1175
Transform the core
The transformation challenge for record labels
Record labels provide a good example of the need for transformation
at the core of the business. There are few businesses that have been as
structurally challenged as they have. How much their fate is a conse-
quence of their own actions, and how much is simply the gravity of
disruption, is neither here nor there; but the brutal truth is that the
value of their core business – the sale of recorded music – has fallen by
billions over the past decade. That money has gone: it is not coming
back. But the function of their core business of nding talent, devel-
oping it, and commercially beneting from the results of it is still
very valid.
The slump in the size of their market has made running a label in 2010
a much tougher job than it was in 1990. So has the arrival of new
competition: Live Nation, Starbucks and a host of others have started to
compete with labels, and many more will follow. But the majority of the
world’s biggest acts are signed to one of the major labels; and most of
the world’s up-and-coming acts hope that they will be one day.
4 Sometimes your core will be all you have
It is great to think you might be able to move into a big new
adjacency and nd a new stream of growth. But very often, that
can’t happen. Either there is no opportunity there, or your owner
or shareholders don’t think it is the best use of their money for you
to pursue it.
5 Core transformation is a long, hard slog: best to start early, then
Bringing about radical change in a business is no small matter,
especially if it is a business that has essentially created one thing in
one way for as long as anyone can remember. It means changing
people, processes and mindsets. The sooner you start, the longer
you will have to get it right.
Creative disruption118
Furthermore, despite the decline in recorded music revenues it was
still a global market worth more than $17bn a year in 2009.
1
The prize
of discovering the next Coldplay or Britney is well worth ghting
for. In fact, it has become even more worth ghting for than before,
because sales of the biggest hits are holding up best. Essentially it’s
better to have one act in the top tier than half a dozen in the tier
below.
There has been a shift in value towards live music where labels
haven’t traditionally generated revenue – but this has brought it onto
a par with recorded music, rather than dwarfed it. According to gures
compiled by the collections agency, PRS for Music, the value of live
music in the UK in 2008 rose by 13% to £1.39bn only marginally
ahead of recorded revenues of £1.3bn.
2
So yes, live music is growing,
but recorded music is still a large part of the overall pie and within
that sales of good old fashioned CDs still provide a large part of the
value.
For long-term growth, labels need to build on
successful relationships around recorded music
and move into other revenue areas such as live
music: so-called ‘360 degree deals’. But the key
phrase there is ‘successful relationships’. They’re not going to be able
to do this unless they reinvent their recorded music business to appeal
to the world we now nd ourselves in.
The logic here is simple and very human. If you are a successful artist
and your label can’t help a band through the recording and release
process, or provide the best possible marketing support, as well as
providing the human support when things aren’t going as well as they
might, then why would you let them manage your live performances
or take a slice of your merchandising sales?
1  IFPI, www.ifpi.org
2  Will Page (2008) ‘Adding up the Music Industry for 2008’, PRS for Music,
www.prsformusic.com/economics
labels need to
build on successful
relationships

Get Creative Disruption now with O’Reilly online learning.

O’Reilly members experience live online training, plus books, videos, and digital content from 200+ publishers.