The Strategy Review

Be thankful ... and then worry a whole lot more

David Stoughton of ValueKinetics writes:

Reasons to be cheerful in the middle of a recession seem just the sort of 'bright-side of life' comments that can irritate the hell out of companions and hasten your untimely end. Still, in the light of the vision in War Inc. of how power is projected in the 21st century and, more importantly, by whom it is wielded, I dare to suggest we have been permitted a breather.

I'm not advising everyone to rush out and rent this film if they haven't seen it. It likes itself a lot, and the satire is rather blunted by the ego trips. Never mind that though. Although I chose it almost at random as a piece of escapism after a long day of training, it came as a timely reminder of where we might have been headed in the Bush era. Essentially a vision of perpetual war waged by corporations to control the agenda and feather their nests, it was of course not really about the future, but an exaggeration of the very real state of affairs in Iraq at that time.

No reason to think a change of president alone reduces the ambitions of greedy corporations who are 'too big to fail' (or to control) but, coupled with a sharp kicking on the bottom line and the promise of closer scrutiny, it does slow things down. As the world order fragments and the size and power of corporations as compared the state grows, the risk of some larger ones running amuck should still not be discounted.

So, whilst we obsess about our insalubrious political representatives, let's make sure that we don't lose sight of the greed and delusions of grandeur that brought down many of our banks and are certainly detectable in other supranational businesses.  We may yet see corporations 'creating realities on the ground' by intervening violently in the affairs of inconvenient countries. And it is not impossible that some of them will come to regard the state as a vehicle to command, in furtherance of their ambitions, rather than one that has any control over their actions.

When the realities of peak oil hit in the next boom - whenever that comes - there is going to be scope for some pretty unpleasant stuff that makes profiteering by acquiring property at public expense look tame. We all need to get our heads out of this entertaining side-show and look at the bigger picture while we can. Though I too welcome a a good laugh at the expense of those who have the arrogance to pretend they have the right to wield power over us, I'm a bit nervous about who is really holding the reins. It's that old trust thing again.

Where's the fire? - Part 3 of Learning from the Losers

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. 

Mea culpa advertising - a "Sorry!" state of affairs ...

Interesting to see two quite iconic consumer brands - Marks and Spencer with its boob job, and the Evening Standard's Sorry campaign - happily stepping up and - shock horror - spending very serious media money apologising to consumers.

Traditionally this is the turf of the corporate communications folks ... spin territory rather than core branding. It speaks to me of a number of lurking communications issues going large:

1. Do it ... or have it done to you. Brands see now - very much the case with M&S's big boob - that failing to respond when consumers - with either warmth or hostility - open the dialogue is potentially hugely destructive.
2. Quality will out. If what you've been doing for your consumers doesn't come up to scratch and is hurting the business, admit it and build on the resulting goodwill to recreate the brand from ground up. Doesn't hurt, we note, in the case of the Standard, to have a Russian trillionaire writing the cheques, of course, but even so ...
3. The micromedia tail wags the macromedia dog. Social media - very much the case in the M&S boob scenario - is beginning to call the tune for big media.

And of course, what will be most interesting is to see how The New Transparency plays out elsewhere.

Now, about those MP's expenses? (But let's make sure the public purse isn't co-opted by the COI to fund the - perhaps inevitable - mea culpa's to come from Parliament!)

Data and conservatism

David Stoughton of ValueKinetics writes:

What, I am tempted to ask, does the UK government not understand about an admonition to stop hoarding DNA data? Or, for that matter, about the huge waste of public money that is the ID card scheme. But such questions are fruitless. We are faced with a regime that perceives the gathering and storage of data, any data, as a universal panacea. "Can't think of anything to do about it? No problem! Just collect the data, then we can tell people it's all under control"

That data will solve any problem is almost a religious creed, and not just amongst tired, fractious, cabinet ministers bereft of other ideas, it's becoming an imperative of action-man politics. As with all political shibboleths, we are shortly going to witness the very real downside. No! Not I'm not referring to more of our personal details left on trains, or emailed directly to the fraudsters without passing Go, I'm talking about a serious loss of competitiveness and the stifling of innovation.

