I was in a meeting the other day at which somebody asked me for a copy of a report I had written over 18 months ago. It wrong footed me a bit - I have mixed feelings about sharing something I've done that long ago.
It was a brochure I wrote and self published, about six ways in which record companies could build new revenue streams during these challenging times. When I got back to my office I skimmed through it with dread. 18 months is a long time and thinking moves miles on in that time frame.
I felt a bit embarrassed reading it, but a tiny bit proud as well – just for giving it a go and getting it done. After all, this brochure helped win me a couple of projects. And there it was on Guy Hand's desk the day he hired me to help Terra Firma understand the record business. The opening line of the brochure was quoted in a widely read leader piece written by Robert Sandall for Prospect Magazine. And, people who read it liked it, so I guess it served its purpose at the time. But on re-reading, I wondered, especially given the dizzying pace of change in the music business, how much of what I'd written 18 months back was in any way still relevant in the here and now.
It seems timely to consider this after a few weeks in which we've had a number of interesting things said by the majors – three of them anyhow. First we saw EMI reveal its new strategy of three new operating divisions: New Music, Catalogue and Music Services, along with the soon to be launched D2C 'learning lab' on emi.com. Meanwhile, Warner claimed that all new artist signings would have some element of multi-rights – partial 360 degree deals. And Universal (currently literally wiping the floor with its major competitors) somewhat audaciously revealed operating results that included a growth in revenues of 4%.
Revenue growth in the record business? Is that still possible these days? Obviously the answer is yes, though the vast majority of this was driven from core album business, thanks to two out of four major artist releases now belonging to the Universal roster. Pure market power works, even in a steadily dwindling market.
But my brochure was about going beyond the traditional and diversifying the core record business into new – and more profitable – revenue streams. My six ways to drive new business were as follows:
1. New retailing.
2. Brand partnerships.
3. Personalisation & recommendation.
4. Commercialising communities and D2C initiatives.
5. Customer loyalty.
6. Product innovation & programming.
Aside from evaluating whether this really is a list of coherence rather than a brain dump, I'll take a very brief look at each one, benchmarked against the success of real efforts made by the labels – or new entrants of course - in each area.
The idea here was to take particular titles or repertoire outside the traditional physical retail space and look for new retail partners. The Spice Girls famously did this with Victoria's Secret for example. And Hot Topic, Nordstrom and Starbucks had all entered the CD retail business in the US, so it seemed like momentum was building and might transfer from the US to other markets.
But it's gone rather quiet. Starbucks has scaled back due partly to the tough economy, but also due to a now badly exposed lack of real commitment to music. One-off successes like The Spice Girls have proved harder for the labels to scale across the piece. Meanwhile no new dedicated entertainment retail brand has emerged (I've been approached twice in the past two years by new physical ventures, so there is interest, but no execution). In the UK have we seen Virgin's enthusiastic re-branding as Zavvi, but that's not new. Giving a school grade verdict on new physical retail for music then, over the last 18 months? Has to be a D, for disappointing.
This has been a potential industry panacea for a while now. No question, brands have been a shot in the arm for music in several key ways. One-off licensing deals have secured vital bottom-line income for labels. Some artists (notably Groove Armada) have successfully gone outside the mainstream label system directly through brand partnerships. And the synch business itself has grown impressively, as has public performance of music in general.
The innovation and creativity around individual campaigns (ads, festival sponsorships, TV soundtracks) has been a genuinely great development for the music industry. Listen around you – wherever you go or whatever you see on TV or in film, the music has become intriguing and of consistently high quality. No more jingles and less library music and a lot more money being generated. However, labels have so far failed to truly scale this across the piece, with initiatives like Universal's BrandAmp and Warner's Brand Asset Group fairly quiet after fanfare launches two years or so ago. Labels have not become creative agencies for their artists. For the industry this has to be a B+, but for the music labels, a C+.
Personalisation & Recommendation
By this I meant prioritising licensing to technologies focused around this. Back in December 2005, Gartner Research and Harvard predicted that, by 2008 25% of online music purchases would be driven from recommendation technologies. That just hasn't happened. It's taken iTunes ages to come up with Genius. As ever with Apple, it’s doubtful they'll share data on the impact on sales directly from that feature. Meanwhile, despite a flurry of activity, no real breakthrough has occurred. Pandora has struggled (partly due to licensing prices but also due to the hit & miss nature of the way it works). Recently launched Mufin has attracted rotten user reviews.
