Change has been painful for the music industry over the last 10 years, but there are increasingly glimmers of hope that the myriad threads of change rippling through the industry might coalesce into a new and more robust ecosystem than the current tottering model.
- MySpace: With new ownership including Justin Timberlake (who has taken on the role of Creative Director), MySpace has an opportunity to return to its early ambitions of helping artists develop a direct relationship with fans, and in so doing put artists themselves in a position to reap superior economic returns.
- Pandora: With more ad inventory than it can sell, explosive growth but profitability nowhere in sight, and less than $44 million in cash, this fast-growing streaming radio company looks to me like acquisition bait for a larger player with the financial wherewithal to absorb the short-term cash burn and make the fixes necessary to turn this business model into something not only popular, but financially viable.
- Spotify: CEO Daniel Ek I think makes an important point when he notes “What Spotify is saying is ownership is great, but access is the future.” With a freemium model, 15 million tracks available, a different take on the music business (as Ek says: “With Spotify, all we really care about is we want to manage your music. We want to hold your music collection.”) and a model that distributes a majority of its revenue to artists, this company is poised to reshape the economics of music for small artists and major labels alike.
I believe we are at an inflection point in the music industry. After a decade of disruptive technology we now have a critical mass of plausible business models employing that disruptive technology. That could make all the difference.
David Johnson is a partner with ACM Partners, a boutique financial advisory firm providing due diligence, performance improvement, restructuring and turnaround services to companies and municipalities. He can be reached at 312-505-7238 or at [email protected].
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