Music, software industries converge on business models
Warner Music Group has rediscovered the value in music discovery, and its business is thriving as a result. It's highly reminiscent of how open-source software works.
BusinessWeek takes a fascinating look at one player that is actually thriving in the troubled music industry: Warner Music Group.
Why is this interesting? Because it offers a useful foil to the software industry, and specifically open-source software.
While Warner's competitors have posted double-digit declines in their businesses, Warner has notched 5 percent growth:
How did [Warner CEO Edgar] Bronfman do it? He cut Warner's artist roster nearly 30 percent, ditching more than 50 acts that were no longer selling well. He refused to pay big bucks to keep the likes of Madonna and Nickelback out of rivals' hands. And he found some $300 million in annual cost savings. Result: Warner had more time and money to focus on new potential hitmakers.
Imagine that: the music industry actually doing what it's supposed to do--find and nurture new talent. Sure, everyone loves to hold onto a "monopoly" like Madonna or The Eagles, but Warner is demonstrating the new economics of music (and software): you have to innovate if you want to survive. You can't rest your laurels on old artists, or old software.
One Slashdot commentator recently anguished whether open source drives software pricing to zero, not understanding that this is the natural effect of free markets. This is why open-source subscriptions are so important to customers, as Red Hat notes (PDF): open-source subscriptions require constant innovation from the vendor in order to justify customer payments.
See the link? Warner's Bronfman is focused on helping find new talent for customers to enjoy. He realizes that he can't find one or two successful acts and milk them for eternity. Warner's model is music discovery, and people are willing to pay for that in part because they don't know how to pirate new acts of which they've never heard. Sure, people will start ripping off Warner once it has created new stars in the music industry, but by then Bronfman will likely have sold off the rights and moved on to other new acts.
In a similar manner, one of the primary values that Red Hat, in particular, provides the enterprise is open-source software discovery. Enterprises trust Red Hat to find and deliver the best in open-source software. Red Hat can and should be doing much more in this area, as today it only works in the operating system and middleware layers, but it's working on improving its value as a "software discovery mechanism" for the enterprise. Stay tuned.
It's not the easy money of yesterday, but there's no point in pining for the "good ol' days" of software and music because the Web has largely destroyed those old monetization models. Warner understands this, as do the SaaS and open-source providers. Do you?