Making Money in the Post-digital Music Industry

The record industry as it existed before the Internet is effectively dead, said David Goldberg, ’95, executive vice president of Ticketmaster. “The idea that we’re going to charge the consumer for recorded music is gone, done, and over,” Goldberg said during the distinguished alumni panel at the Inaugural Media and Entertainment Conference at Harper Center January 17. “Record companies need to migrate quickly to a model that is ad-supported, or to focus on what they’re good at – finding talent and then marketing it.”

More music has been recorded and offered for sale than ever before, but also more music has been sold than ever before in the form of singles and ring tones, he said. “Record companies can’t make money off it because it’s not full-length CDs,” Goldberg said. “Music is more a part of our lives now than ever before. How do you make money? The key is finding a model that works with the way consumers want the product.”

The newspaper industry faces a similar situation, in that the content it once distributed to consumers’ doorsteps is now widely syndicated and available on the internet, said Sean Smyth, ’05, director of marketing and development for Tribune Interactive. “A real conversation we’re having at the Tribune Company is, how do we acknowledge that?” Smyth said.

Among the possible alternative business models are allowing readers to choose the content in their daily newspapers or giving away newspapers and collecting revenue only from advertising, he said. “You need to create something, make it available for others, and then find the ways to make money off of it, possibly with the syndication of that content, using it as a branding principle,” Smyth said.

Digital media and entertainment create a “macro issue” for business models that were created in the analog age, said Sergei Kuharsky, ’88, general manager of the Food Network. “In a digital world you have to worry about how you get your content to be ubiquitous and then how you establish a revenue relationship in some way that makes sense without giving it away,” Kuharsky said.

Kuharsky worries about reaching a new generation of consumers, now under age 25, who expect free, immediate access to media and entertainment. “The cost of content production is escalating way faster than the revenue you can get from the existing models,” he said. “The real question this generation will have to ask is, ‘Do you really like user-generated content?’ because that’s what you will be able to have for free. There will be a loss of quality.”

The gaming industry’s business model is still evolving, just beginning to search for a balance of advertising revenue and consumer fees, said Paul Campbell, ’93, founder of Hewlett-Packard’s gaming division. “We’ve found that advertising in gaming has to be authentic and interactive to get the most ad dollars and subsidies,” Campbell said.

Another key advertising tool in gaming will be the formation of gaming portals for on-line distribution, he said. “Where there will be places to go on line to download your games, you will see a lot of advertising revenue being generated there,” Campbell said.

Michael Osanloo, ’96, a senior vice president of marketing at Harrah’s Entertainment, offered some “dos and don’ts” for students interested in working in media and entertainment. “The biggest pitfall I see is with MBAs who want to change the world in one year,” Osanloo said. “Avoid that sense of entitlement. The people who are most successful are those who have a passion and are down to earth. You’re all really smart, but do you play nice with the other kids in the sandbox? Can you get them to work with you?”

The student-led GSB Media and Entertainment Group chose the panelists to reflect a variety of industries and experience, said second-year student Jennifer Oldham, co-chair of the group. “One comment that resonated with me was how MBAs can distinguish themselves in their jobs,” Oldham said. “We are no longer the smartest people in the room. For almost 20 years, the GSB has had the LEAD program to hone those play-nice-with-other-kids skills.”

--Phil Rockrohr