Lessons from the Music Industry

My son now has 3 songs published on SoundCloud and he has over 1,000 downloads of those songs. He has even made some money by burning a CD and selling to some of his friends. Not a lot of money but that is not the point for him. For him it is about creating something and sharing it.

The Music Industry has learnt how to embrace the digital age, how to continue to make a profit even as digital piracy has eroded album sales, how to exploit the personal sharing of experiences that Web2.0 allows. Companies and record labels have come and gone yet there are more artists involved to the Music Industry than 20 years ago, the overall size of the industry has grown from $11billion in the 1980’s to over $70billion today. Yet this has happened at the same time as the 5 “majors” (the big recording labels) have seen massive decreases in their published music revenues.

I see a similarity here to mobile broadband (or indeed the telecoms industry in toto). For years the operators have believed that their subscribers value mobility and are willing to pay for faster speeds, more data and to fund their (the operator’s) investment in technology.

The Music Industry has been forced to adapt and adopt new business models. Famous bands now earn more money from touring. Prices of concert tickets have gone up because there is more value in seeing a band live. This has offset, in part, the royalties that recording companies used to pay to artists. Then there is merchandise, re-mixes and re-releases.

So what are the lessons for the Telco Industry ?

Manufacturing “minutes of usage” is no longer the way to increase profits. It is like the CD, it still remains in the shop whilst everyone around is downloading or streaming.

The whiff of “transformation” is in the air. Just like the large recording studios had to diversify away from their traditional “recorded music” revenue stream telcos also need to diversify and adapt to new business models. The problem for them is that all the options appear less attractive than the existing revenue stream and EBIT. When you can earn 35% EBIT on selling “minutes of usage” why cannibalise that business to earn less EBIT from alternate business models?


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