Executive Turntable: Can Classic Label Talent Transition to Digital Formats?

Warner Music Group Grammy Celebration Hosted By InStyle
Lyor Cohen knows all about how to rub elbows with artists like Elvis Costello and Diana Krall, but how will that rub off on YouTube?

Old-school record executives seem to be joining new-school digital music companies in increased intensity.  In the past few years WMG’s Stephen Bryan (Soundcloud), Interscope’s Jimmy Iovine (Apple), UMG’s Amanda Marks (Apple), super-manager Troy Carter (Spotify) have all been wooed to some of the most prestigious companies.  Last week, the big kahuna Lyor Cohen, former CEO of WMG and founder of Def Jam, joined YouTube as head of music for the company. And  it isn’t some honorary title, where he deals with artist and industry relations. He’s running the whole thing!

What’s going on here? Obviously these companies all know they need to beef up their ranks with people who know the ins and outs of the music business. After all, a good relationship with your content supplier is extremely important. But it’s only one factor in building a successful music company. There are other essential skills that being a good label executive doesn’t necessarily provide the appropriate experience.

First let’s get something straight. All these label execs are eminently talented. You don’t get to the top of  label orgs without a herculean work ethic, serious business chops, and massive brain power. But getting to that level doesn’t  necessarily mean you can run other complex companies. After all, CBS Records’ Svengali Walter Yetnikoff might have built the company into a powerhouse, but it doesn’t mean he was qualified to do Russ Solomon’s job at Tower Records.

Record companies do many things; but at its core is scouting, locating, and developing talented artists. It’s a tough job we discount too often. You have to have a great understanding of art and a finely tuned ear to what people will respond to. But digital music companies have different needs: product development, technical acumen, and a keen understanding of what users will find compelling enough to open their pocketbooks. You also must know how to lead tech teams and understand how people use and adopt new products.

While there obviously is some overlap between these two diverse core skills, there’s a lot that doesn’t fit. We’ve seen this manifest when companies try to move into the other’s turf. Labels time and time again have failed at direct to consumer offerings. The efforts have gotten considerably more ham fisted as technology has played a larger role in the  industry. From its inability to secure files on CD and all the way up to the ridiculous Now! subscription service that rolled out just last week, nearly every label’s tech initiative  or direct-to-consumer offering has underperformed or been an outright disaster (Pressplay, anyone?). Likewise, digital music services struggle with artist relations, leading  to wary feelings between artists and digital services, or straight-up hostility.

DNA Mismatch

Both labels and digital services struggle to meld because they’re so different. At their essence, labels are about artists. Everything is built around finding and developing great artists. Talent is also the core talent of most senior execs at labels. Sure, there are probably great dealmakers, technologists, and marketing whizzes working at UMG, but ultimately, it all serves the artist. Meanwhile the digital services are all about the customer. And yes, artists are vital for services, but if push comes to shove, product development, not artist development, wins.

So when labels end up going directly to consumers, they’re on unfamiliar turf. Likewise, when Tim Westergren says something that sounds awfully stilted to the artist community, it’s because he’s not capable of fully serving both sides. Ultimately, he must side with his listener. You can bring in label talent to the music services to help co-mingle the two sides. But it won’t change the DNA of the company.

Free Advice

Look, I’m not telling you that digital music services are the model of how to build the modern company. Spotify isn’t Jack Welch’s GE or even Reed Hastings elite-level Netflix.  There’s a tendency to rely too much on technical solutions and not enough focus on customer problems, which leads to a functional–but not a very warm–product.

So if I were to give advice to say, a new executive at, say, the world’s largest free music listening service, I’d suggest following a few axioms about how to build his or her new team.

