Terra Firma's EMI Problem: How to Fix the Music Business

We’re can’t figure out what Terra Firma plans to do with EMI now that is has finally gotten the ok to buy it for $4.9 billion. Neither can Jupiter’s Mark Mulligan, who lays out EMI’s intractable problems this morning:

•    Competition from other media (DVDs, console games etc)
•    Competition from piracy (online and physical)
•    A weak US footprint
•    No parent company group to leverage for cross promotion and distribution

The first two are broader music industry trends that Terra Firma can do little meaningful to address; the third one Terra Firma’s UK headquarters isn’t going to solve; and the final one EMI has been trying to tackle for years without success.

Mulligan’s suggestion? Focus on digital. But specifically, focus on convincing consumers to buy entire albums instead of singles. It’s a problem common to the entire music business: The CD model, which required consumers to pay $15 to get the one or two songs they wanted, is being replaced with the iTunes model, which lets them spend one or two bucks for the same product.

Mulligan thinks you can convince buyers to pick up an entire digital album if you price it for less than the physical product. But there are two problems with this solution:

First, charging less for albums will cause huge channel conflict issues with Best Buy, Wal-Mart and the other retailers the labels still rely on for the majority of their sales. But for argument’s sake–and only for argument’s sake–let’s stipulate that those retailers are getting out of music sooner than later, so no harm in burning those relationships now anyway.

The bigger problem is that almost no one wants an album’s worth of music from anyone, no matter what the price is.

Even when it’s free: BigChampagne, which tracks file “sharing” on P2P networks, now has several years worth of data proving that given the choice between an album’s worth of free music and an individual song, file-traders almost always pick an single track. (Corollary: If they’re picking up more than 2 songs from any given album, go ahead and assume you’ve got a blockbuster on your hands.)

So pricing won’t solve the music industry’s problem, either. What will? We’re partial to the subscription model, which gives consumers unlimited music, and the labels a recurring revenue stream. But no one’s figured out how to convince more than a small number of folks to embrace this. Perhaps the clever folks at Terra Firma have something else up there sleeve. Can’t wait to see it.

Keep the album, Lily, just give me a song.

Business Insider Emails & Alerts

Site highlights each day to your inbox.

Follow Business Insider Australia on Facebook, Twitter, LinkedIn, and Instagram.

Tagged In

digital music sai-us