It is hard to believe that the modern music industry does much to bring better music to the world. Recent offenses to quality music such as boy bands, divas, and overproduced pop shlock have all but convinced me. Apparently, I’m not the only one. Witness the rise of independent music, music produced largely outside the system without much help from the traditional music industry, especially in the early stages. Clearly, the music consuming public isn’t being served by the glossy output of the major labels and they are looking elsewhere for original, artistic content. So, if the music industry fails at its single purpose to produce good music, what exactly is the problem?

There are lots of problems, but I feel it can be argued that a major issue facing the record industry is one of structure. The way the music industry typically handles artists is akin to the old studio system employed by Hollywood in the 1920’s through the 1950’s. In old Hollywood, actors, technicians, and directors were typically held under long-term contracts with one major movie studio. These studios used their in-house talent to make films. Under the studio system, actors and actresses, the big drivers of publicity for movies, were not allowed to be in any other studio’s movies without permission. The contracts were extremely restrictive, allowing for the studios to set pay rates, working hours, and even go so far as to mandate who an actor could marry or what an actress’s political views should be. The studios “owned” their stars.

Of course, while the studio system did produce many wonderful films, the situation for actors was poor. But wait, why did this not stop actors from making great films? Mostly because actors depend on a good foundation to pursue their art. A great performance can make a mediocre movie exceptional, but a great actor cannot make a terrible film into anything more than a terrible film. Actors were unhappy, but with good material, they were still able to create memorable movies. Once the studio system dissolved in the 1960’s, actors were free to make deals with any group of people they wished. Today, actors operate largely as independent agents. A group of actors, directors, and technicians are contracted for one film only. If they work together in the future, it is only because of their mutual desire to do so. This system has helped give rise to the independent film genre, so much so that today you can find big name stars in small budget films screened at film festivals all over the world. That kind of liberty to take any project an actor wishes was unthinkable in the studio age. Unfortunately, the music industry today is very similar to the old Hollywood studio system, and it operates at great detriment to artists and music lovers.

Once a musician or musical group is signed to a major label, they are typically locked into multi-album contracts, forbidden to work with artists or producers outside of the label to which they are signed without permission. Often, the labels exert tremendous financial and artistic pressure on artists. Forced to create under these stifling rules, musicians often rebel. Prince had a highly public fight with Warner Brothers over his restrictive contract, changing his name to an unpronounceable symbol and releasing mediocre albums in quick succession to end his obligations. Such conflicts and pressures over artistic control are not rare, but studios exert tremendous control of an artist’s finances as well. Courtney Love, a shrewd businesswoman when you look beyond her image, explains how record companies routinely screw artists financially: (Bear with me, this quote is long, but it is worth reading.)

This story is about a bidding-war band that gets a huge deal with a 20 percent royalty rate and a million-dollar advance. (No bidding-war band ever got a 20 percent royalty, but whatever.) This is my “funny” math based on some reality and I just want to qualify it by saying I’m positive it’s better math than what Edgar Bronfman Jr. [the president and CEO of Seagram, which owns Polygram] would provide.

What happens to that million dollars?

They spend half a million to record their album. That leaves the band with $500,000. They pay $100,000 to their manager for 20 percent commission. They pay $25,000 each to their lawyer and business manager.

That leaves $350,000 for the four band members to split. After $170,000 in taxes, there’s $180,000 left. That comes out to $45,000 per person.

That’s $45,000 to live on for a year until the record gets released.

The record is a big hit and sells a million copies. (How a bidding-war band sells a million copies of its debut record is another rant entirely, but it’s based on any basic civics-class knowledge that any of us have about cartels. Put simply, the antitrust laws in this country are basically a joke, protecting us just enough to not have to re-name our park service the Phillip Morris National Park Service.)

So, this band releases two singles and makes two videos. The two videos cost a million dollars to make and 50 percent of the video production costs are recouped out of the band’s royalties.

The band gets $200,000 in tour support, which is 100 percent recoupable.

The record company spends $300,000 on independent radio promotion. You have to pay independent promotion to get your song on the radio; independent promotion is a system where the record companies use middlemen so they can pretend not to know that radio stations — the unified broadcast system — are getting paid to play their records.

All of those independent promotion costs are charged to the band.

Since the original million-dollar advance is also recoupable, the band owes $2 million to the record company.

If all of the million records are sold at full price with no discounts or record clubs, the band earns $2 million in royalties, since their 20 percent royalty works out to $2 a record.

Two million dollars in royalties minus $2 million in recoupable expenses equals … zero!

How much does the record company make?

They grossed $11 million.

It costs $500,000 to manufacture the CDs and they advanced the band $1 million. Plus there were $1 million in video costs, $300,000 in radio promotion and $200,000 in tour support.

The company also paid $750,000 in music publishing royalties.

They spent $2.2 million on marketing. That’s mostly retail advertising, but marketing also pays for those huge posters of Marilyn Manson in Times Square and the street scouts who drive around in vans handing out black Korn T-shirts and backwards baseball caps. Not to mention trips to Scores and cash for tips for all and sundry.

Add it up and the record company has spent about $4.4 million.

So their profit is $6.6 million; the band may as well be working at a 7-Eleven.

How will a system like that produce good music? Artists feel incredible pressure to sign anything put forward by major labels because if they don’t, the artist is shut out of the manufacturing, distribution, and promotion channels that the labels control. While making a living as an independent is possible, indie bands face huge challenges without major label support, finding it difficult to get their albums in major record stores, on TV, and on the radio, and having trouble getting themselves booked at major concert venues around the country. Once an artists signs with a major label, which continues to be the only real way to score a major hit, the artist has little incentive to produce something new, exciting, or interesting. Once they are signed, they really only have incentive to release albums, no matter how poor in quality they may be. Witness the rash of greatest hits albums artists typically release to run out their contracts as proof of this phenomenon. These albums may make money for the label, but they don’t greatly enrich the artist and they certainly don’t add any new artistic material to the musical world.

It seems that music fans would be better served by a music industry that looked more like the modern movie studio system and less like the Hollywood system of old. A lot of musical innovation is driven by collaboration. With the new system, musicians or groups would be free to work with whoever they want. They could bring in other musicians, outside producers, engineers, or whoever they felt necessary to make a project great. Individual musicians could form groups for an album or two, or as long as the creativity kept flowing. Groups of talented people could form ad-hoc alliances to work on individual projects, and be free to walk away after that single project was finished. This kind of system, in my mind, encourages artists to seek out the people with whom they want to work, the people they could create the the most interesting music with. This system of collaboration seems like a win for the customer.

On top of that, groups creating albums would contract with distributors and labels for promotion and manufacturing. Groups would be free to negotiate any kind of contract they could get away with, without the fear that they would be shut out of the entire distribution and promotion system if they refused to accept unreasonable terms. Artists would have the possibility to make more money, and they most certainly would be able to negotiate for fairer and less restrictive contracts. If a certain label started putting too much pressure on a group, they could walk away after one album and find someone more amenable to their working style. It seems like this system would be a win for the artists as well.

I don’t propose that this system would solve pop music’s problems once and for all. Nearsighted copyright law, draconian enforcement, payola, corruption, and a national obsession with image over art all contribute to the crap you hear when you turn on the radio. However, if the music industry were to adopt a structure like I have proposed, things might have a chance to get better. It is not likely that this change would happen easily (it did take a Supreme Court anti-trust ruling to bring down the Hollywood system), but it is an interesting change to think about. Do you think a decentralized music industry would create better music for the fans? I’m interested to hear your take on this idea.

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