The Strategy Review

"Otherwise Engaged - Branding In A Connected World"

The digital edition of my recent mini-book on engagement is now available to download free of charge here.

Download Otherwise Engaged by Michael Bayler

(If you still feel compelled to own the remarkably expensive printed version, it's available from Amazon here.)

The End Of Strategy? Post #1

Introduction

This is the first in a series of posts that will form a rolling white paper, examining and getting to grips with what I have come to think of as the remarkable challenge facing organisations of all kinds - and above all, businesses: the state of perpetual disruption. 

In the two areas I work most in - media and marketing - and in particular at their points of overlap, where questions about, for example, the role and value of advertising, and the true impacts of social media, continue to proliferate without satisfactory resolution, there's a pining for one outcome above all. 

When will things go back to some sort of "normal"?

The Year Of ... 

Every year in recent memory has been "The Year Of Something", hasn't it? The last 5 years have each been The Year Of Mobile, for example. 

And what happens? The devices come thicker and faster, consumers pick them up, run with them, co-create with both each other and the new technology giants - GAFA as I've heard them dubbed (Goggle, Apple, Facebook and Amazon) - myriad new forms of value. It all rushes forward. 

But here's the thing. "The Year Of Mobile" never actually arrives. And no one gets more of a real grasp on things than we had last year or the year before. 

And yes, it has indeed been "The Year Of Apple, Google (incl YouTube) Amazon and Facebook" ... for each year as long as we can clearly remember. But the GAFA giants are now almost ecosystem fixtures, the shiny utilities of some kind of new economy. They'll quite happily take the dollar bill in their respective business and revenue models, but really they have no more useable insights for us than British Gas or Thames Water. 

Asking Google or Facebook what you should do, is rather like asking Lloyds of London where you should make your investments. They're generally nice enough people, but it's not their job to care. (And actually, they don't know either.)

We are, it seems, on our own now. 

The new normal

And there will be no returning to "normal" any more, in the sense of familiar, predictable models and markets for exploiting content, for building brands and above all, for developing and executing strategies. 

I intend no melodrama, but it's really over. 

If strategy is above all about the way we think, then an environment in which what we think - and what we think we see - are  now invariably inadequate, always too slow, and often badly wrong, no longer lends itself to what we can call outbound strategy - where we plan for and then "do things" to our markets that create competitive advantage.

Strategies overall - and strategies for innovation are no exception - are only meaningful when their objects, and, just as crucially as we'll see - the contexts within which those objects exist, and within which value is identified, articulated, productised, communicated and eventually delivered, remain more or less fixed, relative to meaningful market coordinates. 

Things need to sort of stay where - and indeed what! - they were yesterday, if you like, for new forms of value to be confidently developed and placed into the market.

This is no longer the case, and sets up a powerful cause of the perpetual disruption that, I am arguing, will plague businesses and their brands in the post-digital era. 

We learned, at a fundamental level, to view change as occasional, disruption as rare - to be feared, exceptional - and innovation as something elusive but achievable, that businesses "do" to markets, to sustain and now and then refresh what has been, till recently, broadly visible, explicable and manageable positions for their various brands. 

But Normal, from here on, is a state of perpetual - and accelerating - flux. 

Impacts and implications

We are already, for practical purposes, passing through the so-called Information Age. Where are we now then? 

On one hand, I'd feel comfortable calling this "The Age Of Disruption". But that - as well as leaving us despondent and rudderless - implies that there's a plausible end point to this new state of perpetual flux. No, we need something both a little less apocalyptic, and a little more realistic. 

I've written periodically about The Age Of Meaning for the past 6 or 7 years, and while I wouldn't dream of claiming to have had the answer to our profound conundrum all along, I do feel that when we come to grips with perpetual disruption, it will be in part because we have finally - with backs against the wall - learned the fine art of the management of meaning.

I'll be returning to the management of meaning later in this process, but for now, I'm sticking to the exploration of the problem. To jump ahead too quickly, to rush a solution, will be to underestimate the problem and compromise any sort of useful insights and ways forward. 

For now, we have a huge conundrum to deal with. 

