April 23, 2014

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Universal Didn't Ignore Digital, Just Did It Wrong

Techies have been chortling all week about comments made by Universal Music CEO Doug Morris to Wired’s Seth Mnookin. Morris, despite being in what is now a technology-based industry, professed extreme ignorance about the digital world. Here’s the money quote:

Morris insists there wasn’t a thing he or anyone else could have done differently. “There’s no one in the record company that’s a technologist,” Morris explains. “That’s a misconception writers make all the time, that the record industry missed this. They didn’t. They just didn’t know what to do. It’s like if you were suddenly asked to operate on your dog to remove his kidney. What would you do?”

Personally, I would hire a vet. But to Morris, even that wasn’t an option. “We didn’t know who to hire,” he says, becoming more agitated. “I wouldn’t be able to recognize a good technology person — anyone with a good bullshit story would have gotten past me.” Morris’ almost willful cluelessness is telling. “He wasn’t prepared for a business that was going to be so totally disrupted by technology,” says a longtime industry insider who has worked with Morris. “He just doesn’t have that kind of mind.”

Morris’s explanation isn’t just pathetic, it’s also wrong. The problem wasn’t that the company had no digital strategy. They had a strategy, and they had technologists on the payroll who were supposed to implement it. But their strategy was a bad one, combining impractical copy-protection schemes with locked-down subscription services that would appeal to few if any customers.

The most interesting side of the story is that Universal’s strategy is improving now – they’re selling unencumbered MP3s, for example – even though the same proud technophobe is still in charge.

Why the change?

The best explanation, I think, is a fear that Apple would use its iPod/iTunes technologies to grab control of digital music distribution. If Universal couldn’t quite understand the digital transition, it could at least recognize a threat to its distribution channel. So it responded by competing – that is, trying to give customers what they wanted.

Still, if I were a Universal shareholder I wouldn’t let Morris off the hook. What kind of manager, in an industry facing historic disruption, is uninterested in learning about the source of that disruption? A CEO can’t be an expert on everything. But can’t the guy learn just a little bit about technology?

Comments

  1. Ariel says:

    There’s also the fact that electronic music distribution, which has gotten bigger with p2p networks, have preceded commercial distribution by years. So why the late response?

    Further, I think that the music industry could have learned by exploring the software models (and by this I don’t mean rootkits), and that the movie industry is getting a better take on this (without the discrediting lawsuits).

    On the other hand, I think that the recent strikes by Hollywood writers are evidence that the entertainment is unwilling to change all business models. Which is corroborated by the fact that the music industry is one of the biggest mafias (just the smaller sisters of weapons and drugs) with loads of hidden interests.

    Cheers

  2. Ariel says:

    Replace all business models with old b.m.

  3. pfogg says:

    The problem wasn’t that the company had no digital strategy. They had a strategy, and they had technologists on the payroll who were supposed to implement it. But their strategy was a bad one, combining impractical copy-protection schemes with locked-down subscription services that would appeal to few if any customers.

    People who understood the technology mostly agreed that the strategy wasn’t just unlikely to pay off, it was a dead-end. Self-destructive. A boondoggle.

    “We didn’t know who to hire,” he says, becoming more agitated. “I wouldn’t be able to recognize a good technology person — anyone with a good bullshit story would have gotten past me.”

    Isn’t that exactly what happened, to him and to other music industry leaders who settled on the strategy you describe? I find it unlikely that the business people developed these ideas themselves. On the other hand, it has long been observed that leaders tend to favor advisors who tell them what they want to hear, and ‘you don’t have to do anything radical’ would be an awfully seductive line to someone who feels like he’s suddenly found himself in the middle of a minefield.

  4. Vincent Clement says:

    Or he should have done what other companies do: ask the customer. All those people using Napster should have been a huge clue as to the direction the record companies should have taken. Instead they buried Napster and have been stumbling ever since.

  5. John Bergmayer says:

    I had the same response, vis a vi the shareholders. Not everyone needs to know or care about technology. But the CEO of a record label really, really does.

    Also:
    His point that major labels have anything to do nowadays with artist development is laughable. Nearly every good new artist that comes to a label comes pre-formed. Indies have discovered and developed most of the new talent out there for years.

  6. Barry says:

    The problem is that the music industry execs have been able to exercise incredible levels of control over the industry in both directions. They could make or break the career of all but the most perennially successful artists; and at the same time they had full control over what songs customers would listen to via radio stations, MTV, and the “all or nothing” nature of music albums.

    Embracing the digital revolution is about giving up control in favor of making money. Instead of making the hip trendy recording execs the arbiters of what’s hot and what’s not, a savvy music company could let the public decide, by “signing” everyone. That’s right – let everyone and their grandmother sign on with the company to have their crappy garage band recordings sold over the company’s website, right alongside Britney Spears, 50 Cent, or whatever other crap the execs have deemed cool. The agreements would be non-exclusive – the benefit would be that the music company would get a cut of the sales. Let the band handle their own promos, and it’s pretty much pure profit for the company at that point.

