In 2004, the beleaguered music business is at a crossroads, the recent mega-deals in the music industry offer the possibility of near-term financial survival and the promise of fresh strategic thinkin

In a mythical moment, bluesman Robert Johnson sang of going down to the crossroads, falling down on his knees and asking the Lord for mercy.

In 2004, the beleaguered music business is at a crossroads, and many industry executives are likely considering a similar choice in their private moments. But Dr. Johnson would probably agree that the Lord helps those who help themselves.

The recent mega-deals in the music industry offer the possibility of near-term financial survival and the promise of fresh strategic thinking.

However, to achieve salvation, management needs to address two systemic problems: anemic artist development and absence of coherent digital distribution and Internet marketing strategies. Without solutions to these challenges, the crossroads may become a dead end.

RISE OF THE INDIES

Artist managers confirm that major labels have largely ceded to the independents their traditional role in artist development.

Conventional wisdom says this is because the costs exceed the benefits. Yet the untidy, uncertain, inefficient and lengthy process of finding, signing, recording, touring and marketing new artists remains an absolute, "synergies" notwithstanding.

While pursuing quick profits from established artists and projects with high commercial potential (such as Columbia Records' recent deal with World Wrestling Entertainment), majors cannot afford to abandon artist development.

The process requires patience and investment, not because artists are flighty but because art is elusive, and developing an audience is tough in a crowded market. But patience and investment at major labels is in extremely short supply.

Revenue forecasting has now become a bi-weekly event at the majors. The truth is no one can really predict how records will sell--no matter what the revenue forecast.

With revenues dropping 30% in three years, executives feel pressure to prematurely terminate new artists who fail to meet these fantasy "projections."

Measured by the current standard, great A&R executives like John Hammond, Jerry Moss, Berry Gordy, David Geffen, Chris Blackwell or Clive Davis would probably have been forced to drop artists who languished early in their careers but went on to be icons after nurturing from their labels.

LONG-TERM FOCUS

Major record companies now frequently cherry pick artists with some proven success on independent labels. These acquisitions often cost more than $500,000, and it is therefore not clear that cherry picking results in cost-savings over time.

The underlying fallacy is that if the independent labels can break an artist on a shoestring, so could the majors.

While WWE records may bring in quick cash, artists with long-term careers bring long-term revenue growth. If cost cutting continues without growth in revenue, the top line will fall under its own weight and collapse onto an organization that struggles to support growth.

I simply do not believe that investors will continue to support an industry with declining revenue just because it's run cheaply. Majors have to take a page from independents and learn to incubate new artists at a sustainable cost.

The music business is at a crossroads. In the words of one of John Hammond's major signings: We'd better start swimming, or we'll sink like a stone.

Christian Castle is a senior counsel with Akin Gump Strauss Hauer & Feld in Los Angeles.