The trading context of customers, competition, culture and communications is constantly accelerating in both speed and scale, already far beyond a level at which business can usefully react with so-called innovations .

This context has become, in the end, irresistible. It consists, at its most basic, of billions of connected consumers, the technology giants that both enable and add value to their connectedness, and the second-by-second interaction between them, that feeds and fosters an especially concerning new kind of value. Benckler, in his contemporary economics masterpiece The Wealth of Networks, calls this "non-market value": an inauspicious term, no?

Our issue here is not merely the now-tiresome challenge of how to evaluate and thence monetise, for example, the big social networks. It's more far-reaching, and concerning. 

The new post-digital trading context is more than just value-neutral ... It's "value-hostile", precisely because, unlike any other in history, it's no longer neutral ... passive ... waiting, if you like, for something to happen, for our decisions and actions to stir it up. We have, till recently, been able to take quite well-researched products or services (indeed, more recently, consumer experiences) and push them into the market, accompanied by a fairly cogent but above all confident program of communications.

This happy paradigm - whatever happened to paradigms, by the way? - has been supported and reinforced above all by a context that kindly agreed to stand still while we marketed to it. Channels - even early online channels played nice - were neutral; consumers were usefully bound by a combination of postcode and ponderous research programs; insights were valid and fresh for, well, sometimes years! 

Oh, and data ... Well, there was so little of it, and it changed so rarely ... We were even able to sometimes make use of it, before the music and the dance started again. 

I don't have to bang on, surely, about how little of this comfy value chain remains. Dismantled byinformation, wielded by immensely fluid tribes of flattered, entitled consumers, whose very empowerment and daily delight by the GAFA Crew, is paralleled by the disempowerment and daily dismay of the enterprises tasked with somehow delivering - let alone maintaining (let alone predicting!) - something called shareholder value. 

There will be answers. But first we need to fully explore and grasp where the levers of power have moved to, and which of those we are entitled and able to get a grip on to begin navigating a cultural and commercial landscape that will no longer stand still.

Till next time. Thanks for reading.  

 

Jerry Lieber R.I.P.

In a rare moment of star time - at least one that I don't feel silly bragging about - I had lunch with Jerry and his delightful wife. Corky Hale (a jazz harpist ... figure that out) at their house overlooking Hollywood, maybe in 1986.

It's one of the few recollections I have of the music business that gives me unqualified joy, and a sense of real privilege. It's not just about the songs, it's about the spirit of the man, which came through loud and clear while he and his wife entertained a goofy and ill-informed young English guy. Who won't ever forget it.

More on those Chinese Apple stores ...

Y'know, I can't get this story out of my mind. And I'm mystified that we haven't seen a MASS of fuss around it.

If I'm right, at the last count there were 22 fully-functioning, fully-branded bootleg Apple stores that had been discovered in China.

Now, I'm an old music business hand, who recalls when it wasn't consumers (with the hysterical exception of the "Home Taping Is Killing Music" campaign that ran in the 80's when I was still working in retail ...) who were held accountable for piracy, it was Middle- and Far-Eastern factories.

Those appalling quality bootleg cassettes of Police albums that overseas travellers brought back with them still live in my ears.

A very funny twist to the story is that of course, of all the companies that feature more recently in the music industry's "we are victims of the most appalling crime" complaint, one of the most reviled is ... Apple. While Steve Jobs was welcome with joyful weeping when iTunes launched, now almost everybody on the business side hates him. Nothing like a little "you stole my toy" resentment.

So now, we've come full circle in a way that you really couldn't write ... the same relentless commercial amorality that produced those unlistenable copies of Outlandos D'Amour - selling product that of course comes out of the back - or front even - of the factories that make the very same beautiful laptop on which I'm writing this - has produced a fully-working facsimile of the entire Apple brand experience.

Some of the kids who work in these bootleg stores truly believe - or at least want to, or maybe just don't care ... - that they're working for the man. The Jobs man, I mean.

But the thing that tickles me most of all is that, of all the many things that music business hacks lament, right up there is the demise of the old-style, mom-and-pop record store. And guess where all that buzz has migrated to? Well, think back to your last Apple Store visit.

Hmmmmm ....

