Los Angeles.  When Soundscan released their sales year results the year-to-year comparisons it had album sales for 2011 ahead of comparable 2010 business.

Though it was only by a whisker of 1 per cent, it was still good news in an industry where album sales for 2010 plunged by 13 per cent.

Records however show that digital music revenues rose eight percent in 2011 to $5.2 billion, but it was not enough to prevent another annual decline in the overall market to $16.2 billion from $16.7 billion in 2010.

Figures released this week by record industry body the International Federation of the Phonographic Industry (IFPI) confirmed expectations that a downward trend which began in the late 1990s continued last year.

The good news was that the 2011 decline of around three percent was smaller than the eight percent drop in 2010, and there were signs that the industry was finally beginning to get on top of the rampant online piracy it blames for its woes.

Record label bosses were cautiously optimistic that music revenues would finally return to growth in 2013, a view not shared by everyone in the business.

“The future is looking extremely bright. Has the industry turned a corner? I’m definitely more positive now than I’ve ever been,” said Rob Wells, president of global digital business at Universal Music Group, the world’s biggest label.
“I think 2013 is probably a safe bet,” he told an IFPI briefing in London. “However, despite all the good news, still great effort needs to be put on the piracy problem that still exists.”

Prior to this, sales were at a plunge of an average of 8 percent throughout the 2000s, suggesting an incredible shrink in music business.

Last year reversed the trend, but there is a cloud buried in the silver lining: the success stories of 2011 will not be easy to replicate.

The fall in fortunes has meant that labels will in the near future have to redefine their roles or else face extinction.
In one article which was once published by Business Week: ‘The Big Record Labels’ Not-So-Big Future’, they point out the complete erosion of a business model that used to make them a lot of money.

Selling CD’s at $15+ means that they make a lot of money, selling songs at $0.99 on iTunes means they make a little bit of money.

With recent reports suggesting that CD sales are falling at 13 per cent a year they don’t have much time.

Already major artistes are defecting from the labels. RadioHead and Nine Inch Nails declared their independence years ago from their labels, while Madonna dropped her label and has signed with Live Nation, the concert company.

The labels need to focus on the fact that their traditional value add, is not so valuable any more. Computer and web based production, discovery, promotion and distribution options completely undercut the economics of a traditional label.

According to pundits going digital is the new paradigm. Who needs a record label to handle marketing and public relations anymore? Musicians can just set up a MySpace page and talk directly with their fans.

“Unlike in the past where these labels used to help court radio stations, too, to get music on the air, the rules of the game has changed drastically, now you can zip MP3 copies of your first single via e-mail to anyone in the world,” reads one of the paragraphs in the Business Week article.

The opportunities for the labels will be in carve outs that focus on services that still add real value and new business combinations that extend their ability to capture revenues from other parts of the value chain.

That’s why Madonna went with Live Nation. They offered her a great deal and a set of services that allow Madonna to capture more of the value from the extended value chain.

 Live Nation intends to capture more revenue and profits relating to the delivery of the entertainment, not just the sale of music.

By selling T-shirts, parking passes, VIP party passes, secondary tickets and DVDs as well as broadcasting shows live they generate more profit for their artiste.

And if they can gain direct access to fans through ticket sales they can generate even more profit related to the ongoing delivery of entertainment.

This in the long run means it’s no longer about discovery, production, promotion and distribution of records, it’s now about the extended delivery of entertainment and advertising, and the management of the value chain for profitability.

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