Mark Mulligan's Blog

News reports today suggest that Warner Music may be planning for buying some or all of EMI in a post-bankruptcy fire sale.  As a Brit I’d be particularly sad to see EMI meet such a disappointing end, but there is an unnerving sense of inevitability with current events.  I’m not a financial analyst and I’m not going to attempt to comment on the likelihood of Terra Firma meeting its debt obligations.  But what I do think is interesting and relevant from a strategic perspective are the questions EMI’s predicament raises about the role of record labels in the digital age.
 

In fact there are three key questions record labels need to ask themselves:

1. Are they relevant and necessary anymore?
2. Are they innovating enough?
3. What role should they play?

Here's my take on what the answers should look like...

Pink Floyd yesterday won a court battle with EMI over the label’s ability to sell individual songs from the band’s albums in digital format.  There’s a fair amount of debate about what sort of precedent this may set and its implications for the broader digital music market.  In my view though the ruling is an unfortunate and retrograde step that reinforces many of the 20^th century shackles that continue to prevent the 21^st century music business from truly breaking free of its analogue past.

As I proposed in my Music Product Manifesto, the future of a successful music business - if there is to be such a thing - depends squarely upon radical product innovation that follows consumer demand rather than try to dictate it.  The world has changed markedly since the days when the needle was cutting grooves into the master lacquer of ‘The Dark Side of the Moon’.  In those days the record labels had a near-absolute monopoly of control of distribution.  If you wanted to have a copy of ‘The Dark Side of the Moon’ you had to buy a copy in your local high street music store.  But in the digital age the audience has complete control.  If a modern day fan only wants to download ‘Money’ they have the freedom to skip the other 9 tracks on the album.  And it doesn’t matter if Pink Floyd have succeeded in stopping EMI from selling it that way, because if iTunes doesn’t let you download ‘Money’ on its own then BitTorrent certainly will.

One of the most emotive aspects of the proposed BBC cuts (see Nick Thomas' post for more detail) is the closure of niche digital music radio channel 6 Music.  Without getting too caught up in the emotionally charged arguments (or the theory that it could be part of a BBC conspiracy) it is interesting to consider the scale of budgets in play.

Nick's post yesterday made a very important point that the proposed cut backs in digital programming and online represent a tiny fraction of the budgets currently allocated for TV.  Indeed when you compare the likely savings associated with closing 6 Music compared to the salaries of some of the BBC's key presenter talent (see graphic below) you get an interesting sense of where priorities lie.

(The answer to the question in the title by the way is 9.5).

US music subscription service MOG is set to launch in the UKby the end of the 2^nd quarter off the back of a 2^nd round of investment totaling $10 million.

As I posted earlier in the month, the music subscriptions space is going through an important period of transition.  It took much of the last decade to realize that the 9.99 premium rentals model was only ever going to appeal to a niche of music aficionados, and though global premium music subscribers total 8.25 million, we’re still no closer to mass market appeal for premium subscriptions.  And yet we have a host of new entrants including, MOG, Spotify Premium, We7 Premium, Sky Songs, Virgin Media etc etc.  

So what’s changed?  Well, both a little and a lot.

The niche audience is getting bigger.  Firstly, the appeal for premium subscriptions is still a niche addressable audience of tech savvy music aficionados, but that audience is growing. It’s still far from mass market (and never will be) but it’s a more attractively scaled base now.  A few million per major music market perhaps. For a company like MOG that’s plenty enough addressable market. Also improvements in consumer technology and connectivity make it easier to deliver a high quality on-the-go cloud based experience, a crucial asset.

Yesterday fan funded band site Sellaband was declared bankrupt by a Dutch court.  This may be ‘just another digital music start up that burnt through its investment money with no proven business model’ but its demise is disappointing.

Semi-pro sites and services are a crucial part of the digital music ecosystem and despite this setback they will grow in importance.  Services like Sellaband, MyMajorCompany, TuneCore, Sound Cloud and MySpace, each in their own way, lower the barriers in the artist-fan relationship. They enable artists to reach out directly to their audiences and develop engaged relationships that make the fans feel a part of things.  The shift from photocopied fanclub newsletters mailed in the post, to active online fan communities is little short of a quantum leap. The advent of social music tools are the music business equivalent of the transition from the stone age to the bronze age.

Of course if you follow my analogy on, there’s still a lot of distance to go before we reach the iron age and beyond. SellaBand wasn’t the first high profile victim (anyone remember Snocap?) and it won’t be the last. 

Back in December I predicted strong progress for semi-pro sites and services. And though I qualified my prediction with stating 2010 wouldn’t “be their year” I didn’t expect SellaBand’s demise either.  I remain convinced of the potential of these sorts of services and it is crucial for artists and the music industry more broadly that these social music tools prosper.  If they don’t then so much of the Internet’s potential remains untapped.