Major Record Labels: Business Model Evolution | In Practise

Major Record Labels: Business Model Evolution

Former Chairman and CEO, Sony Music, UK

Learning outcomes

  • Evolution of the music industry and parallels between MTV, Apple and Spotify
  • How A&R executives scout and sign artists
  • How the commercial terms between major labels and artists are changing
  • How to think about the risk of a major record label moving from rights owner to pure distributor
  • Why artists now have more power and options to come to market
  • The competitive moat around record labels in the old physical world
  • Spotify’s two-sided marketplace and its role in the ecosystem
  • How major record labels need to evolve to serve artists

Executive profile

Nick Gatfield

Former Chairman and CEO, Sony Music, UK

Nick is a British music industry executive with over 34 years of experience scouting, signing, and working with global artists such as Amy Winehouse. Nick started his career as a musician in the band ‘Dexys Midnight Runners’ before moving into recorded music. At the age of 26, he was made Director at EMI Records, the youngest in the company’s history. Over the next 20 years, he went on to lead global labels such as PolyGram and Island Records and has worked at three of the four major record labels. More recently, as the Former Chairman of Sony Music, he was leading negotiations with Spotify and both new and old artists in the repertoire. Nick currently runs Twin Music, an incubator for new talent, which funds and services new artists coming to market. Read more

Nick, can you provide a short introduction to your background and experience in the music industry?

I am a 30 year plus veteran of the recorded music business. I started my professional career as a musician, as a member of a band called Dexys Midnight Runners. By various osmoses and relationships, I ended up taking an A&R job at EMI Records, back in the mid-80s, after I had had enough of touring. The plan around that was always that I was putting my own band together and I was writing songs. I was explaining to people that I had nearly got the set together.

So I started in the recorded music side and the business side, in the mid-80s, at EMI Records, as an A&R manager. For the benefit of those who don’t know what an A&R manager is or does, A&R stands for artists and repertoire. We’re the people who go out and identify talent to sign and then work with that talent to develop their artistry, their material and really represent the artists within the major recorded music companies. I started doing that and some in-house production, so I worked in the studio with quite a few of EMI-signed artists at that time. As things evolved, I was lucky enough to have a reasonably good degree of success and became head of A&R at EMI in 1987. I was 26, at the time; apparently the youngest director in EMI’s history, for what it’s worth. Probably the worst paid, as well.

I worked with a whole range of artists and, again, we were lucky enough to have a good degree of success, in terms of reinventing the roster. Funnily enough, EMI in the mid-80s was actually in the doldrums. It was still considered The Beatles company. It always has been, which is always great, as well as being associated with Pink Floyd and Queen. But in terms of its recent history, at that time, breaking new artists had been pretty poor and, believe it or not, I was still getting queries as to why EMI dropped the Sex Pistols. From the artist’s community, it was a no-no, although I was at school at the time.

We went through a course of really reinvesting in the roster, rebuilding the artist’s roster and that resulted in developing breaking acts, such as Blur, Radiohead, who I was deeply involved with. We did unusual deals at the time, with imprints, like Food Records. In fact, Blur came via the Food Records imprint, as did an act called Jesus Jones, who is somewhat forgotten now, maybe, but there was a wonderful moment in the early 90s, where Jesus Jones and another act that we’d signed, called EMF, traded number one places in the US chart. I got calls about coming to America and I decided to go to the States in the early 90s. I went for Polygram, from 1992 to the end of that decade. At that time, Polygram was the biggest recorded music company in the world and were very European centric.

I ran Polydor Records there and Polygram Music Publishing. The company was then acquired by Seagram, who also had a small music play, called MCA and has morphed into what, today, is the Universal Music Group, which is by far the biggest music company in the world. By some strange quirk of fate, when Polygram was acquired and they, effectively, shut down the US operation, I had that wonderful moment where I wasn’t allowed to work for a period of time, but I was then hired by Universal, to go back to the UK and I took over the running of Island Records. Again, that was a label with a fantastic history of, obviously, Bob Marley, U2, but had been in the doldrums for quite some time, with regards to newer artist signings. Out of all the majors, Universal was very A&R centric. They were very aggressive about reinvesting and rebuilding the roster. Of course, you rebuild the roster to grow your catalogue, which is the bedrock of your business. We had a very good run with Island Records which, obviously, culminated in amazing acts like Amy Winehouse and Keane.

Towards the end of 2008, I was approached by Terra Firma, Guy Hands, who had recently acquired EMI Records. This was very big news at the time, because it was the first time that an investment business had acquired a music company and saw the value in those assets, beyond the catalogue. I was charged with running a division called New Music, which is really the current artist roster for North American and the UK, which were the two primary repertoire markets. It was a very interesting time, firstly, because it was a very controversial takeover of the company. Music companies have always, basically, eaten their own. Music companies acquired other music companies. There was very rarely a time where a company which had no relationship in music at all, had acquired, at the time, the third biggest major music company in the world. There were a lot of question marks about what they would do with it.

They got a huge amount of flak from the artist community and the existing business community saying, you can’t run a music business, as a banker. It’s a dark art and you’ve got to have the feel and instinct. A lot of that is true, but an awful lot of that is nonsense. There were a lot of practices that we adopted, because of Terra Firma, which I then took on in EMI. Unfortunately, EMI imploded basically, because Terra Firma could not refinance the debt for EMI and EMI was partly broken up, but was then acquired by Universal Music Group and I left and became chairman of Sony Music in the UK.

I kind of ran out of jobs after that point. Apart from Warner’s. For some reason, I never worked for Warner’s; I don’t know why. I went to Sony in 2011 and was there for three years, as Chairman of the company. That was a really interesting period of music. I was entering my fourth decade in the business, but had been in that period, from the mid-80s, right they way through the mid-90s, which was a boom period for music. The mid-80s were incredible and I was a kid who really didn’t know anything about budgets, but I just knew there was an awful lot of money in the business. That was largely driven by the CD boom. CDs started to hit their stride in the early 80s, and you had this huge regeneration of the business, because people were buying their catalogue again, on CD.

It started to slow down a little bit, in terms of that changeover of format and then really hit a brick wall at the end of the 90s, 2000, with the advent of Napster. Napster was the absolute shell-shock of the industry. The music business had actually been guilty of doing this a number of times, where they had looked at new technology or they looked at the new business path and decided it was not for them. They will hand the keys to someone else to build the business and they gave it to MTV in the 80s. MTV totally grew on the back of free content provided by music companies. Music companies paid for the videos, paid to promote them. MTV broadcast them and built this incredible brand, off the back of major music companies’ content.

You could see the same thing happening, at the end of the 90s, when Napster just decimated the business. It’s controversial to say this now, but I think there was an element where Napster was of its moment and music companies had been somewhat cynical about how they were charging for CDs, how they were charging for music and how they were bundling the hit with 10 tracks that nobody wanted, but you’ve got to buy the 10 tracks you don’t want, to get the hit. There was a certain degree of cynicism in there. Of course, the margins were very, very high.

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Major Record Labels: Business Model Evolution

October 7, 2020

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