The fake Apple stores in China

This is the original blog by BirdAbroad with tons of photos and ... well ... pithy commentary. A must read.

MySpace sold finally

MySpace sold for more or less nowt ... News Corp to retain a small stake: as you would ...

Apple iPhone scandal (and Google ads)

This article from The Independent today worth a read, but you gotta love the Google ads that run alongside ...

 
 

Unreleased Exile on Main St track with video

Remember when the music business was truly exciting? Exile reissue 17th May 2010 has obliged me to cough up £100 for the whole shebang ... vinyl, book, postcards, CD's and DVD ... and you know what? Feels like a bargain.

http://www.amazon.co.uk/gp/mpd/permalink/m3LHHSYQZG7ZJ6

Martin Mills on surviving the Web ... and thriving

Always interesting to hear what Beggars are up to and - via Bob Lefsetz - I got to hear about this interview.

Let the man speak for himself ...

Smirnoff Experience - Berlin

Rarely does one get the opportunity to claim even vague involvement with a strategically sound and well-executed piece of consumer engagement blended with experiential.

Congratulations to all involved. Now do it again :-)

The Whole Equation ... Revisited

Like many media folks – or the lucky ones – I just made it back to London from MIPTV in Cannes, in the wake of the Icelandic volcano crisis. Hopefully by the time you read this, it’ll be resolved and everyone will have made it home!

For the first time at MIP I think, the agenda, the featured speakers and the mood of the delegates came together to really embrace and engage with “what comes next”.

Talk of digital was everywhere, and the digitally-led “Content 360” element of the conference was both heavily attended and much-discussed. Interesting also to see not only Ogilvy – to my mind still one of the great agencies – supporting MIP for the fourth year running, but also clients from Coke and Nestle both in attendance, and actively participating in keynotes, workshops and branded content sessions. Finally an important corner is being turned, and we saw this at MIP 2010.

Entertainment, of course, has always looked dangerously simple from the outside. Listen to Scott Fitzgerald – one of Hollywood’s tragic casualties – writing in The Last Tycoon:

“You can take Hollywood for granted like I did, or you can dismiss it with the contempt we reserve for what we don’t understand. It can be understood, too but only dimly and in flashes. Not half a dozen men have ever been able to keep the whole equation of pictures in their heads.”

But today there’s another Whole Equation (or perhaps a significantly extended version of the established one) that we in entertainment must engage with, analyse and solve, if we are to unlock the new value, models and revenue streams that are demanded by the profound cultural flux that processing power and connectedness bestowed on our generation.

It’s an equation with the new consumer – totally connected, empowered and full of high expectation – at its heart. And, just like the traditional Hollywood model, it looks at first sight deceptively simple.

I advise divisions of substantial media players such as Fremantle, SyCo, Sky and Sony ATV, and “across the bridge”, brand advertiser clients such as Diageo (currently the world’s largest spirits company), Telefonica (the giant Spanish telco group) and Bacardi Global Brands. Most of my work is with senior executives who are asking themselves of this new consumer, just as Butch and Sundance did as they were pursued across America by their righteous and relentless persecutors … “Who ARE those guys?”

If you believe, like most do, that there’s a troubling shift on the content side in terms of new models, walk a mile in the shoes of a global CMO. The tried and true models of advertising investment and return are just not hitting the button the way they used to.

It’s my job to help “These Guys” understand “Those Guys” … To get to grips with the new consumer, and find convincing, sustainable, repeatable ways of moving marketing investment into not just reaching eyeballs with brand messaging, but getting over the wall, to seize and retain the quality attention of this prickly beast and its equally challenging – and apparently limitless – tribes of globally-connected fellows.

What concerns me about any post-digital media and entertainment innovation initiative that – without hesitation – puts Content at the heart of the equation is that … well, it’s not as simple as that anymore. We’re finding on the brand side that consumer-centric thinking – and this starts with a lot of smart online listening and analysis – is beginning to yield the effective, impactful and measurable impacts in the badlands of social media, content strategies and mobile, that the faltering steps of traditional advertising now demands.