  1. Empower Product Leaders
    Too often we end up hiring product development professionals but don’t empower them to make decisions. Product is the core of what these companies do and to fully take advantage of this, you need great product talent in leadership positions. When you don’t own the content, you have to win on product, full stop. And yeah, I’m a product guy, so I’m biased. But I’ve seen what happens when you don’t prioritize the right talent in the right roles, and it’s not pretty.
  2. Practice Design Thinking
    Although tech products are much better today than even five years ago, we have a long way to go in building out thoughtfully designed products. You can tell a massive difference in Spotify versus a company where design is front and center like Airbnb. If you start with design solutions, rather than technology ones, it will resonate a lot more with your users. Cool tech is just that. Cool. Solve problems first and foremost, my friends.
  3. Different Analytics For Different Goals
    Labels have invested in analytics teams in varying levels. Most of these  efforts– including UMG’s exceptional data analytics team and Lyor’s start-up The 300– used data to identify artists that will perform best, which is just an evolution of what labels always have done. Spotify and YouTube have both invested heavily in solutions to solve ‘what to play next.’ While YouTube’s recommendation products are good, they don’t have the sheen of Spotify’s Release Radar, Daily Mix, and Discover Weekly, perhaps the best of all the technology centric recommendations. The lesson here: using data science and machine learning to create superior user experiences is the foundation of any successful digital music product.
  4. Market Like A Retailer
    If there’s been one element missing from most services, it’s figuring out how to sell them to mass audiences. At its core, the pitch seems to be “Hey, you like music. Well we’ve got lots of music. Come get some!” Okay then! The services need to get better. While it’s clear that music services are different than retail, the attention to detail and stronger relevance to the customer’s life would help the services define a) what they are and b) who they are for. Without that kind of definition, mass consumers will continue to pass.

None of this stuff is surprising. Let’s just file it under ‘doing the basics really well.’ But the labels, and the people who built their careers with them, still seem like they are steeped in another era. Digital is different, and building an elite team that can navigate this competitive market requires a different skill set. A phenomenal product team is today’s A&R. Invest wisely.

Billboard: Lyor Cohen’s Move to YouTube: Good Or Bad For The Music Industry

Hypebot: Music Industry Uncharacteristically Silent about Lyor Cohen to YouTube

Bobby Owsinski: YouTube Misses The Point With Lyor Cohen Hire

Consumerless Recovery: Music Revenues Are Up But Is More Pain Coming?

News this week, for once, was positive for the music business. The RIAA released its report for the first half of this year and there was an eight percent growth in revenues over the same time 2015, thanks to subscription streaming. At long last, after years and years of losses, we’re finally on the other side of the decline and now we’re going to see a huge run up of revenues as the industry continues to grow like gangbusters. At least that’s what you’d think from the headlines. I agree: it’s a good result. But there are also troubling signs in the numbers.

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Source: Recording Industry Association of America

You see, while revenues are up, the number of people who buy music has steadily fallen for the past decade. According to MusicWatch, a music industry research firm, the number of people buying rebounded a bit in 2015 to 85 million, it’s still significantly down from the buying population 10 years previous.

Not all consumers are created equally. Over the years the average consumer spent around $50 a year on music. Sounds pretty good, right? Well, the average consumer only about about 1.5 CDs a year. So how is that possible. Well, there was small number of consumers who bought 10 or 20 times what most consumers did. I used to see this all the time in line at my local record store. I’d be wondering if I should be buying the 10 CDs in my hand on my meager first job salary (the answer was no). Meanwhile, the woman in front of me was buying the Debbie Gibson CD for her daughter. It most likely was the only CD she’d buy all year.

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Sources: MusicWatch and U.S. Census Bureau                     Music Buyers in Millions

This has all changed in the subscription era.  We’ve flattened that curve between the casual buyer, who only bought Adele’s 25 last year, and that obsessive-compulsive music nut who happily subscribes to Spotify. Sure, the nut is still spending much more than casual fan. But at $10 a month, it’s capped at $120. And yes, the music nut might also purchase vinyl, buy up posters at Flatstock, and attend music festivals, but they don’t have to pay more for all that music. Many super fans I interviewed to while working at a streaming service thought they were getting away with something by only paying $10 a month.

