Thursday, June 21, 2007

What Happened to the Stars? (Thoughts from the What Teens Want Conference, NYC June 2007)

I just returned from the "What Teens Want" conference in New York City. I'll admit, I was skeptical. Much of the agenda was filled with speakers who hadn't been teens for decades, people who care about what teens want but are in no better position to talk about what today's teens want than I am.

That said, here and there during the conference speakers delivered nuggets of real value. Max Kalehoff, VP/Marketing with Nielsen BuzzMetrics, provided valuable data about the size and character of the teen market. And Jason Flom, Chairman and CEO of Capitol Music Group, was brilliant as a comedian, if not as a source of insight about how the music industry might begin to solve its serious problems. As Jason put it: "The music industry isn't fucked. Well, I guess we're fucked right now, but we won't be fucked in the future as soon as we un-fuck ourselves."

You had to be there. It was hilarious. Jason also explained, in a wonderful little bit of round about thinking, how US drug laws killed the music business. That's not exactly how he put it. But that was the gist. "You see," Jason explained, "it's an established fact that a lot of the great artists, the stars, have been drug addicts. Given the level of drug enforcement in the US over the past few decades, a lot of the people who would have been stars are now behind bars." (There's a thought: a new twist on American Idol: "Stars Behind Bars." Do you think the networks will go for that one?)

As bright as Jason is, I think he (and many other major label executives) are missing the point (and the boat). Each of them seems to have someone or something to blame. Jason blames US drug enforcement and thinks that there just aren't any (or many) stars created by the culture today. Others blame piracy and illegal P2P downloads. But a big element of the problem faced by the major labels has nothing to do with these things. Rather, it is directly connected to the Long Tail phenomenon and to the virtual explosion of interesting music and video content during the past decade and a half.

I'll sum it up this way: (1) quality content is cheaper to create and produce than ever before; (2) content is also cheaper/easier to store and distribute than ever before; (3) as a result, the supply of content has grown at an exponential rate since the early '90s. In contrast with this "big bang" generated, expanding universe of content, our available attention - the time we have available to give undivided attention to an audio track, movie or video - has remained pretty much fixed.

The major labels grew and prospered during an era in which content was scarce. They sat atop the one-to-many distribution machine and controlled nearly every element in the distribution chain. They had the content everyone wanted. That was then. Now the labels control the content that 13-15 year olds want. Yes, they have older acts, stars from days past who still have a following (created during that earlier, pre-Big-Bang era), but they no longer have a lock on distribution and no longer have exclusive access to "stars." For an articulate, highly readable and often emotional take on the decline of the major labels and the music industry as a whole,
read Bob Lefsetz.

So what's the problem here? Major labels haven't yet grasped that in a world where content has exploded, the demand curve for content spreads out and flattens. The hits come less frequently and are far more difficult to predict. And they aren't as big. Think about it. Suppose the universe of content is 1,000 songs, and the demand for that universe of content is expressed in the tens of millions. In that world, the odds that any single song will be a hit are pretty good. Now suppose the universe of content has grown to 3,000,000 songs, and the demand for songs has increased only a little. As demand is distributed along the curve, we begin to see manifestations of Chris Anderson's arguments in "
Long Tail." (For a more theoretical and mathematical view, I'd recommend an exploration of Zipfs Law and Zipfian distributions.)

Last December, I attended a Aspen Live, a music industry conference that attracted a number of music industry participants including those from the ticketing, promotion, label, and other parts of the business. During a dinner conversation one evening, I asked Jason Flom how many artists his label (Virgin, at the time) were actively supporting at any given time. His answer, if I recall, was "about 30." Then I asked Sean Gold, the Chief Marketing Officer of MySpace, the same question. (Of course, this is not really an apples to apples comparison; when Virgin signs an artist, its investment in that artist, at least historically, could be expected to be substantial; MySpace does not invest millions of dollars to develop/market an artist.) Sean noted that MySpace was home to artists numbering in the tens of thousands. MySpace captures far more of the entire Zipfian distribution, both the head and the tail, than any major label can hope for.

Ironically, the new economics of the music business demand an approach that looks more like MySpace than EMI. When Apple's iTunes made the single track the basic unit of purchase, it sucked the very life out of the major label marketing budgets. I don't know if they saw this coming. It doesn't matter. In the past, if an artist had a hit song on a recording that sold a million copies, the label could count on at least $10 million in proceeds. This is because in the days before iTunes, songs were seldom available on an ala carte basis. Now if an artist has a hit song that sells a million copies, they are likely to sell only $1 million of product. This decimates the major label marketing budget. And it makes the up front investments in artists a far more risky proposition than was previously the case.

What have the major labels done to address these issues? Ironically, they are like the animal caught in quicksand. They're struggling, and sinking faster, deeper toward an inexorable and ugly end. How are their struggles causing them to sink more quickly? By failing to properly assess the reasons for their current malaise and continuing to blame anything that comes to mind (drug laws, piracy, tech companies, fans, anything will do) for their declining fortunes, they have missed innumerable opportunities to leverage the marketing and distribution vehicles afforded by technological developments. By holding fast to the CD as to a punctured lifeboat, the labels have missed, again and again, the opportunity to take the lead in the developing digital distribution strategies that might have given them the opportunity to survive and even prosper in today's market.

Jason is still looking for stars. And he's a smart guy. Much smarter than I am. After all stars are what the music business has always been about. Or at least that's how it looks to the folks who run today's (yesterday's???) music business.

But maybe it isn't about stars anymore. Maybe it never was about stars. Maybe today its about more about music and the people who listen to it and share it. Maybe it's about what I like and you like and the millions of others like us who are listening to music and recommending it to their friends. I don't know where the major labels fit in a many-to-many model. Maybe they have a place. And maybe not.


Grandpa Mojo said...

Nicely put, Tom.

I would add another thought as well:

At the conference, several speakers mentioned how this generation expects major companies to "give back" and also to be somewhat altruistic in their approach. As one presenter put it, "If you aren't being genuine, teens will pick up on that in an instant and you'll be discarded."

So, on that thought, let's think about what the majors have done "for" (TO!) the music industry:

1) Shoved "stars" down our throats. - Do you really think Britney Spears comes from the same musical development line as the Beatles, Elvis, etc.? - So, yeah... where are our new stars? - I doubt the majors could ever find them.

2) Kept prices high on CDs after promising that "prices would drop after initial development costs were recouped", etc. etc. - It's well known that the cost of mass-distribution of CDs is grossly out of line with what they charge. (Anyone remember the lawsuits for CD over-pricing?)

3) Smaller labels chose to give opportunities to more experimental acts - and (crazily enough) nurture good young talent that was often snapped up by the larger labels. (Remember when "Farm Labels" were all the rage?) - Seems like that was a pretty good sign the majors had lost their touch at finding "stars", eh?

4) Forced musicians to foot an inordinately large bill for ALL of their development. - Is there any other business model that involves forcing the "product" to fund the product's own development? - (Imagine asking Hollywood stars to foot all of the production for the blockbuster movies they are in!)

... and the list goes on and on.

Perhaps this isn't a "technical" enough analysis - but my gut tells me it's just karma coming back and kicking some ass.

saybo said...

It’s amazing how short of memory the music industry has, and how they can't get out of their own hole. I say it's their own hole because of 2 things they did to change the industry. 1) The single song model of sale used to be the primary sales model, it was dying in the cassette days, and got killed by the CD by not having/pushing singles at a price consumers felt good about . 2) They killed the previous long tail distribution (aka record stores) by making huge sales deals with Big Box stores (& allowing the Big Boxes like Target to sell all music as a lost leader).