The Future of the Music Business: Sell Out to Corporations*

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If you know one thing about the music business, it's this: Album sales have fallen off a cliff since the Internet turned music into free downloadable files. From Napster to YouTube to BitTorrent, every year offers a new way to listen to music without paying for it.

Here's the ten-year slip of music sales in picture form:


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Like any business, music has adapted. Some bands like Radiohead and Coldplay have started to give away more music for free online, because they know most of their revenue is going to come from concerts anyway. But not every band can rely on concert revenue to replace the losses from weak album sales. In the first half of 2010, the top 100 tours grossed almost 20 percent less than a year ago.

So what's going to fill the space left by soft music sales? Corporations.

Seriously. Damian Kulash, Jr., writing in the Wall Street Journal, explains that since his band OK Go left music label EMI, they've forged an independent path by asking companies to underwrite their concerts and (spectacular) videos. Here's the meat of his column:

We once relied on investment and support from a major label. Now we make a comparable living raising money directly from fans and through licensing and sponsorship.

We're not the only ones working with brands. Corporate sponsorship of music and musical events in North America will exceed $1 billion in 2010, up from $575 million in 2003, according to William Chipps, author of the IEG Sponsorship Report, a Chicago-based newsletter that tracks and analyzes corporate sponsorship. By comparison, the U.K. music licensing organization PPL reports that record companies' global annual investment in developing and marketing artists stands at $5 billion. The numbers measure slightly different parts of the industry, but from an artist's standpoint, one thing is clear: Outside corporate investment in music is rapidly climbing into the range of the traditional labels'.

There's nothing surreptitious about OK Go's sponsorship. When a company backs a concert, the band thanks them at the concert. When State Farm pays for their expensive video, the band ends the video with a frame thanking State Farm.

Musicians' old two-step model -- sell your album, go on tour -- has grown into a strategic mosaic that seeks funding from many sources, like paid apps, commercials, and direct corporate sponsorship. The idea of bands as brands isn't new. (Forty years ago, The Monkees forayed their tunes into a sit com, for heaven's sake.) But the music sales crisis is forcing even successful groups to act like modern businessmen or publishers under siege -- seeking revenue in surprising ways that might have seemed heretical decades ago, but now seem merely prudent. In any case, you should read the entire article by Kulash, because it's well-written as exactly as thought-provoking as you'd expect by a guy who thought to create a one-shot music video with a four-minute Rube Goldberg mechanism.

*... but be honest about it.

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Derek Thompson is a senior editor at The Atlantic, where he writes about economics, labor markets, and the entertainment business.

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