Umair Haque / Bubblegeneration
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Design principles for 21st century companies, markets, and economies. Foreword by Gary Hamel. Coming January 4th. Pre-order at Amazon.

Monday, December 13, 2004

EMI vs File-Sharing

Tony Wadsworth is the Chairman of EMI, and wrote this piece in the Guardian, in response to some of the Guardian's research on file-sharing:

"...Everyone has a view of today's music industry, but for those of us lucky enough to work in it, some of those views can seem far from reality. In response to research on digital music carried out by Guardian Unlimited, here are my Top 10 myths and misunderstandings.

1.The i-Pod explosion will kill CD sales.

i-Pods and other MP3 devices have given lapsed music fans renewed interest in music and they need "content". Many consumers are buying new CDs to load via their PC, and recent British figures show album sales are at an all-time high. What we care about is bringing as much quality music to as many people as possible, in as many ways as they want to receive it, online or on a physical format."

This is obviously bad logic. iPod penetration in the UK isn't high enough to challenge this conclusion yet. In the States, there is a correlation between iPod sales and declining CD sales. In either case, this is a massive strategic error: iPod tracks and CD's are substitutes - you can't wish this away.

"2. Unauthorised use of P2P (file-sharing services, like Grokster or Kazaa) promotes sales and so is a good thing.

Music companies invest huge amounts in helping artists record their music. It's the right of the people involved in that process to decide how that music is made available and whether they want payment for their work. If unauthorised P2P becomes the only consumer experience, musicians and producers will be starved of investment."

Another massive strategic error. There's plenty of evidence to show that viral mechanisms promote experience goods in particular very effectively. Ask Bzzagent for some numbers. The claim that major record labels 'invest' in artist development isn't and hasn't been true for many decades - marketing is by far the biggest cost driver (and still rising). In either case, the point is that P2P isn't going away, so telling people 'it's bad' is an error - it's ignoring reality.

"3. Record companies are anti-downloading.

We believe that the net is a fantastic way to listen to new music and get into styles of music you otherwise might not hear. Through artist and official retail websites we're offering brand new content through streams and special offers. We've been building fan bases this way for more than 10 years and have used audience votes to select singles or tell the Rolling Stones what to play as an encore during their live shows."

Give me a break. Both the RIAA and BPAA are suing consumers en masse for file-sharing. But the fact that he thinks EMI's been building fan bases for 'ten years' (!) via the Net gives us a clue about why the industry's making such huge errors - they haven't built a perceptual capability. You can't understand your own industry dynamics if you can't see them.

"4. Record companies are anti file-sharing technologies.

We will work with any company that has a sound business model, including legitimate P2P services such as Snocap, with whom we are in discussion."

See answer to question 3. Also note that 'legal' (ie, price per download) file-sharing destroys value-drivers (and it can't really be called 'sharing').

"5. Record companies can't agree on which file format music should be delivered.

We aren't technology companies and aren't involved in originating those formats, but we would much prefer to see inter-operability across file formats and are lobbying to achieve this."

Any media firm is always a technologist. If they can't be, they'll be vaporized within five years. But this has always been true, from the printing press, to the Gramophone, to the blog. Technological innovation only changes discontinuously - it doesn't disappear.

"6. Digital delivery of music means artists can go direct to consumers and won't need record companies.

Music companies fulfil a key role in the recording and marketing of their artists. Their investment and expertise is valued by new artists trying to get established."

Then do it. Invest in your artists - don't simply market them. The market's smarter than it used to be (you know, information's cheap, etc, etc) - room for style over substance is declining across all media markets.

"7. Record companies were slow to adapt to new technology and so the pirates got there first.

It's a lot quicker to rip something off and offer it free than it is to build a legal framework around the same system so that artists, writers and producers can be paid for their work and develop long-term careers. There are scores of legitimate sites in place now."

...I'm tired now. If you'd done it, we'd be using it - instead, you guys built Rhapsody, and Listen, etc - which offered value props that consumers laughed at.

"8. Consumers have got used to getting music free so won't buy digitally.

From a standing start a year ago, there are now 1m legal downloads a month in Britain alone, a download chart, countless online retailers offering different ways of getting music such as streaming or subscription and a large and growing legal market for receiving music on mobile phones."

Right. Now you're getting it - ask why consumers are beginning to prefer digital music.

"9. With no manufacturing costs, record companies should be able to drop prices.

The risks and initial investment in launching an artist, which includes recording albums; paying artists, producers and engineers; producing videos and developing visuals, remain the same. Manufacturing costs are now put into huge investment in IT and digitisation."

Ha ha. This is the best answer of them all. The argument is that digitization makes the costs of music rise. Clearly, digitization makes aggregate music production discontinuously cheaper - but makes consumption more costly. It only makes costs rise if your strategy is, well, marketing and hyping artists nobody would listen to otherwise.

"10. The record industry is crazy to "sue" its customers.

We need to establish that getting music free without the permission of its creators is wrong, pure and simple."

It's not - that's the point. That's exactly why copyright's broken. Check out our licenses, play with them, think about them.

The saddest part is that British labels have a massive source of future advantage over American labels - they do focus (relatively) more on artist development. But starving this resource now will kill that future advantage. The best way to discover how powerful this resource is to expose it to the market - to experiment with new business models and industry structures. Not to keep it locked up in the basement.

-- umair // 1:05 PM // 0 comments


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