December 30, 2009 CSI Music Industry, Part 1: The Crime Scene
First in a series of investigations into the death of the music industry record business.
Background: I went to Berklee College of Music as a conducting and arranging major. I switched my major to music business mid-way when I discovered how lawyers and accountants make the major decisions about the music I heard. I wanted to change that from a performer perspective.
I worked 3 years in the record business and became convinced something was wrong with the record business model (1989-92). When I thought about a career in the record industry in my ability to advance being tied to a degree in law, not business, I became a bit more skeptical and projected what I might be able to do after 20 years in record industry promotions and felt the skills of record industry promotions do not translate into other industries. I then decided I wanted to develop a traditional business career and set out to accomplish a series of goals:
- learn the technical skills of marketing from other industries;
- get an MBA to further build foundational business skills of: accounting, finance, marketing, and management;
- seek professional experience in the widest range of industries and business challenges I could expose myself to; and
- return to the music business with a business perspective
Now in my second decade outside the record industry, I look into the world of music and find a business in atrophy that stumbles around like a spoiled child who had his trust fund shut off and looking to pick a fight with anyone perceived a threat to their party.
Frankly, I am happy the record industry is in this current state. We are about to wrest control away from 3 decades of corporate record thugs. We are now unencumbered to discover more new artists, and discover more ways to connect and share artists and music than ever before. Today there are more business models for an artist to reach an audience than ever before and the opportunity to make a living as a performer is emerging. The record business is dead, but the record business still tries to lurch forward with their 30-year old business model.
How many articles do we need to read about the record industry chance of survival? Here is the first in a series of reviews of the record business that will look at the industry through strategic frameworks that many businesses and executives rely on to frame market opportunity, identify competition, and manage business risk. Let’s look at this corpse and I hope we can all discover this business was dead in the mid 70s and has been on life support, it never had a healthy outlook, and we have put up with a facade for too long.
New posts will evaluate the record business using industry and business frameworks like: Michael Porter’s Five Forces Analysis, the ever-present SWOT (strengths, weaknesses, opportunities, threats) analysis, and Boston Consulting Group Matrix. I’m game for other frameworks to enter the discussion and happy to see how others might analyze this crime and against the music fan, the music artist, and the art of music.
So part 1, the crime scene: did the record business just happen to be at the wrong place, at the wrong time or did they have this death coming to them? Was this a murder, was this a suicide, was it negligence, or was it old age that led to this death ?
Let’s take an initial peak into the record business series of unfortunate assumptions:
- A business model that tried to turn a service into a product
- A product that is a commodity
- A product with a fixed price
- A business competitive advantage that relied on control
- A business that fears technology
- A business where technology destroys supply chain control
- A business where technology destroys marketing channels
- A business where technology destroys marketing vehicles
- A business where marketing does not start with the word “market”,
but starts wtih “pay” and ends in “ola” - Marketing campaigns rely on a retainer with organized crime
- External firms control of distribution channels
- Market access is controlled by external firms
- Industry executives are predominantly litigators, auditors, and lobbyists
(otherwise known as lawyers, accountants, and the Mafia) - No technology investment
- No research and development investment
- A core business strategy is to sue new technology manufacturers
- A core business strategy is to sue technology platforms
- A core business strategy is to sue your target market
- A core business strategy is to own back catalog
- The majority of your revenues come from old inventory
- A core business strategy is to repackage and resell old product
- A core business strategy is price inflation
- A core business strategy is price fixing
I hope you now have a sense for the dark underworld in which we will need to travel to solve this crime. In the next blog post we will look at some initial “toxicology” reports from the scene of the crime and a background check of financial measures that in most business is the accurate way you to assess health.
Throughout these blogs I will also offer some online and offline resources to help further our investigation.
This blog post I recommend the following 3 books:
Payola in the Music Industry: A History, 1880-1991
Hit Men: Power Brokers and Fast Money Inside the Music Business
Dirty Little Secrets of the Record Business: Why So Much Music You Hear Sucks
Reach me through my blog on A Major Consulting
Reader Comments (9)
Toby - nicely written. I have found over the last two years of reading every post and comment on MTT that it's hard to find a substantial ( if size matters :) ) audience that wants to revisit the past when it comes to record labels and their practices / dominance. It seems to be a story that's been told once too often (IMHO, the music industry in over analyzed). The posts that are super popular are the ones that dig out the success stories that demonstrate how artists today are transcending the bullshit of the past (the old industry) to carve out a living. Just trying to help..
Thanks for the comment and your thoughts.
