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Simplicity is King

April 8, 2010

Clay Shirky is a genius.  If you haven’t already, go and read his latest blog post on The Collapse of Complex Business Models now.  He is undoubtedly much smarter than me and his insights are much more valuable than mine.  His central argument is pointed at the TV/Film industry where obvious lines can be drawn to all other media industries.  The central thesis is that when stress is introduced to a business model, most of the time that model can impose additional levels of complexity or bureaucracy in order to mediate that stress or even extract additional value from it.  However, there is a limit to how far this pattern can repeat.  Eventually, the weight and sluggishness of the model’s bureaucracy will make it susceptible to competition from simply structured and more nimble competitors.  At that point, if further bureaucracy cannot squash these competitors, the model must simplify down to a competitively manageable level or face collapse.  This pattern has played out many times in the history of the media industry when new and disruptive technologies are introduced.

Shirky hits on this obvious but often over looked mantra early in his post: “there are two ways to generate a profit: raise revenues above expenses, or cut expenses below revenues.”  Glaringly obvious but also painfully true and hard to swallow.  It’s clear that revenues in the recorded music industry are falling.  To avoid collapse, simplification or further expense cuts need to happen.  Many lament the fact that thousands of people have lost their jobs in the music industry as the firms scale back expenses.  I feel that unfortunately, we are still very far from reaching an equilibrium where further layoffs and expense cuts are no longer necessary.  The complexity in major and indie record labels was built upon the revenues of physical sales, not subscription models.  Subscription models will I think eventually bring in massive amounts of revenue, but they still might not save the majority of the music industry jobs out there.  More simplicity needs to be reached to better match this new business.

Shirky’s post has an apocalyptic tone but all is not negative.  I particularly like his closing line: “when the ecosystem stops rewarding complexity, it is the people who figure out how to work simply in the present, rather than the people who mastered the complexities of the past, who get to say what happens in the future.”  Hopefully the hungriest of us can figure out how to be the people working simply in the future.


What should I listen to?

March 31, 2010

In an interview with Music Think Tank yesterday, Dave Kusek expertly summed up the changing state of the music industry when he said “Knowing what to listen to is more important than having it in your collection.  That is becoming more true every day.”  Dave’s kind of a guru in this space and authored The Future of Music which is very relevant to anyone interested in these topics.

As cloud based streaming models slowly become ubiquitous, music will no longer be a scare commodity.  When you have 10 million+ tracks available instantly at your finger tips, time becomes the true scarce resource for music fans.  How do you figure out what to listen to with that much choice?  Lot’s of smart people and companies are already trying to solve that problem.   Most people won’t or wouldn’t like to admit it, but we like to be told what to listen to or what’s cool.  That’s true for both the soccer mom listening to Celine Dion in her minivan and the most devout Pitchfork music snobs.  The avenues for discovery music might be different, but people still take cues on what to listen to from their friends, the press, and even subconsciously from background music.  Don’t be a snob and tell me that you are original and only like bands that are “off the radar.”  And please don’t tell me that you “discovered” some new band in Brooklyn.  We all develop tastes from social cues, some are just more obvious or overt than others.

So what to listen to?  If I had that answer I would be building a company right now and not blogging.  I do think that MOG is doing the best job at this right now.  They cleverly blended social networking functionality into their streaming music service.  They’re not trying to become a full blown social network and steal attention from Facebook (which would be a mistake) but instead just rely on social networking’s ability to recommend content from trusted peers.  They blend these social networking features with more sophisticated algorithm based suggestion, and traditional editorial recommendations.  I think they are right on in structuring their music recommendation wing as a blend of different services.  Also, the music streaming service itself is pretty great as well.  Thinking I might go ahead sign up once they offer a mobile app.  Check it out: MOG – 3 day trial

Boiling Frogs

March 29, 2010

Everyone has heard the boiling frog anecdote.  You can place a frog in a pot of room temperature water and slowly heat it until eventually the frog will be boiled alive.  Try to place a live frog in a pot of already boiling water and it will jump out immediately, etc.  Why does this work?  Because frogs are reptiles, they have a brain that lacks the ability for any kind of advanced cognitive processes.  Frogs are stupid animals.  The people that work at major record labels however are not stupid animals.  So why are these companies continuing to sit in a pot of slowly boiling water?

