Is The Old Business Model Needed To Save The New?

Over the last decade business models have been struck down via the “disruption” type model with a near fanaticism when it comes to “you must do this or else” type attitude that’s emanated via the “disruption crowd” of all that is tech. None is more representative of this model than the music business. Having been exposed to this business from both sides (both as a musician as well as radio exec.) I am well aware that the industry as a whole in many ways was ripe for disruption. However, exactly what or, just how disruptive was the questions no one seemed concerned with. The most dominating force of “disruption” which first bared its teeth was that of “free.” Remember Napster™? This was, for many, the first real shot across the bow that the music industry as a whole would never be the same. And it hasn’t. Yet – that is beginning to change.

The real issue about Napster was that people could via their own personal libraries share those copies with as many others globally so that they too could obtain a copy for their own personal use. (This is a simplified sketch purposely to keep it simple.) The problem here can be seen immediately to the business eye. One copy (as in just one song or CD) on just one person’s hard drive allows millions upon millions of others the availability to “own” it and have the “right” to listen to it whenever, and however they want for free. Great deal for the user. A terrible dilemma for not just the music industry, rather, for artists themselves. Yet, the whole argument was based why “free” was the only model. Technology underscored this point (at the point of a digital gun) with its incessant proclamations of: make it free – or else we’re going to get it anyway.

It took the lawsuit argued and won by Metallica to put light onto the whole subject of “who owns what” in 2000. Personally at that time (as well as still do) I applauded the band for their decision to not only put forth the suit, but also to articulate publicly the “why” in the face of a deluge of outrage from both non-fans as well as fans alike. Why was I for such a decision you may ask? Easy. I knew first hand both from experience, as well as friends, about how one goes about making a living via a musicians life. i.e., How you spend all your money and resources (e.g., time, blood, sweat, and tears) to finally create a “CD” for sale.

Selling just one singular copy to then be distributed to millions for free doesn’t put food on the table, pay the rent, nor buy guitar strings. Needless to say pay for the “Rock-star” lifestyle one dreamed of obtaining to begin with. The industry model was broken and did need disruption. However, disrupting it via breaking the backs of the artists per sé is quite another. And the result is sooner or later true business models are allowed to reassert themselves because “free” can no longer pay the bills.

You are beginning to see “the old” reasserting itself ever so slightly wrapped in some form of “new and improved” marketing. However, the only way to see it, is to be attuned for it. And I believe those notes are beginning to be sounded ever louder, as well as clearer. Yet, you still have to listen.

Right now streaming is all the rage. It has devastated many program formatted terrestrial radio stations. However, there’s more signs that streaming isn’t all it’s been made out to be. And worse – it’s not making any of the profits it was touted (or promised) were surely to be recognized once consumers signed up for “free” then, will obviously be converted into “paying subscribers.”

And if not? They’ll be subjected to that most demonized spectrum of the internet: They’ll be ads! Oh the humanity! You mean like what they have on traditional radio? Say it isn’t so. Just where will this madness stop! Spoiler alert – it doesn’t.

Streaming radio when left to its own devices (such as generating net profits) turns out to be a business model Wall Street is beginning to tune out. Pandora™ has lost nearly 75% of its value from its all time highs of just last year (i.e., from $40 to $11 thereabouts.) And the highly touted Spotify™ IPO that was supposed to debut to adoring fans, I mean “investors,” has since been delayed maybe for another year. Add to this the French streaming service Deezer™ has postponed their planned IPO a few weeks ago citing “market conditions.” Funny how “market conditions” would push aside a business that touted just this past Sept.

“We have everything in place to scale up the business and be a part of the fast growing market, accelerate growth, invest in core market in terms of sales and products and be part of the streaming revolution,” Deezer chief executive Hans-Holger Albrecht, told CNBC by phone.

Well, that all sounds good. And may be music to someone’s ears, but alas, it seems not Wall Street’s. Which is quite perplexing seeing that the markets had moved in a near parabolic ride upwards of within spitting distance of highs never before seen in the history of music, (I mean, markets.) What “market condition” could be better than that? Or, is the “free” ride via money thrown at anything with a ticker symbol meeting the same fate as “free” music? In other words, the moment you want someone to pay – all those once perceived raving investors, sorry, fans disappear. (I understand Deezer is in the EU but Wall Street is the only market that matters. Period.)

