Out of Touch CEO

•November 27, 2007 • Leave a Comment

Reading this Wired interview with Universal chief Doug Morris really brought the point home that the industry’s top brass have no idea how to bring the industry into the digital age.  It would be sad to watch if it wasn’t so maddening to witness.  The quote that really hit home for me:

There’s no one in the record company that’s a technologist. That’s a misconception writers make all the time, that the record industry missed this. They didn’t. They just didn’t know what to do. It’s like if you were suddenly asked to operate on your dog to remove his kidney. What would you do?

Perhaps Mr. Morris should take a walk over to his IT department to find all the technologists who have been completely ignored throughout the industry’s collapse. Unfortunately the tech guys aren’t considered a strategic part of the business, and Mr. Morris’s comments underscore the fact that the executives are so scared of technology that they don’t engage that part of the staff.  And the industry continues making bonehead choices and complaining that there’s nobody to help give them good advice.

Instead they invite snake oil salesmen who cater to every wish the execs come up with: protect the content, get us paid for any possible use, or find a way to save the disc. But snake oil is always worthless, no matter how it’s spun to marketing types who don’t grasp the underlying tech. Even worse, when these types of initiatives hit the market place, the industry further alienates paying customers while not meeting their own objectives. Unfortunately, this Wired piece does nothing to make Mr. Morris look enlightened in the face of change, despite Universal’s new approaches this year.

And to be honest, the new approaches aren’t enlightened by any real degree. As Wired notes, DRM-free downloads are being used to try and bludgeon the iTunes hegemony rather than capitulating to demand.  Wired further mentions Mr. Morris’s Total Music initiative, which essentially would create any alternative ecosystem to the iPod+iTunes where the key difference is music rental rather than file ownership.  In the chance that Total Music does take off, how many people really believe Amazon’s MP3 store will continue?

Jermaine Dupri: Another iPod Generation Hater

•November 20, 2007 • Leave a Comment

Wow, it must be nice to live in a world that doesn’t intersect with reality. Jermaine Dupri wrote a post on HuffPo yesterday talking about Jay-Z and how iTunes is destroying the biz. He reasons that Jay-Z should be lauded a hero for refusing to sell single downloads and has proven the iTunes model wrong by virtue of 425k first week CD sales.

Mr. Dupri further comments: “If anything, WE made iTunes. It’s like how we spent $300,000 to $500,000 each on our videos and MTV and BET went ahead and built an entire video television industry off of our backs. We can’t let that happen again.”

It’s a great line, but there’s revisionist memory here. Does anyone really believe the record business threw that kind of money into videos with no payoff in mind? MTV, at the time Mr. Dupri describes, was directly fueling millions of record sales which behooved such lavish productions for music videos. Music videos, until recent memory, were regarded strictly as promotional material and music industry myopia truly allowed companies like MTV to flourish.

Looking back to the music landscape in 2003 when iTunes Music Store was born, Apple was the digital music hero. For the first time, the industry saw revenue from digital files but considered it nothing more than gravy. But iTMS continued growing at double digit percentages, and now the industry has decided to consider Apple the new enemy. Mr. Dupri makes the mistake that many other industry commentators have made: that Apple needs the iTMS for the iPod’s success.

Quite simply, that’s wishful thinking. Apple saw the opportunity to upsell their profitable iPod customers with legitimate music files, and built a platform that made it easy to do so. But if content creators abandon iTMS, Apple is unlikely to lose iPod sales whereas the millions of music industry revenue would dry up. Where’s the upside when no other download stores have proven successful? I could see the industry collectively doing something like this, but the old saying about cutting your nose immediately comes to mind.

The Ol’ Music Biz

•November 19, 2007 • Leave a Comment

The music biz has been an interesting ride for the 5 years I’ve been around it. I think it’s an exciting time for music, since I’m starting to finally feel the waves of change. There’s no firm footing in the online space, and this has lots of record label people terrified. All they see is the year over year declines in unit sales and unabated piracy, with no light at tunnel’s end.

Compound the CD sales problems with retailers who are starting to reduce floor space, further compounding problems. Now you’ll only be able to find marketing priorities at the store, rather than a fuller catalog.

But I have other confidences that this business seems to lack. We sell a cool “product” and it isn’t the compact disc. It’s music, an intangible item that touches the deepest portions of us. There has never been higher demand for music, despite the all-too-common statement “there’s only 1 good track on a CD”. Millions of P2P users sharing billions of songs each year belie such a comment.

If there was absolutely no demand for music, I’d be concerned for the future. But Apple proves that music is still chic, even though the industry has decided to demonize them. Music is the fuel that helped drive broadband growth, even though the business hasn’t found any benefits to that. So the problem isn’t in the demand, but how to make a profitable business out of it.

But many of the business managers tell you how difficult it is. They’ve been used to selling music a certain way, and an entire edifice was constructed around it. So they list all the roadblocks you will be stopped by. They’ll tell you about publishing issues, royalties complications, territory rights limitations, or even artist reticence.

But it’s all based on music as a physical good. And the march of progress will soon relegate the music CD into niche status. The greater public has already moved on, and those business problems will soon be moot.

So we can’t be so hindered by our past responsibilities. It’s not that I’m unsympathetic to these concerns, but these cannot prevent us from nurturing and creating the new music business. The secret, in the larger picture, is that the new business isn’t all that different from the old one.

