More on why vinyl survives

Following up on my post of last month about the survival and revival of vinyl records, I stumbled across a neat story and quote supporting my argument that the winners from this (apart from the fans) would be “those who have persisted with pressing plants, artwork services etc [and] are now reaping the rewards of their persistence and rare capabilities.”

Über- trendy Monocle magazine has a report in their most recent issue (Dec 09, Jan 10) on London’s The Vinyl Factory (TVF).  It turns out a couple of clever chaps picked EMI’s old vinyl press and associated staff for peanuts back in 2001 and have turned it into a powerhouse of fantastically packaged and produced records from artists like Massive Attack, Pet Shop Boys and Timbaland.

Here’s some neat footage of how they make them (it’s always good to feed the consumer fetish with some production porn):

I love this quote from the article (first it’s TVF’s creative director Sean Bidder speaking, then the magazine):

“”Music fans might get 95 per cent of their music for free, but this means they are even more careful with how they invest that 5 percent,” says Bidder.  Although “breadth for free” may seem to be the future for much of the media, depth is always going to be valuable, and companies like TVF produce experiences worth paying for.”

I couldn’t have put it better myself.

And in looking for a pic to illustrate this story I discovered there is an Aussie subsidiary/version of this outfit (see here for a 2007 news story).  Finally, a pay-off from the protectionism that pretty much forced local manufacturing upon multinationals in Australia up until the 1970s  – a factory that could be resuscitated.

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Step back in time: the vinyl fightback

As some of you might know, I am a pretty big music fan, and have invested a rather silly amount of money over the years in increasingly redundant CDs (1200+?).

I still buy the things, but most of the music I listen to ends up coming out of my iPod or via ITunes on my desktop (as uploaded from said CDs). The process of playing a CD through the stereo at home doesn’t induce much romantic nostalgia. Yes, the stereo sounds better than the tinny computer speakers and bud headphones, but feeding the iPod through is just as satisfying.

What really is fun is plonking a record on the turntable, listening for the opening crackle, and also scrutinising the sleeve artwork at its natural scale (i.e. 12″ square). That’s music (and music consumerism/fetishism) at its most sensory (beyond the live forum).

The drama with the vinyl format for too long has been the difficulty of getting the tunes off the vinyl and into the computer/iPod. Of late, I have begun to buy more and more releases on vinyl, and the big drawcard has been stickers like the one above. Many vinyl versions now come with a little card or sticker inserted in the packaging which allows a download of an MP3 version of the same album. Now, my life is easier, and I have the best of both worlds.

And I’m not alone in getting excited about this. Vinyl sales just passed 2m for 2009 in the US – a number not seen since the early days of CDs.

This is a wonderful example of a technology (and thus a sub-segment of an industry) bouncing back from what looked like obsolescence. Too often we assume that technology (and consumers) only progress forward.

It would also seem this is not just a retro fad. The growth has been pretty steady for the past few years. It may well be a niche market, comparable perhaps to boutique beers, original artwork or hardcover books.

I do like the ideas of the original Wired editor Kevin Kelly on why pricier tangible products might be preferred by some consumers rather than ubiquitous and close to free digital versions. He refers to generative value:

“…a quality or attribute that must be generated, grown, cultivated, nurtured. A generative thing can not be copied, cloned, faked, replicated, counterfeited, or reproduced. It is generated uniquely, in place, over time. In the digital arena, generative qualities add value to free copies, and therefore are something that can be sold.”

He goes on to propose eight different generatives. The relevant ones for vinyl records would be embodiment and perhaps also patronage (i.e. you feel you should support the artist, and perhaps technology, involved). It is hard to see how digital music can address such issues.

What are the strategic management implications? Well, it seems to be smaller record labels and certain genres (dance music, garage and indie rock) that have embraced this collision of the physical and the digital. They may build a point of differentiation with fans (and bands). Presumably also those who have persisted with pressing plants, artwork services etc are now reaping the rewards of their persistence and rare capabilities.

What other industries have/will experience(d) such technological regress?

Another entry barrier gone?

My post about the music business argued that technological change has reduced barriers to entry considerably. In that instance, it was a raft of new technologies that made making and distributing music so much easier. These changes rendered the previously important music labels somewhat redundant.

One further aspect of this was the scope for musicians to market themselves, as they could build their image and communicate their message through extremely low cost means (such as Myspace and Youtube).

Such gains can be seen beyond the music world. Firms can now also bypass the dominant mass-media (and its associated businesses such as ad agencies and media buyers), and attempt to communicate their message directly to consumers via the same sort of sites as the musos.

Here’s an example from web-rental business Rentoid (yes, the one run by my cousin):

It’s low budget but has a chance to go viral and build greater brand awareness than a boring print ad or a billboard (both of which would be much more expensive).

What do you think? Does it communicate an effective message?

And is this a viable strategy for many firms?