What “Free” ride you ask? The same one I’ve been pointing out for years that has been allowing business models that possibly should not be operating in competition with actual sound businesses models or practices (albeit one’s that maybe in need of true disruption via real competitive practices.) QE and “free money” via the Federal Reserve enabled businesses that more than likely should not have been, nor had the availability to stay in business to do just that. And, competed against true businesses and models (e.g., made actual net profits that could be deposited in banks and/or returned to share holders) putting many of these businesses out-of-business unfairly. Here’s a line from an article in Fortune™ that couldn’t sum up my assertions better if I had written them myself. To wit:

“And the main reason it is doing an IPO? To finance a business that is still swimming in red ink.”

Need I say more? Well, I won’t, but the headline of the afore article says it all: “Deezer prospectus makes one thing clear: Streaming music is a terrible business.”

Funny, that’s what they said about Radio, and how streaming music was going to solve all that. Hmmm, what are they going to say next? We need humans deciding or curating music choices, and not algorithms? That would be heresy right? Well, get ready for a big dose of just that.

It’s been touted by many of the platforms that they are either beginning, or actually doing, just that whether it be in small segments or more. However, when Jimmy Iovine now of Apple™ streaming music division says something of the kind – one needs to listen. He’s expressed his reasoning’s why (and one in particular got him into a little hot water with women) and he makes a lot of sense. However, I must ask: Isn’t that exactly what was done before in the days of, dare I say, Radio? As in, a program director and DJ?

So let me get this straight: We busted up Radio to now get a poor imitation of what Radio once was? I mean, think about that for a minute. Radio has been completely disrupted and nearly decimated out of existence so that we can now reassemble the disruption to be more like the platform they disrupted. All in order to make it a business model that works, rather, than the business model that broke it entirely, that now we find, doesn’t work. And, the only way to save it; is to make it more like what it destroyed. Folks, you can’t make this stuff up.

Now yes I know full well that the music industry as a whole (including radio, artist compensation, and more) was ripe for some form of disruption. The old model based on technological advances was in no way going to stand no matter who wanted it to. However, business principles where every entity involved (from creator to customer and all the distribution outlets in between) is allowed and rewarded for their prowess never goes out-of-business. It can only be pushed aside for so long. Sooner or later – money will have to be made and a self-sustaining business is formed. Or – that business model will go out of business. And the business that’s showing all signs of failing is the Wall Street supported model of the past 7 years. i.e., “Here’s a bunch of QE supplied speculative cash to burn through – hope you can do something with it.”

Now it’s the artists turn to show just how insignificant the streaming model is to an artists potential to make actual money of their talent. One needs to look no further than Taylor Swift, and now Adelle standing up to the finger-pointing of “You must do it this way, or else” and doing it their way and selling (yes selling as in people paying actual money) millions upon millions of their songs to their fans. (e.g., customers) Imagine that. Just like the old days where if you wanted to hear an artist when you wanted whenever you wanted – you had to actually go out (or download) and pay for it.

Who’d a thunk it! What is this? Some form of new alchemy? You mean to tell me people will actually pay for something they consider – worth it? My God man, this is revolutionary! How do we capitalize on such a revelation? Surely this must not be known by others. We can be the first – ever. We can make something people like so much, they will pay for it. Amazing! (sorry, I just couldn’t help myself)

As tongue-in-cheek as the above was – it has been the absolute antithesis of the thought process of nearly anything coming out of Silicon Valley over the last few years. i.e., unless it’s for free – you can’t sell it. Unless you sell ads, then, you need to buy it. That’s not a play on words. That’s really been the business model that has been sustained as long as there has been “free money” (via QE) to keep the boats afloat. However, without it? As anyone can see as of late (that is anyone willing to actually look) those held up by all that “free” are beginning to take on water at an alarming rate. (e.g. see any recent IPO as of late for clues)

However, this is really been all about “ears” as in Radio and music. It’s not like something such as this could ever hit the world of disruption where “eyeballs for ads” could ever be broken. After all, just look at Yahoo™. They have a platform that has one of the highest “eyeball counts” of any web platform bar none. Surely, in today’s new web-based model of business they must be doing far better and making more profits than any of its rivals. I mean what’s next? Yahoo decides to split off and sell its internet business as a whole? That would be a funny thing in such an ad-based modeled world. no? Except: Today from the Wall Street Journal™

“Yahoo Board To Weigh Potential Sale Of Internet Business”

And people said it was me who just didn’t get Silicon Valley. No, it seems, it is Silicon Valley that’s waking up to the realization: it forgot what real business truly means. e.g, needing to make real net profits that can be both deposited  and/or dispersed back to shareholders.

For real business, never goes out of business, nor out of style. Just like good music. If people want it because they feel its worth it, they’ll pay for it. And that’s a real win-win for everyone involved. For it’s a self-sustaining model.

© 2015 Mark St.Cyr