This is not to say that great entertainment providers should be quaking in their boots in the face of Facebook and Twitter. There are those who argue that, but not me. Superb movies, TV and music speak – and earn – for themselves. But my point is both more blunt and more subtle.

Brands are still spending all in about $650bn per year on reaching “Those Guys”. Many of the giant advertisers are currently – rightly I believe – obsessed with moving significant spend into what’s called engagement marketing. Much of the flurry around the subject of so-called Branded Content derives from this trend. An awful lot of brand spend is heading this way.

The big movie and TV studios do one thing marvellously well. You call it entertaining audiences. Brands call it consumer engagement.

If we’re going to make the 360 thing – which means different things  to different people – really work, we need to bring these two highly diverse groups together in the same meaningful discussion. The brand on one side and the content on the other, naturally have enormous roles to play. But at the centre of the circle – the equation if you like – sits neither of these. 180 + 180 does not in this case equal 360.

It’s the new consumer. Hi there!

Malcolm MacLaren dead in NYC

R.I.P.O.F.F!

Perhaps this is one of MM's finer moments ... 

"It's been a long time ..."

Prompted - sad to say - after too many weeks of summer sloth and preoccupation with other matters - back to the blog by the slightly frilly reason of having been extensively quoted in a startlingly bullish article in the Daily Mirror regarding the projected £1bn income to the Fab Four (I supposed the Fab Two now really, plus Olivia Harrison and Yoko Ono) from 2 new boxed sets and the much fussed over Rock Band release. Note to self: must blog more.

The copyright cavalry - Part 4 of Learning from the Losers

David Stoughton of ValueKinetics writes:

Back, after an enforced hiatus, to the main theme, the record companies and their struggle for survival. This time to the second of the big questions, would enforcing copyright restore the status quo?

Possibly a pivotal moment (or not...)

It's a timely question. The government, in the form of the communications minister, Lord Carter (why are so many ministers drawn from the house of Lords? Could it be ... no let's not get distracted by the clowns). Anyway this Lord Carter will publish his Digital Britain Report this coming week. It's slated for the 16th; in it he promises to 'tackle the issue of copyright'.

Previews suggest he will not endorse some of the loonier ideas that have been pitched. Pity about the levy on ISPs to be split amongst media publishers, I was looking forward to claiming my .0000001 pence stipend for publishing these blogs. More especially I was looking forward to the interesting battle when the kid who posted guitar, the 4th most popular video on YouTube which currently claims 60,134,640 views, seeks his share of the loot. Wait! Neither of us you say is a 'legitimate media business', so we don't deserve to share a portion of the pie. That was the good clean fight I was looking forward to, though in another, messier, form it's going to happen anyway. 

It appears the industry itself is not that keen on another levy that is core to Lord Carter's proposal, the one to be collected by a 'pan-industry Digital Rights Agency' that would use it to 'help pay for enforcement'. UK Music, an industry pressure group, has - mirabile dictu -  come out and said "It is not the ambition of rights holders to sue their own consumers" (all those court cases must have been about something else then).

ISPs will also be "required" to notify individuals using illegal content and to collect "anonymised" data which could be used against repeat infringers (however that is supposed to be reconciled with anonymity). 

The issue of who is a legitimate rights holder remains difficult because the act of publishing - barring infringement in the content - confers rights on the publisher, whoever they are. All the proposals so far appear to suggest that 'legitimate' just means anyone with deep enough pockets to bring a court case.

But this all still begs the question, which is not really about the mechanics but about whether even a successful, non-controversial regime, would actually save the current business model of the record companies. (I return to record companies specifically here because I believe the issues are different for different media, and the outcomes will be too. It is a mistake for them, for legislators, and for us, to assume otherwise.)

Beware those who can vote with their feet

Let's imagine a time when copyright can once again successfully be collected by those who want to collect. In music, those most anxious to do so are record companies, they are, for the most part, the ones whose ability to do so has been impaired. Will restoring full collection really save them? My answer is no! Bear with me - I have reasons.

It is aspiring performers who will undermine the model. It is specifically not in their interests to charge directly for distribution that guarantees them exposure. The trade-off is clear, charges will deter and the audience will build more slowly or not at all. So the rule is equally simple, first build an audience then decide how to monetise it.

