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Restructuring and Risk in the
Digital Music Industry
Working Paper Series:
Martin Prosperity Research
Prepared by:
Brian J. Hracs, University of Toronto
March 2011
REF. 2011-MPIWP-007
2
Abstract
This paper nuances our understanding of the ongoing transition within the North
American music industry. It extends the existing analysis of the so-called ‘MP3
Crisis’ by exploring the ways in which digital technologies have challenged the
entrenched power of the major record labels. In particular, new insights are
offered based on interviews with music industry executives who have been active
in shaping the industry’s response to illegal file sharing. The paper also uses
interview data from musicians to investigate the implications of restructuring at
the macro-scale on creative talent at the micro-scale. Documenting, for the first
time, the structures and spatial dynamics of digitally-driven independent music
production in Canada.
3
Introduction
[In 1999] Napster came into being, forever altering the architecture of the
entertainment industry, technology and the law, yet society has yet to come
to terms with these changes (Allison 2004 7).
The introduction of MP3’s, file sharing networks such as Napster, and the
widespread practice of illegally downloading copyrighted music files constituted a
structural shock to the North American music industry. As a result, new forms of
technologically driven production and distribution are fundamentally altering the
music industry, structurally and spatially. Although several geographers (Leyson
2001; Jones 2002; Connell and Gibson 2003; Fox 2005; Leyshon et al. 2005;
Power and Hallencreutz 2005) have examined the development of file sharing
networks and the impact of the so called ‘MP3 Crisis’ on record sales and the
major record labels, the implications of these changes for individual workers
remain unexplored. This paper assesses the nature of technological change and
its implications for work in the music industry. Drawing on over 65 interviews1
with musicians and key informants in Toronto, it argues that by eroding the power
of the major record labels, technology is democratizing the production and
distribution of music. Moreover, the paper demonstrates that technology has
created a new structural and spatial order of independent music production in
which individual musicians can make and sell music from anywhere. The paper
also considers the implications of industrial restructuring on creative talent at the
micro-scale. Indeed, while technology provides individual workers with
1 The research presented is taken from 51 interviews with independent musicians and 14 interviews key informants in
Toronto. These key informants are educators, producers, studio owners, managers, union representatives, government
employees and executives at major and independent record labels. As such, these individuals provided invaluable
information about the broader context of industrial restructuring within the music industry, as well as information about
important trends within Toronto’s music scenes. Many of these individuals have experienced the ‘MP3 Crisis’ first hand,
through their positions in major labels in Canada and the United States. Others, who have participated in Toronto’s music
scenes for 30 or 40 years, provided useful information about how technology has changed the working lives of musicians.
4
unprecedented freedom, it has also radically altered the market for recorded
music. As a result, independent musicians face a dichotomy between freedom
and risk which forces them to negotiate new opportunities and uncertainties in
the digital music industry.
The paper begins by reviewing the period in which the major record labels
consolidated their power and controlled the organizational structures,
employment conditions and spatial dynamics of the music industry. This is
followed by an analysis of how emerging technologies such as MP3’s, the
Internet and file sharing networks served to radically alter the landscape of music
production and consumption. The paper demonstrates how technology has
curtailed the power of the major labels and how that power has been
redistributed to a broad set of actors, including retailers and individual musicians.
The remainder of the paper outlines the relationship between technology and
independent music production and, more specifically, the employment conditions
for independent musicians working in the contemporary digital music industry.
Majors and the Consolidation of Power
In the 1950’s, 1960’s and 1970’s the recorded music industry was
populated by dozens of record labels, each varying in size, location, scope and
power (Burnett 1996). During the 1980’s and 1990’s, several rounds of
consolidation, in which dominant labels purchased or merged with smaller labels,
altered the landscape of the industry. By 1999 the music industry was firmly
controlled by five large corporate entities or ‘majors’.2 These were Bertelsmann
2 According to Burnett (1996) most of the independent labels or ‘minors’ which existed during this period were either
owned or controlled by one of the majors.
5
AG (headquartered in Germany), the EMI group (Britain), Seagram/Universal
(Canada), Sony (Japan) and Time-Warner (United States) (Scott 2000, 114).3
Geographically, the music industry was increasingly globalized and concentrated
in the large cities (Tokyo, London and Berlin) where the majors are
headquartered. In the United States, for example, the location of recording
companies reveals the dominance of three cities – Los Angeles, New York, and,
to a lesser extent, Nashville. Independent labels followed this pattern with “51
locating in Los Angeles, 44 in New York, 9 in Nashville, and 151 in the rest of the
country in 1998” (Scott 2000, 119).
Structurally, the majors were vertically integrated multinationals, controlling
every aspect of the production process ‘in-house’. As figure 1 demonstrates, the
majors combined the commissioning and contracting of artists with their own
recording studios. These large conglomerates possessed the technologies
needed to press and package records, and had sophisticated marketing,
promotion and distribution networks, which operated worldwide. The major
record labels also housed a variety of specialized services, including legal
services, music publishing, production, sound engineering, and management.
