Just Managing: Napster Is a One-Hit Wonder
When I hear all the din about the power of Napster and MP3
to overthrow everything everybody knows about doing business online,
an album title by Elvis Costello comes to mind: This Year's Model.
Just as the tired tune about how e-retailers would tromp retailers
played at the top of the hype list a year ago, so does this idea
play in the media like the Macarena.
How about this thought: The digital distribution of songs won't
change the fundamentals of the business. It might accelerate the
core qualities of the music business, but in the digital marketplace,
consumers will still turn to record labels for guidance.
Just ask Gregg Latterman, CEO of Aware Records, a small record
label based in Chicago. "Napster doesn't threaten what I'm doing,"
says Latterman, who has a unique perspective as a small label in
the big business. The relative smallness of Latterman's company
(Aware has eight full-time and seven part-time employees) gives
it a natural advantage over the traditional behemoths in the field
as well as the new breed of venture-backed Web startups. Large established
record companies can't adapt their tried-and-true ways of doing
business without alienating scores of its employees; while new Web-born
companies are forced to bet their venture money on business models
that don't necessarily make money.
Latterman, on the other hand, has the best of both worlds. His
small company has sufficient financial health to take chances without
destroying itself, yet it has enough resources to adopt the relevant
pieces of digital technology to its business model. As the head
of a small business, Latterman knows how to keep all the pieces
of his business model together, and he argues that all this focus
on how the music is distributed misses the bigger picture.
"Everybody wants to believe that it is a time of great change
- but it isn't," Latterman insists. "The heart of the business is
still about finding great bands, making a great record and getting
it out there for people to hear it. It's still the same concept,"
he says. "The only difference is how the music is delivered."
Like any record company, Aware adds value by finding and developing
new acts. The company's core talent is finding small bands on the
verge of breaking out and helping them hit critical mass. Latterman
has made a splash through the company's annual compilations of unknown
bands, which have featured selections by groups such as Hootie &
the Blowfish, Matchbox 20 and Train - all before they were known
by the general public. About 30 percent of the bands that have appeared
on Aware compilations have gone on to sign record deals with major
Latterman says this form of discernment has become all the more
valuable as a result of the proliferation of music available on
the Web. "The biggest fallacy that has ever occurred is that bands
can go on the Web and explode," he says, saying that in most online
opportunities, "you can get garbage [not the band] for free."
This doesn't mean that Latterman's a Luddite: Aware has radically
improved its ability to tell fans about concerts in their area through
compiling a rich e-mail database (previously it simply sent out
postcards), and it sells a greater portion of CDs through its online
store. He uses the emergence of the Web as a tool to strengthen
the networks of fans that are critical to his company's breaking
out new bands. He just doesn't believe that free distribution will
destroy his business.
"At the end of the day, there will always be some physical part
of the music - whether it is a disc or a chip or something that
is password-protected," he says.
Nobody has claimed to understand how the craze in swapping music
files will ultimately change the business. But one expert, partner
Win Farrell of PricewaterhouseCoopers and author of How
Hits Happen: Forecasting Predictability in a Dynamic Marketplace,
says the emergence of networks to share files might ultimately serve
to reinforce nascent bands rather than destroy them.
Just as gaming software has found a way to thrive under the threat
of youngsters giving it away, the music industry will find ways
to harness this rapid acceptance by a fluid market of fans.
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