Why Do Musicians Still Need Record Companies?

Digital distribution is vastly cheaper than sending out physical media (CD, vinyl or tape) and should substantially cut record company's cost and increase profits. It's similar to the digital distribution of movies to cinemas.

Record labels have and will continue to evolve if they want to survive. To say that they are not necessary is a myth. Do we still need book publishers since everybody can self publish? Do we need TV stations when you can stream content? Why have financial advisors when everyone can trade on E-trade? Why have police departments when everyone can openly carry a gun?

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Onhwy61...I think you are over simplifying things a bit.

We are speaking specifically of musicians and record companies.
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Onhwy,

Lower costs increase profits only if the top line can be held constant. Top line music sales are plummeting. Further, the major labels continue to face new competition that ranges from self publication to streaming subscription services. They can try to compete - see Spotify - but the total pot of $ they're chasing is shrinking.

Yeah, we still need book publishers (sorta), but we're not wiling to pay them as much as we used to. Same for TV networks. But, in each case, the value they add to the chain is diminishing. NBC, ABC, and CBS are losing share to HBO and Netflix, et al. They still add value but their historical primary function - sole distribution channel - is done. They can't get paid for that anymore and that will cause them to shrink or, at least, grow more slowly.

The purest example of this might be Kodak. Digital imaging sucked the lion's share of revenue from their business and their best case was survival as a much smaller company. If they had evolved as you suggest, they might have survived, but they wouldn't be Kodak (the huge company that we knew).

That's my point - the BIG profitable record company is a thing of the past. Maybe they'll make big profits promoting concerts, but they won't make them the traditional way; selling recorded music.

"10-01-14: Martykl
Zd,

I think most data suggests that SQ is the least of the contributors to the problems killing record companies. Consumers overall don't give a sh*t. They want cheap, fast, convenient. Low quality downloads and streams are the fastest growing segments of the business."

I agree. That was my point. Music playback is sold on features, not sound quality. With audio, consumers don't grasp digital quality as they do with other digital products. If you ask the average person about the sound quality of digital music, the typical reaction is "it's digital, so its the best. it's digital, so there's no loss, so it's the best quality.", or other phrases similar to that. Ask the same person why you would want a Playstation 4 when you can get the 3 for less money, they're both digital, and you'll get a completely different answer. Same thing with video and computer products. The average person doesn't understand digital audio quality the same way they do other digital products. For the most part, I think that's the industries fault.

Zd,

If I understand you correctly,you're suggesting that the music industry hasn't made sufficient effort to market sound quality and, if they had (successfully) educated consumers on the subject, they wouldn't be "bleeding to death" (my original phrase). You're point is taken, but - in the big picture - it's hard to see how a better effort would have materially changed the fate of the major labels. Every bit of market research I've seen (and I banked the industry for decades) says that high performance (or hi-rez) formats - at best - offer only a short term sales bump.

SACD (to cite just one example) was Sony's (futile) attempt to sell high quality sound. It was generally acclaimed for performance, assailed for convenience (effectively copy protected) and ended up essentially still born. Even more successful hi-rez roll-outs like Blu-Ray (to use your video example), have proven to provide an early bumps as enthusiasts replace their collections with higher quality versions. From a small early base, rapid growth lasts a few years and then fades. Price premiums are lowered and sales plateau, then fade. That's where Blu-Ray stands today. Like other hi-rez formats, it has demonstrated a limited life span.

BTW, SACD was marketed very aggressively in Japan (where new formats are taken up at a much higher rate than in Europe or the US) and still tanked quickly.

Bottom line: Most people in the business believe that, over the long haul, only a small % of the market will pay a premium for high performance entertainment software. This may be enough to sustain a profitable boutique industry, but there's little evidence that it will support a mass market industry. Hence my original observation about shrinking record companies having little to do with SQ. There's little evidence that there are enough $ chasing SQ to support a mass market record industry that attempts to differentiate itself (from cheaper, lower quality SQ alternatives) on that basis.

BTW, the question has been studied to death. I believe that you'll continue to see proprietary hi-rez music formats (even for downloaded and/or streamed content) because the content companies will seek the short-term sales bump. In the end, I don't believe that they'll ever be viewed as a long term, mass market solution to bringing sufficient $ back to the table to revive the business.