Things you can learn from the music business (as it falls apart)
The first rule is so important, it's rule 0:
0. The new thing is never as good as the old thing, at least right now.
Soon, the new thing will be better than the old thing will be. But if you wait until then, it's going to be too late. Feel free to wax nostalgic about the old thing, but don't fool yourself into believing it's going to be here forever. It won't.
1. Past performance is no guarantee of future success
Every single industry changes and, eventually, fades. Just because you made money doing something a certain way yesterday, there's no reason to believe you'll succeed at it tomorrow.
The music business had a spectacular run alongside the baby boomers. Starting with the Beatles and Dylan, they just kept minting money. The co-incidence of expanding purchasing power of teens along with the birth of rock, the invention of the transistor and changing social mores meant a long, long growth curve.
As a result, the music business built huge systems. They created top-heavy organizations, dedicated superstores, a loss-leader touring industry, extraordinarily high profit margins, MTV and more. It was a well-greased system, but the key question: why did it deserve to last forever?
It didn't. Yours doesn't either.
2. Copy protection in a digital age is a pipe dream
If the product you make becomes digital, expect that the product you make will be copied.
There's a paradox in the music business that is mirrored in many industries: you want ubiquity, not obscurity, yet digital distribution devalues your core product.
Remember, the music business is the one that got in trouble for bribing disk jockeys to play their music on the radio. They are the ones that spent millions to make (free) videos for MTV. And yet once the transmission became digital, they understood that there's not a lot of reason to buy a digital version (via a cumbersome expensive process) when the digital version is free (and easier).
Most items of value derive that value from scarcity. Digital changes that, and you can derive value from ubiquity now.
The solution isn't to somehow try to become obscure, to get your song off the (digital) radio. The solution is to change your business.
You used to sell plastic and vinyl. Now, you can sell interactivity and souvenirs.
3. Interactivity can't be copied
Products that are digital and also include interaction thrive on centralization and do better and better as the market grows in size (consider Facebook or Basecamp).
Music is social. Music is current and everchanging. And most of all, music requires musicians. The winners in the music business of tomorrow are individuals and organizations that create communities, connect people, spread ideas and act as the hub of the wheel... indispensable and well-compensated.
4. Permission is the asset of the future
For generations, businesses had no idea who their end users were. No ability to reach through the record store and figure out who was buying that Rolling Stones album, no way to know who bought this book or that vase.
Today, of course, permission is an asset to be earned. The ability (not the right, but the privilege) of delivering anticipated, personal and relevant messages to people who want to get them. For ten years, the music business has been steadfastly avoiding this opportunity.
It's interesting though, because many musicians have NOT been avoiding it. Many musicians have understood that all they need to make a (very good) living is to have 10,000 fans. 10,000 people who look forward to the next record, who are willing to trek out to the next concert. Add 7 fans a day and you're done in 5 years. Set for life. A life making music for your fans, not finding fans for your music.
The opportunity of digital distribution is this:
When you can distribute something digitally, for free, it will spread (if it's good). If it spreads, you can use it as a vehicle to allow people to come back to you and register, to sign up, to give you permission to interact and to keep them in the loop.
Many authors (I'm on that list) have managed to build an entire career around this idea. So have management consultants and yes, insurance salespeople. Not by viewing the spread of digital artifacts as an inconvenient tactic, but as the core of their new businesses.
5. A frightened consumer is not a happy consumer.
I shouldn't have to say this, but here goes: suing people is like going to war. If you're going to go to war with tens of thousands of your customers every year, don't be surprised if they start treating you like the enemy.
6. This is a big one: The best time to change your business model is while you still have momentum.
It's not so easy for an unknown artist to start from scratch and build a career self-publishing. Not so easy for her to find fans, one at a time, and build an audience. Very, very easy for a record label or a top artist to do so. So, the time to jump was yesterday. Too late. Okay, how about today?
The sooner you do it, the more assets and momentum you have to put to work.
