Everything Old Is New Again: Vertical Integration Returns to the Recording Industry?

Citigroup recently released a detailed study of the finances of the music industry, raising a number of questions within the music business about the veracity of their data and their conclusions. The big takeaway for almost everyone, though, was the big-picture headline: last year, the collective music industries in the United States generated $43 billion, but artists received only 12% of that revenue.

The hot take version of the in-depth study makes it sound like musicians are getting royally screwed by the music industry (although the study does note that artists’ revenue share has actually ticked up a bit since 2000). But what I find particularly interesting about the report is where Citi laid the blame for exploiting musicians: namely, the report suggests that the entire music industry, as it is traditionally conceived, is sucking away profits that properly should go to artists, while tech firms (Apple, Pandora, Spotify) hold the potential to increase the artists’ share of the industry.

This argument counters much writing about contemporary music consumption practices, which frequently note low artists’ and songwriters’ royalties paid by streaming services and the shift away from record sales and towards concerts as the driver of artist revenue. Of course, the recording industry has its fair share of questionable and exploitative practices. But to position the entire music industry as an exploitative middleman is both a gross distortion of the industry’s historical value and a symptom of the problem plaguing music today.

And I nearly fell out of my chair when I read that Jason Bazinet, co-author of the report, argued that the best trend for the future of the industry would be the vertical integration of the music business under the aegis of the tech companies.

The Old Vertical Integration

We’ve been here before. That’s what struck me as so naïve about Bazinet’s argument. For decades, the recording industry was vertically integrated—meaning that record companies controlled the various interlocking businesses and functions that are necessary to making and selling records. Almost all of the functions of the record industry were housed within individual companies: labels had extensive production departments, staffed by full-time producers, engineers, and editors; artist-and-repertory divisions managed artists and developed plans for what music they should record; marketing departments strategized on how to sell artists and projects to the public.

In short, most of the separate functions in the recording industry were controlled by the record companies, who reasoned that this was the most efficient way to produce and distribute records. And this model existed across the board, for classical as well as popular forms. Most of the classical music engineers and producers I met during my research had started their careers as full-time employees of a major label, before going freelance by choice or by necessity. Decca and EMI, the two giants of British classical music recording, had extensive production divisions, and even maintained state-of-the-art research facilities to develop world-leading recording equipment. (To take just one example, perhaps you’ll have heard of Alan Blumlein, the electronics engineer who, while working for EMI in the 1930s, developed the first stereophonic recording system.)

So what changed?

The short answer is late capitalism, post-Fordism, or whatever you’d like to call the shift in economic organization that began in the 1960s and accelerated in the subsequent decades. In essence, it was a shift away from vertical integration in which companies (and not just in the recording industry) divested themselves of all of the different supporting arms of their organizations, hiring those services on a contract basis. In the recording industry, this meant that record companies eliminated their production divisions, sold off their recording studios and pressing facilities, and spun off research departments. Producers and engineers who had previously been full-time employees were hired on a project-by-project, pay-for-service basis. Recording studios were rented for each particular use. The result for record companies was a short-term savings, with far fewer employees to pay and fewer facilities to maintain; for people working in the recording industry, though, they now faced the tremendous financial uncertainty and personal expense that comes with freelance existence.

In the world of classical music recording, producers and engineers looked on this new economic arrangement with a mixture of opportunity and dread. Certainly there were advantages to not being bound to a single record company: you could work with different artists in different studios. You could manage your own schedule, which, while accompanied by a degree of uncertainty, was likely also a welcome change for engineers who spent most of their lives traveling around Europe at the behest of their record company, moving from one session to the next.

But at the same time, being freelance was a blow to the artistic integrity and financial security of record producers and engineers. When they were employed by a record company, a producer didn’t have to worry about potentially losing a job over an artistic different with a musician; they were employed by the company, they represented the company on sessions, and the company almost always supported them if there was a dispute with an artist. But as a freelancer, money overrides all other concerns. If an artist is paying for the session, then you need to follow their direction, no matter how much you might disagree. If a record company is paying, the producer is now in a service-for-hire role, meant to deliver a quality recording to the company without disruption or delay.

The New Vertical Integration

On balance, the freelance system has worked out reasonably well for many producers and engineers in classical recording. Record companies still needed their services, and the companies commonly hired their former employees to record their sessions, so work was not too hard to come by for former label personnel. Still, it has brought much more financial insecurity and has made the recording industry quite hard for younger producers and engineers to break into.

So would a return to vertical integration be a good thing for the industry as a whole, or for these producers and engineers? It’s a complicated question, because the Citigroup report argues for vertical integration not as it was once practiced, within the record companies, but in a completely new form. They propose that vertical integration by tech companies could benefit musicians enormously—by virtually eliminating all of the recording industry, which the Citi authors seem to see as old-fashioned dead weight.

They predict that the streaming services will eventually absorb concert promoters, or that they will “organically morph into music labels.” Bazinet argues

By vertically integrating, you can manufacture a star. That’s something the record labels can’t do.

It is remarkable that Bazinet could make such a statement, since for much of the 20th century, the record labels existed precisely for the purpose of manufacturing stars. But unlike in earlier eras, the record labels now are fundamentally at odds with one of the main means of distribution, the streaming services. The streaming services can benefit enormously from pop stars (as Spotify has recognized in their recent attempts to strike deals directly with artists) and at least some artists (read: Taylor Swift) have recognized their value to the streaming services.

But I still don’t see how Citi’s proposal for a tech-led, vertically-integrated music industry is going to benefit artists on the whole. There are still too many essential services that the recording industry provides that the tech industry has not shown any interest in—not least, the actual recording of music.

Who will engineer and produce the records under the new vertical integration? This is not an important question to these authors, because they assume that anyone can produce an adequate record with today’s relatively inexpensive recording tools. As one former Decca engineer told me

Maybe people just don’t care about the sound anymore. As long as it’s at a certain level, a record company will feel, well, it’s not worth spending an extra thousand pounds just to get it slightly that bit better.

That downward pressure on costs is worrying, for sure, but the Citi report doesn’t address who will pay for recording sessions if the music industry’s traditional middlemen are cut out. Are streaming services going to start funding recording sessions? Sure, they could—and one could argue that it would be in their long-term benefit to do so—but we haven’t seen any indication that they want to move this way.

So what worries me is that the Citi report may not be wrong, exactly—at least in the sense that they can potentially create a successful industry by elbowing the record companies out of the way. If they can make themselves the primary distributor of music, and they can make direct deals with artists, then the sky’s the limit for these companies. This would be vertical integration—although I wonder exactly how vertical it would be, because the tech companies are surely not going to start employing anyone in the business of making music. My fear, then, is that the success of the tech companies will do little for musicians than accelerate the neoliberal shift of the upfront costs of making music onto the musicians themselves. This would not be a win for musicians as a whole.

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