It would seem that artists, both established and aspiring, are searching for more flexibility and freedom in their careers. There is a surging demand for alternative options to traditional label deals, and therefore, industry executives are being forced to reexamine and adapt their business models to meet this demand. The question is, are these alternative business models sustainable?
The major labels – Sony, EMI, Warner, and Universal – have made a clear attempt at adapting to the ever-changing industry through the use of 360 deals. Controlling every facet of an artist’s revenue streams, however, does not seem to fit this demand for flexibility and freedom. Granted, 360 deals do appeal to some artists who are entirely capable of becoming extremely wealthy writing hit singles under this type of deal. Yet is also fair to say that the business model for 360 deals does not attract all artists.
Thus, bold and new business models have begun to surface that show significant promise. A good example here is the alternative label Polyphonic, whose pedigree is impeccable. The company was founded by Brian Message, the manager of Radiohead and one of the minds behind the name-your-own-price release of the band’s latest album, “In Rainbows” (from that album release, Radiohead kept all of its profits and utilized the Internet for cheap distribution and instant access to fans). But behind Polyphonic there is also Adam Driscoll, the chief executive of the British media company MAMA group, and Terry McBride, the creator of the Canadian management firm, Nettwerk Music, who manages Sarah McLaughlin and the pop/rock group Barenaked Ladies (the latter run their own label in order to keep a greater cut of their revenues).
Polyphonic will be based in London with offices in New York and Los Angeles. Unlike a traditional record label, Polyphonic does not grant a new artist an advance. Instead, they treat an unsigned artist like a small business start-up, investing $300,000 in each new signee. In turn, Polyphonic splits the artist’s revenue, from touring, recordings, merchandise, and other, 50/50. As the artist’s success grows, her percentage of the revenue increases. The immediate opportunity to earn money is appealing to artists, since under a traditional label deal, an artist is instantly indebted to the label through the requirement of recouping their advance.
Polyphonic uses its connections to help artists build a team for publicity, merchandise, and touring by contracting from outside sources. Taking a transparent approach, Polyphonic encourages direct-to-fan relationships without a visible buffer of a go-between label. Finally, Polyphonic leaves all recording and publishing copyrights, and master recording ownership in the hands of the artist. This is an incredible new opportunity for artists, since before Polyphonic labels controlled the rights to the master recordings, leaving artists with only a fraction of earned royalties. With Polyphonic, artists are given total control over every aspect of their creative compositions and are allowed to share a more reasonable percentage of the profits.
This new service certainly seems to fit artists’ demand for flexibility and freedom. The abolishment of recouping advances and the right to full royalties are the most enticing factors by far. Even from the fan’s perspective, this may be a preferred transaction model. The money paid for albums makes its way to the artist in a less roundabout way. “We are all witnessing major labels starting to shed artists that are hitting only 80,000 or 100,000 unit sales,” says Driscoll. “Do a quick calculation on those sales, with an artist who can tour in multiple cities, and that is a good business. You can take that as a foundation and build on it.”
Others, however, are much more skeptical. Polyphonic has high promises for the artist, but does create a sustainable business model? If Polyphonic does not require its initial investment in the artist to be repaid, where does that leave the business if the artist fails? If Polyphonic grants full royalty ownership to the artist, how will Polyphonic continue to make money once that artist severs its connection with them? Even in the major labels’ current financial state, they still continue to make money on the their exclusive recording and publishing catalogues, which Polyphonic does not have.
Despite numerous attempts, Polyphonic has been unsuccessful in obtaining venture capital investments. Yet the company remains undeterred, still working to prove to investors that their new model has potential. But since the company’s creation in the summer of 2009, Polyphonic has received little publicity and there are no artists signed yet to their roster.
With able management backing the company, and a business model that meets the needs of artists, Polyphonic is still not getting the support it needs at a time when its major rivals are failing. From April 2010 to August 2010, Warner’s stocks fell nearly 40%, from $8 to $4.64 per share. In August 2010, EMI’s annual financial report stated a 512 million pound loss. Even now, EMI is tangled in a massive legal battle between Terra Firma and Citibank, which is certain to be draining the label’s coffers.
Polyphonic could still prove to be an answer to the industry’s problems. If so, it would keep company with other like-minded businesses that allow artists more freedom and flexibility in the marketing, distribution, and financing of music. Topspin, TuneCore, and Artist Share are in that category.
By Nick Susi
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