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Skip Spoerke

Student ID: 0973543

Dr. Kavita Finn

English Composition 120

17 December 2014

The Digital Music Industry: In the Hands of Consumers

While most industries have leveraged the power of the Internet to market their

products to consumers, the music industry has significantly changed because of the

Internet—starting with the creation of digital music formats around 1994. For better or

worse, today’s music industry is digital and driven entirely by consumers. Just a few years

ago, record labels retained complete control of what the world listened to.

In today’s digital music industry, consumers discover new music and push their

favorite musicians to be more creative and original. They use social media as a primary

conversation hub to communicate directly with their favorite musicians and each other.

Because social media is an important communications hub for consumers, it is also

paramount to musicians and record labels in today’s music industry. Musicians and record

labels that use social media in a similar manner as the consumers have an advantage, which

has resulted in some musicians and record labels sustaining highly successful careers

solely from social media.

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1. The Influential History of Record Labels in the Music Industry

In 1887, the American Graphophone Company was founded by a group of investors

to develop office dictation machines (Wilentz 16). American Graphophone Company

opened a merchandising office in D.C. known as Columbia in 1889. Columbia soon realized

there was not much money in selling office dictation machines, so the merchandising office

began experimenting with recorded music. After the collapse of Columbia’s parent

company in 1893 due to a failing economy, Columbia opened a second office in New York

and continued focusing on recorded music.

Patent rights to Thomas Alva Edison’s phonograph, along with Chichester Bell and

Charles Tainter’s graphophone, led to Columbia becoming “the nation’s premier producer

and promoter of musical recordings” (Wilentz 17). Throughout the 1890s, .the company

secured numerous exclusive music recording agreements with members of John Philip

Sousa’s Marine Corps Band, Bert Williams, Harry McClaskey, Al Jolson, and other successful

musicians. “Recorded earnings in 1910 exceeded a half million dollars” (47) for Columbia,

which would be an economic power equivalent to roughly $248 million today

(MeasuringWorth). W.C. Handy—”the Father of the Blues” (Wilentz 50)—and other black

musicians also joined Columbia in the early 1900s, following the increasing trend in

popularity of jazz music. Columbia had solidified its position as a major player in the music

industry.

In the early 1920s, Columbia began experimenting with electric microphones and

became the first company to release recorded music using them. “Columbia released an

electrical recording of ‘Adeste Fideles’ sung by 850 members of the Associated Glee Clubs

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of America at the Metropolitan Opera House in 1925” (Wilentz 65). Electric microphones

immediately proved capable of recording large groups of musicians at varying volume

levels and at higher sound quality than the audio funnels that they replaced. Descendants

of those early electric microphones are still being used in every recording studio and many

live performance venues around the world.

Companies like Columbia changed the music industry. With recorded music

becoming widely available, people no longer needed to attend live performances to listen

to music; they could just play a record on their phonograph at home. More significant to the

music industry was how recorded music was exposing the world to many styles of music.

For example, jazz had firmly planted roots in the southeastern part of the United States.

When jazz musicians like W.C. Handy recorded music, however, much of the world listened

and instantly fell in love with the genre.

Regarding the success of Columbia, Big Al Pavlow explains, “Columbia was one of

the great record companies of the Twentieth Century . . . . [Its] existence spanned the

period of time [sic] which saw two of the greatest developments in the history of Western

Music: the Jazz Era followed by the Rock Era” (115). If it were not for Columbia and its

counterparts pushing the limits of the music industry, these two great developments

probably would have never happened.

Record companies eventually became known as record labels because of the label

that is glued to vinyl records, indicating the production company (Klein 2, par. 15). The

largest record companies (known as major labels) chose to extend their reach far beyond

only recording, duplicating, and distributing music. These companies handled nearly every

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aspect of a musician’s career, like discovery and development of talent, album production

and distribution, tour and band management, marketing and sales, and payroll and legal

representation. By the 1950s, however, major labels had become too large to “discover and

nurture great music and talent” (Spellman 61), and they were forced to ignore many

talented people. Small, independent labels gained traction in the industry by offering

contracts to talented musicians that the major labels left behind.

Independent labels became highly viable options for getting signed—having an

exclusive contract between a record company and musician—for many musicians that

couldn’t gain the attention of a major label. In the 1990s, numerous musicians that were

signed to Independent labels had their songs on the Billboard Top 200. “During one week in

1996, indie labels occupied all top 5 spots on the chart” (62). Successes of those

independent labels inspired the creation of many other independent labels, like

Rhymesayers Entertainment, Jagjaguwar, and Domino Recording Company (Monster 2, 7,

13).

