Monday, January 07, 2008

Loss Leader

The LA Times did another one of their “Ultimate Top Ten Lists” – cataloging the artists that have made the most money in the last year. The musician with the biggest/longest tour are always the champs and in 2007 it was The Police that earned the most. Less than 10% of their earnings were from selling music and the bulk of the cash came from concert ticket sales – it helps to have an fan base with well-paying jobs (i.e old people like The Police and the Stones).

Digital tracks grew, but still ended up being a drop in the bucket for artists. The ring-tone phenomenon also does not look quite as savior-y as it once appeared:

"Likewise, although some performers are developing comfortable incomes from ring-tone sales, the mostly young R&B, hip-hop and pop acts who placed highest on SoundScan's ring-tone/master-tone tallies aren't anywhere near the top of either concert tour or album sales rankings. So ring tone isn't included -- yet -- because it wouldn't affect any rankings in the Ultimate Top 10." - LAT
The fact that touring is such a big part of the money makes it clear why Live Nation wanted that fat chunk of the ticket and merch from Madonna (and apparently Jonas Bros as well).

CDs have become the loss leader for the artist – the thing that they do to get them back out on the road for some more of those lucrative concert dates.

The music is the loss leader for the merchants at Best Buy or Target – getting people in the door with discounted CDs where they will (hopefully) buy the more profitable Monster Cables and fabric softener.

The music video was always the loss leader for the record label – the thing that they pay for (and make zero money from) to promote the music, but the music itself seems to have become another loss leader. You can see why music video budgets are shrinking – the money the labels have is shrinking AND the music video process is now even one more step removed from the profits (touring and merch).

Music videos were never profitable for labels on their own, but at least they were tied to the core business - they helped sell records. Now that the core business is concert tickets and t-shirts?

Each step removed from the actual income, means less dollars makes it through. Like college buddies sipping your beer before they pass it on down the stadium row from the vendor – the thirsty guy at the end only ends up with backwash and sheepish looks from his friends.

Maybe Live Nation wants to hire someone to make videos to show at concerts to encourage fans to go out to the lobby and enjoy some delicious Jonas Brothers t-shirts.

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A disparaging thought, especially when YouTube and others make the videos so easily accessible.

In fact, one could presume that the videos of the singles and fan-vids done to the rest of the tracks are the cause of this shift. No one needs to buy the CD anymore...

I still watch videos, and I buy the CDs of artists that I like at least three singles of but really, the moment music started down it's "digital" path we all suspected it would be mere years before they became obsolete.

What we need is competition in the digital field. DELL is working on it, and soon MAC won't be alone. Then it will all be in contracts.

Good enough for the record labels I suppose, but what about the musicians?

Well, I'm loyal enough; I suppose the truly talented ones will come out of this just fine. ^^
From an accounting perspective, I thought that labels pay for videos from the artists cut?
pinder -

Making music videos is a partially recoupable expense - that is the label spends the money and the artist "repays" a portion of the money out of their royalties. Most artists have 33-75% of their video costs treated as recoupable expenses - so the artist (and not the label is paying for that much of the clips) if ...

The artist actually makes enough money to earn back any royalties. The artist is already in the hole for their advance (recoupable) from the moment they sign with the label. The vast majority of artists, even ones with videos, never get close to selling enough records to recoup the advance. Let alone video costs and all the other "promotion" BS the label tacks on there.

Technically you are correct, the artist is supposed to pay for their own videos, but the labels realize that they are fronting money that will most likely never come back to them.
thanks for the explanation!
Take the big budget video and physical CD's out of the equation and your profit margin will increase. Make a Viral Video from a fan's concert footage, give them some props on the band's website and poof, there's your video. Go the Radiohead route and skip the distributors, the iTunes fees and so on and you might get out of the red quicker than expected.

At least this is how indie bands are surviving and thriving, creating a musician middle class. That and using gas effective fans to tote them around the country year round, meeting fans, signing autographs and doing real artist development.
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