Imagine that you are an entrepreneur in New York City in the early 1900’s. Your company offers a single service — cleaning up horse poop.
Business is gangbusters. There is no shortage of horse poop. Every buggy needs a horse (or multiple horses) to drag it, and every horse poops multiple times a day. You can’t hire horse poop shovelers fast enough to keep up with demand. In fact, despite your best efforts, the entire city is covered in horse poop. New York City’s 100,000 horses are producing 2.5 million pounds of poop every day.
One day, you notice a weird-looking contraption in the street. It’s buggy, but it has no horse. It’s a horseless-f*cking-carriage!
It’s the stupidest thing you’ve ever seen in your life. It will never catch on. You go back to counting your poop-shoveling money.
Five years later, you’ve fired all your employees, and you’re broke. All the poop is gone. Henry Ford’s Model T has taken over the streets.
Now, this story is usually rolled out by Republicans and Libertarians to illustrate the possibility that some problems take care of themselves. We don’t need to worry about global warming or resource depletion — human ingenuity will solve the problem!
Well, maybe. Or maybe the story of human beings on planet Earth will be more like the story of the doomed Easter Islanders (who guaranteed their own destruction by cutting down every single tree on the island).
But I’m telling the story for a different reason. I want to point out how some entrepreneurs get lazy when they live on Easy Street. And when Easy Street goes away, they whine like toddlers.
I’ve actually been in the position of the 19th-century poop shoveler. I once had a product that made so much money, so quickly, that my business partner and I didn’t even know what to do with it all. We gave a lot of it away to charity. We had so much money that we sponsored a satellite dish to hunt for aliens.
When demand for the product finally waned, we didn’t cry about it, or blame our customers. We had other projects and products in the pipeline, some of which turned out to be quite profitable.
I wish the rest of my industry (the music industry) had the same attitude.
Easy Street for the Music Industry
For a couple decades (let’s say 1985-2005) the music industry had a great racket going. They would encode a piece of plastic with music and sell it to the music consumer-appreciator for about $15. Including all costs (manufacturing, art, artist advances, marketing), you could still make serious money for each piece of plastic that you sold. You’d have to be an idiot to not profit $5 a unit during those fat times, and profits of $10 a unit were quite common.
Easy-F*cking-Street. Sure, not every release would make money, but the margins on those that did were really good.
My own label, Loöq Records, never made much money from CD sales. We entered the business in 1998 selling vinyl records. Vinyl is expensive to produce, and you could never sell it for as much as a CD (at least at the time). We would often lose money putting out vinyl singles, but we did it anyway because it was so fun.
Then, of course, everything changed. Along came the mp3 format, and Napster, and iTunes, and the Pirate Bay. The music industry screamed foul. Who moved my cheese?!
The music industry, as a whole, has not dealt well with change. Digital distribution and replication have changed everything. Instead of adapting quickly, the major record labels instead chose to bitch and moan, and then punish their customers.
Some companies, like Apple and Pandora, seized the day and grabbed fat slices of market share (and profit) from the majors.
Some have even speculated — do we need record labels at all? The artist can publish directly to the consumer. Who needs the middleman?
Ignite topic — Why Do Record Labels Still Exist?
Ignite is a short-format (5 minute) speaker event, organized locally in different cities during Ignite Week. Patti Chan, one of the organizers of San Francisco’s Ignite chapter, invited me to participate.
I chose the topic Why Do Record Labels Still Exist? What do you think? Comments and questions welcome.
If you’d like to download the slides, they’re here.
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