BigChampagne's Ultimate Chart (a/o February 10th):
1. “What Doesn't Kill You (Stronger),” Kelly Clarkson
2. “Set Fire to the Rain,” Adele
3. “Turn Me On,” David Guetta
4. “Rack City,” TYGA
5. “Good Feeling,” Flo Rida
6. “Smooth Criminal (Glee Cast Version),” Glee Cast
7. “Young, Wild & Free,” Snoop Dogg & Wiz Khalifa
8. “Domino ,” Jessie J
9. “Sexy and I Know It,” LMFAO
10. “Ass Back Home ,” Gym Class Heroes
Album sales have been sinking for most of this decade, but this year marks a sudden change. Instead of a single-digit percentage drop, albums - mostly CDs - are now roughly 15 percent below already-depressed 2006 totals. And with less than two weeks left, the fourth quarter has failed to produce a recovery.
Suddenly, more air is leaking out of the tire. And that changes the prospects for a recording industry turnaround considerably.
The reason is that revolutionizing business models is a time-consuming process, and the window for change is quickly narrowing. Flashback to the earlier part of this decade, and labels had more time to operate, and more time to diversify. Now, newer initiatives have less time to incubate, executives have less time to reorient teams and approaches, and worsening financial conditions are making it difficult to protect human resources and retain investors.
Some view the demise of major labels as an inevitable result. Highly disruptive markets are great at producing casualties, and the recording industry has shown limited ability to adapt.
We all know the criticisms. But labels have started to score limited successes in mobile, digital, and advertising arenas. And for all the criticism that Doug Morris has attracted, he is at least pushing a number of newer revenue approaches.
The question is whether early-stage gains can be developed into meaningful revenue producers. Universal Music Group is the biggest of the roost, and enjoys a massive market share. That spells more insulation, and a greater window for experimentation and development. But all four majors are facing incredibly difficult fates, and far less time than they would ideally prefer.
So what do the next few years look like? Barring a miraculous turnaround, labels will continue to shrink, and eventually wither. But the end is never a neat-and-clean process. Distressed companies often attract bargain-hunters and liquidators, and produce breakups, mergers, and everything in-between. Parent companies like Vivendi may hold onto their musical ambitions for a protracted period. Others, like Terra Firma, may trigger a fire sale.
But majors aren't free-falling dot coms. They have publishing, recording, branding, and even real estate assets. And those are attractive to newer players, especially those pursuing broader, next-generation models.
So, lights out, liquidation? Again, not so simple. Because the asset drain is already happening - whether majors control the process or not.
The biggest asset any major label has is its superstar artists. And those heavy-sellers are now exiting the building. The Eagles are now partnered with Wal-Mart, Madonna is hanging with Live Nation, and Radiohead is playing an independent card. Majors no longer play a critical role in the promotion, distribution, and development of artists - instead, they are now liabilities to the artists they once helped to develop.
Even publishing assets are being auctioned off. Sure, a suddenly frigid capital market is precluding moves currently, though both EMI and Warner Music Group are eyeing publishing securitization plays. That is different from a liquidation, though it falls under a similar umbrella.
Perhaps the most overlooked liquidation is happening in the human arena. All four majors have been shrinking their workforces, and Sony BMG and Universal Music Group are currently doing the most downsizing.
Sure, layoffs are often an excuse to trim underperforming employees. But this is broader than that, and a great deal of highly-qualified minds are exiting. And many of the brightest minds left long ago, simply because they had more options. It's a classic brain drain.
So what happens next? The details are entirely unpredictable, though the prospects are rocky for 2008. Sure, consumer appetites for music have never waned - and they appear to be growing exponentially. But consumers are the ultimate drivers of change, and their shift away from bundled CDs - and paid recordings in general - is likely to intensify.
That is forcing labels to monetize elsewhere, and orchestrate comebacks almost overnight. Impossible? No. Difficult? Incredibly.
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