Adapt or Die! - The Music Industry Case Slow to recognize and adapt to new industry value-chain by Adam Klein

1. Adapt or Die!
-
The Music Industry Case
Slow to recognize and adapt to new industry value-chain
Adam Klein
Founder / CEO
medialeaderllc
March 10, 2010 - Cross Media, New York
www.medialeaderllc.com

2. medialeaderllc The Music Case Study
we know that the volume of music ‘consumed’
continues to grow significantly
w s!
ne
o od
g
the
www.medialeaderllc.com

3. medialeaderllc
The Music Case Study
we know that the volume of music ‘consumed’
continues to grow significantly
w s! -
ne
b ad at the same time:
e
th
‘free’ remains the overwhelming payment method
&
despite significant increases in digital download sales,
the total revenues earned by the industry continue to shrink
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4. medialeaderllc
s!
ne
w this was driven largely by unpaid content
b ad
t he
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5. medialeaderllc
A value greater than ‘Free’ has not been readily perceived
Today
90%+
not paid for
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6. medialeaderllc
A snapshot of USA Music Sales
1999 2004 2008 2009
CD Units sold 938 mil 767 mil 385 mil - 18%
CD $ value $13 bil $11.5 bil $5.5 bil
Digital Download
tracks sold
144 mil 1.07 bil 1.16 bil
Digital Download
$ Value
$183 mil $1.6 bil
Total value ($) $14.6 bil $12.3 bil $8.4 bil -?%
RIAA data
www.medialeaderllc.com 6 numbers rounded by this presenter

7. medialeaderllc
The Music Case Study
this is ‘classic’ strategic “substitution”
-
any useful discussion must be around how to pay for the
creators/artists
and legitimate marketing & delivery models
-
as opposed to protecting outmoded organizational structures
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8. medialeaderllc
how did this happen?
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9. medialeaderllc
Music - 15 years of sales growth driven by increased value of CD
Peak in 1996 Downloads
Driven
by substitution
- Tape for Vinyl
- CD for Tape
Germany
Music Sales
1961 - 2004
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10. medialeaderllc
Music - 1999 a new ‘value’ proposition
Get the track(s) you want
Free
NAPSTER
www.sean.co.uk
Sean McManus - A short history of filesharin; Aug 2003
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11. medialeaderllc
Music - First line of defense
when you won’t add value, you must lower the price!
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12. medialeaderllc
Music - 2001 a new ‘value’ proposition
-----
the iPod - ‘ultra -portable’
&
to rip in “entire CD collection - 1,000 songs” - fast!
‘That’s
where we want to be’
Steve Jobs
http://www.youtube.com/watch?v=kN0SVBCJqLs
www.medialeaderllc.com 12

13. medialeaderllc
Music - 2001 a new ‘value’ proposition
the iPod - ‘ultra -portable’
to rip in “entire CD collection - 1,000 songs” - fast!
online
ts sales
tar ble
es s aila
Tun s av
3, i ack
26, 200 0 tr
p ril ,00 c/track
A 200 99
‘That’s
where we want to be’
Steve Jobs
http://www.youtube.com/watch?v=kN0SVBCJqLs
www.medialeaderllc.com 13

14. medialeaderllc
Music - Price alone not enough.
A new consumer ‘value-paradigm’ had emerged
72%
wanted
tracks
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15. medialeaderllc
Music - Where CD sales continued
there was perceived value in owning ‘the collection’
Collection
Valued
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16. medialeaderllc
But the ‘industry’ chose not to hear ...
www.sean.co.uk
Sean McManus - A short history of filesharin; Aug 2003
www.medialeaderllc.com 16

17. medialeaderllc
Cavalry to the rescue !
online
ts sales
tar ble
es s aila
Tun s av
3, i ack
26, 200 0 tr
p ril ,00 c/track
A 200 99
‘That’s
where we want to be’
Steve Jobs
http://www.youtube.com/watch?v=kN0SVBCJqLs
www.medialeaderllc.com 17

