Unbound

A Radical Plan to Save the Big Music Labels: Shrink the Big Music Labels

... Peter Kafka/Re-Code:

A decade and a half after Napster, the music business is finally changing. But only grudgingly: Even as music labels have begun to embrace digital streaming, they are still trying to protect the sales of $15 albums, a format consumers have long rejected.

And despite protests to the contrary from label executives, they are still doing business the way they always have: Pouring money into new albums, with the hope that a small fraction of them will become huge hits, and make up for losses everywhere else.

The late Dave Goldberg had a better idea: He wanted to radically reinvent the modern music label, by cutting its staff and expenses dramatically, focusing almost entirely on digital and moving away from making new music.

Under Goldberg’s plan, the big label of the future wouldn’t try to sign Taylor Swift, or the next Taylor Swift. It would lose a lot of the sex appeal the business still maintains and its revenues would shrink. But it would end up being much more profitable, and much more valuable.

When Goldberg died last spring, he was running SurveyMonkey, a very successful digital polling company. But he started his career in music — first at Capitol records, and then via Launch Media, a digital music company he co-founded and ultimately sold to Yahoo. He always retained a keen interest in the industry and its inability to adapt to the digital world.

Over the years, Goldberg would offer his prescription for the industry to anyone who would listen. Now the world can see it, via a memo he wrote to Sony Entertainment CEO Michael Lynton last summer. The memo surfaced earlier this year via the Sony hack, and some industry folks have referenced it since then. I’m re-printing here because it’s relevant for the music industry, and any other business that is struggling to reinvent itself (that is, most industries).

Goldberg wasn’t delusional about how difficult it would be for Sony Music, which Lynton oversaw, to transform itself.

“I think this amount of reinvention has rarely been done inside a public media company and it would be tough for Sony as a company to stomach the complaints from artists, employees and related parties,” he told Lynton.

But here are his main ideas:

  • Cut back on new releases, limiting them to smaller acts that won’t command big advances and marketing costs. The goal isn’t signing big acts, but “safely getting some good music out that has longevity.”
  • Cut back on label employees who sign new artists and market them, but spend some money on the technology the label will need to track licensing revenue, etc.
  • Cut back on international operations. “This is a huge part of the cost base with very little value.”
  • “Dramatically” change digital licensing to get more competitors to offer both subscription services and free, ad-based services. Goldberg suggests offering Spotify, Google and everyone else flat-rate deals that encourage them to “heavily invest in growing their user and revenue bases because they would see improved margins on each incremental sub. … If Netflix wanted to pay 200 MM per year to give all of its 40MM subs a music subscription — that should be encouraged, not scoffed at.”
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