Musicians signed to recording contracts advanced their careers on the basis of
their creative abilities and were not required to possess technical, managerial,
legal, or entrepreneurial skills.
Spatially, there was a high degree of concentration of music infrastructure,
musicians and music professionals near the major labels (Leyshon 2009). As
3 In 2004 Sony and Bertelsmann AG (BMG) entered into a 50-50 merger (Sony BMG) which means that there are
currently only four major music companies
6
individual musicians lacked the financial resources and technical skills to record
independently, they were dependent on the major labels and thus tied spatially to
New York, Los Angeles and Nashville. Under the major label model of music
production, individual musicians signed to recording contracts enjoyed job
security. In addition, their label provided a host of financial, technical and
business resources. However, in signing a contract, musicians relinquished their
autonomy. Indeed, signed musicians had to work within the confines of the
creative vision developed by their label and relinquish creative control over what
songs to record, what producer to use, what studio to record in, what art work to
use and how to package, promote and distribute each album. Musicians were
required to work when and how the label wanted them to, and live or spend much
of their time, near their major label in New York, Los Angeles or Nashville.
Figure 1 about here
By 1997, the five majors reached the height of their dominance. Between
1987 and 1997, for example, U.S. domestic sales increased by 160% (Scott
2000). Sales by the majors accounted for over 90% of the total domestic sales in
the United States, and between 70% and 80% of worldwide sales (Brown et al.
2000; Scott 2000). With total domestic sales in the United States topping $12.2
billion in 1997, the recorded music sector stood on top of the entertainment
pyramid, surpassing domestic sales in the motion picture industry, as well as
DVDs, video games and the Internet (Scott 2000).
Until 1997, the music industry also enjoyed a mutually beneficial
relationship with technology whereby the music industry evolved in lockstep with
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a range of technological advances. These technological advancements, including
the development of vinyl, magnetic audiotape and compact discs, were beneficial
to the industry, with consumer electronic companies, such as Sony, creating new
markets for reproductive equipment, and the majors being able to mine their back
catalogues, selling old recordings in a range of new formats. In fact, up until the
development of the MP3, the majors welcomed technological innovations as
opportunities to re-sell the same music over and over again with higher profits
(Leyshon 2001). The majors, for example, aggressively promoted the integration
of new formats such as the CD because they could simultaneously decrease the
production cost and increase the consumer price, which resulted in much higher
profit-margins (McLeod 2005).
The Rise of Digital Technologies and the ‘MP3 Crisis’
As the world connected to the ‘information super-highway’ and the music
industry came face-to-face with the MP3, the virtuous circle of growth was
radically altered. When the MP3, a software program called MPEG-1 Audio Layer
3, was developed in 1992 and introduced by the Motion Pictures Expert Group of
the International Standards Organization (IS0), its main purpose was to
standardize pictures and audio files in order to facilitate international exchanges
by the television industry (Leyshon 2001). Beyond this function, the revolutionary
feature of the MP3 was its size. Requiring one-tenth the storage space per
minute of sound that CDs do, MP3’s could be downloaded through even ‘narrow
band’ Internet connections. Moreover, the standardized nature of MP3 sound
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files meant that they could be downloaded without advanced or expensive
equipment to any personal computer in less than ten minutes (Leyshon 2001). 4
During this period of transition, before nation states and firms began
imposing legal regulations on file sharing networks and individuals, the Internet
facilitated the development of a series of ‘gift economies’ occupied by
enthusiasts who exchanged digital commodities, including image, movie and
sound files, across Internet relay chat (IRC) networks. The best-known example
of these networks is Napster, which was developed in 1999 by Shaun Fanning, a
computer science drop-out. According to Leyshon (2003), by 2000 Napster had
over 500,000 people logging in sharing copyrighted music files at any time.
Moreover, by 2001 Napster had attracted over 60 million users without any
advertising (Leyshon 2003).
As the pace of exchanging copyrighted music over the Internet accelerated,
in the next few years, the music industry’s lack of technological foresight,
strategic planning and its inability to implement an effective response plunged the
industry into an unprecedented economic crisis. Global music industry sales fell
by 5% in 2001 and then a further 9% in 2002. For an industry that typically
enjoyed year-over-year sales growth, this reversal had serious consequences.
Many leading firms suffered, including Seagram/Universal who recorded a
staggering $12 billion loss for the first nine months of 2002 (Leyshon et al. 2005).
In Canada, a survey released by Statistics Canada revealed that the Canadian
music recording industry witnessed a sharp decline between 2000 and 2003, with
4 With the high-speed and relatively cheap broadband Internet connections of today, downloading the same 3MB song
can take as little as 30 seconds.
