Edward sits on the steps of the center. Distraught. Head in his hands.
His therapist, an older gentleman whose accent is of uncertain origin, reassuringly says, “We have a saying, Edward — Mecca Lecca Halabaht Beem Sala Beem.”
Hopeful that finally there may be an answer to all of his questions, Edward leans in, “What does that mean?” he implores.
“I don’t know what it means.” the therapists says. “It’s very old.”
- Alan Arkin and John Cusack in America’s Sweethearts written by Billy Crystal & Peter Tolan
Ah yes, the wisdom of the ages. Trusted truths that, even if we have no idea what they actually mean, are still treated as dogma. Of course, there is an argument that says just because something used to be true, it doesn’t mean it still is. Or, better still, just because something is true in one circumstance, doesn’t mean it’s true in every circumstance.
(BTW… I’m working on a new article about the “Composition Fallacy” that seems to permeate so much of our culture these days. Stand by.)
Sometimes the rule books are wrong. In fact, breaking the rules is, at its essence, the very nature of creativity. When done right, it is a beautiful, powerful thing.
What I believe happened to the music industry could be called a failure of imagination. Or, maybe, a lack of confidence. As outlined in the first two parts of this series, when the music business got absorbed into publicly traded companies, the tedious nuances of quarterly earning reports and compliance were entirely new to the existing powers-that-be. It was logical, smart even, for them to bring in MBAs, accountants and lawyers to handle everything.
But that, as it turns out, was the kiss of death. The rule books they used simply didn’t work for creative industries. In fact, they spelled the industry’s doom.
As with all great failures, the post mortem of the music business as it used to be is enlightening. But without a way to apply the lessons learned, we run the risk of repeating. History rhymes, they say. Or, in the mother tongue, Mecca Lecca Halabaht Beem Sala Beem.
There are, in my view, three critical lessons that can be learned from the music industry and they are uniquely relevant in this new era of business called Web3 or The Creator Economy.
Don’t Go Public
Okay, I get it. There will be many who bristle at this. And, lest I fall into my own rhetorical trap of saying one answer fits all circumstances, let me clarify: Don’t go public, if you are in the creative industries.
Creators need money and time. Two things publicly traded companies absolutely hate to give. When the only thing that matters is revenues going up every quarter, then making long bets on creative endeavors is nearly impossible.
There are of course examples today of publicly traded companies in the creative industries who are doing well. Netflix is a great example. But when you really look at it from a product level, Netflix isn’t actually in the business of making movies, or series, or documentaries. They are in the business of selling subscriptions. Their content strategy is more about “flooding the zone” than making great work. Don’t get me wrong, Netflix and the other streamers have made, and will continue to make, extraordinary projects. But, they also make (or acquire) a lot of dogs. Why? Their stock price is directly correlated to the number of new subscribers they add each quarter. The size of their catalog is key to retaining and attracting them. Ironically, their ideal customers are those who subscribe, scroll through the massive catalog for an hour and fall asleep…watching nothing. They took your money and they didn’t have to pay bandwidth costs to deliver content to you — a publicly traded company’s dream. Nevertheless, you stay subscribed. Why? Because with a catalog so large, you assume you will eventually find something you want to watch. Not exactly a creator’s promised land.
The Take Away: Well, duh, if you want to build a company that helps creators create, going public may well be the worst thing you can do. With that said, allow me two caveats:
First, times are certainly different now. When the record companies went public, the internet was in its infancy. The dramatic impact online engagement and commerce had on traditional business has brought about fundamental changes to Wall Street too. So I guess, “never say never” may apply. But still, as far as I’m concerned? No, thanks.
Second, with Web3 and The Creator Economy, it could be argued that tokens (and thus token holders) bring some of the same pressures. There are some similarities, of course. But at its heart there are substantive differences. Token holders on Web3 platforms are as much collaborators as they are contributors. They take active roles through governance, advocacy, providing liquidity, as well as financially benefitting from the success of projects. Nothing is ever perfect. Web3 is no utopia. But it does seem to run counter to the destructive pattern of forcing companies to focus only on their quarterly earnings. That’s a win, in my opinion.