    Then they take the sales info and use that to determine what’s promising and what’s not, and let that data lead into bigger promotional deals for the artists with exclusive contracts and such.

    Oh, and no DRM required: The value-added service is letting people who buy into “mainstream” music have access to song previews of previously little-heard small-time artists, to which they’re directed because of things like “people who listened to X also liked Y, so here, give them a listen”. At that point, it’s easier to just buy a reasonably-priced track from the music company’s website than to try to track it down on eMule.

    The music industry would get the benefit of the talents of thousands of small-time musicians, with a profitable setup that almost runs itself; the musicians would get the benefit of getting their foot in the door, with the bonus of the long tail being compared to the major artists; and the consumer gets the benefit of more choice in their music. It’s a win-win-win.

    The only thing the music industry has to give up is control. But since control is what the entire entertainment industry has been about since the invention of the phonograph, player piano, and motion picture, will this ever actually prove possible?

  7. Whoever says:

    With all the resources available to the CEO of a large company, they could not figure out whom to hire? If so, he does not deserve the job and the shareholders should be demanding that he goes.

  8. Dan Simon says:

    Ed, I think your model of executive decision-making is a bit oversimplified. Although CEOs are often romanticized as heroic generals commanding their troops to great victories, in practice they’re much more like politicians, sticking their fingers in the air to figure out which way their fellow executives, competitors and customers are headed, and charging in that direction with a resounding, “follow me!”, just as soon as they detect a consensus being formed. If it turns out that all those people are right, then they end up looking like the successful leaders they’re paid to be, and if they’re wrong, then at least they look no worse than their fellow executives, competitors and customers. On the other hand, if they choose a direction that goes against the consensus, then they risk being unseated or derailed by extraneous mishaps before they can be proven right–and, of course, they look like complete idiots if they’re wrong.

    In Morris’ case, he’s presumably spent decades defending the music industry consensus, and watching profits climb consistently until only a couple of years ago. When, exactly, do you think he should have stood up and said, “we must change direction drastically, or profits will start declining very soon”?

    Suppose, for example, he’d followed the consensus on this blog, and hence jumped the gun by at least a few years. (I certainly don’t remember reading any spot-on predictions, here or anywhere else, of exactly when the old business model would finally play itself out, and its profits start declining. Do you?) What do you think would have happened to him once it became clear that the competition was in fact continuing to rake in big profits while his company, alone, absorbed the costs of transitioning to a whole new business model?

    As it turns out, he’s now a couple of years behind the curve, and a bunch of techies are sniggering at him–but he still has his job, and it’s unlikely that any of the executives (or competitors’ executives) who might replace him has any better record on this issue than he does. Nor is it even obvious that he hasn’t pursued a near-profit-maximizing course for his company, under the circumstances–perhaps he hasn’t, but the case is hard to make one way or the other. How many of those sniggering techies, on the other hand, if placed in Morris’ shoes over the past few decades, would have avoided looking even more foolish at some point than Morris does now?

  9. Xcott Craver says:

    I’ve always wondered about our own culpability as researchers in this picture.

    Content providers believed that DRM was possible because they had technologists promise it to them, an academics study the problem with apparently positive results. When Intel’s Craig Barrett told Congress that the content industry was demanding the impossible, the content industry responded that they had stuff by PhDs that told them otherwise.

    Part of that is self-fulfilling: movie studios hire IBM to solve a DRM problem, IBM puts their best engineers on it, and even if the problem is insoluble IBM will deliver something. This enforces the belief that DRM is possible.

    But researchers don’t just work on these problems when told by management. Many of us approach DRM as a set of interesting academic problems, to determine for example if it is theoretically possible to achieve the watermarking equivalent of public-key cryptography. As someone who goes to conferences on multimedia security, I can tell you that there is a continual supply of papers proposing DRM systems, watermarking schemes, end-to-end protocols for secure media delivery etc.

    Now how can we criticize Universal for not knowing whom to hire, or for being insufficiently skeptical of DRM? How are they supposed to know what’s possible when even academic conferences and journal articles give laypeople the impression that the DRM problem is soluble?

  10. Ludwig says:

    They should have asked their customers. That sums it all up.

    You also don’t have to understand technology and DRM, when it comes to usability. When a new technology reduces the usability and increases the price, the product wont sell. It’s as simple as that. No matter what that technology is.

    Their biggest mistake was only to think about “How do we increase our profit?” instead of “What do our customers want?”

    Too bad they still think that way. They haven’t changed at all, only the technology has changed, not the behavior.

  11. Vincent Clement says:

    Ludwig: Exactly. If they first asked “What do our customers want?” then asked “How do we translate those wants into additional profit” they wouldn’t be the predicament they are today.

    I have no problem with companies wanting to increase their profit. I do have a problem with companies seeking laws that give them monopolistic powers in order to save a dying business model.

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