The Lack Situation

Bertelsmann Is Said to Want Ouster of Sony BMG Chief

Who is going to fix the music business?

I was stunned last week in the U.K. to find it’s business as usual.  You’ve
got managers and acts sucking at the tit of the major labels and everyone
decrying the power of the iTunes Music Store.  It’s almost like they’re living in
1999.  Before the advent of Napster.

This is not a momentary diversion.  This is not a one time dip in sales from
which the business will recover.  This is a revolution.

Distribution is king.  The majors controlled distribution forever and
therefore kept not only indies, but new WANNABE companies out of the game.  You
couldn’t compete without going though their turnstile.  And then they made it
worse, by killing the indie retailer.  Leaving the business to the big boxes with
few SKUs.  Paying exorbitant amounts to control the endcaps, price and
positioning assuring their dominance.

And then there became a new way to acquire music.

The U.K. is almost quaint.  With its minimal number of radio stations and
relatively low broadband penetration.  The government and business conditions
have strangled the business at its throat.  They’re not living on Internet time
in the U.K.

But we are in the U.S.

Sure, the Telecommunications Act killed radio.  But terrestrial radio truly
wouldn’t have died if there weren’t ALTERNATIVES!

You’ve got Internet radio.  Satellite radio.  The dreaded iPod.  Such that
the majors, the conventional gatekeepers, are no longer in control of exposure. 
Oh, make no mistake, radio still has an impact, it’s the best way to reach
the masses.  But the ship is leaking so much water at the bottom, and will
continue to do so.  You’re never going to see terrestrial radio without
commercials.  But you’ve already got that on the Internet.  And the big feature of the new cars is iPod compatibility.  It’s not quite game over, but you can see why
business is off in excess of twenty percent this decade.

But that figure speaks to the raw ACQUISITION of music.

The Internet allows people to acquire whatever music they want for free. 
Rather than confront this problem, the majors are building an alternative system,
DRM per track sale and rental subscription, ignoring reality.  And nothing
prevents indies from competing on an equal footing in these spheres.  They can
get paid (or not get paid!) just like the majors.

But the new indies have a different business model.  In the new indie, you
don’t suck at the tit of the record company.  Your main goal is to build an
ongoing enterprise.  Based on touring.  The music drives people to the show where
if you’re good you knock them dead and blow out merchandise.  Sure, people
should pay to acquire the music of these new acts, but even if they DON’T, the
numbers work.  Because, via the new distribution methods, people can HEAR these

P2P, burning, they’re the best friend of the indies.  That’s how you spread
the word.  The majors want to pull all this back and make everybody listen to
the radio again.  But this will never happen.  But to accept the new
reality…they’re just not prepared to do it.

The Warner Music Group has got this bizarre philosophy where you fire
everybody, load the company up with debt and you end up with a success.  That formula is equal to the logic of the Bush economic program.  Where you lower the
taxes and increase spending and the debt.  How do you ever catch up?  How does the Warner Music Group ever lower that debt?  They’re hamstrung breaking new acts because they’ve fired their infrastructure, and as delineated above, they’re
playing in a dying game.  As for their incubator and Internet-only labels, why
should a band deal with them, give up a piece of their action, when they can
do it themselves and keep all the MONEY!

EMI’s market share is so low that they swing no weight.  In America the
Virgin label is such a disaster that one not only questions the lack of sales but
the people who came up with this plan.  They fired all the old people, moved
the label to New York and hired someone with no experience who was contracted to make a record for SOMEONE ELSE to run it!

The Universal Music Group?  They’re just the guys in the boat during the
deluge.  They think everything’s cool, but they’re further from land than they
realize.  When it comes to marketing they’re king, and a mainstream pop business
WILL survive in the new order, but their business is being marginalized every

And then we’ve got Sony BMG.  A company whose impetus for creation is the
falling through of a Warner BMG merger and a desire for Bertelsmann to get out of
the record business.  This was a merger with no aforethought.  No examination
of merging cultures.  No question of what you’d end up with.  This is the
house that Andy Lack has wrought.  And it’s a sinking ship.

Andy put Sony’s labels on hold for so long, awaiting final merger, that they
lost momentum.  Bertelsmann is a joke with a septuagenarian breaking acts at
extreme cost telling everybody he’s the king when he’s wearing few clothes. 
Make no mistake, the situation at Sony BMG is WORSE than it looks!  There’s
disorder, no momentum, and no coherent plan for the future.

Where IS Clive Davis’ successor?

Columbia and Epic finally have new heads, but will they ever recover from the

This is what you get when you have somebody who knows nothing about a
business controlling it.  Think about it.  Andy Lack’s copy protected CDs are SO
heinous even his OWN ACTS are rebelling against them!  PUBLICLY!

Then again, is Andy gonna lose his job because of incompetence, which he has
demonstrated, or will he be gone because Bertelsmann is in a snit in this
marriage that doesn’t seem to work?  At least Universal PURCHASED PolyGram, and
blew all the old employees out.  Could you imagine Doug Morris coexisting with
Alain Levy?  Which is why EMI must purchase Warner and there can’t be a merger
of equals.

Then again, what does this merger represent?  Is it like HP acquiring Compaq?
Two money-losing PC operations merging to compete with Dell which operates
on a completely different business model?

Yes, the reason Dell was eating Compaq’s lunch, and now HP’s, is that it
represents a different way of doing business.  You see there’s no RETAIL! 
Everything’s built to order, so there’s no inventory control.  HP can’t beat Dell
because it’s not playing by the same RULES!  The majors can’t beat the new indies
because their GAMES are different.  Korn might make an all-in-one deal with
EMI but no new act will.  Because EMI won’t offer enough MONEY!  So, these new
acts go into business with their best friends, and give up less on the dollar,
and share in the upside.

So even though we lifers in the business are gonna get the last laugh, as
Andy Lack is kicked out, if you think that’s going to solve Sony BMG’s problems

More people are consuming more music than ever before.  This is reality.  You
can’t stop it.  It’s good for musicians and good for consumers.  It could be
good for the majors, but they don’t want to partake, they want to IGNORE
reality.  They just don’t like it that when there’s 100% broadband penetration the
average joe competes on an equal footing.

Oh, the old wavers, the people in the U.K., will ask where am I gonna get my

It’s not about an advance.  There WILL BE NO advance.  You will cobble your
money together from live appearances.  The QUALITY of your music will drive
true believers to your band.  And, most bands will not be superstars.  They might
ultimately make a ton of money, but that will be because their fans believe
in them and buy music, tickets and merchandise, not because some multinational
writes them a big check.

You see the major label game is a sideshow.  Just like they’re angry at Steve
Jobs for controlling online retail, they’re soon gonna be angry at all the
new bands who won’t sign with them who will make more money than by BEING with them.

It’s inevitable.  The game has changed.

If only Andy Lack had perceived this new game.  Then he might have fired
everybody in new music and just sold catalog.  Or tried to grow grass roots
projects with little investment worked by a PLETHORA of low paid employees with a
piece of the upside.  But no, he was only interested in making the momentary
numbers look good.  And even that didn’t work out.  Ain’t that America.  Where
the guy with all the ink has got his head completely up his ass.

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