The Music Industry – From Retail to Media

A small hiatus on the blog, because of an intense workload over the last few weeks!

I recently met an executive from Warner Music who is exploring new directions in response to the radical digital transformation that has taken the music industry by storm.

After this discussion it occurred to me that there is a parallel to be drawn between the music and media industries. In both cases the most common business model was about combining content production and content distribution. And in both cases, the digital transformation changed the game … distribution came first. Then once the distribution lock is gone, it opens the gates for a lot more people to produce a lot more content. Natural selection based on talent does the rest.

The media landscape is being deeply reshaped in the digital era – these are not breaking news.

Newspapers are losing classifieds revenue to the likes of Craigslist, paper versions of magazines disappear (good bye Business 2.0), radio is increasingly listened to digitally, and network television shows are migrating online.

There have been several examples in the past where content owners clashed with online content distributors about intellectual property – and how to split advertising revenue. Google was sued in 2005 by AFP, a news agency, over copyright issues. The Google Books initiative was attacked by book publishers and authors. Viacom asked Youtube to remove thousands of copyright-infringing videos, following in the footsteps of NBC and CBS.

Back to the music industry. Those companies were used to operate with a retail (e.g. distribution) model and “moving product” (vynils then CDs). Getting airplay and maximum repetition was a means to an end… not unlike advertising, a way to promote record sales.

Now Apple has the upper hand in music distribution – with no serious competition, except maybe the recently launched MP3 download store on Amazon.com.

Look at the 20 most seen videos of all time on YouTube.

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Nine of them are official artist music videos, including bands like My Chemical Romance and Linkin Park that are signed by Warner labels. Those hundreds of millions of views are proof enough that music companies own the rights to content that is extremely attractive for online audiences. So are these companies the next in line to use legal action to force Google to share some of its advertising revenue? That’s quite unlikely – old habits die hard. They have always sought artist exposure and were all too happy to get this exposure for free.

Artists have discovered that the Internet is also a way to bypass middlemen, not just for marketing but also for sales. Radiohead has created the sensation once again with their recent announcement, and many bands have jumped on the publicity bandwagon.

Talking of Radiohead – this reminds me of John R., a former colleague of mine when I worked in London. John had previously worked as a talent scout for Sony Music and he liked to joke about the fact that he passed on the opportunity of signing Radiohead!

If you want to read more about artists embracing the digital age, Wired had a fascinating cover story on “the rebirth of music” in 2006.

Can artists do entirely without record companies in the near future? Probably not. After all, the music industry has a proven track record in discovering and nurturing talent. If anything the Internet makes the talent easier to spot. There are many hopefuls posting their webcam musical performances on Youtube like Esmee Denters, Mia Rose or Lamiyah. Audience ratings and comments are a transparent way to assess their growing popularity.

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As a conclusion there is some irony in the current situation of the music industry.

When Apple introduced legal music downloads and a robust Digital Rights Management system, the music industry saw this as an opportunity to finally solve the problem of piracy on peer-to-peer sharing platforms like Napster and Kazaa. Yet today, Apple is in such a dominant distribution position that it has become a major threat to the industry.

Google’s stronghold on search is seen as a threat by most content owners. Yet Google is probably the very opportunity for the music industry to achieve its transformation into a media business that leverages an enticing and exclusive content.

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