Record companies complicate the issues. Whereas signing to a record company was once the only viable way to reach a substantial audience, now it is just one option. The relatively small advances (loans) they make are in exchange for two things, ceasing to offer any recordings for free, and a majority of future income in recordings released by them. The company will then do most of the work of building an audience - though whether, in the age of the Internet, they can do it any more successfully than the performer can themselves is a moot point.

So the artist must make a complex calculation, essentially about the price of risk. It is this trade-off that will sooner or later undermine the hopes vested in copyright enforcement.

Time for a bit more self harming

I've already covered a lot of the ground about why the artist benefits from going it alone in previous posts and I'm not going to go over it again here. The key point is that the balance between taking the media giants' shilling and struggling through is a fine one at present. Many, perhaps most, still consider income now (though of course it's a loan and will be recouped) as preferable to a larger slice of, less predictable, future income. However, the balance will tip as alternative models are seen to work.

Whilst I'm clear that a rational being (remember classical economics) would now choose to take the risk themselves, real artists will mostly continue to prefer someone to mitigate the short term pain for them. For now that remains, primarily, the record companies, but the very act of enforcing copyright collection changes the balance.

Illegal downloading has, paradoxically, been the saviour of the record companies thus far; it acts as a safety valve. It gives new artists access to large audiences anyway, even if the record companies they sign to try to prevent it. If that access is denied both the artist and the company will find it more difficult to reach a critical mass, risk is increased for both parties. The companies can, and almost certainly will, respond by reducing their advances and probably - in another self-defeating move - the royalties they offer too . At that point unsigned new artists have a clear advantage over signed ones, increasingly they will learn to hold out.

The more artists hold out the greater the opportunity for new business models to develop, especially those that manage the trade-offs better then record companies currently do. Eventually those companies will be forced to change the way they do business. The signs are that most of them will leave it too late to retain anything like the market share they do now.

So all the legislative fuss is just another way of putting off the evil hour. Record companies are betting the farm on external saviours riding to the rescue in preference to questioning the way their business works. Whilst probably not the coup de grace, successful copyright enforcement will certainly prove to be another nail in their coffin.

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. 

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.

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.

Another step back into the glorious past (and therefore into history)

David Stoughton of ValueKinetics writes:

Yesterday a Swedish court not only found four founder members of a file-sharing web site, The Pirate Bay, guilty of breaching copyright law, it sentenced them to jail. That came on top of an award for damages of £3 million. Never mind that the name was a red rag to the raging bull that is the collective recording industry, this case was important.

Among representatives of the industry delight is unconcealed. They are anxious to convey the impression that a decisive landmark has been achieved.  "There has been a perception that piracy is OK and that the music industry should just have to accept it. This verdict will change that," said John Kennedy, chairman of industry body the International Federation of the Phonographic Industry (IFPI).

There is no doubt that, in this case, the rights of the entertainment companies were upheld and existing copyright laws vigorously asserted. Why then do I, perversely, see this as another nail in the coffin of the record companies and a setback for media industries in general.

There are three reasons why I hold this view. They range from the general, concerning all businesses affected by the the outcome of this case, to the particular, the recording companies themselves. 

The first has to do with copyright law itself. The music industry is not the only, or even the major, business sector affect by its provisions. Whatever the rights and wrongs of recent breaches, a general consensus seems to be emerging that, in its current form, the law (especially as it applies in the UK) is not fit for purpose. Not only is it increasingly hard to enforce, and thus falling increasingly into disrepute, there is a growing understanding that it might actually be reducing access to creative works - the precise opposite of the intention of the law - and inhibiting the commercial exploitation of those works. This "victory" will set back the campaign for its reform and give those, like the music industry, who see themselves as - by definition (theirs) -  the losers from any change, an argument for delay. The longer this drags on the greater the damage to wider interests, cultural as well as commercial.

