Artists, record companies look for new ways to sell music

A quarter century ago, Michael Jackson was the true King of Pop. His album “Thriller” had just been released and was on its way to selling more than 45 million copies worldwide, the most for any record ever.

A couple of years later, Bruce Springsteen’s “Born in the U.S.A.” captivated the country and to date has sold more than 15 million copies.

In 1989, an unknown singer from Oklahoma named Garth Brooks put out his first album, turning country music upside-down on his way to becoming the top-selling solo artist of all time with sales of 123 million records.

Two years later, a song called “Smells Like Teen Spirit” changed the world while Nirvana sold 15 million copies of the album “Nevermind.”

No song will be changing the world in 2007, 2008 or the foreseeable future.

Nor is it likely that any single recording will sell 15 million copies anytime soon, if ever again. 

The music industry has seen CD sales drop by 25 percent since 2000, an evolution/revolution/upheaval that crumbled its traditional business model and diminished if not eliminated the possibility of huge hit records that can impact large segments of society.

“Those days are gone,” said Mike Fratt, general manager of Homer’s Music. “We’re not going to see multi-multi-platinum records anymore. When a record gets that hot, most people want one song and they’re getting just that song.”

Sales figures bear out Fratt’s observation.

In 2006, the best selling album in the U.S., the soundtrack of  “High School Musical,” sold 3.7 million copies. Rascal Flatts’ “Me and My Gang” sold 3.5 million. “Some Hearts” from Carrie Underwood was the only other record that sold more than 3 million copies domestically.

Amy Lee, who leads the band Evanescence, can personally testify to the dramatic downturn in the music business.

“Fallen,” Evanescence’s 2003 debut album, sold 15 million copies around the world. “The Open Door,” its 2006 followup, sold 4 million, about 2 million in the U.S.

“It’s no easy thing to sell records today,” Lee said. “Everyone is feeling the impact of the Internet and everything else. It’s a real gift for us to have sold as many as we did and to be able to tour for a year after the record was in the stores.”

The slump isn’t confined to multi-platinum artists or to the major labels that sell most records and have long banked on a few huge hits to generate most of their revenue.

“We certainly don’t count on having hit records like the majors have traditionally done, but we’re also feeling that,” said Robb Nansel, who runs Saddle Creek Records. “We have releases that aren’t selling what we expect them to, or what we would have expected them to four or five or even two years ago.”

Five years ago, Saddle Creek, the acclaimed Omaha independent label, was at a peak and Nansel was telling anyone who asked that his company hadn’t been hit by slumping  sales.

“At that time, we were growing so fast, we were still selling more and more records,” he said. “Once we kind of leveled off to a certain degree, when Bright Eyes, Cursive and the Faint got to a certain level, it’s easier to see how it is affecting us.

“Five years ago, we could put out any record and sell a couple thousand without any trouble. That’s not the case anymore. That Ladyfinger record is a prime example. It sold about 200 copies. How could a record released on a label sell only 200 copies?”

There are several reasons why records aren’t selling, a perfect storm for the music industry that kicked up with the rise of digital media.

First, and the least likely to change, is competition from other media.

In the ‘80s, home video was primarily a rental medium, with only a few pricey videotapes purchased for home libraries.  Today, DVDs are priced in the $10 to $30 range, making them competitive with CD prices.

And videogames, which now account for the largest slice of the entertainment spending pie, were in their infancy when the record business was at its peak.

“I think videogames and DVDs have a perceived value that maybe is greater than what a record is worth,” Nansel said. “A $10 DVD seems like a better deal in people’s minds than a record. But that also plays into how kids get music these days.”

How kids get music these days is at the heart of most discussions of music industry woes.

That’s because, for a new generation, music comes from the Internet and, for many of them, it comes for free.

“They don’t think music costs any money,” Nansel said. “They don’t feel bad about downloading music for free. They’re not doing it because they’re trying to get away with something.

“They’ll go up to our bands and tell them they downloaded their album, sometimes before it’s even out, and tell them how great it is. They’re fans of the band.”

Not surprisingly, downloading is having its greatest impact on music that’s aimed at teenagers, the generation that has grown up with computers and instant access to “free” music.

“The younger the kids are, the more accustomed they are to getting music for free,” Nansel said. “Kids get music online. They don’t think about having a record collection. I don’t know if that’s going to change or even shift back.”

Campaigns by the Recording Industry Association of America haven’t had much impact on downloading, even when the industry sues those who have illegally taken music from the internet.

