Can Technology Replace Record Companies?
The music industry is a business theorist’s dream. It is a great case study, because unlike many industries, it faces almost all the possible issues a market could face (regulatory hurdles, high visibility, innovative, fast paced, low barriers to entry, high barriers to sustainability). It reminds me of an internet accelerated version of the 1980s version of the disk drive industry.
In the wake of my recent article, I have had a few people share articles about the emergence of the company United Masters from stealth mode. For those of you that don’t know, before I started at Sonos, I briefly worked on an application that competed in a similar space. From this experience, I learned that music analytics is a very competitive space with a laundry list of modularized niche suppliers (Swift & Next big sound for streaming analytics, MAX for paring artist for social analytics, WAVO for tour ads). Things to consider…
The Customer Experience
As noted in my last article, the record labels’ customer is the artist, not the music listener. A company’s customer experience really matters. Taking out all the inefficiencies in the supply chain might actually affect a record company’s ability to win business. If an independent artists gets big enough, they don’t want to be treated like a commodity user of a technical platform; Artists and their teams are willing to pay for a luxury experience, especially if the experience comes at the expense of uncertain future gains.
People are Loss Averse
In economics, it is known as the Prospect Theory. Prospect Theory states that people are loss averse, meaning people perceive losses more strongly than gains. If a small artist or team doesn’t go with a big label now, they may not have the opportunity to go with them in the future. A potentially big loss if the artist fails. If United Masters can quantify and mitigate the monetary value lost if an act succeeds, they could persuade some managers to adopt the risk and cost associated with staying independent. Clearly articulating a value proposition for theoretical future gains is difficult.
Conflict of Interest
In management theory, it is known as the Realtor Effect. If a realtor is selling a house, they only get a small percent of the sale. Instead of fighting for incremental gains for the seller, the Realtor’s time is better spent finding other houses to sell, despite whether the extra work is in the seller’s best interest. People on the business side of an artists career are incentivized to have artist’s work with a larger record company, because their dollar per hour inputed is more attractive. The business person is required they spend less time working with an act, but still sees attractive financial returns. The business person’s time is better spent finding and signing new acts.
Platform
It’s extremely difficult to build a platform based on assets you don’t own. Surviving in a company’s supply chain is difficult, because you are ultimately beholden to the owner of the content. United Masters doesn’t own the Streaming Services’ data or distribution network.
To The Point
If someone is going to disrupt the market with a low-end disruption, it would be an industry insider like United Masters’ founder. There are two reasons here…
- Longtime industry insider is the only person familiar enough with the inefficiencies that are actually crucial to win business.
- Low-end market disruption work in a B2B environment. Industry insiders know how to speak to the decision makers on the business side of an artist’s career, which makes them more qualified to explain the value proposition to them.
Conclusion
If you read my article closely, you’ll notice I don’t take a stand on the viability of United Masters. I don’t think asking the question “Do you think the company will succeed?” is the right question — I can’t tell you if the company will succeed. I can tell you how the incentives work. However, just because the incentives line up for the company does not mean they will succeed. But if a company can understand the incentives, they can make the right decisions, but that is half the battle. The ability to design and implement creative solutions to leverage these incentives is what separates success from failure.
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