Data is, in reality, being used to centralise power. Not just in the executive, though that's the epicentre but in the, otherwise challenged, institutions of the state like the NHS, the police and local government.  And we, the public, are being sold the story that this is a good thing. Treatments (well, OK, waiting times) will improve, crimes will be solved, terrorists apprehended before they can act. Without the data it's all going to get worse, much worse, believe me and so on, and on ....

Evidence for all this is very scant - indeed most of the improvements that ministers point to prove illusory or gained at the expense of other, equally important, benefits - but polls indicate that the public has been persuaded that data hoarding is essential to their health and security. Meanwhile the very real problems that the belief in centralised, institutionally-administered, data are storing up are off the radar.

Here's the issue. Centralised data, in the hands of the few, is being used to embed and conserve existing practice. It is, whether intentionally or not, a way of resisting change. All the evidence shows that real, IT-enabled, change happens bottom up. There are obvious examples out there, social media and mobile culture among them. There are also many, less evident but more telling, examples in the worlds of medicine and finance amongst others.

As a special report, 'Medicine goes digital', in last week's Economist pointed out, there are medical facilities in India and Thailand where digital patient records are far in advance of anything we have here - at a fraction of the cost - precisely because these initiatives are not centralised ... and, also because they are not centrally directed, such schemes are evolving fast. Commentators in the report agree that the impending medical revolution will happen only when patients, who know far more about what's happening to them now than the doctors can, become central to the process. That is, anywhere but here, where the old adage,"doctor knows best", is reinforced by control of the data.

Similar developments in finance, like Zopa, are not going to be initiated by banks, especially when governments regulate them to death. It is likely that stricter regulatory regimes will mean that real developments in personal finance - the ones that will replace our current, broken, systems - will also take place anywhere but here. Indeed I hear that Thailand is, once again, the unlikely venue for some interesting new thinking. I wonder also about the work of Dr Capra on mobilising distributed data, previously referred to (Security is so yesterday); will that be killed by an insistence on centralisation and regulation?

I could go on, but the point is this. Centralised, data-driven, heavily-regulated systems are the tools of the new conservatism. They are being used to entrench institutions in which the public is enjoined to place unquestioning trust, working against a tide of distrust in institutions that seemed almost unstoppable a few years ago. These schemes militate against innovation, and they jeopardise more than our personal data and our freedoms, they threaten our prosperity too.

Acquired victim status (AVS) - Part 2 of Lessons from the Losers

David Stoughton of ValueKinetics writes:

Previously this strand of thinking has rehearsed the surface history of the recording business as it is affected by technology change and the impact of the Internet. In this entry I want to explore some deeper aspects of the business model in music that will inform both an analysis of the wider media industry and, l hope, of other sectors.

The bonfire of the brands

First then the issue of brand. Recording companies have proved astoundingly inept at branding; over the years they have taught us all an object lesson in how not to do it. It is a fair bet that, collectively, the big labels have destroyed far more brand value than Coca Cola has created over the last 30 years. Why do I say that? Well, just look at the history. Since the seventies, which you will gather I identify as a turning point in the history of recorded music, the big players have steadily acquired almost all the small labels that were the only brands the industry had, apart from the artists themselves ... and ritually sacrificed them to the god of corporate identity. We are at the stage now where stars like Madonna or the Stones command a multiple of the brand value of all the record companies combined and, as a result, they hold the companies to ransom - if they want any involvement with them at all that is.

