Following the recent debate I got curious, if the music value chain really changed, and in which way. If what we formerly knew as a music industry has been taken over by new players, forcing labels, publishers, distributors out of the game r do they coexist, or even profit from each other? Is there common interests, is there a chance to do mutual business?
Who are thou?
If you scan and evaluate attendance of music b2b events as an indicator of economic success or potential of the respective companies, there is a simple yet striking conclusion. Publishers remain, as labels are gradually being replaced by companies from outside the music industry, who’s core business ranks around distributing and marketing music online.
First let’s have a look on the roles such companies do take within the value chain spanning from an artists instrument to the consumers ear:
Record labels are (I tend to say used to be) the link between the artist and the distribution channels. Their role is/was to manage and coordinate the production, manufacturing, distribution, fulfill or at least plan the marketing of music, as well as enforcement of copyright protection. Labels do/did conduct talent scouting and development of new artists plus maintain contracts with recording artists and their managers.
Talent scouting still could be a field for labels, but as they lack investment capital to actually develop talent over a decent period of time and with customers claiming being able to discover new talent themselves, this is a hard ground to stand.
Marketing is outsourced to band to fan or fan to fan models via social networks, or through channels most of us do merely understand. The traditional promotion label-to-journalist-than-journalist-to-fan has gone in favor of decentralized peer communication.
Distribution? Production and manufacturing? All this wears the scent of becoming obsolete due to home recording, torrents, streams, or the sheer lack of a physical product. Sure there are still labels being active in this field, but the question remains:
What can a label do better than everyone else?
Let’s start from the other end, who are the new players and what are they offering:
At Midem Dave Haynes from SoundCloud and Paul Lamere from the Echo Nest walked the audience through the origins of music hacking and companies that are opening up their data/ software for use in music apps.
What they referred to is called ‘The Music Hack Day’, a roving event, where developers get 24 hours to create an app that builds upon various APIs of participating companies. This is a good example where new business are born, not at music b2b events, but within a very vivid and often well connected developer scene.
What surprises me time and again, is the music industry constantly dealing with the outcome of business ideas from other industries that take advantage of music, but not being primarily interested in paying into the music industry in return.
Whenever I attend hack days, developer events, mobile, tech, computer, etc. conferences, there is no music industry.
A product is born
The usual way to establish new products is market research, according product development, production design (resource planning, outsourcing or buying in expertise, optimizing and correlating existing productions), marketing and distribution.
And – evaluation of both, competitors in the field of the product as well as in the field of production / resources.
Scanning the news on digital business on Billboard, Midem blogs, or anywhere sports the impression that this mainly is about services for the music industry, mainly DIY tools forcing e.g. a label to invest heavily (time and workforce) in new media not generating any revenue for them.
It’s a paradox that a label needs to run a DIY promo tool, building up a Facebook fan base in order to reach their fan base, scan and evaluate such metrics, run crowdfundings for new projects, blog, communicate, organize tours themselves, do a merch shop, … Most of this services come at a cost or take a decent share of what is earned, eat time, and do not generate any measurable revenue, right?
The common argument why one should do this is, that without doing so one would face bankruptcy soon.
But what is the alternative?
Here is a chart I made by interviewing various music labels and companies.
First of all – look where it says ‘consumer’. The actual music consumer is considered the third lowest source of revenue / sales. This is a shocking statement!
Instead the music industry is hoping and expecting revenues from games and social media, completely ignoring that the games industry is NOT doing well and the latter have not even developed a revenue model for their services yet, but maintain to burn venture capital.
No third party invaded the music business, but they were heartily welcomed by everyone without even bothering to ask what the effect would be. At the same time the music industry seems to agree that there are sources and fields to invest in order to generate new revenues:
‘Affiliated industries’ like fashion, games, mobile devices, social media, as well as territories like India, China, Taiwan. To sum it up, what exactly would be the interest of the fashion industry in the music business?
How can you base your expectations on territories, either ruled by a solid monopoly of existing entertainment companies, facing buyers that do not like western music? Or that is based on a non convertible currency, not to speak of the political situation which is one of the most tight dictatorships there is?
If this are the only solutions an industry can come up with, I rather tend to say, you’re out.