The wrong war, in the wrong place, against the wrong people,
My friend Stefano Mastrogiacomo, in his recent Lords of management book (coming out soon in English), offers a strategy for managers to make sure no one on their staff threatens them in the war for promotions: put the wrong people, in the wrong meetings, to discuss the wrong topics. This is exactly what the music industry has been doing for the past 15 years.
As a long time observer (I was on the team launching the first music web store in Switzerland back in the nineties), I quickly had an intuition the industry was on the wrong path. I deserve no credit for that. It is easy to see something goes terribly wrong for a business when it starts to sue its clients, and to make the life of those who paid miserable (remember the “CDs won’t play in your car because of copy protection”? A problem downloaders never had).
Shortly after came the downward spiral of profits. At that moment intuitions began to be replaced by hard facts. How can profits free fall when the usage of music spreads like fire? Something was obviously wrong.
US recorded music revenue in 2011 dollars – theunderstatement.com
Then came the studies and the numbers. This from a 2007 blog post:
Another study revealing the obvious: downloads are what TV is to DVD: a free teaser that actually increases sales in the long run. [...]
When assessing the P2P downloading population, there was “a strong positive relationship between P2P file sharing and CD purchasing. [...] The study estimates that 12 additional P2P downloads per month increases music purchasing by 0.44 CDs per year.
Today comes another piece of the puzzle, an insight into the usage of the various channels available to move music around, from peer to peer to offline swapping. The conclusions are surprising, showing how the crusade against online file sharing is off target both in its concept (most of the music moves offline) and in it’s aim (digital lockers like megaupload account for only 4% of swapping):
15 percent of all acquired music (paid + unpaid) comes from P2P file-sharing and just 4 percent from cyberlockers. Offline swapping in the form of hard drive trading and burning/ripping from others is much more prevalent with 19 and 27 percent respectively.
This leads to the, for us, surprising conclusion that more than 70% of all unpaid music comes from offline swapping.
In a post last week, I was talking about how success can make you arrogant, and how in business arrogance is often the equivalent of blindness. Here is another example, an industry that had to face a disruptive innovation at the peak of its power. The result has been well documented: a war against clients, efforts to shut down systems generating free marketing, and above all a complete lack of innovation.
What can we learn from the above? A few ideas:
- Try to always fight through positive rather than negative measures. Suing customers is a negative, slow and costly way to solve a problem. Testing new ways to download music, support efforts of artists and entrepreneurs exploring new models, trying things to see if they grow into something: that’s a positive way to fight. To take a famous example: instead of putting millions into Hadopi, give it to startups who reinvent the industry and really solve the problem.
- Business decisions are better when based on facts. Intuitions can be very wrong, experts can be wrong, media can be wrong. Seek the facts, even if it takes a bit more time.
- There are always weak signals out there. I remember a 1995 article in Wired (couldn’t find an online version) offering a detailed timeline of what was set to happen to the music industry, step by step. The manual was available in the mid 90s. Here and there, innovation happened, thanks to artists (Prince giving away his album in 2007, Radiohead and the name your price experiments, etc) and entrepreneurs (magnatunes in 2005), even video games (Motley Crue made more money from Rockband than iTunes in 2008). It is all about listening. A simple subscription to the right magazine can save you millions.