Attributes of the acquired brand that were lost, and which each acquisition paradoxically diluted in the buyer, include creative quality. I am not making value judgements about the music here, just observing the salient facts. It is clear that most of the modern recording industry (as usual there are exceptions especially among classical and jazz labels) has nothing to say about the quality of the content it turns out. Everything is, of course, "brilliant" - but in reality it is up to the listener, the media or, increasingly, the buzz to judge. This may seem to be a red herring but, as we will see, it is a key factor in the strategic defensibility of business models in media.

What is important here is the value of a brand in creating meaning for the consumer. Small labels mostly form around musically genres, and are informed by the tastes and interests of their founders. They take a stand, and as a consequence the label itself stands for a musical selectivity and is, for the genre's fans, a stamp of quality. Whilst offering no guarantee that a particular item will appeal, the brand signals what the customer can expect, and as such it helps reduce search time in an increasingly crowded marketplace. By contrast the big labels that absorb and kill these, sometimes iconic, brands say nothing about their content, they are little more than logos.

The ghost at the party

If a record label carries no assurance of the quality of its product ... it has no presence either. A good brand either has proximity to its customer and manages their contact and experience, or it provides proxies for those attributes. The big labels, after venturing briefly into live music and, in a few cases, record retailing - aspects of the industry that touch the customer directly - have withdrawn into commodity production. Without a strong brand this leaves them with no presence in the increasingly important social space, which is otherwise heavily populated with musical snippets, allusions and the musician as celebrity, and so with no ability to assert their value.

Immediately associated is the issue of marketing. Although record companies always made much of the 'promotional budgets' that went with advances, the entire industry was relatively unsophisticated in the ways of marketing. There was good reason not to be, the risks in signing new acts were high enough - given the low breakthrough rates - without raising the stakes with big budget advertising. Only established acts, who could demand it, manufactured acts (where the risk was deemed controllable), and compilations, saw any significant marketing investment.

Peer recommendation was always the most important influence in music, and in that sense it led the way where other industries have been forced to follow. But opportunities to stimulate word of mouth were restricted in the early days, and music was not a sophisticated industry. Promotional efforts were mostly confined to attempts to get radio airplay, rare TV appearances, and press coverage. Contrast this with recent behaviour, where their very powerlessness has forced record companies into using more conventional marketing techniques - advertising, posters etc. Although arguably too little too late, this constitutes a tacit, if belated, recognition that industry-produced music really is a commodity product now. Perhaps the companies also delude themselves that it helps justify the price point.

The combined impact of these branding issues leaves the record labels with no command over customer attention. Stars get attention; to a degree the (increasingly digital) outlets for recorded music get attention; the music itself can still command total, immersive, attention, when it is not being used for signaling purposes. The labels get no attention, except press coverage of their persecution of the customer.

The weakest link

Neglect of the brand is connected with the industry structure, an aspect of the business that has profound effects on the strategic options available once a sea change, such as the advent of the Internet, arrives. Despite huge consolidation, the music industry, as a whole, is vertically fragmented. Like so many industries it is dominated by a few key players, but the extensive consolidation has been one of building portfolio businesses. A record label, one or more publishing companies, stakes in a few associated businesses and, increasingly, large holdings in (or more often ownership by) other media companies forms the typical portfolio. Attempts at vertical integration through owning the performing music circuit and retail outlets were, as noted above, largely abandoned in the seventies when the accountants moved in.

Once again this might have been appropriate then, when the recording companies were the capital intensive part of the industry and few others would take the risk, but it leaves them at a comparative disadvantage now. Especially so because, while the perceived monetary value (let's be careful here, music still has enormous value) of recorded music has dropped, the equivalent monetary value of performance has risen sharply. Companies are making frantic efforts now to acquire stakes in performance businesses, but acquisition is more likely to run the other way, given the logic of the transformed industry, and their efforts at digital retail have produced mixed results.

And the secret sauce is ...