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revenues dropping by 17.7% (Carniol 2005) Moreover, internal research by the
Canadian Recording Industry Association revealed a 40% decline in consumer
spending after the rise of the MP3, from $1.4 billion in 1998 to $850 million in
2004 (Carniol 2005).
In a recent article, Leyshon (2009) updates his analysis of file sharing and
the impact of the MP3-crisis on recording studios in the U.K.. Crucially, he argues
that the scale and scope of illegal downloading has accelerated rapidly in recent
years and now dwarfs the legal sale of recorded music in both physical and
digital formats. Leyshon (2009: 1311) writes,
As long ago as 2003 the top-ten peer-to-peer (P2P) download program
systems that facilitate the illegal downloading of music had themselves
been downloaded more than 640 million times, and it is estimated that 2.3
billion files are downloaded across these networks every month…The
availability of so much copyrighted material on sites such as this, for which
no fee is received, has created an environment, which poses a significant
threat to the musical economy.
To what extent was downloading the cause of this crisis? While the media and
major labels blamed file sharing almost exclusively, Leyshon et al. (2005) argue
that file sharing was merely a ‘tipping point’ and that in fact the cause of the
downturn extended to other factors, such as changing consumer tastes, and the
rise of entertainment alternatives like DVDs, video games, cell phones and the
Internet itself, which compete for the disposable income and time individuals
spend on music. As Leyshon et al. (2005: 184) note:
There is evidence to suggest that, for a number of reasons, the ability of
music to command the disposable income of those between the ages of 14
and 24 is ebbing away rapidly. The most simple explanation for this is that
other, newer, media and consumer electronics industries have begun to
compete for this market segment, so that the amount of money young
people have to spend on music has been reduced accordingly. New
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passions, be it computer games, mobile (cell) phones or even the Internet
itself, have all attracted expenditure that, in many cases, was previously
spent on music.
Moreover, Grant and Wood (2004) contend that the ongoing corporate and
geographic concentration of the music industry was leading to a reliance on
formulaic A&R (artist and repertoire) processes and an ongoing trend whereby
the majors were signing fewer new musical artists and focusing promotion and
resources on a declining number of top-selling artists. This resulted in a declining
level of musical creativity and diversity.
Sufficient evidence does not exist to definitively determine the cause of the
downturn, but it is clear that a confluence of factors led to the crisis, including, but
not limited to, the growth of file sharing technologies. As Leyshon notes, the
music industry “was already struggling and on the verge of crisis. Internet piracy
has legitimised the talk of a crisis of reproduction within the music industry”
(2009, 1312).
While file sharing became popular under Napster, it was not until
inexpensive high-speed broadband Internet connections were available to a
much wider group of consumers that file sharing crippled CD sales. There was,
therefore, a critical window of time in which the majors could develop and
execute a damage control strategy to maintain their position of power within the
market for music. Contrary to popular opinion, the majors were aware of the
threat and acted to find a solution to the growing spectre of file sharing. However,
their response was too slow and ultimately ineffective. According to an executive
with Universal Music Canada, who was working with the company’s e-commerce
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division in late-1999 and early-2000, Universal had a two-fold response to file
sharing: to stop illegal file sharing by engaging in litigation against Napster and
Kazaa, and more importantly, to develop and deliver a high quality legal
alternative to the market (Interview). In theory, this plan had the potential to bring
consumers back to the market, but in practice a series of technical, logistical, and
strategic problems limited the effectiveness of the plan, and instead exacerbated
the crisis.
As one example, there were numerous difficulties associated with the
creation of a legal system of online music distribution. While Napster facilitated
the exchange of files of all formats and levels of quality, the majors needed to
find the original ‘masters’ and digitize them in high quality audio formats before
they could be sold online. This proved to be a difficult and time-consuming
endeavor. Another delay ensued when the majors considered whether or not the
current record contracts with artists allowed them to even do this. Once these
hurdles were cleared, the majors had to construct complex royalty systems. They
also had to figure out how to organize transactions. As an executive at a major
label in Canada explained,
We were trying to meet with people, credit card companies and others, who
would process micro-transactions. They looked at transactions under a
dollar and they laughed at us. Things like PayPal, that people use all the
time today, they didn’t exist then. (Interview)
Furthermore, while digital products in the U.S. were not taxable, in Canada
the systems had to accommodate the collection of federal and provincial sales
tax. All of this development took time, and although the plan was to get
Universal’s online system up and running by September of 2000, it took much
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longer than expected. Indeed, ‘Puretracks’, a Canadian online music store, did
not officially open in Canada until October of 2003. The delays, however, were
necessary, because as this major label executive put it, the majors could not skip
steps, “We had to pay people. Imagine if we put out our artists’ product without
arrangements to pay them? We would be as bad as Napster was” (Interview).
