From: Travis Page

One thing I find odd about the fact that the music industry is doing so poorly is that no one, mainstream or otherwise, is mentioning one obvious cause. There is a lack of real competition within the industry.

The general consensus among the media and those within the industry itself chalk up our poor sales to several reasons including: A&Rs not signing quality acts, lack of artist development once an act is signed, slow adaptation to new technologies, disrespect for the consumer, overly high prices and a myriad of other things that to me are simply an EFFECT of the main cause; the competition within the industry is very weak.

I admit, I don’t have any statistical regressions to back up my claim, but anecdotally the case is strong. You rarely see many other industries where direct competitors are staying at each other’s beach houses in Miami, attending each other’s birthday parties, riding together to awards ceremonies, and playing golf together each weekend. We have cultivated a buddy system among top execs in this industry that is unprecedented in any other industry that I know of. The key here of course, is not to confuse petty competition of individuals that we often read about, but the competition these individuals channel into their companies to the industry as a whole. The industry has become such an “in crowd” that everyone wants to be cool with everyone else.

Can you imagine such a paradigm in the computer industry? Can you imagine Steve Jobs staying at Michael Dell’s beach house for the weekend? You don’t see Larry Page hanging around town with Terry Semel.

The purpose of corporations is to make money for their shareholders. In simplistic terms, when there are market share issues, the inevitable outcome is competition, and the goal is to take as much of an opponent’s share as possible. While it is possible to "make the pie bigger", the real goal is to beat the competition until your market share grows and your competitors shrinks. Take for instance, Fox News’ destruction of CNN the past few years. While you may complain about Fox’s content all you want, you cannot deny that they had a plan to totally eliminate an opponent, and did. They now have much higher ratings, and presumably get more ad dollars per spot, and are maximizing their shareholders wealth. Fox in one particular media worthy move, took out a long-term lease on the billboard across the street from CNN headquarters. They use this to post demoralizing messages about their dominance over the rival network. I can’t imagine any one of the big 4 taking out such a billboard across the street from their nearest competitor. Consider the fact that Toyota, has done all it can to crush General Motors, the previous number one.

One thing to judge whether or not this is one of the real problems of the industry is to look at a small sample of the characteristics of highly competitive industries.

• Aggressive competition for raw materials: Isn’t one of the complaints lobbied that A&Rs aren’t aggressively getting out there to discover artists early enough? Hasn’t there been a backlash of complaints about the shift to an “A&R research” approach where labels simply research bands that are already growing on their own.
• Aggressive moves to be the first to adapt new technologies: Certainly one of the complaints about the industry has been the slow adaptation to the digital realm. The big 4 labels have basically had to be dragged into this world by the consumer looting.
• Streamlining cost structures in comparison to competitors: Delta did a 180 by working to have the lowest non-labor cost structure in their industry. There has been heavy criticism of the music industry for years about its previous cost structures.

The music industry suffers on these three accounts because what they have is a cooperative oligopoly. Everyone has gotten comfortable with the fact that it is pretty easy for the big 4 to maintain their ~80% of the market. There is no need for them to be at each other’s throats to keep this situation perpetuated. But what it does in an industry like music is it fosters complacency and inferior service/product/marketing/cost cutting. That is why the consumer continues to turn away.

I am a bit younger, so I don’t remember the music industry of the
’80s but from my reading of it, Walter Yetnikoff’s war against Warner and his harsh "Fuck the Bunny" stance were probably the best thing that could have happened to the industry. There are several logical conclusions that come from higher competition. The "price" of artists are driven up. The most competitive times in the industry seem to be when the biggest advances were handed out (adjusting for inflation). Second, and more importantly, greater artistic freedom is allowed. Artistic freedom is a powerful tool to lure talented artists to a label. When competition is strong, you must concede to artists demands for artistic freedom or else you lose the artist to a competitor. The truth is, when artists are seen as long term investments and given more creative freedom we get better art. Better art leads to more sales.

Given all of these premises, it makes it odd to constantly hear people say that now would be a bad time to enter the music business. To me this seems to counter the logic. Yes, small labels that cannot themselves force competition will have a problem grabbing market share a shrinking market. However, I think conditions are perfect for another major to enter the fray. Who, could impact the market enough? I don’t know, but maybe someone like News Corp, or Google. The key to be to bring outside management from completely separate from the existing pool of music industry executives. I would still be important to have skilled A&Rs, but why not bring in an extremely competitive Roger Ailes type, whose singular goal is to crush the competition with little sympathy or care for upsetting the balance?

It is of course the beauty of the free market that all things will work out. If you try to maintain your non-competitive oligopoly, it is only natural that quality and service will decrease. The very fact that sales are declining and the major labels are now panicking is proof that if you don’t play by the natural competition rules of the free market, you will suffer.