I was listening to the Adam Carolla Podcast a few weeks back and he had the band O.K. GO on the show. They had recently split up with their record label EMI (Billboard story) so it was interesting to hear their frontman Damian Kulash defend big record labels. I’d never really thought much about this but it really made sense to me so I wrote it down:
What record labels are really good for is essentially risk aggregation. It’s a very small percentage of bands that get to the level of being signed and even of those people who’ve gotten past that very high bar only about 5 percent succeed. So, 19 out of 20 fail. If it was your own money, you would be a moron to spend it, because there’s a 95 percent chance that money’s not going to come back even if you’re already at the level that record labels want to sign you.
So, the only way people can make that bet is to conglomerate all of them. You sign 100 band and assume 5 of them are going to succeed and the other 95 fail you just need to make enough back from those 5, which is why record contracts are so onerous in the first place for successful artists, because the money you are now making is paying for the other 95 percent who failed.
Somebody needs to be doing that risk aggregation unless we only want the independently wealthy who are artists.
When you think about it in terms of magazines and newspapers, because all the stories are packaged together they can afford to take chances and to have a few misses in there. And, that’s probably my biggest complaint about them as well. They stopped taking advantage of their unique ability to swing for the fences and whiff a few once in awhile.