Spotted On: The Guardian
“When the history of our digital times comes to be written, one of the questions that will puzzle historians is why the record companies missed the significance of the internet.”
What a great thought (and a very catchy headline). Here is a summary of the article, with some commentary.
Since World War II, the record industry had a total monopoly on the recording, packaging, and distribution of music. They controlled the careers or artists, the way the music was disseminated, and dictated terms to music retailers. When the CD came around in the early 1980’s, and as the article says “recording studios converted the sounds made by musicians into bitstreams – long sequences of ones and zeroes – while, at the consumer end, CD players converted those bits back into high-fidelity sound.”
The sales model for this era was to create the plastic disks and packaging, ship them distribution houses, and then off to retailers. While this model proved to be profitable, the overhead costs were astronomical, with up to 50% of the retail price of a CD eaten up by production costs.
The internet was poised to change all of this for major labels. It presented the opportunity to drop production costs to the floor, while expanding profits. But the internet was ignored at first, and then it was treated as a realm for legal prosecution. Even bands chimed in, complaining about the evils of the internet. This practice got so widespread that the RIAA began prosecuting teenagers and single moms. And as the industry resisted the internet, CD sales bottomed out.
To put it simply, the major labels did not want to let go of CDs in the face of an evolving marketplace. Rather than adapt to the climate, they attempted to maintain the status quo. The writer of the article states “The obvious hypothesis – that the senior executives of all the record companies were idiots – has always seemed implausible to me. Or it did until I read the recent interview in Wired magazine with Doug Morris, chairman and CEO of Universal Music Group.”
Because CDs were so profitable, the music industry turned a blind eye to what was next, and settled into a short sighted approoch rather than looking at the big picture.
Bottom Line: The record industry can turn itself around virtually overnight by embracing and adapting to technology. Welcome to the Future.