TheCapitalClinic

In a previous blog about the world of "Big Music" and Finance I set forth some reasons why what I described as "Music Ecosystem II" has arrived. This conclusion was based in part on the acquisition of EMI by Guy Hands, whom I described as a brilliant UK-based financier, and my assumptions about the leveraged financing provided by banks who typically require firm exit strategies for their part of any acquisition financing. [Been there/done that].

Here is yesterday's article in the Telegraph [UK] about a leaked email sent by Guy Hands to EMI staff, "Embrace digital or die, EMI told".. Some quick take-away quotes from the article and Hand's memo are as follows [emphasis added by me]:

1. Guy Hands...told staff in a confidential e-mail last week that the industry had been too slow to embrace the digital revolution.
2. Hands described Radiohead's action as "a wake-up call which we should all welcome and respond to with creativity and energy"
3. "The recorded music industry... has for too long been dependent on how many CDs can be sold," he wrote. "Rather than embracing digitalisation and the opportunities it brings for promotion of product and distribution through multiple channels, the industry has stuck its head in the sand."
4. On Friday he warned that unless there was a major cultural change, more established bands could follow Radiohead's lead, choosing to cut the label out of the loop and distribute their music directly to consumers.
5. Hands is understood to have been impressed by the inventiveness of EMI's music publishing division, which owns the copyright to songs, in making money from new sources. It has licensed lyrics to be printed on jeans and posters and music videos to be played on YouTube.

Quoting from Lefsetz's commentary about the Telegraph report of the confidential memo [emphasis added by me]: "It's a new era. Is EMI going to rule in the future? I'm betting a newbie will surface...and become the behemoth while the majors aren't looking. The majors have survived this long because they have the copyrights. What if someone starts off with NEW copyrights, from NEW acts. Or star free agents? Then they can do what they want, without restrictions." He goes on to observe with prescience in a follow-on article, "Timelines" [for the future of music], "A new landscape will emerge. Probably run by new players. King will be the Web filters, in bed with the acts."

I suggest that the "newbie", "new landscape", and "new player" could well take the form of the Fuzz Music Collective, or similar web-based collective organizations, as mentioned in my previous blog.

Music Ecosystem II will be based on the tri-partite relationship of (1) New Artists [perhaps even to be joined by enlightened established artists such as Prince, Radiohead, The Charlatans, Arctic Monkeys, Trent Reznor/NIN] [see article about new initiatives by established artists]; (2) Facilitators [indie labels, boutique labels, new business managers - perhaps even the likes of EMI under Guy Hands]; and (3) Digital Platforms [providing a new "A & R MY" for music discovery and web-based filters - see, for example, comments of Jeff, CEO of Fuzz, about a new application platform].

The key success variables in the new music ecosystem will be the judicious combination of (i) artistic creativity and diversity [now in chaotic growth mode], (ii) a new breed of entrepreneurs/trusted intermediaries to bring business focus to creative energy, and (iii) [eventually "open"] web-based application platforms [providing (a) innovative music discovery engines based on a mix of automated search algorithms and human intervention, and (b) digital promotion and distribution]. Sustainable margins in the new business model will require new revenue streams and dramatic reduction of expenses based on collective cost-sharing arrangements and new partnerships among a variety of industry players.

Finding the means to survive [and thrive] in the New Music Ecosystem will be a non-trivial exercise - because many participants with diverse interests and ever-changing technologies are involved; but, like it or not, the future is now. Watch this space.