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Sean Kilmer

4/13/15
Professor Bain-Conkin
Record Companies
When Chicago artist Chance the Rapper was suspended from school for
10 days during his senior year for smoking marijuana, he spent his time
wisely. He spent the entire 10 days in a studio recording a mixtape, the
appropriately named 10 Day. He cobbled together some pocket money from
his parents and drug dealing to rent out a studio, and the tape became fairly
popular. He released it for free, as is customary for mixtapes, and to this day
it has been downloaded 328,908 times from the website Datpiff.com.1
However, this was only a taste of what the Internet would do for his career.
Due to his suspension, he never graduated, yet one year later, he was by far
the most successful student in his graduating class. On April 30th 2013, after
a year of recording and production, he released his second mixtape Acid Rap.
It launched him to fame, but it was also completely free. It has been
downloaded over 950,000 times, and Rolling Stone Magazine named it the
#1 mixtape of 2013. As a result of this mixtape he has toured the world, and
made money off of shows, merchandise, and sponsorships. However, he
refuses to sign with a record label, because, as he told Billboard magazine, I
think a lot of people understand that music is going to surpass the industry. It

1 Chance the Rapper, Acid Rap Mixtape, Datpiff.com, April 30, 2013.
http://www.datpiff.com/Chance-The-Rapper--Rap-mixtape.483826.html

existed before the industry and itll exist afterwards.2 He firmly believes that
record companies, are no longer essential for rising artists. It is no question
that the Internet has forever changed the music world, but Chance is
incorrect. There is still a place for record companies in todays world. They
are just no longer necessary because of technological advances. To respond
to this vulnerability they have slyly taken control of the fastest growing way
to listen to music.

A quick Google search using the words record companies dying will
result in multiple articles proclaiming doom for record labels. According to an
article published March 19th, 2015 by the New York Times, revenues from
streaming eclipsed revenue from CDs for the music industry the first time
ever in 2014.3 It fact, it is truly remarkable how quickly streaming has risen.
In 2010, sales of physical formats comprised 52 percent of total music
revenue, downloads made up 32 percent, and streaming was about 6.6
percent. Just four years later, physical formats contributed 32 percent of
revenue, downloads comprised 37 percent, and streaming made up 27
percent. Physical formats include CDs, vinyl records, and LP/EPs, but just
CDs themselves made $1.85 billion in revenue in 2014, 26.5 percent of all
revenue, and down 12.7 percent from 2013. Meanwhile sales from streams
2 Dan Hyman, Chance The Rapper Reveals New Album Surf, Billboard.com, October 21,
2014. http://www.billboard.com/articles/news/6289299/chance-the-rapper-new-album-surfinterview
3 Ben Sisario, Sales of Streaming Music Top Sales in Flat Year for Industry, nytimes.com,
March 18, 2015. http://www.nytimes.com/2015/03/19/business/media/sales-of-streamingmusic-top-cds-in-flat-year-for-industry.html?_r=0

accounted for $1.87 billion, up 29 percent from 2013, and just edged out CDs
for 27 percent of total revenue. Despite streamings meteoric rise, overall
revenues for record labels have stabilized in recent years around $7 billion.
In other words, streaming has yet to affect record companies like digital
downloads did in the early 2000s.

The income for the entire industry is half of what it was in 1999, and
the raw numbers do not paint a pretty picture. However, the profit numbers
cannot feasibly be compared to those from 1999, because the landscape has
changed since then, and the album has been pushed out the door in favor of
the single. In 1999, Sean Parker and Shawn Fanning launched Napster, a
software that allowed users to share files from their hard drive over the
Internet. About a year after its launch, it had been downloaded 60 million
times, and forever changed the music industry. Users could download any
song they wanted on their computers for free, and the record companies,
artists, and producers saw no profits. It did not take long for the Recording
Industry Association of America (RIAA) to sue Napster, and federal courts
demanded its closure in February 2001. However, that did not end person-toperson (p2p) file sharing, and similar sites like BearShare, LimeWire and
BitTorrent still pop up for periods of time before getting shut down. While
many blame the record companies for not compromising with Napster, it is
hard to blame them. In 1999, labels made $14.6 billion in revenue, and by
2014, they generated only $6.97 billion in revenue. The sky was literally

falling in the early 2000s, and the label executives made rash and
shortsighted decisions. Their unwillingness to compromise meant there was
no legal way to buy songs on the Internet until the birth of iTunes.4 This
allowed illegal sites to gain a stronger foothold, and changed the way people
viewed music. People no longer thought they had an obligation to pay for
music. Furthermore, instead of paying for an entire album just for one song,
they could just download the single.

