iTunes, yet again

Responding to the announcement of Daywind artists now appearing on iTunes, a reader writes to take me to task:

You need to keep up with what’s happening on itunes. The Booth Brothers as well as several other groups have been on it for quite some time. In fact, the BB’s new album was on the itunes main page for a week and they (itunes) put it there without any “encouragement” from us or our record company, Spring Hill. I think the Daywind spin makes it look like it’s a new thing for SG.

This is a point worth bearing down a little harder. I’ve said repeatedly, I think, that my remarks about sg and iTunes usually were made with a “Gaither notwithstanding” caveat - meaning, “excluding the Gaither set (GVB, SSQ, Booth Brothers, Anthony Burger, Jeff & Sheri and so on). But my writer rightly pointed out to me in a follow-up email that my writing on the subject could leave the impression that Gaither called all of “his” artists into the principal’s office and said “get your stuff on iTunes or go to detention.” Obviously, that’s a rather silly suggestions. But I’m not sure I’d go so far as the reader above, who thinks that iTunes is “just another way to distribute product, not a sign of brilliance, pushy management or who you’re connected with.”

Yes and no. Though I doubt Gaither has dictated business policy to the likes of the Booths, SSQ, Jeff & Sheri and others, I also don’t think it’s a coincidence that the sg artists who were first to take advantage of new media provisioning that iTunes offers are heavily indebted to Gaither’s influence - both his raw power as a force in the music world and his example as a businessman. In an industry that is notoriously, perhaps infamously slow to respond to the invisible but real pressures of economic trends (think cassettes and websites here), it may not be overstating it to call the foresight to provision sg content through new media a kind of brilliance.

At any rate the point and significance of the Daywind announcement is, as the writer above implied in one of his messages, not that Daywind is the first to bring iTunes to sg (as the press release seemed to want to imply) but that it’s evidence of Bill Gaither’s business model starting to appear elsewhere in the industry” - namely, consolidation and vertical integration that’s so central to Gaither’s success and the key components to creating value, as BC put it, in the very fragmented sg industry.

I think this is right (and it’s what I’ve been implicitly arguing in favor of for quite some time in this iTunes discussion: using the consolidated force of a label or conglomeration of labels to get sg music on iTunes). If you look at the most successful group(s) that operate beyond Gaither’s sphere, you’ve primarily got Crabbs and then, at a distant second, Greater Vision. What’s common to their success? Both groups have affiliated themselves to varying degrees with networks of people and businesses that give the artists access to exponentially more ears and wallets than they would have had on their own. I’m not just talking about cruises (which is a very pedestrian form of innovation).

In GV’s case, there’s Charles Stanley and various other (inter)national bible conferences and seminars. In the Crabbs’ case, there’s Rod Parsley, Benny Hinn, TBN, to name just three. Taking their cues from Gaither, the Crabbs have begun building their own consolidated universe of cruises, their own hybrid of NQC and Homecoming concerts known as Crabbfest (which is fed into by CrabbJam and the newly minted Ya-Ya Sisterhood of the Traveling Crabbs conference, among other events). And they are quite consciously affiliating themselves with artists beyond sg (i.e. Avalon) while simultaneously acting as quite public patrons of other up-and-coming sg groups (i.e. McCraes), which enhances the Crabbs’ image as both boundary-breakers and patrons to the tradition. Sound familiar? This is exactly what Gaither founded his rise on: patronage and homage to the tradition; bridge-building with prominent artists from adjacent markets; a self-contained, interlocking network of businesses (recording company, promotional and marketing division, production and distribution services) that could capitalize on these alliances.

What is fascinating about this model is that it really calls into question the entire record-label system of artists development and distribution. Gaither and the Crabbs are just the two best examples of how shifting trends in the market and in consumer tastes (toward variety and eclecticism, away from strict boundaries between sounds and styles) are eroding the prominence that labels have traditionally had in the music business (changes in commerce and the economy have also cut into labels’ significance as retail sales have fallen away). If you’ve built your own extensive network of alliances and marketing (which do you think is more effective: a Daywind ad in the Singing News that reaches plenty of people who at best tolerate the Crabbs or a Crabb family email blast to thousands of the faithful?), the label’s value is significantly depleted from the artist’s perspective. In fact, it’s main contribution is distributive, getting product to retail outlets. But even Gaither has proven that distribution can be folded into a larger process (technically, this is called “vertical integration”). Viewed from within a vertically integrated system, producing a record is reconceived as not making and selling a single album but creating and maintaining a brand (i.e. the group) — a process that involves a host of activities including but not limited to the recording of cds. Witness EHSSQ releasing a dvd, a cd, and a devotional book as part of a coordinated effort largely made possible by the consolidated resources that Gaither makes available to his artists.

