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The New Music Kingpins

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Monday, Jan 19, 2009
The giants of the post-Napster world...

On June 1, 1999, a then-recent college drop-out, who didn’t even finish the first term of his first year, unleashed a seismic force which rewrote all of the rules for the entire entertainment industry—that was when Shawn Fanning released Napster to the online world. 


Even though the original company/software would be shut down one year later, things were never the same after that.  Suddenly, the old model of power and control resting in the bosom of the major labels was gone—why bother paying for music, especially if you don’t like every song on an album, when you could download it for free?  In the worst kind of short-sightedness, the majors ganged up to sue Fanning out of existence without thinking about how to tap into the millions of users who were already on the service, and didn’t even come up with a plausible alternative for music downloads.  It’s only been in the last few years that these companies finally caught up and found more reasonable ways to reach consumers but by then, it was too late for most of the music fans out there.  Even with all of the faulty and disgraceful lawsuits that the RIAA perpetrated to try to stop unauthorized music downloads, many studies say that it’s continued unabated.


The end result reverberated throughout the music industry.  Not only were majors forced to cut back and lay off but soon, retailers and chains were on the ropes too.  The big players in the game were getting cut down to size (desperately trying to merge or sell off) and were scrambling for answers.


Artists starting looking for other ways to keep afloat and slowly began making deals with commercial sponsors, software companies, video games.  To some fans, it sounded like heresy but it soon became so widespread that it turned into the norm.  After all, why stay on a sinking ship like the majors when there were plenty of other more promising and lucrative opportunities out there? 


This power shift also meant that many artists, including multi-platinum ones, also had incentive to leave the major labels and set up shop elsewhere, getting their albums distributed and promoted outside of the majors.  As these cash cows drift away, the labels are left scrambling, trying to figure out how to stay alive.


That’s been the story of the music biz in the new millennium so far and it promises to keep getting interesting.  With the majors on the wane now, it’s a good time to look back (and look forward) at the new kingpins of the music biz who are exerting more and more influence there, taking over the roles that the big labels once filled.  This is going to be an on-going series, looking at these brash companies that are now the important players in the industry.  Because the biz is changing so rapidly, everything chronicled here could (and will) change quickly and some of the players will sink or rise but that’s the nature of things now…


APPLE
For the moment, they’re still the king of legal downloads though with their tiny profit margins for song sales, they’re really selling iPods to make their profits (and doing damn well at it). But it’s no secret that the major labels hate Apple even as they continue to do business with Jobs and friends. 


The main contention had been Apple’s inflexible pricing—99 cents for all songs.  The labels had been saying that the price should be lower for old items and higher for newer, hotter items.  Up until recently, Jobs had the upper hand but the labels made deals with other companies, hoping to find more revenue elsewhere and to chip away at Apple’s lead. 


Since the introduction of the iPod in 2001, Apple has had rock star status not just in the music world but also the tech world as evidenced by the frenzy over the iPhone and the drooling anticipation that comes with each of Apple’s new announcements.  Since they captured most of the digital-player market, they’ll be a force for years and how long they stay there may depend less on a real iPod killer coming along than a slip-up in Apple’s next generation of players/phones (i.e. something that works as badly as Microsoft Vista). 


Apple’s usually been too smart and careful for the later to happen but the notion of real competition probably isn’t going to come from another music player (i.e. the ill-fated Zune) but another type of media industry that’s honing in on the territory, like Verizon and Rock Star Games. Another obstacle that they may face is their reluctance to offer Ala Carte service as Napster and Rhapsody do- so far, it hasn’t proven to be a huge money maker but as they’re squeezed more and more by labels, they might have to offer this option also.


The big shift for Apple and iTunes happened at the beginning of this month when they announced that not only would they finally offer their music files up without any DRM (digital rights management) attached to it but they would finally implement tiered pricing plans, staring in April.  That represented a huge sea charge as Apple not only finally caved in to the wishes of the big labels but also likely recognized that the same plans were being used by competitors like Amazon so effectively, that it would be only a matter of time before they fell behind if they kept being stubborn about pricing.


