Artists are increasingly using Facebook and Twitter to promote albums but record labels still add value, says former EMI boss
They have been accused of greed and short-sightedness, seen as the fat cats making obscene profits on the back of musicians' creativity. But record labels have been unfairly portrayed as dinosaurs of the music industry, the head of the body representing the UK's record companies said on Friday.
Speaking at the Great Escape conference in Brighton, Tony Wadsworth, chairman of the record-label body the BPI and former CEO of EMI, said that the record label in 2011 was leaner and a more flexible beast that would play a vital role in the future of the industry.
Predictions of the demise of the label, as artists are increasingly able to release their own music and speak to fans directly using social networks like Facebook and Twitter, were premature, he said.
Before Monday's launch of the report Remake, Remodel: The Evolution of the Record Label, Wadsworth told the Guardian that record labels had transformed themselves in the past decade.
"Record labels are unrecognisable compared to the 90s," he said. "They are smaller, more efficient and they have diversified and taken on many more functions."
Although there were an increasing number of ways for artists to release music without record labels – in recent years bands from McFly to Public Enemy have gone down the DIY route – this often worked only for established artists with years of record-label support behind them, said Wadsworth.
Prince, who has released albums through newspapers, and Simply Red, who released their last album exclusively through Tesco, had some success. But former Girls Aloud star Nadine Coyle, who also relased her debut solo single through Tesco, sold only 117 CD copies on its first day in the charts. "People outside the music industry think you can invest in music and cut out the record label," he said. "But investment without skills rings pretty hollow, record labels still give artists the skills and contacts they need."
But digital technology, which allowed artists like Lady Gaga to communicate and promote herself directly to her fans through tools like Twitter, were making the labels raise their game, said Wadsworth. "Artists are beginning to say, 'I could do this myself, how can you add value?'," he said. "But many artists who have attempted to do things themselves have come to the realisation that labels still have a lot to offer."
The report, which takes a comprehensive look at how record labels have changed in the past decade, states:
* The artist/label relationship has changed – artists demand more from labels, and in return labels take a share of profits made from merchandise, touring and sponsorship and not just the number of CDs sold in 360º record deals. These can "spread the risk for the record label and increase the participation in success for the artist," says the report.
* Label marketing of music has gone from a scattergun approach to highly targeted digital campaigns, like Cheryl Cole who answered questions online from fans as well as doing deals with online retailers.
* Sponsorship deals are more important than ever. The Black Eyed Peas have done deals with dozens of brands including, Pepsi, Blackberry and Honda while bands like Girls Aloud have endorsed everything from Sunsilk hair products to Kit Kats.
* Investment is under strain and some bands are looking for alternative funding sources. Madness signed a deal with Power Amp who took a share of profits while the band maintained their copyright. But labels remained the primary investors.
* Some in the industry fear that with less money "investment is pushed towards the safer end of the spectrum […] there is a danger that safe investment brings with it safe music", states the report.
Wadsworth was confident about the future of the record label and its ability to adapt to the digital age, but record companies could not ignore the fact that the vast majority of income came from CD sales.
"The key thing is that labels are now at a size they can sustain. As digital models – like a Google music offering – gain real scale I think we will start to see business increase. There is big digital business to come into play and we are not quite there yet."
Mark Mulligan, analyst at Forrester Research said record labels had taken big steps to transform how they worked in order to survive, but they hadn't gone far enough. The digital market was slowing down he said, while physical music sales continued to drop. A report from the international music industry body, the IFPI, revealed earlier this year that the global growth in digital music halved in 2010, with only "single digit" percentage growth in the more mature US digital music sector.
"Each of the major digital music players, Apple, Amazon and Google have made it clear that they think labels are being unflexible and Spotify still cannot launch in the US because of wrangling over licensing," he said. "The record labels are at the start of a very long journey, but they have only taken a couple of steps and they are not walking quickly enough," he said.