2. Burn the Rule Books
UNPOPULAR OPINION WARNING: Ok, I’m not literally (pun-intended) advocating burning books. But some books, especially books about the traditional rules of business, need to be put on the shelf… like, kinda… forever. Certainly the music industry showed, clearly, that business methods meant for manufacturing companies leads to bad products and ever decreasing revenues in the creative industries.
It is even more out of sync to try and apply those rule books to Web3. Sure, there are elements of the old books that are very smart. But those so-called rules also led directly to the abuses creators have confronted for the last century: the centralization of networks, the stranglehold on distribution and exhibition, the control over data, the throttling of audience access, the manipulation of accounting, the limitations on creator revenue sharing, profit-driven censorship of ideas… the list goes on and on.
The Take Away: It’s time for a new set of rules. Web3 shifts the balance of power away from the centralized systems of creation and distribution, and puts it into the hands of the creators and the communities they build. This dramatic change to the way the creative industries work, will require a new perspective. The old rules, simply don’t apply.
3. Make Business Moral
In the end, what killed the music industry was greed. With just a few basic (but massive) missteps, the industry fell from the most important distributor of culture to nothing more than a vendor of ones and zeros to a couple technology companies. Not tech companies that monetize their product, no — companies that utilize their product as nothing more than a commodity designed to grow subscriptions. A loss leader. The industry is no longer the grocery store. They’re the off-brand milk the store sells to get people to buy higher-margin, sugary cereal.
Web3 fixes this.
There are risks, of course. Humans are gonna human. Greed is a powerful innovator. Therefore, it will take a lot of care and attention to make sure that we don’t fall right back into the same old traps. Unfortunately, examples of this risk are everywhere right now in Web3.
But the basic premise is right. I have said repeatedly that I believe Web 3 isn’t about technology as much as it is a moral construct. It allows creators and communities to “mind the shop.” It turns the creation of art and entertainment into a collaboration between creators and audiences. It aligns the economic interests of key stakeholders and makes them less dependent upon centralized institutions. While the road to get there will be bumpy, we have the best chance we’ve ever had to right the wrongs of the last century. That opportunity simply would not exist without the core ethos of Web3.
The Take Away: Proceed with caution. I admit that I am prone to idealism. It has been core to my work over the years… and it has definitely cost me, on occasion. But knowing that the goal is always to do the right thing, even if it hurts, makes the arrows and knives in my back a little more tolerable.
The risk of pursuing an ideal is that it may fall into naivety. Believe me, I have paid a heavy price for my blind belief in people and trust in their desire to operate with integrity. My CV is littered with well-intentioned debacles. But those epic fails have opened my eyes to the challenges of seeking transformation in business that, I believe, serves me well now.
So, take it from me friends, we must move into the brave new world with eyes wide open. There is a reason why short term profits and abusive accounting became the rules of the road. They significantly benefit the few who know how to rig the system to their favor.
The power of Web 3 is to create an environment where the only stakeholders that matter are the creators and the audiences. This isn’t a panacea. It will never be perfect. There will still need to be some elements of centralization (platforms and technology that must be designed, built and managed). But if the ideology of Web3 and the decentralization of governance on those platforms is contemplated from the beginning, then the old rules can be thrown out the window. And I’m all for it.
Thought leader and provocateur Chris Dixon (from a16z) has been pushing a really great framing of the difference between the old world and the new one:
Web2 (centralized businesses and networks): Don’t do evil
Web3: Can’t do evil
Look, haters are everywhere. Business prognosticators thought automobiles would never replace horses. They said no one would ever need a personal computer. They thought the internet was a fad.
But, if there is one rule to remember about the future… it is that it is always coming. Web3 allows us to correct the mistakes of the past. It is an opportunity to make sure that our history doesn’t rhyme this time around.
Which side do you fall on? As for me, I will always try to be on the side of change. Not for change’s sake alone, but because change is necessary.
The future is uncertain. There are many challenges ahead. But who knows, we might just change the world. After all, “Life is a cookie.” - Alan Arkin, America’s Sweethearts
Dare to join me?
Napster Didn’t Kill the Music Industry… It Killed Itself - Part Three