The theory of the streaming era is that we’ll produce so many more subscribers, that we’ll make up the difference in revenue. But thinking that casual fan will pay twice as much as the average consumer spends is fairly flawed logic.

Especially when one considers how people are listening today.

 

Based on MusicWatch’s recent audiocensus report, more than 70% of all listening today is on services that are free, like Pandora, YouTube, Spotify’s free service and iHeartRadio. Because when faced with the choice of $10 a month for something they use rarely or free, casual fans choose free. Duh. Hence the massive decrease in the percentage of buyers.

Much like how the U.S. economy recovered in the years after the housing market collapse, but only with many fewer jobs, the music industry is recovering. But with many fewer customers. And the pain is just coming. Compact discs may only be a shadow of its former self, but there were still 38 million CDs shipped in the first half of this year. Question: when was the last year you bought a device that can even play a CD? While vinyl and even downloads have a purpose and will maintain some attractiveness, my contention is that CDs will go to zero. This, my friends, is a problem.

So what can be done?

Perhaps address the product itself. Streaming services main use case is access to all the music. While it’s great for the fan that knows what she or he wants to play, it causes more problem than it solves for the casual fan. After all, how many times do you sit at your computer and not know what to play next. Even with 30 million songs only a seconds from a search.

Considering after all these years peddling subscriptions to consumers, we now have a total of  18 million subscribers in the U.S., I’m sure it’s safe to say that the $10 all you can eat music subscription isn’t the product for anything but the super fan. Will there be more growth? Yeah, sure, no doubt. Can it grow to 50 million? Doubtful.

So what about lowering the price, which has been bandied about as a cure all? Beyond the fact that rights holders won’t budge on price, it probably is the wrong product for those who like to listen occasionally. “Casual fans have different needs than super fans and may be fine with a more basic experience,” Russ Crupnick, managing partner of MusicWatch, told me via email. “So converting them to paid requires a different set of strategies and tactics. Lowering price alone won’t automatically convert them into super fans.”

Last week Pandora announced improvements to its free service as well as Pandora Plus, a product that merges a few on demand features, like more skips and the ability to save tracks to the phone for offline use, to its core experience. Can the new product as well as Amazon’s planned subscription service, which apparently will share Pandora Plus’s $5 price, help? Perhaps.

But those are just two ideas. In the world of product development, it takes many attempts to find the perfect product market fit that people are willing to pay for. Licensing two and saying ‘okay, we’re done,’ is not going to cut it. It took 15 years, a handful of flopped companies and at least a couple hundred million in funding before AYCE streaming services finally produced a billion dollars in revenue. My guess is that it will take years to attract the casual fan. Fact is, we’re going to need wave after wave of ideas to grow customers again.

Variety: Music Streaming Wars: Consolidation Looms as Lower Prices Kick In

Music Industry Blog: Have Spotify and Apple Music Just Won The Streaming Wars?

 

 

Please Release Me: The Industry, Music Release Day and Listeners

There’s been a brewing controversy in the industry recently about the music release day. What, you might ask in this age of you YouTube, Spotify, Pandora, iTunes, radio, leaks, and Soundcloud, is a release day?

I’m glad you asked. One day every week, new music is released to retail outlets and streaming services. But here’s where it gets tricky. It’s a different day in many countries. In the US new music day is Tuesday. But in the UK it’s Monday. Japan, Wednesday. Germany and France, Friday.

Why is it different? The release day has been driven by music charts. In the US, the Billboard and Soundscan charts run from Tuesday to Monday to match up with the release day. Though the origins of why we ended up with Tuesday in US is not clear, some state it also had to do with physical distribution of LPs, cassettes and CDs.

But with the a global market building and physical retail fading, there’s been clamor for standardizing the day, so that consumers in the UK don’t get a huge global release from an important band a day before consumers in the US or Japan.

After polling the industry and doing market research, this week the IFPI, the global recorded music trade organization, recently suggested Friday is the top contender to become the global music release date.

