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FROM THIS EPISODE

The State of the Majors

This is Celia Hirschman with On the Beat for KCRW. The record industry has always been a fast moving business with high risks attached, but the last couple of years have been an unprecedented roller coaster. This instability has forced the music business to rethink strategies. There are several key reasons for the changes.

Recent list price cuts by all the majors have been a significant factor in lowering the profit margins. Though record sales are up from last year, profits are certainly not, and the cost to market music has not decreased at all. Each new release requires it-s own funding and marketing plan.

On top of that, illegal downloading of hit pop singles has seriously hurt pop album sales. In the past, pop album sales provided a safety net profit margins at labels, allowing them to invest in less profitable genres of music. Without a safety net around them, labels have become much more cautious about investing. So the cost of doing business remains the same, inspite of less profit and less growth. The result of all this has led to massive label consolidation and a musical chairs of leadership never seen before.

Here are some of the most significant changes that have taken place: In the Sony camp, there used to be three large labels; Columbia, Epic and 550. 550 was recently absorbed into Epic, so there are now two major labels at Sony. Meanwhile, at BMG, there-s been enormous reshuffling. Clive Davis, the founder of Arista, has just been named Chairman of BMG North America, and one of his first moves was to close the label he had founded decades before. He closed Arista last week. Now BMG labels include the RCA Music Group, Jive and Clive-s newest label, J Records.

Most recently, BMG and Sony have announced they would like to merge businesses, and you can only imagine the jockeying for leadership that will take place once that happens.

At the Warner Music Group, the three key players were Warner Bros, Atlantic and Elektra. In a massive reorganization, there looks to be two labels - The Warner Bros Records Group and the Atlantic Records Group - one based on the east coast and one based on the west.

For the past five years, the market leader, Universal Music Group, owned four record labels -Island/Def Jam (which is one), Interscope, Motown and Universal. A few years ago, Motown was absorbed into the Universal Music Group, so now there are three major labels left at Universal.

The only conglomerate that has not absorbed one of its major labels is EMI. They still control Virgin and Capitol Records. However, this week they announced they-ll reorganize as well.

And politics continue to play an important hand. Of the 12 major labels still standing, ten of them have replaced their top leadership in the last three years. The number of lost jobs is impossible to calculate, since all these changes have a residual affect on the business as a whole. And of course, many artists have been cut from these rosters forcing them to seek independent deals to continue making music.

Many in the business feel that new economies and technologies are beginning to dictate the terms of marketing. Labels are stripping the companies of old value systems and retooling business philosophies to meet the challenge.

Change is painful, and there-s still a lot more to come with all this shifting. But change is also a great lightening rod for inspiration, and one can only hope that with new vision comes better structure and better business models. Until then, it-s best to put your seatbelt on - it-s gonna to be a bumpy ride.

This is Celia Hirschman with On the Beat for KCRW.

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