The key takeaway of today’s bark is this: If you don’t change the rules of the game, someone will.
Yesterday’s blog outlined how the music industry went from individual performers to 5 large labels that sucked the bone dry.
In 2001, Napster was invented. I was working in the music industry in 1999 and 2000 trying to convince labels to distribute their rights online. The labels were so scared and intimidated, they decided to slow play all efforts to reach out to the fans. They wanted to keep THEIR MONEY!!! (How many companies voluntarily give up profits to survive?) Enter Shawn Fanning. In less than 5 years, the music industry radically shifted- from the spider-like big labels to the starfish like companies such as Grokster and eMule. Sure, the industry shut-down Napster. However, the entrepreneurs became even more decentralized. If you don’t change the rules of the game, someone will.
Chart from Starfish and the Spider: Music’s 100+ Year History
The record industry has been hammered in recent years by online piracy and a dearth of mega-hits, with sales sliding steadily since their peak of $14.6 billion in 1999. As CDs sales have dropped, the labels have tried repeatedly to develop digital strategies to make up the difference, and they've all come up short. Last year was the industry's worst yet in terms of revenue losses. The total value of digital and traditional sales dropped 12% in 2007, to $10.4 billion, compared with a 4.4% slide the year before, according to the Recording Industry Association of America (RIAA).
Today, Tower Records is bankrupt and the largest labels have consolidated. And the latest generation of music buyers, kids, have only bought (or “borrowed”) music online. The latest generation doesn’t even know the concept of a record store. The combined revenues of the remaining four music giants is 25% LESS than they had been in 2001. According to the book The Starfish and the Spider, the revenues vanished. “As industries become decentralized, overall profits decrease.” Ori Brafman and Rod Beckstrom.
Where did this revenue go? Did the revenues disappear? No, they do not. Instead, the profits and revenues become re-distributed to Blue Oceans. More on this in my next bark.