Too often strategies for change or projections into a future state involve an analysis of the past to find missed opportunity and propose incremental modification to the way things are done. In this post, and the series, my goal is to show the record industry business model never worked, it was unsustainable and that any nostalgia should be cast aside.
Money was poured into the record industry to prop up the business model through bribery, acquisitions, mergers, buying back catalogs and content to shore up leaky financials and survived on conglomerates/corporations that needed to siphon funds from other business units to prop up their record labels.
In our current-state opportunity, the artist, the fan, and any business decision should begin by blowing up all ties, tearing up the old model, and moving forward with steely determination. The list I provided was to make sure new ideas and new conversations are not modeled on the way things were, were assumed, and were manipulated.
We now have a new set of alternatives, for example, DJs and radio play are not essential, in the past radio rotation was vital. Social media is the disruptive technology, content is king, and free is the new price point. Certainly the publishing industry is dealing with similar headaches and a good many success stories from a very similar situation to the record industry.
If you can prove as an artist (similarly as a writer or author) that you have great content then marketing and distribution costs are no longer a barrier to your market as they now both have no marginal cost.
The future of music will reveal itself more quickly when we invite completely new perspectives, business models entirely divorced from the past, new supply/demand shifts, and new market awareness. In 2007, Prince gave away 2.8 million issues of his CD, Planet Earth, Sunday editions of London's Daily Mail; Prince lost money on album sales (the traditional measure of success), but went on to sell out 21 shows at London's 02 Arena where he performed a month after giving away the CDs. Those 21 shows grossed $23.4 M.
For new perspective 2 books that should be on every artist and music thinker's priority reading are:
1. The Long Tail: Why the Future of Business is Selling Less of More and his follow up 2. Free: The Future of a Radical Price. Doing a search in the Music Think Tank comes back with 4 results, for this author and new results for his book "Free". Chris Anders, an editor of Wired Magazine, and his two books should be littered across this site as insights we need to begin the new conversations we need. The Prince example above came from page 155 of his book "Free".
Those who don't know history are doomed to repeat it. I am trying to expose the record industry facade. Record companies and their executives are trying to get back to their land of milk and honey and I am trying to advocate that that past was at the cost of the fan and at the cost of the artist/performer. Any artist or performer not willing to learn about the new environment and the changing face of business is ripe to be taken advantage of just like so many and probably deserves what they will get. The artist bares a great amount of responsibility for the record industry situation.
So, let's bury that corpse and start a dialogue on what the new face of music is that provide both the fan and artist a good experience.
I look forward to an even more open-ended dialogue about change. This does not have be a business model where someone gains at other people's loss.
Sorry, the author is Chris Anderson. I fat-fingered his name in my above comment by mistake.
Also, his Twitter handle is @chr1sa
Hi Toby,
There have been 3,700 comments posted on this blog so far, and I had to read (enjoyed reading) every one of them. I can tell you that hitting on the subject matter that you are aiming at is like telling the readers here that the Pope is Catholic. You would have to be living under a rock to not know about "free" and all the other stuff about record labels, etc.. I can barely find an unsigned artist that does not have some sort of free song strategy, etc. Call me on the phone (+1.978.368.1424). You sound like a really smart guy. I am just trying to save you some time.
-Bruce
Tobey, reading this I was transported...BACK SEVERAL YEARS! Every single thing you said (and it really toojk patience to get through it all), has been written and discussed here ad nauseum.
Listen to Bruce. Please.
Ok - to be constructive...go through the posts with the most comments (which i think is a good indicator of relevance), some with DOZENS.
First rule of presenting (in any form): KNOW YOUR AUDIENCE.
It seems that a take on the business of music is an important view for anyone interested to understand modifying the music/record industry is not realistic, but we have to have a completely fresh start.
I am a huge fan of jazz. Jazz, to me, is dead. There is nothing that I will hear that Miles or TMonk or Coltrane haven't already done. Jass to me is more a time piece than a living art form - like Latin. I don't expect to hear new jazz, there are very few jazz releases, but what I can find are places where jazz lives in the live performance and celebration.
I think what Toby outlines above gives insight into all that was unsustainable about the industry. For me to pine about jazz is similar. I look back as a point in time, but can't expect or hope for the same going forward.
I discovered this site about 5 months ago, like most sites, I look at current posts, I don't read the entire history of all posts, not sure I do that on any forum.
There's no need to write a Part 2 unless you're really committed to being redundant, man.
This was more of a laundry list than a forensics report anyways.
...which is GOOD NEWS, right? It means you can divert your creative attention and free time to the much more practical and potentially useful work of answering the question "So What Do We Do Now?"
We no longer need to diagnose the problem. We are faced with the challenge of inventing the most badass and game-changing solutions we can.