Chris Dixon wrote a great post on the not so common knowledge that industry incumbents fail and die not because of competition, but due to irrelevance or ineptitude.

[…] when you examine the history of technology, incumbents usually decline because the world changes and they lose relevance, or because

they lose visionary founders and the organization decays. Some examples:

– Dell thrived when PCs dominated the computer market and Dell was the low cost provider of commodity hardware products. The shift to mobile and tablet computing meant that hardware quality (not price) was once again the primary basis of competition. As a result, Dell’s laser-like focus on cost reduction became a liability.

– The New York Times was, for many decades, one of the few premium channels through which brand and classified advertisers could reach mass consumers. Thus car companies and real estate brokers subsidized foreign reporting and investigative business journalism. The internet provided a vast alternative channel, and the Times became far less relevant. At the same time, the internet provided many new sources for breaking news, editorials etc, hurting the Times on the subscriber side.

The most direct music business translation of this phenomenon is the fact that Epic isn’t going to go out of business because Atlantic is doing so well and stealing their customers. Competition between labels is played out not so much in the music fan arena, but more so in the control of distribution and

promotion gatekeepers. And as those things lose relevance, companies that rely on them will falter.*

Traditionally, the major functions of labels have been:

1. Handing out big loans to fund expensive recording sessions.
2. Providing a team of people with valuable gatekeeper relationships
3. Providing great product distribution and associated store placements/features
4. Being taste-making gatekeepers that help the audience find the best possible music.

The first point has become much less relevant thanks to massive cost drops for recording, the rise of funding platforms like Kickstarter, and strongly improved home-recording technology. The second point is still relevant, but increasingly less so as taste-making press gets consolidated to fewer outlets with diminishing influence, the absence of ubiquity coverage, and the growing ability for people to share their listening patterns with friends through technology. The third point lost relevance when music distribution moved from the closed and controlled environment of brick-and-mortar stores and their promo schemes, to the open platform of digital distribution.

So what is left for a record label to do and how can they prevent extinction? There is the obvious of course: evolving and developing a new skill set and network that helps artists leverage their products and services (music, video, live performances). And that’s a big topic worthy of several posts on it’s own. But for the sake of this post there is also point four, the part of the record label that has been treated as the red-headed stepchild for the past 20 years: crack A&R work. In the 1980′s labels stopped putting an emphasis on finding and developing artists, because there was little need to do so, from a financial point of view. The major label system found itself in their golden era where lots of stuff they put out, regardless of quality, would blow up thanks to their control of distribution and promotion media. The majors were kingmakers based on control and power, and taste lost importance within the label

Where Jac Holzman’s Elektra was built on taste, quality and customer trust, Tommy Mottola’s Sony was built on pure promotion and distribution power. With this power base nearly decimated, we’re back to a place where the Jac Holzman’s of the world are starting to make an impact again. Just look at some of the biggest records of the last year or so, including Adele’s 21 (signed and developed by XL), Bon Iver’s two albums (signed to JagJaguwar), Arcade Fire (signed to Merge) and this year’s biggest hit in Gotye’s “Somebody That I used To Know” (signed to Eleven). It’s not a black and white, and there will always be room for pop hits broken through mainstream media, like Rihanna, but the fact is that the evolution of the music business is real and gaining steam. Labels that want to build longevity should take note and focus on their ability to the very basic (but not easy) task of finding and developing amazing artists with amazing songs, that will be spread by excited and empowered listeners, until the gatekeepers that are still left have no choice but to pitch in as well. More upcoming posts on this “curator” role soon, including some Family Records announcements.system.