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Thursday, October 16, 2003

a music model at the high end (I)

the blogologue about music business models started with a comment from tim oren about how most of the things he’s seen have focused on the low end of the curve, and he almost made a call to arms to drive a stake into the heart of the beast – to get this business where it hurts – right between the britney and the madonna.

today, i’m going to dedicate a few [more] minutes3 to exploring that end, and explain how it’s not so much different than things we’ve seen elsewhere, and things tim, among others, probably knows pretty well.

consider this a brief, off-the-cuff answer to tim’s call to arms. disclaimer: i haven’t put much thought into this end of the business. when i say off-the-cuff, i mean it. i’m putting this together in my head as i write.

the groundrules

i’ll be working within some pretty well-defined parameters here, so i need to get those on the table.

a first premise is that music is fundamental in the human experience. i don’t want to elaborate on this here because i’ll end up writing a book. just accept for now, so the rest of this post makes sense. music isn’t going away, nor are musicians.

a second premise is that the entertainment, and, by extension, music market is not dollar-constrained, it is attention-constrained. i probably should explore this in some detail, but again, i’m trying to stick to essay-length and not book-length for your safety. just suspend disbelief and play along… (you might want to check out this bit from a while ago).

a third premise, and it’s something tim and i agree on (although i forgot we agreed 🙂 ), is that there’s a social and necessary role for the pop star. pop stars create social touchstones. common metaphors. things that bind generations together even as the rebel against the previous generation (or last week’s pop star). you find them in your youth, they are beaten into you mercilessly, and they stick with you forever. and pity the poor bastards that grew up listening to air supply and john denver, eh? anyway…. we’ve all got our horrid-but-meaningful pop stars.

and finally, we need a “success metric” – and here we’re just going to say that nothing less than delivering pop stardom will do. for the purposes of this post, we’re going to call pop stars the “elite” – the “top end of top end of the curve” – not even the 165 or so artists that crack the top-40 charts, but some fraction thereof – the ones that crack the top-10 (~50 artists) or top-5 (~31 artists). (these numbers are based on the 2002 dataset i used here).

two paths to pop stardom

there’s organic and there’s directed (i’m simplifying…). bottom-up and top-down. pick your language.

once upon a time, there was a process involved in becoming a pop star. artists were “filtered up” – they “paid their dues” and “worked hard.” they became local stars, then regional stars, and finally, they stood astride the world and beheld the universe as their playground (at least until the next pop star happened along…). we can call this process an “organic star creation” and there are still some riding through the charts. these had to come first, so someone would realize that it was desirable to be a pop star.

someone did. so then came the created pop stars. when you notice what you can do as (or with) a pop star, things get interesting. you can throw a bunch of non-musicians together, and make a tv show about them. or you can throw a bunch of musicians together and make a tv show about them. or a movie. or something. eventually, you can do it backwards too – find a [semi-]talented bunch of [carefully chosen] people put them together, call it a band, drill them until they have a “show” make them pop stars – and then spin off the movie. either way, this is “directed” star creation.

i have to say that neither method is terribly reliable, and both are terribly expensive. with the “organic” process, the expenses come largely in terms of time. months turn into years on the road. two, three… or more albums produced… but, if you’re serious, and you buckle down, and you have some talent and a lot of drive and motivation, you can find an audience, and expand that audience, and if you can keep the band together and not die, that audience will grow over time until one day, it fills a stadium (or twelve).

the problem with the organic approach is that it’s not as much fun for the middlemen and power brokers. these are people who have more money than time, so we’ll focus on the directed approach, and let the organic pop stars happen where they may, since we probably can’t stop them (but we can squeeze them).

the “directed” star creation expenses are more likely cash. you throw gobs of cash at the project, polish it up as nice as you possibly can, unleash it on the world and if you’re lucky, you get the spice girls. if you’re not lucky, you’re left holding the bills and being yelled at by a bunch of prima donna nutcases that you created yourself.

what’s going on (with apologies to al cleveland, marvin gaye and renaldo benson)

as you may recall from a previous post, there’s only so much music a person can absorb. music is a linear-time thing.

if you’re creating a pop star, you’re basically trying to grab the public’s attention. media (all of it), concerts, merchandise, everything is focused first on creating an attention-winning phenomenon, and then as the attention is captured, on directing that attention toward spending money. once the public has spent their money, it’s time to jump onto a new horse and start all over again.

with more and more money going into the directed approach, and roughly the same number of “attention slots” in each person’s day, you have to push that much harder to keep your slots (that means there is less room for the “bottom up” pop stars – that’s the squeeze).

the problem of patience

if for no other reasons than the social-glue factor combined with the greed factor, there will always be britneys. the question is whether there will be room for the beatles.

if you’re using the “directed” star creation model, then a lot of people have a lot of money riding on the success of your project. one mis-step, and it’s time to cut losses. this is risk-management, and it’s impossible to escape when you’re talking about the millions of dollars at stake at the top end of the pop business. (for a quick review of how much money we’re talking about, look here.)

there just isn’t time to let you “work through” two or three albums. we need a hit, we need it the first time, and we need it yesterday. get this band ready and get them out there making dollars. if you don’t have the potential to land in the top-50-earning-bands list, or if you can’t make $10 million this year, it’s not worth considering the project. sound familiar?1

ultimately, what we’re creating today is a huge rift between the “broad” bottom end of the music business and the “narrow” top end – and it’s something that has been happening for some time. the nice, smooth curve of the music market is ripping apart right below the level where you can finance created pop stars. once that rip is deep enough (and it may already be), the only way to fill in the gap will be to grow artists up from the low end – and who has the patience to wait for that?

