Economies of Scope and Scale: Pearl Jam

In the heyday of the music business, record labels were important and successful because they could offer two advantages to musical acts: economies of scale and scope.

In the 'old' days getting potential consumers to know about you and your music was very difficult. Big record labels were able to offer a world wide distribution network that worked because the label was able to sign numerous acts and 'scale up' the operation, meaning that they were able to build a huge PR department because of the size of the artist roster and this allowed them to become very efficient at what they did. The also had economies of scope, meaning that they not only got records in stores, provided posters and promotional material, they got the music out to radio, helped artists book venues and TV appearances, and so on, and all of these different activities were mutually beneficial.

The thing is that all of these scale and scope efficiencies were a result of the difficulty of distributing and promoting music. These days the internet and digital music files have almost completely obliterated the source of these advantages and so it is no wonder that the old music industry is in trouble. New bands are using new media more often to reach out directly to fans and to establish an audience. It is still not and easy thing to do by any means, and thus the vast PR shops of the record labels still have a lot of power, but much less so than 20 years ago.

Now established acts are starting to think about whether they need labels at all. In perhaps the biggest move that highlights the shifting economics of the music business the band Pearl Jam has cut the middleman and is releasing an album by itself - in other words, not using a major label. It will be interesting to see if this path breaking approach catches on, for the other thing a multi-album deal on a major label does provide a bit of risk insurance. Consider R.E.M.s five record deal with Warner Brothers in 1996 that paid them $80 million. This was at the height of their popularity and subsequent sales have been disappointing. If Pearl Jam's sales fall short, they are the ones taking the hit, not a big record label.

By the way, the new album is fantastic, in case you were wondering. I even found my way to a Target so I could actually by the physical disk. Call me sentimental but iTunes joust doesn't produce that same level of excitement I remember from my adolescent years where going to the record store and actually holding the album was a source of rapture. Bringing home the album (yes, they were vinyl in my youth) and pouring over the art and liner notes while listening to it was sheer joy. I am also old enough to remember Mother Love Bone at the Satyricon, the Vedder-fronted Mookie Blaylock at the Melody Ballroom and then the overwhelming rocket to stardom that soon followed the release of their first album as Pearl Jam. Boy I am getting old quickly - fun then to have the band playing like a bunch of teenagers on this album, albeit exceptionally talented teenagers...makes me feel young.