For years, the music industry has operated using top-down economic structures. A&R men recruited bands for labels, who in turn asked artists to sign away the rights to their creations. The bands recorded albums using label money and these albums were promoted through mass media to the American public. Label executives played public taste-maker, deciding what kind of music was “in” and what wasn’t worth recording, let alone promoting. Labels controlled the means of record distribution and collected the vast majority of the profits. Bands were lucky if $1 or $2 of a CD’s purchase price made its way to their wallets. Money in the record industry flowed from the top and was collected at the top, while quality seemed to largely decline.
At one time, there was good reason for this structure. Creating and marketing an album was expensive. Recording studios, filled with esoteric gear operated by highly skilled professionals, were expensive to build and operate. Albums reproduced on vinyl, cassette, or CD were expensive to manufacture and package. Radio and television stations, as well as other mass media outlets, charged premium prices to promote musical products. Courtney Love put the cost to a label of recording and promoting an album at $4.4 million dollars. Steve Albini of Nirvana fame puts it at almost $1 million. No matter what numbers you use, that’s serious cash.
As Albini and Love point out, the artists themselves didn’t need to invest a lot (at least up front) to be signed to a label, but they didn’t realize the majority of the profits either. Love estimates that a band that sells a million records makes $45,000 a year, or about as much as they would have earned working at 7-11. Albini is more pessimistic, arguing that a band who sells 250,000 records (a more reasonable number) actually owes the record company $14,000 when all is said and done. Meanwhile, the label grossed $6.6 million or $710,000 respectively.
This kind of numbers game reminds me of the debunked theory once called trickle down economics. Money is collected and concentrated at the top of the economic food chain (the record label) and as these titans of industry reap enormous profits, the money will eventually “trickle down” to the lower rungs (the artists), enriching everyone. As JFK (unfortunately) once said, “A rising tide lifts all boats.”

Of course, this kind of business friendly, supply side economics hasn’t resonated well with the working class, and it certainly fails to light a fire under artists as it provides them no incentive to produce great music. More importantly, the artists are the ones who create the music in the first place. Without them, major label profits like the ones described above would never be possible.
For decades, musicians put up with this unfair system. Why? For one, it was the only game in town. You could either play ball with the labels or be legally blacklisted from the music business, as Albini ruefully points out. Second, musicians needed the label to put up the capital. After all, making records wasn’t cheap.
Today, as many realize, this is all changing. Basic economics are working against the established record industry because the product, the records themselves, are now much cheaper to record, reproduce, and market.