Venture Capitalists

In the 1990’s I worked and scouted for investment opportunities for a small venture capital company near silicon alley in NYC – no, not one of those multi-million dollar incubators that put tons of money into sillyidea dot com and turned college drop outs into paper millionaires or in some cases, real billionaires – no the one I worked for was called Shanachie Records.

Wait, you mean the indie roots label, also had a side private equity investment company? No, but really when you think about it, isn’t that what a record label really does? Find a good investment, fund it, provide its experience and know-how to get the product created and then to market. In return for taking the risk of time, energy, expertise and money, keep the vast majority of the profits and ultimately own the investment (the sound recording).
Here is a picture of me ‘back in the day’ doing A&R on the Debbie Davies album “Tales From The Austin Motel” with Chris Layton and Tommy Shannon from Stevie Ray Vaughan’s Double Trouble with Joe Ferry and Matt ‘Slippy’ Baxter.

Many artists have eschewed the old label set-up – what do they need them for anymore that justifies giving up ownership, control and potential future profits? The Eagles didn’t need a label (or a radio hit for that matter) to get their new album up to platinum and into Wal-Mart. Tons of artists today are choosing to release their albums on their own – so what will become of the label.

I, for one, am not on the bandwagon that says record labels are obsolete and on the way of the typewriter manufacturer, but they need to adapt their business model to what their customer and their suppliers (the artist) want / need. The answer, in my humble opinion, is not grab more ownership avenues (AKA the 360 deal), but to continue the basis of what a label does and enter into a different business relationship with the talent.

What does a record label have to offer the artist. The key when I did A&R was access – access to retail, media and money. The label knew all the gatekeepers and which key each one needed to open up for their affiliated artists. But with iTunes and Amazon willing to sell anything for you worldwide, Internet media and radio, social networking and viral marketing, word of mouth is easier to get and more effective and the cost of recording has dropped like a lead balloon.

What the label of the new millennium or Record Industry 3G should do is transform from a venture capital based business to a service industry. Labels need to still do effective A&R and develop their brand with the consumer (more on that in a later post), but their role needs to morph into a menu of support services and marketing professionals supplied to the artist for a fee or equity stake in the sound recording.

While it is great that artists are taking more control and ownership in their creations, they unfortunately are spending WAY too much time away from the stage, writing, practicing, honing their craft, collaborating and being inspired and instead they spend it doing publicity, radio promotion, back office work (accounting, licensing, shipping, etc) to run their business that I am afraid the quality of music will start to decline.

Record Labels 3G would offer their services in partnership with the artist. The label would continue to do the marketing, promotion, distribution and back office, but the artist would produce and own the master (or most of it) and share the proceeds. This is very similar to how many indie labels in the 1990’s did deals with their artists (better known as a 50-50 net profit deal). In fact, labels should do a trade show where they show off the services they can provide an artist.

When I was a stock broker, a friend of mine and I thought about going into business for ourselves. There were broker/dealer services that would provide you the access to trading and back office work like accounting, compliance, mailing, etc, so you could focus on selling and developing client relationships. Leaving the talent, in this case, the salespeople, freer to focus on building the business – no different than how I see the evolution of the label.

I am starting to see and hear about a few artists getting these kinds of deals (different from the P&D deals, as P&D deals still leave most of the marketing and promotion up to the artist) – I heard about one through RED distribution, I believe. Artist X ‘signed’ with them, produced and own their master, but the ‘label’ is handing the set-up, marketing, pressing, distribution, accounting, etc in co-operation with the artist, who now has a bit more time to tour, create and not necessarily have to worry about the day to day business of being an artist owned label. At the end of the record cycle, if it worked, they will continue the relationship for the next album, if not, both parties can walk away – no harm, no foul, no master left behind to be forgotten about or abused for generations.

Just a thought – undeveloped, unfinished…but makes sense to me.

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