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Sara Finlayson
As they have always done, the major and independent
record labels battle over retail space, but are chain stores breaking the
independent's backs?
According to trade magazines, the US independent music industry is
experiencing a disaster akin to the stock market crash of the eighties.
The reason? Industry players blame "the market," however this term is
nothing more than a smokescreen for greedy major labels, distributors and
national music chains. The ramifications of the current lull in sales are
manifold, with many independent labels forced to seek deals with major
labels, downscale operations or declare bankruptcy.
To understand how this crisis evolved, we must first consider the
structure of the music industry. The most powerful interests are
represented by the six major labels: Warner Brothers, Sony, Polygram, EMI,
Uni and BMG. With massive corporate budgets and huge distribution
networks, these giants dominate music outlets and undercut independent
labels. They also invest massive marketing bucks in radio payola,
advertising and MTV friendly videos to guarantee their product (compact
discs) is shoved firmly in the face of consumers.
In contrast to these giants, there is a network of self-funded independent
labels which operate on limited budgets. These labels rely on distributors
such as Red, Caroline, INDI/Alliance, Navar and Koch to get their CDs into
major chains like Musicland, Tower and Warehouse (in addition to smaller
stores). By housing and shipping product, these distributors act as the
middlemen between the labels and the stores.
To illustrate how the industry has propelled itself to the brink of
collapse, we will trace the life of a hypothetical CD released on an
independent label. We will call the label "Acme Records" and the CD "House
Hits."
1. Acme Music begins production of the "House Hits" CD and sends
promotional copies to its distributors.
2. The distributor solicits orders for "House Hits" from the major chain
stores. Most of these chains have a single national buyer ordering for the
entire country, regardless of the geographical or economical positioning
of the stores. These buyers often possess little or no knowledge of the
genre they are purchasing for.
3. In order to compete with the large volume of new releases being
offered, the chain store buyer needs an incentive to order "House Hits."
So, with the distributor again acting as middleman, the chain store offers
a deal to Acme. For example, Acme may buy "House Hits" a position in a
Tower Records CD listening station for five thousand dollars. For
twenty-five dollars, Acme can also buy a position in a display case at the
end of an aisle. Multiply that by the hundreds of national stores and Acme
is paying in excess of ten thousand dollars to get its product seen and
heard in just one of the several chains.
4. Wanting to give "House Hits" the best possible 'placement,' Acme agrees
to invest the money in the 'programs' offered by the chain stores.
5. As payback for investment in its 'programs,' the chain store doubles
its order of "House Hits."
6. Acme manufactures and ships the "House Hits" CD to its distributor on
the basis of the total order it receives.
7. The "House Hits" CD is shipped to the stores, where it sits for a few
months. Unfortunately, the chains don't care if the CD sells or not. They
have already milked Acme Music for the 'product placement' money.
8. When sales of "House Hits" are slow, the chain stores use an escape
clause known as 'returns' to ship the bulk of the CDs back to the
distributor.
9. The distributor then ships "House Hits" back to Acme Music, who is
stuck with massive quantities of product nobody wants. The distributor
will only pay Acme for the CDs sold, minus the cost of the 'product
placement' programs.
10. As a consequence of its over-manufacturing, the label has suffered a
huge loss, not only on production, but on the 'programs' it entered into
with the chain stores.
While major labels have the financial backing to save their asses on big
losses, huge returns can be fatal to an independent label. Ironically, one
of the few options available to independent labels is to make a deal with
a major label in an attempt to inject capital. As multi-nationals continue
their quest for domination of the market, there appears to be an endless
amount of expendable corporate bucks to invest in the search for
entertainment dollars. To add insult to injury, major labels are
constantly searching for the next big underground music movement to
exploit, whether it be Seattle grunge or electronic dance music (hence the
recent bidding war for the Chemical Brothers and Prodigy).
Yet again, as in so many instances of capitalism going awry, the little
guys are taking the fall for the big guys. The greed of major labels,
distributors and expanding chain stores has artificially inflated the
market to the extent that there are billions of dollars in dead product.
The effect of this is similar to a stock market which increases to the
point that the bottom drops out. Last year, independent distributors
Alliance and INDI merged. They are now in the process of dropping over
half of their six hundred labels. Meanwhile chain stores such as Camelot,
Warehouse and Peaches have declared bankruptcy, with the US' largest chain
Musicland rumored to be doing likewise this March. As an added stress,
retail nasties such as Best Buy and Circuit City recently entered the
market, renting floorspace to major labels and selling CDs at below cost
in a bid to entice customers.
As consumers, the only thing we can do is support independent music by
purchasing CDs and vinyl from independent labels through local record
stores. Remember, that extra two dollars you pay for a CD might help to
save the label and music you love!
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