Indie Bands, Music Piracy and the Internet

Two recent articles in the Wall Street Journal paint an interesting picture of the evolving digital music industry.

The second one ran in yesterday's edition, and dealt with, ironically, how easy it now is for independent bands to become successful with little or no money, no traditional record label and, thus, no old media agent. Some indie bands do retain what one might call eagents, such as NetWerk Records, a combination indie label and artist management firm. This seems to support my contention that agents, as we have known them, will also be unnecessary for the coming era of online digital video content production, found here.

What's interesting is that established bands are also exploiting digital downloads, in order to capture immediate interest by fans. Rather than expect, or let, prospective buyers go to iTunes to buy and download music, they are embedding a MySpace MP3 player on their MySpace sites.

This article followed one a week earlier, discussing how artists are now combatting piracy with their own 'viral' digital countermeasures. What some artists and (gasp) record executives are beginning to realize is that "piracy" is actually the behavior of enthusiastic fans who represent, in the longer term, a very lucrative potential market. Essentially, these record labels and artists are exploiting peer-to-peer sites by placing files with music and/or video content on them, often including special offers that result in feedback information from consumers who downloaded the files.

Finally, an entertainment medium, this time music, as opposed to film or TV, is realizing that forgoing some near-term revenues may result in stoking long-term demand by consumers, especially for older material that it no longer pays to promote. This is one of the odd by-products of allowing YouTube to feature copyrighted performances of older bands or TV programs. By reminding older consumers of their existence, and, in some cases, introducing them to younger consumers, the copyright owners actually receive free marketing exposure for something they would never pay to market in the first place.

It's rather exciting to watch the upending of older marketing models, as essentially free, consumer-driven promotional models appear, primarily on free distribution networks. Suddenly, the marginal cost of promoting quite a bit of video and audio content is nearly free.

My guess is that this will accelerate the decline of broadcast and other 'old' media, as yet another benefit of new media becomes clear and economically useful.

This may, quite possibly, make Google's recent purchase of YouTube, and NewsCorp's acquisition of MySpace, look prescient and cheap in the long run.

CNBC CEO Interviews: Must They All Be Puff Pieces Now?

This week, CNBC has provided us with a number of "puff piece" interviews of various business and governmental leaders.

The network's Chicago correspondent, Phil lebeau, met with Alan Mulally, new CEO of Ford, and Rick Wagoner, embattled CEO of GM. Maria Bartiromo, meanwhile, was given access to President Bush, as part of the pre-election publicity campaign by the White House.

Just what is the value of these talking heads lobbing softballs at these CEOs and politicians? We all know that if the network interviewers ask a hard or embarrassing question, a) they won't get a straight answer, and b) they won't ever get another interview with that exec, or any other senior exec.

LeBeau didn't ask any penetrating questions of Mulally or Wagoner. I'd be surprised if Bartiromo did not have to provide a list of her questions prior to the session.

So, what is the value of these interviews? Isn't it just like the sell-side analysts who get pressured, and sometimes fired by their employers, for being too candid about badly-managed firms or potential fraud, etc? The presumption is that a carefully staged game of mis- or dis-information is being played in front of the camera.

I put much more trust in the writing or reporting of someone who simply deals with publicly-available information, and their own logic, without resorting to a staged interview. If anything, I find that the latter causes me to view the reporter/writer as compromised.

Thus, I put a lot more stock in, say, Alan Murray or Holman Jenkins, Jr., of the WSJ, than I ever will in Phil Lebeau or Maria Bartiromo of CNBC. Somewhere in the middle are Joe Kernan and Becky Quick of CNBC, who don't arrange the interviews, but frequently fire hardball questions at tele-interviewees, such as CEOs of firms reporting earnings.

If anything, I see the CEO interviews as simply giving more opportunities for them to obfuscate, or simply deny reality. Who is this serving? Especially in the cases of GM and Ford, which are in real trouble. In neither interview did LeBeau get even close to pressing the subject to acknowledge their difficulties, and what they might do if worst came to worst.

Granted, these CEOs don't want to be on camera doing that. So why give the interview in the first place? Personally, I think they are a waste of everyone's time.

Finding Talent in the New Digital Online Era

As I drove my daughter to school this morning, I heard a brief business news story describing how several Hollywood talent agencies have signed arrangements with several prominent internet content firms. The implication is that the latter firms are looking to the former to scout, find and sign video-related talent for subsequent video content creation and distribution.

I must say, this surprises me. If anything, I would have expected the rise of online video content firms, such as Google, its new division, YouTube, or even Yahoo, to work directly with individual content providers. Agency firms seems, at least to me, decidedly "old media."