The second concerns the interests of the broader music community. While the record companies have been suffering, much of the rest of the industry has been doing just fine - in fact many artists and their managers have been in clover. This is partly a consequence of more frequent concert appearances,  increased concert fees, and growth in the associated businesses like merchandising - benefits not unrelated to the added exposure that unconstrained dissemination of recordings delivers. It is also a result, I would argue, of a more general increase in access and opportunity for all, including newcomers. In fact the emerging business models in the industry are predicated on exposure - on as wide a dissemination as possible of the artists' work. In that sense what file sharing may take with one hand it returns at least twofold with the other. The idea that music should once again be corralled into tightly policed outlets, where access is controlled by the record companies, might sensibly be viewed with some horror by other players in the broader community.

And it isn't just about exposure. Since the means of distribution changed, music means something different to, and is used differently by, its audiences - who are also more active participants in the creative act. Turning the clock back (if that were possible) would necessarily change that as well, with - I can't help feeling - generally negative consequences for the artists and for musical creativity general.

The final reason, specific to the recording industry itself, is one I've harped on about before. It's not unhelpful to envisage the industry as split into two camps with, as you would expect, some in the middle who'd like to see a bit of both. The realists, who - until this setback - might have been gaining the upper hand, accept that everything has changed and that, as a consequence, the core business model must be revisited and new sources of revenue identified urgently. The other camp (I'm stuck for a non-pejorative name) believe that, essentially, nothing has changed except that the public - given the opportunity - has proven less law abiding than they had a right to expect. Impose the law properly and business as usual can be resumed.

Any change manager will tell you that successful change requires a 'burning issue', something all parties agree is so important it cannot be ignored, and that requires them to do something different to address it. Until yesterday that burning issue was becoming indisputable - historically reliable sources of revenue were under increasing threat and real changes in strategy were required to meet the challenge. It doesn't take a lot of imagination to realise that, once it can credibly be affirmed that all that is really needed is that the law be properly enforced, the flames are immediately doused. "It's them what needs to do their job, not us what needs to change" is likely to be the death knell of an industry that, by these standards deserves to die. The tides of history are sweeping in faster after yesterday - Canute may, perhaps contrary to his intentions, have manage to convince his courtiers that the waters can be held back, and so that defenses are not required.

The watchers - now watching each other

A less-than-reassuring move from the government, to rein in the local little Hitlers who've been - what a surprise - using the RIPA surveillance law and facilities to perform critical anti-terrorism and national security tasks. One excellent example is covert tracking for 3 weeks of a family wrongly suspected of declaring the wrong catchment area! Of course, we should have guessed that a loaded word like "catchment" would come into its own. And there are scores of doggy-poop and putting bins out on the wrong day applications as well. Ou sont les Winston Smiths d'antan?

Previous posts on this here and here.

The value of back catalogue in a meta-media world?

One of the more vexing questions facing rights owners in the post-Internet age is how to realise best value from their back catalogues. When content is commonly viewed as all-you-can-eat, and when the controlled and focused model of distribution through fixed channels, evolves into a model of simple release, where consumers are left - collaboratively and individually - to find value more or less serendipitously as they drift across networks, how are we to evaluate and market rights?

I sat a while back with a senior executive of a very large production company whose worth, it emerged in the discussion, was significantly determined by analysts as a direct function of their large and reasonably credible back catalogue of drama, news, sport and documentary programming. My colleague was, I felt rightly, disturbed by the instinct that the company was a hostage to fortune: "Where, when and most of all, how are these rights going to realise the level and range of exploitation that the City is, literally, banking on?

Not that the traditional revenue streams associated with catalogue have gone away, and I won't go into those here: readers will be more or less familiar with the landscape. But the concerns of the rights holding community are well-founded, in that the upward pressure of the investor's dreams of fresh - largely digital, alarmingly - profits, combined with the very real downward pressure of the market reality - where both consumer attention and advertised spend look increasingly unreliable - smacks clearly of rock and hard place.

"500 (or 300 or even 25) channels and nothing on ...". Is this just about quality of content, or more interestingly about consumer or audience relevance? One man's boring rubbish is another man's compelling and timely instruction or distraction ... M'learned friend Rory Sutherland of OgilvyOne points out that, when for example battling with the assembly of a flat pack piece of furniture from Ikea, a plodding, step-by-step video manual to the mobile, irrespective of dry Scandinavian voice-over, would be seized upon like water in the desert.

