Music, software industries converge on business models

BusinessWeek takes a fascinating look at one player that is actually thriving in the troubled music industry: Warner Music Group.

Why is this interesting? Because it offers a useful foil to the software industry, and specifically open-source software.

While Warner's competitors have posted double-digit declines in their businesses, Warner has notched 5 percent growth:

How did [Warner CEO Edgar] Bronfman do it? He cut Warner's artist roster nearly 30 percent, ditching more than 50 acts that were no longer selling well. He refused to pay big bucks to keep the likes of Madonna and Nickelback out of rivals' hands. And he found some $300 million in annual cost savings. Result: Warner had more time and money to focus on new potential hitmakers.

Imagine that: the music industry actually doing what it's supposed to do--find and nurture new talent. Sure, everyone loves to hold onto a "monopoly" like Madonna or The Eagles, but Warner is demonstrating the new economics of music (and software): you have to innovate if you want to survive. You can't rest your laurels on old artists, or old software.

One Slashdot commentator recently anguished whether open source drives software pricing to zero, not understanding that this is the natural effect of free markets. This is why open-source subscriptions are so important to customers, as Red Hat notes (PDF): open-source subscriptions require constant innovation from the vendor in order to justify customer payments.

See the link? Warner's Bronfman is focused on helping find new talent for customers to enjoy. He realizes that he can't find one or two successful acts and milk them for eternity. Warner's model is music discovery, and people are willing to pay for that in part because they don't know how to pirate new acts of which they've never heard. Sure, people will start ripping off Warner once it has created new stars in the music industry, but by then Bronfman will likely have sold off the rights and moved on to other new acts.

In a similar manner, one of the primary values that Red Hat, in particular, provides the enterprise is open-source software discovery. Enterprises trust Red Hat to find and deliver the best in open-source software. Red Hat can and should be doing much more in this area, as today it only works in the operating system and middleware layers, but it's working on improving its value as a "software discovery mechanism" for the enterprise. Stay tuned.

It's not the easy money of yesterday, but there's no point in pining for the "good ol' days" of software and music because the Web has largely destroyed those old monetization models. Warner understands this, as do the SaaS and open-source providers. Do you?

[dascha1]

I'm sure if Bronfman (how do you pronounce this name?) were reading this he'd be flattered by your rational model. However, I have acts of which I wrote for and engineered 20 years ago, and in the last months have started to build an audience (mostly kids). They actually want me to put my new old unreleased catalog of acts from back then online today because they really like it and think it's cool - go figure!

[smwave]

I have a hard time believing that in this age of iTunes and YouTube that the recording industry can make it without revamping their business model. Finding new acts that people want to listen to has changed from getting them from a record store to buying them from the internet marketers. Nobody wants to buy a full album of music anymore unless your a die-hard fan of that composer/actor.

[The_Decider]

Yippee for them.

I don't find it very innovative to go out and look for third rate musicians that a record label can abuse and force their music to sound a certain way.


All record labels look for is a specific look they can market. The music is written in a boardroom and is a minor concern to them.

[daftkey]

Of course, because the record labels still need to market them. Why do you think you don't see so many "orignal" bands? Because people are liars - they don't want originality, they want the type of music they always listen to.

If originality was what people ACTUALLY wanted, record labels wouldn't care to push people into a mold.

[odubtaig]

If that were true, all those record companies would still be making a profit. One of the key things to note about Napster in the '90s was that record sales increased around Uni campuses where it was being used heavily but that almost none of that increase went towards the big five. It went to otherwise hard to discover original artists on small record labels.

Fast forward to the 21st Century and even in times when overall music sales continue to increase (as in the past few years) the dinosaurs blame their own shrinking sales and profits on piracy and competition from DVD sales, never for a moment admitting that their own incompetence is responsible (after all, they don't want the shareholders to kick them out). If you're right then an alternative explanation needs to be found as to why music sales growth is almost entirely limited to smaller labels with original talent while the behemoths pushing out formulaic garbage are selling less in raw units, not even just in terms of share.

The only way these companies can push out such repetitive blandness and make money is if they have a stranglehold on the distribution and marketing channels as they did in the early '90s. It's bad for them that they can't recognise that they need to adapt but if it allows fresh companies run by people with their brains not stuck two decades back to come to the fore then I'm all for it. All those jobs lost at EMI will be replaced in the newer companies.

In the meantime, those companies will continue to be weakened by the idiots at the top until the shareholders finally realise what needs to be done, sales of 50k will be all it takes to have a number 1 single in the UK and Darl McBride will eventually look like a genius compared to these executives.