Finally, and this issue may seem obscure but turns out to be of critical importance to the strategic options for media companies, we come to product quality, which for record companies means sound quality. Until the seventies, quality of recording and reproduction marched in lock-step, music fans acquired bigger and better music systems on which to play their collections as a matter of course. Then, in a Gadarene rush to profit from repeat sales of the same product, the industry turned to promoting, successively, cassette tapes and then CDs. Although efforts to promote the CD as having better sound quality were made, they never really gained traction - they were disputed even in the early days, and it was convenience, not quality, that sold the product. For the majority of buyers, an almost simultaneous shift to small, convenient, sound systems went along with it. The link between professional sound recording and quality reproduction was broken. Record companies continue to emphasise the role of the producer, but the argument is weak when so much amateur recording sounds so, comparatively, good.

The relative inability of record companies to differentiate themselves from amateurs, let alone each other, by virtue of product quality hamstrings any attempt to preserve strategic advantage, and leaves them vulnerable to questions about the very validity of their role. As we will see, when we explore other media industries, this need not necessarily have been the case.

On becoming a victim

Had any of these factors - brand leverage, customer experience, marketing sophistication, industry structure or product quality -  been different, the strategic position of the recording companies might have been stronger. It turns out that, in their twisting and turning to maximise profit and minimise risk over the last 30 years,  record companies were the authors of their own present weakness. Victim status was acquired, not thrust upon them.

As we will see, the handling of these critical aspects by different industries turns out to hold the key to understanding the differences, as well as the similarities, within and across the media sector and the strengths and weaknesses of the players. But I'll finish this lengthy diatribe here and save that for Part 3.

If the future isn't digital ... what is it? (Part 6)

MANAGING FOR MEANING

‘We feel that even when all possible scientific questions have been answered, the problems of life remain completely untouched.’
Ludwig Wittgenstein, Tractatus Logico-Philosophicus, 6.52

Who’s doing it already?

Meaning is already being managed and shared – one assumes with varying degrees of consciousness – between management and staff (think John Lewis) between trusted retailer and confused consumer (think Carphone Warehouse pre Talk Talk), between global pharma brand and erectile dysfunction sufferer (think Lilly with their Cialis drug), between hardware manufacturer and finicky, perfectionist style-monkey (think Apple).

Notice something about these brands? They’re all by-words for excellence and innovation in what they do. They build tremendous energy around themselves, simply by doing what they do. They’re all – consciously or not – managed for meaning.

A new paradox for brand management - Taking responsibility, letting go of control

We need now to crystallise a point of insight, to take on board the key paradox that unlocks the new brand management approach.

You need, on the one hand, to take on a far higher degree of responsibility for both the role of branding in a) the success of your business, and b) the creation of positive meaning for all stakeholders.

On the other hand, by far the most important – in terms of the growth of meaning – encounters that your brand has with its stakeholders now occur in dangerous territory, way outside the control of your brand officers, and the tools that they have historically used. Refer to the Meaning vs. Control in pharma branding chart here, for example. And reflect where most of the marketing and sales budget is currently spent: in areas of high control, but relatively little influence.

Find this hard to swallow? OK, try running your brand through the touchpoint analysis tool, ignoring the sample scores, and creating your own conclusions. Simply list your key brand touchpoints down the left-hand column, then rank their respective importance in building meaning for an important customer group out of +10, then score the potential for brand energy in the next column, again out of +10. Finally, assess each touchpoint for entropy, out of –10 this time.

To get rule of thumb scores for how your key touchpoints stack up, and therefore where focus and investment should be allocated going forward, take your customer importance score and multiply it by the sum of the following two columns.

I’ll leave this to you, but I’d be most surprised if you didn’t now feel inclined to revisit the earlier Control chart, and question where the bulk of your brand investment is sitting right now.
And if you accept that things need to change, how then do you proceed?

Conclusion

‘My propositions serve as elucidations in the following way: anyone who understands me eventually recognises them as nonsensical, when he has used them – as steps – to climb beyond them.’
Ludwig Wittgenstein, Tractatus Logico-Philosophicus, 6.54

This work therefore concludes with an assertion. The two critical – the sine qua non – management disciplines from here on are Leadership and Branding. Both must however dramatically adjust their focus and activity if they are to be in any sense effective.

