The Macro/International Music Business: Australian Trajectories and Perspectives in a Global Context

Guy Morrow. The Business of Entertainment. Editor: Robert C Sickels. Volume 2. Praeger Perspectives Westport, CT: Praeger, 2009.

In both its local and international forms, music industry success (measured in terms of profitability) is dependent on successful access to and exploitation of markets of sufficient scale to generate the income necessary to cover production and various artist development and facilitation costs. So few artists and managers achieve viable long-term careers that it is often said of the music industry that “failure is the norm.” Given that is the case in mainstream Western markets (such as the United Kingdom and the United States), with their massive markets, concentrated populations, and economies of scale, the issues facing performers from smaller, geographically isolated contexts such as Australia are considerable. If an artist manager and artist stay and operate in Australia alone, they will only ever be able to access two percent of the global market for popular music.1 However, there are multiple ways in which an Australian artist can break into foreign territories, and therefore, this chapter will put forth the Australian experience as a microcosm that will resonate with most artists who hail from countries that are outside of the larger mainstream Western territories such as the United States and who wish to have an international career. This chapter will specifically focus on two Australian companies: Eleven and Engine Room. These organizations exemplify the notion that artist managers and their companies are rising up the value chain that exists in the music industry and that major labels are looking to buy artist management companies so that they can participate in the income from all five key revenue stream groups: records, song publishing, merchandise, live performance, and sponsorship. The argument here is that there is now more pressure on the artist and artist manager to build the artist’s career in the new online industrial climate, and therefore, some management companies are effectively shadowing record companies through the way in which they are beginning to fulfill many of the responsibilities that used to belong to independent or major record labels. These companies are analogous to production companies that exist within the film industry. Furthermore, this trend within the music industry needs to be located within a larger trend that is occurring in the global economy. In this wider context, successful corporations are increasingly producing images of their brands rather than products, and this has, therefore, shifted the emphasis from manufacturing to marketing. What these trends and changes mean for new artist management and production companies such as Eleven and Engine Room will be explored.

Of the myriad ways in which Australian managers can see their artists’ recordings released in foreign territories, the following three methods have been identified for comparison here:

  1. Signing directly to a foreign independent or major label.
  2. Licensing or assigning the right to exploit the copyright in a pre-existing record to a label in a foreign territory.
  3. Sourcing a deal with a multinational out of Australia and having it released in a foreign territory through an intercompany license agreement.

The Eleven and Engine Room case studies will be considered in relation to the methods outlined here. These entities were established so that the practitioners involved could more efficiently sign their artists directly to foreign independent or major labels and/or license the right to exploit the copyright in pre-existing recordings to foreign labels.

Symbiotic relationships have been formed between Australian music management and production companies and major record labels in foreign territories. These relationships have developed as a result of the problems facing major labels in the new digital environment and the challenges Australian artist managers face when trying to break into foreign markets from Australia. As many record companies downsize by employing fewer marketing and promotion staff, and through outsourcing artist and repertoire (A&R) to freelance producers, an interesting trend is emerging. Some management companies are effectively shadowing record companies through the way in which they are beginning to fulfill many of the responsibilities that used to belong to independent or major record labels. This is enabling these companies, and the artist managers who run them, to play a much greater role within the music industry. These companies are analogous to production companies that exist within the film industry.

In relation to the new Web-based version of the business that has emerged and that has replaced previous business models, influential Australian music manager and song publisher Keith Welsh notes that:

It’s so good that managers and bands can now actually manage so much more of it themselves … there are so many different websites and so many places you can do it … It’s exactly the same problem though because the artists and managers then think “oh my God there are so many more outlets, there are no mainstream outlets now and this means that time becomes a premium and knowing which websites are effective and which ones aren’t becomes a premium as well … The research and education that managers have to give themselves now is far greater than at any other time.

The argument here is that there is now more pressure on the artist and artist manager to build the artist’s career in the new online industrial climate. This suggests that artist managers and their companies are rising up the value chain that exists in the music industry and that major labels are looking to buy artist management companies so that they can participate in the income from all five key revenue stream groups: records, song publishing, merchandise, live performance, and sponsorship.

