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Comments by EMI Chairman Alain Levy

November 1, 2006

vcmike

I got my hands on remarks the Chairman of EMI Music, Alain Levy, gave at the London School of Business on Friday.

He actually gets a bunch of things right, like consumers being in control, the value of media brands and filters, that consumers are now producers, etc…

But he also gets alot wrong, in my view, like the assertion that major media companies, and the music companies in particular, are in the best position to win in the new digital world. I couldn’t disagree more.

But, nonetheless, I found his comments a good read. Here they are.

(Apologies for the length. Not my speech).

LBS London Media Summit 2006

Alain Levy

 

Digital music and how the consumer became king

 

 

Throughout the creative industries, from music to film, entertainment, advertising and publishing, content is being sliced and diced, long-tailed and pod-casted, playlisted and shared, personalised and downloaded ….. and that’s just before breakfast!   The digital revolution is truly upon us.

 

From where we are now, it is hard to believe that ten years ago the music industry was functioning, as it had always historically, in a purely physical environment.  Then came the internet and file sharing technology. The music industry was the first of the entertainment industries to be hit square between the eyes by digital disruption.  It was a big challenge to turn a business that had been a juggernaut in the physical world and only ever had one business model, into one that could successfully face the unknowns of the digital future. 

 

But face it we did. Now, only a few years later, digital is no longer a disruption but the bright future of our industry.  Over 10% of music revenue worldwide is now in the digital format and we predict digital will account for around 25% of EMI’s revenue by 2010.  That’s a hell of a change in a very short time.

 

The growth numbers of digital downloads, subscription services, search engines and online community friends are hugely exciting but let’s not forget what is at the core of this growth – the consumer.  Whatever language we use to describe the internet, whether Web 1.0 or 2.0, the heartbeat of the internet has always been and remains its ability to leverage social connections and give the consumer a voice.  Technology and new business models in the last few years have simplified those connections and given music fans a much louder voice.  Digital has brought us closer to the people who buy music and has facilitated a new age of empowerment.  Power is shifting everywhere from manufacturers, content providers and retailers to consumers.  In the age of empowerment the consumer is king.

 

In the same way that the internet has heralded a boom in the consumption of news, so more music is being consumed than ever before.  Fans want music their way, not the way that content owners dictate – they want to listen to and experience any music, in any form, at any time and in any place.  Today the consumer seeks choice.  They choose the format, be it ringtunes, ringbacks, single downloads, album downloads, streams, videos or CDs. And they choose where to buy it from a vastly increased selection – a la carte downloads from iTunes, streams from My Space, videos from Yahoo! Music, CDs from HMV or Amazon or all you can eat from subscription services like Napster.   What does that mean for us as content providers?  We have to be EVERYWHERE.  This slide shows how our business used to be and where it is today – we are everywhere.  

 

The consumer is now a creator, producer and distributor too….the digital boom has accelerated the proliferation of user generated content.  Music fans want to create their own new content – whether it be an undiscovered band creating a MySpace page, a young amateur film maker putting their video onto You Tube or Current TV or citizen journalists posting their stories on Ohmynews.com or BBC.com.  Consumers also want to be the first to discover content and use the online social connections to share those with their friends – in other words distribute and market the content.  Clearly, the creative garden just got a lot bigger….. 

 

 

So what is considered compelling content in this environment bursting with creativity?  Who will be the content winners?

 

The definition of content has changed.  We are moving from a packaged to a non packaged world.  It’s not just about discs in plastic covered cases or pages of print any more – the consumer can now pull down content in the format and bite size he or she wants.  And at the same time the market is expanding to include user generated content environment. So, less formally packaged content, and more people getting involved in the creation process – does that mean the demise of the media company? 

 

I don’t think so. There will always be demand for compelling content, whatever its source.  Compelling content has two components.  In terms of the music it means talented artists, with long term career potential who can mature and develop throughout their creative lives.  But the music alone is not enough. For content to be truly compelling, it must be delivered to the consumer in the format they want.  There is no point in pushing a CD at a 12 year old, regardless of the quality of the band, if he wants a digital bundle of two singles and a video, or will sit through an advert to get the track for free on a service such as SpiralFrog. 

