Industrial Evolution vs. Revolution

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In this rapidly changing market climate logic would lead one to assume the record industry would be adopting dramatic changes in its business model.  However, the recording industry’s business model has remained largely the same since Emil Berliner developed the gramophone in 1887.  Berliner’s improvements over Thomas Edison’s Etching Tin enabled the device to mechanically reproduce sound from a flat record rather than a tinfoil cylinder.[1] A flat record that was easy to mass-produce.  Berliner’s innovation thereby created, quite literally, the record industry.

While the medium of storage has evolved from records to 8-track to tape to compact disc and so on, the fundamental business model has remained.  The traditional major label model is as follows: (1) recorded music is placed onto a mass-producible object (e.g. compact disc); (2) the physical components, such as jewel cases and inserts, are manufactured; (3) the record is distributed to retail outlets; and (4) the record label promotes and markets the album.[2] The traditional model is wholly dependant upon the physical distribution of a tangible and mass-producible good to make a profit.

Recent technological advancements have made the traditional major label business model cumbersome and archaic due to the fact that physical distribution is obsolete where the same good can be delivered in a more efficient and timely manner through the Internet.  As a result, some forward thinking record labels are shifting to a non-physical model.  There are many benefits to this new approach.  For instance, the costs associated with manufacture, distribution, and use of retail outlets to sell physical goods are entirely eliminated. Furthermore, manufacturing miscalculation costs are removed because there is no possibility of underproduction or overproduction.[3] In addition, it was common in the industry for retail stores to return unsold records to the labels, thereby adding a substantial expense to the traditional model that is entirely avoided in this model.  Finally, consumer access greatly improves as the content is available anywhere at anytime online and digital products are never out of stock.  More and more consumers have grown accustomed to this immediate and omnipotent access to music via technology like Apple’s iTunes Store and Amazon.

[Photo by b0r0da @Flickr]


[1] See http://communication.howstuffworks.com/analog-digital1.htm (last viewed 4/23/2009).

[2] Patrick Fogarty, Major Record Labels and the RIAA: Dinosaurs in a Digital Age?, 9 Hous. Bus. & Tax L.J. 140 (2008).

[3] Id.




*Ian Gibson, Esq. is an attorney licensed to practice in the state of California. This article is for informational purposes only and is not intended to constitute legal advice. Visiting iangibson.com does not create an attorney-client relationship. This material may be considered advertising under applicable state laws. Copyright © 2012-2013 Ian Gibson, Esq.

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