"Believing you can control consumers' internet behaviour is a fallacy"

More thoughts on a future music industry with Artists at the centre.

Lessons From The Industry Formerly Known As The Record Business

It has been far too long since I've written on this blog – nearly 18 months. Having been busy doesn't quite cut it, but the piece linked below, co-written with Brian Message, is a continuation and a rather more considered version of the last post I wrote here.

With thanks to the Harvard Business Review for publishing it (the title is theirs, but works I think) I give you...

Lessons From The Industry Formerly Known As The Record Business

Rights vs Relationships. Commodities vs Assets

In the past, value in the music industry* was measured by the acquisition and exploitation of rights. Per unit selling of songs is easy to understand and for many years was the basis of a successful business. The bonus was that it didn't require a direct relationship with music fans.

Artists and songs were almost interchangeable commodities – if an artist failed to deliver hits they could be dropped because there were always others to take their place.

However, the value of recorded music is in decline and we have a generation who don't see why they should pay for music at all. So is this thinking sustainable for the future?

What if we built a business that placed all its value on relationships instead, truly treating artists as assets, to be nurtured and grown and leveraged over time to deliver profitable returns whatever the 'art' being sold?

Valuing relationships helps create empathy with the ultimate customers – music fans.

These are two fundamentally different views. I don't think they are compatible. They are as radically opposed as the views of the Flat Earth Society compared to those who live in the real world.

The key question in 2010 is which one works best?

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*for purists, by music industry I mean specifically record industry.

The unstoppable collapse of an empire

I haven't written here for over two months. Apologies. I've been thinking a lot, talking to people, and reading.

This essay by Clay Shirky is a terrific analysis of why complex societies collapse – do read it. He explains that it is the very complexity of a society, or empire, or indeed industry that prevents it from being able to adapt to a changed environment which in turn leads to complete collapse.

I've been pondering this in the context of the music industry.

Of course, there is no such thing as the music industry per se, as neatly explained by Steve Redmond here. Nor is there any such thing as the record industry – the many independent labels and the four majors each run their own businesses and compete with one another.

However, this is the sector currently facing the most dramatic change. The historic market of selling music on plastic discs is arguably in terminal decline. And the structures of many of these companies are undoubtedly over-complex.

Maybe we should accept that some are simply unable to change and will perhaps disappear. But is this such a scary thought?

Shirky ends:

"There is one compensating advantage for the people who escape the old system: when the ecosystem stops rewarding complexity, it is the people who figure out how to work simply in the present, rather than the people who mastered the complexities of the past, who get to say what happens in the future."

Selling records aside, how might you structure a music company rather than a record label today? Starting from scratch, without the baggage of the industry of the past, are current complexities necessary? I don't think so.

Simply build businesses around amazing artists making amazing music.

What will the music industry as a whole look like in 5 years, or in 10 years? I'm not sure. But the opportunity to have a hand creating the future is extremely exciting.

As a total aside – I'm reading this brilliant book by Seth Godin. Massively inspirational and highly recommended.

Panorama report on the Digital Economy Bill

Last night's show, available on the BBC iPlayer, doesn't teach us much but is worth a watch.

This quote at 7'35" by rapper Sway really struck me though: "People illegally downloading don't even believe they're doing anything wrong".

Instead of trying to change this behaviour (difficult) why not make it not wrong?

Find a way to monetise what these folks are doing (clue: you might have to start thinking a bit more creatively than charging 79p per song), build a new business model and solve the 'problem'.

How to lose customers - don't give them what they want

This BBC News story about Odeon cinemas is fascinating in the context of the previous post, the common sense drive to shorten pre-release windows to satisfy consumer demand and try and reduce illegal downloading.

Taking a strangely anti-consumer stance, Odeon cinemas won't be showing Tim Burton's new film Alice in Wonderland because its producer, Disney, wants to shorten the time between cinema release and DVD release from current average 17 weeks to 12 weeks.

I have doubts that a business model seemingly based on you-have-to-watch-a-film-here-because-you-don't-have-a-choice rather than we-want-you-to-watch-a-film-here-because-the-experience-is-more-amazing-than-you'll-find-anywhere-else is very smart.

I hope they remain in business long enough to see the error of their ways.

UPDATE 25/2/10 - it seems that Odeon have seen the light and changed their minds. Good for them.

Small steps to big change - shutting the pre-release window

Why do we release some songs to radio stations up to 8 weeks in advance of making them available for sale? Why do we create demand and not provide a legal means for that demand to be satisfied? Why do some record labels still insist on using out-of-date marketing practices that don't fit the digital world we live in without sending genuine music buyers towards illegal sites?

A very simple, sensible, smart idea – close the pre-release window and make all music immediately available for sale the minute it's made available to radio stations. Encourage label marketers to invent new, creative ways to influence the buying habits of music fans. Or just sign great music in the first place and let it find its fans.

