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What I Think I Know About Business

November 12, 2011

 

As I understand it...

 

I had an interesting conversation with someone last night about the current status quo of the music industry. His initial question, if I remember correctly, was "What has changed about the music industry since the 70's"? He was asking this question in reference to the differences between making music, the appreciation for it, the shelf life of, and the profit seeking that happens now versus the 70's, or even the 80's. My response to this whole discussion initially was simply "people want to make money". He seemed to feel this wasn't a proper response to this question because this modo has invariably existed since the dawn of time with the music industry. So, now that i've had some time to reflect upon this further, I'd like to expand and explain my answer a little more thoroughly.

 

My observations of the music industry, since I was a youngin' attending high school (only 15 years ago), are very similar to the rise and fall and of any product. Each product goes through a generally accepted 4 stage process before it either has to renew, reinvent or rebrand itself or it faces inevitable extinction. When a new revolutionary product comes out that changes the world slowly, but surely, there is a time of acceptance. Remember, unlike the majority of industry in the world, the music business is relatively young and for most of that time has evolved very slowly and very little until the last 20 years. Compare it to Tide detergent. When it first came out it was revolutionary, different, new and simple to use. It had little competition. It took a little while for people to catch onto it, but once it did the product sold like gang busters and became a new standard for anyone doing laundry. Competition eventually arrived and made it difficult to keep the majority of its current market and profit without lowering its price beyond its limits. So, after it's growth and maturity stages, it begins a decline and then the product is forced to either pack it in OR reinvent itself. Most recently, Tide cold water was born addressing a consumer need and reinventing the brand. Woo for innovation!

 

**chart of accepted growth of a product**

http://msc-technology.wikispaces.com/file/view/product_life_cycle.gif/32844987/product_life_cycle.gif

 

Now, back to the music industry. Music has always reflected the day and times of current society and has evolved according to what people want from it. People who invested in the music industry understood it was an art that would either succeed or fail, but one way or another they could, generally, make their money back through persistence or further investments. Thus, a good 40 to 50 years of the music industry happened and thrived where record labels made millions in profit and their investors were for the most part always happy and profitable. Radio DJ's could make money and influence an industry passionately by the music they loved and played. Bands continued to tour for piles of fans willing to pay for the concert ticket and line up for hours (sometimes days) in advance of that upcoming concert. Radio was making money, bands were making SOME money, the fans weren't being gouged to see and hear their fav music and the record labels were rolling in their own. The 90's brought a pinnacle of excitement for these varying departments of the industry. Enter, the internet and (arguably more importantly) Napster. Dun dun dun.

 

My argument is this. The evolution of the music industry and business was very slow, steady, but generally made sense. Like all industry eventually all the gaps get filled. A simple concept like:

 

A product sold by the maker who doubles as a merchant -->> Sold to a customer

 

now evolved to….

 

Inventor of Product --> Manufacturer of Product --> Wholesaler --> Distributor --> Larger Chain Store --> Sold to Customer after marketing competes for that customer's attention AND loyalty to a brand

 

The process got much more complicated and diverse ranges of jobs and services were invented. The same thing happened to the music industry. Just a record label has multiple spokes to the wheel that makes them run (basic idea seen here, http://static.howstuffworks.com/gif/record-label-structure.gif) let alone the BAND that has its own supply chain of what makes them run (manager, agents, radio trackers, etc.). No wonder it's hard for anyone to make a profit.

 

The internet then tossed this whole design nearly out the window. The "perception of value" of music itself was lowered drastically. The idea of buying an album has become nearly obsolete. Why? An albums value has become so little that, like many products before it, the shelf life of an album lost it's selling edge. The internet made it possible to download, for free (ZERO profit for anyone) an entire album with the click of a mouse and quickly. The user would only download the songs they wanted. No more listening through the whole album to decide which songs you wanted to listen to. Even the invention of the CD started this process. Record spinning 45 listeners no longer had to find the appropriate place with the needle. No no. Press this button and hear any song you want instantly! This "instant" gratification became the driving force of technology. That technology then evolved itself reflecting the demands of music listeners and now YouTube is the next key place people go to both watch and listen to the music they want to hear. No need to download anymore! It's free! Only a minute of your time watching an ad and you're in!

 

Where do savvy investors make their money now? For anyone who watches Dragons Den and has seen their attitudes towards investing probably realize they're not about to throw money at anything put in front of them. They want a sure gain. A return and control of their investment. Record labels are both the investors and the company representing shareholders themselves. How do you make money from a product that's, in theory, being given away for free??? With technology and the internet making it so easy for bands to not only make music themselves, but promote themselves as well and have success with, realistically, very little effort compared to the work put in by the average band of only 30 years ago the motivation for record labels to invest in your product (band/artist) unless it's a sure thing is really quite little. So, the market becomes flooded with indie bands, the quality and standard of that perception of value decreases and the mainstream artists with lots of money backing them appear now to be the only good thing out there because they're the only product giving a return to the music buyers investment of purchasing a ticket. How does a record label assure a return on a product? They don't. But, putting their own money into a product that THEY completely control has a better chance than someone they don't.

 

My debater was also heard saying "unless you figure out what's changed you can't figure out where you're going". I agree. But, I'd also argue that the changes that have happened in the last 15 years are far greater than those that have happened in the 40 years before that. The industry is having to evolve and rebrand itself in a way that its never seen before. It's having to make money from ventures they never dreamed of and more people are finding ways to make a profit through services that didn't exist even ten years ago (ex. myspace page designer?? really??). A lowered perception of value, impatience to purchase/acquire a product, the technology behind the product (iPod) and the evolution of business (investors requiring a return) is driving the music we hear on radio now and influencing generations to come of what their perception of "music" really is. Children in grade school now have never lived in a world without internet, cell phones and flat screen tv's. Imagine what their music is going to be like without knowing Led Zeppelin was even a band and not just an expression for a failed future product.

 

 

 

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