OK, before I begin let me just reiterate one more time just why I keep going on about this any what experience / authority do I have in this area!
I have been working in the music area for almost 20 years - most of that right in the "coal face" within retail and watching very closely as digital arrived and then continuing this journey even now - where I am working with a very big retailer on their digital strategy and future in the entertainment arena. So I have seen, heard, witnessed and been involved in all aspects of the industry and have been saying for sometime now one specific thing:
The music longtail is flat, lifeless, over valued, over priced and over hyped within all areas of the industry, resellers and analysts that can only see the past and not understand the future - and that my friends is where we start - in the words of Victor Hugo (slightly edited for this blog...) "All the labels in the world cannot resist an idea whose time has come"
I have been talking about the Longtail for a while and why it has no perceived value in todays digital age! - Why should I make a statement like that? What gives me the right to make a statement like that?
I'll tell you - 10 long years - since the digital landscape has opened its doors to the masses - I heard nothing but the savior in the digital market place was the Longtail - you can now access over 5 million tracks - more than you can shake a muddy stick at - or more than you can possibly imagine! So we (being the retailers that I have worked for and worked with) tried in vain to expose, market, promote, market, push and squeeze every last ounce out of the longtail to show to users that, everything is here!!!!
We basked in the glory of being able to purchase individual tracks for 79p (or 99c) and albums were downloaded whenever we wanted them, but we (Gen X) already had the albums on CD - we ripped them in various formats (WMA, AAC, Lossless, MP3..) and walked with a new purpose and new iPod! We were not really interested in having a digital copy of Dark Side Of The Moon - as we already bowed to EMI's marketing and had 4 copies of it in various guises.
So what was noticed in the beginning was - SIZE MATTERS - so the bigger your catalogue then in theory the bigger your longtail, then the bigger your success! After years of working with various retailers, dealing with disillusioned labels who try to twist and negotiate their contracts with such vigor that you would think that the world revolves around their assets. Of course it does to them - it's their job - they have been told by their bosses and directors and company owners that based on the catalogue sales for the last 40 years - that there is a perceived high value of these assets. However time and time again we find that the catalogue size is really irrelevant as all you really need is the top 40,000 tracks that the downloaders in their masses download on a daily, weekly basis. That's why digital music only makes up a small % of the over all music sales - the mass market does not buy beyond the 40,000! Leaving the 4,960,000+ tracks to the minority who are willing to pay the current price for the back catalogue.
I was also challenged that the physical back catalogue is no longer up at the ridiculous £14.99 price point and that in fact most of the catalogue is now cheaper than it ever was...
Really??? Look at this example:
Beautiful South - Superbi - Released May 2006 - So not even deep catalogue really!
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- Amazon - £11.98
- HMV - £11.99 (RRP 16.99)
- Zavvi - £14.00 (RRP15.49)
- Play - £11.99 (RRP £15.49)
So now lets move forward to 2008 - I ask Universals Digital Commerce Director Francis Keeling - that the only way that to really stimulate the catalogue is to re-evaluate the price points of his catalogue - this of course was dismissed in that you can not sustain a business based on this type of pricing of the back catalogue - and that you would be hard pressed to find single disc CD album around the traditional higher price point!
Think that the above example justifies my argument. There are plenty more examples - but I'm not going to fill up my blog with examples of catalogue - I am a massive music buyer still and visit stores weekly and yes I can see a decrease in Chart and New Release albums - and I see a wealth of promotions, campaigns, sales where yes the price point is around £3.99 - of course - but these are tried and trusted titles that do the rounds all the time - remember I have been setting up CD campaigns since the late 80's - and see no real change in the titles that are being promoted.
The final justification of how overvalued the long tail really is and that now is the time to look at new business models - is the recent Sony buy out of BMG! Pali Research delivered a comprehensive study of the deal that was done for $1.2bn (£600M) - which started to highlight the actual value of the catalogue of labels. Especially Warners and my old friend Guy Hands at EMI.
Just on EMI just now - Terra Firma acquired EMI - which included both the recorded music and the lucrative publishing arm (although some of the cash cows in there are due to expire shortly!) last year for $6.4 bn (£3.2bn) - so based on this deal Guy has a long way to recoup this based on the EBITDA of EMI currently - helped only by a massive Coldplay album this year - but can they expect and hope for a Coldplay sized album every quarter??
Another point to the long tail and the over valuation is that according to our traditional statistics - The Rolling Stones is a jewel in the crown of the labels! So last year they grossed around $500m on their tour - however from the 24+ albums on back catalogue the figure was something in the region of 48,000 units! Not really a compelling story of "longtail" vs value and worth. Universal now own the catalogue and one would hope that it includes the publishing - as this will be where Universal can start to see some value in the catalogue in licensing the Stones' content out to movies, TV, adverts etc.. because the sales and value of the catalogue will only decrease - unless they have secured a 360 deal with Mick & co - but can't see the boys agreeing to that as they already know that this is their continued source of income - and no longer off their album sales.
The summary of this points to poor old Warner Music Group which based on the Sony | BMG sale now shows that they are in fact a negative valuation of their music catalogue! To be honest the egos involved back in the EMI / Warner merger years ago - should have realised that times were changing and it would be a survival of the fittest - and merged the two companies together to give them stability in 2008!
I started the Blog with the Hugo quote "All the labels in the world cannot resist an idea whose time has come" - I would say that time to stop looking at the past with those rose tinted glasses on - as the stark figures that surfaced based on this latest deal - has just confirmed what a few of us knew for a long time that things really do have to change!
At this stage - both EMI and Warners look like they are out of shape, out of money and almost out of time!