Three Minds On Digital Marketing @ Organic

Bob Lefsetz is an incredibly prolific music business expert who writes a free e-mail blast called The Lefsetz Letter (www.lefsetz.com). Many in the music business read it, even though he is often very critical (and, more often than not, right) about its ills -- artistic and financial, which he ascribes to its general incompetence, greed, arrogance and short-sightedness. Technology has progressed, and consumers have followed suit, but the music industry continually lags behind in spite of itself. He does not shirk from naming names, big names!, and numerous important executives and musicians have been skewered in his virtual column. What's more, he occasionally compiles his more well-known readers' responses and sends them out as updates, even if they are critical of him. Kid Rock and he had a great, pointed exchange regarding Kid's refusal to put his latest album on iTunes, which ended up being a hit anyway.

A recent Letter, published on November 26th, concerns a same-day article in the New York Times regarding Atlantic Records' claim to be the first label to earn more from digital than from physical sales. Lefsetz argues that it is a red herring that still fails to address the fact that people are not buying music via digital channels to make up for lost revenue from declining CD sales. The "digital" revenue referred to in the Times article includes not only digital sales of songs and albums, but also other revenue sources: subscription services, ring tones, ring backs, videogames and satellite radio. Thus, it's not an apples-to-apples comparison. Maybe, apples-to-apples+pears+bananas+kiwis.

As always, Lefsetz argues that the record business needs to develop a model that is customer-centric: music conveniently available in various forms and formats via various devices at reasonable prices. My interpretation of his thinking: Because the industry has been slow to address consumers' wants in the digital music space, many consumers, particularly Gen X and Gen Y, have ventured into "file sharing", which has resulted in 5 inter-related consequences:

1. Many consumers aren't paying for these shared/stolen files, which
    means lost revenue for labels and publishers.
2. Many consumers think music should be free, even if they recognize
    that file sharing is illegal, and can't imagine purchasing a CD or
    album via a legal and licensed like iTunes Store, which they still
    deem too expensive and restrictive.
3. Music has become less significant in mindshare and culture,
    particularly in light of increased competition from the internet (UGC,
    blogs, social networking, YouTube, etc.), videogames, etc.
4. People consequently purchase even less music, because it's not
    as compelling or interesting as other things they enjoy doing.
5. Music continues to stultify, as labels become more risk averse and
    try to copy past forms that have been proven successful (though
    this issue has existed for at least 70+ years)

I might be alone, but I believe that the record business is on the cusp of a turnaround, particularly if it can offer subscription services via 3G mobile phones at a reasonable price (a big "if", no doubt). I know Rhapsody has a version of this mobile offering, but I sense it will require Apple to bring it to a wider audience. Here's hoping!

Jonathan Cohen