Disruptive technology amplified

I’ve posted on here before about the changing dynamics of the music industry. This interview with marketing guru and bigtime blogger Seth Godin highlights a raft of substantial and probably irreversible shifts that continue to bewilder the big record labels (See also his rearticulation of these ideas on his blog).

Godin has a neat take on the changes too:

This is the greatest moment in the history of music if your dream is to distribute as much music as possible to as many people as possible, or if your goal is to make it as easy as possible to become heard as a musician. There’s never been a time like this before. So if your focus is on music, it’s great. If your focus is on the industry part and the limos, the advances, the lawyers, polycarbonate and vinyl, it’s horrible.

Let’s put this into the language of strategic management ..

Disruptive technologies (internet, low-cost recording and dissemination of audio and increasingly video, filesharing) have diminished considerably (if not almost absolutely) the power of previously dominant players in the field. This includes not only the record labels but also radio, MTV and their cohort channels, bricks and mortar retailers, and producers of CD players and CDs.

Massive shifts in distribution channels away from many of the aforementioned mechanisms. Indeed we have seen almost a polarisation whereby there a few huge-scale outlets for buying digital recordings (i.e. iTunes, Amazon) and small ranges available in large scale retailers (WalMart, Target etc), and then an enormously lengthy tail for buying digital, CD or even vinyl, often directly from the artists, from indie labels or well-conceived aggregators (like CD Baby). And, of course, a huge proportion of the product is exchanged for free through filesharing.

These two phenomena have indeed changed the world of music as we know it. This is a fascinating case of disruptive technology, as it remains very unclear which businesses have gained from this huge shift in the nature of the value chain. You could argue that Apple has through its i-empire, but I’d hazard a guess that their revenue gain does not outweigh the losses of income to the record labels etc. Similarly, it does not look like the innovators (i.e. those responsible for MP3s, file-sharing protocols etc) have reaped much in return.

As Godin indicates, it would seem it is the musicians who hold much of the power now. The major barrier to entry of olden days – a major label recording deal – has fallen.

The marketing requirements have shifted considerably, with much less uniformity in the approach taken. Mainstream music has faded from our culture as smaller and smaller niches open up as viable and vibrant communities of interest.

It is unclear that major record labels have any competitive advantage at all in such domains. Indeed their credibility is highly questionable, and, with integrity and uniqueness so highly valued, their patronage may well be a burden for new acts. Indeed it appears possible to build a substantial following without a label or indeed much pay-to-listen product (as exemplified by the case of Aussie outfit Short Stack or US singer Corey Smith).

Musicians face considerable diversity of possible revenue streams, many of which are not subject to extreme bargaining power (merchandise, live performances, personal CD sales (i.e. at performances/appearances)), or offer considerable returns for limited effort (licensing of songs to video games, movies, advertisements). Increasingly there is little need to utilise the record label to tap these streams. I’ll finish with another quote from Godin which should remind artists where the gold may lie:

The idea that you could have a micro-market of 250, 500, 1,000 copies of a CD every night is a totally different way of thinking about what you do for a living, rather than making one album a year marketed with payola and promotion that reaches a certain group of people and ignores everybody else.

Revenge of the Rock Band

Much has been written over the years about bargaining power issues within the music business. Record labels have consistently been portrayed as exercising an unhealthy level of control over the livelihood of their signed artists. The rock pantheon is littered with tales of bands and songwriters ripped off by the greedy “man behind the desk with the cuban cigars” (as Tim Rogers would put it).

With the big labels’ declining control of recorded music (due to filesharing etc), emerging artists have deemed them less relevant. Artists have some scope to got it alone using myspace and direct contracting with distributors.

It looks like the emergence of the various successful video games built around playing along to your favourite tunes – i.e. Guitar Hero, Rock Band (and their various sequels) – have pushed the power balance further away from the big record labels and towards the musicians themselves.

As this article discusses, the game producers are most interested in dealing with the artists, and the record labels appear to be holding little sway in getting their artists’ tracks on the games. Also, it would appear that most of the bigger royalty streams here (use of image, bandname, and the publishing of what is, in effect, a cover rather than the original recording) reside outside of most artists’ contracts with their record label (i.e. it is the artists and their publishers who are getting much of the cash from this).

So, record labels can only sit around and hope that a band’s presence within the Rock Band playlist might significantly boost record sales. The labels have very little bargaining power with the games companies. As an analyst says in the article:

“There are literally probably 2 million songs out there, and fewer than a 1,000 were used in these two games combined in these last two years…If Warner wants to say we’ll take our 20 percent of the market and go away, a lot of bands are going to leave the label if they think they can get better exposure by being on these games.”

This is another instance where a whole link in the Value Chain has been disrupted by technology and shifting consumer behaviours. The record labels underestimated the impact of digital download technology on their sales. And now they look to have missed the boat on potent promotional tool which they should have had in their arsenal. Watch this space for artists taking back even more control in the future…