When I think of the music industry, I think of Ben Stiller.
Let me explain.
Ben Stiller’s creative genius, in my opinion, comes from his understanding of the gut-level appeal of train wrecks. Many of the stories he has chosen to tell (especially in his early career) are about characters who, when confronted with a choice, inevitably… invariably, make the wrong one. As the audience, we all know it’s coming, and Ben knows we won’t be able to look away.
So when pondering the near-total collapse of the music business in the 2000’s, and some of the things I saw and experienced first-hand, it plays in my mind as a dark-comedy — written, directed and starring the king of the un-natural disaster film himself… and with a working title of, “This is Fine.”
@RedHourBen, my DM’s are open.
This is Part One of a Three Part Series where I will attempt to explain what, in my mind, brought about the almost total destruction of my beloved music industry. It is part history lesson and part warning. The mistakes made were obvious in hind sight. But many companies today, especially in the film, TV and gaming space, are falling into the same traps of misguided thinking, avoidance coping and fool heartedly assuming the old text books can be relied on like they used to be.
Written while listening to the score for “Matrix Revolutions” by Marcel Dettman, Johnny Klimeck and Tom Tykwer on Apple Music
Killing the Vibe
A hundred years ago, when I dumb-lucked my way into a career in music, one of the first things I learned was that the industry’s real strength was its ability to identify, package and sell cool. Back then, music was about risk, rebellion. It was about changing the way people danced, dressed… even changing the way they thought about the world. The people who worked at record companies were misfits, deviants and fans… just like their customers.
But then, that all changed.
“When it all started, record companies were run by people who loved records… they got into it because they loved music. Now record companies are run by lawyers and accountants.” - David Crosby, legendary singer/songwriter, NPR (2004)
The music industry, for many years, was comprised of independent labels that were driven by visionary talent scouts who understood what music lovers wanted. Why? Because they were one of them. However, toward the end of the 20th century, those independent companies consolidated down into just a few, so-called, majors. And as those companies got more successful, they were gobbled up by publicly traded conglomerates. The dreamers and miscreants were now executives — answering to a board — who answered to Wall Street.
Needless to say, it wasn’t long before the misfits that once roamed the halls of record companies were overrun by lawyers and accountants. It was hardly shocking. In fact, as publicly traded companies they would have been crazy not to bring in the suits.
But, unsurprisingly, the soul got sucked out of the building. The intuition and the risk-taking that defined the industry, were suddenly replaced by risk mitigation, third-party market research and quarterly earning targets.
Don’t get me wrong, even before the suits took over, the music industry had a long history of vile business practices. But, in their own sleazy way, it was still about the music. They cared. The music mattered. And they were good at it. Some of the most important artists in the world were nurtured and supported by the industry. But finding those artists, believing in them and giving them the tools they needed required significant risk-taking. It required making long bets. Spending money before anyone knew if an artist would be successful.
All things that Wall Street hates.
So, in a completely predictable way, the system (flawed as it was) began to break down. Gold records on the walls were replaced with pie charts and VEN diagrams. The music that was produced pushed no boundaries. No new ground was broken. If a record was selling, the sound was immediately re-created by another artist… and then another. A creative death cycle began. Quality was replaced by quantity. It wasn’t about art, it was about moving units.
The industry got out of the business of making music, and into the business of manufacturing and distributing little plastic discs.
Going Vertical
After arriving at their new “cool” job, the number crunchers pulled out their MBA text books and flipped to the section called “vertical integration.”
To be fair, the way the music business handled its manufacturing and distribution prior to going public was pretty ridiculous. Most of the manufacturing of their products were handled by a convoluted network of independent factories or “licensed” manufacturers. These smaller companies made a killing manufacturing millions of CDs and the record business threw away a fortune supporting companies they didn’t own. The same was true with distribution companies (meaning the companies that owned the warehouses, the mailing lists, the trucks that delivered the CDs to the record stores, etc.)
So the MBAs weren’t completely wrong to see the melange of little companies eating into the their margins as an area they needed to address. However, in hindsight, vertically integrating their manufacturing and distribution mechanisms may have been one of the biggest mistakes of the late 90’s and early 00’s.
To pull off the so-called “money saving” venture, they needed to buy up all the little mom and pops and take over the expensive leases on huge manufacturing floors, warehouses and trucks. It was an investment that would require billions. But the costs didn’t phase them. They were publicly traded companies now, and this is just what you do! In fact, they were so convinced of their strategy that a sort of bloodlust took over. Eventually, several of the major labels decided, “Why only own the manufacturing and distribution? Why not start buying up the record stores too?”
These were, in many ways, real estate deals. At its peak, it was arguable that record companies owned more square footage of manufacturing, warehousing and retail than other significantly bigger industries.
The problem, of course, was that while they were spending all of their time vertically integrating a terrestrial distribution network for their physical products, they completely ignored a dramatic shift in consumer behavior.
It’s easy to see why they were blindsided. For the entire history of the music business, they were in control of their customers. They dictated everything from who to listen to, what format to listen to them on and how much it costs.
Suddenly, a new technology that created the ability to distribute music over the internet would change all of that.
As a partner in a record company that was part of the major label system at that time, I saw up-close how the industry reacted. Honestly, I’m pretty sure they didn’t understand it at first. They thought this new digital music technology was primarily about enabling customers to access massive libraries without paying. And they were understandably pissed. But, the industry’s problem was way bigger than that:
Manufacturing plants cost money whether they are manufacturing anything or not. Trucks that don’t deliver goods still require lease payments, insurance and drivers on the payroll. Record stores that don’t bring in customers become nothing more than giant, expensive boxes of air.
In the early 2000’s, the challenges facing the industry began to compound:
1. Much of the music they were making was by committee, demographics-driven and watered down. Thus, it wasn’t connecting with consumers as well as before. Ironically, their efforts to mitigate risk actually made sales go down.
2. The record business had shifted from creators of cultural influence to… landlords. Their attempts at vertical integration placed a multi-billion dollar anchor around the industry’s neck.
Even as the shift in consumer behavior towards digital discovery and consumption of music became more and more evident, the industry was hamstrung. Revenue was down, costs were up dramatically.
The industry had once been a powerful force, but now the world was moving away from them. And there was virtually nothing they could do.
So the industry did what it had to… it came up with another really terrible idea: Kill their most powerful, free marketing channel… MTV.
Stay Tuned:
Napster Didn’t Kill the Music Industry… It Killed Itself: Part Two
If video killed the radio star, then we must kill video
Coming Soon!
Napster Didn’t Kill the Music Industry… It Killed Itself - Part One