In some situations, major record labels are streamlining their operations by becoming funding operations that foster relationships with artist management companies, relationships that are similar to those between large film studios and film production companies. This process means that outside artist management and production entities have the responsibility for developing and manufacturing the actual product; therefore, the business models they are employing are extensions of the way in which independent record labels have licensed recordings to major labels in the past. This model suggests that major labels will become funding, marketing, and distribution operations that will focus on producing brands rather than products.

This trend can be located in an historical context. David Throsby notes that there have been important structural changes in the global music industry since the 1970s. He asserts that the independent distribution system that had existed for many years began to break down in the 1980s, and this led to an increasing number of the directors of independent labels agreeing to have their products distributed by one of the major distributors. He notes that:

This trend has continued to the point now where many otherwise independent labels are distributed by one of the major transnationals. In fact it has been suggested that the independent record companies act in a way that serves the potential interests of the majors. They are generally involved in developing music outside the mainstream; if their music is successful they may begin to pose a threat to the majors’ market dominance. If so they may be absorbed by the majors … the relationship between the two types of companies may be thought of as symbiotic rather than oppositional.

The two artist management and production companies that are the focus of this study, Eleven and Engine Room, have taken this already symbiotic relationship between “indies” and “majors” even further. These two companies have been chosen for analysis here because they are emblematic of the central claim that artist management and production companies are rising up the value chain that exists in the music business through the way in which they are operating more like production companies that exist in the film industry. These case studies are also useful for an understanding of how the broader products to brands paradigm shift is affecting the music business.

The majors did not absorb these two companies after their beginning as independent record labels in the aforementioned way; rather, the artist managers who began these companies worked closely with major labels from the beginning. Although the way these two companies operate is similar to the way in which independent record labels have operated for many years, these companies are not miniature models of majors that are either symbiotic or op-positional to the larger labels. These companies are in direct partnership with majors; they take only some of the responsibilities that used to belong to the major labels.

At its most extreme, this production company model would give musicians the freedom to make records on a project-by-project basis by working with the most appropriate practitioners in a production team, rather than them being signed to one independent or major record label for all of their projects. The product produced by the team would then be signed to whichever record label was willing to work with this company in order to market and distribute a ready-made product. The musicians would then be free to team up with whomever they pleased in order to produce their next project. The Australian music production company Engine Room is the company that has gone the furthest down this path, while the operation of music production company Eleven represents a slighter departure from the norm.

The process of signing record deals with multinational companies has frustrated some Australian artist managers so much that they have found other pathways and arrangements. This is because such deals often involve artists “signing for the world,” and when an artist is signed for the world, one multinational company controls their copyrights/intellectual property in all countries/territories. It depends on the individual deal and the company (recording or publishing or combination) as to whether this includes administering performance royalties or mechanical royalties (or both). As will be explained, there is a perception that such deals limit the possibilities for release overseas.

Australian artist manager Todd Waggstaff and music producer/songwriter and Engine Room cofounder Andrew Klippel have worked with a number of different Australian artists who were signed for the world from Australia. Waggstaff notes that because these artists had to go through the label to which they were signed, the artists’ products were neither prioritized nor released in foreign territories. Waggstaff claims that if an artist is signed to a branch of a multinational record company in Australia, the fact that their recordings have to enter foreign territories via the channels this company provides means that there is no bidding war and no discovery process for the A&R staff in this territory. The foreign record company’s employees are simply given a finished record with finished artwork and a finished video clip.

Waggstaff and Klippel started Engine Room in partnership with Australian media tycoon James Packer in order to satisfy their desire to work on recording projects that would definitely be released and prioritized in foreign territories. They became frustrated while working with Australian artists who were signed to multinational companies from Australia; these artists would be blocked by the conventional intercompany arrangement. According to Waggstaff, it is not just a question of the discovery process; intercompany license agreements work against Australian artists who are trying to access foreign markets. He specifically states that:

The reason why you don’t get prioritised is that when the US company releases an artist signed to the Australian company they have to pay a fixed inter-company license rate, 30% is about the royalty they have to pay, so if Warner Australia sign an artist and Warner America release it, they have to pay 30% as the royalty whereas they pay 15% or 17% for local American product.