Further, why would an individual want to surrender at least 10% of their future revenues to someone, when people can easily find the large, online content distributors? I did some rough math as I drove around this morning, and found it hard to see why a promising video producer would have to spend more than $5,000 to acquire the necessary hardware and websites with which to launch their own online production firm and site. I think we're talking about a laptop or desktop PC, digital camera, some editing software, and a website. That's it.

Once in business, they can submit their content directly to YouTube, Yahoo, Google, et al, free of charge. Where does a talent scout/agent add value to this process?

Unless, of course, one or more of these online companies loses their collective intelligence, and decides to limit their intake of new content to people or firms who approach them through an agency.

But, isn't the point of the evolving digital online media era that consumers can vote directly, via their 'views,' on new content? That there is no need for some agent or media exec, in the mold of the old-time recording artist talent scouts, to "find" the next big artist? Now, the artist will find the market, directly, and the distributors are providing the pipes and stage, earning ad revenues for their trouble.

Am I missing something here? I would have thought talent agencies were, if anything, headed for smaller roles, confined to "old media," at best. In fact, it begs an interesting question.

Suppose two friends shoot a digital video, upload it onto YouTube, and it becomes popular. Steven Spielberg sees the clip, and wants to work with the pair. Do they need to become SAG union members, or can Spielberg simply film and distribute a digital film without ever involving the old media production empire?

I haven't read much about this topic, but I did discuss it earlier this year with a set designer who works at one of the broadcast networks. While a union employee, she struck me as having a strange mix of management perspective and education on her craft, combined with a somewhat antiquated view of her internal workplace, due to her union membership. On the side, however, she was busy developing and burnishing her cyber-set design skills.

Which leads me to believe that, in time, the value of the internet in allowing for direct, one-to-one contact between people involved in almost any enterprise, will eventually limit, then shrink, the role of talent agencies and artistic-related craft unions. When access becomes a function of people directly displaying their wares online, so that distributors can find and enter into business arrangements with them, what will be the added value, to anyone, of old media talent agencies and craft unions?

D'Agostino's Scores Hit with New Meat & Poultry Products

This morning, while driving to a meeting, I heard a great marketing story reported on WQXR, the radio station of the New York Times.

It seems that some grocers are improving sales and margins by marketing meat which may fit some or all of the following descriptions: humanely raised, humanely butchered, free range, unfenced, organic, drug-free.

According to the report, D'Agostinos, the venerable NYC grocery chain, has seen sales of meat increase 25% by unit volume, at prices that are 40% higher than similar cuts of meat that are not so described as above.

This may well be one of the best examples of Schumpeterian innovative behavior I have seen or read about in the past year. It reminds me of Frank Perdue's original, and successful, efforts to brand and differentiate his chickens from the rest of the poultry sold by grocers.

In this case, grocers have identified a psychological preference among their customer groups, and actively provided products which satisfy those preferences. Whether or not the meat and poultry taste different, clearly, some consumers will buy those products which they believe have resulted from animals which were treated in ways that they feel are important.

What's more, they will still buy those cuts of meat or poultry at prices far in excess of similar cuts without the humane or organic labels. So the grocer enjoys increased sales of a much higher margin product.

So much for food price inflation. These shoppers are, in one fell swoop, increasing their food spending by far more than inflation can.

Once again, we see how basic marketing pays off in tangible, financial results. By discovering consumer tastes and preferences, for which they will pay more, grocers marketing these new types of meat and poultry have increased the revenues and profits of their butcher's department.

Corporate Governance & AIG's New Director Requirement: Is It Enough?

Yesterday, CNBC reported that AIG is now requiring its directors to own at a minimum of $100,000 of the company's stock.

On one hand, it's good to see a company move in this direction, as I have written a prior post on this topic.

However, one has to wonder, do these men and women even notice $100K? If you'd like to see who is on the AIG board, go here. While a few of the board members are from nonprofits, several of them clearly have significant wealth, which makes the minimum stock ownership, frankly, a joke.

Isn't something like owning stock equal to 2-5% of one's net worth more compelling? Were I a shareholder, to tell me that a multi-millionaire director has $100,000 of AIG stock in her or his own name would mean nothing to me.

So, to tell me that Richard Holbrooke, Stephen Hammerman, or Virginia Rometty each have less than 2% of their net worth in AIG, on whose board they sit, is to tell me that they really have little personal stake in the result of their efforts on that board.

I believe it's changes like this, by AIG, that make a joke out of the concept of improving corporate governance.

NBC's Big Budget and Programming Changes: Is The End In Sight?

Last week's news that GE's NBC unit is cutting back on providing programming in the 8-9PM time slot, and engaging in large-scale cost-cutting as well, seems to be a confirmation that network media companies are in serious trouble.

It appears now that GE's Bob Wright, the executive in charge of NBC and Universal, is presiding over the network's shrinkage, including its news department. While these moves may eventually boost profitability, they seem to be doing so by reducing revenues. My research found that one of the keys to a company's ability to consistently outperform the market, in terms of total return, is to consistently grow revenues at consistently superior rates.

