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Resnikoff's Parting Shot: The Case for Cheap...

Monday, October 05, 2009
by  presnikoff

Is it too late for major (and smaller) labels to drastically reprice their content and lower their cost structures?  Or, is the recording industry still emotionally attached to more aggressive and unrealistic price points?  And, for that matter, a fabled return to 90s-style multiples?

In 2009, labels are pricing their songs at $1.29, while most consumers value MP3s at just above zero.  That gulf is driving the recorded music industry into the toilet, and it remains unclear if big labels can steer the situation in their favor.  Meanwhile, voices like Sandy Pearlman - a proponent of 5-cent downloads - are still fringe.  Artists like Mojo Nixon are also on the fringe, though most major artists lack enough control over their catalogs to offer them for free.

The broader question is whether music, film, books, and other forms of media simply need to accept smaller revenue streams from digital formats.  Is digital really just a game of pennies, and physical a game of dollars?  "The digital future for all media companies is likely a smaller market with inferior economics than the monopoly physical one they enjoyed for decades," said media-focused venture capitalist David Pakman, the former CEO of eMusic.  "To survive in this new world will require lower cost structures.  But the result of not embracing this future are clear: just ask the music industry."

The digital environment is fluid and unpredictable, though smaller, meaner mindsets might be mandatory for digital-era survival.  Perhaps bigger monetization moments happen down the line, and the industry simply needs to keep consumers paying and engaged at some level.

But who wants to make less money?  Industries hate to lose revenues and downsize, and companies have historically been awful at weathering disruptions and introducing drastically lower cost structures.  Leaner, meaner structures are needed, though legacy executives and systems are naturally resistant.  Just glance at the price points on the iTunes Store, and it remains obvious that completely different content valuations and revenue expectations are happening.

Or, just dive into one of the many stand-offs happening between publishers and recording labels.  Mojo Nixon is one guy, he can make a bold move in one stroke.  But the music industry is comprised of thousands of cooks, and its logjams are totally unworkable in the digital environment.  The cooperative memo always arrives years late, long after the behavior patterns of consumers are determined.  Their dollars are lost, forever. 

Adapt or die?  More executives are pointing to a near-term bankruptcy at EMI Music, and question marks surround the future of Warner Music Group (WMG).  Meanwhile, the British industry is totally focused on three-strikes, instead of strategies that seriously compete with free.  But free has its own strings attached, and cheaply-priced music - spread everywhere - has a shot a generating its own revenue streams.  The alternative - the status quo - is to sell smaller amounts of music at higher prices, an approach that is difficult to ramp, difficult to scale, and mostly disconnected from consumer perceptions of value.



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