As for a post-Jobs Apple Corps, they’ll need someone brash to push whatever their latest product is but as long as they retain designer Jonathan Ive (responsible for the sleek, stylish look of the the iPod and iPhone), they’ll continue to have a leg up on the biz.  But Jobs’ recent admission about his health problems (which seemed to be obvious to anyone looking at recent photos of him) sent the company’s stock downward, not only prompting possible lawsuits but also ramping up the question of whether Apple could thrive without him.  As such, they’ll need not just another good planner like Ive but also a good showman like Jobs to keep the momentum going.


LIVE NATION


Previously known for promoting shows and owning venues across the country (i.e. House of Blues), LN started in 2005, working hand in hand with Ticketmaster up until last summer, when they announced that they would be handling ticketing on their own, thus becoming a rival to TM.  Though they promised to be more transparent about the much-hated added-on ‘handling’ fees, LN didn’t lower the price for tickets (they just tacked on the fees to the regular ticket price).


But LN wanted more than just to sell tickets- seeing that the future bucks in the music biz wasn’t necessarily going to come from album sales, they rushed in to secure everything else from a group of top-selling acts, creating ‘360 Deals.’  Major labels should be very nervous about this because as music sales become less and less central to the biz, this promotion monolith is making important strides in one of the few areas that hasn’t been hurting, even in a bad economy.  With Jay-Z, Madonna, Nickleback, Shakira and U2 signing on to LN for huge touring and merchandise deals, there’s obviously an enormous change happening in the concert industry—look for more big acts to sign on with them too.


Don’t that that LN is totally giving up on album sales as a way to mint cash though.  The deals signed with Madonna, Shakira and Jay-Z include not just mersh but also new albums that they put out once their label contracts expire.  But as of last summer, there were reports that LN might actually go back to the majors for help with putting out future albums for acts (i.e. Madge).  LN is also reported plowing forward by selling non-DRM MP3’s from their own site, thus putting them into competition with iTunes/Apple, also figuring that once they hook into fans with tickets and mersh, they might be able to sell some tunes off to them also. 


Still, LN’s had some recent set-backs, which raise big question marks about their future.  Their Instant Live service, where they offer burned CD’s of the show you’ve just seen, ran into trouble when they tried to press the issue of copyright for the service, eventually letting it lapse in 2007.  Also, while they sold off some divisions to concentrate more on music and LN have recently reported good ticket sales, there’s questions about whether the withering economy might put a damper on ticket sales, aka LN’s bottom line.  And while Irish entrepeneurs U2 bought up a bunch of LN share last October, the superstars then sold off their stock recently, swearing that they still had full confidence in the company.


But what are LN’S future prospects and how will this big deals pan out?  Unknown.  Taking big financial risks like these that might pay off handsomely but it remains to be seen if the initial investments they’re making in artists will be easily recouped.  The end result might be that they reap huge rewards, leaving everyone else in the music biz in the dust. Or… The deals might not pan out as LN finds that the huge investments they’ve made in artists aren’t getting balanced out by the money that LN gets back from mersch and promos.  And though a good case can be made for LN’s all-encompassing monopolistic grip over numerous facets to the music biz, the incoming prez and his staff haven’t given any indication that they’re troubled by this.


UPDATE:  As this Reuters story details, LN is looking to merge with their competitor Ticketmaster, only weeks after trying to beat them at their own game.  Not a good sign for them…



SOMEONE PRESENTLY-UNKNOWN KID IN A BEDROOM OR DORM ROOM


Rest assured that as you’re reading this right now, there’s some computer geek tapping away at their laptop, churning out code for whatever’s gonna be the next hot piece of software in the realm of the music biz.  It will be a faster, easier (and fun) way for music fans to communicate and trade tunes.  It’ll get written up in blogs, tweeted and eventually noted by tech-savvy publications.  The kid will start selling adds and making good money. Initial investors will timidly rush in.  Majors will waffle between cutting deals with the kid or getting out the lawyers to sue, likely going the later route and only realizing how stupid they were when it’s too late.


NEXT TIME…
We’ll delve into the video games that look to swallow up the attention and bucks of music fans but which also face their own problems and limitations…

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