The Starbucks Effect
Howard Schultz got confused. He thought he was in the entertainment business.
Funny thing about money… It gives you access. To other people with money, with glamour, with power. There’s not a lot of glamour in coffee. You can make a lot of money purveying it, but Perez Hilton is not going to gossip about you, the hoi polloi are not going to know your name. And this is frustrating to the rich. So they start associating with the famous. The entertainment people. Who will take every dollar you’ve got.
CEOs tend to be educated, men who devour information more than gossip. Whereas entertainment honchos tend to be from the street, self-made men who’ve made it on their cunning, their wiles. These men have a history of ripping off those in other industries, those with money… How come these marks can’t see this… It just shows that they’re just not studying history. If you’re investing in film production, you’re just looking for a very expensive visit to the set, an invitation to the premiere, because you can’t make any money.
Howard Schultz has got more in common with Mark Hurd than David Geffen or Doug Morris. Sure, they’re all imperial, but in straight business the royalty factor is diminished. Other than in your own industry, people only respect your money. You don’t have much power. Entertainment figures have tons of power, where everybody is looking, in popular culture.
Howard Schultz got bit. After a couple of successful recording projects, those flowering him with praise, telling him he was a genius, set out to sell him everything he would buy. People just wanted access, to his store. They didn’t give a shit if the product sold through, until it got burned again and again, Starbucks bought the product one way! Sure, the company got a discount, but what difference does that make if you can’t sell the product at all!
It’s been well-documented how Starbucks’ foray into the music business has been a debacle. But more interesting is the story of how Starbucks itself has been collapsing, how its stock has tanked.
Howard Schultz has stopped hanging with the sycophants, the grifters, the thieves, and has gotten back to his core business, selling coffee. Will he succeed? I’m not betting on him. Starbucks is no longer new, it’s not the latest thing, how do you pizzazz up a classic act? But some of the wisdom he’s imparting, some of his style, illustrates how the entertainment business should behave, if executives focused on reality instead of trying to protect their monopolies.
I’m reading this story on Howard’s dilemma on the front page of today’s "Wall Street Journal"
and I come across the following paragraph:
"One of Starbucks’s biggest problems, Mr. Schultz says, is that its long success streak and huge size have left it cautious. So he is imploring people to be bolder. When an employee in Long Beach, Calif., complained that he could create better artwork than what was on the walls, Mr. Schultz told him to just put his pictures up. ‘Don’t ask for permission,’ he recalls saying. ‘Ask for forgiveness.’"
I wanted to jump right up and hit the keyboard immediately. Eureka, THIS IS TODAY’S ENTERTAINMENT BUSINESS! Especially the music business.
For all of Guy Hands’ reorganization, he hasn’t done the one thing necessary, empower the newbies. Lyor Cohen makes a fortune and the underlings get fired. Rick Rubin discovers Sonos years after its debut and sees its marriage with Rhapsody as the future when statistics would tell him Rhapsody’s growth curve is modest at best. Where do they find these people? Who know nothing? So much into lifestyle, that they miss the point!
You want your entertainment company to survive in the future? Hire those under thirty five and let them make decisions. Let no one, including execs, make in excess of $100,000 or maybe $150,000. Let everybody be in it together, focused on results, focused on bonuses…THEN we’d see change.
You can’t do anything different at a record label. There’s always someone who’s saying no. Meanwhile, newbies, independents, are doing different things every goddamn day. The music business used to be about testing limits, now it’s more conservative than Fortune 500 firms. How did this happen? How did the world end up being run by the Mark Zuckerbergs?
Sure, Starbucks employees are looking for acknowledgement from their king, but said king is trying to fight complacency. YOU said no one was going to buy a $400 MP3 player and now Apple owns not only the portable music player market, but music retail too! You’ve got to look into the future!
1. Stop suing customers. All your arguments, that it’s theft/copyright infringement, that people need to learn the value of music, have not only not changed the hearts and minds of traders, they haven’t helped your bottom line. This is a suicide mission. Buy Limewire and enjoy the profits. Or at least authorize it and its P2P brethren.
2. Forget CDs and the album. CDs are on a road to marginalization and the public doesn’t want albums. Don’t listen to the vocal minority, listen to the silent majority. Statistics will tell you the above. Don’t prop up the CD, profit off it before it goes extinct and then move on.
3. Sign more acts. It’s your only hope not to lose market share. And as Steve Ballmer said, it’s all about market share.
4. Concert promoters… Establish training programs a la the William Morris paradigm of yore. Only kids know what the hot new acts are. You don’t, you don’t have time, you don’t have enough friends of the target concertgoing age. Admit you’re getting older, PLEASE! You will die sometime. Invigorate your company. Sure, you can still teach your young charges lessons, you’ve got so much experience, but you’re not staying up all night smoking dope on the couch watching zilches anymore, times have changed and the Stones can’t tour FOREVER!
5. Music publishers… Stop bitching that the record companies want to rip you off. Be activists. Approve deals. You’re holding up the future too.
6. License everybody with a new idea. Hell, it’s not clear who the winners are or how long the winners of today will dominate. MySpace is no longer king. And Universal fought with them for years? A MySpace music company is akin to an Ipana toothbrush. Or, if you don’t get that ancient reference… A MySpace music company is akin to an ENRON music company. Look to the future, not the past! It’s what’s coming DOWN the pike that matters!
7. Decide if you want to own the future or just cash the check today and retire. You’re saying you want to rule forever, but do you really just want to get paid for another five years? Fine, but think about the future. Either get out of the way, or empower people to take your place.
8. Read "The Wall Street Journal" before music blogs, ANY music site. Those writing on the Web are passengers. If you want to steer, you’ve got to go to a level above. Don’t pay attention to the screaming meemies, trust your gut. And know that you don’t know everything. And that it’s about finding the individuals who inspire you, who are in touch, to help you with your further success.