If the majors had delivered a legal and consumer friendly system to the
market in the first few years of transition, the crisis might have been minimized,
but the second problem was that the majors, through poor strategic planning,
alienated their customers, further pushing them towards the black market. This
alienation came from two sources.
First, after focusing legal action on actors like Napster and Kazaa, the
majors expanded their focus to include individual consumers. By prosecuting
consumers for stealing copyrighted music, the majors pushed away the markets
they hoped to bring back with their online models of distribution.
Second, the majors had two options with regard to how consumers would
buy music, a subscription model where consumers would pay a monthly fee to
essentially ‘rent’ online music, or the pay-per-song model where consumers
would buy and ‘own’ individual songs. Described by interview respondents as a
‘fateful fork in the road’, the majors chose the subscription model. In retrospect,
online music stores using the subscription model failed because they did not
mimic what was in the marketplace and provide consumers with the products
they demanded in a style that they were used to. As a major label executive
explained, “The thing in our acquisitive society is that the downloaders want
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something, they want the downloaded object, they want the file” (Interview).
Consumers were outraged to learn that they could not keep the music they had
purchased, and some of the majors, like BMG, made matters worse by
introducing limitations on purchased CDs. They created built in programs that
restricted users from copying music from CDs to computers. The backlash
against the majors paved the way for other firms to enter the market. In
particular, Apple, adopted the pay-per-song model of distribution and leveraged
its online platforms, company brand name and line of MP3 players (iPods) to
make its iTunes music store the market leader. Thus it is clear that technological
changes presented fundamental challenges to the major record labels and that
they failed to successfully adapt to this altered landscape. It is also clear that the
crisis had implications for traditional models of retailing and distribution, which in
turn impacted the majors further.
The Post-Crisis Restructuring of Music Retailing
At the height of their power, the major record labels, through a combination
of market power and vertical integration, dictated the terms of marketing and
distribution to less powerful retailers, which were dependent on the sale of
recorded music. As file sharing eroded the power of the majors and wiped out
these music retailers, new distribution channels, firms and power relations began
to emerge. This section outlines the rise of online music distribution such as
Apple’s iTunes music store, the replacement of specialized music retailers, such
as Tower Records, with diversified retailing giants such as Wal-Mart and the
implications of this shift on major labels. In particular, the paper argues that as
14
the majors lose control of distribution, they also lose control over the production
process of music itself.
As noted, in the United States, the vast majority of recorded music has
traditionally been distributed by the majors, which own their own distribution
networks, or alternatively by independents that distribute music through the
networks of the major which owns them. The vertically integrated nature of the
majors allowed them to blend sales, marketing and physical distribution in a
strategic way to increase profits, while being flexible to market demands (Power
and Hallencreutz 2005). Prior to the crisis, the retailers consisted of large chain
stores like HMV and Tower Records, which operated in many cities and
countries, as well as an array of local independent ‘record shops’. Dependent on
the sale of music, the larger retailers were completely subservient to the majors
who dictated what music was to be sold and for what price. Before the crisis,
therefore, the majors held the power, but in the turbulent times that followed, this
streamlined structure of music distribution would be transformed and the majors
would be forced to cede their power to a new breed of retailers.
As the practice of downloading ‘free’ music over the Internet started to
snowball, and the aforementioned market trends served to slow music sales
even further, the major labels lost billions of dollars, but the traditional retailers,
who failed to react and diversify their product offerings, bore the brunt of the
crisis. In the United States, for example, it was reported that approximately, 1200
music retailers closed down between 2000 and 2003 (Power and Hallencreutz
2005). Retailing giants such as Tower Records and Warehouse Entertainment,
15
for example, declared bankruptcy in 2002 and 2003 and closed 160 and 120
stores respectively (Fox 2005).
Against this backdrop of change it is useful to consider how the physical
and virtual landscape of music retailing has changed in recent years and the
extent to which market power has been redistributed. The first consequence of
the crisis, with respect to retailing, was the legal regulation and
commercialization of file sharing networks and the emergence of online music e-
tailers. When the majors finally mounted a response to the crisis, it took the form
of intense legal pressure to have file sharing networks and the practice of sharing
copyrighted music vilified in the media and declared illegal by European and
North American courts.
As the most visible threat, Napster was targeted by the major labels and the
Recording Industry Association of America (RIAA) for contributing to vicarious
copyright infringement and encouraging the downloading of pirated songs and
illegal files. By 2001, Napster had lost the legal battle and its ‘underground’
appeal. It was ordered to remove all copyrighted material from its system.
However, other file sharing platforms such as Audio Galaxy and Kazaa
emerged to fill the void. Unlike Napster, however, the operations of these new file
sharing networks are geographically fragmented across different regulatory
spaces, making the task of legal authorities more difficult. Kazaa, for example,
has servers based in Denmark. The software is programmed in Estonia. The
domain name is registered in Australia, and the company that now owns the
network, Sharman Networks, is registered in the ‘no names given’ Pacific tax
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haven of Vanuatu (Leyshon et al. 2005). Although the RIAA continued to level
legal action against file-sharing networks, the majors came to the increasing
realization that they could not beat them.