Levelling the terrain dangerously, but in order to make this point: we are reaching a time in our post-internet culture where meta-content - data about content - alongside "meta-taste" - information about user preferences - is becoming commercially more important than the content itself ... But how could the index possibly be of greater value than the book?

Whether through search, social media, traditional hard-slog research, pure luck, or “Media Through Wandering About” (surfing), the consumer’s chances of finding media content they value and might pay for with cash or quality attention (thereby supporting advertising investment) – putting aside genre for the sake of brevity, though clearly that is very influential on preference and value – are dramatically improved through tagging of one sort or another.

And while users are – again generalising broadly – consciously, deliberately or unconsciously by publisher/retailer automation – tagging the content they encounter with their various associations – let’s agree to call this “folksonomy” - rights owners have some catching up to do on the taxonomy side of this crucial equation. Standards of mark-up language pre-existed – indeed fed the evolution of – html in the form of the publisher’s standard “sgml”.

Rights owners and publishers, to enable and capitalise upon the finding, preference, sharing and consumption of their back-catalogue media by consumers, must find ways to develop and link the meta-content of their media assets, with the declared meta-tastes of the consumer, to move towards ensuring that the value of their catalogue is – while we will never return to the Eden of a truly lucrative, growth-enabling syndication-based distribution model – at least optimised for the “planned serendipity” that is so often the model of discovery and exploitation.

Help!

Wonderful story in the Observer today about the restored version of "Help!" which is showing tonight on BBC 4. Many years after the film was made (obviously) Dick Lester got a formal letter from MTV declaring him, for the work he did directing both of the early Beatles films, "A Hard Day's Night" and "Help!", the father of the modern pop video. His response, apparently, was to IMMEDIATELY write back demanding a blood test! I love the "immediately" ...

Am watching the film now with the kids dipping in and out between it and Bebo ... Whatever's happened since - and with Lennon's murder (a movie about that just hitting the screens in London if you're feeling an excess of Xmas cheer), Harrison's death of cancer, and now the whole McCartney divorce thing - there's been a fair bit to feel dismayed by for a Beatles fan over the decades. Wonderful to get back to unadulterated Fab Four.

I still think the best thing about them was the laughs ... I love the story of Lennon, cornered by a US journo: "John! John! Is Ringo Starr the best drummer in the world?" Responded he, without missing the all-important Beat: "He's not even the best drummer in the Beatles."

Why did I stop blogging for over a year?

Because I had nothing to say!

Since October 2006 we've been working with O2 - more recently their owner, Telefonica really - and Bacardi Global Brands on initiatives that have taken our work and our thinking in very exciting new directions. We're delving deep in to 21st century media strategy, we developed The TouchStone framework for analyzing and evaluating 360 degree brand communication programmes, and more recently have been exploring advanced mobile marketing strategies.

I feel so privileged - despite the associated stresses - to have the opportunity to do this work. We have a way to go yet before the business is 100% stabilised, but it's looking OK.

Time to start blogging again ...

Tell you what ... this blogging business ebbs and flows for me ... for 3 months or more I've had little that I wanted to communicate outside of the work I do with the very exciting Rights Marketing Company, now well into its second year and very much on a roll.

Couple of things I plan to revisit over the coming weeks in this space ... the growing relationship between music and advertising, the issue of media value in the context of a brand new set of consumer experiences, and finally - and perhaps more drily - the fascinating theoretical work we're doing on the strategic impact for enterprises of the move from value chain to ecosystems.

Thoughts on Micro-sponsorship - aka 'reverse adtech'

Advertisers currently fund - one way or another - some form of content and embed their messaging inside or alonsgide. In Media 2.0, advertisers must move on from interruption of experience to enhancement of experience.

Deep in the labs at Rights Marketing we work on what comes next. And the idea we keep coming back to is micro-sponsorship, aka 'reverse adtech'.

We see a day when advertisers will bid to sponsor the individual entertainment and other mediated experiences of desirable (affluent, commercially attractive) consumers.

