Guest post by Cherie Hu 

For record labels, technological change has created more questions than answers. Are they even relevant anymore? Which tech trends and tools matter for their bottom line, and which ones are just “hype”? Should labels’ historical roles stay the same in the wake of disruption, or should these roles also disrupt themselves?

Running a record label has always been high-risk with an unknown reward. Labels spend as much as 15.6% of their revenue on artist development—a higher percentage than what technology, software, aerospace, healthcare and pharmaceutical industries spend on R&D. The risks are not unlike what one would take at a venture capital firm, except the startups are human beings who carry unique, abstract artistic capital.

With each month, the A&R landscape seems to get ever more competitive. Streaming services like Apple Music are stepping in to oversee traditional label responsibilities themselves, giving artists more direct access to their distribution and data (à la Frank Ocean). In addition, an entirely new collection of marketing tools and investment schemes (crowdfunding, investor-agency partnerships, accelerators like Zoo Labs and Techstars Music) has entered the business, making the future of artist development even more cryptic.

Emerging record labels are recognizing these new players and capitalizing on their strengths: giving fans more say in the recording process, building friendlier artist contracts through strategic partnerships, aligning artist incentives with those of startups and diversifying revenue beyond recorded music. By thinking and acting more entrepreneurially, they are paving a more sustainable and relevant future for themselves.

1. They are artist-run.

In the words of rapper A$AP Ferg, many record labels today act as a ”music bank”—providing base-level funding and infrastructure for musical careers in exchange for equity, while leaving long-term financial and creative decisions to the artists themselves.

This artist-run label movement is growing most rapidly in the indie electronic sphere, where DJs and producers such as Gramatik, Mark Sherry and Ganja White Night are running their own, digital-only labels (Lowtemp,Techburst and Subcarbon, respectively). DIY business models fit well with electronic music, as DJs and producers historically built their fame on the fringes of the mainstream through file-sharing and other Internet trends.

Embracing this total power shift means not only exerting more control, but also coping with different lifestyles and busier schedules. “While we’re touring, we don’t have much time to work simultaneously on building the label,” explains Benjamin Bamby, one of the DJ-producers behind Ganja White Night.

Under such models, musicians must accept their status as CEO of their own artistic empire, and be willing to make tougher executive decisions.

2. They are brand-driven.

Some of the most renowned venture capital firms today prioritize brand development alongside high-growth investments. The likes of Andreessen Horowitz have cultivated a celebrity-like following on Twitter and other social media sites, building reputations as thought leaders via sharp commentary on their surrounding tech landscape.

This dual focus could serve as a valuable model for the recording industry. Historically, artists often carried stronger brands than the labels supporting them (e.g. more listeners recognize “Grimes” versus “4AD,” or “Arcade Fire” versus “Merge Records”). In the future, labels could market their own brands more aggressively, instead of relying on a handful of artists from their roster.

Aside from thought leadership, part of this strategy involves native branding on social media sites, perhaps at the expense of immediate incremental revenue. For instance, many record labels’ Facebook pages direct followers to external links (Spotify, YouTube, Apple Music) that, while earning money for rights holders, do not drive the conversation on Facebook itself. Creating native Facebook videos, photos and other media will make it easier for users to engage with and spread the content across their own networks.

“It took years to get a larger number of people knowing about Subcarbon as a label,” says Bamby. “Our crucial strategy is to get people talking about our content online. People have to know about the label, not just about a one-off album. For this reason, we make and host all of our own videos on Facebook, and keep our users talking on the network.”

Moreover, a label with a rich brand can give a positive context to its artist roster. As BBC Radio 1 DJ Huw Stevens explained, “music released through a label that comes with history, or equally with a freshness, can help me and the listeners understand what that artist is about a little more.”

3. They are price-flexible.

Most record labels now receive as much as 80% of their revenues from streaming. Warner Music Group was the first major label to officially announcestreaming as its primary revenue source; revenues from Universal Music Group’s streaming businessskyrocketed by 62.4 percent year-over-year as of August 2016, more than offseting the decline in digital download and physical sales; Sony Music saw a 38.4% year-over-year increase in streaming revenue in the quarter ending June 30. All in all, the three majors are cumulatively turning over just under $10m every 24 hours from streaming platforms, and streaming accounted for roughly half of the entire industry’s revenues last year.

