The music industry’s stunning turnaround and what SMEs can learn from it

If I hadn’t heard it from such a reliable source, I wouldn’t have believed it.

Trusted ABC and Business Spectator financial sage Alan Kohler told of a remarkable turnaround in the fortunes of an industry once thought to have gone the way of the (horse and) buggy industry 100 or so years earlier.

“The recorded music industry turns its first revenue growth (of 0.3%) since 1999 – albeit a slender one”.

The music industry? Not so long previously, the content basket-case being smashed by mavericks (read Napster et al) taking full advantage of the very technology that led to revolutionising its distribution channels – the internet?

The one that various technology commentators (no names no pack drill) were deriding as having a ‘dated and unsustainable business model’?

The one that investors were streaming away from just as music businesses were starting to discover new revenue streams, some of them, amongst other things, by streaming music online?

So what did the industry do to turn itself around and what can SME operators learn from such a recovery?

Here’s a few suggestions:

1. Don’t pick a fight you can’t win

As Harvey Norman and their retailer allies found not that long ago, you can’t fight the predominantly unregulated communications tsunami that is the internet. In their cases, the music industry spent tens of millions trying to preserve a world that was rapidly dying – that of the CD storage and distribution medium.

Of course it was never going to succeed. Consumers loved the immediacy and lower prices (if they choose to pay) digitally distributed music offered and if record companies didn’t dance to their tune, they would simply ignore them and get it free.

2. ‘Competitors’ may come from different industries

Interestingly, it took a monolith from outside its own industry to make the music industry sit up and take real notice. Whilst many within the industry were persistently beavering away trying to come up with a model that would please and appease the industry incumbents, it only took the decision of computer giant Apple to sashay into music hardware (iPod) and in turn retail (iTunes) to cut a swathe through the morass of ‘legacy’ distribution technology and dominate the retail market in little more than a few years.

No one felt this blindside more than traditional music retailers, who watched their customers and revenues evaporate virtually overnight – which segues perfectly into our next lesson.

Just an observation here before we do. It’s fair to say that the music industry can thank its lucky stars that Apple chose to be a friend rather than foe. If instead Apple had endorsed the free music sharing models many attempted to promote, we may well have seen a completely different – and devastating for them, music industry – or at least one that was decimated by enormous legal fees required to protect its intellectual property.

3. Focus on your core benefit, not its distribution technology

It’s something this blog has been banging on about since it started, and something marketing academic Theodore Levitt made famous more than 50 years ago.

We as smaller business operators must absolutely avoid restricting ourselves to vulnerable distribution technologies. In the case studies he highlighted, it was railroads and buggy whips amongst others that suffered from technological developments, instead of the ‘transportation’ benefit they both delivered.

He argued that had they focused on this core benefit rather than its then current technologies, their providers would have respectively seen airlines and cars emerging as the new guard, and adapted their capabilities accordingly.

Similarly, had the music industry not been so defensive of unsustainable CDs, they could have led the charge of digital distribution instead of have an outsider come in and steal their thunder.

Music no Robinson Crusoe

For traditional retailers, it’s online retailers. For Yellow Pages, it’s Google. For newspapers, it’s news websites and social media and so on.

What competitors are you giving a free ride by not keeping up with changes in the way your product is delivered or marketed?

What’s around the corner for you?

Whilst it’s taken 14 years to learn these lessons, the music industry has slowly adapted to – and finally profited from what was once its biggest threat.

How do fundamental changes in technology affect your business? And how are you going to respond to those changes?

And do recognise the core customer benefit of what you are providing rather than its current distribution and/or marketing technology?

If you don’t, you may need to reassess your position before it’s too late.

In addition to being a leading eBusiness educator to the smaller business sector, Craig Reardon is the founder and director of independent web services firm The E Team, which was established to address the special website and web marketing needs of SMEs in Melbourne and beyond.