sadly, there isn’t much room for the beatles in the directed model.

even worse, the directed model doesn’t leave room for innovation and new material. to minimize risks, you have to go with established formulas. if something comes in from far-left field once in a while and starts a new trend (say, a grungy trend), everyone in the business piles on until it’s so not cool anymore. when it’s over, you cut all the grungy or even slighly grungy material and move on to the next thing.

the problem of margins

as more and more money and influence gets poured into a particular pop star, the risks get higher. and these are risks people are not interested in taking. the music business is very comfortable with [relatively] fat margins and huge side deals that spawn lunchboxes and frisbees and branded socks and all the rest of the “see, i’m in” merchandising. i don’t think these margins are sustainable in any model.

created stars don’t get a career. their “career” is over when the people feeding money into the machine decided that they’re not getting a high enough return and they start feeding their money into someone else’s machine. there just isn’t a “lifetime of making music” for a created pop star. if they plan well, play the game well, and manage their money well (and how many of them do that?), maybe they can live off their pop-star-episode and make music in “retirement” at the ripe old age of 22.

the model

that’s a lot of buildup, and i know there are a few of you out there just waiting for the big secret. i know you’ve got piles of cash just burning holes in your pockets, hanging on my every word waiting for that little clue that’s going to make it all better and make us all rich. but i’m going to tease you just a bit more…

what happens when you’re in a business that is losing control of its own distribution, with end-to-end production in-house, with declining audience, market share, and overall returns, with a high cost structure, too many executives and middlemen, all of which get paid too much, serving a fickle, transient market? you break up the establishment, let everyone in the business become a specialist, and bring small, nimble teams of them together on an ad hoc basis for each project. sound familiar?2

the shot through the heart

at the top of the curve, where the pop stars live, it’s going to be about creating pop-star-ventures. these ventures will be designed like big-budget hollywood films, and they will all leave room for a sequel, but nobody’s going to bank on it. some will push hard enough or have that much talent and score the second album “sequel” – a few may even turn into pop franchises (diddy, p. diddy). and a lot of them will end up being “waterworld” flops.

this is going to be a difficult transition for the music industry, because they’re going to be going from their fat margins to something closer to hollywood’s margins. and hollywood margins are often described as “worse than leaving the money in the bank.” people get into these games because someone believes in a project. someone sells the project. someone finances the project. and, finally, someone produces, directs, edits, and releases the project.

and there is the opening at the top of the pop star business. it’s going to be about building temporary teams, with a limited lifespan… build a system that brings together a full spectrum of decent (but not overpriced) talent – producers, engineers, marketeers, managers, lawyers – with the occasional top talent for a little extra “star power” – and focus them around an arbitrary boy-band or a girl-band or a britney or an eminem, and let the team work the full spectrum of business mojo, then eat the record industry’s lunch.

let go of the album as a concept – it’s about singles – hits. it’s about working deals from day one. it’s about risk management and financial management. it’s about the whole package. think about giving away pop singles, because they’re the loss-leaders that brings this month’s pop-hungry market into concerts, shoes, shirts, socks, lunchboxes and anything else packaged, branded and wrapped into the transient, but crucial top-line revenue of today’s pop star.

in the short term, this has the luxury of existing music-business price-points and a lower operating cost structure (if the system doesn’t have a lower operating cost structure, don’t play). in the long run, as the margins collapse down to the single-digits, you’ll have more experienced people than anyone else in the new business of pop stars. keep the rolodex hot and the support systems efficient, and beat the record business to those completely cruicial attention slots. this is something that people from outside the music business are already pretty good at doing. so bring in fresh blood.

here’s the plan

build an agile, low-operating-cost system (by system, i mean a core company and a network of existing or new supporting companies) that isn’t buried under tons of standard practices, doesn’t have preconceptions about formats, isn’t hung up on particular revenue streams (as long as there are revenue streams) and take a slice of the pop star pie.

* focus, with absolute clarity, on the mission of creating pop stars. don’t get distracted and don’t diversify (and don’t try to sell some crap about how it’s about art).
* finance it well, so that it can marshal adequate resources on a moment’s notice.
* integrate where possible – both horizontally and vertically.
* don’t [intentionally] screw anyone. if someone gets screwed, do everything possible to make it right. make sure they know you tried to make it right.
* only take on the artists that can really benefit. commit, really commit. treat the artists like investments, and make sure they know they are valuable.
* be prepared to go two or three rounds before tossing them out. when tossing them out, make sure they still like you (and will still work with you).
* don’t leave anyone hanging in a contract without working their project.
* don’t take anything below the threshhold of reasonable return.
* give them a decent deal, and work hard to keep them happy, so the ones that do hit will work with the ones that are about to and the ones that missed.
* it’s not enough to be “not evil” – be extraordinary. be amazing. when talented people are ready for this level of intensity, make sure they come here first.
* try new things, be willing to accept the failures and repeat the successes.
* this is working with egos – in fact, it’s about creating huge, world-dominating egos – so be humble. let the pop stars shine.

1 pssst. it’s a venture threshhold/exit strategy.
2 pssst. it’s hollywood circa 1950.
3 this ran a lot more than a few minutes 🙂

posted by roj at 8:11 am