Artists vs. Labels – The Value of Trust & Information In The Music Industry

By George Howard
(follow George on Twitter)

My last two pieces for the TuneCore blog have been lists attempting to dispel some common (or uncommon) misconceptions regarding the music industry at large, and marketing and success in the music industry, specifically (you can find those lists here and here).

A big reason I wrote those lists was to highlight how uneven the playing field is when it comes to the information a label has versus the information that most artists have. Intentionally or not, there tends to exist a huge gap between what a label knows and what an artist knows.  Because of this gap the parties tend not to trust each other.  This lack of trust causes serious, and, I believe, surprising problems in the music industry.

When two individuals/companies — both with a high degree of “ethical fiber” — determine that they want to do business together, the costs and work are petty easy.  Legal fees, and other costs associated with getting information on one another can be reduced to next-to-nothing saving each company/individual money and time that can (and should) be better spent creating the things they value.

Contrast these minimal “transactions costs” against transaction costs when the two dont trust each other; the “ethical fiber” of the relationship is absent.  In this case — a scenario where there is no trust or transparency (and thus no possible way of knowing if the two value the same things) — the parties take every precaution to avoid any and every possible outcome – in other words, it becomes not how to work together to succeed, but how to CYA when something goes wrong.  Plan for failure and deceit..  This means contracts must be drafted and redrafted, financials must be audited and re-audited, background checks must be paid for, and the “getting to know each other period” (a euphemism for “trying to determine not if, but how badly you’re trying to screw me”) — with all its associated expensive travel and entertainment costs — must take place.

I firmly believe that any time two parties decide to work together in any material capacity, irrespective of the “ethical fiber” involved, it is best to get to know one another and write an agreement around what each party expects of the other. However, there clearly is a spectrum, and upon one end sits a quick, easy(ish) and inexpensive process with respect to “transaction costs”, and at the other end a living hell of obfuscations, preparing for the worst and expenses.

Historically, at the hellish end of the spectrum lives the deals between artists and labels.

To be clear, there are many labels who operate ethically and with transparency, and even when the labels have acted less than ethically or transparently, they are not exclusively to blame for the high transaction costs; the artists often come to these negotiations with an embarrassingly low amount of  knowledge given the seriousness of what they’re about to enter into (what percentage of artists who have signed agreements with labels can articulate what a controlled composition is?).

However, whomever is to blame, make no mistake that it is this unbalance — this information asymmetry — between artists and labels that has led to not only a sense (right or wrong) that labels are out to screw artists, but, ultimately, to the inexorable systemic failure of the historic recording industry.

You simply cannot build a business on information asymmetry that has any kind of real durability.  As with any corrupt system (whether the corruption was intentional or just sort of seeped in over time), those within the system have two choices: 1. Become corrupt themselves; or 2. Leave.  A non-corrupt person in a corrupt environment cannot stay uncorrupted.

At a certain point (and, let’s not kid ourselves, that point was pretty much the inception of the recorded music era), corruption took root, and the business side of things attempted to maintain (if not increase) the information asymmetry between themselves and the artists.  You need look no further than one of ASCAP’s raison d’etre’s to see how early and profoundly this information asymmetry developed. ASCAP pays writers directly — bypassing publishers — because they believed that the publishers would never pay the writer’s their share of public performance income (a practice that continue to this day, by the way).

If you don’t believe this information asymmetry still exists, get your hands on a label or publishing agreement; get your hands on a royalty statement from most labels to artists.  I defy you to make heads or tails out of it, even if you’re an accountant and it’s your money.

Again, some portion of the blame must be placed on the artists.  Urban legend aside, it’s unlikely that too many of these contracts were signed under the duress of gunpoint.  Rather (and this is more sad than gunpoint) the artists felt incapable of understanding, and determined that even if they did understand they really had no negotiating leverage, and so they just sort of shrugged and signed on the dotted line (Tom Waits: “The large print giveth, and the small print taketh away.”).