Leadership we have reconfirmed as the creation and management of meaning, and perhaps also, as a result, the distribution of energy throughout the organisation.

Branding is from here the delivery of meaning, and is operationally the discovery and optimisation of positive stakeholder experience across all key touchpoints, in all channels, along the entire relationship cycle.

These activities will also need to be approached and managed with utter integrity and authenticity. Information, with its immediacy, its transparency and its reach, no longer tolerates behaviour that is unacceptable to your most important stakeholders. And they are watching, and they talking to each other.

I suspect that The Age of Meaning will, like the Information Age before it, prove to be a surprisingly brief milestone on the way to yet another Age. This work's dedicated to a hope, that our children will live to see a world that is built upon shared meaning. That, surely, would be an Age of Unity.

Music and murder - Part 1 of Lessons from the Losers

David Stoughton of ValueKinetics writes:

This is a reconstruction of my earlier post kicking off this series. If it varies a little I apologise, but I hope the core of the analysis is preserved.

I'd better start once again by repeating my original apologia about serialisation. It remains true that I'd never have the time to get the whole of the investigation I'm attempting down in one sitting and that it would, in any case, be much too long for a single blog. So, as before, this is part 1 of an intended series of posts exploring the impact of changing technologies and patterns of social use on business. My, admittedly ambitious, intention here is to develop a framework for evaluating likely developments in media, and I hope other sectors, using the fate of the recording companies as an example.

The impetus for this excursion is my increasing discomfort with oversimplifying the changes that are engulfing so much of business. Because, in this blog, we address primarily the impact of social and technical change on the trust, attitudes and behaviour of customers, we tend to adopt a shorthand when addressing it - as I did when talking about music here and here. It is easy to forget that, unless you share our perspective, it is not obvious that, for instance, the record companies must adapt or die, even if they can enforce copyright.

Michael Bayler has summarised the process by which value chains are dismantled under the combined onslaught of technical evolution, standardisation, diffusion of know-how and finicky customers, very succinctly elsewhere in this blog, From value chain to ecosystem. I want now to build on that excellent summary by exploring a particular example, hoping that illuminating how the pattern unfolded in that instance, reveals lessons of more general applicability.

As I said earlier, the focus of the first stages this enquiry will be the music business and, in particular, the recording industry - not just because we have written about it so extensively here - but because it does, in fact, offer an almost ideal case history. As we will see, the pattern of development and the state of the industry when it came under attack, offer extensive insights into the prospects of other media businesses and, I hope, those in other sectors as well.

Don't blame the Internet ...

I will focus in Part 1 on an overview of the changes that have swept across the music industry, creating substantial disruption - to the recording companies in particular. In a sense the history is well known, but to discern the pattern and the key drivers of the change it is important to see the big picture, not simply rehearse recent events. As is often the case, it didn't all start with the Internet, it began with changes to the cost base of the industry, especially to the cost of production.

Cast your mind back to the 70's, then no unsigned band could afford more than a few hours in the, recently developed, multi-track studios. The door to professional recording was firmly locked, and the record companies (and sometimes music publishers) held the key. Only they were willing to offer the advances (for which read loans) required to meet the cost of producing a quality recording. Roll forward 15 years and any aspiring band could afford to produce a respectable album. Of course, that change accelerated with the advent of digital recording, but the significant fact is that it all began on the supply-side of the industry.

... OK, it was an accomplice

Add the Internet and the cost of distribution, until then largely controlled by the recording companies, fell to near zero, and marketing, as practised by the recording companies at the time - stimulating word of mouth - became increasingly the domain of the public.

