A well written Special Report in this week's Economist on "Music's Brighter Future". Following are some of the more interesting tidbits followed by my comments [in brackets]:

*"According to an internal study done by one of the majors, between 2/3 and 3/4 of the drop in sales in America had nothing to do with internet piracy"

[Wonder if the study tried to also ascertain if/how file sharing helps sales. I personally think it cuts both ways though on balance the illegal services probably hurt sales.]

*"If CD sales have shrunk, one reason could be that people are less excited by the industry's product. A poll by Rolling Stone magazine found that fans, at least, believe that relatively few "great" albums have been produced recently" (there's a chart plotting # of great albums vs. year of release).

[Very subjective of course, but I guess I'd agree. On the other hand, I'd want to know the demographics of the poll's respondents. RS readers tend to skew older, which would introduce a bias to the results.]

*An estimated 65% of the majors' sales of catalogue albums comes from artists orginally signed by indies. The article goes on to point out the opportunity for indie labels that the internet and the downscaling of the majors presents.

[Not a huge surprise here. Indie labels have long served as an R&D function for the majors. On the latter point; one man's trash is another man's treasure...When a major drops an artist because they sell, say, 50,000 records and the major's cost structure means they can't make money off it, that's great for an indie whose break-even is far fewer records than that. In fact I know some of the independents out there have been having some of their best years the last few years.]

*The head of one major estimated that catalogue accounted for 1/2 of his revenues but 3/4 of his profits [Surprising that it's 50%...my guess is that it's EMI with it's great catalogue anchored by the Beatles. Catalogue is profitable because the labels' spend comparatively less marketing it than on new releases.]

*The manager of "one of the world's foremost divas" estimated his star to have earned $20 M from sponsorships, $15 M from touring, $15 M from films, $3 M from merchandise and $9 M from record sales, of which her label only gets a piece of the $9 M. This despite having presumably funded and developed her. The article goes on to say that labels are trying to make similar deals as the one EMI did with Robbie Williams and quotes John Rose (formerly of EMI) saying that it will be difficult for labels to do this because artist management will do everything they can to keep labels from getting non-recorded income.

[I can see this being the case for already established acts like Metallica and Shania Twain, whose manager was quoted. But what about up and coming artists being signed for their first record deal? Maybe I'm crazy, but I actually don't think it'd be unreasonable for the label, functioning as a VC, to take a smaller piece of all of the income generated by the act that it finds, funds & develops, but not for perpetuity (there should be some kind of exit). After all, they are investing a lot of money in developing the brands of their artists. Or so the theory goes...in reality, as the article points out, the labels are not developing enough durable acts, but rather relying on the short term sweetness of one-hit wonders, which will come back to haunt them in the form of flimsy catalogue down the road (termed the industry's "disease" by EMI's Alain Levy in the article). However, having a piece of all of the revenues generated by an artist could be more of an incentive for labels to develop more durable artists. I wonder if we'll see the lines between artist management and labels blur with some sort of vertical integration between the two...?]