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Crooning to Lady LuckIn the end, however, whether a song or album soars to the top of the charts or plummets to musical oblivion depends on one final factor over which music executives have no control. "It's just the luck of the draw," says Zelnick wryly. Some critics charge that by pressuring musicians to keep selling big, industry executives have lost consumers by fostering music that is less inspired and more generic. "Artists are not developed quarter by quarter," acknowledges Boberg. "There's an inherent conflict in trying to tend to the needs of both the artist and the multinational conglomerate. It's definitely a challenge creating an environment that's beneficial to both." Lacking the pressures of a major label, such as overhead costs and stockholder expectations, independent labels sometimes have greater flexibility than the majors to nurture cutting-edge talent. Privately owned Rounder Records in Cambridge, Massachusetts, for example, which specializes in what Paul Knutson calls "roots-based" music, such as bluegrass and folk, will sometimes sign an act even if it knows it will lose money. "Rounder is not just a company, it's a cultural institution," Knutson says of the label that has brought to public attention little-known groups such as Burning Spear and Nathan and the Zydeco Cha-Chas, as well as the better-known George Thorogood and the Destroyers and J.D. Crowe and the New South. "The founders see it as their mission to release certain albums just to have the music documented." Maintaining a strong "catalog" - the label's backlist of albums more than a year old - is often what gives a label the dependable income stream it needs to be able to take risks on new, untested artists and projects. Candace Bond manages Motown's catalog, which, she says, "many regard as the best in the business." Indeed, with artists such as Stevie Wonder, the Supremes, and the Jacksons in its cache, Motown's catalog has kept the label afloat during a time of major organizational restructuring. "You're going to see us maximize our catalog assets to an even greater degree in the future," says Bond. "By creating major, multimedia release campaigns and using both traditional and alternative distribution channels, we'll be taking full advantage of Motown's worldwide artist and brand recognition."
A Techie Fix?In its quest for revenue growth, it may be that the music industry will once again turn to new technology to amp itself up, much as it did in the early 1980s with the CD. Last year, entertainment companies experimented with the enhanced CD (ECD), a compact disc format that holds multimedia content and runs on a personal computer. An emerging optical disc technology called digital versatile disc (DVD), which will contain enough storage space to hold huge volumes of multimedia and interactive programming, is also in the works. The ability to deliver audio digitally presents some interesting opportunities - and dilemmas - for record companies as well. "With digital transmission, you can send music over phone lines and cable modems without losing quality," says HBS associate professor John Sviokla, who has studied the music industry in connection with his interest in the "marketspace" potential of cyberspace commerce. "As my colleague [HBS assistant professor] Jeffrey Rayport says, recorded music is one of those products that is actually 'dematerializing' - it's moving out of the realm of physical 'product' and becoming pure service." One possible future application for this new technology is in-store CD manufacturing, which would allow a store to digitally download from a central facility any CD a customer requested and press it on the spot in a matter of minutes. "This could eliminate the need for inventories and would solve the problem of merchandise returns," explains Paul Knutson. Blockbuster Entertainment and IBM tested such a concept in the early 1990s but terminated the project after failing to receive commitments from major record labels and retail franchisees. Perhaps more immediately on the minds of record executives is how to use digital transmission over the Internet to their best advantage. "Record companies are scared to death of the Internet," says Sviokla. "Once you start digitally delivering music on it, there will be nothing to stop people from sending copies - perfect replicas - to everyone they know. We're only one or two generations of technology away from that." Analysts predict that digital transmission may cause a major restructuring of the record industry as distribution becomes a thing of the past and record companies grapple with copyright protection of their product. Strauss Zelnick, however, remains circumspect. "Distribution, while very important, is actually a small part of our business," he says. "The harder part of what we do is to choose new artists and market them. That activity won't change. I also think that the concern over piracy has been blown out of proportion." Still, Sviokla sees major challenges ahead for record labels. "They had better get busy understanding how they're going to police their intellectual property rights in a digital environment," he says. To protect themselves from revenue losses due to piracy, Sviokla also says record companies will need to develop and market merchandise beyond just music. "They should start copying what Disney does - every time a movie is released so are toys, clothing, even fingernail appliques," he says. More important, Sviokla maintains, record companies will need to use the Internet proactively by developing innovative new virtual distribution strategies. As the Internet itself becomes more sophisticated, in the near future a concert tour, for example, could become a "pay-per-view" extravaganza. "You could present the concert over the Internet," says Sviokla, "and before, during, and after that concert you could be offering viewers the opportunity to buy records, magazines, and other merchandise." As they nervously eye the Internet, record executives continue to search the globe for the new group or trend that will so revitalize the music business that questions of technology will hardly seem to matter, at least for a while. "I think we're going to see an entire new genre that will shake up the world the way rock-and-roll did," observes BMG's Zelnick. As to what exactly that new kind of music will be, however, he says, "If I knew, I'd be doing it now." Until "the next big thing" hits, then, fans and audiophiles can expect the music industry to keep singing the blues for a while longer. |
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Richard J. Lim (HBS'98), cofounder of Metamorphosen Chamber Orchestra. |
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Edward C. Arrendell (MBA'80) with Wynton Marsalis, "an unbeatable combination." |
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Henry E. Juszkiewicz (MBA '79) revives the legendary Gibson Guitar Corp. |
