Commentary: Music Industry Lessons Don’t Apply to Video

When it comes to the opportunities and pitfalls of going digital, people often draw parallels between the music and video industries. The music industry’s failures are used as cautionary tale for what will happen to the video industry in the face of shifts in online media consumption. The conventional wisdom is that the digital media playbook has been written as a result of the music industry’s experiences on the Internet, and that the video industry should follow that playbook to avoid similar plight. While much of this rhetoric can be found on blogs and among consumers, I have also heard it among C-level executives at digital video technology companies. The notion that business decisions are being made, or even influenced, based on this generalization is well, perplexing.

The differences between these industries seem obvious to me, and lessons from one go only so far in applicability towards the other. Perhaps these differences are not as obvious to most. Having pursued careers in each of these industries, albeit at different times, I may be assuming too much about the obvious differences between the business of music and video. I hope to provide at least an outline here in order to make the case that the playbook for Internet video is yet to be written. The notion that Internet video will decimate the video industry the same way that it did the music industry is not only premature, but also unlikely.

Before I delve further into this topic, let me start with the caveat that case studies are a valid form of business situation analysis. One industry’s evolution and trends can also be applied across other industries for analysis. This is the basis of a lot of consulting and academic rigor. In fact, the auto industry holds good examples for myriad business issues that are regularly used to analyze other business situations given the auto industry’s breadth, complexity, and highly competitive dynamics. At the same time, case studies must be taken in context. If nothing else, let’s illustrate the context of the music and video industries here.

General Similarities
Let’s first talk about the similarities between the industries. Music and video long have been the two leading forms of entertainment. One may argue that video games belong in this coterie, but video games are a relatively recent phenomenon, so we’ll set them aside for a while. (Regardless, the business of video games has more in common with music than with video.) As consumers, we buy CDs, we buy DVDs; we can stream or download music and videos with the advent of the Internet and prevalence of broadband. As entertainment categories, music and video industries are characterized by celebrities and glamour. Together they comprise "show-biz" as we know it. While there’s no biz like show biz, show biz itself is not a homogenous business.

It is true that the Internet is a disruptive force in media. The Internet has and will continue to transform the music and video industries. What matters is the degree to which and the rate at which the digital media technologies will impact the industry, primarily regarding business models. When talking about music and video, these factors are disparate as day and night. Therefore, beyond the generalization that change is underway and consumers are turning to the Internet for media, using the music industry’s lessons to predict the outcome for the video industry is highly suspect. The Internet has transformed practically every industry, so it is no surprise that the video industry is adopting and adapting to the Internet. It is doing so, in fact, rather well. Bringing the music industry into the discussion is no more relevant than bringing the travel and leisure industry into the discussion.

Fundamental Differences
The biggest difference between video and music is that video industry economics are driven by the concept of "windowing." The video industry, on the other hand, has diverse revenue streams for any type of program. It is well-known that most prime time shows and movie releases do not recoup their investment during their initial runs—they rely on release windows, such as syndication, PPV/VoD, DVD sales and rentals, and so on, to generate future revenues. However, the initial use case models for video are far less prone to digital substitution than music. Opening weekends for movies and appointment television for prime time viewing are still very much part of our video consumption fabric.

One may argue that windowing represents an artificial barrier, and must fall by the wayside under the power of the Internet. That’s a topic of discussion in itself. Suffice it to say, however, that it is the fundamental difference in economics of the two industries today. In the absence of windowing, digital consumption directly hits the core business of music. Music is also a one trick pony as far as revenue streams are concerned. Barring a few evergreen acts, record labels need to sell a lot of albums very quickly upon release. Most albums are perishable products with short shelf live, and any siphoning off of this revenue hits the label’s top and bottom lines immediately.