Australian artist manager John Watson also desires to work around the limitations that worldwide deals with major labels out of Australia cause. However, Watson’s label Eleven is quite different to Engine Room because everything his label does is done in partnership with major label EMI. Discussing the reason for setting up his new label, Watson notes:

What we found is that when we approached major labels with artists and said that we wanted to sign for just this part of the world we were told that it couldn’t be done. When we walked in and said that we’re a label and we want a label deal for just this part of the world they said “yeah that’s fine,” and so in that case we said “fine, we’re a label.”

Therefore, the impetus for the creation of these unorthodox arrangements was the fact that such intercompany license agreements hamper Australian managers’ attempts to break into foreign territories. Furthermore, the Australian experience here is a microcosm that exemplifies a truism that is relevant to artists working in most countries outside of the United States. Artists who want to be heard internationally but who do not hail from or live in this larger territory may find this model a prudent one to follow because at times such intercompany deals render their attempts completely ineffectual. Although the managers featured in this case study still wished to work with major labels, to meet their goals they needed to change the nature of their agreements with the majors.

The particular approaches that these two managers have employed effectively enabled them and their artists to maintain artistic control through the way in which they now, to differing degrees, carry the financial and creative burden of actually producing the product. This product is then licensed to various major record labels that primarily focus on marketing, distributing, and ultimately branding this ready-made product. This trend within the music industry needs to be located within a larger trend that is occurring within the global economy. In this wider context, successful corporations are increasingly producing images of their brands rather than products or things, and this has therefore shifted the emphasis from manufacturing to marketing. Naomi Klein claims that the formula of buying products and branding them, rather than producing products and advertising them, has proven to be so profitable that companies are competing in a race toward weightlessness.

This trend within the larger capitalistic economy, of which the music industry is a part, is enabling Australian artist managers such as Waggstaff and Watson to navigate around the pitfalls of signing and developing Australian artists intended for the international marketplace. On the other hand, this trend is allowing various major record labels to become “weightless” due to the fact that they are no longer burdened with the liabilities associated with record production. In this case, the process of marketing or branding has become their focus.

This paradigm shift can be beneficial for the artists it affects. Watson’s label Eleven offers the artists signed to it the advantages of having more creative control over their products and also of receiving more points. When setting up Eleven, Watson was faced with a potential conflict of interest. When a manager also becomes the owner of the record label or production company to which their artists are signed there is the potential for this manager to receive a label share of the artist’s royalties (and other income) as well as a manager’s share. Rather than paying himself twice, Watson got around this inherent conflict of interest through passing any potential benefits the new structure generated onto the actual artists:

From our point of view the “up-side” we feel that we offer to our clients is as follows. Firstly, because they’re not paying a label share, they’re actually receiving a label royalty which is usually higher than an artist’s royalty. So they’re actually making more per record because the benefit we get from being a label is passed onto them and the benefit that comes to us is generated because our commissions are greater because we’re getting the same size slice of a slightly bigger pie. The second benefit is that we have the control that we want over the marketing and promotion of the records and certainly over the A&R of the records as well … And finally, probably most importantly from our standpoint, it’s our profound belief that having a person behind the desk in New York or LA or London with a direct stake in your career is more likely to lead to your success internationally.

Watson’s artists had a better deal, and he was in an advantageous position because he was commissioning the standard 20 percent of the artist’s income (under the new arrangement this also included the label share of the royalties). However, Eleven still had the advantage of being able to work through a major label’s marketing and distribution networks. Eleven’s artists are also free to sign with whichever label they please in foreign territories. Watson and his artists are therefore receiving the best of both worlds; Eleven has access to the all-important marketing and distribution networks of a major label—it is still closely associated with EMI Australia—while the artists receive more money and retain a huge degree of creative control.

