This is what happens when you get caught with your pants down. When you've got amateurs running a public company and the books are not cooked and investors see that you don't present upside and your stock tanks.
Let's be clear, investor relations is a skill. Keeping the stock price up is a skill. The supposed greatest CEO of the twentieth century, GE's Jack Welch, consistently reported great numbers and the stock soared, even though he did this through financial engineering and decades later the truth is coming out.
Or there's Guy Hands, who purchased Capitol-EMI and didn't realize the company had been lying consistently. Shipping stock to make the Christmas numbers, and then getting it in return over the ensuing year.
It's a game. But one thing you don't do is underdeliver. That's death in the stock market. You want your business to be seen as on a never-ending upward curve. You can talk about minimal growth, but as soon as you say there's going to be negative growth, or have a bad quarter, missing expectations, you're toast.
Not that Universal's last report was so terrible, it's just that they didn't tell a good story for the future, everybody wants to hear about a roadmap. Where you're going. And that it's rosy.
This is not what Universal did. And now it's making up for it. With this cockamamie story about superfans.
Rip off your hard core fans at your peril. You want them to be with you all along the way, for decades! The more you charge them in their mania, the more they'll resent you when your hits cool. And they will, everybody's chart action dries up. Then again, by that point the acts are off the label, illustrating the short term thinking of those running these companies today. They've got no skin in the game, they didn't start them, they're only thinking about their bonuses and their exit strategies.
Want to make more money? Break more hit acts!
But the major labels are unable to do this. But that's where the action is.
As a matter of fact, the indie sector is soaring while the majors' share is going down. Hits are being streamed less. But to monetize the indie sector is something the majors are unprepared for. They've streamlined, they've focused on the hits. They're not tooled for the modern music business.
As for an increase in revenue, which is really what this is all about...
There is a question how many more streaming subscriptions can be attained. No one is quite sure what the future holds, there will be growth, but...
If growth stalls they'll just raise the price. Quick, look at your Netflix number. Did you cancel when it went up? And in truth, Spotify has much lower churn than video streaming services. That's how much people love music. And music streaming is still a bargain. But now as it matures, the price can be slowly increased.
And the details are hazy... Grainge is talking to Spotify about a supertier, but didn't he once say there'd be no exclusives? What about Amazon and Apple, never mind the minor players.
And what will you get for more money?
Higher audio rates are a canard. Almost no one cares. Just a vocal minority of oldsters. And now that this quality is available, most of these wankers don't even take advantage of it! As for charging more... Tell me about the growth of Tidal...there is none! And Apple doesn't charge extra for high quality. So how is this going to work at Spotify again?
Not only can most people not hear the difference, most don't have the equipment to play it back, today's audio quality is good enough.
So what's going to come with the supertier?
And a hard core fan wants the price to be less, not more. Since they're so devoted they want a deal.
As for the umpteen versions of hit product to run albums to the top of the chart or keep them there... That is a fad. How many people without record players are going to continue to buy vinyl?
And sure, t-shirts and other merch are great, but mostly sold at the show and the rights are controlled by the act, and if Universal wants them they're going to have to pay dearly for them.
This is akin to Clayton Christensen's "Innovator's Dilemma," the disruption Bible. When you focus on your regular customers, on a tinier slice of your regular market, your business is ultimately disrupted and eaten by nimble operators who look irrelevant at first and grow into juggernauts and supersede you. IBM couldn't compete with Dell, and ultimately sold its PC hardware business. IBM sold to companies who needed rock solid computers, so they tested them many times. Dell felt the quality was good enough, didn't overtest, sold at a bargain, and ended up owning the business. Hell, Dell even bought DEC! Never mind upstarts that ran into the void that Dell created, like Gateway.
The future of the record business is more acts each of which sells less than a superstar. Period.
And for all the blather about Taylor Swift being America's Sweetheart, how everybody loves her, did you read yesterday's "Times"?
"Who Do Voters Really Like? Taylor Swift. - The pop star Taylor Swift has endorsed Vice President Kamala Harris — and is far more popular among Democrats and independents than Republicans."
t.ly/X_nxq
Sure, this is mainly about politics, but even some Democrats are not so hot on her.
So you've got a backward thinking record company in cahoots with a backward looking press/PR world self-congratulating and missing the point, the future, because they can't figure out how to execute in it.
Whenever you oversell, overcharge, bleed the superfan, there's backlash.
Kid/teen groups have a sell-by date. Sure, there are reunion tours (long after the acts are out of a deal with the label), but many feel queasy about their investment in the low talent trifle of their past. It's a schoolgirl crush. Sure, there may be some nostalgia, but...
As for concert ticket prices... Sure, you can charge top buck when you've got hits on the chart, but when you don't... Look at the Chainsmokers and J. Lo and...
Which is why you don't want to be hit dependent, you want your growth to be organic, you want a slot machine that sheds dollars over and over and over again.
These are not the acts Universal is focusing on. They want the big money win. They're all in. They don't want a skirmish, they want a war.
Their philosophy is out of date.
Quick, quiz your friends. Are you all watching the same streaming television shows? Absolutely not. And your favorite may not even appeal to your friend. And in music there are many more choices.
Universal needs to retool, all the majors do. They keep cutting back, consolidating, in a world that requires more growth to meet the needs of more people. But they'd rather reduce head count and please the Street, something else that is appealing when numbers are down.
And Facebook can always hire back programmers. But there is not a ready pool of music professionals. And those who get laid off by the label, if they're any good, find roles in management or the road or they set up shop by themselves. They've got no desire to go back in-house where they're a number as opposed to a name.
But let's just pretend everything is groovy. Sell investors a crock of sh*t so that the stock goes back up and continues to rise. Damn the future.
It's not like no one ever thought of monetizing superfans before. This is not a revelation. And the growth here is not stratospheric. It's not like these superfans are not spending already!
But investors don't know anything about the music business. So they're snookered, until they're not.
But those with history in music are scratching their heads, wondering what Universal is thinking here. At the end of the day, music is an entrepreneurial business, always has been. Thinking outside the box. Not only coming up from nowhere as the manager of a hit act, but Irving Azoff creating GMR out of thin air which now has a value of billions!
Never mind that music revenues keep going up and up because new areas of monetization crop up online. That's a much bigger story than bleeding superfans. In the past all you had was the retail outlet, physical goods, now site after site crops up online that needs music, that ultimately licenses music, and it does not negatively impact other income streams whatsoever!
Which is why you should never sell your publishing.
But that's another story.
This is what happens when you report to the Street.
Does the manager do so? The act? They're independent operators, they're the heart and soul of this business more than ever. That's where the action is. Hell, as stated above, the majors can't even break a new act. You have to do that yourself. Oftentimes in a genre the majors are not interested in.
Music has an upside. It's on a growth curve. But it's less about bleeding the superfans, than creating superstars. That's the history of this business. One unique act lifts all boats, creates excitement, from Elvis to the Beatles to... That's what we've lost. Everybody's so busy looking for money that they forget that music is about heart and soul, touching people. And the new and different is what people are looking for. There's a business in the same old thing, but there's not growth. And, once again, the true growth here is in the world of independents, where creativity develops and grows.
Not that I expect the Street to buy any of what I say above. Because it doesn't have the time, it's invested in many companies. It reads balance sheets instead of truly knowing a company's business.
And it doesn't understand music at all.
But Universal doesn't understand the Street.
It's a match made in hell.
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