Leaving Record Labels Behind

Musicians are looking for an alternative. Their managers may be the answer

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To divine what the record label of the future might look like, keep an eye on the relationship between a band and its management.

The creaking and jerry-rigged structure of the major-label music industry continues to sag. Madonna ditches her label for a complex $120 million, three-album pact with concert promoter Live Nation (LYV ). Radiohead self-releases its In Rainbows and makes a digital version available for whatever fans want to pay. (Me-too mutterings from other artists follow.) Radiohead's move netted kudos from writers and bloggers, which, given how many writers and bloggers adore Radiohead and despise the music industry, shouldn't surprise.

But none of this is entirely new. Madonna's move—teaming up with a powerful industry player that's not a record label—was presaged by last year's partnership between the Eagles and Wal-Mart (WMT ) for the band's upcoming Long Road Out Of Eden. That deal gives Wal-Mart, and the Eagles' Web site, exclusive North American and Mexican retail rights. Canadian songwriter Issa, formerly known as Jane Siberry, has long offered pay-what-you-want MP3s on her Web site.

To paraphrase Churchill, this is not the end of the music industry as we know it. But it may be the end of the beginning of the end. (Got that?) To sing this reprise again: Physical CD sales continue to tank, and the traditional music retailer is dead. The decline of the CD frees artists to consider primary relationships with nonlabel entities. Savvy management types like Coran Capshaw of Red Light Management (star artist: Dave Matthews Band) and John Silva of Silva Artist Management (star artist: Foo Fighters) have enviable rosters, and skill sets and side ventures worth noting. Capshaw founded record label ATO and fan club/merchandising firm Musictoday—a majority stake in which was, notably, purchased by Live Nation in 2006. Previously, Silva was co-president of Digital Entertainment Network, an ill-fated dot-com attempt at creating a Web-centered video play and record label. Might guys like them eventually outdo the traditional players at, you know, being a record label?

In an LP- or CD-centric music world, a label had enormous advantages. It took care of the logistical nightmare of producing, warehousing, and distributing a few million units, and staffing up retail promotion teams to service the beast. That advantage evaporates in the transition to digital. Other market conditions further weaken big labels' grip on artists. Sliding sales and revenues mean labels can't develop slow-building artists, nor can they patiently tolerate stars' occasional slumps. So veteran acts are apt to be labelless for portions of their careers.

And often the closest relationship—business, and sometimes personal—that a working band has is with its manager. He or she generally serves as point person to a band's label, and to other arenas in which a band does business, such as tour booking and T-shirt sales. Transitioning to label-like functions is "something managers have been talking about for a long time," says Brian Long of Yes Know Management, which reps disco punks VHS OR BETA. Long, who founded electronic music label Astralwerks, calls such a move "the natural evolution of what a manager already does." In these dispirited times, label executives concede that the guy closest to the band could have the upper hand. "It's a logical place to go," says one.

Of course, the grunt work of manufacturing and distribution remains onerous. CD sales are down, but big-deal artists still need to press several hundred thousand. That's a massive capital undertaking for a management firm, and one that could backfire badly if said CD tanks. (Despite all the hype, Radiohead's management made clear that In Rainbows also will be released on an established label next year.)

Neither Silva nor Capshaw is known for seeking the spotlight, and both declined to comment. But Radiohead shows that an unusually motivated, successful band can, however briefly, assume the role of a label. Many musicians I know would not want to captain making dinner, much less a complex production and promotion process. The business types, though, are different. Given the chance to solidify their grip on their artists and make everyone richer, why shouldn't they try to do it all?

For Jon Fine's blog on media and advertising, go to www.businessweek.com/innovate/FineOnMedia

By Jon Fine

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