David Stoughton of ValueKinetics writes:
I had intended my next entry on this theme to test the hypothesis we've been developing, by exploring how it stands up when applied to media businesses other than music. But there turns out to be so much more to say about the recording companies that I have decided to continue to evaluate them for now, in the hope that might cast further light on developments elsewhere in media. I've decided to start a related strand to test the hypothesis ... but for now, back to the main theme.
The veil of illusion
What I find curiously absorbing is the big story we are being sold. Industry representatives and media executives like to portray the potential demise of the recording companies as a fatal blow to the entire industry - a disaster from which everyone is a loser, and which threatens to spread to TV, film and of course print. Professional media production is under threat runs the narrative. This is a catastrophe that threatens to destroy an otherwise unmitigated public good (the ever rising tide of media in which we swim). The only salvation lies, we are told, in proper enforcement of copyright. Governments and courts must step in to save what is almost the fourth estate - well in a manner of speaking ... you know ... its all related really isn't it? (What about dragging the church in too, that would make it a full house - ed).
Others have explored the huge questions this raises before me, but I want in a small way to see if the perspective we've adopted so far sheds some light. So in the next few posts (and sticking with the music business as my exemplar) I want to explore some of these issues, including:
- Is it really such a disaster, would anybody actually miss the recording companies?
- Would enforcing copyright really restore the old status quo?
- What survival strategies are open if successful enforcement of copyright doesn't ride to the rescue?
Pillar or parasite?
Let's start with the big one. Are recording companies really so essential to the health of the music industry? Would their demise harm other players in the industry much - or even at all? Does it really threaten the public good? All of which are assumptions you have to buy into, if you buy the hype at all.
I don't for a moment dispute that record companies were once instrumental in bringing performers to a wider audience, and I accept that, within the terms defined by the copyright acts, this - like the advent of publishing before it - worked as an instrument of public good. There is a glorious, if sometimes murky, past there. The question is whether that continues to be the case. Rather than tackle this head on I'll look first at some of the distinct roles in the industry, including that of the consumer, and evaluate the gains and loses of a world without the record companies. We must start with the artists and, in doing so, be careful to distinguish performers from writers as the consequences for each are potentially very different.
Winners and losers under the spotlight ...
Performers - at least those able to wean themselves off the record company habit - have mostly been thriving since costs dropped like a stone and the supposed disaster of the Internet befell them. The live music circuit is up and concert tickets command higher prices than ever. Better still artists can manage their own production, marketing and distribution, giving them greater artistic freedom, and unprecedented control over the format and presentation of anything they release. They also acquire control over the margin they earn; revenue can be traded for exposure and vice versa (and it should be remembered that a relatively low - or optional - price to the customer usually seems to yield a higher return to the artist than royalties ever did).
There have, of course, been losses. The option for a few successful performers to cash in potential future sales for large advances is diminished - at least until someone develops a simple financial vehicle that replaces the recording advance. Huge recording budgets, arguably an indulgence when often so little distinction is added to the product, fall directly on the artist. Overall though the balance seems positive, especially so for new entrants - who now have the same opportunity to reach an audience as anyone else - surely an unambiguous public good.
... behind the scenes ...
Things seem, at first glance, more dodgy for the songwriters. For the most part they have fewer direct sources of revenue, and there can be a long chain before it is collected. Royalties from record sales do offer a more stable income stream than many other sources and that stability is, for now, reduced.
However, the future for writers looks bright, for the following reason. It became expected, while record companies dominated, that most performers would emulate the great singer/songwriters and write their own material. Not to do so was widely considered a mark of inferiority and for a long time diminished your chances of being signed. This conflation of the role of performer and writer - more or less unheard of previously - combined with the relative inflexibility of the album format, inflicted (let's not mince words) much inferior filler on the public, and it definitely did no favours to the songwriters.
A less normative regime - one where the individual performance rather than the collective of songs on an 'album' is the touchstone of quality, and one less dominated by the demands of administrative and marketing simplicity - focuses attention on the quality of the song. Couple this with a more level playing field and performers may come, once again, to rely more heavily on writers. This can only do them good, creating greater opportunity and linking the success of the performer more closely to that of the writer. Performers will find it in their own best interests that writers reap a suitable share of the rewards.
... in a supporting role ...
As to the other players, we should touch briefly on the central ones who have a valid role servicing the artists - as opposed to the bottom feeders who cling to the industry.
Publishing companies are only suffering because their parent companies are. For the most part their future is tied to that of the songwriters; if they do well, then so do the publishers. As a form of agent and broker their role remains valid and is, if anything, enhanced under the new dispensation. Of course most of their parent companies also own big record labels and like to blur the issues in order that the big story isn't undermined.
With the concert circuit buzzing, promoters too are doing well. Some are replacing the recording company as the, de facto, dominant players in the industry. Don't let's cry for them.
And managers! Well the age of the manager as Svengali has arrived - or returned, whichever way you look at it. They are now in a position to take a much more active role in their artists' development. In turn they will need a wider range of skills, and may have to work harder for longer than has sometimes been the case in the past, but overall I suspect that they will perceive themselves as gainers.
... and at the receiving end?
Finally I must explore the impact on the consumer and the question of public good.
I think it is clear that, on balance, the public sees the current state as an improvement. They too have to work harder, the technology is more various and complex, distribution more haphazard, and the grey area surrounding copyright may make some feel insecure, but access has hugely increased.
It does not necessarily follow that increased access is an unmitigated public good. In the terms intended by the copyright acts, public good works in reverse; it is the realised through the provision of incentives for artists and writers to continue to create, and to make their creations available to others. Although the means by which the incentives are delivered have changed - are in fact more various - there seems no overall lack of motivation. Quite the contrary, in many ways the shackles are falling off. The public good has been served.
So to the big question
"Where's the fire?, Would anybody really miss the record companies if they weren't there?" For the most part the answer appears to be no. If my evaluation is correct the problem exists primarily in the minds, and on the bottom lines, of the executives of the parent media conglomerates. From this perspective recording companies take an unreasonable slice of the overall revenue, given their - now modest - role. Potentially they could become parasites unless they find a new raison d’être.
I realise not everyone will agree with my analysis, but it does paint a very different picture from the disaster scenario the media giants are peddling. As usual when creative destruction renews an industry, vested interests bleat. Those who don't move swiftly to establish a new role for themselves in the new order generally don't survive. Media executives don't seem to want to cope with that reality. Instead they pin their hopes on a reinvigorated copyright regime. So I want to turn my attention to those hopes in the next post.