There’s not enough data yet to prove that Gaither’s model will unsettle anything in any major any time soon, but the Crabbs are testing the idea that it’s possible to bring production of projects, once the provenance of the label as part of a group’s contract, inhouse, leaving pretty much (more or less) only the retail distribution of the project to the label. I don’t think it’s impossible to imagine a time in the future when the Crabbuniverse could expand sufficiently to take on its own distribution. That’s not just because the Crabbs can do it, but because there’s a theory about purchasing patterns that says that the internet has helped solidify these homegrown networks through the use of email and e-letters and websites and e-stores. Consequently, such homegrown networks have dramatically cut into the prominence of retail sales that has historically been what gives labels their power and clout (groups have to buy the product from the label that they want to sell on their website or at their product tables at concerts … the going rate being roughly $5.50 a cd these days). Whereas there was once a time when fans had to either buy the music they wanted from the local retailer (either off the shelf or by placing an order) or wait for the group to come within driving distance, today a fan only has to be halfway ambitious to just say “nevermind” when the local bookstore doesn’t have the cd and the group isn’t coming near them for another six months. Or maybe they never even bother going to the store in the first place. They just order it online (iTunes is just the most recent way, in addition to the older e-stores), or from the group’s website.

Testing this theory, of course, is another thing entirely, and only Gaither has the wherewithal in gospel music to have built a sufficiently expansive self-contained empire to do all his own production, marketing and distribution inhouse. But if (or once) a group like the Crabbs proves it’s possible to do so without the name Gaither involved (or if conversely a group decided to seriously attempt to use the available technology to produce, press, and distribute their own project), the labels could ultimately see their dominance seriously challenged. For an extreme example of what I’m talking about, listen to this recent report from NPR about the almost-literally overnight success of an otherwise obscure rock band, Clap Your Hands Say Yeah, which went from zero to hot in less than two weeks thanks to some help from a few bloggers and an indie rock music website.

Even if the revolution is some ways away, the traditional labels within sg are probably already feeling the pressure of the Crabbs’ deal from other artists and group owners wanting to renegotiate contracts that reduce the role of the label to primarily a distributive one. After all, an average project can run from $60,000 to $70,000 - a price that the group has to recoup (or pay back to the label in retail sales) before it can start taking royalties on retail sales of the project, which in sg almost never happens. Which brings us back to iTunes, however circuitously. For the time being, iTunes sales will almost undoubtedly go back to the label, since groups rarely ever make recoupment. But the real significance of iTunes sales, however small a part of total units sold they may be, is that they introduce an unknown flux factor into the already unstable relationship between groups and lables.

Addendum: Just about the time I was going to post this long post, an email came in from a new correspondent with whom I’ve been enjoying a few exchanges on this topic. Below, I offer some of his words on the subject … a view, as it were, from the inside, if for no other reason than to prove I’m not totally off my rocker:

Here’s the record company issue. The current economics spelled out in the contracts for most artists is a major disincentive. To be fair, this has come about over time as the environment has changed. Most artists sign with a record company with the hope and dream that it will increase their fan base and sales through exposure in the retail market. [The group I’m associated with] certainly did. However, for a variety of reasons, music sales in the retail market have dropped SIGNIFICANTLY for all artists (secular and gospel) over the last two years. In light of this, the SG artist that sells the majority of their product through their own distribution channels (web and concerts) faces an interesting question. Are they better off producing their own recordings (technology, especially for the larger groups, makes this very doable) or going with a record company where the upfront costs are covered, but the incremental costs are significantly higher? It’s a pretty easy analysis. Let me use some conservative numbers. Assume a top tier artist can sell 20,000 CD’s through their own channels (whether it is record company or internally produced). Assume they pay $2.50 more for a CD that they purchase from the record company versus internally produced. That means they could pay $50,000 (20,000 units x $2.50) to produce internally and be indifferent between the two options (the real number can easily be $60,000 - $90,000). That is more than enough to make a decent record. Record companies have quietly agreed with this analysis, but I don’t think they know what to do. Again to be fair, there are a bunch of intangibles that have to be factored in; e.g., mechanical license work, interfacing with radio stations, access to seasoned writers, up front financing, advertising, etc. (do I hear the word “consolidation” blowing in the wind?)

My speculation is well founded. First, it’s good ol’ fashion economics, and human beings will behave accordingly. Second, I’ve worked with several top groups on various issues and I’ve heard them express certain concerns. It’s just a matter of time before the smarter ones do something.

Final point: the way companies create value in fragmented industries is to vertically integrate. That is pretty much what Bill Gaither has done. He has probably done so without thinking “vertical integration”, but that’s what he has and why he’s so successful. Don’t be surprised to see other forms of integration occur in other places.

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