HITS Daily Double


Writes, Actually, About the State of the Business in Financial Times Piece
Jorgen Larsen, Chairman/CEO of Universal Music Group’s International division, is bullish about the future of the business.

In a piece written for the Financial Times’ "Next Waves" feature, the veteran exec says that the Internet, while causing untold headaches in the business due to piracy, “also represents the greatest silver lining in our 100-year history.” As he sees it, once legitimate alternatives such as iTunes, Napster and cell-phone services such as T-Mobile’s recently unveiled EarPhones download-to-phone system are able to offer all music and gain a serious foothold around the world, the market for recorded music could actually double in size—and it could happen within five years.

While some might scoff at Larsen’s seemingly wide-eyed optimism, he is adamant that if record companies stick to their core business, which is “to build the strongest possible artist rosters and make incredibly good recordings that people want to buy in whichever form suits them best,” they will survive and thrive. In Larsen’s view, it’s best now to leave distribution to the Internet, cable and phone companies that will control an increasing percentage of distribution via digital means. For that reason, he says, “criticism that we slept through the Internet revolution is misplaced.”

In an attempt to explain the record companies’ position on peer-to-peer file sharing (“or, as we see it, stealing”), Larsen invokes an unusual analogy, or as he calls it, “a business case study”:

Mr. Dim owns a fairground, where his main source of income comes from swings, which he keeps well-oiled, clean and secure. Mr. Shady persuades the local council to finance a free playground next to Dim’s lot, which soon attracts youthful customers. Shady monetises his traffic flow by selling sex magazines and drug-laced sweets to the kids.

Mr. Knowall, a journalist, regularly writes about this competition. His sympathy is clearly with Shady for providing a free service and he repeatedly berates Dim in writing, not only for being a ‘fat cat,’ but also for not having ‘embraced the new business model.’ Knowall thinks Dim should give away all the rides on his swings and find other unspecified ways of making money. Dim doesn’t know how he would maintain his swings and pay his staff if he were to follow this unsolicited advice."

With that cleared up, Larsen focuses on the bright side: The proliferation of wireless technology will move music software such as iTunes onto cell phones, encouraging even greater consumption of music; the liberation of music from its traditional “sound carrier” will allow artists to make albums without consideration of the sound carrier’s capacity limitations, since the Internet has none.

The Internet’s ability to “stock” more recordings than any physical store allows consumers more access to buy, Larsen says, offering an interesting statistic: “In the short time that legal online music services have existed, people have been buying older recordings in a 70/30 ration compared with new titles—an inversion of the ratio in physical sound-carrier sales. That may reflect the current demographics of online consumer: affluent, time-poor 24-to-40-year-olds. Yet, how all consumers act when they have greater range, choice and convenience than before may surprise us.”

There’s still a fight ahead, of course, and Larsen issues a call to action: “We cannot compete with an inelastic supply of music a zero retail cost, which is what online piracy is. There should be more awareness of this conflict by governments, and more support for our efforts to combat the problem.”

Ultimately, however, he sees the fight being won: “We continue to make music, but have graduated from piano rolls via six other carriers to electronic distribution,” he writes. “And we’re still standing.”