Tag Archives: business

Record Label Demands on Music Streaming Services

New and potentially disruptive music streaming services are having a hard time breaking into the market, with many analysts blaming their business models and others blaming the contractual demands from labels for the troubles encountered. There are also complaints about the royalties paid to artists and poor revenues of existing services.

Michael Robertson–founder of MP3Tunes and MP3.com–attempts to lift the veil on the industry by looking at some of the (you could safely say “unreasonable”) contractual demands placed on music streaming services by record labels:

General deal structure: Pay the largest of A) Pro-rata share of minimum of $X per subscriber, B) Per-play costs at $Y per play, C) Z percent of total company revenue, regardless of other business areas.

Labels receive equity stake: Not only do labels get to set the price on the service, they also get partial ownership of the company.

Up front (and/or minimum) payments: Means large amounts of cash are necessary to even get into the game. […] This further stifles innovation in services and business models.

Detailed reporting, including monthly play counts: Providing additional reports unrelated to payment, including overall market share of sales in various categories. […] The labels effectively offload their business analysis (and the cost of such analysis) onto the music services.

Data normalization: Without standard naming conventions and canonical methods for referencing artist, tracks and albums, the services are left to try and match artist, track, album names provided by one label with those of another. It’s incredibly inefficient, as each service must undergo this process separately.

Publishing deals: Once you’ve signed deals with the labels, you then need to cut deals with the publishers. […] Although you may have the rights to stream from labels, you sometime can’t get the rights to stream from the publisher, or worse, even find the publisher.

Most favored nation: This is a deal term demanded by every major label that ensures the best terms provided to another label are available to it as well. This greatly constricts the ability to work out unique contractual terms and further limits business models.

Non-disclosure: This is the main reason music services, not the labels, have been getting heat from the artist community. Music services can’t defend against accusations about low artist payments because they pay the labels who don’t disclose what they’re paying to the artists.

It’s worth noting that while Michael Robertson is a trustworthy writer and likely to have access to people who know this information (if this isn’t first-hand information anyway), he’s also likely to harbour some resentment toward record labels from his business ventures. Still, even without a solid reference I felt that this was too interesting to just pass up.

The Demand for Product Obsolescence

Years ago (and still, for certain products) consumers decried the idea of planned product obsolescence in industrial design: the intentional engineering of products to have a limited useful life, such as with products produced with sealed-in batteries or fridges that will only function for seven years.

In recent years, however, the need for planned obsolescence has moved from the supply side to the demand side, with consumers themselves requiring that their gadgets don’t last so long that they become a burden: it’s desired functional obsolescence. Writing about the influence this has on our consumption habits, Rob Walker takes an interesting look at trends in product obsolescence and the rise of functional obsolescence as a demand-side phenomena rather than a supply-side one.

Consider that most ubiquitous gadget, the mobile phone. […] The typical American gets a new one every 18 months. […] The problem, if that’s the right word for it, is that new devices perform more functions, faster—and people, as a result, want them. […] The light-speed innovations in consumer electronics have turned many of us into serial replacers. A dealer in vintage home-entertainment equipment recently convinced me that it used to be possible to buy a top-notch stereo system that really would function admirably for decades. Imagine, by contrast, that tomorrow some company unveiled a cell phone guaranteed to last for 20 years. Who would genuinely want it? It’s not our devices that wear thin, it’s our patience with them.

The very real problem of electronic waste makes people like me hesitate to replace good-working-order possessions. Yet at the same time, we like to stay current with new technological innovations. So rather than provide evidence of some cynical corporate strategy, our gadgets’ minor malfunctions or disappointing features or unacceptably slow speeds largely provide an excuse to replace them—with a lighter laptop, a slimmer tablet, a clearer e-book reader. Obsolescence isn’t something companies are forcing on us. It’s progress, and it’s something we pretty much demand. As usual, the market gives us exactly what we want.

First Offers and Aggressive Offers: Optimal Negotiating Tactics

When negotiating ensure that you make the first offer and make sure it’s an aggressive one: this is almost always the optimal negotiation strategy. That’s the conclusion from a study looking at negotiation tactics and the anchoring effect (from the same researchers that discovered the optimal starting prices for negotiations and auctions).

One of the researchers gives a good overview of the study‘s findings in an article for Harvard Business School’s Working Knowledge that provides succinct negotiation tactics and reasons for why you should make the first offer. Topiccs include: when you should not make the first offer, how to counter first offers, how to construct a reasonable—yet aggressive—offer, how to protect yourself from the effects of anchoring, and more.

