Mavericks At Work: Turning the Music Industry Inside-Out

This is a great story to be told. A story about how an entrepreneur with a vision can take a tired, failed business model in an ultra competitive industry and turn it into a profitable venture by blazing their own trail.

Meet Terry McBride. CEO and cofounder of Nettwerk Music Group, a midsize music management firm with mainstream acts such as Sarah McLachlan, Stereophonics, and Dido to name a few. While the company appears to be just another music management firm, McBride has bigger plans for the company and the music industry.

From an article on Wired.com, McBride shares his thoughts on the current state of the music industry:

Industry insiders like McBride think the old model is as antiquated as the 8-track. “The future of the business isn’t selling records,” McBride says. “It’s in selling music, in every form imaginable.” And by establishing a series of so-called artist-run labels, McBride is creating the next-gen music company. “We become the management company, the publishing company, and the record company rolled into one,” McBride says. “We take our 20 percent cut of the whole pie.”

The decline in CD sales and the rise in social networking and downloading music has created a failed business model for the music industry. Again, from Wired.com, author Jeff Howe writes:

The music industry is suffering. The major record labels – which rely on CDs for most of their revenue – are in decline. CD sales in the US have dropped more than 20 percent from a peak of $13.4 billion in 2000. But don’t be fooled: The market for music is thriving. With the rise of peer-to-peer networks, the iPod, and other digital technologies – plus a 100 percent jump in concert ticket sales since 1999 – the world is awash in music. The industry now has more sources of revenue – ringtones, concert tickets, license agreements with TV shows and videogames – than ever before.

Record labels have always been the center of gravity in the industry – the locus of power, ideas, and money. Labels discovered the talent, pushed the songs, and got the product on the air and into stores. The goal: move records, and later, CDs. “The labels were never in the business of selling music,” says David Kusek, vice president of Boston’s Berklee College of Music and coauthor of The Future of Music. “They were in the business of selling plastic discs.”

Having bands take control of their intellectual property by creating independent labels which then partner with Nettwerk Music Group, allows for a win-win for both parties. The bands are able to retain more from the sales of their albums and individual songs, and the management firm is able to retain more as well. This model also allows the artists to own their music and not get stuck with creating, writing, and performing the music and then having it turned over to a record label and losing the rights to performing the songs they poured their heart and soul into.

Change is Good

In an industry of giants, McBride and his firm have positioned themselves to carve out a niche and to challenge the music industry to adapt to what is happening in the market place. One of the other ideas that McBride has is to look at music and musicians from an investment banker’s perspective. Howe writes:

But even such a radical step is just one facet of McBride’s larger strategy. In May, President Bush signed into law a revision of the tax code that will make it easier to sell intellectual property as a stock, with profits being taxed at the same lower rate as other capital gains. “Once we have access to all the intellectual property, we’re going to offer shares in individual artists and take in equity investments,” McBride says. “Eventually, a major band could be its own public company.” The key, he adds, sounding like an overzealous investment banker, is that the value of a band would be measured like a stock and would receive capitalization in expectation of future earnings. “At that point, even a band selling 100,000 units a year becomes profitable,” McBride says.

So will it work? That is yet to be determined. However, just allowing the musicians and bands to take control of their assets opens up a whole new market and allows McBride and his creative team to experiment. This is a whole new ball game. Those who continue not to adapt and change will miss out on the next opportunity as the music industry evolves.

What are your thoughts on McBride’s ideas? Would you invest your money into bands that you thought would rise to the top of the charts?