“I’m feeling this depression,” said Montreal and New York-based musician Martha Wainwright in December, before embarking on a Canadian tour. “No one’s buying records anymore; we’ll have to go back to the life of a touring artist in the 30s, where they’d sleep upright on a school bus and go from town to town.”

While Wainwright might be joking about the school bus, she’s dead serious about the pain the recession is causing her, and the entire music industry in general. CD sales have been dropping for years now — physical sales declined 8.5% in 2008 — but with more and more music fans tightening their belts, this economic downturn could spell the end of the traditional music industry as we know it.

“The recession will accelerate the demise of physical retail and it may very well increase peer-to-peer traffic,” says New York-based music analyst Aram Sinnreich. “File sharing is for people who have more time than money.”

“Unfortunately, you’ll see a lot more economic decisions as opposed to artistic decisions,” adds Graham Stairs, vice-president of Toronto’s Finkelstein Management.

That means many bands will be left in the lurch as major labels choose to go after the sure economic bet as opposed to investing in something riskier. Stairs says one way the big five labels, who have all seen their stock significantly drop since October, will try to stay afloat is by reissuing albums and encouraging their already successful bands to stick to their tried and true formulas.

Another way the majors will attempt to get the most bang for its buck is by signing artists to “360 deals,” a contract which gives the label a portion of CD and ticket sales, merchandise, digital rights and whatever else makes a band money.

“The legacy businesses are going to have to reorganize around the new reality,” says Sinnreich. “They’ll focus on business-to-business models, converting legacy contracts to 360 deals coordinating between distribution, marketing, tech, and legal to a degree they haven’t in the past.”

Indie labels don’t have the resources to sign artists to multi-million deals, but what they do have is an entrepreneurial spirit that’s key in any economic downturn. Stairs says many Canadian labels have had to be “mean and lean” in pre-recession days, so they’re already prepared to operate on a thin budget.

Sinnreich agrees that indies are well positioned to survive a recession, and adapt to rapidly changing music industry. “They’re not stuck inside of a blockbuster economy, spending millions to make millions,” he says. “What the indie labels need to do is allow their artist to take a larger role in marketing and distribution, getting out to MySpace and Twittering their tour schedules.”

Still, indie bands and labels are suffering. Stairs says that he recently had an American label deal fall through for one of his artists after the U.S. label president told him “I’m taking the deal off because of the economy.”

In the U.K., Pinnacle, one of the country’s largest independent music distributors, went out of business in December, which could force many British indie labels out of business.  “The new economic reality is certainly going to weed out the weaker indie labels who don’t have a firm grasp on their business model,” says Stairs, adding we might see more indie labels merge or engaging in joint ventures with other, non-music, industries.

Though it’s unclear exactly how the recession will affect the music business, it’s a guarantee that we won’t recognize the industry on the other end of this financial crisis. That doesn’t mean the changes will be for the worse. “This period will be a great opportunity for the recording industry to grow,” says Sinnreich. “It’s time to diversify their revenue models and rely less on consumer dollars.”

Part two of a three-part series on how the recession is affecting the music industry. Continue to part two or skip to part three.

Appeared in Metro News on March 17, 2009.

Pic of Marth Wainwright via