THE TRUTH ABOUT THE MUSIC INDUSTRY

This article was originally written in 2002

The truth is that big business controls the types of music and artists that get exposure and become popular. The record industry is a $14 billion dollar business. The major record labels dominate 85% of the market when it comes to sales of Compact Discs. Leaving only 15% for the hundreds of independent record labels and thousands of artists out there. And when indies get too big or an artist starts making noise these major companies usually pick up the artist or label. This way they control the artist/label, get a percentage of the sales and keep competition to a minimum.

The Big Payoff (radio payola) : Ever wonder why you hear the same songs on the radio all the time? It’s because major record companies are paying radio stations thousands of dollars to play their records! That’s why you rarely, if ever, hear independent music on commercial radio. Most people don’t know that virtually all the pop and rock songs they hear on the radio have been paid for by the major record companies. The record labels pay millions of dollars a year to middlemen (independent radio promoters), referred to as “indies,” who in turn pass on some of that money to radio stations (they get a portion too), which accordingly play what the promoters ask/tell them to. In exchange for paying the stations an annual promotion budget ($100,000 for a medium- size market), the indie becomes the station’s exclusive indie and gets paid by the record companies every time that station adds a new song. Launching a single at rock radio can cost between $100,000 and $250,000. If the song’s a hit and gets played at hundreds of stations across the country (with added charges for multiple plays a day) the costs can skyrocket enormously. Mercury Nashville president Luke Lewis told attendees at a music conference that his label spent more than $1.5 million on promotion for a Shania Twain single that crossed over to pop radio! According to payola laws passed by Congress in 1960, it’s a crime for a station employee to accept payment for playing a song if the station fails to notify listeners about the financial arrangement. That’s partially the reason major record labels use huge indie promotion companies, if shit ever happens the promoters will take the fall for it. But no one wants to rock the boat so everyone in the industry keeps their mouth shut and indies make tons of money for basically being nothing more than pay-off people. Overnighted packages stuffed with cash are shipped off to recipients with phony names, American Express money orders made out to programmers and sent to home addresses, travel and vacation packages… all of this is being used by major record labels and independent radio promoters to buy airplay of their songs on the radio. New and independent artists have no chance to receive airplay on radio and listeners are bombarded with the same music hour after hour. Who pays for all of this? The artist. Most record companies recoup their costs for independent promotion from the artist’s CD royalties – which of course would not be as high if they did not receive radio airplay. And, ironically enough, the radio stations pay as well, since money that might be used for promotions to build a larger audience is instead diverted into radio programmers’ personal bank accounts.

Big Fish Eat Little Fish (monopoly) : There are three companies that own most the radio stations in the US – EMMIS, Radio One and Clear Channel. Over the past two years the Clear Channel company has been on an acquisition binge, spending almost $30 billion on buying radio stations, concert venues and advertising companies. The company is building a “monopolistic multimedia empire” that has decreased competition, reduced consumer choice, and driven up ticket prices for concerts. Prior to the Telecommunications Act of 1996, a radio company could only own 40 stations nationwide and only four in a particular market. Since that has changed Clear Channel now owns 1,170 radio stations nationwide! One out of every ten radio stations across the United States broadcasts under the Clear Channel’s banner and the company’s approximate 1,170 stations bill a full 20% of total industry revenue. Clear Channel broadcasts in every top ten market and in 47 of the top 50. These stations take to the airwaves across all 50 states, in almost every major market, reaching nearly every demographic. Clear Channel stations broadcast to over 110 million listeners every week. Clear Channel also acquired SFX Entertainment, the world’s largest promoter and producer of live entertainment events, including concerts, theater and sporting events. Clear Channel now owns 135 venues, producing 26,000 shows last year (attended by 62 million people) – 70% of the total “live concert” market! Buying entertainment giant SFX cost Clear Channel $4.4 billion, making it instantly the nation’s biggest promoter with $2 billion in live-event revenue a year. Clear Channel Outdoor owns over half a million outdoor displays (770,000 billboards) around the world. This gives them and their customers the ability to, as they state on the Clear Channel website “reach over half of the entire U.S. population and over 75% of the entire U.S. Hispanic population”. Outdoor is more than just billboards, other products they provide include; bulletins, posters, street furniture, airport displays, convenience store posters, mall displays, mass transit displays and mobile ads. Now there’s rumors that Clear Channel wants to start their own record label… hmmm. Think about it. They can play their artists on their radio stations, tour them in their venues and advertise them on their billboards. What can you do? Support college non-profit radio stations in your local area. These independent radio stations program alternative music as well as specialty shows (hip-hop, jazz, electronica etc.). Also support your local independent bars clubs.