7. Remember the Bob Dylan rule: it's not just a record, it's a movement.
Bob and his handlers have a long track record of finding movements. Anti-war movements, sure, but also rock movies, the Grateful Dead, SACDs, Christian rock and Apple fanboys. What Bob has done (and I think he's done it sincerely, not as a calculated maneuver) is seek out groups that want to be connected and he works to become the connecting the point.
By being open to choices of format, to points of view, to moments in time, Bob Dylan never said, "I make vinyl records that cost money to listen to." He understands at some level that music is often the soundtrack for something else.
I think the same thing can be true for chefs and churches and charities and politicians and makers of medical devices. People pay a premium for a story, every time.
8. Don't panic when the new business model isn't as 'clean' as the old one
It's not easy to give up the idea of manufacturing CDs with a 90% gross margin and switching to a blended model of concerts and souvenirs, of communities and greeting cards and special events and what feels like gimmicks. I know.
Get over it. It's the only option if you want to stay in this business. You're just not going to sell a lot of CDs in five years, are you?
If there's a business here, first few in will find it, the rest lose everything.
9. Read the writing on the wall.
Hey, guys, I'm not in the music business and even I've been writing about this for years. I even started a record label five years ago to make the point. Industries don't die by surprise. It's not like you didn't know it was coming. It's not like you didn't know who to call (or hire).
This isn't about having a great idea (it almost never is). The great ideas are out there, for free, on your neighborhood blog. Nope, this is about taking initiative and making things happen.
The last person to leave the current record business won't be the smartest and he won't be the most successful, either. Getting out first and staking out the new territory almost always pays off.
10. Don't abandon the Long Tail
Everyone in the hit business thinks they understand the secret: just make hits. After all, if you do the math, it shows that if you just made hits, you'd be in fat city.
Of course, the harder you try to just make hits, the less likely you are to make any hits at all. Movies, records, books... the blockbusters always seem to be surprises. Surprise hit cookbooks, even.
Instead, in an age when it's cheaper than ever to design something, to make something, to bring something to market, the smart strategy is to have a dumb strategy. Keep your costs low and go with your instincts, even when everyone says you're wrong. Do a great job, not a perfect one. Bring things to market, the right market, and let them find their audience.
Stick to the knitting has never been more wrong. Instead, find products your customers want. Don't underestimate them. They're more catholic in their tastes than you give them credit for.
11. Understand the power of digital
Try to imagine something like this happening ten years ago: An eleven-year-old kid wakes up on a Saturday morning, gets his allowance, then, standing in his pajamas, buys a Bon Jovi song for a buck.
Compare this to hassling for a ride, driving to the mall, finding the album in question, finding the $14 to pay for it and then driving home.
You may believe that your business doesn't lend itself to digital transactions. Many do. If you've got a business that doesn't thrive on digital, it might not grow as fast as you like... Maybe you need to find a business that does thrive on digital.
12. Celebrity is underrated
The music business has always created celebrities. And each celebrity has profited for decades from that fame. Frank Sinatra is dead and he's still profiting. Elvis is still alive and he's certainly still profiting.
The music business has done a poor job of leveraging that celebrity and catching the value it creates. Many businesses now have the power to create their own micro-celebrities. These individuals capture attention and generate trust, two critical elements in growing profits.
13. Value is created when you go from many to few, and vice versa
The music business has thousands of labels and tens of thousands of copyright holders. It's a mess.
And there's just one iTunes music store. Consolidation pays.
At the same time, there are other industries where there are just a few major players and the way to profit is to create splinters and niches.
13. Whenever possible, sell subscriptions
Few businesses can successfully sell subscriptions (magazines being the very best example), but when you can, the whole world changes. HBO, for example, is able to spend its money making shows for its viewers rather than working to find viewers for every show.
The biggest opportunity for the music business is to combine permission with subscription. The possibilities are endless. And I know it's hard to believe, but the good old days are yet to happen.