EMI’s change in tune

If anyone in the music industry is still counting on sales to rebound, one look at the year-end results from 2007 should persuade them otherwise. The growth in digital downloads -- the industry’s main hope -- wasn’t nearly enough to offset the plummeting sales of CDs and LPs, resulting in the sixth overall downturn in the last seven years.

The prolonged slide has prompted record companies to package and deliver their products in new ways, ranging from online subscription services to reality TV shows. But these efforts can’t disguise the fact that their main strategy -- placing expensive bets on numerous artists and counting on a few hits big enough to cover all the misses -- isn’t working anymore.

Labels have tried cutting costs and trimming rosters, but it wasn’t until last week that a major record company announced plans to abandon the high-risk, high-reward business model. Guy Hands, a venture capitalist whose investment firm bought out EMI last year, said his label group couldn’t survive if it continued to lose money on new releases. In Hands’ view, EMI needs to become more of a service provider, enabling it to team profitably with acts large and small. And he plans to spend more money finding and developing artists, then trying to build audiences for them using new technology.

Hands offered few details, so it’s hard to judge his plan. Still, at least he’s seeking a fundamental change in the way his company does business. The major labels’ dependence on million-sellers led them to promote artists with a homogenized sound and look that no longer suited the radically changed music market. The audience has been fragmented by the Internet and digital consumer electronics as the supply of music from independent, niche and bootlegged sources has increased sharply. At the same time, the explosion of free sources online has undermined the public’s willingness to pay.

Those changes, along with the ease with which artists of all types can create and distribute their own work, pose a problem for the entire entertainment industry. That uncertainty is one reason for the protracted labor dispute between the Hollywood studios and the writers union. Consumers are entertaining themselves outside the industry’s reach, influenced by peers instead of marketing dollars. If the major record companies can’t count on hit albums selling enough copies to subsidize a whole roster of money-losing artists, how much longer will Hollywood be able to generate a summer blockbuster that can cover for several expensive flops? What will box-office grosses and home-video sales look like when people can download a high-definition movie in as little time as it takes to fetch a song online today?