But more on that in another post…

WMG CEO Revelation

•November 14, 2007 • Leave a Comment

Here’s some welcome sounding news: Edgar Bronfman, head of Warner Music Group, tells a mobile conference that the music industry was wrong to forestall the burgeoning of online music.  The admission is somewhat surprising, considering Warner’s recent public strategy.  They have twice recently been in the news for refusing to license DRM free music: Amazon.com’s download store has no WMG catalog and Nokia also hasn’t been granted a license.

Also much of the blog comment chatter has been less than supportive.  While I would rather see actions more than words, I hope this means we are turning the corner on the bullheadedness regarding digital distribution.  If we have started this war against our customers, it’s time to change course and win them over.

In my role as armchair music CEO, the first task would be to declare an end to the RIAA litigation against file sharers.  If this is indeed an “inadvertent” war, Bronfman’s admission could serve as the cease-fire.  The public’s appetite for music is a good thing for our industry, and we just need to forge new alliances and relationships to monetize this hunger.  The lawsuits should be a last resort when good faith discussions are impossible, instead of the first negotiation tactic.  This alone would generate goodwill among forgiving music fans.

The road to recovering a healthy music business will be difficult, but I hope that today’s comments signal the dawning of our rebirth.  And I must commend Mr. Bronfman for showing his leadership and taking a difficult step of publicly admitting mistakes.  Integrity has been overshadowed in much of our culture, so it’s refreshing to see an industry leader show some spirit.

Back from the ashes…

•November 14, 2007 • Leave a Comment

So I’m feeling compelled to reopen this blog that I abandoned last year.  Another year has passed and the Music Industry looks like it’s in more dire shape than ever.  Unfortunately, exactly how I’ve expected it to work out.  It seems the calcified leaders of this business still haven’t gotten desperate enough to try something radical to reinvigorate revenue.  There’s money out there, but the industry seniors are too busy trying to force everyone to play in their once-cool sandbox.

The sandbox has given way to a whole new playground, and the time to fix this shit is now.  Let’s see how my blog can help me gather my version of how to make this music back into business.

Music Monopoly?

•November 30, 2006 • Leave a Comment

Over at the Digital Music blog, Grant Robertson has an interesting take on comments by UMG CEO Doug Morris defending Universal’s strategies in the digital music market. Grant compares the music industry back to the days when AT&T had a monopoly in telephone service. He concludes that the music industry is in the same predicament as when Ma Bell was divested.

I do quibble with the analogy about AT&T since that was a result of government intervention rather than a paradigm shift in technology, but Glen does raise an interesting argument. If the music companies face the same dynamic as AT&T, he concludes:

Lower costs to consumers, wider competition and a broadened, democratized playing field. That, not piracy, is the bigger threat to Universal and the future of major labels.

There are some key differences between Ma Bell and Big Music. As I already mentioned, the government intervention changed the landscape in telecom. But the music industry is not without competition. Even though the oligopoly does act as one in terms of pricing and access, each label is competing for sales, chart positions, and promotion. There is definite sibling rivalry among the labels.

However, I would agree that piracy itself is not the biggest threat the music industry faces. Technology has forced through a paradigm change in music distribution but the big problem is the music industry’s refusal to adapt. Like AT&T’s monopoly, the music oligopoly does act to limit change and this has created a stagnant market, much like Ma Bell’s.

Negotiating in Public

•November 29, 2006 • 1 Comment

I question the wisdom of publicly stating that you want a piece of the iPod action.  As I expected was the case, UMG’s Doug Morris said yesterday, “The Zune (deal) was an amazingly interesting exercise, to end up with a piece of technology.”

Does such a pronouncement give you leverage over Apple when the iTunes Store re-negotiations are on tap for next year? There are short memories among these guys, I guess. After all, the last time music labels tried pushing Apple in public, media darling CEO Steve Jobs called them greedy and was generally lauded for it by the public. At least then, Jimmy Iovine of Interscope said that not enough people converted to the legal digital music market and Universal came off as the pragmatic part of the bunch.

Now we all know Microsoft needed UMG’s vast catalog in order to even begin competing against the iPod/iTunes juggernaut. It makes sense that they’d pay up Universal’s levy demand (this is hardly your normal royalty payment). Apple, however, has very little incentive to agree to a tax when they have sunk millions of R&D into their hugely successful iPod, developing a top notch experience in purchasing music via iTunes, and for successfully providing a new revenue stream to music industry coffers.

Considering Apple’s secretive nature in conducting business, this is probably a bad direction to go in. Remember, the RIAA and their massive lawsuit campaign destroyed any good will with the public. On the other hand, Apple has one of the strongest brands on earth. End result is the music industry looks like a bully (again).

The question becomes, does Universal’s catalog have enough importance to depress sales of the iPod? It’s doubtful considering that the bulk of music loaded onto iPods is not from the iTunes Store but from CD rips, P2P/IM, or offline sharing. This sounds like a case of cutting your nose to spite your face.

We would be better served tackling the concept of legitimizing our customers’ behavior with file sharing instead of focusing on how to keep them herded in our small fences.  While the demand for recorded music has never been higher, the industry leaders keep acting like their old rules still apply.