When a new business model is essential

The music industry is a great example of where ‘changing the business model’ – aka ‘strategic innovation’  or transformation – has been essential. So although I have poured cold water on this idea for almost all firms at almost all times, it’s worth looking at this case.

Apple’s development of iTunes of course features strongly in demonstrations of the concept, as in Christensen et al in HBR. Music was going digital, so what a great idea to give consumers a neat device to play music that you had to buy through a central online store. Question is – what on earth were the music production companies doing – sleeping?!

I like Coldplay, who are signed up with EMI, so what do I actually want? – just the music by the band, produced by the company. So surely I just key ‘Coldplay’ into Google which takes me to an EMI web-page where I can sample a track and buy it? Being quite bright, I might even just key ‘www.emi.com/coldplay‘ into my browser and get the same. No chance! [try it for yourself, the URL is actually http://www.emi.com/page/emi/Discography_UK/0,,12641~931488,00.html].

So I find what I want – now can I buy it? no. Why not? Why does there have to be anyone else involved in this transaction? I quite understand that 10 years ago the record companies wanted to protect their CD sales, but surely the writing was on the wall for that business model years ago. It looks like the smart players in this situation were the bands themselves, who realised they could offer something that neither Apple nor the record companies could take from them – live shows, worth millions and just great for the fans. Recorded music for the bands now looks like a promo give-away to drive demand for tickets that will make them very, very rich.

Can the record companies still take back control of their own product? Maybe – and maybe they can exploit Apple to do so. There’s plenty of potential added-value content – extended length tracks, video and so on – so Apple could keep selling the basic content and the record companies develop the facility to sell direct to us all the really good stuff. My friend in the industry tells me that they have been able to do much of this for over 5 years, but instead of taking charge many have instead stumbled from crisis to crisis as Apple at one end and the bands at the other have stolen all the value.

More on strategy at www.strategydynamics.com.

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