Anyway, I've very kindly been given permission by Paul Scaife at Record of the Day to re-post editor Nicola Slade's incisive editorial from this week's magazine.

Same caveat as previously – I still occasionally work with these folks and I think it's a terrific music company...

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We have become aware this week that there is a groundswell among particular quarters of the industry pushing for a change to release dates for singles so that they directly coincide with the servicing of a single to radio. The bone of contention which is driving this campaign is that once a music fan hears a song on the radio, they want to be able to obtain that piece of music straight away.

Common marketing practice has meant that most singles and albums are subject to a four to eight week campaign lead time. Consequently, a single may be played for up to eight weeks on Radio 1, for example, before anyone is able to actually purchase it. The concern is that, unable to buy the songs they hear on the radio on legitimate services, people are using illegal methods to obtain the single they desire to own.

The push to instigate change is not limited to one record label or trade organisation. We have spoken to a whole host of parties this week: managers, publishers, smaller labels, DJs, the Entertainment Retail Association, the Featured Artist Coalition, the Music Managers Forum and more have all expressed a similar wish: make the product available immediately and it might help thwart piracy. On the surface, this appears an obvious and simple solution to some of the woes being experienced by the industry.

Additionally, some have even gone as far to suggest that there should be a change to the Official Charts Company’s chart rules: that a single would not be chart-eligible unless it is made available for sale at the start of a radio campaign.

One of the key arguments against this idea is that campaign lead times create latent demand, meaning that when a single is finally released, it has a better chance of entering the charts in a high position. Marketers can use a Top 40, 20, even Top 10 chart placing for a single story to assist in the push of an album. Those in the pro-camp suggest that marketers change tactics and find alternative, original and creative ways to promote albums. ERA director general Kim Bayley told us, “The rationale for charting a single high - that singles sell albums - in many cases no longer holds true now the singles and albums markets have diverged so much...So what we have is an out-of-date marketing practice which can only encourage piracy.”

Bayley’s remarks neatly reflect what is happening on the sales charts. The albums market continues to suffer quite dramatically, yet we should also remember that the singles chart is in a healthy position: some 153m units sold last year, 1.9m this year to-date already. Conversely, if singles were made available to buy earlier, common sense tells us that those figures could be much higher.

One publisher we spoke to, who firmly sits in the pro-camp, said, “With the pre-release windows gone, the chart would truly reflect popularity and we'd see nearly all tracks entering low and climbing as awareness rose. Media would quickly learn that it usually takes weeks of sales and airplay, to determine which are the genuine hits.”

That person’s comments almost suggest a level playing field would be created. But is this so true? Does this change in tactics apply to anyone but the major labels, or those with hefty marketing budgets and media clout? Our feeling is that the wider industry is not so concerned with such matters. The reality is that any significant level of radio play on the major stations and networks is a luxury only afforded to a small part of the industry.

We raised the issue with some specialist show DJs. 6Music’s Gideon Coe noted, “I know it's a source of some frustration to listeners when they hear a record which will not be out for some weeks. So, I try to avoid playing them too far in advance... What I'd not want to see is an unholy rush to get songs to air and on sale at a certain time of the day, week or month. I don't think it would make for good music radio. It could lead to the same record being played everywhere almost at once. A horrible thought. And there are so many good records being released every week and not getting played enough elsewhere on the radio to keep the likes of me busy.”

“An unholy rush”? It’s a fair point and one we’ve wrestled with. Radio stations are in competition with each other to be first. Radio 1 enjoys the fact that its playlist is responsible for hits. Removing the concept of pre-release airplay will result in stations changing their own tactics. However, if a DJ can flag up that a single is available for sale, it almost lends them more power and influence.

Another dimension which suggests that the system should change is that digital a la carte sales from albums, quite often released on the second single, mean that consumers are already choosing their own singles anyway. By the time the second, third and fourth singles are released, music fans have already amassed the tracks they want. Marketers are already, in some senses, fighting this very battle.

The overall premise, just to reiterate, is that many parties are at a loss as to why the industry complains about piracy, when common marketing practice has fuelled the creation of an illegitimate market. The MMF says, “The release window issue and its effect on piracy have occupied our thoughts for some time. It’s really a no brainer. A small change in culture abetted by different chart rules could stop the drive of consumer to illegal sites and the result that those sites become the first port of call for many. Tracks would still chart high if they sell enough as the Haiti single will this week in the same way that the Beatles and Slade did in the past, to name but two. Some tracks will take longer to rise up the charts but developing artists and combating piracy can’t be a bad thing, can it?”

We don’t presume to have the answer. Maybe a change in chart rules isn’t necessary. Labels are at liberty to release tracks whenever they so desire. However, an industry-wide initiative to instigate a release date change is something we would praise and it would certainly be interesting to see the impact it would have on both the singles and albums market.

Nicola Slade