Having undertaken market research that indicated that 80% of Napster
users would be prepared to pay a $15 monthly fee to use the system, BMG
entered into an alliance with Napster to convert the system into a fee based
subscription service. BMG subsequently made its entire catalog available to
Napster users, who could still enjoy the features and convenience of the
‘legalized’ Napster experience (Leyshon et al. 2005). To further leverage its
ability to produce music and electronic devices which play digital music formats,
Sony also decided to jump into the online distribution game in 2004 when it
launched its download service called ‘Connect’ (Bockstedt et al. 2006).
Despite the number of online music distribution channels and business
models which have emerged in recent years, Apple’s iTunes online music store
and its ‘pay-per-song’ model has become the unrivaled market leader in North
America. The iTunes music store currently offers over 11 million songs, which
can be downloaded over any Internet connection to users with computers
running Macintosh or Windows operating systems. The average price per song is
$.99 and once the songs have been purchased they can be played on up to five
computers, burned to a CD, and downloaded to portable (MP3) players, without
violating any copyright or piracy laws (Allison 2004, 50). Between its introduction
in April 2003 and February 2010, Apple has sold over 10 billion songs through its
iTunes music store (Luttrell 2010). Moreover, as of August 2009, Apple
17
accounted for 25% of the overall music market – both physical and digital – and
69% of the digital market (Whitney 2009).
In the early 2000’s, many industry executives believed that the apocalyptic
mix of blank CDs and Napster would make traditional ‘bricks and mortar’ record
shops extinct within 12 months. In 2004, the rise of e-tailing was referred to as
having a ‘neutron-bomb effect’ (Fox 2005). It was estimated that, in less than a
decade, online music sites such as Apple’s iTunes, BMG’s Napster and Sony’s
Connect would empty the aisles of Virgin and HMV Mega-stores (Fox 2005). In
retrospect, these claims can be considered exaggerated. Indeed, although many
of the traditional ‘bricks and mortar’ retailers have disappeared, they have been
replaced by a new breed of diversified, logistically advanced and financially
stable ‘big-box’ chains such as Wal-Mart, Costco and Best Buy.
In 2003, the RIAA reported that ‘bricks and mortar’ stores still accounted for
86% of music sales for that year (Fox 2005). In August of 2009, however, this
figure had dropped to 65% (Whitney 2009). While the market share of music
sales for traditional record shops has declined from 71% in 1989 to 33% in 2003,
the ‘big-box’ stores have quickly taken over (Fox 2005). With over 3,617 stores in
the U.S., in 2005, and another 1,603 around the world, Wal-Mart has become the
market leader in U.S. music sales, accounting for over 20% of total sales (Fox
2005). Moreover, when Musicland declared bankruptcy and sold its 1,300 retail
stores in 2001, Best Buy seized the opportunity to establish itself as an
entertainment and electronics giant, swooping in to purchase each store for
approximately $685 million (Fox 2005).
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The Post-Crisis Redistribution of Power
As a consequence of this restructuring, the majors no longer dictate the
terms of content, pricing and distribution, but rather take direction from the new
and more dominant players on the distribution side. e-tailers such as Apple and
Amazon and diversified chain stores such as Wal-Mart, Best Buy and Costco
now dominate.
During the pre-crisis years, the size of the majors and their strong control
over the distribution process allowed them to dictate the terms of cultural
production. The majors developed marketing, placement and pricing strategies,
which were forced upon their subsidiaries, as well as retailers. Put simply, the
majors told the retailers what music titles to sell and at what price, and if the
majors wanted posters and music of a specific recording artist or group to be in
the front window of every North American record shop, it was only a matter of a
few phone calls. As retailing power has been consolidated into the hands of a
few large chain stores, the majors are increasingly taking their cues from the
retailers. This fundamental shift has had important consequences for the pricing
structure of music and the style of music that is being produced. The key
difference between traditional and new retailers is product diversity. Tower
Records went out of business because it sold music exclusively. Wal-Mart thrives
because it receives small profit margins on thousands of consumer goods. As
music has become one of a growing range of products now being sold, ‘big-box’
retailers frequently use music and DVDs as loss-leader goods, meaning that they
sell the goods below-cost in order to attract new customers and obtain revenue
19
on other (typically more costly) items (Fox 2005, 505). By selling songs for $.99,
which is often below-cost, Apple is also engaging in loss-leader pricing,
sacrificing profits on the sale of music, to promote the sales of more expensive
items like iPods and computers (McLeod 2005).
