The relationship between music artists and record labels is like any other: it starts out with love and best intentions, but often ends with screaming, plate-throwing, and difficulty in sustaining eye contact. The key for artists and labels both in protecting their relationship is trying to ensure that their mutual success is as closely linked as possible.

Global record sales have fallen for 8 consecutive years, and while “record companies have wonderful assets, they just can’t make any money from them”. If label profits are significantly diminished, then logically this has a flow-through effect for artists. New EMI boss Guy Hands refers to artists as “lazy” and “overpaid” - which would be surprising to most musicians. An Australia Council Survey found that Australian music professionals (many with a tertiary qualification) earn an average of $17,700 per annum. Even our ‘high-profile‘ artists are more likely to be fretting over the minutiae of their touring budgets than sprawling in VIP rooms inflicting themselves with Colombian flu.

As recordings are being distributed digitally - and more and more often for free or at very low costs - it will be interesting to watch how the industry lines are redrawn. Jack Valenti said in 1982: “I say to you that the VCR is to the American film producer and the American public as the Boston Strangler is to the woman home alone.” The VCR may have posed a temporary (and surmountable) threat to the studio system, but the American public had never had it better. It’s the same with music - the public have access to more music through more channels than ever before. It influences artistry too: everyone you meet after midnight in the inner city is in a band (unless you’re in Melbourne at the wrong end of King Street, in which case they may also be in a gang).

The upside of the new era for music is that you can record a song at home on your affordable Pro Tools rig, release it on iTunes through your digital aggregator, post it on your MySpace, get it blogged by music fans around the world and voilà – you’re suddenly an international artist with no overheads, no label to share royalties with, and a fan base with a disposable income they haven’t expended on records and which they can use to buy tickets to your show. I accept that this is both a simplification and a ‘best case’ scenario; there are many artists who don’t have recording skills, the chutzpah to promote themselves, the connections to get their music synched, or the ability to turn the amazing sounds in their head into saleable music – but it is a possibility that didn’t really exist 8 years ago.

The label response has been to move towards ‘360’ deals, in which a label invests in an artist in exchange for a share of all their income streams, including touring, merchandising, publishing and recording. Why didn’t labels always take a cut of everything? Record companies didn’t really need other royalty streams – if an artist was selling records then the label was making a killing, usually without sharing royalties with their artists. Guy Hands noted that artist advances for record deals were “far too large” – but as Verve manager Jazz Summers pointed out: “you only have big advances because you are not getting any royalties”.

The ‘360’ has caused much fear in artist and artist-management circles. In the past you’d take a recording advance knowing that the record company would probably never pay you another dime, because you would make your living from the touring, publishing and merchandising income which were driven by the record sales. Now the record company wants to pay you the same advance but take a cut in everything? It sounds preposterous but isn’t necessarily so. In principal this should’ve happened a long time ago - a large investor (some labels will comfortably spend $250,000 on ‘breaking’ a new act in Australia) would logically seek to share in all the income streams generated by their investment - but labels need to be partners in the exploitation of rights, not owners of the rights themselves. This means that deals should be “joint ventures” between the artist and the label as opposed to “deeds of indenture”. Artists should only cede rights to an income stream if the label is going to help drive that income stream. For live income that might be providing a handsome tour support fund, a tour marketing budget, a Rolling Stones support, or otherwise doing something with an income-generating effect that justifies an income share. In this regard the roles of managers and record labels are becoming more and more alike, save that labels often have better access to funds.

The difficulty for artists is that because few outsiders properly understand the drivers of music revenue streams, there are relatively limited options. The inherent risks attached to music capital means that major labels have long been the only well-funded, surviving venture capitalists in the record-making business. The key to doing deals from an artist’s side is to not incentivise everyone to the extent that you slice yourself out of the pie; no one is going to fund an artist’s project out of philanthropy, but similarly the novelty of touring and making records wears off after a while if you are permanently broke.

Contrary to some thinking, labels aren’t dead and the music industry is leaner and sharper than it ever has been. If there isn’t a 6,000+ capacity festival on in your state capital this weekend then it’s a rare weekend. To date, artists have adapted to this new regime quicker than labels, but given the collective intelligence and street smarts of music entrepreneurs, it won’t be long before a new status quo settles. It is said that there are only 8 different stories in the world - but in the music industry there is only one: Faust. It’s just that you sometimes have to make a pact with the devil to get what you want.