Umair Haque / Bubblegeneration

Thursday, October 11, 2007

Research Note: Death of an Industry

Last week, I pointed that Radiohead's move to open pricing was a really big deal, and that it would bring the industry's dominant design crashing down like a ton of bricks.

From a strategic pov, this was inevitable - but the speed of this deconstruction has taken me aback - it's happening so fast, it's hard to keep up.

In the last few days, we've seen a flurry of announcement from artists like Jamiroquai and Oasis - and now Madonna - actively trying to redesign the value chain.

This is big stuff. A lot more important, from a strategic pov, than yet another big media 2.0 acquisition (YAB2MA, look I coined a new phrase just in term for Zeitgeist :)

These acqs are increasingly driven by an obsolete approach to strategy - chasing shifts in supply and demand (rather than triggering them). You can safely ignore them - the vast majority of them won't pay off.

What's happening in the music industry, otoh, is going to reshape the production and consumption of media. I have meetings today, but over the next few days I will post some notes about the deeper issues. Feel free to leave requests for issues/problems/etc to discuss in comments.

What you should note, for now, is just how much sheer value the suits have destroyed, through their utter willful and neglect of anything but near-term profitability:

"...The paper, quoting people briefed on the Live Nation deal, said the package includes a general advance of $US17.5 million and advance payments for three albums of $US50 to $US60 million. (Album advances are generally recouped from sales income."

Think about that - the biggest star in the world, arguably, is worth (much) less than even a Myspace at acquisition; her value is more on the order of a small-mediumish 2.0 acquisition like Last.fm.

That's fascinating - and deeply, deeply telling. There is a deep problem with how and why firms exist when they can destroy this much value and still persist.

Final note - I found this bizarre post by SAI absolutely fascinating. Is this the point we've devolved to in analyzing firms? Recommending that they simply focus on diminishing near-term returns...to the point of extinction? It speaks volumes about why the relationship between the Street and the boardroom is so toxic.

-- umair // 10:18 AM // 5 comments

Comments:

Right on. This is the exact direct to audience (directly on the edge) relationship creative industries need to adopt.

Now, I've been at a few TV industry things recently, and one of the mantras they are touting is "we don't want to make the same mistakes the music biz did moving to digital" while quite clearly (for the most part) following that exact same path.

Meanwhile, when I tout the idea that independent creative teams, production groups might bypass the traditional TV mechanism to sell direct in a tiered way to their audience, or selling ads or sponsorship directly and pocket 100% of the cash it sounds like "ooh, some way off" to these ears.

This collapse of the distribution chain and wholesale removal of the middlemen will happen in TV faster than many will believe. Hold your breath.

(oh we launched by the way... http://www.tioti.com )

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paulpod // 4:26 PM

What wonderful news! 2008 promises to bring a landslide of destruction to the Recording Industry and I couldn't be happier about it.

Big name artist after big name artist is quickly changing their industry and they're busy executing lawsuits against working poor moms for a couple hundred thousand dollars. Its really quite entertaining to see how clueless they are.

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Marc Love // 5:44 PM

Thinking about how this helps the "filtering"/search cost issue, which I believe is the lynchpin issue holding back a "discontinuous" increase in music consumption.

Thoughts on the intersection here?

I'm thinking: market determined prices = prices actually communicate information about quality...adding another layer of info that helps separate the wheat from the chaff.

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Ethan B // 6:59 PM

in your original post on radiohead's pricing strategy you seemed to suggest that open pricing was more dominant than free pricing.

can you share some more insight into your rationale?

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kid mercury // 7:09 PM

Okay, so the execution was there but the intent lacking:

"Radiohead MP3 release a tactic to lift CD sales"

Thoughts?

I find it bizarre that antiestablishmentarian Thom Yorke would let this fly...

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Ethan B // 1:55 AM