Music Physical Product Issues Signals Upheaval Ahead

Although the sale of physical music is still a large part of the revenue pulled in by major labels, their whole-hearted embrace of streaming has caused them to neglect traditional retail sales, with some fairly disastrous results.

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Guest post by Bobby Owsinski of Music 3.0

The U.S. recorded music industry has now totally bought into streaming, but the revenue from physical product like CDs and vinyl is still a significant part of the major label’s bottom lines. You wouldn’t know it by the way record store retailers are being treated however, as the label’s inattention seems to be accelerating physical’s decline, according to a recent open letter to the industry from 40 independent brick and mortar record stores.

Brick And Mortar Pains

According to the letter, all three major labels have transferred their physical distribution to a company called Direct Shot in an effort to reduce costs and staffing. The results have proved disastrous however, as retailers have experienced a litany of horrors as a result, including:

“– Stores are waiting on new release and catalog orders that were made weeks and months ago.
— Shipments arrive with a fraction of the CDs and vinyl ordered.
— Shipments arrive as empty boxes.
— Artist in-store appearances and marketing campaigns happen without proper product.
— Special edition vinyl, made for indie stores by the artists who support them, never arrive or come too late.
— Vinyl and CDs are sent to the wrong stores with no way of getting them returned or reshipped to the correct address.
— New releases miss the Friday street date by days, weeks and now months.
— Invoices do not match what was delivered or ordered.
— Incorrect invoices require payment with no system in place for rectifying the mistakes or for making returns.”

Needless to say, in the old days when physical product was the lifeblood of a label, there was dedicated staff that treated every order with care. Of course, this was totally out of necessity since happy retailers were essential to the bottom line.

Thanks to streaming, physical product is no longer a priority, even though it still generated more than $1 billion and 12% of the revenue last year, according to the RIAA. While Direct Shot may have been capable of handling the distribution for one major label, working for all three has totally overwhelmed the company to the detriment of all involved.

A big problem here is the fact that there are still indie record stores that are somehow managing to stay open and service the remaining group of consumers who buy physical product. These retailers are not healthy enough to go through repeated stocking and over-billing problems however, and it won’t take much more of this to push many over the edge into insolvency. If putting the final nail in the physical product coffin is the goal here, then mission almost accomplished.

If Not Distribution, Then What?

I hate to dwell on this (since this was roughly the topic of my last post as well), but it brings up a bigger question. What value exactly does a major label provide for an artist?

Once upon a time you could count on a record company for four things – creation, development, promotion and distribution.

The creation part came when the label acted as a bank to provide money for the artist to actually make a recording. Way back when, commercial studios were a necessary and expensive part of the process. There was virtually no way to make a record on the cheap. Today that’s all turned upside down, where every artist has an incredibly capable studio available in his or her laptop. The label might still provide a budget for recording, but for many artists its unnecessary as the costs have gone down so much (yes, I know, many superstars still get big budgets and record in expensive commercial studios).

Then there was the fact that physical product was expensive to create, especially if mass numbers were needed. Today there’s virtually no cost in pushing files to a streaming service’s server, and if physical product is required, it’s not in huge numbers. The creation physical financial outlay is far less than it’s ever been.

The majors (remember there was as many as six at one time) were also dedicated to nurturing an artist over the course of a career, waiting 4 or even 5 albums until the artist broke, which resulted in careers for many of the legacy artists that we revere today. This strategy is long gone, as the general tendency is a one album and out policy today that thinks nothing of an artist’s long-term career.

Record labels used to be experts in promotion back in the days when traditional media was the only thing available. Today, promotion in print or on TV or radio hardly puts a dent in the music buying public’s consciousness. Everything’s done online via social, and although that can be far more than DIY and take some manpower resources, there are plenty of alternative social media managers that are as good if not better, and far cheaper, than what a label provides.

So that leaves distribution, which was sort of the last bastion of the major label’s empire. Pushing files out to streaming platforms isn’t a unique proposition though, as there are a number of streaming distributors who do it for a much smaller fee than what a label extracts from an artist.

Let’s Get Physical

That brings us to physical product. Yes, physical means less than ever before to the industry as a whole, but it’s still highly profitable, as long as you can get it into the stores in a timely manner. If the labels don’t control that any more either, then what value do they provide?

It’s true that many artists don’t want the responsibility or want to develop the infrastructure for DIY for any of the above, and in that case a major label is a perfect home for them, but it comes at a huge cost in revenue.

Plus the labels make the situation worse by requiring that artists acquire somewhat of a track record before they even consider signing them in the first place. That means that they have to cultivate the creation, promotion and distribution expertise themselves anyway. As more younger artists grow into the business naturally learning these skills, they’re going to see the major labels as less and less necessary.

The physical product problems that record retailers are now facing have mostly flown under the radar of the rest of the business, but they are the canary in the coal mine indicator for a huge upheaval coming in the music industry. The question now isn’t if, but when it’s going to happen.