Product Placement (retail co-ops) : Isn’t it great when you can buy your favorite artist or a new CD on sale at the record store. Ever notice those special displays (called endcaps) at the entrance, window or at a prime location in a large record chain store. Guess what? It’s not the store that is putting it on sale, record companies have to pay to have it on sale in the store. This is what is called a Retail Co-Op and it works like this. For example if a label wants to put one of it’s new CD’s on sale in a ‘un-named’ chain store they would have to pay about $3,000 to have it’s CD in 100 of its’ stores. In exchange for the $3,000 the Chain store would bring in around 1,300 units and give them good placement in the stores, put them on sale and feature them in their listening stations in those 100 stores for one month. There are many different Co-Op programs with independent and major chain stores and they can be very expensive. There are a few problems with this system. First, for the record label it does not guarantee that the CD’s the store brought in will sell. And since stores do not ‘buy” but take product on ‘consignment’ it is all 100% returnable (see Retail Returns below). Second, major record labels spend so much money on Retail Co- Ops so that stores bring their product that stores aren’t left with much money in their monthly budget to bring in independent music.

the big “R” (retail returns) : Most people think that a ‘return’ means that someone returned a CD to a record store because of a defect. That is called a return but in the record business ‘returns’ means something else – death. Music stores do not buy CD’s and then sell them. They take CD’s, sell what they can and return the rest – only paying for what sold. And there usually isn’t a time frame so a company can return CD’s to a label/distributor even a year or more later, usually with cracked jewel cases and all stickered up. The problem with this is record stores/ chain stores can (and do) over-order a release because they can always return it. In January of 2000 Bomb Hip-Hop did a Co-Op program with Best Buy for the “Return of the DJ-Volume III” cd (catalog #BHH2040). The cost was $2,725 to have Endcaps (pricing positioning) in 34 West Coast stores (Region 8 – CA. and AZ.) with print ads in 6 weekly mags. They brought in a total of 1,306 units but returned 1,171 of those only “selling” 135 units. They returned 89% percent of the CDs! The distributor made money, the retailer made money and Bomb Hip-Hop lost money from the program. Returns can kill any record label.

Too Greedy (price gouging) : Major record labels and retail chains stores have become too greedy by charging $18-19 for a CD that usually doesn’t have more than 3 good songs on it. Universal priced Ja Rule’s album Pain Is Love with a sticker price of $19.98! But it is not always the record label overcharging. In the past Bomb Hip-Hop has found it’s releases in stores priced $2-$4 higher than the suggested retail price. The price to the store (wholesale price) is based on the suggested retail price. For example a $16.98 list price CD is sold to stores for $11 per loose CD or $10.79 per CD by the box (usually 30 CD’s in a box). These chain stores that price the CD at $18.98 will probably not sell very many because it is priced to high for underground hip-hop and/or a new artist. These stores do not care because in the end whatever they took is 100% returnable.

In Conclusion (the end) : There are approximately 27,000 music titles released every year (is 2007 there were close to 80,000 releases). Of the 7,000 “new” titles released every year by major labels less than 10% are profitable. Major record labels sign only what they hope will sell, jumping on the latest trend and flooding the market with sound-alikes. Everything radio and video shows play sound and look like they came off an assembly line. Major record companies focus on radio-friendly and videogenic acts and unfortunately exclude new and experimental artists and genres of music. Consumers have become lazy and in turn are easily brainwashed by what they hear on the radio, see on tv and read in magazines. People need to be more educated and take a pro-active approach to music. Seek out new artists and new types of music, don’t let big business influence and control what you think is good music or what you purchase. Take what you have just read and inform others of what you have learned – each one teach one. Much respect to all starving artists and independent companies, you are not forgotten and you are appreciated. Keep what you’re doing and have fun making music.

UPDATE
In 2007 there were 80,000 different music releases. Of those 80,000 there were 25,000 that were digital only releases. Of those 80,000 different releases only 7,000 of those sound scanned more than 100 units each. In the year 2000 record companies shipped 924.5 million units, compared to only 511.1 million units shipped in 2007. Sales of vinyl albums and ep’s were up 36% in 2007 (1.3 million units) compared to 900,000 units the previous year in 2006.

When Do We Get Our Money? – The Product Pushers

Tags: Payola