Want to be Successful? Stop Studying the Music Business.

We all want to be successful.  Nobody who reads Audible Hype is looking for ways to continue living in poverty, or working at jobs they hate.  So this article could be the most crucial piece of advice I give in 2008.  It seems obvious, but given what I read on other sites, and given the questions I get asked by readers, it needs to be repeated: the “music industry” is a multi-billion dollar total failure. The only justification for studying how it works is to get a clear cut example of What Not To Do.

“Can you imagine what would happen if most consumer industries over-shipped by 20 per cent? Can you imagine any consumer industry having 10 per cent of employees as middle management? Can you imagine only 6 per cent of staff in production?”

That’s the New Boss at EMI Records, with the hilarious but real name Guy Hands.  He didn’t work his way up the ranks from scrubbing toilets for Celine Dion to managing Three Doors Down—he came from outside the music biz, where people have to actually make money, be efficient and justify expenses.  Understandably, he’s been in a consistent state of shock over how the music industry is run—for example, EMI spent $50 million dollars last year on destroying unsold compact discs.

The Question of Pricing

More painfully obvious facts: CDs are a little bit too expensive. For years, independent labels like Righteous Babe or Dischord Records could come off as good guys and still make a killing by pricing their CDs from $10 to $12.  This was far less than the standard major label $18.99, but still provided a profit margin on par with dealing crack cocaine.  Considering the cost of manufacturing a single CD hovers between $1 and $3—depending on the size of your order, of course—the markup for independent labels was still comfortably massive.

That’s going to change in 2008.  Canadian retail giant HMV led the charge, announcing (right after Christmas) that it would be cutting the retail price of their CDs by up to $10.  Across the board, prices will go down by an average of 20%.  With revenue shrinking, executives clueless, and independents poaching opportunities left and right, the old days of mutual price-fixing are long gone.  Major distributors and retailers will be competing on price in the next 12 months and we’re going to see the landscape get radically altered. 

This easily might revive the compact disc as a viable product. Perhaps the pundits have been premature in declaring the “death of the CD”—actually, there’s no “perhaps” about it, most journalists are drama queens by profession.  People who would rather download than pay $18.99 will be much more amenable to paying $7, so a more competitive retail price could turn around plummeting CD sales in 2008.

Then again...

Way Outside the Box

Rather than point you towards a specific industry, I want to point you towards a specific thinker.  His name is Amory Lovins, and he’s the brainpower behind the Rocky Mountain Institute. His single most important insight was this: sustainable and efficient processes are not a luxury, not a premium, and definitely not hippie idealism—they are a nescessity for profitable business. Amory Lovins has been talking about the need for “Green” everything since the 1960s, and he’s gotten the attention of clients around the world, including Wal-Mart, General Motors and Lockheed Martin. 

It’s important to note that morality has nothing to do with his success.  Wal-Mart could not care less about the environment, and Lockheed Martin is a corporation that profits off the death of millions of human beings.  These behemoths are not turning to Amory Lovins because he’s doing the right thing.  They’re giving him money because he’s teaching them how to streamline their operations and make more money.

The key to all this is a closed loop, where waste becomes a resource.  As Lovins famously put it, “Energy efficiency isn’t just a free lunch, it’s a lunch you are paid to eat.”

In business, “waste” is a sign of stupidity.  If you’re paying out millions of dollars to destroy your own products, like EMI, this means you are failing spectacularly.  If you remember my last rant about the hollow “Music Business 2.0” hype, I did a quick breakdown of Warner Music’s own spectacular failure:

Do some quick math with me: Warner Music Group made $3.5 billion dollars in 2006.  After they paid salary and other overhead expenses, they earned a net income of about $169 million dollars.  That means they lost over 90% of their money on dinosaur methods, right?  How many of those desk jobs are really nescessary?

Answer: not a single f’ing one. If you’re overloaded and you need a personal assistant, take some advice from Tim Ferriss and outsource to India. Here’s how. If this sounds insane, check out the Wall Street Journal’s recent article on the same topic.  The fact is, you can get a secretary for $4-$7 an hour and they’ll be better educated, more efficient and speak better english than your average white kid.  Plus they won’t put their genitals on your photocopier while you’re not looking.

Best Advice Ever

I came across this line in Jay Levinson’s great book Guerrilla Marketing and I’ve written it on several notebooks since because it’s such a crucial reminder:

“Engage in no expansion until you have eliminated all the mistakes from your current operation.”

Where is your waste?  If you’re like any other human, a great deal of your waste is not money but time. This is a topic I will be expanding upon considerably in the future, but I’d like to leave you with a few questions:

1. Does your marketing and promotion build and enhance your brand regardless of wether or not people buy your album?  If your advertising is exclusively pushing a single product, this is wasteful.  Make all of your communication work on multiple levels.

2. Have you looked at all of your online communication from the perspective of a first-time user?  Are you overloading new audience with more details than they want?  Are you leaving out key details that are obvious to you but totally unknown to perfect strangers?  Most importantly, is your communication friendly and inviting or are you writing for your existing fan base and creating a “private club” mentality?  This is death.  It it not difficult to balance honoring your longtime fans and being open to new audience, there is no excuse for alienating people.

This especially includes in-jokes and arrogance.  If it’s funny to you, and it’s funny to your friends, that doesn’t mean it’s funny for people with no context, and no knowledge of who you “really are.” As a general rule, leave it up to your fans to proclaim how great you are.  (And if they don’t, well....wake the fuck up, Tonto.)

3. Are you really researching the most cost-efficient options? As a single example, I’m amazed how many musicians order CDs from the same manufacturing companies that other local musicians do.  I know people who invested thousands and thousands of dollars and didn’t even do any comparison shopping.  Perhaps someday, someone will explain to me why anyone would order CDs through Oasis when all their packages are at least $100 more expensive than identical packages from Discmakers.  NOTE: that day has come, and I stand corrected.  Learn more here.

There is a deeply engrained tendency to merely throw money at problems.  Make yourself familiar with how many powerful tools Google offers, for free, that are “as good or better” than existing software people buy for hundreds of dollars.  I’ve never found a better email client than Gmail, and it gets 100x better when you use Mozilla Thunderbird to have access to your inbox when you’re offline.  Both free. Spending a little time doing a little research will generally save you a lot of money.

Passing the Mic to Bruce Warila

So, what does this mean for you personally?  First and foremost, it means that you should stop sending me emails about “how to get a record deal in 2008.” (Seriously, please.) Recently, Bruce Warila wrote an article that sums this up perfectly, so rather than restating his case, I will just link you to his advice. That whole site is a goldmine of valuable advice.

Bruce also has a very thought-provoking article on what the music business can learn from used car recycling. I’m sure that sounds just as insane to you as it did to me, but hear him out.

Passing the Mic to Seth Godin

Mr. Godin is always good for solid and concise brainfood, and he’s dropped two gems recently that are worth checking out.  The first is called Music Lessons, and it’s been making serious waves because it’s the kind of common sense people need to consider. 

I also recommend “How Much for Digital?”—a short but fascinating meditation on where download pricing is headed in 2008.

Passing the Mic to You

Where do you look for inspiration and solid business models?  What do you think DIY entrepreneurs need to be aware of?  What strategies have been working for you?