Most illegal downloaders apparently are willing to take their chances and keep on stealing music from the Web.

That said, downloading alone isn’t killing the record business.

In fact, 80 percent of music sold is still sold as “physical goods.”

“It may be moving to 79 percent,” Fratt said, “but it’s still far different than what people were predicting. Back in 2000, people were saying it would be 60 percent digital, 40 percent physical in 2006. That hasn’t happened.”

Radiohead made news this fall when it released “In Rainbows,” its new album, online, allowing downloaders to pay what they wished for the music.

More than 1.2 million people around the world took advantage of that offer and “In Rainbows” has subsequently been traded on peer-to-peer sites another 4 million to 5 million times.

Those numbers make it appear that Radiohead has exhausted the market for its new recording.  But “In Rainbows” is expected to sell more than 300,000 copies in the first week after its Jan. 1 CD release.

That’s just one indicator that music will continue to sell, even when it’s widely available for free on the Web.

There has been another business-changing development that’s a direct result of digital – a glut of music.

With computer recording programs like ProTools and the simpler, easy to use Garage Band, there are more bands than ever making recordings.

“It’s so easy to be a band these days,” Nansel said. “There are so many bands, so much music being recorded and released. I can’t imagine how anyone can keep up with modern music. I can’t do it, and it’s my job.”

SoundScan, which records record sales, will register between 35,000 and 40,000 new CDs this year. Most of those CDs will sell 100 copies or fewer.

The glut makes it difficult, if not impossible, for any band to break out. Those hoping to make it via social networking Web sites have run into the same chaos there as in the CD marketplace.

There are, by one count, more than 2 million music-related MySpace pages. That’s just one of  dozens of social-networking sites.

Some Web sites, such as the snobbishly hip Pitchfork, and blogs, such as Brooklyn Vegan, can have an impact on CD sales.  But, in the end, they can’t sort their way out of the glut either.

“The blogs and Web sites are updated hourly,” Nansel said. “They have to find something new to champion every hour or every day. They’re throwing a lot of stuff at people.

“In the past, you had Rolling Stone, that comes out every two weeks, and Spin, once a month. They had to find a band to talk about 12 or 24 times a year. The sites have to find a band to talk about 365 times a year.”

Print, whether on paper or online, has never been the best way to expose music to new listeners. That’s long been radio’s role.

That, too, has changed dramatically of late.

“Radio is one of the real problems today,” Fratt said. “It’s in one of its worst periods ever. Remember back in the late ‘80s, with all the hair metal bands and bad pop, it’s like that. We’re in another one of those times when radio doesn’t get it.

“The indie rock genre had a chance to go mainstream, but pop radio hasn’t embraced it. A lot of bands, like The Shins, could be bigger than they are.”

Corporate consolidation of the radio industry is largely to blame for the bleakness on the airwaves – at least in the view of the music business.

With giants like Clear Channel owning hundreds of stations, radio has become a vehicle for selling commercial time, and the music is just what goes on between the ads.

The blandness of corporate radio has sent music-seeking consumers to Internet radio, satellite radio and iPods.

But the latter, even though it has been the hot new music technology of the digital era, is most often used to store music that is already owned by the iPod user.

“They’ve completely checked out of discovering new music,” Fratt said. “They’ve migrated to the exclusive world of their iPod.”

Scrambling to cope with the buffeting changes,  the four major labels and some larger indies have come up with a couple of new business models —  one a new arrangement with bands, the other a new way of selling music.

The new arrangement with bands is the “360 degree deal.” In this model, which is already being implemented, bands that sign to major labels have to give the company some of the revenue they take in on the road.

“That model is probably the direction things will go,” Nansel said. “The record label has to evolve. The label needs to operate more like a manager. Whether you sell pre-recorded music or not, there’s still going to be a business side to a band’s career.”

In a typical 360 degree deal, baby bands continue to receive the standard $1.50 to $1.75 for each record sold. But the label takes about 10 percent of the band’s touring income (after expenses), another 10 percent of its merchandise income and a cut of the publishing (9 cents a song per record plus more if the song is used on TV, in the movies or in advertising).

The major labels maintain that the deals are fair because  only they can “break” new bands through promotion on radio and TV, tour support and other such efforts.

While it doesn’t have any full “360 degree deals,” Saddle Creek has gotten into the merchandise business. It bought screen printing equipment and formed Ink Tank Merchandising to do the T-shirts and other merchandise for its bands.

