The Grammy-Music Industry Disconnect

The 52nd annual Grammy music awards walloped its television network competitors Sunday night with an almost one-third increase of last year's audience.

The Nielsen numbers won't be final until later today but the Grammys attracted about 23 million viewers -- winning the day.

Of course that is a far cry from 1984 which was the year of Thriller (51 million viewers).

Some liked this year's show. Some hated it. But at least more people watched i n 2010 than in 2009. I'm linking you to a historical view of Grammy ratings here.

So, the music industry must be getting its groove back.

Not so fast.

The love of music never died.

Musicians never lost their passion for making it.

So why is the record industry declining?

In the U.S., CD sales were off 20% last year according to Nielsen SoundScan. Apple became the biggest retailer of music here and although digital sales were up, it was not enough to give the record labels a growth year. In fact, record sales have only had one growth year since 2000 and in that year it was not by much.

But the showmanship of the Grammys telecast does not equate to the record industry's plummeting sales.

So let's cut to the quick.

With music so popular and even the Grammy showathon pulling in an impressive audience, why can't record labels make money?

This is the disconnect.

Blame the labels and their out of touch executives who have made virtually all the wrong strategic decisions for at least a decade now. Record labels traditionally have been manufacturing companies -- first of vinyl, then plastic. That's why they talk in terms of units ("how many units did Gaga sell?").

Labels are not and have never been marketers.

Radio stations have been their free marketing arm and they have been damn good at selling the goods that record "manufacturers" make. Without airplay, I can guarantee you there would have been no record business. No Elvis. No Beatles. Taylor Swift might have still won album of the year this year but with lower numbers.


If I came to you with a business proposition and I told you that consumers can't get enough of that which I produce, I'll bet you'd listen to my idea attentively. Well, the record industry has a product hardly anyone dislikes (music). They are enamored of the performers, their lives and their back stories. Consumers seemingly can't get enough of it.

The music business is a hands down winner.

But not how it is presently configured by record label execs.

Labels are looking for money in all the wrong places. Licensing deals with MySpace to generate revenue from advertising. Licensing their music for YouTube, Google and others. Monthly subscription plans for all-you-can-eat music access. Variable pricing of iTunes music -- just what consumers need to remind them that free is better.

Fighting piracy was a mistake -- I mean, is a mistake.

In some European countries where tough laws force ISPs to crack down on piracy, the federation that oversees this jihad admits that over 95% of all downloaded music there is still pirated.

As we discussed at my recent Media Solutions Lab, the next ten years are going to be painful. But no pain, no gain. It is no longer acceptable to try to run a traditional media business at this time of great change.

Music is like a drug -- and the labels need to find a way to feed the addiction.

Let me put it like this.

1. If labels could think of pirated music as the new age equivalent of free radio (that is, a way to expose music, groups, artists) then they are off and running.

2. Then if labels are willing to find new ways acceptable to consumers (not to them) to make music monetizable, there is a revenue potential. Holding out for monthly subscription plans and the pipe dream that ISPs will one day charge each and every customer $5 a month to access every piece of music recorded in time is a delusion.

3. Spend all available time and money on discovery -- go out and discover more acts, new acts, new singers, writers, producers. Open new genres. Make it easy for fans to discover music. Feed the addiction.

4. If the radio industry will not do it, labels should make experts available to "preview" new music in ways that will be reminiscent of old time disc jockeys except today's music experts will be in the palm of consumers' hands or plugged directly into consumers ears.

5. Don't try to kill radio off by taxing it further. Radio stations still expose a lot of record label music for free.

6. Cut the fees for webcasters. If you want to jump start the future, enable it by helping not hurting universal exposure to your products. I'd come up with licenses that were so reasonable that everyone could afford one. In other words, stimulate the growth of webcasting.

7. Come up with a similar and fair system to stimulate the use of podcasting to expose music. More fees but reasonable ones meaning that thousands of ex-radio djs who want to take to podcasting can pay an affordable blanket rate to expose your music.

How can something like music be so popular and at the same time so unable to spark revenue growth?

The answer is as old as the term gramophone, an old fashioned record player, from which the term "Grammys" is derived.

It's not that the record industry needs to go back to Thriller, Bruce or Prince.

Quite the opposite.

There is plenty of talent out there now for a new generation and more trying to get in.

It's that the record industry needs to look ahead to the future -- finding ways to deliver and satisfy consumers who still crave music instead of hanging on to a manufacturer's mentality in the age of digital media.

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