Consumer Brands: The New Record Labels

Posted By Glenn Sabin on August 13, 2008

We are at a point in the revolution of prerecorded music content where the revenue model is shifting steadily away from consumers and quickly over to consumer brands and services.  Those traditional record labels that do not evolve and innovate quickly enough, by expanding their footprint by offering related services such as management, gig bookings, ticket and merchandise sales, are well on their way to fiscal irrelevancy.

Record labels are working with marketing and promotional budgets that are a fraction of what they were just five years ago.  The playing field has been largely flattened by the weight of the Web (think Amazon, social networking and iTunes).  Major brick and mortar record chains are out of business or in major trouble (Tower being the former, Borders being the latter).  What exactly does an new or established artist need a record label for?  To share royalties?  To shape their music content?  To get the their product into retail?  Not really.  Many artists no longer see the benefit of being tied to a label deal – which is why established artists and newcomers alike are leaving labels and their long-standing relationships in droves, starting their own labels and distributing their own product.   

While the music business is extremely challenging for traditional record labels, the opportunities for consumer marketers to connect their brands and/or services to consumers through music has never been greater, or come at a better time.  Consumer brands today have a unique opportunity to take over and flourish where labels have largely been stopped in their tracks.

As the fortunes of traditional record labels continue to erode – with the increase of digital revenues not coming anywhere close to making up for the attrition on the physical product side and major artists leaving in droves – new players are coming to the fore: consumer brands.  From Starbucks to Proctor & Gamble, to Red Bull and Nike, brands are going beyond their longstanding, traditional connection to music and into the next, natural phase of branded content engagement. 

The musical landscape has been forever altered.  The in-store buying experience of yesteryear –
when many of us used to schlep to the local mom & pop record store, confer with fellow music customers and get guidance from intelligent store staff – has morphed into a current generation of music buyers who purchase and download digital singles on iTunes from their bedrooms (in their underwear, if they choose), or help themselves to digital music through illegal means. 

Today, the perceived value of the content to the consumer largely aligns with the lack of understanding the consumer has of the artist’s intellectual property rights.  This is a sad fact, but at this point in time there is not much that the RIAA or anyone else can do change this.  The bulk of younger music consumers no longer support paying what the industry views as a reasonable sum for the content.  Music content as now priced is too high to compete with readily assessable illegal means – or with a quick offer of a “burn” from a friend.  Some make a terrific argument that content is moving in the direction of FREE.  See Anderson’s piece in Wired, “Why $0.00 is the Future of Business”.  
Except for the biggest sellers, artists can no longer depend on selling music for the bulk of their livelihood.  Many artists are now gigging more, aggressively merchandising their swag at live performances, and aligning themselves with consumer brands like never before.  A few fortunate artists are entering into so-called 360 deals.  Madonna and Jay-Z recently inked multi-year deals worth X and Y, respectively with Live Nation.  These deals include a healthy profit sharing arrangement for the sale of music, performances (tickets) and merchandise revenues.      

While consumer brands have long used artist endorsements, tours and jingles to engage music consumers, the type and level of brand engagement clearly is on the rise.  Proctor and Gamble has recently joined forces with Island Def Jam to form Tag Records, a label that will sign and release music by new hip-hop acts.  The label is named after the body spray made by Gillette.  P&G, the parent company of Gillette, is providing a significant (though not disclosed) marketing budget to promote Tag artists build the label.   

Companies like P&G are going outside of their core marketing models to actively finance, promote and distribute music.  In April, Bacardi announced that it would help finance and promote the English electronic music duo Groove Armada.  Unilever has commissioned Nicole Scherzinger to record a Duran Duran tune to give away on its Web site to promote its Brazilian Body wash product, part of the Caress body-care line.  

Music consumption is more popular than ever.  Brands now have a terrific opportunity to own music content, and not simply rent it.  This will be the topic of my next post on Friday.

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