On the surface, the ability of online music stores, like iTunes, to offer
millions of titles seems to be counteracting the homogenization of music at
‘bricks and mortar’ stores, but in reality these e-tailers are further contributing to
the process. Although consumers have the opportunity to search for and
download music from fringe genres, the iTunes store heavily promotes the same
top-40 hit singles that are played endlessly on the radio and found on the shelves
of the ‘big-box’ retailers. Moreover, with the ‘pay-per-song’ model, iTunes
privileges the purchase of hit singles over entire albums, which further promotes
the popularity of a narrow range of the most marketed and visible (music video)
songs. At the level of mainstream cultural production, an increasingly narrow
range of commercially viable ‘top 40’ music is being demanded, produced,
marketed and distributed. This shift has had a profound impact on the major
labels and individual musicians.
The Consequences of ‘Picking Winners’
In the post-crisis marketplace the majors face mounting pressure to sign
popular musical acts and manufacture hit songs. While the traditional formula
involved signing a high number of promising musical acts across a range of
genres, in the hopes that a few commercial successes would pay for the failures,
major labels have become much more risk averse and formulaic. As a result, one
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significant response of the major labels to the MP3-crisis, has been to reduce risk
and focus on ‘hit-makers.’ In the wake of the downturn, the major labels
terminated many existing record contracts and instead focused their resources
on a small number of established and commercially viable musical acts, or
‘Cadillacs,’ such as Bruce Springsteen and Celine Dion. Moreover, there has
been a reduction in new contracts and those who are signed must be instantly
recognizable to the market. As one major label executive explains, the majors
are trying to reduce risk by looking for proven musical commodities,
In general the record company is being more careful with its money… We
do profit and loss statements. You see a band you like. You compare it to
other bands that are similar in some ways and you look at what those bands
have done in a similar marketplace and you track that. (Interview)
Throughout the process of restructuring, the major labels are going beyond
just picking winners to reduce costs and risk. Indeed, the major labels have
scaled back the level and comprehensiveness of the services and support they
provide to recording artists. While musicians traditionally produced and
distributed demo tapes to the majors in the hopes of getting ‘signed’, musicians
in some cases now have to produce and distribute several albums
‘independently’, before a major will sign them. Moreover, as Grant and Wood
(2004) point out, once signed, musicians must be commercially successful or the
majors ‘will drop’ them immediately. The major labels have become more risk
averse and less concerned about developing musical talent. As one record label
executive argues,
Why should the record company go out there and find a raw talent and walk
them through all the steps in the whole process?... It is a much less risky
21
proposition to take established talent or somewhat established talent than
completely raw talent. (Interview)
Leyshon (2009, 1327) argues that as major labels scale back their
involvement in discovering and developing new talent, they are transitioning from
being music producers to acting as brand-led marketing companies. As a result,
the risk of talent development has been downloaded from the major labels to the
artists themselves. As another record label executive indicates, even ‘signed’
musicians need to know how to do things themselves,
The onus is more than ever on the individual to actually do it themselves...
Under the old system, you get picked up, put in a studio and you just have
to be creative and express the music. But now I am not interested in getting
into business with individuals who don’t know how to do these things
themselves. (Interview)
Or as this executive at the Canadian Independent Recording Artists’ Association
puts it,
The majors are more interested in the finished product instead of the
developmental process… The whole artist development role of the label has
rapidly dwindled away. Labels are not willing to take the same kind of risks
or invest the same kind of time to develop an act, and to build an audience.
They're looking for ready-made products. (Interview)
As the major labels withdraw from talent development and fewer individual
musicians seek or obtain recording contracts, the transition from the traditional
model of major label music production to a technologically driven alternative
becomes more widespread. As the responsibility for development has been
downloaded to individual musicians, it seems logical that the alternative is
independent production. While independent production has existed as a niche
alternative to the major labels for over 30 years, it is taking new forms in the
contemporary period.
22
Technology Makes Independent Music Production Viable
In the current period, the significance of independent music production has
increased and it is now the dominant form. As this musician explains,
In the early 1980s, being an independent musician was a choice. Some
people didn’t want to work towards a major label deal because there were
restrictions and conditions attached to that…Now very few artists can still
get signed to major label deals, so the majority of artists end up on the
independent side. (Interview)
In fact, according to the Canadian Independent Recording Artist Association
(CIRAA), the declining number of recording contracts has left over 95% of all
musicians in Canada without major or independent label affiliation, making them
by definition, independent. How does contemporary independent music
production differ from its previous incarnations? According to musicians with first
hand experience, traditional indie production was really an ad-hoc system with
inherent limitations. Musicians have always been able to create music on their
own, writing and performing songs, but the recording, manufacturing, marketing
and distribution of these songs required capital and skills beyond the grasp of
most individual musicians. As this musician points out, even basic recording and
production required money and specialized music professionals,
In the 1970’s independent music production existed, but you had to raise at
least $10,000. You still had to go into a recording studio and hire some
engineers and producers who had the technical skills. The equipment was a
lot less accessible because of the cost of it and it was very difficult to
operate. You couldn’t operate the recording equipment in his studio yourself
because you needed specialized knowledge for that. (Interview)
Moreover, at this time, short of selling these albums on street corners and
after live performances, indie musicians had no way to market and distribute their
music on their own. Distribution deals existed with major and indie labels, but the
23
resources and technology did not yet exist for true indie production across the
production to distribution chain.