With its entertainment unit retrenching and cutting costs and programming, it would seem to be a drag on GE's ability to grow revenues at consistently superior rates into the near future.

That's the financial aspect of the changes occurring now at NBC.

The behavioral dimension gets to the larger issues of a network's future in the evolving world of multiple, digital channels and applications devices for media consumption. I recently wrote about this here.

By abdicating an hour of prime time to reality shows, to save money, while cable networks like Fox produce quality drama series such as "House," NBC is, in effect, signaling that, as an old media network, it simply can't afford to compete in that product/market space anymore.

In a recent post here, I discussed the content/distribution issue for the evolving media sector. In some ways, I think GE/NBC-Universal may now be the most disadvantaged of all of the media properties.

Disney, ABC's parent, is a media/entertainment company. At least their funding and strategic tradeoffs all involve the same type of 'product.' CBS is now a standalone firm again, and what was left with Viacom is, like Disney, an all-media firm. Again, like products among which to make strategic decisions.

The various cable media, such as TW, Fox, and the new hybrid WB-UPN, are all media enterprises.

GE refits locomotives, makes white goods, jet engines, and, oh yes, owns media properties- a broadcast network and some related cable programs, and a movie studio with theme parks .

Can you imagine trying to set budgetary and strategic guidance among that mess? As I wrote here recently, I think it's simply a mistake for GE to continue its existence.

If I had to guess, I'd say that NBC/Universal is perhaps one of the most hindered units among GE's portfolio, when it comes to laboring under financial and operating constraints as part of the parent firm. It has to compete internally for capital, while competing externally with a fair number of pure media companies run by fairly talented, motivated indivduals.

That's why I see last week's announced cutbacks at NBC a harbinger of its eventual impairment, due to being a part of a non-media conglomerate. If I'm correct, more shrinkage will follow, perhaps, eventually, mercifully, by a spinoff or sale of the unit to another media concern.

Boeing's 737 Replacement Opportunity: Schumpeter's Theories In Action

This past Wednesday's Wall Street Journal featured Holman Jenkins' weekly column, this time focusing on Boeing's opportunities, as Airbus self-destructs.

The Journal carried a noteworthy article back in June, about which I wrote here. It emphasized how Boeing had done the basic work of determining customer needs, and designing, then building, the Dreamliner 787.

Now, we learn that Airbus' replacement CEO of this past summer is already out. Jenkins does an excellent job describing that firm's self-inflicted wounds of the past few years, and the resultant disasters in the A380 and A350 programs.

What particularly drew my attention, however, was the last third of Jenkins' piece. He wrote of Boeing's alternatives, in the face of the Airbus meltdown. How, despite the former's incredible luck of its competitor's travails, combined with its own successes, it still faces significant risk.

This is Schumpeterian thinking in its sparest, clearest setting. A capital good manufacturer/marketer, who must make each large, long-term product development decision reasonably well, or risk failure and bankruptcy. Boeing began its jet era by betting the company on the 707. It continued this process with the 747, 757 and 767.

Now, as Jenkins depicts the competitive landscape facing Boeing, one sees that they are, at last, moving to replace the venerable short-haul 737. The article mentions Southwest Airlines clamoring for the replacement, and potential engine provider Pratt & Whitney perfecting the "geared turbofan" jet to achieve the kind of leap in operating efficiency Boeing is said to require in any 737 successor.

Jenkins concludes his article by opining that, as Airbus goes to the sovereign-funding well once more, to bail itself out, Boeing may have to live with a non-decision by the WTO, and, thus, provide its own response to Airbus in the form of a new jet to replace the 737.

This is very appropriate, as Schumpeter would easily see the need for Boeing to cannibalize its own installed base of jets, before another competitor, perhaps from China, does so first. Just because Airbus is faltering in no way means Boeing is about to experience its own version of Rome's infamous "Punic Curse." It's likely that, with the severe consolidation in global commercial aircraft production and marketing, Airbus' demise or crippling will simply provide an entry point for some up and coming third-world or Far Eastern country to step in and selectively begin to challenge Boeing's dominance.

Thus, Jenkins is correct to predict that Boeing should continue on with its product development as if Airbus is still a viable and threatening competitor. Because, as Schumpeter clearly explained, once a company stops innovating to stay ahead of existing or potential competitive offerings, it has, in effect, resigned itself to being swept away by a real competitor in the near future.

A corporate mindset of comfort and complacency in a competitive product/market sector, whether merely national, or truly global in scope, typically leads to the firm's unanticipatedly acclerated decline. An attitude of fear and the need to lead in innovation are vital if a company like Boeing is to retain its recently-attained consistently superior total return and revenue growth performance in the years to come.