As 2010 draws closer, I am reflecting back on 10 (well, 11, really) years working in the tumultuous intersection of music and technology. I’m still here, and although I have scars, I have benefited greatly from the experience, and I still hold out hope that both innovation and music will win the day.
While I cannot possibly document all of the lessons I’ve learned throughout an 11 year career, this post is a quick digest of some of the more interesting things to note. I have, indeed, been looking at things through an “economic lens” lately (more on that coming in new posts), and I apologize to those who find this boring or uninformative … I am but one man with one experience, so grains of salt taketh thou.
1. Its Complicated
Whenever a pundit, a colleague, or even my own big mouth would try condense the problems and/or solutions of digital music into a “unified theory” or an “if / then /only” scenario, they were, are, and will always be wrong. There are too many moving parts in an enormously complex system that touches copyright law, technology, government regulation, international trade, pop culture, consumer trends, markets, and … oh yeah – sometimes music. The blame game was, and is ,not only unproductive, but also fundamentally flawed if our goal is to understand how to move forward positively – – which brings me to the next lesson…
2. Incentives Matter and little else does
As I just stated… its complicated, but if you want to try and understand any one trend or event, the best way to accomplish this is to: 1 – understand the parties involved, and 2 – understand their incentives. We naturally do this when analyzing complex interactions, but ultimately, as I look back at all of the craziness and turmoil, it seems especially important to examine them very closely. Now, just because someone acts on their incentive doesn’t mean they make a good decision (see: Bertelsmann/Napster, Sony Rootkit, RIAA suing dead grandmothers just to name a scant few) – – let’s just be clear on that, but if we can understand incentives, things start to make more sense, and it becomes easier to operate within the environement – – mostly because we know where we can and cannot change behavior – – we should mostly disregard behavior and focus on changing incentives. Which, leads me to my next lesson…
4. The Music business is a lot like the Oil business or illegal drug trade than anything else
Hear me out… I am NOT saying that people in the music industry are global warming drug traffickers… I am over simplifying here to help make my point. If we look at the most blamed digital media “culprits” of the last decade (Major labels/ RIAA, Publishers), we can look at their incentives, their core business structure, and then the clash with technology and their downfall becomes easier to understand. The key takeaway is to understand that at its core, the music business is a “rent-seeking” business model, and that has been both its benefactor and now its apparent nemesis. I like the Economist’s brief definition of “rent seeking:
Cutting yourself a bigger slice of the cake rather than making the cake bigger. Trying to make more money without producing more for customers. Classic examples of rent-seeking, a phrase coined by an economist, Gordon Tullock, include:
• a protection racket, in which the gang takes a cut from the shopkeeper’s PROFIT;
• a CARTEL of FIRMS agreeing to raise PRICES;
• a UNION demanding higher WAGES without offering any increase in PRODUCTIVITY;
• lobbying the GOVERNMENT for tax, spending or regulatory policies that benefit the lobbyists at the expense of taxpayers or consumers or some other rivals.
Whether legal or illegal, as they do not create any value, rent-seeking activities can impose large costs on an economy.
Hmm… sound familiar? Cartel behavior and price collusion? Government policies that benefit the firms at the expense of consumers and rivals? Well, normally, its great work if you can get it… being a rent-seeking monopoly normally pays off big, and it did for a long time for the music business when they controlled enough of the supply chain, but they don’t anymore, and now their incentives are no longer aligned with their potential partners (tech start-ups, for example), their “assets” (artists), or, and this is the biggest problem – – their customers. Frankly, their incentives were never aligned with their customers… that’s the nature of rent-seeking. In order to succeed in the present and future, they are going to need to get away from the that model, get off the government tit, and align their incentives with their artists and customers – – sorry — its a lot harder, but welcome to the world other competitive firms live in.
5. This is one broken-ass marketplace.
Healthy marketplaces all have some things in common: free flows of information and transparency, low barriers to entry, pricing mechanisms that clear markets (you know… where supply = demand), clear and easily enforced property rights, competition… I guess I should just rest my case right here.
6. We aren’t Special
Like Schopenhauer, I believe that music is a special art form that is essential to our well-being. Hell – we probably all believe that. Music IS special. As a business, it is not, however, nor should it be. People who work in the music business are also not special. We should be exposed to the same harsh market forces and consumer fickleness as any other industry (the industry would be in better shape if it had been toughened up over time), and just because something’s “not fair” doesn’t mean its not happening (P2p, Oasis breaking up, etc.). Many of the “less productive” discussions I have had during my career have pitted logic against emotion and a sense of entitlement, and this is uncovers the deep cultural problems industries face when they operate for so long in non-competitive environments.
7. The Long Tail is both right and wrong
Chris Anderson’s Long Tail hypothesis was perhaps the most controversial, repeated, and otherwise most “2.0” of all the decade’s digital music memes. In 2009, it almost seems passe, and perhaps the general consensus is that its been partially debunked. Maybe so, but there were events, trends, and companies that broke the mold and did it Long Tail style… how about the Electronic and DJ crowd taking their ball and going to Beatport? How about artists shrinking their businesses and going it alone on the web? How about social media allowing unprecedented connection between artist and their fans? Some of this stuff IS happening. Was it a global phenomenon that changed everything? No, but in the chaos, it appears that the niche can survive and thrive… and like #1 says above… its complicated.
8. There is no silver bullet
This should go without saying, but it seems like every week, either Spotify or some internet tax or some mobile play (or Apple) is getting credited with “being the next big thing” or “saving the industry”. For 11 years going back, every week – – there was something – believe me. All of these things in aggregate will lead to something, and that’s the natural and bumpy maturation of the market, where trial and error eventually lead to better and better models. There is, however, no “one thing” – – no one model or company that is going to restructure or “save” the entire music vertical. In fact, when the industry focused its efforts on making sure there was just “one thing” (LP’s, CD’s, commercial radio), they created seeded their future doom.
9. Careful What You Wish For
When things get bad enough, you look in all directions for a way out – – that’s human nature. I mentioned the “internet tax” above, and to a lot of people, it might seem like a good idea. It would be an absolute disaster for the industry, for technology companies, for everyone. I can’t think of something more harmful to innovation than a tax at the core of the infrastructure. But lot of people will keep wishing for some flavor of government intervention. We can only hope the industry doesn’t get what they ask for. The other “careful what you wish for” lesson I learned is that most indie labels are happiest when they can act just like majors. The law of unintended consequences is well in play, folks… be careful.
10. There is always hope
Is it darkest before the light? I don’t know, but what I did learn is that while things might move 5 steps forward and 7 back, sometimes the trend reverses itself. I still believe that innovation always wins, and I still believe the “industry” is in the process of aligning themselves with customers to create a new, healthy marketplace and business. There are always counter-forces pushing back on this progress, but that will always be true. The one aphorism that always seemed to ring true all these years was “people aren’t going to stop listening to music” — that, I DO believe, and that is ultimately what is most important.