Overcoming the Abysmal

After an abysmal first quarter, the recorded music industry is now taking stock in its first half results and the picture is none-the-prettier than it was a mere three months ago. The leading indicator is the continued trend of diminishing physical sales in conjunction with slow growth in the digital market. Turning this disturbing trend around is no small feat and in a world where quarter by quarter profits dictate success, it may be an impossibility to implement longer term strategic shifts while overanalyzing quarterly results.

Defining the Business

Record labels need to broaden the view of their business model. As Apple is no longer “computer” company and AT&T is no longer a “telephone” company, so to must record labels reinvasion themselves in a broader capacity to be “music” companies. This is not a paradigm shift for many, as their business portfolio includes more than pre-recorded music sales. Distribution, publishing, artist management partnerships and merchandising are not uncommon additional business assets, however, the record label itself typically exists as the flagship and the lack of synergistic energy between business units lends to a clumsy interpretation of growth and financial success. It is easy to understand how music companies born from record labels struggle due to these inequities in business units and the high level of priority placed on the label aspect.

Pre-recorded music sales might be flat but the music business as a whole is not and while record sales flounder, the recorded music itself is still the backbone of the entire music industry’s existence. Finding a way to position themselves as music companies and not merely record companies will be imperative for their future success. If they are able to re-imagine themselves in this fashion and both diversity and synergize their portfolio of business units they will have the potential to survive the changing consumer behaviors.

Define the Product

The most important shift in consumer behavior is the way music is consumed. For a long time pre-recorded music was primarily consumed in physical form. Throughout the heyday of the record labels the physical form was focused on album sales. Since the new millennium the consumer is no longer intrigued with a piece of plastic containing twelve songs. This confounded many label employees and thus the slow reaction to consumer sentiment led to savvy music fans finding alternative ways to obtain pre-recorded music. Record labels too narrowly defined the product as the piece of plastic and thus missed an important aspect of what their actual product was in the consumer’s mind.

Going hand in hand with the change in mindset from record label to music company must be a shift in vision from plastic product to intellectual property. Leveraging the entirety of the copyrighten works is imperative, not just the manufacturing and distribution aspect and understanding the artist trademarks associated with the work and leveraging them better will continue to drive this aspect. This is a paradigm shift in thinking from a product driven industry to a blend of product and service ideas combine and from a tangible entity for sale to a more ambiguous concept of asset leveraging and brand building.

There are more ways to generate a profit stream as a music company leveraging the entirety of the intellectual property rather than just selling the manufactured product (digital or CD). Of course, some of this goes against the very nature of an industry that based itself on quick turnaround of hit artists and requires a broader scope of artist brand development, which in and of itself is a fundamental shift.

Embrace Longevity

The shift from artist development to hits manufacturing undermined one of the key assets of the industry. The essence of most music income is primarily in the depth of the catalogue. This is not only applicable in discussing record companies and their ability to sell decades old releases consistently, but also in the individual artists themselves and their ability to transcend a single hit. It extends from the fundamental branding of the artist and its assets and how those assets can be leveraged. Unfortunately, the emphasis began to shift from developing careers to developing quick stars. Career development often requires longer recoupment times and rarely results in quick sums of cash. Because profits are reviewed on a quarterly basis, the focus on eliminating artists not performing immediately in order to lower costs detracted from a core element of artist development.

The thinning catalogue of multi-album successes over the past several decades is one of the reasons the industry struggles even beyond record sales at times. Overall, especially for record labels, the lack of catalogue depth destabilizes the bottom line, thus becoming even more dependant on the hit and further perpetuating the cycle. Furthermore, the emphasis on the hit translates to the consumer’s consumption patter as well, also undermining the growth.

Understand Opportunity

It cannot be stressed enough how many times in the last decade the record companies failed to embrace opportunities presented to them. Beyond the glairing digital distribution miscues and inability to embrace both online and mobile marketing opportunities, the music industry still fails to truly understand the subtleties of its consumer base. More crossroads are coming and the industry needs to begin to identify these possibilities sooner and react to them more definitively.

One example is the proliferation of mobile communications paired directly with entertainment allowing over –the –air capability and how to bundle and unbundled different intellectual property assets as well as considering the impact of side-loading technology on the OTA base. Obviously, Apple’s iPhone has the potential to generate a special interest in OTA and a new level of entertainment mobility while providing side-loading restriction for the time, however, the general market is a wild west of potential OTA storefronts, side loading applications and entertainment usage options.

Another example is the increased proliferation of the Web2.0 idea. Although current interactive media on the web is more about flashiness than functionality, once the genius of the seemless online experience takes place there will be some incredible opportunities for music companies in setting standards for usage and payment and developing new consumer touchpoints. It is imperative to identify these opportunities early, unlike with the first incarnation of the web where record companies primarily litigated against it. Second Life and other community sites are a nice first thought to this leverage but the possibilities are endless in integrating the intellectual property assets associated with music.

Understand the Consumer

Music is ubiquitous. Now more than ever, it impacts daily routine with an overarching engagement of the consumer. The iPod made it more mobile, the computer made it more flexible, the internet made it more disbursable; it is attached to our phones as ringtones, on our web pages as a soundtrack and in even greater option from our “radio” be it broadcast, satellite or wifi online.

With this, music is a commodity to most consumers. The differentiation is in personal taste and not in branding. The expectation due to the pervasiveness of it in their lives is that it is a right for them to have unabated access to it. The conception of the product is not necessarily disposable, but it certainly is not more than a function of the status symbol it is being used to show off (ie: the ring tone shows off the phone, the song shows off the ipod and not the other way around).

Music lost its mystique for any number of reasons and in a world where anyone can have five minutes of fame on YouTube, entertainment superstars are not what they used to be. Re-instilling the uniqueness of the artist is not going to be an easy task, if at all possible with the rate information and speculation travels in modern communication, however, without the larger-than-life mystery and desire to aspire that used to drive interest in music and its artists the consumer will continue to view it as nothing more than just another multimedia element in the plethora of aural-visual options inundating them.

Identifying potential niches in the overall segmentation, segmenting the market better, providing better products and services to the consumer based on expressed and inherent needs, etc. will be integral to the future of the industry, as it is to every industry.


About thedoormouse

I am I. That’s all that i am. my little mousehole in cyberspace of fiction, recipes, sacrasm, op-ed on music, sports, and other notations both grand and tiny: https://thedmouse.wordpress.com/about-thedmouse/
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