In the current period, however, this landscape has changed. The
introduction and development of digital technologies have finally given indie
musicians the tools to be truly independent. Recording can now be done in home
studios with personal computers, which has reduced the cost of recording so that
it is accessible to musicians with low incomes. Moreover, with professional and
even consumer software, recording, editing, mixing and mastering digitally
recorded music has become easy enough for a much larger number of musicians
to do on their own. As this musician explains,
As digital technology developed... things became more affordable. $3000
will buy you a really good computer, software and a bunch of equipment.
Technology has made recording more affordable. More people are able to
do it on their own. People became less dependent on the label deal, or the
big-money contracts. You didn’t have to sell your soul for that $20,000 to
make the record or whatever. You can actually do whatever you wanted at
home by yourself. (Interview)
In effect, digital technologies have democratized the production of music by
making traditionally expensive and specialized activities accessible to a much
wider range of musicians (Von Hippel 2005; Leyshon 2009). As this musician
argues, technology has had a ‘flattening effect’:
Now, anybody who owns a computer is a producer and engineer. But it
wasn’t very long ago that being a record producer was a very specialized,
very high-end field of work where you had to have hundreds of thousands of
dollars invested in gear just to do the work. There still are people who do
that but the bar has been dropped so much lower in terms of who can do
that. To some extent that has a real flattening effect on what kind of money
is involved in that. (Interview)
24
These developments have removed the two traditional barriers of cost and
skill, but new technology, specifically the Internet, has also allowed musicians for
the first time to market and distribute their music independently. Musicians can
now cheaply and easily set up websites to promote and distribute digitally
recorded music tracks in MP3 format. As this musician puts it,
I think MySpace is a great music resource for musicians because it puts
everything in your hands. Within an hour you can set up everything, a
profile for your band, add songs that people can listen to, send messages,
send out updates about upcoming shows. (Interview)
Furthermore, the same tracks can be licensed and distributed directly through
Apple’s iTunes online music store, which inserts indie musicians directly into the
chain of global distribution for the first time. So in terms of barriers to entry, new
digital technologies have had a tremendous flattening effect on the industry and
allowed a much higher number of musicians to enter the industry and function as
independent producers. As this musician explains,
We have two albums and if people hear us on MySpace they can go to
iTunes and buy it. We got ourselves on iTunes through a distribution deal
through ‘Blue Pie’. They put our stuff on there and at $10 a CD we keep
60% of it. We have sold close to 100 albums on iTunes…but surprisingly it
is not only people from Toronto buying but from all across the world. The
majority of sales are actually coming from Europe. (Interview)
Technology has not only served to free musicians from the support of major
labels but has also created a new geography of music production, one in which
musicians are no longer tied to the established centres of music production in
New York, Los Angeles and Nashville. While many indie and signed musicians
still choose to live and work in these cities, technology has made it possible to
25
produce, market and distribute music from anywhere. Or as this music producer
argues,
I would agree that musicians are no longer tied as they once were to the
major centres of music production and the major labels…Now you can
make music from anywhere, even the far north. Last summer I was up in
Moose Factory [Northern Ontario]. We did a gig out there in an aboriginal
community and we met some people that have a little studio and [are]
recording music in their basement. Because they have the Internet, they
don’t have to go to a city or a major centre to record or to distribute their
music to the world. (Interview)
These examples demonstrate how technology serves to democratize the
music industry by lowering entry barriers and redistributing power. Indeed,
technology makes music production cheaper and more accessible, while also
allowing musicians to venture for the first time into the realm of marketing and
distribution at the global scale. As a result, technology affords individual
musicians unprecedented structural and spatial freedom. Although it is useful to
identify these processes at the macro-scale, it is equally valuable to consider
their implications for the nature of work at the micro-scale. As the structure of
contemporary independent music production is still poorly understood the
remainder of the paper lays out the widening array of tasks – both creative and
non-creative – associated with this mode of production.
From Artist to Entrepreneur: Working as an Independent Musician
So far attention has been paid to how technology has restructured the
music industry and transformed independent music production from a niche
market to a mainstream model of music production. This section describes the
changing nature of work in independent music production and argues that
independent musicians are now required to perform a wider variety of tasks. This
26
constitutes a fundamental shift in the working lives of musicians who, under the
major label model of music production, allocated the majority of their time to
performing creative tasks such as song writing, recording and performing. Under
the independent model of music production, musicians are now responsible for
non-creative tasks as well. As this musician explains,
If you actually want to make a living as an indie musician, it is a tough go.