According to Ed Christman’s article entitled “Losing Track” in the 3/20/10 issue of Billboard, “track sales in the US through the 9 weeks ending 3/7 totaled 225.5 million units, up just 0.7% from 223.9 million in the corresponding period last year.”  We’ve all heard the tired story of the decline of the CD sales, I won’t bore you with more stats on that.  However, this is new, digital track sales are now flat on growth.  Pretty easy to see the boiling water right?  What happens when the water warms more and digital track and album sales start plummeting like CD sales have?

Instead of ignoring these trends and hoping for a new format to come and pick up the slack, why not jump out of the water and truly innovate instead?  Why not quit trying to swindle the minority that still pays for CDs or digital music and go after the majority that procures music illegally?  Build a bigger industry around music instead of gradually slashing overhead, staff, and budgets to reflect the shrinking recorded music business.  Maybe you don’t want an outsider like Spotify to swoop in and take away profits and power like Apple did with iTunes.  That’s fine, I can understand that, so go and build your own competing software!  Very smart people work at these companies and they are more than capable of developing this technology if they so choose.  Surely the majors would license their music to a service in which they all share equity.  The objective then is to grow the number of paying users at a low price point instead of trying to squeeze out a bunch of revenue from a handful of customers.

How hot will the water need to get before the majors realize they need to be in this new business?

All You Can Eat Music?

March 20, 2010

“Every song ever recorded available on demand at any time.”

That’s the potential and promise of all you can eat music subscription services like Spotify, MOG, Rhapsody, and Rdio.  This value proposition is enough to give music nerds (myself included) heart palpitations.  The monthly subscription fee varies between each company’s business model but anyway you cut it, it’s a great deal.  If you’re spending $30 a month on vinyl, iTunes downloads, and countless hours trolling torrent sites for free music, $10 month for every song ever made is an amazingly great deal.  Don’t think these business models will catch on?  You’re wrong.  Sorry.  Don’t tell me that people will want to hold album art and will always want to go to a store and browse the new releases.  If you think that then you haven’t yet experienced Spotify or used the Sonos system.  It’s not a matter of if but when.

Ubiquity of these companies can’t come soon enough if you’re a music nerd but what if you’re not?  Also, let’s face it; the music obsessed and digitally savvy early adopters comprise a shockingly small number of actual consumers.  The vast majority of music consumers (consumption=listening not buying) don’t buy digital mp3s, don’t download music on torrent sites, still listen to radio, and still buy CDs at Wal-Mart or Best Buy (if they buy music at all).  Have they heard of Spotify?  Definitely not.  Are they anxious awaiting it’s arrival in the US?  They could care less.

All digital music subscription services have a gargantuan task in licensing music catalogs and building a comprehensive library.  However, and unfortunately for these companies, this is not their main strategic problem.  The main strategic problem will be convincing the general public to pay for music like they already pay for cable TV and internet access.  That’s quite a challenge.  Telling them that you will have “every song ever recorded available on demand at any time” won’t cut it.  Casually music listeners don’t want or need that much choice.  It’s cumbersome and overwhelming.  Furthermore, paying for unlimited music access may seem wasteful and unnecessary for casual music listeners.  If you are only listening to a few tracks a week or just need background noise, 10 million tracks is not a value add.

So how do the all you can eat music services solve this problem and become successful?  I think the answer is seamless hardware interface and interoperability.  In a nutshell, it will be ease of use.  iPods are sleek and easy to use, but it’s still a pain to load them with music.  The new music services need to pick up where the iPod left off and increase ease of use even more.  This is both a hardware and software challenge.  Customers need to be able to register and pay with a few clicks and a few minutes and then be able to access the service across different devices seamlessly.  They then need to be able to access and enjoy the service on their home stereo (TV), their car stereo, their handheld device, and through any internet connection.  The user interface will need to be intuitive and consistent across all of these platforms.

All these things might sound like a pipe dream wish list for an idealistic music nerd.  Well, I guess they are.  However, music subscription services will need to fulfill all of these needs by partnering with ISPs, hardware manufacturers, and Telecoms if they want to solve their main strategic problem.  Once again, that problem is convincing the masses that they need to pay $10/month for access to music.  It’s building a new recorded music business on the back of subscription services that will make everyone (artists, listeners, and copyright holders) happy.  Forget the early adopters, they will sign up well before these problems are addressed.  However, you can’t build a multi-billion dollar company on the back of early adopters alone.