Setting the stage
You have a sense of
how the music business works, how the
dominant corporations make money and grow, and how they get and maintain power.
Next would be to look at the industry in its current crisis, trying to defend
itself against the forces of the Internet. What are the strengths, weaknesses,
opportunities, and threats of the incumbents' position, the Big 4 or 5 labels? How do they best achieve
their objectives in the current environment?
But first ...
What is the
incumbents' position?
The Big Four or Five major labels are "divisions" within larger
multi-national corporations. Each of the multi-nationals have other divisions --
often called something having the words "interactive" or "multimedia" in it --
that are preparing to take up the slack. One, Sony, has a hardware division
making the machines that consumers use to rip tunes off the CD's made by the
Sony record label.
As Sony's executives stated it in their
2002
annual report:
Since purchasing the Music and Pictures
businesses, more than ten years have passed, and we have experienced many
cultural differences between hardware manufacturing and content businesses.
You can just hear the Sony music folks saying, "How
come you hardware guys make it so easy for the little rippers to steal all our
music?" Of course, the hardware guys are responding, "How come you music folks
can't figure out how to protect your assets?"
Sony picks Stringer
Red Herring, March 7, 2005
British-born Howard Stringer is likely to
bring a global view as he takes the reins of Sony’s struggling conglomerate.
At the same time, Sir Howard acknowledged that Sony had no one to blame but
itself for failing to reach the market first with a digital music player like
Apple’s wildly-successful iPod. He said Sony’s consumer electronics division and
its film and music groups could not agree on how to protect Sony’s intellectual
property from piracy.
That's what it comes down to: assets. As a
manager, you've been given responsibility for a portion of the organization's
assets. Some are machines and people. Budget dollars are firmly attached. Others are intangibles like goodwill, the stewardship of which can make or
break an up-and-coming manager without its ever appearing on a job description
or personnel evaluation form.
Finally, organizations are starting to realize, as a manager, you also have responsibility for a portion
of the organization's knowledge, which is increasingly searchable and
cut-and-paste-able on the corporate network.
If you were the CEO of such an organization, or
the owner, would you want power to continue to come from hoarding information?
Or from sharing it?
The Big Five record labels'
assets
They are primarily the
copyrights that composers and musicians have assigned to them by contract. If these assets were factories under
assault, the prudent manager would have fences, walls, and a security force, and
would immediately call in the police at the first sign of trouble. The judges
and juries would back them up. But these assets are copyrights under
assault. Copyrights aren't real property like real estate. They're
intellectual property.
Who's doing the assaulting?
From
Porter's one direction, buyers, it's
the customers via software and the Internet.
From another direction,
suppliers, it's musicians via software and the Internet.
From yet another
direction, new entrants, it's niche labels via software and the Internet.
From the fourth direction, substitutes, it's wired teenage programmers
and super users via new software and the Internet, this amorphous unknown called
Generation Next.
The fifth of Porter's forces, industry competitors, is
the weakest because all of them, as well as the larger indie labels, are under
the same assault. What they need is collective action, a union of sorts, and
they have it via the
Record Industry Association of America, the RIAA.
They are also getting help from the
Motion Picture
Association of America, the MPAA, because their customers are getting the
bandwidth and sophistication to handle movies, too. Thank goodness that the
customers haven't found their way to collective action. Yet.
There's a pattern here, which suggests a strategy
for organizing your four-front defensive assault.
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economic |
markets |
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technological |
architecture |
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political / legal |
laws |
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sociocultural |
norms |
not ready
below here
see musicbiz.txt
Strengths
size
Fortune Global 500 for 2003
* 189 US-based companies
* record revenues 14.9 trillion dollars
* record profits of 731.2 billion dollars
largest revenue
Wal-Mart
BP
Exxon Mobil
Royal Dutch/Shell
General Motors
Ford
DaimlerChrysler
Toyota
General Electric
Total Fina Elf
largest net profit
Exxon Mobil 21.5 billion dollars.
Citigroup 17.9 billion dollars.
Economies of scale conducive to the corporate
growth imperative. A continual cycle of new artists uses infrastructure and
justifies overhead. You sign them and you buy niche labels.
many records
many musicians
Quantification, Linearity, Segmentation:
subjective music vs objective numbers; music = product, musicians = talent
Weaknesses
Profit: quarterly, measurable ROI for
shareholders
least-common-denominator musical "sound" that will appeal to the masses
Hierarchy:
makes product development slow and ponderous;
high executive turnover and frequent management "purges" at large record
companies can often delay or even derail a recording project indefinitely,
leaving artists in the lurch.
peopled with dysfunctional, turf-protecting climbers
Dehumanization:
people are replacable. Decision making must not
"let feelings get in the way." This applies as much to firing employees as it
does to dealing with the consequences of corporate behavior in the environment
or the community.
Opportunities
Amorality:
Corporation: n. An ingenious device for obtaining individual profit without
individual responsibility.
—Ambrose Bierce, 1842-1914.
Not being human, corporations do not have altruistic goals. In fact, corporate
executives praise "non-emotionality" as a basis for "objective" decision-making.
So decisions that may be antithetical to aesthetic goals or artistic integrity
are made without misgivings.
Ephemerality: Corporations exist beyond time and
space: they are legal creations that only exist on paper. They do not die a
natural death; they outlive their own creators. They have no commitment to
locale, employees or neighbors. Having no morality, no commitment to place and
no physical nature (a factory, while being a physical entity, is not the
corporation).
Threats
History is not on the side of the Big 5. The CD
(or whatever atoms replace it) producer and distributor will eventually end up
in a niche market much as live theater got shoved aside by movies and then TV.
But it won't happen this quarter or next, speaking in Fall 2004, so the worst is
yet to come. Regardless, the multi-national conglomerate that owns the Big 5
will just move its resources to another division and may even sell or spin off
its recorded music division.
So the biggest threat to the label as a division
of a multinational is the loss of the deep corporate pockets when it is sold or
spun off. But hey, the new boss could have even deeper pockets than the old
boss, so why worry?
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issues and policies
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