You’ve got to pretty much do it yourself. You have to be able to play your
instruments well, write songs, but you also have to be able to get out of the
basement and perform them…You also have to be a booking agent…You
have to be a manager, setting up interviews and getting the word out…You
also have to raise money and get financing together to do some recording,
so that means grant applications, going to the bank and putting together
business plans and proposals…Plus there are all the technical skills that
you need. How to put together a home studio, how to get good recordings,
what is involved with recording and mixing and mastering…If you are going
to put out an actual CD, then you need to have some kind of artwork with
that as well. Marketing is another one getting lists of media that you can
approach, radio stations and magazines, fanzines that you can send your
music to for review, all that kind of stuff and promotion. Merchandising,
maybe it is just going to be T-shirts, but often it is much more than that now,
and these are all things that would be done for you by various people in big
organizations if you were signed to a label, but now you have to do all of
these things yourself…So musicians are now responsible for the whole
range of activities, technical, business, performance and musicianship.
(Interview)
The most obvious consequence of this shift is the redistribution of time and
energy musicians can now afford to allocate to each task. Under the major label
model, signed musicians spent the vast majority of their time seeking inspiration
and being creative, but these activities have now been curtailed out of necessity.
As the quote above illustrates, the independent musicians in my sample are now
working longer hours and devoting more time to non-creative tasks, such as
27
booking shows, applying for grant money and promoting their music online.5
Despite ‘working more,’ however, musicians are earning less money. In fact, the
Canadian Census indicates that the real incomes of musicians in Toronto
declined by 26% between 2001 and 2006, from $18,582 to $13,773. In this way
the working lives of the contemporary independent musicians are moving away
from ‘artist’ or ‘bohemian’ models of creative production to encompass a more
entrepreneurial model.
Figure 2 about here
This shift has broader implications for traditional understandings of artistic
employment and creativity. As Greffe (2004, 88) points out, the shift from
dependent to independent production presents the need for a revised
understanding of the skills required for artistic production. As artists become
entrepreneurs, new skills are required and artistic or creative skills must be
paired with those of a legal expert, a financier, a manager and so on. Writing
more critically about the changing experiences of indie fashion designers,
McRobbie (2002) describes these processes as de-specialization and multi-
skilling, and argues that the shift to more entrepreneurial modes of creativity is
eroding traditional notions of creativity. As this musician argues, “It is a full-time
job but only about 10% actually involves music. The rest of it is the marketing
and the looking for work” (Interview).
Conclusion
5 These figures are taken from Statistics Canada, catalogue number – 97-564-XCB2006005 (2006) and Catalogue
Number – 97f0012xcb01050 (2001, 1996, 1991). The dollar amounts were converted to 2010 CDN$ using inflation rates
provided by the Bank of Canada.
28
This paper explored the changing structure of the music industry and the
role of technology in restructuring the nature of work. It demonstrated how the
Post-crisis restructuring of the music industry and the rise of contemporary
independent production generates new opportunities and new challenges for
individual workers. Within the major label system, signed musicians handed over
creative, structural and spatial control to the major labels in exchange for support
and security. Without record contracts, however, musicians have gained control
and flexibility but also increased risks.
On one hand, independent musicians now have complete creative control
over the direction and content of their music and related products. They have
autonomy over the way they work, and can now produce music virtually
anywhere. Technology allows musicians to enter the market and sell directly to
consumers, and although sales of recorded music have declined in an era of file
sharing and MP3 players, more music is being consumed than ever before.
Indeed, the restructured music industry is full of opportunities for talented and
ambitious musicians.
On the other hand, to realize these opportunities, musicians must first
overcome a new and dynamic range of barriers to success. Respondents
describe the current marketplace as the ‘wild west’, a place where the rules of
the game have changed. Barriers to entering the market have been significantly
lowered, but that market is fraught with uncertainty and above all competition. As
one musician puts it, “The best thing about technology is that now anyone can
make music but the worst thing is that now anyone can make music” (Interview).
29
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Figure 1: The Traditional Model of Services Controlled by the Majors
32
Figure 2: The Creative and Non-Creative Tasks of Independent Music
Production
33
Author Bio
Brian J. Hracs is a Post-Doctoral Fellow at the Martin Prosperity Institute,
Rotman School of Management at the University of Toronto.
Working Paper Series
The MPI is dedicated to producing research that engages individuals,
organizations and governments. We strive to make as much research as possible
publicly available.
Our research focuses on developing data and new insight about the underlying
forces that power economic prosperity. It is oriented around three main themes:
economic performance, place, and creativity.
Disclaimer
The views represented in this paper are those of the author and may not
necessarily reflect the views of the Martin Prosperity Institute, its affiliates or its
funding partners.
Any omissions or errors remain the sole responsibility of the author. Any
comments or questions regarding the content of this report may be directed to
the author.
