The Most Stupid Business Decision You Can Make Is To Resist Change

By David Eedle |

It is a certain sign of a successful business operator and entrepreneur that they learn how to adapt to changing market conditions, indeed, the very best are people who interpret the zeitgeist and transform their businesses based on accurately predicting market trends.

A stand-out example of an industry sector that completely failed to predict and adapt to trends is the recorded music business. Eight years ago industry pundits were prophesising the end of the music industry. Record companies were seeing their CD sales decimated by illegal and legal download services.

The music industry responded by suing thousands of teenagers and ensuring they entered adult life with a legal judgement recorded against their names. The US music industry ceased that tactic in mid-2008 having launched actions against 35,000 people in five years for swapping songs online. Almost all settled, on average for around $US3,500.

Astoundingly the Recording Industry Association of America’s legal costs exceeded the value of the settlements.

The Association has now turned to a strategy of endeavouring to seal deals with internet providers to cut off the internet access of persistent offenders.

“We’re at a point where there’s a sense of comfort that we can replace one form of deterrent with another form of deterrent,” said RIAA chairman and chief executive Mitch Bainwol. “Filing lawsuits as a strategy to deal with a big problem was not our first choice five years ago.”

The music industry has long seemed incapable of presenting itself to its customers as anything other than a litigious enemy.

The obvious riposte is perhaps they should have gone with Plan A! Whatever it constituted, could their ‘first choice’ conceivably have been worse in the face of the distrust and disharmony the industry has spent all these fostering in the marketplace?

In a lovely piece of analysis last year entitled ‘The Biggest Industry Mistakes Of The Digital Age’ the music industry rated two mentions.

Firstly for allowing the largest music retailer in the world to be a computer company, not a business in any other way associated with the music industry – of course we’re talking Apple with the iTunes online music store that is just about to rack up it’s 10 billionth download.

“Perhaps because, like a lumbering shipping vessel, the labels, used to bullying around an entire industry of artists, distributors and broadcasters, were simply too slow to recognize that the world was passing them by…”

And secondly for completely failing to improve their base product – the CD. They failed to innovate their most fundamental offering, and to understand that what people would want was streaming media, not data tied up on a slim plastic disk.

Other companies have at various times sought ways to exploit the music industry’s open warfare with its customers. In 2004 Pepsi hired a number of teenagers who previously incurred the wrath of the music industry’s lawyers. The job? To feature in an advertisement during that year’s Super Bowl promoting a giveaway of 100 million song downloads for Pepsi drinkers.

Forrester Research produced a terrific report in September 2009 ‘The Product Innovation That The Music Business Can’t Do Without’.

The report “lays out a radical vision of the future of music products. In the report we suggest that a comprehensive programme a product innovation is necessary to save the music industry from the current Media Meltdown it finds itself in. The CD is dying, the 99 cent download model clearly isn’t enough (nor is live), and ad supported and subsidized models all have much distance to go.”

Forrester says the obvious challenge is how to convince people music should be paid for – I’m not so sure, iTunes and 10 billion downloads says a very large number of people have wrapped their heads around that concept.

But they are absolutely on the money:

“But we believe that even more needs doing in addition to this, most pertinently a radical overhaul of the core music product. The album has been with us for exactly 100 years and though formats have changed, the core product (i.e. a collection of linear songs) has remained largely unchanged. We propose that the straight jacket of album format can now be shaken off and in its place releases can become part of a continual artist-fan relationship with artists delivering a steady stream of creative output.”

A story from the Sydney Morning Herald a couple of years ago neatly sums up the mathematics:

The recorded music industry has changed enormously in the past five years. In 2003, there were about 30 legal download services available; now there are more than 500.

People can legally access about 6 million songs online.

The digital music share of the global music market has moved from almost zero in 2003 to 15 per cent or $US3 billion last year.

In 2003, customers could buy an artist’s release in only a few formats – typically on CD.

Last year, Justin Timberlake’s Future Sex/Love Sounds was released in 115 products or formats (including ringtones, mobile full-track downloads, video, iTunes and others) which sold a total of 19 million units. Only 20 per cent of its sales were CDs.

I for one poo poohed ring tones as a business model – why on earth would you pay $5 for 30 seconds of a song when $2 buys the whole thing on iTunes? I was completely wrong. For example a couple of years ago pop group The Pussycat Dolls sold close to 80,000 ringtones of songs like Don’t Cha and Beep while their album only sold about 50,000 copies. Now the zeitgeist is shifting again, with ringtone sales falling last year, and instead ‘ringback’ tones perhaps on the rise.

My concern is that even if the music industry decided to embrace some internal cultural change, and to finally come to terms with the new natural order of the music retail business – a natural order governed, as always will be the case, by the customers and the marketplace, their brand might be so irrevocably damaged that customers cannot be convinced of the change. Do you reckon the tens of thousands of average people on the street who coughed up an average of $US3,500 to settle litigation a few years ago form a favourably disposed and viable customer base for a new-look, enlightened music industry?

The music industry has long seemed incapable of presenting itself to its customers as anything other than a litigious enemy. No wonder people ‘illegally’ downloaded their product.

The inevitable conclusion for me is the most stupid thing the music industry did was to resist the change. Who knows how long they will take to recover. Please don’t allow your business to suffer the same fate.

This is an expansion on a part of a speech I gave to the NARPACA Ticketing Professionals Conference in Sydney in February 2010.

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