A New Business Model For The Music Industry?
Rick Rubin, famous music producer and now Columbia Records exec, sat down for a long New York Times interview and basically declared the iPod obsolete.
First, a bit about focus groups of college kids:
At the end of their paid internships, the students took part in focus groups that were closely observed by Steve Barnett, Rubin’s co-head at the label, and Mark DiDia, whom Rubin brought in as head of operations, as well as by other Columbia executives. The focus groups may have been the real point of Big Red — Barnett and the New York executives, especially those who had been at Sony for years, wanted to try to take the pulse of the elusive music audience. “The Big Red focus groups were both depressing and informative, and they confirmed what I — and Rick — already knew,” DiDia told me afterward. “The kids all said that a) no one listens to the radio anymore, b) they mostly steal music, but they don’t consider it stealing, and c) they get most of their music from iTunes on their iPod…and the biggest thing in their life is word of mouth. That’s how they hear about music, bands, everything.”
This is dire news for record labels, because Apple figured out a way around the stealing thing - offer individual downloads pretty cheap. Thus Apple gets paid money that would have gone to the record labels. Apple’s iPod and iTunes are adaptive innovations, a triumph of design over base human behavior.
So how does Rubin plan on countering Apple’s business model?
…Rubin has a bigger idea. To combat the devastating impact of file sharing, he, like others in the music business (Doug Morris and Jimmy Iovine at Universal, for instance), says that the future of the industry is a subscription model, much like paid cable on a television set. “You would subscribe to music,” Rubin explained, as he settled on the velvet couch in his library. “You’d pay, say, $19.95 a month, and the music will come anywhere you’d like. In this new world, there will be a virtual library that will be accessible from your car, from your cellphone, from your computer, from your television. Anywhere. The iPod will be obsolete, but there would be a Walkman-like device you could plug into speakers at home. You’ll say, ‘Today I want to listen to … Simon and Garfunkel,’ and there they are. The service can have demos, bootlegs, concerts, whatever context the artist wants to put out. And once that model is put into place, the industry will grow 10 times the size it is now.”
Subscription services aren’t new to the music industry. Satellite radio is basically a subscription service - one flat fee gives you access to dozens of specialty music channels. But it’s still a broadcast model - you can’t keep the music you subscribe to. This will be a major hurdle with a true music subscription service.
Another is getting the collective record companies to cooperate.
For this model to be effective, all the record companies will have to agree. “It’s like getting the heads of the five families together,” said Mark DiDia, referencing “The Godfather.” “It will be very difficult, but what else are we going to do?”…Rubin sees no other solution. “Either all the record companies will get together or the industry will fall apart and someone like Microsoft will come in and buy one of the companies at wholesale and do what needs to be done,” he said. “The future technology companies will either wait for the record companies to smarten up, or they’ll let them sink until they can buy them for 10 cents on the dollar and own the whole thing.”
Rubin doesn’t explain exactly how the subscription would work - alot of his ideas are conceptual. But for this to work a subscription service will have to acknowledge the key customer experience aspect of buying music is OWNING and KEEPING and CARRYING AROUND music. A person can rent a DVD for a weekend, watch it a few times, return it to Blockbuster or Netflix, and never watch it again. A person buys a CD or downloads from iTunes to keep the music forever. How would that work in a subscription model? Perhaps $x per month gives you a certain max downloads. Could it work with unlimited downloads? Or does Rubin conceive it to be a model where the customer downloads streaming audio but never really owns it? I can’t see how that will make customers happy.
Another disadvantage with the subscription model borrows an idea from Google Adwords - popular downloads should sell for more.
One problem with iTunes is that, with some exceptions, all the songs are priced equally — a Justin Timberlake smash costs the same as an Al Jolson classic. Since a listener would, ideally, pay more for a Top 10 hit, that egalitarian system costs record companies potential millions of dollars. The opponents of the subscription model feel that making all music by all artists available for one flat fee will end up diminishing the overall revenue stream. They would also have to pool their talent, which is difficult for companies that have spent decades fighting over who signs with whom to accept. “There would have to be a new economic plan,” Geffen explained. “And it would have to be equitable, depending on [popularity].”
It seems to me that the business model for the music industry has been undergoing nonstop evolutionary change ever since MTV became popular. Rubin’s idea has an air of impending doom - “We had better do this before someone else comes along and disrupts us out of business.” Good luck to him.
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[...] Posted on November 3, 2007 by Innovation Catalyst A few weeks ago I posted about Rick Rubin’s subscriber-based vision for the music industry. But a familiar company currently using this business model is abandoning it due to plummeting [...]
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