18. medialeaderllc
oops!
The iTunes math - Dollars to Dimes economics
Apple: 99c/track
CD: $10:99
Industry 70c/track
Industry $ 6:00
By 2010, 10 billion tracks
Over same 10 years
$1+ bil gross
sales down from
$700 mil to music co’s
$14.6 bil to $8+ bill
Equiv of 1 bil CDs (10/cd)
(incl digital)
analysis by presenter
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19. medialeaderllc
Is the strategic debate over paying for intellectual property?
or
Is it really over protecting an old perception of the value chain,
and associated bloated business models?
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20. medialeaderllc
The Old Music Value Chain
Music Company’s ‘Soup-to-Nuts’ Value
Artists Music Co Music Co
make ‘finds’ & produces & Bank
music ‘signs’ finances
A&R Music Co Music Co
manufactures distributes
CDs CDs
Retailers
sell to
consumer
Scale
Music Co
markets Consumers
CDs
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21. medialeaderllc
The Emerging Music Value Chain
Digital Disruption
? +
Artists Music Co Music Co
make ‘finds’ & produces &
music ‘signs’ finances
ISPs
✖
Music Co Music Co
CDs✖
manufactures distributes
CDs
distributes
broadband
Retailers
➥
sell to
consumer
Consumers
Music Co
markets
www.medialeaderllc.com 21 CDs

22. medialeaderllc
The Emerging Music Value Chain
Digital Disruption
? +
Artists Music Co Music Co
make ‘finds’ & produces &
music ‘signs’ finances
New
oppo ISPs
✖ - v✖/prities abou
Music Co Music Co
manufactures rtun
distributes distributes
broadband
CDs alue CDs
Retailers
ice - nd
➥
sell to
consumer
Consumers
Music Co
markets
www.medialeaderllc.com 22 CDs

23. medialeaderllc Lessons to be learned - 2006
The
organizational
change
implications are
significant ..
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24. medialeaderllc
and this can be said for all entertainment media too ...
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25. medialeaderllc
“Bein
g the
coole
when but n st thi
most ot on ng on
of the e wit telev
coole h a lo ision
st thi t of fu is a fe
ngs n ture at
o lon
ger li
ve th
ere”
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26. medialeaderllc
but we know this ‘case’ is
not only about music ...
Music
90% Music News
acquired
not paid for
TV
Movies
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27. medialeaderllc
What’s
The a letter?
newspaper says they
may stop delivering teenager
letters on Saturdays! grandsons
tween
What’s
Grandmother a newspaper?
Scott Stantis - in NY Sunday Times 3/7/2010
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28. medialeaderllc
Feb 10, 2010
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29. medialeaderllc
32+ bil videos
watched online
January -USA
Music 90% tell Murdoch
to forget paywall
90% Music News
acquired
not paid for District 9
12.5 mill downloads
BitTorrent
TV
80% Media
Grad Students
NO TV set Movies
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30. medialeaderllc
‘When reality is labeled unthinkable, it creates a
kind of sickness in an industry. Leadership becomes faith-based,
while employees who have the temerity to suggest that
what seems to be happening is in fact happening
are herded into Innovation Departments,
where they can be ignored en masse.’
Clay Shirky, NYU, March 2009
www.medialeaderllc.com 30

31. medialeaderllc
Leadership, Innovation and Transformation of the Corporation in the Digital Age
A Leadership Development Platform for Media Leaders
and all consumer facing companies are in media!
C Integrated Program
Practical skills and knowledge
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n
31

32. medialeaderllc
Leadership, Innovation and Transformation of the Corporation in the Digital Age
A Leadership Development Platform for Media Leaders
and all consumer facing companies are in media!
C Integrated Program
Practical skills and knowledge
o
Who we n Addressing
serve what
s
challenges
t Working Conferences
Established Consumer a
Facing Companies n +
t Digitally Enabled
Leadership/Execs ↵
↵ ➯ Skills, Frameworks, Tools
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integrated
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