Although Watson set up Eleven as an independent music company, EMI invested in the label. As manager of the successful Australian band Silverchair (a band whose original recording contract with Sony music had expired), Watson was able to bring the band in on the deal and utilize them as “the carrot” to the record company. He negotiated a deal with EMI stating that if they wanted to sign the band they would have to distribute and market the band’s products, accept their terms with regard to creative control, and invest in the label. In this way, unlike Engine Room, Watson has aligned Eleven with one particular major label. This is how Watson was able to get around another conflict of interest that necessarily manifests itself when managers also run their artists’ record company. Australian artist manager Kim Thomas explains the tension and conflict that arises when one person fulfils both roles:

I actually find it difficult being the manager of the artist and running the record label. The only way that I deal with that is I keep my manager’s hat on and I stay over there as a manager and I treat my other partners in the label as a record label. This is because for me it doesn’t actually work because from a record label point of view there are issues involved with marketing expenditure. For example, the record company will not want to spend the money whereas on behalf of the artist you want the money.

Watson gets around this problem because Eleven is run in partnership with a major label, EMI. This major label is responsible for the marketing expenditure, not Eleven. He states:

It’s completely in our interest as Eleven to get EMI to spend as much as possible on marketing our artists and we’re never backwards in coming forward and asking them to spend more because it’s their money not ours and it therefore doesn’t effect our income one bit.

Watson’s position as director of Eleven also had the potential to change the relationship he had with his artists. The relationships between an artist and their manager and an artist and their record company are fundamentally different. Fred Goodman states that, “a manager is employed and paid by the artist, while a record company essentially hires—and as a rule owns the work of—the artist.” By becoming the record company, Watson in a way reversed his relationship with his artists; instead of working for them, they work for him. However, although a superficial assessment of Eleven would suggest that this is the case, Watson is a manager who claims that he has always understood the leverage that he has had at his fingertips through being an artist manager. Watson asserts that although he is now the manager and the record company, the artists are still in charge because they are the only ones who have a trump card to play. He points out that:

I think that the artist could say that they don’t want to make music anymore and then just go home. I think that the artist doesn’t always act like they’re in charge and it’s probably in the manager’s interest that that’s the case often, but I think that when the biggest call comes, the artist is the one who ultimately has to make it. They can decide not to make a video; they can decide not to go on tour.

Watson believes that Eleven’s business model gives the artists the power to be in charge of their own creativity and ultimately their own career trajectory. The paradigm shift from products to brands has led to the generation of a management and production company that enables the people who love making music to get more involved with making music, rather than only the people who love making money getting involved with making music. Gregg Donavan states that:

Sure, the production companies in the movie world want to make money too but I’d dare say they got there because they wanted to make movies, where as this is not always the case with record company guys because they’ve come in from other industries that their parent company owned and they restructure and relocate. They really do just want to make money; they’re really not interested in the art 99% of the time. They always employ someone to act like they care—that’s what A&R guys are.

When artists are signed to a management and production company rather than directly to a record company they belong to more of a supportive artistic community; this suggests that the negative gang-warfare attitude that exists between many artists and bands may become diluted:

You’re opening it up to a lot of collaborations and you’re creating a community, which is the idea of what it used to be. I mean that’s where the term “stable” came from. You never hear anyone using that terminology anymore. I mean those words came from the Motown guys who really believed in the records they made. They were music people. Most of the MDs back then were musicians with business skills. You find a record executive these days who can strum one note or play a beat—I’d be very surprised. But they’ve all got accounting and law degrees.

Watson’s strategy is in line with the argument that major labels will change how they operate simply through becoming distribution facilities much like the larger entities in the film industry. In this particular case, rather than create content in-house through using their own A&R department, EMI and Watson have fostered a relationship together. EMI is willing to let Watson and Eleven discover acts and develop them while understanding that their role will be to brand these products and get them to people—whether through digital means or through the distribution of physical products. However, unlike Engine Room, Eleven has not fully endorsed a film industry model in which major film stars do not do long-term deals with a particular film studio. It is clear that the musicians signed to Eleven are not entirely free to make records on a project-by-project basis in this way as Eleven is still attached to EMI.

