High-tech

The music industry, part 2

- Underlying issues are the real problem

By Bipin Parmar

In part one of this series, we looked at the background and relevance of the music industry to tech entrepreneurs, investors and advisors. In this second part, we examine some of the underlying issues that are causing the declining trend in the industry.

Packaging, product creation, promotion and distribution

In the past, technology businesses in general have placed a lot of emphasis on finding potential uses for a new technology, rather than focusing on the business issues and understanding how the technology can be used to solve a particular problem for a customer, or a business problem.

In order to understand the underlying causes of how this has affected the music industry, it is worth identifying the individual constituents of the industry to see where the problems are, and where there are opportunities for startups to add the most value to this sector.

Packaging

This industry has developed an arrogant attitude of bundling good songs/tracks with second-rate (or even bad) songs for years, forcing customers to pay for all of them, regardless of value. This practice has been going on for years and the producers have been getting away with it. It is analogous to buying a car with one good tyre, and three bad tyres; or going to a restaurant to find that the starter is OK, the main course is barely palatable and the dessert is outright disgusting. On top of this, the customer has no recourse for complaints, as they would fall on deaf ears.

As far the industry was concerned, a legal backlash is not expected from silent, gullible teenagers, who were until recently willing to empty their meagre pocket money on highly priced music CDs. The industry forgets though that these teenagers grow up, very quickly and become tech-savvy, discerning consumers. These tech-savvy teenagers and their grown up parents have found a way of showing their buying power and have alternative places and choices in terms of where they spend their surplus.

There is now an abundance of alternative choices, including video games, mobile phone texting, ringtones, live venues, dance clubs, DVDs and online chat. Consumers have clearly demonstrated their need for careful selection and mix of tracks, plethora of different genre and decide for themselves what they consider as good songs and artists. The industry has failed to capitalise on this new packaging trend, and instead have resorted to heavy-handed techniques, such as fighting their own customers in the courts. They may not have noticed the real business value in the open marketplace, rather than the courthouse.

Content

The quality of music and singers has been declining for years, as the industry strives to manufacture new band and music formats at the expense of talent and quality. This is demonstrated by the fact that they spend millions promoting a handful of new artists and drop them overnight - hence conforming their bad choice in the first place.

Most new artists cannot sing to key or have sufficient practise. Without sounding like an old codger, singers like Aretha Franklin, Stevie Wonder, Marvin Gaye all used their accomplished voice as music, and gave their audience a combination of emotional, physical and aural experiences. Very few artists today have had sufficient training or experience before being unleashed on unsuspecting consumers.

Marketing

The vast majority of the new talent pool and new genres are not getting the chance or market exposure due to heavy concentration of marketing resources on a handful of artists that the record companies focus on. A whole genre of new ethnic and world music, which has a huge following, is going un-noticed by the big companies partly due to ignorance, partly due to indifference and losing touch with the real market.

The plethora of manufactured bands, with their manufactured scandals which feed their publicity machine, has alienated large sections of their potential customers. In this equation the number of news stories do not equate in equal rise in their sales, sometimes quite the opposite.

The music industry needs to create more efficient marketing and distribution machines to capture new talent, clear ownership rights, copyrights issues, content creation, packaging and promotion. The content will be delivered via numerous new formats, which will require a different approach to the marketing mix.

Distribution

The vast concentration of market by the leading record companies, who together hold 75 percent market share, has created a quasi-inefficient distribution system based on retail outlets, free air-plays and promotions on radio stations.

This would not be so bad, if the industries' opex (operating expenses) and capex (capital expenses) were in kilter, but the industry is not only losing market share of leisure expenditure, but also generating negative cash flow and returns on equity.

Clearly, an entirely new efficient distribution model and cheaper way of creating and capturing talent, content creation, packaging, marketing and promoting the talent via new and existing delivery formats is required.

Like the old canal industry, which tried all the tricks in the book to stop the creation and penetration of alternative transportation system of roads and railways. They put hurdles in the way, by not allowing bridges to be built over the canals. It is never in the interest of the incumbent players to create a whole set of new outsourced, de-constructed competing players which they cannot effectively control.

The solution lies with numerous independent players and startups. A whole new set of collaborative entities will be born which will adapt the latest technology, from talent spotting, content creation, studio recordings, to DJ/VJ suites, to efficient distribution and marketing. They will also create a whole new set of genres and play-lists for download, digital rights management and payment tools. The market will evolve towards totally new genre, moods and themes, rather than emphasis on individual artists and recording companies.

So, the new DJ/VJ play lists and their delivery formats (downloads to internet radio, remote wireless players, broadband, car, home, travel, venues, location) will take the limelight and traditional radio and television will have to adapt this new trend as well.

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© Chilli Publishing Ltd 2004

11MAY2004