The days when the A&R person from the record label mysteriously landed at one of your shows, offered you a record deal, drove you away in a limo, and eighteen months later you were on MTV Cribs, are dead over.

If you are hoping to get a record deal someday - forget it!  

Guy Hands, the man running EMI (one of the four major record labels), writes this in a memo to his staff:  “EMI currently has 14,425 artists on its roster…  EMI tried to break 1,300 artists globally in 2007…  Only 3% of the 14,425 artists are currently profitable...  The roster is too large and the number of album releases are too many, to apply proper focus or expertise…  Sadly, between 1,500 and 2,000 jobs will have to go.”

Even sadder, the 3% (artists) that are profitable are probably going to leave EMI when they legally can, and most of the other 97% are legally bound, tied and strapped to EMI for years to come.  

Every record label is cutting back, CD sales are plummeting, the rate of growth of digital music sales is slowing, and the theft of music is at all time highs; even music publishing companies are halting cash advances that cost more than a New York lunch.

Although the consumption of music is exploding, the new business models that are fueling the growth in consumption are built upon low-margin, high-volume models that pay in fractions of pennies instead of multitudes of dollars.

The current realities of the music industry dictate that you will never be offered a record deal.  Stop hunting for a record deal, you are wasting your time.  You should erase the term “record deal” from your head.  In fact, when I get notes from artists about “record deals” I want to pound my keyboard and scream.

With the exception of contracts that come from a handful of dealmakers, if you know someone that got a record deal yesterday, it’s not a FerrariHummerEscalade deal, it was a contract to tie up the rights of some unlucky artist while he looses money over the next three to five years; because he was too desperate or too uninformed to do something on his own; instead he opted to join the unprofitable 97% that are tied to boat anchors.

You have to learn to be self sufficient, and if you do everything right, there will be dozens, if not hundreds of companies that may offer you an opportunity that is cutting edge, artist friendly and relevant to what’s going on the marketplace, but it won’t be a record deal!  Here’s what you have to look forward to, and what you have to do to attract interest from investors:

Single Song Investments
I wrote a post several months ago that talks about Cool Streams.  Cool Streams are roaring onto the scene.  Everyone from Last FM and Pandora, to Apple and Yahoo and Slacker, to every wireless company on earth will be in the Cool Streams business.  Music streaming that is supported by advertising or paid for by subscriptions is one of the ways songs will generate (micro) income.  Getting your songs into Cool Streams should be your primary goal.

There will be a multitude of companies (notice that I don’t specifically say “record labels”) that will learn how to rapidly process global music activity data.  This information is all of the music data worldwide that can be collected, sorted and analyzed.  This analysis will tell song investors where the great new songs are.  If one of your songs “pops out” on a report, you may be offered a Single Song Investment contract.  This contract will guarantee that your song is promoted to the fans that are building their own personal Cool Streams of music.  Single song investors may also offer you a cash advance in exchange for sharing in your song revenues (including downloading revenue - which I believe will be overtaken by streaming revenue by 2013).

I will go out on a limb and say that within five years, the Song Investment and Song Buying process will turn into an auction whereby song buyers will compete for the best songs.

To qualify for a Single Song Investment contract, to pop out on a report, here’s what you have to do:

First:  You no longer need to worry about filling a CD with a dozen songs.  You need to work with a producer to repeatedly improve your three best songs.  If your best songs cannot compete TODAY with the best songs in your genre - then forget it.  A record label is NOT going to parachute in and help you improve your demos because you have a great voice, twelve songs and wild hair.  If you can’t find a way to dial in a couple of songs with a producer, you will never appear on the radars of song investors.  Find a producer / engineer that has the balls to look you in the eye and tell you which of your songs are great, which songs suck and why.  Anyone telling you that you have some “good material to make an album” is stuck in 2005 (1994).  

Second:  Unleash your songs.  The most fd up thing I witness - in the entire music world - is the artist that had six (or even six hundred) plays on MySpace yesterday, but he doesn’t enable free downloading of his songs.  To pop out on song buying reports, you need to have POSITIVE data.  You will not generate positive data unless you are in the computers and iPods of 250,000 to 300,000 people.  You need to be played and enjoyed (repeatedly) by a shitload of people to generate positive data.  Stop worrying about file sharing.  You will be lottery lucky if everyone decides to share your songs “illegally”; it will be the best thing that ever happened to you.  

Summary: The combination of a great song + rapid file sharing is the only thing that will make you go through the roof quickly.  If your songs suck, nobody will share them.  If your songs can’t be downloaded within one click, you are slowing down the promoters (pirates) that give you the best opportunity to POP OUT ON SONG BUYING REPORTS.

Music Venture Investments
Also loosely referred to as 360-degree deals, a Music Venture Investment is an investment that is just like a venture capital investment in a software startup.  In a Music Venture Investment, the artist pledges all his rights, services and income streams to his own corporation.  A music venture investor (not necessarily a record label) makes an offer to invest capital into the artist’s corporation in consideration for obtaining a percentage of stock in that corporation.  Essentially, the music venture investor and the artist become partners.  The money that goes into the corporation is used to create and promote product.

As noted above, all income streams are pledged to the artist’s corporation, including: music revenue, publishing revenue, streaming (also publishing) revenue, merchandise revenue, advertising revenue and sponsorship revenue.  Once the music venture investor makes an investment, his interests and your interests become aligned; what’s good for you is good for him, and what’s bad for him is bad for you.

Since investing in music is currently (and probably always has been) such a high-risk investment (just look at EMI’s numbers above), artists will have to jump a lot of hurdles and pass a lot of tests to qualify for a music venture investment.  

To qualify for a music venture investment you will need to demonstrate that your PLAN has massive upside potential, and that you have an elaborate (but elegant) plan that will mitigate risk.

Demonstrating that you have massive upside potential these days goes way beyond boasting that you can pack a dozen nightclubs.  Music revenue is dropping and just about everything outside of touring that generates revenue will happen on, or be a consequence of what you do on the Internet.  You will have to show that you can translate the popularity of your music and your Internet activity into just about every revenue stream mentioned above, including advertising and sponsorship revenue.

If you’re saying to yourself: “shit, if I can do all that, what do I need investment capital for?” you’re partially right.  Music venture capital will be available to multiply the effort you are proving out on a small scale.  If you can demonstrate that you are running on all eight cylinders, that your team and management is smart enough to pull in revenue from all sources, and that you only need to put gas in the tank to go global, then you may qualify for a music venture investment - to scale the measurable effort you are already engaged in.

Finally, you will have to show that you can mitigate risk.  This differs from demonstrating upside potential in this way: big upside swings from sudden exposure, from massive YouTube numbers, from overnight download explosions, from MySpace popularity, or from five minutes of television fame don’t always translate into cash.  You will have to show that you have a three-year, levelheaded plan to translate fickle popularity into a profitable business.  The best way to do this is by first surrounding yourself with the right team, and second, by demonstrating that you know how to be entertaining on the Internet; which once again, involves creating an elaborate plan.  

Conclusion
Record deals are done and/or pointless.  Single Song Investments and Music Venture Investments are the way of the future.  A small single song investment may lead to a larger music venture investment; either way, you have to stop looking for a “deal” and start setting the stage to attract an investment.