Due to the small-scale of most independent labels, they cannot often handle every

aspect of the musician’s business model like a major label can. Bruce Iglauer compares his

independent label, Alligator Records, to major labels by claiming, “It’s the menu that counts

—not how many are served” (62). To demonstrate significant value for the musicians being

signed, most independent label contracts represent mutually beneficial partnerships.

Certain uncontrolled aspects of the music industry limit all record labels; for

example, labels do not perform the music, write editorial reviews of concerts and bands, or

personally sell albums in music retail stores. Since the 1980s, record labels have applied

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intense pressure to newly signed musicians to be instantly profitable (Owsinski 39). Those

demands are extremely difficult to meet, and the result is that many extraordinarily

talented musicians have lost recording contracts.

2. The Crippling Conflicts Between Labels and Musicians

Most musicians that signed contracts with recording companies from the 1890s

through the 1940s had already formed sustainable careers without recorded music by

connecting with consumers. “[W.C.] Handy had begun to make his national mark in 1909,

when he moved his band from Clarksdale, Mississippi, to Memphis, [Tennessee]” (Wilentz

50). Handy would later compose numerous songs for Columbia, earning “nearly $40,000 in

author royalties . . . in 1915” (50). $40,000 in 1915 would be the equivalent income value of

about $5,460,000 today, according to MeasuringWorth.

Recording sessions and phonographs were both expensive, so early record label

contracts served as supplemental opportunities for successful musicians—they did not

create careers on their own. By the 1950s, the record labels had changed their approach to

signing new talent and many of these new contracts created careers.

The competition was fierce for limited openings with the record labels, and it was

often an excruciating process for a musician to secure a recording contract. For instance,

when Decca Records first scouted The Beatles on December 31, 1961, The Beatles were

required to audition the next day by recording fifteen songs (The Beatles Bible, par. 1-5).

“The entire session, which began at 11am [sic], took roughly an hour” (par. 5).

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The Beatles were ultimately passed over for that recording contract and Decca

Records retained ownership of all fifteen recordings (The Beatles Bible, par. 8-9). Bootleg

copies of all fifteen songs entered into circulation in 1977; only five songs, however, have

been released for retail sale. These songs are in the 1995 Anthology 1 collection: (1)

“Searchin’,” (2) “Three Cool Cats,” (3) “The Sheik Of Araby,” (4) “Like Dreamers Do,” and (5)

“Hello Little Girl” (par. 7).

“Prior to [musicians like The Beatles and Bob Dylan], there was an entire industry

devoted to composing songs for others to perform” (Howard, 5). Many musicians signed to

labels were seen as little more than line workers at a factory—allowed to do only what

their supervisors told them to do and how they were told to do it. Elvis Presley was one of

those musicians; Dianna Ross was another (6).

After the labels gave more songwriting liberties to musicians, other problems with

the business model of record labels surfaced. George Howard declares the 1980s music

industry as a “creative wasteland” that lacked the willingness to take risks. This wasteland

made it difficult for musicians like Kurt Cobain to be successful at pitching new musical

styles to record labels. It took Kurt Cobain gaining financial support from multiple business

partners, independently funding his demos, and years of perseverance before releasing

Nirvana’s first album, Bleach, in 1989 (Howard 21). Soon after the release of Bleach,

Nirvana was officially signed to an independent label in Seattle called Sub Pop (21).

“Tensions and turf battles have . . . become a ‘normal’ part of the record company

work climate” (Spellman 7). Musicians would fight with Artist and Repertoire departments

about career development and creativity, and departments within each label experienced

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high turnover rates due to job dissatisfaction. Top-level executives at the major labels were

striving for higher profits and were willing to do whatever it took to achieve those results.

Meanwhile, the people laboring to make those higher profits often felt as though they were

being “sold out” —converted from artist to commercialized brand (3-8). The conflicts at

major labels had become so drastic by the year 2000 that Peter Spellman advises in The

Self-Promoting Musician, “Artists seeking a major recording contract should seriously

reconsider” (8). The record labels were losing control of the music industry.

3. The New Digital Music Industry

“The day that the first MP3 music file was shared was. . . sometime around 1994”

(Owsinski 12). Sharing this digital music file marked a turning point for the music industry

—a turning point that changed everything. In February of 2001, Napster—the first peer-to-

peer file sharing network—reached its highest point with 26.4 million users and was shut

down later that year, following legal battles over copyright infringement (14). The RIAA

(Recording Industry Association of America) then began targeting consumers for

prosecution who had used other file-sharing services like Limewire and Gnutella (15).

