Is There a Business Strategy Left for the Music Industry Dinosaurs?

As I noted previously, its out with the old and in with the new for the music industry as the internet erodes property rights and the foundations of the entertainment industry crumble. I admit to having a fascination with this scenario, but it is a unique opportunity for whimsical postulation about the product cycle.

When post maturity decline is reeling in your product or business model your reflex is too kick and thrash wildly to try and unhook yourself from the inevitable end. Sometimes the hook breaks and you get away scarred – but when the change is structural (is an this case) another reel soon comes along with an even bigger hook. So if your a record company, its not surprising that you might try to use what capital and market power you have left to try and leverage your way into the new on-line world by doing deals with the major on-line providers to save your skin. But is it overconfident or courageous to invest in the new music world?

In fact, the evolution of the digital internet era and the demise of the pre-digital markets are moving at different trajectories. In the former case, its hard to predict precisely where things are headed as exponential technological innovation propels music making and marketing into the living rooms of millions of musicians. Last year it was iTunes downloads, this year its MySpace personal playlists. In the case of pre-digital markets the end of a product cycle is merely about wasting profits and capital on fruitless litigation – action which is akin to climbing Mt Everest with a broken leg. Large corporations in any industry tend to be very bureaucratic for several simple reasons, they have a lot of employees which a) they have to organize large groups of people in a cohesive manner, b) many of whom are pursuing their own political self-interest rather than cohesive operational interest within the organization, and c) who find it a lot more convenient to take a salary as an alternative to being entrepreneurial. These are necessary qualities when the corporation is operating within a mature and stable market. But not so flexible when the market is chaotic and evolving. The problem is that apart from trying to shut down the competition through litigation, the only other thing the dinasours can do is buy it, then shut it down or leverage it depending on the relative cost of closing the old or expanding the new. In the latter case there are two conundrums. First it is ambitious to try and predict the life-cycle of the new product. You could spend a lot of money on buying a new tech-based industry only to see it overtaken by something newer before you have leveraged it. Secondly, you can only buy a legal entity, and much of the competition has no legal entity (eg. torrents, peer to peer services etc.)

The is another problem. This concerns the fact that the consumers of digital internet products are largely generation Y, and the newer generation P – the Pokemon/Potter (of Harry fame) generation who are aged between 6 and 16. Generation P, even unlike their generation Y forefathers learn’t to manipulate Nintendo control’s at the age of 4 and can six finger touch type 40 wpm at seven years old. They are not consumers of iTunes, but of torrent, peer to peer networks and social networks. And here lies the real problem; they don’t pay, they’ve never bought a record album, or CD. Their parents might pay to download from iTunes but generation P doesn’t know the meaning of the word royalty and they don’t need too to get hold of anything from the 50 year back catalogue of rock and pop.