Besides, where a service is actually built around recommendation itself, there is and always will be a monetisation problem. Consumers won't pay directly for recommendation. The other issue is the illogical nature of music recommendation and discovery. It can't really be efficiently coded can it? Real music fans are so far underwhelmed by recommendation technologies – either collaborative, music-genome based or otherwise.
Personalisation is another thing entirely. The BBC & Google have both understood the power of allowing users to very easily personalise their home page and web navigation experiences. But when you login to the iTunes Music Store, where exactly is your personalised home page? Spotify is better at this and allows you to personalise the user interface in nice, subtle ways.
So things are developing. But overall the technology, services and licensing in this area has not driven anything like the impact predicted by Garner & Harvard. Combined industry efforts hear get a C- could and should, do better.
Label, Artist D2C
It's funny, 18 months ago I wrote passionately about artists creating communities for themselves (via artist websites primarily) rather than letting others do it for them. I tipped Radiohead to be the first to succeed with the approach – an obvious choice that turned out as expected with the In Rainbows digital release. Right now there is a lot of talk about capturing the artist-to-fan relationship better, and understanding fans individual and collective needs better.
Even if a lot of the talk is hyperbole right now, there probably is something in this. However, no artist has been really successful to date except Radiohead and Trent Reznor (although the definition of ‘success’ might lead to a different conclusion). In my previous post on this subject, I tip Topspin Media to make the most impact for artists going direct to consumer. Anyone interested in why should check out Ian Roger's recent keynote at the Grammy music conference in the US. Ian posted his slides online – recommended reading.
As for label D2C – we have a couple of imminent releases – so I will reserve any judgement until then. But the timing is iffy. With a slew of new digital services recently launched but yet to bed down, and even more coming, I don't think this is great timing for launching a D2C service. The impact could get lost in the crowd. So as I write this, commercialising artist communities gets a C, with label D2C specifically a D, notwithstanding new launches next month.
The point I make in the brochure is that many fans would spend more on their favourite artists if given the opportunity, conveniently. Pre-orders, special-edition versions and fan loyalty schemes could be used to extract more value from fans. This has been done successfully, though again Radiohead and Nine Inch Nails seem to have capitalised more than most on the idea. I have hopes that Amazon, with its deep retailing expertise and scale, can achieve a lot in this area for a wider array of artists. Also, I think subscription services – yet to really come of age – can drive the elusive ARPU that everybody talked about when these first arrived a few years back. I think this is an area with a lot of commercial promise, but I don't think a huge leap forward has been made in the past 18 months really. Grade C.
Product Innovation & Programming
For me this is the single biggest area of impact. With the core music formats – albums, songs and videos being gradually commoditised from the combined impact of file-sharing, unbundling and music ubiquity, classic management theory would suggest that what this industry needs most is a re-invented core product.
But what would that be exactly? Digital brings all kinds of possibilities, such as multi-media bundles and of course, the all-you-can-eat music subscription. I'm surprised that we haven't had more EP type formats in the digital space, though there have been a few examples. I like iTunes Complete My Album as it is a dynamic price model – the more you buy the better the value (though isn't an all-you-can subscription 'complete my catalogue' by default?).
I still believe that long-form video and greater innovation with audio-visual content using digital channels, can improve music as both a product and experience. What did I mean by programming from a label viewpoint? Firstly, every label - the majors especially - needs a production business (most majors do and in Sony’s case of course, SiCo is a major contributor to the bottom line).
Rather than simply making multi-media programmes around artists, new albums or even non-music ventures, this function needs to do much more for the labels strategically. In order to achieve maximum impact for artists, there is a need to make the right content, get it through the right channels and platforms, at the right time and using the right brands as sponsors – all to reach the right audience. This is new in music marketing and is a subtle, strategic discipline that can be offered as a true holistic service to artists. No longer can labels simply spread content around in the hope that some of it will stick and trigger off demand for an album. The game is changing. Look back to my very first post on this blog on HBO – Music lessons from a content powerhouse – for more thoughts on this subject.