Madonna and Radiohead dump record labels and go direct

Back in my Napster days there were several big name artists interested in working with Napster to sell their music directly to customers. They were tired of giving up the vast majority of their CD sales to the big record labels. Even the most successful music acts only got about $1 from every $20 CD sale.

Those artists who wanted to work with Napster were still under contract to the big labels. As soon as their contract expired they wanted to go direct with Napster and sell their music for $1 per song...a lot better that $1 per CD. Madonna, Green Day, Limp Bizkit, MC Hammer, Courtney Love, and several other artists talked to Napster about doing a distribution deal.

TechCrunch says "And the walls came tumbling down: Madonna dumps the record industry"  Madonna announced that she will not renew her contract with Warner Brothers. Last week, Nine Inch Nails announced that they would do the same thing. British music group Radiohead has taken the unusual approach of allowing their fans to buy their music direct and pay whatever they feel it is worth.

Napster was too far ahead of its time. See my earlier post Napster, The Inside Story, for more behind the scenes details. Napster wanted to be what iTunes is today, the online distribution site for all music. We wanted to discover new artists and target them to the users who enjoyed their genre of music. We wanted to work with big name artists who were ready to leave the big record labels. Unfortunately, we got sued out of existence before we could make it happen.

Today the world has changed, partly due to what we did at Napster. Today artists have the opportunity to take their music directly to the public. They don't need the record labels. The opportunity was always there, but the announcements from Madonna, Radiohead, Nine Inch Nails, and others makes the vision a reality.

Will the record labels adapt? Or will they continue to sue their customers and take advantage of their artists? They still have time to adapt, but I think I know how this story will end. If you are an investor...go short on music companies.

Subscribe - To get an automatic feed of all future posts subscribe here, or to receive them via email go here and enter your email address in the box in the right column.

Comments

[Chris Dodge]

I've downloaded In Rainbows from Radiohead. I've been in the DigitalMedia industry since 1999 (mainly film/video distribution) and Radiohead's announcement is far and away the biggest event to happen in the broader industry to date. I'm very excited about it.

That said, there is still some value that Labels can provide to unknown/emerging bands. Radiohead, NIN, and Madonna (although the latter deal is very different than RH/NIN), are already established entertinment brands.

However, this value for their services is not as strong as it once was and that means that labels will have to adapt their pricing (both to consumers as well as the % they take). Overall, I think smaller labels will be better to adapt than the 4 majors.

Given that the Music Industry - in terms of Digital Media offerings - always preceeds the Film/Video industry, I'm wondering what parallels can be drawn to the future of Film/Video production/distribution. Producing a Film is far and away more expensive and risky than producing an album. So there are some aspects that don't translate well.

What did I paid for In Rainbows? 2 Pounds Sterling (plus the 45p service charge). They are still going to make a killing on this experiment financially.

One disappointment: they really should publish the results of this experiment. What was the average price paid? How many downloads?

[Mark Evans]

Don,
It's the classic story of being ahead of your time!

It still amazes me that the music industry never attempted to figure out why Napster was so popular and how it could be used as a new sales tool. It's just another example of how the labels have consistently fumbled the ball.

[Chris Dodge]

In thinking some more about this, this also have wide ramifications for online storefronts such as iTunes and Amazon. They still have to negotiate with the Labels (for the backcatalog which are under Label control).

If bands directly provide marketing, storefront, Credital Card transaction support, and fulfillment, then there's little value provided by these online retailers.

Of course, iTunes and Amazon's offerings can make the argument about better SLA's and load handling ability (Radiohead's site has been completely overwhelmed).

But again, like the labels, the eTailers may have to adjust their pricing to account for this diminished value-add proposition.

[Sandeep Sharma]

The move of Madonna and others to sell directly could be driven because of need to derisk their own interests from that of record industry. The success however would be driven by strength of brand (singer) and pricing.

From consumer perspective it would be painful to move from one site to another for buying songs except for die hard fans!. If this picks up then soon aggregation of such sites would start just like hotels and airlines much to misery of iTunes.

[David Fishman]

I think Radiohead, Madonna, Nine Inch Nails, etc. are really leading the trend here. While music labels are still fighting piracy, etc, the artists will embrace this growing digital trend, not fight it, in a way that will leave them out on top.

[Dawn B]

Results of radiohead experiment. How many people paid for it etc!