 

Traditional media companies are ideally positioned to deliver on this obvious consumer demand for compelling content in the way they want it.  We know from research that consumers today are overwhelmed.  I challenge you to spend a day on YouTube or MySpace and find a relatively unknown band that you really like – it’s difficult to sort through.  Consumers are looking for filters, and they look to the likes of Google, The Times or indeed music charts to provide either guidance or a stamp of quality and authenticity.  Music companies are an important part of this filtering process. 

 

For example, let’s take a realistic look at this much publicised notion that the majority of artists will decide to go it alone in the digital world, dispensing with record companies completely.  We are now 18 months into the surge in user generated content, and a technology base that eases distribution of music.  And how many self made stars have we actually seen?  Hardly any. If we look at the so called “stars of My Space”, the acts that have made it form a tiny percentage of the total content out there for all to see.  But did those bands really do it on their own anyway?  There is no doubt that the Artic Monkeys – the poster children of the MySpace generation – cleverly used the promotional muscle of the online community as a launch pad for their career.  And they are a quality band with real talent and rose to the top quickly and deservedly. They used their influence online to win them a record deal to take their career to the next level on a global scale.  They knew that to enjoy a record breaking album chart debut they needed a record company behind them to distribute the record in a physical and digital world, market their product worldwide and make sure that all aspects of their brand are utilised and most importantly that they are given the musical support to continue to develop as artists. 

Our own Lily Allen from the UK and OK Go from the US are two interesting case studies.  The consumer at large perceives these two acts as stars plucked from obscurity by the consumer vote…but were they really?  Lily Allen was signed to our Parlophone record label well before she became a MySpace phenomenon.  Her rise in the online community is as a result of hard work from both the artist, who authors her own engaging vibrant blogs, and the label.  The online efforts expand way beyond MySpace to the first ever loyalty mobile WAP fan club, viral mash up tools and a deal with MSN Messenger. 

Similarly OK Go! the US band that has had a massive 7 million views of its “Here It Goes Again” video on YouTube was signed to Capitol records over 4 years ago.  For the last 4 years, without interruption between products, Capitol has been distributing a constant stream of unique, digital-centric content created by the band. Their famous treadmill video may have been the tipping point for this unique collaboration between band and label, but it was just one in a long series of digital tools. 

The consumer is not single handedly picking the winners and hits in the music world but they have an increased and vital role, of that there is no doubt. The music companies, dismissed as dinosaurs, also continue to reinvent themselves to harness the power of the consumer by understanding that the internet has changed the face of promotion.  Radio airplay used to be the taste maker. Now the windows have shifted and the online world starts the first buzz, with music companies giving fans the tools to discover and promote their favourite bands. 

The new digital consumer has impacted every area of our creative process – they have changed the way we source, present and market our content in every way. 

 

For example, artists and repertoire or A&R, our function responsible for finding and developing new talent, has moved to the online world.  Just this week, our UK label Parlophone announced the death of the demo tape by launching an online demo submission service.  A&R is not just about scouting in smoky bars and clubs around the country any more – it’s about scouting online, trawling consumer created content sites, such as MySpace and Bebo, to find our next signing.  These communities are the places for aspiring artists to showcase or demo their sounds, and we have the added benefit that the consumer is right there with us during the discovery process voting on an artist’s popularity by virtue of their clicks.  But while the consumer can give us a hint as to who they see as the potential winners, more often than not an artist’s success is based on traditional A&R unlocking a creative vision and the true potential of the artist.  The implication of the online world is that we are now picking up artists who are slightly more mature in terms of development and the strength of their online fan base.  And of course, this only helps the artist in terms of his leverage with record labels.

 

In the consumer driven world of online, marketing has moved from push to pull or as the marketers say from one to many to one to one to many.  In other words consumers are now the marketers and distributors of content too.  The consumer today does not want to be preached to and is looking for ‘authenticity’.  EMI Music regularly provides the consumer with marketing assets like banners, images and video and audio free samples to encourage them to promote their favourite band.  30 Seconds to Mars, one of our break out bands in the US this year, is a great example of this.  Virgin Records effectively recruited a digital promotion team from the ranks of the 30 Seconds to Mars online fan base. That group of extremely committed fans can be largely credited with the viral spread of the band’s video stream online, which in turn resulted in an MTV 2 VMA award and their album climbing the US charts.  Equally, allowing the consumer to become part of the creative process – whether mashing-up a Lily Allen track or designing the album cover for Janet Jackson’s new album, greatly helps build the profile of the artist – both online and in traditional media.  As you can see, it’s all about embracing and encouraging consumer involvement.  And recognising that our content will be used to create more content.

