A Futurist Maps The Entertainment Industry Landscape (Pt. 1)

Eric Garland, Founder/CEO Big Champagne, UltimateChart.com. The company was founded in 2000 as a technology-driven market research firm, specializing in peer-to-peer (P2P) networks. Today BigChampagne is a nexus for intelligence about media consumption led by a team of technologists, market researchers and entertainment industry veterans. The company's new Ultimate chart is the first to measure all the ways music is popular including retail, broadcasters, social networks, subscription services, and much more.

(Reprinted from MusicRow’s Feb./March 2011 print issue.)

While content remains the coin of the realm for artists and the companies that promote them, one cannot ignore the proliferation of new channels to expose and distribute. It’s also impossible to ignore how connected society has become. Today’s label and radio programmers must scan across a wide canyon of video, radio, music sales, sponsorships, social networking, mobile, and more to assess strategies for success. The dynamics between radio, sales, artists and social networking are being forged together like an edge on fine steel.

Meanwhile country sales are down almost 50% this decade. Retail space is fast disappearing despite the fact that during 2010 country fans still purchased about 85% of albums in physical format. Will CDs become a value add offered with other merchandise? Is there a viable plan for labels that offers a chance for survival? Are our revenue streams drying up?

Pandora CEO Tim Westergren said, “Smartphones really turned us into an anytime, anywhere service without us doing anything.” Unfortunately, technology hasn’t been as kind to the music industry. Should we ask consumers to pay on the way into the store? Is it time to pack up and move to the cloud? Are hit-driven singles the future?

To stir discussion and prescient answers, MusicRow brought together three forward thinking furturists—a label head, a video network digital strategist and a CEO whose company was called, “The Nielsen Ratings” of online music by Wired magazine. The article is presented in two interconnecting threads since scheduling prevented us from all meeting together at the same time.

PART ONE (read part 2)

MR: Where we are on the entertainment industry space/time continuum?
Eric Garland: We are at an inflection point. Depending upon your point of view, and when you entered the business, we are either at the very end of something or the very beginning. It’s both. Finally, the lessons that the 21st century has been trying to gently teach us for over a decade are starting to be internalized. It is not the same business that many people who have been in the business for decades imagined, hoped and expected it would be. Conversely, there are many new people and entities with a radically different vision for what the music industry should be and for those people it is just the very start of the race.

The inflection point is that we’ve come to the end of the extend and pretend era. Meaning that for many years it has all been there, observable in the data about what is happening to the business of recorded music. The writing has been on the wall, but there was a determination not to read that story. But in the last 12-18 months we’ve seen a profound change in the psychology—collectively and in the individual executives that make up the business. People are getting sober, real and starting to work through the grieving stages for the old business. There clearly remains a role for music companies—record labels specifically—if you employ the old definitions of what these companies do and what their contribution is in the value chain. During the last 20+ years these companies over-expanded and created a footprint that the current business, and the future business, will not sustain. But at some size, and perhaps it’s closer to the way record labels looked in the ’60s or ’70s, they will succeed. A label’s role will continue to be built around sharpening a terrific talent for identifying, nurturing, growing, encouraging, marketing, promoting artists and building fan relationships. Now, do the people in these companies number in the hundreds or is it 50 people? I don’t think any of us have a God-given right to be a business of X size, X employees or X billion dollars in annual revenue. If we take a rational approach there is absolutely a margin to be had, but we have to start to define success in terms of profitability and not just in terms of revenue.

MR: We understand that the companies need to get leaner, but is there one solution that will fix everything?
Eric G: Remember? We went through this long series of singular businesses and one shot solutions designed to bring back what was lost and build a new business that was even greater than what had come before it. The business is breaking what will fix it? “Oh, iTunes will fix it.” [Well that didn’t fix it.] “Ringtones will fix it.” [Ringtones didn’t fix it.] “The live business will fix it,” etc.

Nothing is everything. There is no one thing that is everything. That is a really profound shift in a long and established history for the recorded music industry. Everything has always been about one thing. We all bought vinyl. Then we all bought cassettes, then CDs. There was always one monolithic product or experience that defined the business both culturally and financially. What the last 10 years are politely standing in the corner and raising a hand to remind us is that there will not be one thing. There will be many things and perhaps all together those streams will resemble something that is a sustainable business.

MR: Is social networking the new radio for exposing artists?
Eric G: It’s really important to draw the distinction and point out the difference between “broadcast” and what author Clay Shirky calls “many-to-many” communication. They are different modes of communication. One-to-many is a guy in Times Square with a megaphone otherwise known as a broadcaster. Many-to-many describes word of mouth phenomena. Social networking does not have the power of broadcast in terms of inundating a mass audience with repeat impressions. Social networking is by its nature self-selecting. That means, yes, we have learned about a new artist, seen a new video, or heard a new song as a result of that organic excitement that we see demonstrated on social networks. But those impressions don’t have anything like the consistency, reach and frequency of broadcast. So we view them as very different modes of communication. Social networks are where people make personal recommendations and share affinities which is a long winded way of saying it is the place where I tell you I like something. If you and I are friends and you care about what I like and are invested in what I like, maybe you will try it too. That is nothing like that 6, 7 or 10th spin that you encounter in your car, living room or at the mall. There is something so persistent about broadcast, it can plant a seed or put something under your skin.

