasingly on INDIE labels, where they can do what they want. GM couldn't build a BMW because some bean counter somewhere would say based on PAST numbers there was a limited market share for a BMW. People want chrome, not performance. But, BMWs numbers BURY GM's. Sure, GM sells MORE cars, but it's LESS PROFITABLE! What is the major label game? Shipping tonnage, or maintaining a lasting business?

Then there's the issue of costs. In both cases, Detroit and the major labels, they're OUT OF LINE! Major labels keep cutting low-level employees, keep consolidating backroom functions, but NOBODY AT THE TOP TAKES A HIT TO HIS EXORBITANT SALARY! At least Rick Wagoner took a serious hit to his paycheck. These guys at the major labels are fiddling while Rome burns and somehow it's not their fault. Furthermore, they don't rein in costs. That's why they say CDs cost so much. MARKETING COSTS! Well, today marketing can be free. Not only on the "Today Show", but most importantly on the Web. But somehow the majors are wedded to the old paradigm. Price and positioning in an evaporating retail world. Radio promotion, even though Spitzer cracked down. ALL THE OLD WAVE TECHNIQUES IN A NEW WAVE WORLD!

Then there are the tentative moves. The indie distributors formed by the majors. This is kind of like GM's Saturn. A good idea at the inception that is not handled correctly. First and foremost, CDs are dying. So, do the indies NEED a distributor? Second, the deals are crap. There's no new paradigm thinking. No one page contracts that give up a healthy percentage of the action. The indie distributors are just a FARM TEAM for the majors. And I ask you, who wants to play on the FARM TEAM?

It's a new world, and despite their carping, the majors are doing nothing about it. They're just trying to preserve their OLD WORLD! And the old world they're clinging to is dying. And, they're going to be crippled in the future.

What do accountants say, the numbers don't LIE?

Last week the business was down 2.9% from 2005! An anemic year.

But it gets worse. NEW album sales are down 3.4%! While catalog sales are down .7%. If this is not testimony to the fact that the industry's hero, Clive Davis, has go it all wrong, I don't know what is.

It's all about the catalog baby. Creating lasting acts that will sell for DECADES! Something Clive doesn't do. Something all his imitators have forgotten. The INDIES don't purvey evanescent shined-up crap. Because they know you have to shove it down people's throats, and they ultimately have a bad taste in their mouths from the hype and REJECT these acts. You've got to have a slow build. You've got to enter people's hearts and minds. You've got to sell acts by TRUST! Something the majors just aren't doing. Which is going to MARGINALIZE them!

At least the majors, unlike Detroit, HAVE these catalogs. Of evergreens that will continue to sell. Still, selling them on disc is going to become passe.

In order to survive, the majors must change their paradigm. They must see their advantages. Which is primarily possessors of a sleek system. They should sign EVERY act, to almost no advance, and pay a healthy royalty four times a year. They should start this TODAY! Before these acts can easily get paid online. And don't need them. THEN, if an act gets traction, the major can offer a new deal, to put promotional money into them. There must be HONESTY in the relationship, not the bullying fly-up to the major deals of today.

The majors must embrace digital distribution INSTANTLY!

What we have now isn't true digital distribution. It's just a way to get a lower quality version at the same aliquot price per track. What about all those costs savings? With no manufacturing and shipping? Why don't they end up at the purchaser's door? Why can't the public buy TONS of tracks at a CHEAP price? Hell, they'll buy them all over again when they get a new computer/iPod. How often does someone remove the stereo from one car and put it into another? It's cheaper and less of a hassle to get a NEW ONE! THAT'S the new music business, it's FLUID! With product changing hands CONSTANTLY!

And, it's less about the Ford Taurus. Or Chevy Cavalier. It's more about niches and customization. Turns out not everybody wants the same car, and not everybody wants the same music. But, the major labels continue to employ a BROADCASTING model in a wide-open cable world. The key is to make everybody a music consumer, and sell them SOMETHING! Not to try and sell everybody the SAME damn thing. THEN you end up as GM. Is there ANYBODY in the music business who wants to own a Chevy Malibu?

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