Mar 09
20
The Delicate Balance of Business Ecosystems
I was in a venture with MCA in the publishing business which lasted for a very successful eleven and an half years. It ended in the early 1990’s I signed some big Australian acts during that time including Tommy Emmanuel, InXs, Wa Wa Nee, Noiseworks and of course Keith Urban.
MCA, at that time, was a songwriter publisher. I remember having a discussion with Leeds Levy, the President of the company, and suggested to him that he needed to change his business model, because it was too hard to make a profit from his strategy.
The strategy at the time in the US was to sign songwriters who were up and coming hit song writers and to put them into a demo studio so that they could record their songs, and then to pitch those songs to record company A&R men. The best songs would be recorded and would become hits. The company lived and died with the strength of the songwriters.
This model was a carry over from the early days of publishing, when the hit song was the unit of sale in the form of a single disc with two tracks, one on each side. But time had well and truly moved on, driven by the advent of first the long player and then at that time, the entry of the CD. And consumers were interested in bands, not singers. And they were interested in albums.
I said to Leeds that he should change the model. Keep the stable of song writers that he had. Some of them were fantastic and repetitively had hits. The only problem was that the revenues from songwriting come from two sources – the performances and the mechanicals. The performances are generated from radio play predominantly. The mechanicals are the songwriting revenues that come from the sale of records and CD’s.
But the revenues for the record company don’t come from the single. They come from the sales of the album. So the record company puts a significant effort into shifting albums, because that is where the profit is for them. They want the single to get airplay to sell the album, but they didn’t care about single sales volumes except as a means to the end of selling more albums.
On the album there were typically ten songs. So if the single was one of those songs following the MCA model of the time, all you would earn would be one tenth of the available royalties.
I suggested that MCA should change its model and sign up recording artists instead of songwriters. Recording artists all wanted to be writers, and by signing the artist you were investing in what an A&R man had already made a decision about (if you signed an act that had been signed to a label), and you stood to make nine tenths of the available income from the songwriting if they couldn’t write their own hit and had to outsource it.
It was simple economics and an understanding of the ecosystem.
And that is also why in Australia I signed artists more than songwriters. I did pretty well at it too for some time.
The key in this though is not just understanding the economics. It is about understanding the ecosystem. And ecosystems are quite complex generally.
Now with the advent of the Internet and file sharing the ability to develop workable business models is a challenge to everyone in the content industry. Some of them are pretty visionary and want to make changes to existing models to reflect how consumer habits are changing. Some of them want to just hold on to the way things have been.
The people who want to hold on to the past are still driving a good deal of the decision making in the content industry, because the next business model is still probably just around the corner and out of plain view.
When it can be seen and is proven it will be relatively easy to figure out how to make money from it, just like it was relatively easy in retrospect for me to tell Leeds Levy that he should change the company policy away from signing writers into signing artists that could write.
While we are waiting for the next business model to come into plain sight there is a heightened amount of risk involved in whatever you may choose to do. And for the most part, executives who have historically been taking home millions of dollars each year, don’t want to increase the risk and take home a pink slip instead of a seven figure bonus. So nothing changes.
Except that it does.
The consumer changes. And unless you are on the right side of consumer sentiment you are definitely increasing risk.
So this is the dilemma.
The other part of this enigma within a conundrum is that consumers have changed in their psyche.
The seed that was planted by Edward Bernays around 1919 at the end of World War One has finally grown to full maturity. That seed was a meme. The meme was: To change America from being a needs based society into a desires based society.
Edward Bernays was the father of PR. He was the nephew of Sigmund Freud and he used much of Freud’s thinking (among other ground breaking psychologists) to conceptualise how to achieve this change. The meme travelled around the world, and we now have a global society that is not just desires driven, but is also programmed to want instant gratification.
It is this gratification that adds an interesting and very challenging fourth dimension to being able to describe and analyse the current content consumption ecosystem and it is that aspect that needs considerable thought in order for content owners to be remunerated and consumers to be able to have access to content, legitimately.
There are also people who think that copyright law is wrong as it stands. (See this video which features some very visionary economists from Washington University who argue that copyright law and patent law are too restrictive and constrain free trade). I happen to agree with them.