Engine Room is more like a production company in the film industry than a record label in the music industry. Engine Room manufactures records completely independently of a major label and then assigns most of the rights to these products to various major labels in foreign territories. The fundamental difference between Engine Room and Eleven is that Engine Room is not aligned with one particular major label and is more like an independent record label. Engine Room signs their artists’ publishing and recording rights for the world from Australia and then arranges partnership deals that involve them assigning most of those rights to whichever label suits the artist or to whichever label gives them the best deal.

Like Eleven, Engine Room maintains creative control. However, creative control is maintained through investing the capital needed to make the records and videos themselves. This strategy simultaneously puts Engine Room in a high-risk situation while also generating their main competitive advantage. Because they themselves carry the financial burden of originating their artists’ careers, major labels in foreign territories are more willing to sign their artists. Once Engine Room produces the records and video clips, they are taken directly to labels in the United Kingdom and the United States, territories that lead the worldwide popular music market. Waggstaff notes that:

We don’t take out artists and develop them here and then sign them into an inter-company license agreement in this country, we take them overseas and we end up being the middle ground. It’s more expensive to sign an artist from us than it is to sign them directly, but then we’ve taken the financial punt and have put up the first maybe half a million dollars, so it takes the risk out of their equation … It decreases the royalty you’d have to pay an Australian artist coming through an inter-company license agreement and it decreases the risk that they would have to take if they were signing a local band.

Engine Room is a 50-50 joint venture between music producer and songwriter Andrew Klippel and James Packer. Packer’s ownership of Channel 9 and other online and print media outlets in Australia is advantageous for the artists signed to Engine Room. There is a perception that in terms of the publicity these outlets can provide, Engine Room’s artists are implicitly (or otherwise) prioritized due to Packer’s involvement. Todd Waggstaff is the company’s manager. Waggstaff and Klippel have spent more time over the last decade working overseas than they have in Australia, and this has given them a deeper understanding of what is applicable to specific foreign territories.

In a conventional record company, A&R staff and other employees do not go straight to the public to sell new performers; the overall marketing process involves these employees selling artists to their own company first, then to the trade, and then to the record buyers. Engine Room has effectively assumed the responsibility of selling artists to record companies. Waggstaff claims that the time he and Klippel have spent working in foreign territories has given them an insight into how to best cater for the subtle nuances of each major territory. He says that they:

Choose artists who are great and who will hopefully transcend current fashion. We’re not trying to guess what the current trend is, but we do know what certain label’s preferences are, we know what individual A&R people have signed in the past and what they have been successful with. We know where there are holes in the repertoire of certain labels that we could plug something into. So it makes our pitch a little bit more precise in that we understand the market, we understand why our artist is relevant to that market and we understand why our artist is relevant to media in that market.

Within 12 months of Waggstaff and Klippel returning from Los Angeles and securing the funding with Packer in a 50-50 joint venture, Engine Room, after developing and manufacturing their records and videos, signed Holly Valance to London Warner, The Vines to Capital/EMI in the United States and the United Kingdom, and Carla Werner to Columbia/Sony in New York. Engine Room’s strategic plan involves establishing a track record via the initial success of their artists. Once a few of their artists become financially successful and they demonstrate their ability as a development and production company, the slightly one-sided assignment of copyright deals they have to agree to in order to work in partnership with major labels will eventually be replaced with deals that are weighted in their favor. This theory is based on the premise that the balance of power shifts with success. Fortunately, The Vines and Holly Valance have become financially successful artists, and their success should lure other major labels into signing contracts that are increasingly weighted in Engine Room’s favor. Waggstaff notes:

We’ll maintain more rights as we move forward … so that our economic model is that we start out giving away a whole lot to establish a track record and then as it moves over time we give away less and less and in a few years time, rather than do a license deal, it becomes a license of copyright, then it becomes a short term license of copyright, then it becomes not a license of copyright, but a license to distribute certain records and so it moves from a deal where all the services of a record label outside A&R are performed by our partners, then it moves over time to one where we become a full service label and we perform all functions other than the warehousing and distribution to retail.

Therefore, Engine Room is building toward becoming a full-service label. While it appears they have endorsed a film industry model through becoming a management and production company that shadows various record companies, they are in fact only using this strategy in order to lay the foundation for Engine Room to become a conventional record company in its own right.