It goes like this: the organisers of (say) the webcasting of a music concert offer the sponsorship rights to the usual suspects in media buying. 4 fmcg brands commit to enter the bidding program: Dominos, Coke, T-mobile and Quiksilver. When consumers sign up for the event, brands bid to be the unique sponsor of their experience of the content (and this can be offered to groups of friends - the tribal piece - as well as individuals).

Each brand not only commits to foot the basic bill for the consumer who signs up: they sweeten the bid with brand-exclusive, event-specific enhancements such as discount coupons (via web or mobile) for food and snacks during the event, online and/or mobile services to increase the individual (or especially the tribal) enjoyment of the event (for example rich chat environments where friends can connect and make new friends), or exclusive promotional merchandise (caps, t-shirts, even a branded CD of the concert to your door 24 hours later).

Consider for a second the Return on (yes, not cheap) Investment that derives from the remarkable Return on Attention that micro-sponsorship creates. The brand that wins the bid moves immediately from the usual painful and suspicious hovering around the outskirts of the party ('trendy vicar', as it's sometimes cruelly called) to occupy a welcomed and value-adding role not too far from the event core. The opt-in factor is highly positive, and the CRM potential is, for once, both genuine and large. And brand-consumer permissions go sky-high.

I wonder if at least some resolution of the well-documented marketers' conumdrum (innovation and accountability) may lie in the adoption of this reverse-engineered advertising. We'll certainly be suggesting it for our clients.

A new classical music model emerges ...

.... courtesy of the ever-watchful Michael Parekh, a piece from the NYT that's a must-read for all students of online music - and culcha ...

REMEMBER that Mozart concert you wanted to get to last month? No, not that one. (Or that one. Or those other 10 or 12.) The one with Lorin Maazel conducting the New York Philharmonic in the last three symphonies at Avery Fisher Hall.

Well, that concert will come
to you in high-quality sound on Tuesday, when DG Concerts offers it for
digital downloading via the iTunes Music Store (itunes.com).
What's more, two programs from the Los Angeles Philharmonic's hip
"Minimalist Jukebox" series, performed this weekend, are scheduled for
release through DG Concerts and iTunes on April 4. Although pricing is
not final, each live concert will probably cost about $10 to download,
less for complete individual works.

Having become pretty jaded with my current music collection, and also rather bored with iTunes, this wakes me up a bit. I look forward to finding out more - surely this is the stuff that makes online entertainment truly fresh and vibrant? 

 

Leadership in Media program with IESE

We're delighted to announce, further to time spent together at the Indian School of Business in Hyderabad, that Prof Paddy Miller of IESE, the top business school in world (FT, Economist etc) has invited Rights Marketing to assist with the development and delivery of the new Leadership in Media MBA program (NY) and the media component of the core MBA program (Barcelona).

We're beginning the development process on this today, for launch in both NYC and Barcelona in the fall. A priviledge and a pleasure.

This is not real ...

... but it could be tomorrow :-)

In an UnNews exclusive interview today the current CEO of the Recording Industry Association of America, Mitch "Litigious Bastard" Bainwol, discussed the analog hole, and the recent controversy surrounding it.

Attentioneering #9

Michael and Umair Haque of Bubble Generation examine the state of play and strategic implications of Media 2.0 in the first of a series of podcasts.

Idol kicks butt on Grandmas ... I'm sorry - Grammy's

From the beeb ...

American Idol got nearly twice as many viewers as the televised Grammys ceremony when they clashed on US TV, audience figures have shown.

Talent show Idol, the most watched US TV programme, was seen by 28m viewers when it went head to head with the annual awards event.

Nice note from Todd Sampson

Cheers to Todd for this very warm (and wise!) note ...

I have really been enjoying Michael Bayler's Attentioneering Podcast (xml) and his related Rights Marketing Company Blog lately.  He gives a more business focused take on the subject of attention compared to the majority of those discussing the topic online.

Michael, if you read this, one really small comment.  The frequent use of the word "exploitation" could scare the crap out of some people - especially those new to attention.  Many people view the word as "utilization of another person or group for selfish purposes (American Heritage Dictionary)" or worse "an act that exploits or victimizes someone (WordNet)."

Keep up the good work.