I’ve been trying to understand the financial crisis.<\/p>\n
I finally sat down with the newspapers and decided to read every article.\u00c2\u00a0 Surprisingly, I found the answer not in the "Wall Street Journal" but the "New York Times".\u00c2\u00a0 The problem is denial.\u00c2\u00a0 The investment banks just wouldn’t admit their assets were worth less than they thought they were.<\/p>\n
The writer analogized it to the housing market, to the individual.\u00c2\u00a0 You put your house on the market at too high a price.\u00c2\u00a0 You think it’s worth a mil, but really, it’s only worth $900,000.\u00c2\u00a0 Then, when you finally drop the price to $900,000, it doesn’t sell either, because now it’s worth $750,000.\u00c2\u00a0 Then you drop it to $750,000, but it’s too late, it’s now worth $600,000.\u00c2\u00a0 But this is a real problem.\u00c2\u00a0 Because you owe $650,000.\u00c2\u00a0 Maybe having taken out equity loans against it.\u00c2\u00a0 You just can’t get what you need.\u00c2\u00a0 You walk away.\u00c2\u00a0 Not only from the sale, but in many cases the house.\u00c2\u00a0 You’re upside down, it’s the bank’s problem.\u00c2\u00a0 If only you’d priced your house according to the real market value in the beginning, you would have sold it at a profit and been out!<\/p>\n
But the people holding the debt are in the same situation.\u00c2\u00a0 They’re overvaluing the asset.\u00c2\u00a0 Instead of selling the securities for what they’re truly worth, they’re holding on to them, waiting to get their price, as the true price keeps falling and those mortgage defaults, from people abandoning their houses, continue to rise. Merrill Lynch was saved from bankruptcy by selling some assets at 22 cents on the dollar.\u00c2\u00a0 Only a new CEO, appointed in 2007, could do this.\u00c2\u00a0 The old guys, who’ve been around forever, like Fuld at Lehman, just couldn’t believe how bad things had gotten, they expected the situation to turn around through the sheer force of their own will.<\/p>\n
Is this getting familiar yet?\u00c2\u00a0 Does this sound like the record business?<\/p>\n
What we’re going through in America replicates what happened in Japan in the 1990s.\u00c2\u00a0 But rather than taking the bullet, eating the loss, the government continued to try to prop up the country’s financial system, to its detriment.\u00c2\u00a0 It took almost a decade for it to revive.\u00c2\u00a0 Every analyst says this was a mistake.\u00c2\u00a0 They should have taken the hit immediately and started over.<\/p>\n
The major labels refuse to believe we’re living in the twenty first century, they refuse to bite the bullet and get with the program, they want to continue to live in the glory days of the 1990’s.\u00c2\u00a0 Isn’t that what Warner’s failed Estelle effort was about?\u00c2\u00a0 Getting people to buy an overpriced CD to get the one good track?\u00c2\u00a0 As they said in that old 1990’s TV show, homey don’t play that no more.<\/p>\n
The labels have to confront reality, and bite the bullet now.<\/p>\n
1. People want ownership.<\/span><\/p>\n No streaming, no rental.\u00c2\u00a0 P2P is about neither.\u00c2\u00a0 IM transfer is about neither.\u00c2\u00a0 CD burning is about neither.\u00c2\u00a0 In an era where you can e-mail a track, which label employees do every day, why would anybody want to rent?<\/p>\n 2. Music is overpriced.<\/span><\/p>\n That’s the perception.\u00c2\u00a0 To try to change it is futile.\u00c2\u00a0 The only option is to lower the price and get more people to buy.\u00c2\u00a0 Historically, most of the product was purchased by a small percentage of the public.\u00c2\u00a0 We have to follow the cell phone example.\u00c2\u00a0 Everybody must pay for and consume music.\u00c2\u00a0 If big consumers get a bit of a break financially, it’s made up for by all the people who weren’t buying previously.\u00c2\u00a0 And these new customers also go to gigs, purchase merch…<\/p>\n 3. File-trading cannot be stopped.<\/span><\/p>\n Give up the ghost.\u00c2\u00a0 Either license what exists or come up with a pay model that delivers the essence, legally, for a very inexpensive price.<\/p>\n 4. Record companies screw artists.