The Comet’s legal eagle Gary Stiffelman takes on this hard question in his latest blog. Without record labels, who will fund artist development? Stiffelman, notes,“There are no Medicis out there who are going to serve as patrons for the next Mozart.” And brands, as of yet, have not filled the void. What are an artist’s options?

In recent years, many pundits have predicted the imminent demise of the record labels, and some have proclaimed it a good thing.
The basis for this conclusion, in a nutshell, is (a) DISINTERMEDIATION: The internet and mobile networks have eliminated the need for record labels, because artists can reach their fans directly and (b) INEQUITY: As record labels cut back on their rosters and staff, thereby rendering their role more tenuous, they simultaneously have reached more deeply into the artist’s pocket with 360 deals, rendering their role in the business even more problematic.

There are probably half a dozen other theories, but they all seem to circulate around those two premises.

DISINTERMEDIATION:
I believe that the supposition that the internet levels the playing field and allows every aspiring artist to launch his or her own superstar career is naïve at best, and dangerous at worst.

A colleague I admire argues that under the principle that “nature abhors a vacuum,” the public’s need for superstars will fill the void even if the record labels collapse. I suppose celebrities like Kim Kardashian give some credence to this premise, but there is a difference between entertainers and celebrities. I sometimes tell my children that a street performer on the Promenade in Santa Moncia may be the greatest living performer, but without someone to get the message out, they may be confined to playing out their days for coins tossed into a guitar case.

I cannot think of any music superstar that came onto the scene during my 30+ year career that didn’t benefit from the efforts and money of a major label. Of course, I am not in any way discounting talent, because at the core of any artist’s success is abundant talent for which few labels deserve ultimate credit.

And of course the label system is far from a guarantee of success. Few label acts ever achieve anything resembling success, even with the assistance of a label’s resources and money.

Any one of us can write a novel or perhaps paint a picture or even fabricate a new dishwasher detergent, but as my father, who began as a travelling salesman, once told me, “nothing happens until someone sells something.”

In its heyday, mp3.com featured the music of hundreds of thousands of unsigned artists on a platform with 25 million registered users, and yet, from all of that traffic and activity, not one star emerged. Thousands of unsigned artists have MySpace pages, yet few, if any, make significant money from their professions. I believe the answer is simple – they have no one pushing the music except the artists themselves and their small circles of fans and friends.

There are always exceptions to every rule, but the labels, for all of their flaws and faults, remain the only business ventures whose model is premised on providing money and resources to launch the careers of unknown musicians. And it’s a difficult business to be in.  If you don’t believe me, ask Guy Hands.

In my view, the major labels remain the only source of the next Lady Gaga and Kings of Leon becoming superstars. There are no Medicis out there who are going to serve as patrons for the next Mozart. Mitsubishi might use one unknown artist’s song in a commercial, but one commercial is rarely enough to build a career, and the opportunities for an unsigned act to land that kind of exposure come once in a blue moon.

A recent article in The New York Times reported that Converse built a recording studio in Brooklyn to help discover and launch new rock bands, and its certainly a laudable effort. But how long it will endure is anyone’s guess, as well as how many acts they will promote, and whether other companies will join in this adventure. The article states:  “… the company wants to ‘give back’ to its loyal customers, but of course the enterprise is not purely altruistic. The idea is that helping new bands will build good will for the brand (and generate future sales) and also give Converse an advantage over all the other companies out there competing for young eyeballs.

INEQUITY:

The standard knock on the labels is that they take too much of the upside from recorded music, saddling the artist with too many recoupable costs and, by virtue of the option system, blocking the artist from ever being able to negotiate on an arm’s length basis.  And now, in the advent of the 360 deal, the labels demand participation in ancillary rights, for which they lend little or no direct value, lacking expertise in touring, merchandising, etc.

While there may have been days in the not-so-distant past during which the essential nature of record contracts enabled the labels to take disproportionate advantage of the artist, and those days lasted for decades, the scales have reached equilibrium. That’s not to say that, in many cases, the labels have the better end of the bargain, especially for artists who have achieved great success and yet remain constrained from negotiating arm’s length terms.

Any defense of the record companies is not intended as absolution for every individual situation but rather, an argument on behalf of their role in the universe generally.

The label system is far from perfect. There are many cases of superstars who struggled to find record deals like Alanis Morrisette, or were signed and dropped like Alicia Keys or Katy Perry, only to eventually find a home. But when they did find their home, their labels’ resources and staff played a huge part in their successes. Justin Bieber, whose YouTube videos drew the attention of a prominent manager, didn’t become a big success until a major label was involved.

It is perfectly understandable that, in an era in which a superstar’s latest LP can only hope to claw its way to double platinum (Lady Gaga notwithstanding), the record labels are demanding a share in the multiple business lines that their initial efforts help launch.

Frankly, I can’t believe it took them so long to ask, but I guess there had to be a sort of unanimity among them, howsoever conspiratorial, before the absence of any holdouts empowered them unanimously to demand to wet their beaks.

Obviously the story is very different for an existing superstar, and I cannot envision a scenario in which an act with a huge following would have to surrender ancillary rights to get a record recorded and marketed. The playing field remains level for superstars, or perhaps tilted in their favor. And if an unknown artist chooses not to get in bed with a label in order to preserve his or her ancillary rights, they can and should certainly try it on their own.

If the cost of keeping the labels alive so that they can help launch the next Eminem is that artists will have to share some of the profits they make in ancillary businesses that wouldn’t exist without the label’s initial support, then that’s a price that we should accept.  Even with the ancillary participations, since the overwhelming majority of all albums released lose money, meaning that the artists will never earn any ancillary income for the label to participate in, being a record label remains a risky business.

So I may rail from time to time against the labels latest demand or refusal to compromise, and I’ll fight to minimize their ancillary participations as hard as anyone, the alternative of a world without any companies that are willing and able to finance, develop and market new artists is not one I wish to contemplate.