 

Unsurprisingly in this changing world, EMI Music has undergone a huge shift in culture to ensure that we are now placing even greater emphasis on the consumer. Where once our key focus was on the Tower Records and Virgin Megastores of this world, now all staff are keenly focused on the end consumer, and ensuring that we remain connected to the fans and their ever-changing demands. And this means embracing new trends and not fearing them.

 

What is clear is that in this digital environment, consumer foresight drives innovation and growth.  YouTube foresaw the consumer demand to upload, watch and share video in bite size pieces, who knows what the next YouTube will be.  It is getting more and more difficult to predict the next product or service to gain rapid traction with consumers.  The empowered consumer himself doesn’t even know because they need to live and experiment with the product or service first.  That is why we are living in a world of beta tested products and services waiting for consumer traffic.  For us this means it is increasingly difficult to forecast our mix of digital revenue.  So we must be increasingly flexible, collaborative and open to the outside world – this has fundamentally changed our way of operating.  In this day and age closed media companies will quite simply die. 

 

The music industry and indeed all media companies have to become more open to innovation and proactive rather than defensive.  Certainly music companies have historically been great innovators in terms of discovering new music and genres and bringing them to the public.  But they had had little exposure to change triggered by technology.  Nowadays innovation extends beyond the mystique of the A&R and marketing departments and is central to everything we do and every area of our business.  We have become true sponsors and facilitators of innovation – it has been and will continue to be a seismic change to our culture.

 

At EMI Music we are actively participating in trials of several new experimental business models. An example of this is our work with Rhythm New Media in the US, who are testing ad supported music videos on mobile phones, where the content is free to the end user in return for watching a targeted advert.  By participating in this trial we gain additional consumer intelligence and can then make an informed decision around whether this is a model that will work for us and for our artists.  Like the rest of our industry, we are in discussions with many businesses with new consumer proposals, and the ad supported free to consumer model is certainly one that has been attracting much press attention lately.  These models address the time rich, dollar poor consumers who are willing to watch several ads.   As sponsors of innovation we must support models that appeal to all different types of consumers in our world.

 

Our distinct advantage, as content owners, is that our content can be monetised and used on any platform – we can move with trends and always make sure our content is where the consumer is.  We must also accept that our content is used in multiple ways to create more consumer generated content.  At EMI Music we will remain committed to working with existing partners to develop new and exciting services for fans.  And my door, and those of my senior executives, will always be open to those entrepreneurs seeking support – whether through content licenses or indeed seed financing  – for clear business models that  will drive digital music forward. 

 

In conclusion, I believe that the content providers that listen to the consumer will drive compelling content and thrive.  If there were a media executive generated ‘most viewed’ list of trends in this new digital world we face, they would read as follows:

·         The consumer is totally empowered

·         We live in a world of beta products and services – consumers cannot pick the future winning digital products and services because they have to live with them first

·         Content is still king – let’s not get caught up in the idea that either there will be one ultimate winner be it consumer created or content owner.  The most important thing is to give the consumer choice and a deep connection with their favourite artists, and the music they love.

·         Content is being used to create more content – driven by the proliferation of user generated content.

·         Premium brands will always have the upper hand – whether that is Google, YouTube or Robbie Williams.  In a world of diversity and overwhelming choice – the consumer seeks filters and known and proven names.

·         Consumer foresight will drive innovation

 

 

The digital revolution has brought with it seismic shifts to our culture, operations and mindset – it may have been tough at first but there can be no doubt that with a flexible approach to innovation and consumer focus, it will become the best thing that ever happened to the media business – and to the consumer.

 

3 Comments

Post a comment
  1. November 17, 2006

    take a look at this company http://www.tamago.us
    I know htey are looking for investment, and are in talks now, maybe you can hook them up with Alain Levy.

  2. January 7, 2007

    A flexible approach is always paramount if you want your media business to survive.

  3. January 19, 2011

    It is graet to read like minded peoples work. Very informative and interesting. Thank you.

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