BPI chairman Tony Wadsworth gave a keynote speech at the Great Escape Festival to launch MusicTank’s fourth industry report: Remake, Remodel: The Evolution Of The Record Label.  The report, by Wadsworth with Eamonn Forde, is on sale now from www.musictank.co.uk

The following is an edit of his speech.

It was about 1995 and I was managing director of the Parlophone label when the youngest guy at the label thrust a blank CD-R into my hand. It contained, he said, the complete catalogue of The Beatles – the Holy Grail of pop music assets. He had downloaded it from the web. It had taken 20 minutes and cost precisely nothing. After taking a while to process this information, which had been delivered to me in his usual rapid fire verbal torrent, I gradually came to the conclusion that, in the words of Bob Dylan, “things should start to get interesting, right about now”.

MusicTank approached me last year to write a report that looked at the role of the record label and comes at an interesting time: 12 years since Napster; on the eve of the iPod’s 10th anniversary and at a time when the question of ownership and independence of both EMI and Warner Music are permanent fixtures on the business pages. To do this, I decided to conduct a series of interviews with some key players across the whole industry as well as labels big and small. I wanted to get as current a view as possible - not easy in this rapidly shifting industry – and I wanted to represent as wide a set of opinions as possible (whether or not I agreed with them), so I could form my own view as to the role of the label today and what it might look like in a few years time.

This has been an opportunity for me – having worked in labels most of my life – to take the temperature of the industry three years after I left EMI. Being away from the day-to-day realities of a label has enabled me to write with the benefit of a little distance and perspective, to identify the key trends in the ways the industry is shifting to meet its challenges. The advent of the internet has changed the key traditional role of labels in finding and developing talent and owning the routes to market - manufacture and distribution. We can all now make music quickly and cheaply available to the world, within a few clicks of a mouse or a few taps on a mobile.

Given the removal of once-insurmountable barriers, surely the days of the record company are numbered with others now able to fulfill their functions at a lower cost and more successfully?

The shifting balance of power that comes with a radical change in the market can result in factions, dogma and finger-pointing between different areas of the wider music industry and there is clear tension between protecting existing interests/businesses and creating a radically new music industry. But what is striking to me is that across the industry, the appetite for change has never been healthier. The key record company roles of investment, artist development, marketing, promotion and sales are dependent on crucial relationships with artists, retailers and the media. The way these relationships have developed and changed over the years is a telling indicator of how the business has changed. If labels had nothing to lose, change could be more rapid. But life just isn’t that simple.

Not only is the UK record business worth around £1bn pounds a year – it also provides the financial fuel which powers the rest of the wider music industry, with investment in artists and recordings currently around £200m a year and marketing budgets of around £170m. Maintaining a high level of investment in music is, I believe, in the interests of the wider industry for this transformation to be evolutionary rather than revolutionary. Are labels maintaining a healthy balance between protecting the legacy business and developing the new one? Many think this could have been done better – especially in the early years of the market’s development. AIM’s Alison Wenham feels the industry still needs to mature to a point where the market leaders should see their role as flag bearers, facilitators and market openers.

Are market leaders in our industry simply hanging on to what they have got at the expense of everyone else?

Again, Wenham says that she feels that bigger labels in the past were asking for big advance payments from new services and crippling them before they got off the ground – but she feels that this practice is changing and labels are becoming more realistic – (despite recent protestations from the likes of Google who evidently are finding it a bit of a struggle to pay for the use of music). Interestingly, in an example where the legacy business is under threat through the current problems experienced by the HMV chain, major and independent labels are offering to support the retailer and to change a trading model that has existed for decades by dealing with the retailer through consignment – where they only pay the label when they sell a product. Sometimes risk-taking and radical thinking are as necessary in protecting the legacy business as much as in developing the new economy. As well as the financial importance of labels to the wider industry, the concentration of skills and experience inside record labels is apparent, the range of which is arguably more extensive than in any other sector of the music industry.

Artists who sign a record deal look for a partner to add value through the ability to access the services provided by the company. The labels that attract artists are the ones whom the artist feels will make the best partner for them. Sometimes artists will accept less money to be on the ‘right’ label. As artist manager Gary McClarnan says, “Budgets are lower and the need for quality people is more important than ever.” Labels are developing in-house skills in digital marketing and the management of ‘ancillary’ incomes at a rapid rate. They see this not just as a way of justifying the signing of new income streams but also as a way of developing competitive advantage in artist signings.

But what it has also done is make the label, as a business sector, future-proofed and protected from new entrants. One thing that came across loud and clear in the interviews is that it simply isn’t enough for an alternative entity – be it a promoter , or some other type of investor , to offer big money and attractive terms in order to displace the record label. The best investment comes bundled with skills, as many have found to their cost. Artists’ relationships with labels continue to evolve, as we can see by the multiplicity of different variations of deals currently in the market. Pressure from forward- thinking artist managers combined with a willingness by labels to experiment with new ways of working has meant that the ‘one size fits all’ and life of copyright recording deal is no longer the only game in town.

New digital business models present challenges in the dynamic between artist and label to ensure that everyone feels fairly rewarded by the new business. This can be difficult when most models need to achieve scale before they make sense for either party. And that takes time. The onus has to be on the labels as the dealmakers to increase transparency and to share information wherever possible with artists as the market develops. Artists are looking for a spirit of partnership. In a market which has been, on the face of it, in decline in the selling of its primary product (recorded music) for a decade, it probably seems strange for me to feel optimistic. But that is exactly what I did feel at the end of this process.

This move from old to new is a transition that was never going to be smooth. The ability for music to be accessed unofficially, easily and for free made sure of that. We talk a lot about the effects of disruptive technology and how well or otherwise the industry has reacted to it, but it is easy to overlook one basic and very important fact – more people are listening to more music in more different ways than ever before. The problem is not one of demand; it is an issue of how to make money out of it.

Some artists and entrepreneurs have harnessed this technological change to create a world outside of the label structure and enable certain types artists to go it alone without a label. Some have made it work, and some haven’t been so fortunate. There has always been a commercial record business which has existed outside of the traditional label structure but the technology has enabled this part of the business to experiment with new and exciting ways of developing their commerce and we look at several examples of these in the report. Often they are starting from a blank sheet of paper and feel able to take risks and experiment with new models that set a good example to the mainstream sector.

But in my opinion, the rate of transformation of the record label, driven by a fight for survival, has been impressive. Of course, if we were starting from scratch, we may get to where we want to more quickly – but we aren’t. The past decade has seen labels• diversify their business• broaden their skill sets• manage their costs more efficiently• work with a wider variety of more flexible artist deals• and … communicate better with the consumer.

As the market becomes more complex, labels have consolidated their position in their core functions – finding and developing talent and taking it to the marketplace. Only labels do that day in day out and these core functions define them.

So how well are they doing it? And how well is British music competing?

In the UK, in the first quarter of this year , British music made up 63% of Top 100 album sales up from 52% in (the same period) 2010. Also in the singles chart, five of the top 10 were UK up from only one last year. And UK artists continue to sell all over the world – making it second only to the US as an international provider of music. These are the fruits of great talent backed by label investment.

The future is here and is not going away.