The Glorious Righteousness of Optimism & Reason

The Music Industry is Growing. Record Labels Will Live. Really.

Now that we’ve rang in the New Year, I’d like to share a story with all you recording musicians. The short of it is this: At the beginning of 2007, I made my lawyer a bet. He’s a tough litigator with one of the best track records for winning cases against bastard major labels. But, just because I love him like a big brother who is always right, doesn’t mean that he’s actually right all the time. So I bet him lunch that CD sales would not drop more than 20 percent this year (he thought 50 percent), and that this drop would be more than offset by other revenue in the music space. He laughed, informed me that he eats very expensive lunches, and said that he was already making the reservation at Chez Second Mortgage on my dime.

See, he subscribes to the ultra-technocratic viewpoint that CD sales being down and widespread usage of P2P services is the death knell for the major labels, and that technology (mostly net-based) will provide answers for artists that will “obsoletize” the need for large labels and their ridiculous deals.

I have been saying something a bit different for some time: It’s very possible that labels could get completely absorbed into technology companies. If it happens it would be another decade or so. But the most likely scenario is that labels will eventually, albeit slowly, embrace digital distribution, and provide the same services (and ridiculous contracts) they always have to artists: marketing, promotion, and security in distribution. They will grow bigger and more powerful via the Long Tail philosophy, and the business will be making more money than ever. And so will the artists.

But it seems that we have some very pathologically pessimistic people in our space, people who want to believe that everything is going to hell in a Hummer. They jump on this “the business sucks” bandwagon as if it’s taking the scenic route to Graceland. I’ve covered the reasons why we have these misanthropes in other articles, so I won’t bore you here with a reprise.

I have always maintained that a drop in CD sales is not really an indicator of anything much except a changing business model. For this, I have been ridiculed to no end. But that’s okay. Being right tastes even sweeter when it seems the world was against you from the beginning. Of course, no one ever remembers that you were the first to say it—or admits they were wrong. Not unless you put it in a magazine, and shove it in people’s faces.

No matter. Just a month back, I won my bet.

Chris Anderson, author of the most talked about new theories of commerce and economics, The Long Tail, posted a bit of good news for those out there still mourning the death of the music business and whining over the dip in CD sales.

In a nutshell he says this: “Believe it or not, the music business is growing.”

Actually that’s not even a nutshell. It’s exactly what opens his thesis, which can be viewed online at:

Now, I know my lawyer, he’s a very good arguer. He’ll come up with some contorted logic about how this is irrelevant. He’ll say: “But labels are firing tons of people.” He’ll ignore the fact that they are hiring far more than are being fired—in the marketing and licensing departments.

Yes, it’s true. The firings at labels are mostly in the A&R department. How can this be a bad thing? Wasn’t it just a few years ago that most independent musicians (and those scorned by the majors) were saying they should fire most of these good-for-nothings? Now it’s happening, and tech-loving spinmasters have turned this into bad news.

Many big-firm lawyers argue that they know the business is falling because their billable hours are down. In other words, they are making less money, so therefore things must be bad. They often forget that a $600 an hour lawyer is something of a luxury to musicians and record guys alike. One of the first things that any industry will look to do when it’s in transition (notice that I didn’t say “decline”) is cut back on overhead, and that often means legal bills. Cutting back to $300 an hour attorneys is not the end of the world, fellas.

We’re coming out of the fourth quarter of 2007 as this article goes to print. The worst is behind us, and the holidays are staring us in the face. An 18-percent dip is as bad as it will get for now. This brings our total “downturn” adjustment to about a 38-percent drop in CD sales over the last four years. This is almost the same as 1991’s sales levels for CDs—a very good year for the music business, even without all the new digital revenue. Think this is bad? Talk to the cougars on Wall Street. Not too many weeks ago, the Dow Jones dropped about 300 points—almost a three-percent loss in a single day. You don’t see them saying it’s doomsday. They know that things are cyclical and will rebound. We music types sure could learn a thing or two from them in terms of optimism.

So, who owes whom lunch? Me? I’m making my reservation at Chez Kiss-My-Ass right now. And I’m ordering two desserts.