In this new landscape dominated by streaming and downloading,


artists finally have a choice: a record company or independence, and more
often than not they choose record companies. Of course, there are
advantages associated with not signing with a major label. Chance the
Rapper claims that because of his independence, I can do whatever I want.
And Ive got to really flex that unlimited capability of an independent artist. I
can do whatever videos I want, I can release when I want, talk how I want,
freely about any subject.5 However, he is a unique case for a number of
reasons. While he did not grow up rich, he was by not poor, and was able to
use a studio at a public library. He did not need loans or financial stability,
since he was still living with his parents at the time of his recording.
Furthermore, his publicist works for him for free, and he has the same agent
4 Alex Suskind, 15 Years After Napster: How the Music Service Changed the Industry,
Thedailybeast.com, June 6 2015. http://www.thedailybeast.com/articles/2014/06/06/15years-after-napster-how-the-music-service-changed-the-industry.html
5 Dan Hyman, Chance The Rapper Reveals New Album Surf, Billboard.com, October 21,
2014. http://www.billboard.com/articles/news/6289299/chance-the-rapper-new-album-surfinterview

as Kanye West and Eminem. He has, and started out with, connections that
allow him to work with all the top names in the business. In an interview with
the Breakfast Club on Power 105.1 New York,6 he contributed most of his
success to Chicago, saying that it is a very small place, and more than likely
your grandma knows somebody elses grandma. For example, his grandma
was very good friends with rapper Commons mother. These connections
within Chicago then allowed him to reach outside of the city. Chance does
not attribute his success to his talent, yet this is also a huge reason for it. In
the same interview, he mentioned that Jay-Z wanted him to appear on a
guest verse for Madonnas song, because the verse was about icons, and JayZ wanted to give it to somebody who could be a new icon. The critics swoon
every time he releases a song,7 and the established veterans in the rap world
have noticed. Despite his unique circumstances, he still is proof that an artist
can become very successful without a record company. Record labels have
been stripped of their aura of invincibility they once had, and in order to stay
in business they took control of the next popular way to consume music, in
addition to reminding artists why they are so important.

Many people in the general public do not realize that the record
companies do much more than distribute. While that may be their biggest
source of revenue, it is not their only one. At an average record company, an
6 105.1 Breakfast Club, Chance the Rapper Interview at the Breakfast Club Power 105.1,
Youtube.com, February 26 2015. https://www.youtube.com/watch?v=EfNVDoX3e1g
7 Jordan Sargent, 10 Best Mixtapes of 2013, Rollingstone.com, December 9 2013.
http://www.rollingstone.com/music/lists/10-best-mixtapes-of-2013-20131209/chance-therapper-acid-rap-19691231

artist has multiple departments working with them. According to


musicbizacademy.com, there are departments for marketing, publicity,
production, artist development, and promotion.8 Record companies are also
very aggressive in protecting copyright, something Chance does not benefit
from. Shortly after he released Acid Rap, his manager noticed that the
mixtape was being sold on iTunes and Amazon, and had actually risen to
no.63 on the Billboard top R&B albums chart. However, Chance released his
mixtape for free, and a company called Mtc had pirated it and was taking
the profits. Since he doesnt have a record deal, he was not protected by the
RIAA, and he had little defense against people selling his music for profit. It is
worth noting that Chance wasnt as concerned with the bootleggers because
his business strategy does not include profit from downloads. At least he had
the access to lawyers to fight the bootleggers. Many other young artists will
probably not be able to spend money on legal fees, and without a record
company they would be defenseless in this situation.

The launch of Tidal, a streaming service backed by artists like Jay-Z,


Kanye West, and Beyonc, signals that record companies are shrewdly trying
to harness streaming and adjust to the modern times. Nine of Tidals 16
artist owners own a label imprint, and thus represent at least a part of a
larger label. For example, anything Jay-Z does, Roc Nation, his imprint, will
fully support. Any profit he makes will at least in part go to his imprint,
8 Christopher Knab, Inside Record Labels: Organizing Things, Musicbizacademy.com, April
2010. http://www.musicbizacademy.com/knab/articles/insidelabels.htm

assuming he reinvests. Whether or not Tidal is a success, it would never


have been launched without the support of record companies. Yes, its selfdescribed purpose is to put more money in artists hands, but only its 16
millionaire owners will see more money, unless it offers artists higher
streaming royalties, which is difficult to do for a number of reasons. Most
artists do not own their music. If they do own their music, which is a fairly
new development, they are hit with heavy recouping fees from their label.