Despite the music industry giants fighting tooth and nail to regain control on their

terms, consumers did not return to the brick and mortar music retailers to purchase

physical copies. Instead, consumers continued to use peer-to-peer file sharing, CD burners,

and other digital music file sharing methods—seemingly unafraid of the possible legal

ramifications that might ensue. Music industry giants were forced to either embrace digital

music or go out of business. In 2003, the iTunes Store became the first digital music retailer

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to launch and was an instant success (Owsinski 17). Apple announced on February 6, 2013

“music fans have purchased and downloaded more than 25 billion songs” (Apple, par. 1).

After the launch of the iTunes Store, brick and mortar music retailers began closing

down because many consumers were no longer interested in physical copies of music.

More than 3,500 music retailers have now closed (Owsinski 29), including some large

chains like Sam Goody and Tower Records. “There are now fewer than 2,500 dedicated

music retail stores left” (29), forcing consumers to accept the digital era of music, even if

they prefer physical copies of their music libraries.

At one time, musicians experienced significant increases in popularity and album

sales from television appearances or songs being played on the radio; both have lost large

populations of their audience. “Radio is just a shell of its former self, far less relevant in its

impact on the success of an artist” (Owsinski 31). Radio first started losing its appeal when

small, portable music storage devices like iPods were introduced to consumers. It lost more

of its appeal with the release of streaming services like Spotify and Pandora.

“The Disney Channel and Nickelodeon are the only major star-making venues on the

television airwaves today” (Owsinski 35). With the exception of these two children’s

television networks, consumers are not watching shows that once offered exceptional

marketing to musicians. Digital technology introduced consumers to Digital Video

Recording (DVR), On Demand video rental, Netflix and other streaming services, and

hundreds of television channels. These developments have caused many once-popular

television shows, like The Tonight Show and Saturday Night Live, to lose much of their

viewing audience.

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Many musicians are choosing to forego signing with major labels since music

distribution, radio play, and television appearances were a few of the most influential

benefits of contracts with major labels. Those musicians are instead, assuming complete

control of their careers. The other primary draw to major labels for musicians lies in the

prestige of being signed to a major label, and that draw is still active today.

Major labels retain most of the services they did before digital music, and they do

them effectively for the musicians they sign. Under every circumstance, however, a record

label wants to make money; if they stop making money, the musician loses the contract.

“[Profitability] goes far in explaining why nine out of ten newly signed artists never go on

to record, much less release, a second record” (Spellman 8). The tenth artist will continue

recording and releasing albums until they, too, stop turning profits. For example, Justin

Bieber, One Direction, the Zac Brown Band, and Taylor Swift could each be identified as the

tenth artist that proved profitability for the label. Chances are pretty high, however, that

many people have never heard of Ali Vegas or a band named Copeland, who were both

signed to Columbia in the early 2000s and released albums while under contract.

4. Musicians Embrace the Digital Consumer

Musicians, like most consumers, are paying less attention to the major labels, radio,

and TV. They are instead using streaming services to market their music, and they focus on

only selling one song at a time, not entire albums (Owsinski 57). Most importantly,

however, they focus on having genuine social interactions with their fans, both on the

Internet and in person.

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Amanda Palmer has shown musicians around the world just how important it is to

be open and faithful to fans, starting after she left her label in 2009. She immediately

launched a series of highly successful social media campaigns. Those campaigns peaked

“with a massively successful Kickstarter campaign in which she raised $1.2 million (the

goal was $100,000) from nearly 25 thousand fans in 31 days” (Owsinski 82). Her successful

campaigns and the fan-driven stardom by some performers, like Justin Bieber and Psy,

provide substantial proof that social media is effective as a marketing tool for success in the

music industry.

On October 13, 2014, U2 released their album titled Songs of Innocence for free to all

Apple customers through the iTunes Store. The album release was automatically

downloaded to iTunes libraries around the world. Numerous consumers and industry

professionals criticized this approach. Sinéad O’Connor even declared, “There was

something almost terrorist about it” (Grow, par. 1). The uproar was because consumers

claim that they were not given a choice to download the music; the iTunes Store forced it

on them. U2 fans may not have minded, but people who do not like U2 tend to agree with

Sinéad O’Connor’s comment.