Too much of this behavior — artists (rightly or wrongly) feeling screwed; labels (intentionally or not) creating increasingly draconian agreements — and you wind up with relationships between parties that are strained to the point of breaking.  I remember distinctly the cognitive dissonance associated with spending weeks (months, often) battling heatedly back and forth with an artist (and representatives) over contract details, only to finally make the deal and then have to then work collaboratively and creatively with this person who had for many months been my adversary.  How do you recover from this? Often you don’t.

I would wager that, if truth be told, virtually every artist believes that any agreement presented to them by a label/publisher is severely skewed in the favor of the label. Whether this is true or not (it’s not) is irrelevant; it speaks to the lack of ethical fiber — based on information asymmetry and lack of transparency — endemic to this business.

It speaks to why these relationships fail far more often than they succeed.

It speaks to the dire need for changes to increase the parity of knowledge and the transparency.

It speaks to the dire need for artists to become better educated about the business and its associated instruments (contracts, etc.).

If we make these changes, the artists will be better able to grasp the good and the bad of the agreements.  This will lead to understanding, and then to empathy.  Once empathy enters into a relationship, you can actually assess if there is value alignment.  Once assessed, decisions with respect to whether or not to work together become easily made; transaction costs goes down and money and time are spent doing what we got into the business to do in the first place: create art that sustains us emotionally and financially.

The lists, while fun to write, were really created in order to shine a light on misnomers that create a power dynamic — based upon information asymmetry — that is severely skewed towards the label and away from the individual artist.  The goal is to provide tools for the artists to take the power back.  This does not mean that the artists must eschew labels, but rather that, through knowledge, they will have more and better choices.

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George Howard is the former president of Rykodisc. He currently advises numerous entertainment and non-entertainment firms and individuals. Additionally, he is the Executive Editor of Artists House Music and is a Professor and Executive in Residence in the college of Business Administration at Loyola, New Orleans. He is most easily found on Twitter at: @gah650

  • Wild Weezil

         Thank you, George, for you astute observations.  It is for these reasons that, at least the major record labels, are finding themselves to be increasingly irrelevant in the music business.  Thankfully, I believe, artists are becoming more literate regarding revenues streams available to them as writers and performers.             Having lost the two most powerful weapons at there disposal (the cost of recording and total control of the means of distribution) these behemoths will continue to flounder until they locate not only there ethical spines, but realize that you can’t kill technology.  Regardless, their empire is crumbling and there is no returning.  My worst fear now is ill-informed elected officials passing legislation they don’t truly understand and the potential unintended consequences that seem to invariably follow.  

  • SJ

    A huge part of the “revolution” going on in the music industry now is the dissemination of knowledge and information not previously available to your average artist.  Even with that, however, I agree that there remains a huge asymmetry in respect of information – but not just “information” – the critical information that an artist needs to make informed decisions about deals, marketing strategies, etc. in this new DIY world.  I absolutely agree that an artist has a responsibility to understand things like deal points before signing a contract – but that’s information that can be obtained and understood with a little effort and help.  What she needs beyond that is access to revenue and expense figures – the critical information.  How much are comparable artists’ catalogs generating in licensing?  How much radio campaigns and publicists are costing?  How much $ needs to be spent on average to achieve X in revenue?  This is basic Business 101 and one would think a label/publisher/manager would provide this to an artist, but I’ve found that the information is often so heavily guarded and skewed even when reported, that it’s very difficult for artists to get that information from labels, consultants, etc.  There are a billion articles and books available on how to market yourself, protect your copyrights, and on and on, catered to the DIY musician now.  Everyone knows a lawyer somewhere as well to discuss a deal point.  But the real value is in the critical information – the numbers.  If someone is able to crack that one and turn the industry into more of a transparent one regarding the bottom line, then artists will truly be empowered to build their brands and launch themselves strategically, and make fair deals with labels, publishers, brokers, consultants, etc.  My two cents.