The reason for that is simple. Saddle Creek bands had been approached by other merchandising companies and the Omaha label wanted to keep that income inhouse for itself and its bands.

Merchandising is critical to a band’s income stream and it’s one aspect of the music industry that hasn’t been impacted by the Internet.

“You can’t download a T-shirt,” Nansel said.

The 360 degree deals look good for the labels, but they may not be so good for the artists.

 “I think you’d be a sort of a fool to sign a deal like that,” said Fratt, who’s also a veteran musician. “If you’re desperate enough to sign with a major label that you’re willing to give up your merch, you’re an idiot.”

A “baby band” — that is, a new group — might make as little as $50 or $100 to play a club show. But it can easily sell $100 to $200 in merchandise, allowing it to stay on the road and, maybe, make a little money.

For more established acts, touring and merchandising most often provide the bulk of income.

Asked if she’d ever sign a record deal that required her to give up some touring and merchandising revenue, Lee just laughed.

Other more established artists, however, are entering into unprecedented 360 degree-like deals.

Korn started the trend two years ago, when it took $25 million from label EMI and concert promoter Live Nation against a 30 percent share of future profits.

In October, Madonna cut a $120 million deal with Live Nation in which she shares not only the revenue from recordings, live performances and merchandising but her name. David Bowie has a similar agreement.

Those deals, however, are more about Madonna and Bowie selling their “brand” to cash in as they cruise past 50 and 60, respectively, and guarantee wealth for the families in the future, Fratt said.

On the audience side of the equation, the labels are banking on subscription services.

Already available through Rhapsody, Zune Pass and Napster, among others, subscription services charge a customer a monthly fee – generally in the $10 to $15 range — for access to millions of songs.

But few people now subscribe, largely because there is no universal service or technology.

“It’s such a slow process at this point,” Nansel said. “None of the major labels can agree on how they want it to be done. That’s causing a super-slow shift that’s probably making everything worse.”

But there are some changes in the way we buy music on the way.

Wal-Mart and Best Buy have already announced that, after Jan. 1, they will reduce the amount of recorded music they carry by as much as 40 percent.

That will substantially change the retail music business.

“The question is, after the mass marketers get out of music, will people come back to record stores or will they stop buying altogether?” Fratt asked.

The answer, he said, would be easier to guess if record labels cut the price of their new releases to the $8 to $9 range and the back catalog CDs to $5 or so.

“But that’s not going to happen because what you’ve got is Italian-loafer-wearing, quarter-million-dollar-a-year executives trying to protect their little fiefdoms,” Fratt said.

Regardless of how many people move back from the big boxes to the record stores, reducing the amount of space devoted to records and the continued closing of some music retail chain stores is good for the overbuilt industry, Fratt said.

“Those (record stores) that can make it to 2010 are probably going to make it,” he said. “No one now believes that physical goods are going to go away.”

The shift back to record stores, a creation of the ‘60s, is part of a back-to-the-future trend in the music biz.

The return of the single to primacy goes back to the ‘50s and early ‘60s when 45s ruled the music business. Now it’s mp3’s, but an entire generation of singles artists is being formed.

With the splintering of music into smaller and smaller genres, the industry is returning to something similar to the regionalism of the ‘50s and ‘60s in which a song could be a hit in, say, Lincoln, Omaha, Des Moines and Kansas City and unheard in the rest of the country.

“I think we’re headed back to a kind of regionalism as well,” Fratt said.  “But it’s a different kind of regionalism. It’s a fractured regionalism. You’ve got people in Phoenix and New Jersey and Texas coming together and hearing it.”

The new regionalism, however, means that few records will sell in the hundreds of thousands, much less the millions.

 In the long run, that will mean that fewer acts are playing arenas and pulling down the multi-millions available to touring artists such as the Rolling Stones, U2 and Springsteen.

Instead, Fratt said, many in the industry are looking toward what is being called the “middle classing of music.”

“Instead of artists getting filthy rich, we may end up with a  bunch of people eking out a middle class living, making $50,000, $75,000 from recording music and touring,” he said.

If that doesn’t happen, music sales continue to fall and making enough to live on from music becomes very tough, Nansel said, but there is at least one positive that will result.

“Music’s not going anywhere,” he said. “But, at the end of the day, if you can’t make any money from it, the only people who will be doing it will be the true artists.”

Reach L. Kent Wolgamott at 473-7244 or kwolgamott@journalstar.com.