U2’s frontman, Bono, apologized for the way the album was forced upon everyone,

saying, “I had this beautiful idea. Might have gotten carried away with ourselves” (Newton,

par. 2). Releasing this album was not U2’s first time dealing with digital music promotions,

but it was the first time they had tried to release an album for free to as many consumers as

possible. They tested a new marketing tactic, learned a valuable lesson, and in the process,

taught other musicians what not to do.

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Other than the one minor hiccup with the release of Songs of Innocence, U2 has been

one of the front-runners for marketing in the new digital music industry. They adopted a

communications strategy that forms communities on multiple facets of social media, to

include the band’s website, Facebook, and Twitter (Khare 5). U2 figured out a way to

connect fans with each other through these communities, instead of only being concerned

about their ability to communicate with fans through social media. U2 fans can share

photos, stories, links, and pretty much anything else they want for the band and other fans

to see (5). It sounds simple enough and logical enough that every musician should be doing

that, but U2 was one of the pioneers in using social media in this way.

Aside from helping connect consumers and musicians, social media places music

discovery in the’ hands of consumers (Preston 10). The musicians who understand the

power of social media benefit from being able to generate honest feedback about their

music and gain fans before playing their first live show and between shows. These

musicians are also more opportunistic with the digital music industry by utilizing

streaming music services as income generators.

Not all record labels have adapted very well to the new social media marketing

frenzy, but those that have are finding that their consumer knowledge is expanding rapidly.

Social media channels allow these labels to answer questions like, “who is buying what

music, in what format, and in which channel” (Lankinen 23). Labels may also use social

media to determine the best markets for music distribution with each artist they have

signed before releasing a new album. Probably the most favorable benefit to record labels

is that social media allows them to compete for musicians in new genres that they would

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have previously overlooked. The main challenge is deciding which social media platforms

to use.

5. Social Media Opportunities

For the digital music industry, consumers determine the best social media platforms

musicians and labels should use. For instance, MySpace is still a major contributor for

music marketing in some parts of the world, such as Finland (Lankinen 29), but Facebook is

the most popular social network in the United States. Facebook users accounted for “58.88

percent of all social media site visits” in the United States during September of 2014

(Statista). YouTube ranked second in the United States with 18.86 percent of all social

media site visits that same month, according to the Statista data. MySpace did not make

Statista’s list for the United States.

Each social media opportunity, like Facebook and YouTube, has a unique set of

features that the music industry has capitalized on. “Few artists have embedded music

players on Facebook fan pages, implying that, compared with [other social networks], the

focus on Facebook fan pages are on different content” (Lankinen 35). Most musicians

utilize Facebook for disseminating information to their fans by promoting upcoming shows

and providing an open line of communication with fans. YouTube, on the other hand, is

primarily used by musicians for sharing media in the form of videos of shows, new songs,

and music videos. Musicians will often embed YouTube videos on other social media

platforms that produce higher interaction to get direct feedback and promote social

sharing from their fans (Florina 4-5). Furthermore, by obtaining sync licensing through a

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distributor, such as CD Baby or ReverbNation, musicians can earn royalties every time their

music is streamed online.

Recently trending in the music industry is the use of an online social marketing

strategy called crowdfunding. Simply stated, crowdfunding is when a person, business,

organization, or group seeks pledges from the public to fund the project (Martinez-Canas

1472).

Previously, I mentioned how Amanda Palmer was extremely successful at using this

type of marketing to finance an album that she wanted to record, exceeding her goal by

$1.1 million. She is not the only musician to be successful with crowdfunding though. For

instance, a few guys I used to perform with decided to start a new band—Ghost Owl—in

2013 that they funded with a Kickstarter campaign. They reached their funding goal of

$5,000 in only five days (Ghost Owl – Lessons).

There are thousands of examples of other crowdfunding successes by musicians,

and thousands of other examples of musicians that couldn’t gain the necessary pledges to

fund their project. Crowdfunding, like everything else in the music industry, is only as

strong as the consumers allow it to be.

6. Concluding Thoughts

The music industry evolved following the introduction of digital media. Today’s

music industry is digital and driven by consumers; but, record labels still have significant

roles in the industry—specifically by being able to handle most aspects of a musician’s

business model. Many musicians, however, have found that because record labels no longer

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have the consumer influence they once did through exposure on radio and television,

record labels are not essential to their success. Musicians were also quick to recognize the

importance of opening direct lines of communication with their fans, which is something

record labels are still learning.

No matter how the music industry changes in the future, today’s musicians and

record labels must embrace the buying behavior of consumers. The musicians and labels

that personally connect with consumers have a much higher chance of being successful

than those that refuse to change with consumer demand. It is entirely up to the consumer

where the industry goes from here.

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