Winners and Losers - Page 2
December 26, 2000
Generally speaking, companies and industries that address basic
economic needs will prosper, as long as they can adapt to
changing market conditions. Those that are dependent on a
particular technology are in danger. Let's take a look at three
media-related businesses. One will flourish (sorry, folks), one
will fall, and another is too close to call.
Record Companies
Some starry-eyed savants have predicted that record companies
will disappear, but many seem to be misinformed as to what a
record company actually is. Many peoples' image of a record
company seems to conform to that presented in Jailhouse Rock and
other rock-n-roll rags-to-riches movies: a huge conglomerate,
which tightly controls every aspect of the business, from
recording to pressing to shipping, and which is run by squares
hostile to new talent.
Those in the music industry, however, know that in fact there are
tens of thousands of record companies in the world
(The Blue Highway
lists over a hundred specializing in the Blues genre alone), and
the share of the market taken by the small and medium-size ones
is increasing every year. These smaller labels tend not to
resemble the clueless closed shops that the "Big Five" are
alleged to be. Au contraire, many are prime forces in nurturing
and popularizing the genres they represent.
As for the vertical model, it went out of style a decade ago,
just as it has in other industries. A modern record company
provides finance, marketing and planning, and subcontracts
physical tasks such as pressing CDs to other companies.
The explosion of new musical content makes middlemen such as
record companies more important, not less. There are already tens
of thousands of artists offering their wares online. There will
be lots more. Most of them are not all that great, and the
average music fan is not going to go to the trouble to sift
through the Sturm und Drang of the masses on
MP3.com, IUMA,
and other media megamarkets. There will always be plenty of
demand for companies to scout new talent, package it and market
it.
Paradoxically, the one segment of the market in which record
companies will become obsolete is the top end of the market. A
major star with strong name recognition doesn't need a record
company to finance their projects. They can obtain loans, sell
bonds, or find private financing at far more advantageous terms
to themselves. And they can hire a PR firm and an ad agency to
handle marketing, again at a reasonable price.
David Bowie,
always at the forefront of trends, is already doing this, and
other superstars will soon follow.
At the middle and low levels, however, record companies are more
important than ever. The technical aspects of producing a
recording may be fairly simple, but the legal and business
aspects are incredibly complex, and getting more so all the time.
It makes no more sense for a musical artist at the lower levels
to handle the marketing of their product "in-house" than it does
for any other professional. Record companies' business model will
change a lot, as they move from selling CDs to selling bits of
data, and the industry will become more fragmented, but they
won't disappear.
A so-called record company is not dependent on any one technical
format. Their business is simply packaging music for commercial
release. It matters little whether the product is released as a
phonograph record, a CD, or an MP3 file. They can make money on
any of the above, and also from live broadcasts and even
merchandise.
There's lots of good information about the recording industry,
including up-to-date details of both the legal and technical
aspects of Web music, on the
Recording Industry Association of America's
Web site. For a more underground take, check out
indie centre.
Record companies and online music distribution are discussed on
The Online Music Discussion List.
Radio Stations
Unlike record companies, traditional radio stations owe their
existence to a particular law of physics, in this case the fact
that FM radio has a geographically limited broadcast area.
Thousands of individual radio stations serve cities and towns
throughout the world. With certain exceptions, they don't produce
much original programming. Most of them merely broadcast existing
recordings, and indeed many in the U.S. broadcast the same
syndicated programs, adding only a little local content.
The Internet model eliminates the need to have individual radio
stations for each geographical area. No longer limited to the
type of content that local stations offer, a user can choose from
millions of programming choices, from all around the world. The
listener can also tap into local information, such as news and
weather reports, on demand, or could even program their client
software to insert such content periodically, to create a
personalized radio program.
Thus, unless they radically change the way they do business, most
radio stations would seem to be doomed. Lots of them are getting
hooked up to the Web
(see Building an Internet Radio Station),
but unless a station offers unique programming that
differentiates it from other stations, it won't survive. Stations
such as community-sponsored WMNF,
which offers a unique and highly eclectic mix of music found
nowhere else, have bright futures in the online world. The
typical "metropolitan market" station, which merely delivers the
same syndicated playlist as every other local station owned by
its particular conglomerate, adding a little local news, DJ
antics and ads, does not.
Video Rental
At first glance, video rental chains such as
Blockbuster
would seem to be headed straight for the falls. After all, they
own huge inventories of VHS tapes, which were technically
obsolete years ago (although still holding their own in the
market, for now). And the incredibly inefficient and expensive
concept of storing video on a physical medium will soon be
replaced by online delivery anyway, probably at about the same
time that the rental chains finish replacing their inventory of
VHS tapes with DVDs.
Obviously, if video rental chains doggedly stick to their
existing "rent VHS cassettes" model, they'll go crash on the
rocks within a couple of years. But there's no reason to assume
that they will stick with such a doomed ship. Big chains like
Blockbuster have important assets to build on, and if they are
sharp about embracing new opportunities, they could ease into the
coming online world very smoothly, thank you.
Blockbuster is a well-known and trusted brand name, and if they
simply adjust to the new delivery model, they could prosper.
They're already allowing customers to browse their catalog
online, and are presumably gearing up to offer online video-on-
demand someday. They also happen to have a big database of
customers, with information about their taste in movies, which in
the online marketing world is considered valuable currency.
So, record companies stick around, radio stations say bye-bye,
and video rental stores could go either way. What about
retailers? Distributors? Publishers? In such a rapidly-changing
business environment, the key to evaluating the prospects of any
company, or industry group, is answering this question: Does it
address a basic economic need, or is it dependent on a particular
technology, which could be superseded?
Next Wave of the Web
Next Wave of the Web
Meanwhile, the Pick and Shovel Sellers Cash In! - Page 3
|
