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APRIL 21, 2005:
A BIGGER PIZZA MAKES MORE SLICES - AND WHY THE MUSIC INDUSTRY HEADING TOWARDS LOWER PRICES AND HIGHER VALUES

Here’s another bottom line: The real problem in the music industry is not file-sharing, piracy, or lack of consumer interest in actually paying for music. Rather, it’s that the industry is way too slow in baking a bigger pizza. Rather, many incumbents are still obsessed with snapping up the same, small slices from under each other’s noses as quickly as possible. The bottom line is that we need to spur a new wave of music consumption and create a larger market altogether – a market that could have 9 out of 10 consumers buying music, not 2.5 out of 10 as is the case in the U.S. today. And how could we do that? The answer is not rocket science: We need lower prices, higher value-for-money, and a much higher percentage of active buyers.

But of course implementing these ideas is a big challenge given the serious lack of openness to change in this industry. Look at the airline or the travel industries, or at banking: The customer is truly becoming Godzilla, and demands constant value-upgrades for less cash. As I’ve said many times before (even though I am not the inventor of this catchy phrase ;-), content is king, customer is Godzilla, and service is King-Kong! If the music industry “leaders” would finally get on with this basic mantra we would see a significant lowering of CD and download prices (i.e., license fees!), and a flood of additional content that the users would get “for free.”

As to added values, SonyBMG has started doing that with the dual CD/DVD idea lately, but hey – where it goes wrong is that they now want a higher price! Just imagine this scenario, for a moment: If a CD would cost $9 or €7.50, and downloads would cost between 10 cents and $1 (yes, sorry – liquid pricing is a must), who would still bother with the miserable user experience on Limewire, Grokster, and Kazaa? Better yet, if we could get 98% of all consumers to buy into a “basic music” subscription on any and all digital channels (TV/ cable, satellite, radio, Net, mobile, Wi-Fi...) for something like $3 a month we would all of a sudden have a huge and very tasty pizza that would have more than enough slices for even the hungriest record label, music publisher, producer, agent, or artist. Music Like Water, once again. Do I hear you mumbling, “Pie in the sky, dream on”? Well, think again: Consumer electronics companies, Internet service providers, telcos, advertisers, and wireless companies will make this happen sooner than you may think – their combined mar- ket power is 150 times that of the music industry.

And all of this will be great news to the artists, writers, producers, and composers since merit + exposure always leads to discovery which always leads to revenues – period. And finally we could junk the idea that making-money-making music simply means selling copies of songs (whether physical or digital). There is a lot more to this business than that. Think branding, sponsorship, licensing, advertising, merchandising, and digital performance royalties. John Cage has a good line that fits here: “I can’t understand why people are frightened of new ideas. I’m frightened of the old ones.”

THE BUSINESS OF JUST SELLING COPIES IS OVER