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Friday, March 14, 2008

Lefsetz Archive: February 20th

Here's an article from Lefsetz Letter, a great blog on the ever-changing face of our industry. We don't always agree with him, but he makes some great points. Check it out, share your thoughts, etc.

The Future

I’m going to make a prediction. The major labels are not going to control the future.

This is important not only because the majors controlled the past, but because they’re trying to control the future. And as the media chronicles each and every flailing, defensive effort, the sea change in consumption of music is being ignored.

Americans used to purchase their records based on radio and the resultant word of mouth. There were very few opportunities to get signed and promoted, and the few winners that resulted were extremely successful. It is this era and goal that the majors are trying to hold on to and return to. They want very few acts to be exposed and sold in an era where anybody can make music and distribute it and it’s extremely difficult to get notice.

We can castigate NARAS for a lame Grammy show, the third lowest rated in history, but do these poor numbers have anything to do with what was up on screen or could it be that nothing could garner the numbers of the past? The Grammys actually won the evening. It’s just that fewer people are watching network television. They’re spread over many cable channels and untold Websites. And they’re not coming back. But the major labels believe they will.

Give the television networks credit. Once they realized cable was siphoning off their viewers, they purchased the cable outlets. However that was in a limited universe, getting on a cable system is very difficult. Majors try to make deals with independent labels, but they seem unaware that independents have options, and that the label might not be the key player controlling the act, that the label might only have a small piece of the overall pie, that the manager is the one collecting all the revenue.

The concept of rolling up indies or distributing them is a sound one. But the majors don’t seem to notice it’s a changed marketplace. The majors just offer their muscle. But you don’t need the majors’ muscle to get paid at iTunes. And very few acts are Top Forty radio friendly, or can get on television, the two areas where the majors can exert power independents usually can’t. Furthermore, print publicity sells fewer records than ever before, independents actually do a better job of publicity, focusing on what works online, where the people are paying attention, whereas the majors employ more of a scattershot, press the button philosophy. Independents grow slowly. This is anathema to the majors, who are also dishonest, both in promises and payments. So, the concept of rolling up indies is flawed. Transparent deals and accountings would have to be married with larger pieces of the pie. But the majors will never deliver this.

Majors are run by kingmakers in a world increasingly run by serfs. In order to succeed in the future, majors would have to establish trusted relationships with not only their acts, but their consumers, and be willing to sell ten thousand of this and twenty thousand of that, knowing that almost nothing will go platinum.

There will be rich people in the music business in the future. Acts and managers, of course. But the businessmen who are successful will see their roles differently, as aggregators. Selling wide swaths of product to everybody who wants it at a cheap price.

It’s akin to IBM and Microsoft. IBM ruled computers when most people didn’t have them. Big Blue believed the money was in corporations. Microsoft in concert with PC manufacturers ultimately sold an inexpensive product that everybody could buy. IBM? They sold their PC manufacturing business, even their vaunted ThinkPad line, they’re now a profitable company operating in a much smaller sphere, in the world of services. Major record labels have huge assets, their catalogs, this will give them a seat at the table in the future, they will do business, but they won’t dominate. They’re not constructed to dominate in the future.

In the future it’s about volume. Something the majors still don’t understand. The paradigm isn’t one track for a buck, but getting everybody to be a music consumer at a low price. Under the guise of protecting music’s "value", the majors are killing their business. And making recorded music sales challenging for everyone. Which is why all new players look to maximize touring revenue, sometimes giving their music away for free on the Internet.

The biggest story of the year is how the mainstream press and the pollsters were completely out of touch with the electorate. No one foresaw Obama, no one predicted his success. And his success so far has proven that people want change, they’re sick of the past, they want to believe in something new. The public has embraced digital music. People own thousands of tracks. The majors are against this. They want the average citizen to pay $40,000 to fill his iPod. But, more importantly, the majors and the infrastructure surrounding them fail to realize what the public truly wants, music to believe in, not the evanescent, oversold crap which dominates today. I’m not saying all sponsorships/endorsements/advertisements are bad, but I am saying that sometimes they come with a cost. They erode the consumer’s belief in the underlying act and its music. Majors talk about whoring out the music, they don’t ever speak of the bond between fan and act. But it’s exactly this bond that is at the heart of the future. And the new players know this.

Don’t become infatuated with the exact date the CD dies. Or ridiculous predictions by consistently inaccurate research companies when digital sales will eclipse those of physical product. There’s no evolution here, just revolution. And a research outfit can’t predict the details when confronted with a shake-up of this magnitude.

Music will be vital in the future. Its potential to reach people exceeds all other entertainment media. But it takes individuals who understand technology, in touch with the customer base, willing to take risks, in order to be successful. Those running the major labels fit none of these criteria. Therefore, these companies are doomed for marginalization.

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