The last days of disc(o): what the music business taught me about disruption
When was the last time you purchased a CD? For me, it was about five years ago.
Despite being a lifelong music lover, despite possessing a CD collection that numbered in the thousands, despite hanging on to the medium long after most people had already migrated to iTunes, I just couldn’t do it anymore. The CD had been fundamentally disrupted and it was time for me to let it go.
Today, I happily part with 12 bucks a month for Spotify Premium, which I blast throughout my house on iPhone-controlled Sonos speakers that integrate seamlessly with my TV and don’t involve me swapping little plastic discs in and out of a whirring machine. My music storage issues are nil (except for those CD boxes in the attic) because everything I need is in the cloud. And purchasing music is no longer like spinning a roulette wheel; if I sample an artist’s music and I don’t like it, all I risk losing is my time. I just hit skip.
The irony of all this is: I used to own, and run, an independent record label (Google that term if you were born after 1995) during the heyday of the CD, and up until its eventual death knell (coincidentally, also the death knell of my business). It’s like a bankrupted ex-taxi driver telling you he actually loves Uber and catches one every chance he gets.
But as an optimistic person (and a once and future entrepreneur), I’m happy to have lived through that experience. It was rich with lessons about dealing with, and surviving, disruption.
Anticipation is key
Perhaps the most valuable lesson I learned was: it is not enough to “stay current” or keep up-to-date with consumer trends. As an entrepreneur, you really have to become a weathervane or clairvoyant and constantly anticipate the future of your industry. If you don’t stay four moves ahead, you’re playing checkers, not chess.
The issue of artist contracts offers an excellent case in point.
As a record label, your main stock in trade used to be to sign artists to long-term contracts (with extension options in the label’s favour) that spelled out how you would pay for, recoup on, and profit from said artists’ musical endeavours. For many years, the artist contract was a relatively standard boilerplate, with the only real deviation from contract to contract being the royalty percentage that the artist’s manager was canny enough to negotiate.
The only problem was, back in the day, these contracts really only allowed for the label to profit from an artist’s recorded output (be it music or video). Most of the time, touring, merchandise and endorsement revenue was the domain of the artist, and labels like mine wouldn’t get a dime unless they were willing to pour their own capital into funding these endeavours. For years, it didn’t matter: there was plenty of money to go around. CDs (and their predecessors, cassettes and records) were selling by the boatload, and labels were making plenty of coin from those aforementioned little plastic discs without needing to get their paws into the touring and merch cookie jar.
But somewhere between my label’s key artist signings, and the advent of digital piracy and the correlating decline of CD sales, many labels starting signing artists to so-called “360 deals”: that is, contracts which required the artist to sign away a share of all recording, touring, merchandise and endorsement revenue to their label. Labels were shoring up their access to more profitable revenue streams, because recorded music sales weren’t bringing home the bacon anymore.
For my label, it was too late: our key artists were already locked down, and a renegotiation of terms would have damaged my already relatively generous royalty split. The choice I faced was simple: hold onto my piece of an ever-dwindling pie, or sell my artist contracts to another party while they were still relatively valuable. I chose the latter.
Of course, I could have adapted. I could have thought outside the box and challenged the paradigm. But hindsight is a wonderful thing, and as a first time entrepreneur with an expanding young family, my decision to cash out was right for me at the time. And, importantly, it taught me something that I can use for the future.
The lesson
What did I learn from this situation? Don’t lock yourself into restrictive terms (or a restrictive mindset) just because they are considered “the norm” in your industry. It will only hamstring you when the inevitable disruption comes. Anticipate what’s around the corner and build a level of flexibility into your agreements with clients, partners and employees, into your product or service, and into your business plan, to ensure you are agile enough to pivot into new opportunities and revenue streams when the time comes.
Today, even the 360 deal feels like a relic from a former era. Increasingly, the balance of power in the music industry has shifted from the label to the artist, and unless you’re Adele or Beyonce, a label can’t do much for you that you can’t do yourself. Just ask Chance The Rapper.
As a music lover, I couldn’t be happier about this equation. Enough water under the bridge has passed that I don’t think about music in business terms anymore; I think about it as a consumer, and as a connoisseur. I’m chuffed to see artists “doing an Uber” and disrupting what was, for so many years, an unfair balance of power.
To hold onto that power, musicians (and entrepreneurs in any line of business) will need to keep anticipating the twists and turns of technology and evolving consumer tastes (hello podcasts!). Those that don’t will go the way of the dodo and the compact disc.