Once word got out all hell broke loose.

US retail industry, who pushed for either the world changing to Tuesday or even perhaps Monday, strongly objected to Friday. Target actually suggested it would stop selling CDs if the date changed to Friday.

Martin Mills, chairman of the powerful Beggars Group of indie labels had this to say at a conference in the UK:

“Whilst I acknowledge the needs of a digital world for co-ordination, it seems to me to be crazy to throw away one of the trading week’s two peaks, and the ability to restock and rectify errors before the week’s second peak. It astounds me that the major labels are not listening to their customers, their interface with their artists’ fans. I fear their consultation has been a charade, and the market leaders were always going to push this through. I fear this move will also lead to a market in which the mainstream dominates, and the niche, which can be tomorrow’s mainstream, is further marginalised. I fear it will further cement the dominance of the few – and that that is exactly what it is intended to do.”

Music release day matters quite a bit for the industry and Martin is right: the bigger the act, the more important a single release date will become. You can see with global tools like Twitter, Facebook and worldwide(ish) services like Spotify, it’s hard to have a consistent marketing message. After all “Hey, my new record dropped. Check it out Monday in London, Tuesday in New York, Wednesday in Tokyo and Friday in Berlin” won’t really fit in a Tweet.

There’s also other elements to consider: distribution of products, promotional plans, radio appearances and a myriad of other now worldwide tasks that the industry must do to get music–and the word—out to the public.

But that’s really not a music fan problem. It’s an industry problem. So why are we making it a fan problem?

Look, I get it. A single global release day makes sense. And we should be doing everything possible to assist in supporting–if not expanding–retail channels. It’s still, for now anyways, the best way for the industry to make big revenues. A single release day would help.

But it also seems like we’re just rearranging the deck chairs on the Titanic. Why are we focused on these old models? Meanwhile the new way fans listen, streaming music, is held captive by the old models. Based on the amount of customer feedback and market research I did while at a streaming service, it’s clear that a massive number of listeners don’t even know which day is ‘new release day.’ Sure those superfans who raced to Tower Records to pick up Viva Hate at 10 am on Tuesday, March 22, 1988, yeah, they know.

It’s my belief that the average music consumer doesn’t know–or care–which day new music is in the stores or goes live on streaming. And the fact is that streaming services have new material go live every day of the week. So do streaming services need to a ‘new release day?’

Well, if your plan is to prime the publicity pump so you can get a number one record on the charts, sure. But what if your job is to make the music fan happy seven days a week? Not particularly.

In terms of music services, we’re in this awkward stage of development. Sure, services have proven popular with music fans. Yet we haven’t fully transitioned into a different world.

A perfect example of this is the industry’s attempt to determine how many streams equal a track or album sale. Billboard now says a thousand streams equal a track sale. How did Billboard settle on 1,000 plays? It’s not because of revenue generated by the services, because that info is unavailable and disputed. It’s not how many times a listener plays it before purchasing a track. A 1,000 plays seems like a random number that sounds like a lot. Why not 500 plays? Or 5,000? Or 50,000?

While equating plays for a sale does serve those people who are supporting the old model, it’s utterly empty of any value to streaming companies. I wrote in depth about some of these issues in Junk Food Data.

Streaming services are facing significant issues with customer acquisition and retention. Each company needs to be laser focused on what it takes to make customers happier to retain the paltry number who have signed up. Streaming must influence the industry and make it understand its success factors if we have a prayer at replacing the lost retail revenue with paid subscriptions.

And if we continue to pay attention to the past? Then, I’ll take a deck chair with a nice view of that iceberg.

More On Old Models

Billboard Why Are Albums Released on Tuesday (For Now) in the U.S.?

Musicweek IFPI Confirms Friday Global Release Day

Wall Street Journal Record Labels, Retailers Can’t Agree on Which Day of the Week to Release New Music

Jonmaples.com The Value of Nothing: Don’t Except Junk Food Streaming Data