I read this article by Lily Allen on music piracy. While I'd like to think that music should be free, after looking at a few offers we've received from labels it is difficult to deny that music piracy has been considered part of the equation.
The big issue is not that record labels are struggling. This is a good thing. Labels have been loan sharks for entirely too long so good riddance. But, as crappy as big labels can be, there are a wealth of smaller labels that do aim to release great music to people because they appreciate what artists are doing. These range from friends that have friends in bands they want to help out, all the way up to labels who have established themselves as viable businesses. For bands, often times a label is the sole party that really can break a band.
There are are plenty of other ways a band can break, but the most common is through a label. The label puts out a record, pays for press, helps improve the bands stature and spreads the word with the result being the band finds a fanbase. The most important thing in this whole scenario for a band is finding the fans. While the critics can be nice to sway and Carling massive attention on blogs has its perks, the real deal is to get your music to fans. As a band, the closer you get to your fans and the more direct relation you build, the better the payout.
In the past bands could make money selling records. It was a big lottery, but it was still possible. Bands also were given the responsibility to do with their money as they chose. A band gets a big advance from the label and uses the funds to build their business (or buy drugs). Now, labels don't make nearly as much money selling music, so they are looking for other revenue streams. This means "partnering" up with an artist. The negative term has become the 360 deal where a label effectively can act as a manager, taking a percentage of the gross income. The more common occurrence from what I've seen is that labels aim to find targeted income areas to cover costs through the artist.
This in and of itself isn't too bad. It can be a huge help keeping the band funds liquid. If a band lands a huge tour or gets massive success, every t-shirt size they don't have is money lost. If a label can make sure you have enough shirts, hoodies and vinyl, that is a definite benefit. Labels can also help find placements and synchs for songs, which can be very lucrative. Again, very nice.
The problem is that while these benefits can be helpful, they can also preclude you from building your own business. If your label is your merchandising outlet, you probably can't make t-shirts yourself. If you have a three record deal, that is probably 3-5 years lost building part of your business. You won't be able to build up your own relationships with another manufacturer or put together your own fulfillment facilities. Likewise, if your label owns some of your publishing, that can end up being a lot of money. Say you have one song that gets 5 placements a year. If you average $2k per placement that is $10k. Over 20 years, that is $200K, which seems pretty good. Take 25% and give it to the label, pay another 20% in taxes and split it up between band members and it quickly becomes rather depressing. Couple that with the fact some labels are asking for actual percentages of tour revenue as well. Also realize that the band is most likely having to pay a lawyer, manager and booking agent (and in some cases a tour manager). Many of these support staffs used to take flat rates, but now all focus on percentages.
Before, if a band got 12% of a record sale they were doing pretty well. They could go on the road and make good money. Now, you don't get any money from record sales even though your percentage might be 50%. In addition to that, you are effectively taxed by your "team" on everything else you do. 5% for your lawyer, 10-15% for your manager, 10-15% for your booking agent, 10-20% for a tour manager, and 10-15% from your label. So, between 45% and 70% of the money you make disappears before you see it. Even if you do "break" and get a decent following, getting $5k a show doesn't mean much over the course of a year. In the famous words of Bill Cosby, "You have eaten yet!" Even if you take home half of the $5k for 30 dates ($2500 * 30 = $75k) you've yet to pay for gas, food, lodging, equipment and taxes. When you consider this money has to cover all the band members living expenses both on the road and off, things start to get rather tight. This doesn't even consider off road maintenance such as wardrobes and props (fog machines and can lighting is not cheap).
I honestly have to agree with Lily that music piracy doesn't really help the artists. It does help destroy the old system, which I do think is a good thing. But, unless there are some provable models for being an artist that don't involve taxes by everyone that helps you break, it doesn't seem like it is any better for artists. In a sense it is potentially worse because at least before, labels sold a product. The initial investment or R&D were directly tied to selling music. Now, everyone wants to get shares in the artists career.
The music business has been compared to the tech industry and venture capital, but I don't think that comparison is quite right. Music doesn't scale the same way technology does. Craigslist is a great example where a really small group of people have been able scale a small business from one city to a whole country. A band simply can't all of a sudden put out an album a day while touring non-stop. They need others to help keep the message out there and no one works for free. The result is that in order to break and make enough money to be reasonably stable, the actual revenue needs to be pretty huge.
With all this said, the fact still remains that I love playing music. It is an honor that people want to invest money in the music that I help create. While we plan on trying to be as shrewd as possible in terms of music as a business, the performers and artists inside just want to get our music out to as many people as possible. It is really all about fans and making that connection, so if that means giving up some ownership in order to help get our name out there, I'm kind of OK with that. The only requirement is that if you want a share of our music, you need to really earn it and be a fan.