Major label executives have expressed concerns over continued sales declines in the physical sector during a morning roundtable in Los Angeles. The panel, held at Music 2.0 in West Hollywood, featured executives from Warner Music Group, EMI, Universal Music Group, and Hollywood Records, among others. The discussion focused heavily on a recording industry business model that now appears to be entering a very dire period.
“There is a lot of concern about CD sales dropping off a cliff at some point, and digital potentially not being able to grow fast enough to offset that,” said David Ring, a top executive at Universal Music eLabs. Referring to digital, Ring noted that “we do have a business that we didn’t have four years ago,” though he also pointed out that digital sales are grabbing an increased percentage of a shrinking pie.
Warner Music Group digital executive George White echoed some of that sentiment by pointing to a “more rapid decline in physical sales than we anticipated,” though he also appeared optimistic on digital growth trajectories. Others were also less-than-exuberant, including Ted Mico of Capitol Records, a company that is now in the throes of a tough restructuring. “Piracy has a face,” Mico said. “It’s people packing up offices in boxes,” a comment that supports earlier information pointing to broad layoffs at the company.
Despite digital gains, the underlying fundamentals remain grim for labels. Years into a digital disruption, labels are still struggling with a business that reaps limited returns from broader artist investments. In a previous era, labels gladly financed marketing initiatives for artists – including tour support – without receiving direct returns from areas outside of the CD. That approach is now becoming a critical problem, though a clear plan has not emerged to broaden the business.
“We’re going to have to get good at all of these ancillary revenue streams and see what works,” said Ring, while Ken Bunt of Hollywood Records pointed to a far broader approach that included “touring, merchandise, mobile, DVDs,” and a large host of other areas. “We could monetize file-sharing tomorrow, but it would just be one small part of the puzzle,” Bunt said.
The recording industry has undergone significant changes in recent years, with digital streaming services such as Spotify and Apple Music playing a much larger role in music consumption. However, despite the growth of digital, the industry is still heavily reliant on physical sales, particularly CDs. The decline in CD sales has been happening for several years now, but the pandemic has only accelerated this trend. With many retailers closing and consumers turning to online shopping, physical sales have taken a significant hit.
The pandemic has also had a major impact on the live music industry, which has traditionally been a significant source of revenue for artists and labels. With concerts and festivals cancelled or postponed, many artists have been unable to tour, resulting in a loss of income. While some have turned to virtual concerts and other online initiatives, these have not been able to fully replace the revenue that would have been generated from live events.
Despite these challenges, there are still opportunities for the recording industry to grow and evolve. As Ring and Bunt noted, there are a variety of ancillary revenue streams that labels can explore, from touring and merchandise to mobile and DVDs. Additionally, there is still significant potential for growth in the digital sector. Streaming services continue to gain popularity, and there are also opportunities for labels to monetize content on social media platforms such as TikTok.
Ultimately, the recording industry is facing significant challenges as it navigates a rapidly changing landscape. However, with the right strategies and a willingness to innovate, there are still opportunities for growth and success.