THE LEFSETZ LETTER: Record Label Madness

Stay out of the record business!

If I hear one more fat cat or out of touch has-been studio guy or musician say they're starting a record label I'm gonna keel over and die of laughter. Please, SAVE MY LIFE!

Enough with the disc support. It's on LIFE SUPPORT! The disc is gonna die an almost instant death in the not too distant future. How do I know? RESEARCH!

PiperJaffray, the only investment firm that has gotten the Apple numbers right, does a bi-annual teen survey. And they found out that 72% of teens own an MP3 player. And 79% of those are iPods.

That's STAGGERING penetration. The ONLY reason these kids might buy a CD is to rip it. (Sure, some want the disc for the booklet, or as a badge of honor, but how long do you think that's going to last?)


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.

The survey also stated 79% of students are currently downloading their music online. But 72%, UP from 65% in spring 2006, are utilizing free P2P networks as opposed to iTunes and its lame brethren (iTunes owns 91% of this market.)

In other words, music is INCREDIBLY healthy. It's just that those who OWN IT aren't getting paid for its acquisition!

Think about it. You own an iPod. You're gonna be satisfied ripping the handful of CDs you already own? NO, you want to FILL that sucker. You borrow your friends' CDs. You hard drive swap. You utilize the aforementioned P2P sites. The amount of music sold legally on disc is a tiny FRACTION of the music consumed. And it's declining every day. And the population ages every day. So, there comes a time when NO ONE wants the disc. And that ain't as far off as you think. And what have the record companies done to prepare for this inevitability? NOTHING!

They're just whining crybabies. Lamenting the way it used to be. Like studio musicians replaced by synthesizers.

You can't survive the present economic conditions unless you participate in ALL revenue streams of the act. Since the disc/legal file business is de minimis. But the majors can't get a piece of these streams. Because it's these monies the acts are living on. The label builds you, you profit on ticket receipts and merchandise sales. And since the label can't get a piece of this ancillary revenue, they trumpet acts that work on their paradigm. In other words, two-dimensional caricatures that can be sold via image all over the media. They want something with INCESSANT impressions. They want to beat the public over the head to purchase the equivalent of hula hoops. Because to take the time to develop an act slowly,
that has real fans… Well, the Grateful Dead never sold that many records. And how many albums did Fleetwood Mac make before they hit on a winning formula? The majors don't want to invest in musicmakers who march to the beat of their own drummer, they just want a pretty face, who'll do what they say, who will sing the songs written by the hacks and produced by the usual suspects.

And indies can't compete. Because ever since Spitzer there's LESS indie music on terrestrial radio. Which is really not much more than Top Forty, which plays a swath of material narrower in scope than the career possibilities of a drummer in a bygone heavy metal band.

The playing field could be leveled if the majors agreed to legalize the stealing. Monetize it instead of trying futilely to eviscerate it. But this is the same industry trying to sue into submission YouTube, which is about to be purchased by Google and be more dominant and influential than ANY record label. And although one must cut Warner a break, never forget Edgar Bronfman, Jr. agitated for HIGHER prices at the iTunes Music Store (under the rubric of FLEXIBLE pricing, yeah RIGHT!) The only hope for the industry is LOWER prices. To make the stealing option less desirable. Why go through the trouble of hard drive swapping if you can get all you want anyway for a few dollars a month? And then there's the problem of the publishers, who hate the labels just about as much as consumers do. And trust them less than the bands do. To make the
future work, the publishers have to go to a percentage rate, but that's gonna happen when Borat actually RUNS Kazakhstan.

But the majors have catalogs. Classic stuff that will sell forever. Allowing them to survive their lack of insight/inanity/insanity. But a NEW label has nothing. Only an excessive burn rate.

So you spend all that money with the usual suspects, people who've been musical-chaired out of the major label system, paying for not only pressing, but distribution and promotion. Everybody blowing smoke up your ass as you try to get in the big box store, the only place where you can sell and make money anymore, purchasing an advertising campaign that is like throwing coins off a cliff since you've got no traction, because you can't get on radio and MTV plays no videos.

But still, people are forming labels. To service a marketplace that is almost impossible to get a hold on and wants the music for free ANYWAY!

Whereas the newbies, those not tainted by the old system, make records for nothing on their computers, sell them as souvenirs at the gigs and build fan bases. The manager/record label taking an income cut equivalent to a band member. Yes, the MANAGER is the new record label!

Music is now the wild west. The majors/Mitch Bainwol are all eastern seaboard, but the action is out in the hinterlands, where a gun means more than a lawyer.

The absolute key to success today is word of mouth. Something the majors gave up on YEARS ago. Because it's unmanageable, it's too RISKY! Oh, they've got their street teams, but if you fall for their manufactured hype, then you probably click on the phishing e-mails.

No, the key is to have something real. That people love and turn others on to. Hoping to establish enough action/favorable reaction to be able to tour, to sell merchandise. It's not about hyping an image that then translates into record sales, but turning people on to the music FIRST! Hell, if the old paradigm still worked, Paris Hilton would have a hit and Jessica Simpson would be ruling the sales chart.

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