Rolling Stone Asks Who Killed The Record Industry?

Rolling Stone has a great article on the decline and pending death of the record industry.

It's the first in a two-part look at the record industry including numerous candid inside comments from industry players:

"The record companies have created this situation themselves," says Simon Wright, CEO of Virgin Entertainment Group, which operates Virgin Megastores.

"They left billions and billions of dollars on the table by suing Napster -- that was the moment that the labels killed themselves," says Jeff Kwatinetz, CEO of management company the Firm.

"The record companies needed to jump off a cliff, and they couldn't bring themselves to jump," says Hilary Rosen, who was then CEO of the Recording Industry Association of America. "

"A lot of people say, 'The labels were dinosaurs and idiots, and what was the matter with them?' But they had retailers telling them, 'You better not sell anything online cheaper than in a store,' and they had artists saying, 'Don't screw up my Wal-Mart sales.' " Adds Jim Guerinot, who manages Nine Inch Nails and Gwen Stefani, "Innovation meant cannibalizing their core business."

This is a classic case of disruption in six easy steps:

• Early download technology initially looked inferior
• Industry can't see a way to embrace the new thing without hurting its current business partners and destroying its business
• Industry barricades itself with high-margin products and new proprietary technologies
• Apple iTunes has an entirely different business model  without support initially from major record labels
• Eventually the bottom drops out on the old market
• The new market is hugely profitable and large for the disruptor.

The Rolling Stone analysis is correctly framed as a post-mortem because the disruption actually occurred several years ago.  Are other industries facing similar disruptions also in denial?

• Newspaper mergers would not seem to cure the 40-year decline of readership or relevance of newspapers
• Advertisers are increasingly turning away from television because its audience is shrinking
• WiMax technology is deemed too low quality to replace cell phones and landlines so most telcos ignore it

**Other Information**

Ain't nobody at Apple complaining these days. Wikipedia has a great chart to track iPod sales.

Shelly Palmer says look for TV stations to reformat and automate the way radio did in the past 20 years. Fox's plan to sell 9 of its 35 profitable local stations may be the early warning sign. "One can easily imagine a vast network of fully automated television stations across America with most of their revenue coming from the use of their new government granted digital spectrum."

Forrester Research has a good take on the shrinking of network television: "The top of the pyramid is getting narrower -- fewer big audience hits. And the bottom is getting broader -- more videos on YouTube and its brethren. The real problem happens next -- in this big morass, how do you find what you're looking for?"

A reader emailed in this comment: Remember when the Vinyl album industry was fighting off the dreaded eight-track menace of the 1970s? Look at this...

 

Comments

[Roger Anderson]

This is all great data to support the belief that a transformational change is one that makes prior art and knowledge obsolete.
The recording industry, over the years, built a pyramid scheme that is now collapsing as the middle men, the art and skill that is now obsolete, in this process are replaced by new middle men.

I'm not sure the other pieces, artists, consumers, and studios have been changed much. What we see is a change in the method of discovery, distribution, and display (I needed a third D there to preserve my alliteration.) Actually, display versus play might be a good word. We are after all in the post-MTV world. MTV having lost most of it's music. Speaking of obsolete art and skill...