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Erecting Barriers to P2P
By Eric de Fontenay (Founder & Publisher)
(more articles from this author)
2003-02-28
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While I've heard several industry insiders complain how decisions in major records labels are increasingly made by MBAs rather than those who understand & work with music daily, it seems those MBAs could use a stint of reeducation at the undergraduate level. At least, that was my impression as top business undergraduates challenged by USC's Marshall School of Business to solve the music industry's digital dilemma answered with the obvious: provide a better product more quickly and efficiently than your competitor that's also differentiated and provides added-value.

I'd like to add a contribution to the near-unanimous no-brainer by the "eighty business undergraduates representing 20 top schools from 13 countries and four continents" that "media publishers needed to break with traditional business models, embrace the new technologies and recognize that consumers want to customize the content they access." I believe that a key business strategy, especially for incumbents, in an increasingly growing & competitive marketplace characterized by technological change needs to be the creation of barriers to entry. A barrier to entry is either the leveraging of existing assets or investment in new assets that make it costly for competitors to enter and compete in a market. For the music industry, that barrier has traditionally been control over vast catalogues of works. In fact, the entire rational behind mega media mergers as well as copyright extension has been to clobber together and control ever-larger shares of the world's creative media, making it difficult for any new entrant to establish a beach-head in the market (but that's another topic).

P2P therefore attacks the music industry's core asset by making them widely and cheaply available, all under one roof - an alternative to the traditional barrier to entry has been created. And while providing an easier, more feature-rich and reliable delivery method may help stem the tide in favor of p2p systems, it is not clear that the industry can continually retain that advantage over those systems, nor that consumers' willingness to pay for a better service is likely to provide the same type of returns on actual control over their catalogues did. What the industry needs is a new barrier to entry and I would propose that they do have one in the creators themselves.

This is a theme that has been picked up in the video industry which, despite Jack Valenti, tends to always be ahead of the curve. We've been told that Blockbuster's latest angst can be traced to consumers' increasing preference to own versus rent DVDs. Considering that DVDs are not significantly cheaper than VHS tapes were, I would posit that the reason is that the DVD not longer offers viewers simply the movie, but a story of which the movie is only one piece. There is also the making of the movie, the director's vision, behind-the-scene takes,... almost anything that can connect the viewer with the movie from a set of entirely different perspectives. Ironically this also means tapping into an otherwise silent asset: the people involved in the creation of the work. Directors, actors, special-effect experts, make-up specialist, music director,... they all get a shot.

It is at least in part by replicating the DVD model that the music industry can begin to rebuild its barrier to entry and effectively compete with P2P.

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