“Are record labels dead?”

From CNN:

Prince freed himself from record labels years ago. Paul McCartney, Radiohead and Nine Inch Nails have followed. Now the Material Girl appears to be kissing her big-name record company goodbye for a cool $120 million.

Madonna is expected to sign a recording deal with entertainment producer Live Nation.

Could U2 be next? Justin Timberlake? Coldplay? Do superstars even need traditional multiyear album contracts when CD sales are plummeting and fans are swiping tons of music for free online, or tuning in to their favorite bands via YouTube, MySpace and other Internet portals?

“There’s a prevailing wisdom that many established acts don’t need a record label anymore,” said Bruce Flohr, an executive at Red Light Management, which represents artists such as Dave Matthews Band and Alanis Morrissette, and ATO Records, home to David Grey, Gomez and Crowded House, among others.

“This is the new frontier. This is the beginning of a new era for the music business,” Flohr said.

Executives at the four major record labels would not comment on the record for this story. But several noted privately that their companies are still the best at artist development, promotion and physical distribution of their product — something even big acts can’t entirely do without.

The four majors are Warner Music Group Corp., Vivendi’s Universal Music Group, EMI Group PLC, and Sony BMG Music Entertainment, a joint venture of Sony Corp. and Bertelsmann AG. They accounted for more than 88 percent of all U.S. music album sales this year.

“The game used to be really simple,” Flohr said. “You get your record played on radio, you get your face on Rolling Stone (magazine), and you get on ‘Saturday Night Live.’

Now, it’s you put your video on YouTube, you get your MySpace page happening, you do your deal with Facebook, you tour … all these things add up, hopefully, to a successful record.”

Some established major acts are using the same tactics as their new albums post lackluster sales but their concert tours keep selling out.

The strategy doesn’t help record companies. The industry has seen a 14 percent drop in the number of CDs sold in the U.S. compared with the same time last year, according to Nielsen SoundScan.

I’ve said this before, but it bears repeating. The music industry has only itself to blame for the steady decline in CD sales. Greed motivated them to collude on pricing and keep CDs priced at $15+ even though 20 years had passed since the technology’s introduction. Piracy was on the rise, yet still the labels didn’t lower prices. But not every artist bought into that. I recall that the Flaming Lips released “Yoshimi Battles The Pink Robots” priced at $9.99, which I thought was a smart move. And then there is Radiohead’s digital-only release of “In Rainbows.”

Clearly, high CD prices have created an incentive to steal. But with the exception of college students who have broadband and endless storage at their disposal, I think most consumers are willing to pay $5-10 for a new CD. It’s worth paying some amount to know that a recording is legit, high quality and includes liner notes, art, lyrics, etc.

Why the record companies haven’t yet figured that they could sell and gross more by asking for less is beyond me.

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