<\/span><\/p>\n Without honest accounting, without the artists getting the lion’s share of the money, indies will continue to siphon off both the cream and the newbies.\u00c2\u00a0 With the labels left with wannabes who don’t sell tonnage and superstars they’re overpaying.<\/p>\n 5. 360 deals are a land grab.<\/span><\/p>\n Until the labels can prove they’re giving service for those rights, no one in his right mind would make this deal.\u00c2\u00a0 Just because the label’s in trouble, that doesn’t mean you’re obligated to bail it out.\u00c2\u00a0 Just like the government refused to bail out Lehman Brothers.\u00c2\u00a0 Just like you refuse to buy a gas guzzler to help Detroit.<\/p>\n 6. Diamond sales are history.<\/span><\/p>\n It’s almost impossible to get national attention.\u00c2\u00a0 The era of ubiquitous superstars selling a ton of product are gone.\u00c2\u00a0 It’s not about P2P, it’s about eyeballs.\u00c2\u00a0 You just can’t garner them.<\/p>\n The above are facts.\u00c2\u00a0 Which the labels continue to deny to this day.\u00c2\u00a0 Coming up with one lame, half-assed solution after another.\u00c2\u00a0 MySpace Music, Nokia’s "Comes With Music"…\u00c2\u00a0 But it’s worse, they won’t innovate, won’t license new thinkers for fear of giving away the store.\u00c2\u00a0 And adding insult to injury, Universal, like a Mafia family, requires a huge up front fee, irrelevant of whether you ever sell anything or make any money.\u00c2\u00a0 If all American business were run this way, the whole country would be bankrupt.\u00c2\u00a0 Furthermore, with files, people will always want to replace them.\u00c2\u00a0 Because their computers crash, because better quality ones infiltrate the system.\u00c2\u00a0 It’s like the original Napster…\u00c2\u00a0 Who cared if your computer crashed, you’d just log on and grab your files again.\u00c2\u00a0 You didn’t have to hoard, because you had access.\u00c2\u00a0 There is no giving away the store, people will always want to come back!<\/p>\n Truth is most people already own a lot of product and the labels pretend that the black market doesn’t exist. BitTorrent, Limewire…\u00c2\u00a0 If we don’t talk about them, if we sue some people, we can make like they’re a gnat on the ass of the business, when in truth, it’s the legal market that’s the gnat on the ass of the illegal market.<\/p>\n We need new blood, to take the hit now and realign the business.<\/p>\n It won’t be Guy Hands.\u00c2\u00a0 Because he broke rule number one.\u00c2\u00a0 He overpaid for EMI.\u00c2\u00a0 Doesn’t matter who he hires, what he says.\u00c2\u00a0 The bank would take the company back now, if it only knew what to do with it, if it could only sell it.<\/p>\n Warner has the best digital initiatives, but that’s like saying the Corleones are the friendliest Mafia family.<\/p>\n Sony is lost.\u00c2\u00a0 And Universal are bullies.\u00c2\u00a0 When Jean-Bernard Levy, CEO of Vivendi, stands up and says he thinks things are turning around, he reminds me of the nitwits on Wall Street, but it’s worse, at least they’re familiar with the business, whereas Jean-Bernard Levy just parrots what Doug Morris tells him.\u00c2\u00a0 Doug Morris is not living on the computer, he’s so out of touch that taking advice from him is like asking your grandfather about Facebook.<\/p>\n Maybe you have to leave new music development to new companies, just making money off your catalog. Or, maybe you must turn yourself into a financial services company, doing the deals and paying the royalties for everybody for a small fee, with an option, exercised by the artist, of upstreaming.\u00c2\u00a0 There is power in market share, the majors are headed for marginalization, only interested in what sells a lot, whereas what sells a little, in aggregate, is where the lion’s share of the money is going to be.<\/p>\n Things are not turning around.\u00c2\u00a0 Things are really dire.\u00c2\u00a0 Arguing about iTunes prices is like debating whether windshield wipers on SUVs are overpriced.\u00c2\u00a0 All the companies say the digital market isn’t making up for the CD downfall.\u00c2\u00a0 Doesn’t that say that a new digital model is necessary?<\/p>\n Of course, but these guys are living in denial.<\/p>\n\n