Some key points worth considering (in no particular order):

We might expect experts to be immune to the anchoring effect. Real estate agents, for example, should be able to resist the anchoring effects of a property’s list price because of their presumed skill at estimating property values. Testing this theory, [it is clear that] anchors affect the judgment of even those who think they are immune to such influence. But why?

Every item under negotiation (whether it’s a company or a car) has both positive and negative qualities—qualities that suggest a higher price and qualities that suggest a lower price. High anchors selectively direct our attention toward an item’s positive attributes; low anchors direct our attention to its flaws. […]

The probability of making a first offer is related to one’s confidence and sense of control at the bargaining table. Those who lack power, either due to a negotiation’s structure or a lack of available alternatives, are less inclined to make a first offer. Power and confidence result in better outcomes because they lead negotiators to make the first offer. In addition, the amount of the first offer affects the outcome, with more aggressive or extreme first offers leading to a better outcome for the person who made the offer. Initial offers better predict final settlement prices than subsequent concessionary behaviors do.

There is one situation in which making the first offer is not to your advantage: when the other side has much more information than you do about the item to be negotiated or about the relevant market or industry. […]

How extreme should your first offer be? My own research suggests that first offers should be quite aggressive but not absurdly so. Many negotiators fear that an aggressive first offer will scare or annoy the other side and perhaps even cause him to walk away in disgust. However, research shows that this fear is typically exaggerated. In fact, most negotiators make first offers that are not aggressive enough.

 

How not to screw up your career

Starting a career is daunting. Office politics, poor management and unchallenging work are issues that many of us will have to navigate in our jobs.

Ryan Holiday‘s advice to young careerists is cynical and pragmatic.

The point isn’t just to prove that you’re capable, but also that you’re sane. In fact, if you had to pick between the two, being well-adjusted the better one. You can teach people how to do things. You can’t make them normal. In other words, leave your crazy at home.

Have an exit strategy. Know how this all fits into your grand strategy, this is the Start-Up of You. But also have the easily explainable, non-threatening goal that you tell people so you can maneuver in peace. If you’re working at a management company, don’t tell everyone your goal is to be a stand up comedian. The grand strategy is just for you.

Most importantly, remember that you are not special. There were a million other kids on this path before you and there will be another million after. […] What will set you apart, what is rare, is humility, diligence and self-awareness.

Advice to a Young Man Hoping to Go Somewhere (Or Get Something From Someone Successful)

The Drinkers’ Bonus: Alcohol Intake and Increased Earnings

Drinking alcohol — and the increased social capital that it leads to — may not just be responsible for a possible increase in life span; it may increase your earnings, too.

In an analysis of both the General Social Survey and the published literature, researchers for the Reason Foundation show that alcohol drinkers earn, on average, 10% more than abstainers (pdf). This is known as the drinkers’ bonus.

Recent studies indicate that drinking and individual earnings are positively correlated. Instead of earning less money than nondrinkers, drinkers earn more. One explanation is that drinking improves physical health, which in turn affects earnings (Hamilton and Hamilton, 1997). We contend that there is an economic explanation. […]

Drinkers typically tend to be more social than abstainers. As Cook (1991) explained, drinking is a social activity, and one reason people drink is to be sociable. In the medical literature, Skog (1980) showed that moderate drinkers have the strongest social networks. Furthermore, Leifman et al. (1995) documented a negative relationship between social integration and abstinence. Whether abstainers choose not to be as social or whether organizers of social occasions involving drinking exclude abstainers is unclear. Abstainers may prefer to interact with other abstainers or less social people. Alternately, abstainers might not be invited to social gatherings, work-related or otherwise, because drinkers consider abstainers dull.

Corcoran et al. (1980), Montgomery (1991), and Putnam (2000) each made convincing cases that social networks are important for finding jobs and earning promotions. Montgomery (1991) explained that companies prefer acquaintances of employees because employees screen potential candidates and thereby reduce the cost of search. Approximately half the workers surveyed in the Panel Study of Income Dynamics found their job through friends or relatives, and one-third reported help from acquaintances in obtaining their job (Corcoran et al., 1980). Therefore, a person with more contacts will have more labor market options (Burt, 1997). Granovetter (1995) suggested that a large quantity of weak ties or friends-of-friends may be most important to garnering the best job offers.

Thus, if social drinking enables greater social networks, it will also increase earnings. In terms of search theory: the more one drinks, the more people one knows, and the more people one knows, the lower the marginal costs of search.

The study is packed full of excellent references to published studies (as you can tell from the above excerpt), so I suggest reading the accessible (and very short!) report. It’s also worth noting footnotes four and five, describing how this is just like all investments in capital, in that an optimal level exists: “you must drink more than 21 drinks per week to earn as little as a non-drinker”.

via @phila_lawyer