But there’s a deeper point here. When we manage stuff for short-term profitability, we often kill their long-run productivity. We stopped doing it to people a long time ago – now maybe it’s time we stopped doing to…lots of things.
It goes along nicely with the Freakonomics discussion on the future of the music industry. As I have heard numerous times from people who are in positions to know in the music industry, it’s failures have almost nothing to do with illegal downloading and everything to do with utter mismanagement.
Think about it, each year the album charts look like a long tail graph. The very, tip top of that peak are that year’s hits. But the meaty part–the mass–is old stuff. Or at least it was. The problem is that there isn’t any new “old stuff.” They call these catalog albums. For instance, Back in Black goes Gold about every 365 days. There is a factory in Sweden or Switzerland (I forget) and all it does is manufacture copies of Pink Floyd’s Dark Side of the Moon. But in ten years from now, Fall Out Boy probably won’t, just like the boy band CD’s of the late 90’s hardly move anything. And this was a purposeful decision by the powers that be. They decided to invest in short term profits instead of long term gains–and now that time way off in the distance is here. Before, the strategy was to finance the next generation off the previous. As in, The Beatles paid for Springsteen to struggle and find an audience. But when it switched to the approach that a band be self-sufficient from their debut forward, they lost the ability to develop talent. That was the tradeoff–immense profits from new acts in the 90’s, to huge losses today. Classic tortoise and the hare.
From what I’ve seen, the problems of the record industry are also structural. Otherwise, downloading systems like iTunes would have been extremely profitable. The .99 cent pricing is aimed at replicating the normal pricing of CDs (12 songs X $1= MSRP of a disc). In what other business would a producer get upset that technology suddenly came around and got rid of all their distribution costs and overhead? One that had a stake in those distribution “costs”. Due to the clusterfuckery of Hollywood finance, most labels were actually making money on transaction costs and things like jewel cases, shipping, and inserts. They’d deduct from the profits, say 15 cents for manufacturing costs of the case even though they owned the factory and it’d only cost them 10. That is instead of admitting their vertical intergratedness, they pretended it didn’t exist and pocketed a piece of the artist’s money each step of the way. So the point is that even if legal downloading had risen to meet the void left by falling CD sales, they’d still be running a loss because it’s just not as profitable. Well that’s not my fault and it’s certainly not your fault–it’s the product of bad business.
This is simply the inevitable route of ignoring the future for the present. It doesn’t come without consequences. The music industry isn’t going go away and band’s aren’t going to starve, but all the bad people–the ones that made these decisions–they’re going to be gotten rid off. Unfortunately, the people sided with them have to die too. It’s called Capitalism. When you ignore its rules or pretend that you’re above them, you’re eventually going to find yourself faced with the horrors of a Malthusian Catastrophe.
It probably goes without saying, but just about everything functions the same way. Are you going to invest in activities that benefit you today and today only, or ones that will pay off consistently? Is it worth it to get caught up in what is working now at the expense of not planning for the future. They say the best way to judge an employee’s value in a company is by the time horizon he is paid to consider. Power then, is found by saying no the positions that feel good now but have no longevity. At least…that’s my thinking.
Addition: There are some other interesting factors too. People used to listen to music in their cars, now people talk on their cell phones. People watch music vidoes late at night, now OnDemand makes it possible to watch prime time TV, whenever. People used to have to change formats and update their libraries every few years, but DRM free MP3’s don’t ever need to be replaced. You have to buy a new CD if you scratch or break it, but short of the firesale in Live Free or Die Hard, all my files are safe forever.