Most streaming users, however, are listening to music for free (e.g. at least 60 million of Spotify’s 100+ million users are only on the free tier, and fewer than 5% of Pandora users pay for its ad-free services). While it seems that an inflexible dichotomy still persists between people who are and aren’t willing to pay for music, the real issue is that there simply aren’t enough options. One can either buy an album for $9.99, subscribe to Spotify for $9.99 per month to listen to the album, or pirate the album for free—with nearly no alternative prices in between.

“I happen to believe in my heart of hearts that there is an entire host of transactions between $0 and $10,” Ethan Rudin, Chief Financial Officer and Global Head of Label Relations and Business Development at Napster, toldReuters. Many streaming services are already incorporating price flexibility into their business models, from Pandora’s $5-a-month Pandora Plus to iHeartRadio’s two upcoming differentiated services, iHeartRadio All Access and iHeartRadio Plus.

The music industry should not just limit this price flexibility to streaming services, but also to physical and digital recorded music sales at large. “Making your music available for free with an option to buy or donate is the most rational thing to do,” Gramatik toldMic. “You’d be surprised how many people appreciate this approach and donate money to it whenever they can, not only to pay for an album, but to show appreciation for the philosophy itself.”

4. They are cross-promotional.

Exclusive, multi-year record label contracts may soon seem archaic. Several emerging independent labels, especially in the electronic sphere, are allowing artists to sign and partner with multiple additional labels as well. This new career flexibility reflects the creative as well as economic realities of the new music industry, in which musicians are always remixing and drawing inspiration from each other.

“In 2016, it’s not about being on a label,” claims Gramatik. “It’s about exposing your music to as many people as possible as quickly as possible, so you can build a following, start touring, become financially independent and finally be able to fully focus on your art.”

Ganja White Night’s Subcarbon, which uses its SoundCloud channel to showcase free downloads submitted by other artists, allows its signees to move freely across different platforms to maximize their promotional value. Gramatik’s Lowtemp takes a similar approach: ”We don’t have slave contracts, we don’t demand exclusivity, we don’t force people into anything. They are free to come and go as they please. We even encourage them to release their music on as many labels as possible to build a following as quickly as possible.”

In this vein, labels become not only marketers and distributors, but also curators of sounds from the wider music community, which would make it easier for them both to expand and to refine their brand as a larger entity.

5. They connect artists with technologists.

Record labels can learn not just from venture capital firms, but also from startup accelerators and tech entrepreneurs. As artists rely on the Internet to iterate their creative process in front of a seemingly infinite, increasingly distributed audience, levels of sophistication—and subsequent confusion—continue to rise in music marketing and distribution, especially around issues of monetization and ownership.

“The energies and engines behind technological innovators and artists are very similar,” explains Paul-René Albertini, CEO of Sushi Venture Partners and former Chairman and CEO of Warner Music International. “Both groups of people are trying to push out their vision and understanding of the world through highly specific languages, be that music or code or both. The present challenge is to bridge the gap between the languages of art and business. A new business model is not the same thing as a new song.”

A budding cohort of accelerators across the U.S. and the U.K., including Zoo Labs, MarathonArtists LABS and Abbey Road Red, are finally taking steps in bringing these two groups closer together, allowing artists and tech entrepreneurs to collaborate directly on a shared vision. Record labels, perhaps the music industry’s most experienced (if not most notorious) mediators, should use their expertise to follow suit.

6. They diversify into events and culture.

As labels seek to build their company-level brand and connect more directly with their audiences, events will inevitably become a more important part of their business models. Live event revenues are already compensating for the decline in recorded revenues in the wider music industry, a trend that will likely be replicated on the individual label level.

“Party labels will be bigger in the coming years,” predicts Bamby, whose label will be hosting a Halloween party later this month. “They could even expand to become their own event marketing agency. In the future, everything will be linked together.” Major labels and artists are already launching their own alcohol brands that cater more to concert-going crowds, and could take a step further into hands-on event planning and promotion.

The relationship can develop the other way around, too: organizations centered around live performances can experiment with releasing their own recordings as a label. For instance, the Smalls Jazz Club in New York runs its own live-streaming and audio/video archive project called SmallsLIVE, which is essentially a digital record label that treats every performance in the club as a record—and that gives artists full ownership of the copyright.

“The SmallsLIVE revenue share project seeks to be the most-fair revenue sharing model available by making the artist a 50/50 partner,” claims the website, suggesting that future record labels’ business models will be more diverse, more rooted in the live experience, and fairer to artists.

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