Illustration by Emily Rabin
Much has been said over the past week about catalog sales overtaking new release or front-line sales. Many have offered opinions on why this has happened (pricing differences; deaths of important artists) and what it means (legacy artists are “better”; new music “stinks”, etc.).
I feel that much is missing from this conversation, so I’ll try to provide a little background on catalog as a business and how I think it should be integrated into new record company models.
A record company’s assets are its sound recordings (as embodied on the actual masters). These recordings are what the company owns, and with that ownership comes a potential revenue stream. Of course, for this potential to be realized, the catalog needs to be created and then marketed effectively. If this takes place, the revenue stream created by it won’t dry up simply because an artist moves into a new release cycle. In fact, if an artist remains viable, then their catalog will generate a revenue stream that will pay out like an annuity.
Financial planners tell you to diversify your portfolio as a hedge against market downturns. The theory is that through diversification, you can weather a bear market because some portion of your assets will still have returns even if others are losing money. This is accomplished through a variety of means: investing in multiple asset classes, using a mix of investment vehicles, etc. Given the current state of the record business and that I see a future involving assessing multiple—though much smaller—revenue streams, it makes sense to take the financial planner’s advice. Capitalizing on a variety of revenue streams as they relate to an individual company’s (or artist’s) business is essential.
When we talk about “depth of catalog”, we talk about a record company that made investments in its future by signing and developing artists whose recordings became more valuable over time. To do this, label A&Rs must balance the need to sign talent that is hot and current with an eye toward whether that talent has staying power. If done well, each signing works to diversify the company’s portfolio. Each should be an investment that will continue to pay (like an annuity) regardless of the current market conditions.
What has concerned me about record company structure over the past decade or so is how their catalog business has been divorced from their front-line business. Yes, catalog is old and unsexy. However, it sells, and certainly given this recent data, it is reemerging as an important revenue stream. I do understand the principle behind the split: it’s simply economy of scale. However, I think that valuable synergies are lost when you separate the catalog and the front-line. Furthermore “music discovery” is a growing business that will hopefully lead to greater increases in catalog sales. Frankly, in the current marketplace, companies need to take advantage of every opportunity.
(Of course, this entire conversation is described in Chris Anderson's book, The Long Tail.)
What this shift in sales ultimately represents is an opportunity for a return to focusing on the catalog business. While I would argue that it should have never taken a back seat to front-line marketing efforts, the reemergence of catalog sales shows its continued importance to the record business. And in the digital marketplace, catalog product doesn’t take up space or require tremendous resources to manage. As a result, it is like free money, as (presumably) the costs incurred in creating it have already been incurred, and therefore any cost in maintaining it is purely for marketing and promotion.
So does the reemergence of catalog sales mean that new music stinks? Of course not, but it should be a clarion call to record companies and artists that they need to diversify their products and take better advantage of their catalog.