MR: Does your new chart consider both communication modes?
Eric G: Our Ultimate Chart represents an ambitious desire to comprehensively measure all the ways in which music is now consumed, enjoyed, discovered and celebrated. It’s an unprecedented aggregation of data from traditional broadcast and music sales, plus all the forms of online watching and listening. It includes YouTube, Myspace and Pandora, but we also look at the social networking data set. We call that piece “friends, fans and followers,” which is our shorthand for all the ways people indicate their likes or affinities without actually pressing a play button. By looking at all those things together we are seeking a more complete map of what music is popular—where and why. We want to create better quantitative metrics that really reflect what is happening in the market. To do that we have partnered to collect information from over a hundred third-parties.

MR: Will we see a country version of the Ultimate Chart?
Eric G: Yes, we are introducing format and genre versions probably sometime this year. We view Ultimate Chart as a platform on which we’ll hang a lot of new things.

MR: Is terrestrial radio ignoring the challenge of internet radio which is headed to auto dashboards?
Eric G: The first thing I think of is an artist analogy. When artists got that GoDaddy opportunity to establish their presence online and distribute their music through services like Tunecore and CDBaby with very low barrier to entry the prognosticators said, “It’s the end of the hit era. It will be so democratic that everyone will be famous for 15 minutes.” Of course that is not how the world shaped up. Just because the barrier to entry is low doesn’t mean that the barrier to aggregating mass audiences is low. We are learning that choice is a terrific thing that can diminish the innate competitive advantage of a lot of traditional media companies. But human beings are members of a tribe and we do seem to like to gather around things that are universally known, appreciated and recognized. That means there is something human about the desire for hits. And don’t forget, at every one of these traditional broadcasters there are a lot of people very much focused on the media. The tipping point tends to come as the result of mass consumer shifts that can be driven by hardware, auto partnerships, desktop partnerships, living room partnerships. When these things find their way into our lives that’s when the change can happen all at once. In the end we are just talking about ever more choice for consumers. There will be streaming music from internet that will compliment and/or compete with radio listening, but clearly we are going to continue to have more options. No one choice at the expense of all of them.

MR: Perched on the horizon are Spotify, 4G mobile and so much more. Will these technologies dominate the digital discussion?
Eric G: The highly anticipated era of music that flows like water or lives in the cloud will be demonstrated in the end to be just another way to enjoy it. Keeping with my theme, no one thing will be everything. We are so breathless in our expectations for things like Spotify, Google Music Service or what Apple will do in the cloud. But what history is trying to show us is that each new choice will be one among many and sizable audiences will enjoy consuming music using them all. And frankly, that is the toughest psychological break for industry veterans to make with the past. Stop thinking that it’s going to be one thing all the time. That will never be the market again.

MR: What about country music sales and the physical CD?
Eric G: The continued decline of physical product is certain. That is something that everyone in the business has to be prepared for, in Nashville and every other town. But as physical product declines, country has an innate advantage because it’s not just about a jingle. There is more often a real connection between artists and fans. We used to live in a world where we exerted enough control over our product and over the market that we could sell a million discs to 100k core fans and 900k casual fans. We no longer exert that control. Taylor Swift sold a million shiny plastic discs in one week because she has at least a million core fans. So is Taylor an anomaly? Only in the sense that she secured that level of emotional investment from so many people which is very hard to do. The dumb money has left the business. Now you have to do the hardest thing which is to actually build a connection that moves someone to walk into a store or fire up a laptop and pay for that experience.

MR: In 2010 about 85% of country album purchases were in physical format. If the CD goes, isn’t that’s a lot of business left behind?
Eric Garland: It’s frightening, and I’m not making light of the continued decline of physical product especially against the backdrop of flattened digital sales. But that’s the price for country having enjoyed an advantage for some number of years now over other genres. When country holds on longer and better in the category that’s a good thing until the day the bottom drops out. Then suddenly there is real exposure there because you haven’t been pulling out of the category in the way that other genres have.

MR: Albums vs. tracks?
Eric G: As music lovers growing up we never had a choice. In the vinyl days when you could buy a 45, they did have choice, but most of my childhood was spent buying CDs whether I wanted to or not because I wanted that one or two songs. It wasn’t a good market for me as a customer, but it was great for music companies. They could get $16 or $17 dollars out of me whether I wanted to part with it or not. But now, especially online, selling the album is completely dependent upon the perceived value in that bundle. If I’m only interested in four tracks you’re only going to sell me four. But there again country has been training for this day in the sense that Nashville has always had a more holistic approach to marketing artists and building fan relationships. Nashville’s very fortunate in that the business has long depended upon hits to create attention, awareness and peak interest. But as good marketers the country music business has also strived to create a more significant connection between these stars and their fans. And that loyalty is where the economic opportunity is now. Thats where the smart money is when the dumb money is gone.