In other words, Tidal cannot negotiate its contracts with individual


artists; it has to go through record companies. Record labels can then
independently decide how much to give to artists. Spotify, a free streaming
service with a premium option, reported that it paid over $2 billion to record
companies in royalty fees in the past year.9 In February, French record label
trade group SNEP commissioned a study that claimed the labels recouped
73.1% of royalty fees after tax. Artists and songwriters received the other
26.9%.10 While that is certainly not a good deal for the artists, it is a fantastic
one for the labels, and they seem to have learned from their mistakes with
downloads. This time, they did not fight streaming, and made sure they
received their profits before it took off 4 years ago.

9 Mike Masnick, Myth Dispensing: The Whole Spotify Barely Pays Artists Story is Bunk,
Techdirt.com, June 26 2014.
https://www.techdirt.com/articles/20120622/16193319442/myth-dispensing-whole-spotifybarely-pays-artists-story-is-bunk.shtml
10 Mike Masnick, Yes, Major Record Labels Are Keeping Nearly All The Money They Get
From Spotify, Rather Than Giving It To Artists, Techdirt.com, February 5 2015.
https://www.techdirt.com/articles/20120622/16193319442/myth-dispensing-whole-spotifybarely-pays-artists-story-is-bunk.shtml

Record labels are still important to the music scene, as evidenced by


Ed Sheeran signing to a label in 2012 even after he had shown he didnt
need one. His producer Jake Gosling broke down the decision in an interview
with The Guardian. You still need labels, he said. What Ed and I had done
without a record company had proven to the label that we could do it on our
own, that all we needed was help and support and finance, getting us to
more people and being able to pull the strings when needed to get us on a
TV show those moves are harder to do when you're a bit more
independent. Essentially, they had grown tired of distractions taking away
from his ability to create. OK, maybe you could hire those people yourself
and set up your own label, but theres something to be said for deciding that
you want to make music and be creative, and I dont want the hassle. You
can be really creative but not very good at business and marketing. Since
they showed they could be successful without labels, they had much more
leverage in contract negotiations. As a result, the record company promised
not to interfere with their recording process.11

With their control of the streaming services, record companies have


stabilized themselves, and if streaming continues to grow, they will grow
along with it. However, their iron grip on the industry has weakened
significantly, and it is possible for artists to succeed without them. It is
11 Hellienne Lindvall, Behind the Music: What Do Record Labels Actually Do? Youd Be
Surprised, Theguardian.com, February 2 2012.
http://www.theguardian.com/music/musicblog/2012/feb/02/behind-music-record-labels

extremely difficult, but it can be done. In response to this, labels have made
themselves friendlier to established artists, and have learned to work purely
as marketing teams for some. This change in attitude and newfound control
of streaming has set up the labels well for the future. However, they are no
longer a necessary part of an artists career, and they never will be again.

Bibliography
105.1 Breakfast Club, Chance the Rapper Interview at the Breakfast Club Power
105.1, Youtube.com, February 26 2015. https://www.youtube.com/watch?
v=EfNVDoX3e1g
Chance the Rapper, Acid Rap Mixtape, Datpiff.com, April 30, 2013.
http://www.datpiff.com/Chance-The-Rapper--Rap-mixtape.483826.html
Hyman, Dan. Chance The Rapper Reveals New Album Surf, Billboard.com,
October 21, 2014. http://www.billboard.com/articles/news/6289299/chancethe-rapper-new-album-surf-interview
Knab, Christopher. Inside Record Labels: Organizing Things,
Musicbizacademy.com, April 2010.
http://www.musicbizacademy.com/knab/articles/insidelabels.htm
Lindvall, Hellienne . Behind the Music: What Do Record Labels Actually Do? Youd
Be Surprised, Theguardian.com, February 2 2012.
http://www.theguardian.com/music/musicblog/2012/feb/02/behind-musicrecord-labels
Masnick, Mike. Myth Dispensing: The Whole Spotify Barely Pays Artists Story is
Bunk, Techdirt.com, June 26 2014.
https://www.techdirt.com/articles/20120622/16193319442/myth-dispensingwhole-spotify-barely-pays-artists-story-is-bunk.shtml

Sargent, Jordan. 10 Best Mixtapes of 2013, Rollingstone.com, December 9 2013.


http://www.rollingstone.com/music/lists/10-best-mixtapes-of-201320131209/chance-the-rapper-acid-rap-19691231
Sisario, Ben. Sales of Streaming Music Top Sales in Flat Year for Industry,
nytimes.com, March 18, 2015.
http://www.nytimes.com/2015/03/19/business/media/sales-of-streamingmusic-top-cds-in-flat-year-for-industry.html?_r=0
Suskind, Alex. 15 Years After Napster: How the Music Service Changed the
Industry, Thedailybeast.com, June 6 2015.
http://www.thedailybeast.com/articles/2014/06/06/15-years-after-napsterhow-the-music-service-changed-the-industry.html