Although Engine Room’s strategic plan suggests that over time the company’s evolution will enable this entity to become a full-service label, the company faces a number of threats. This strategy may well lead to Engine Room becoming caught in a paradigm shift that involves international record companies beginning to focus more on the marketing of brands rather than the manufacture of product. At first it appears that Engine Room has successfully been able to work Australian acts in foreign territories, and it seems that the model they employ has enabled them to come to the forefront of this sector of the industry; however, on closer inspection it is increasingly clear that Engine Room may have simply been burdened with the liabilities associated with record production.

Klein claims that the sports company Nike has become the prototype for the product-free brand. Nike outsources the production of its products to contractors who are located all over the world. Freed from the “chains of production” through employing such an outsourced structure, Nike has an abundance of time and money to constantly create and recreate the Nike brand image. Klein argues that, in Nike’s case, branding has replaced production entirely and that the staggering success of this business model has led to a wider acceptance of the business philosophy of no-limits spending on branding. This means that increasingly there is limited value in simply making things anymore, as value is added by careful research, innovation, and marketing.  Engine Room’s audacity to take the first financial risk through manufacturing their artist’s products themselves forms their present competitive advantage. However, this means that the advantage the record company involved has is that the capital they would normally spend producing records can instead be allocated to the marketing department. This would give the company a distinct advantage over their competitors because in popular music “image is everything.” If this outsourced production structure and marketing focus proves to be successful then the majority of major labels will have to follow this trend in order to remain competitive.

The timing of this trend within other industries, and potentially within the music industry, not only reflects branding’s status as the perceived economic cure-all, it also reflects a corresponding devaluation of the production process and of producers in general. If Engine Room’s current business model became the main model endorsed in the music industry because a series of management and production companies successfully employed it, the competition between these companies would potentially lead to them offering major labels the best deals possible at their (Engine Room’s) expense. Not only would these music management and production companies be burdened with the liabilities associated with record production, the competition would mean that they would have to provide these records at rock-bottom prices. Through outsourcing manufacturing and focusing on brand management, the record company would have a distinct advantage over the music production company.

The products to brands paradigm shift can be detrimental to artists. There is never a guarantee that any particular musical product will see a release because any deal or relationship can fall over. However, if other companies were to follow Engine Room’s lead and emerge as entities that are analogous to production companies in the film industry, the artists who signed to them would have even less certainty that their work would be released. This is because it is unlikely that other music production companies would have the connections required to form a partnership with someone who is as powerful as James Packer. According to Donavan, because Engine Room is making the records and then looking for the marketing and distribution deals, their business model presents their artists with a large degree of risk. As they are not directly connected to one major label like Watson’s company Eleven is, there is the potential that they will not be able to get a marketing and distribution deal for some of the records they produce. Donavan states, “I would not want to sign a band to Engine Room who’s going to make a record for us that might not see a release. I’d want to know that if I was going to sign my rights over to a record company that I was definitely going to get a record out in the marketplace.”

According to Donavan, word would start spreading that this particular artist could not even get their first record released, and the artist would then be many steps back from where they started. The artist would not be approaching other industry practitioners with a positive story.

From an artist’s perspective, Engine Room’s business model represents a risky situation. Engine Room’s business model is also potentially problematic for their artists because the growth this model generates is not organic. Engine Room’s methodology may only generate short-term interest from the record labels they form partnerships with; Holly Valance’s relatively short career is an illustration of this. Engine Room’s business model is analogous to a production company in the film industry, a company that would be free to be associated with any of the major film studios. From the perspective of the record label Engine Room forms a partnership with, the arrangement may become problematic because this business model could breed disloyalty. A brand (music or otherwise) is built over a long period of time. If a music production company and their artists are free to work with major labels on a project-by-project basis, any label that invests in these artists in order to further brand them through their marketing and distribution campaigns is not necessarily going to be there when the overall long-term branding campaign pays dividends. A production company model that is analogous to certain production companies in the film industry may not work in the music industry. This is because music-marketing campaigns often focus more on the artist as a brand whereas, in the film industry, a film’s title is often the focus, and this lends itself to companies that work on a project-by-project basis.