Everything changed. Now artists can, and do, record, distribute and promote their own material - at a fraction of the old cost. That opportunity inevitably leads them to question the meagre royalties on offer if they sign up to the majors. Simultaneously, hitherto passive customers have become increasingly aware, if only unconsciously, that real costs have declined markedly - leading them to question whether the price point is justified.

It isn't just access that has altered ... the way music is used has too. Digital music is so easy to sample, and professionals have so comprehensively shown how, that consumers inevitably do it too. Snippets of music are extensively used, not just for ring-tones but to communicate personality, affiliation or mood on social media sites and in messaging. This co-option as a language of communication doesn't just change the pattern of use, it broadens and deepens the very meaning of music. What consumers value has changed and any business that serves them must respect and respond to the new needs.

The remainder of the history - changes to the pattern of sales, to attitudes and to behaviours (including, of course, illegal downloading) - has been comprehensively documented here and elsewhere. But, as I hope to show, the essentials of the scenario outlined above are common to all media and perhaps to other industries similarly affected.

The modus operandi

Time to pull back and look at the big picture. As with all good murders there is both opportunity and motive here:

Opportunity

Consumers acquire affordable access to the means of production;
The tools, the knowledge and the skills become universally available.

Motivation

Customers become dissatisfied with the price, flexibility, availability or quality of the offer, or they lose trust in the provider;
The personal, social or financial rewards of engagement with the production process grow as new opportunities are revealed.

The order and relative importance of these factors varies, but the pattern is common to the transformations we have been observing, across a wide range of industries. An important feature to notice, and one that proves no exception, is that the Internet is not the only, and perhaps not even the most significant, cause of change. Changes to the cost of entry and control of distribution are critically important, and may result from a combination of different causes.

Before we leave the music industry behind I want to explore what made the recording companies so peculiarly vulnerable, but that is for Part 2. Finally for this piece you might want to note the relatively minor role played by illegal downloading in this scenario. As we will see its importance has been greatly exaggerated, mostly because a scapegoat was needed, but perhaps also to avoid acknowledging past strategic miscalculations.

If the future isn't digital ... what is it? (Part 5)

HOMO SAPIENS, MEANING AND THE NEW TRIBES

‘Be not afeard: the isle is full of noises,
Sounds and sweet airs that give delight, and hurt not.
Sometimes a thousand twanging instruments
Will hum about mine ears; and sometimes voices,
That, if I then had wak’d after long sleep,
Will make me sleep again.’
                Caliban, The Tempest, 3.2

Mankind, the meaning animal

Homo sapiens has been defined, distinguished from the rest of the animal kingdom by our thinking, our feeling, our use of tools, and so on. I argue that, perhaps above all, we are creatures of meaning. We can look back and see many examples of how, when deprived of that meaning, a “Lord of the Flies” model creeps in to fill the vacuum: we move towards destruction.

We looked earlier at the sensations that meaning manifests in the human mind and body – the weary draining of entropy at one extreme, the surge of identity, organisational attachment and direction that is energy.

Meaning is also experienced as completeness, as an increase in our biologically essential sense of unity. Kafka’s Josef K, Orwell’s Winston Smith, Camus’s Meursault, all are marked by not only a deadly (literally) absence of meaning. They are all terribly isolated, utterly alone, despite being often crowded cheek-by-jowl with their fellow humans. And of course, they are excruciatingly separated from themselves, fragmented, broken men.

How many times in a week – a day - do we see this state of being acted out in front of us? And ask yourself, how much does the network increase that exposure to this fragmentation, this aloneness, this vacuum of meaning?

The tribal dynamic

So, it’s not hard to see why, and to suddenly recognise where, many go in the search their own Grail, seeking the return of something they may never have had in full, but that they know they lack.

They migrate – a great, dramatic paradox – along the very pathways that have sucked the last vestiges of true meaning away, to find new fellowship, identity, reassurance, structure, contact, and communication on the network.

It’s networked tribes that will drive concepts like The Touchstone into being. And it’s to networked tribes that people are turning for meaning, to replenish their depleted stores.

How on earth can brands learn to dance with tribes, if tribes are indeed where people are finding the meaning that business must connect to?

Understanding the tribal dynamic

A brand community is defined as " a specialized, non-geographically bound community, based on a structured set of social relations among admirers of a brand...These brand communities exhibit three traditional markers of community: shared consciousness, rituals and traditions, and a sense of moral responsibility."

"Members feel an important connection to the brand, but more importantly, they feel a stronger connection to one another."
Brand Community (Journal of Consumer Research, March 2001), Profs Al Muniz and Thomas C. O'Guinn

What really matters to people? The individual passions that define them, their world and their dreams.
What really matters in tribes? Shared concerns or interests? No. It’s actually the shared passions, the meaning, of the people that belong to them. 100,000’s of them.

What’s the real promise of the Internet? Shared information? No again. It’s shared passion. In other words, energy. Take a look at any group of people enjoying themselves together. When individual energies combine, they produce tribal, or community energy. Energy shared is energy grown – exponentially and more or less infinitely - to the power of n.

Why isn’t this already working for brands?

"The tightrope a company walks is between nurturing and smothering. A brand community needs to have a true, authentic consumer voice that isn't censored. It also needs resources to be successful and a commercial entity can provide those without scripting the consumer discourse ... All brand communities are unique in the way they manifest, and how each one functions day-to-day differs, so they work best if they form on their own. Creating (a community) where one doesn't exist is tough."

           

Brand Community (Journal of Consumer Research, March 2001), Profs Al Muniz and Thomas C. O'Guinn

Instead of taking that energy and supporting it, growing it and serving it, most marketing campaigns (on- or off-line) ignore, dilute, or at worst, try to divert or block that energy. They create entropy.

How to understand tribal meaning

First of all, look around at the tribal activity, the shared meaning that are all around you. Understand that this energy is a resource into which you can plug your brand, to light it up like a huge Xmas tree, to supercharge it in fact.

Recognise that, far from needing to be created, this energy is already there. And it’s boundless. (And by the way, you do want it inside your tent, rather than outside …)

Think of enhancement, where before there was dilution. Think of less talking and more listening.

Listening to passionate people connecting with each other, ramping up the energy all the time. Think of enabling this process rather than distracting from it. And think of, sometimes, adding value by just getting out of the bloody way.

eBay and Friends Reunited

Both of these poster girls for online success are businesses that have made a success of enabling, or facilitating communities, each of which were, prior to activation, very powerful latent communities that only needed the addition of infrastructure, communications and protocols to come to life and grow exponentially.

Another way of looking at it ... who has in fact grown eBay and FR? Is it Meg Whitman or the Pankhursts?
Not at all...it's the communities that they've enabled, and the connections, the shared meaning produced by those communities. These two visionary success stories have simply ridden the wave they spotted coming into shore, earlier and faster than the competition.

Isn’t this just another form of sponsorship?

That’s the one thing it isn’t. Why? Meaning needs careful nurturing, otherwise it drains away, just like vitamin C. This is an active, non-interruptive nurturing role. Not a parasitic one.

Think beehive …

Think about this little metaphor for a while. When you’ve finished, you’ll understand precisely how brands need to align with tribes.

Why do bees matter here?
1)    Because we like honey, we don’t know how to make it, and we can only get it from bees
2)    Because when bees get pissed off, they sting: this can also happen in bee teams, if you manage to piss off the whole hive.
3)    Because we realise that bees can and do communicate very effectively among themselves, but we don’t yet know how to join in.
How do we need to behave then?
4)    To get honey, we can only broadly influence bee-haviour, mostly by enabling the beehive and doing it on the bees’ own terms, using our very limited understanding of what makes bees happy.
5)    Most important of all, when bees go about bee business, they carry bee-type messages to and from the hive ...
6)    ... and this is the behaviour brands want to learn to influence, within and between tribes.