Compared to Engine Room, Watson’s company Eleven represents less of a departure from the norm, and therefore, this venture does not present the participants with as much risk. From an artist’s perspective, Eleven’s business model is advantageous. Because Eleven is in partnership with a specific major label, the artists signed to this company receive a guarantee that their work will be released, they have more creative control, and they receive more points while still having access to this major label’s marketing capital and distribution systems. These artists are also still free to sign with whomever they please in foreign territories. From Watson’s perspective as an artist manager, this arrangement takes care of the inherent conflicts of interest that arise when one person fulfills the roles of both band manager and record company executive.

Without artist management the music industry could not function; however, it could function without record companies due to the substantial number of alternative revenue streams. Influential international artist managers such as Michael McMartin and Jazz Summers believe that the future will depend more on creative managers’ and artists’ abilities than record companies’ abilities. This suggests that artist management and production companies are set to rise up the value chain that exists in the music industry and that these companies are going to form closer relationships with (or be bought by) major record labels. While Eleven and Engine Room were initially set up to address the issue that Australian artists and artist managers operating solely in Australia can only ever access 2 percent of the global market for popular music, broadly speaking, the impact of new technologies on the international music business is leading to the emergence of unorthodox companies such as these, companies that have nontraditional access to the five key income stream groups that stem from contemporary music.

The emergence of such companies has implications for the artist managers involved with them. This is because, traditionally, artist managers have been service providers; they have not been in partnership with their artists. When a manager and artist form a company that enables the manager to not only commission the different revenue streams but to actually have equity in the assets that are generating some of the income, a number of conflicts of interest emerge. In the new industrial climate that is emerging, these conflicts, such as the manager being able to “double dip” by both commissioning the artist’s income from record sales and receiving income because they own the recordings because they are also the record label, need to be negotiated.

When artist managers move up the music business value chain there are positive and negative implications for their cash flow. While they may have equity in the company that owns the musical assets, because they are no longer a service provider who is simply investing both expertise and time in the project, they may no longer be able to receive immediate income throughout the development of the artist’s career. Most of the revenue new companies generate is put back into the running of the company rather than being paid out in commissions to a manager who is a service provider. While traditionally the role of the artist manager has involved them persuading other entities into investing money to develop the artist’s career, the new artist management and production companies that are emerging may require managers to invest their own money. As service providers, managers can still earn commissions from artists who do not have financially successful careers, however, if the artist does have longevity and is financially successful, managers who are service providers are in a vulnerable position in the long term. Furthermore, when artist managers set up partnerships or companies with their artists, this tends to bind the artist and manager together and it is harder to terminate the agreement/relationship. It is not as clear as to how the assets that have been generated by the company are to be split upon termination.

Due to the declining sales of recorded music in the CD format, the representative arrangements discussed in this chapter ultimately mean that record companies are fulfilling changing roles in the music business, while the influence of artist managers and their firms is increasing. This is because artist managers deal with all five income stream groups that stem from their clients’ work: records, live performance, merchandise, song publishing, and sponsorship. While a positive aspect of this trend is that it is leading to the establishment of smaller, more maneuverable companies that can help non-U.S. artists be heard internationally by navigating various pitfalls associated with more traditional business structures, these trends will also potentially have a negative impact on the industry because conflicts of interest will become more common as artist managers rise up the value chain that exists in the music business. The following propositions can be gleaned from this chapter:

  1. Artist managers will increasingly assume the role of the record company while also controlling their client’s live performance income, income from merchandise, income from song publishing, and income from sponsorship agreements.
  2. While artist managers will increasingly find themselves within a web of potential conflicts of interest, because record companies are moving to participate in income from all five income stream groups because of the decline in record sales, they, too, may face numerous conflicts of interest.
  3. The role of artist management will increasingly move from service provision to a situation where the role necessitates owning and controlling the equity in the artistic products/assets.

In the current industrial climate a code of conduct is needed in order to help practitioners navigate their way through this industrial paradigm shift.