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By Bob Lefsetz
Lou Pearlman saw a structural hole in the music business. He foresaw a desire for cute, young boys singing melodic songs, dancing all the while.
Was anybody producing anything similar? Was melodic music dominating the charts?
No, as the nineties wore on, beats were the key. Rap was king. If you wanted to compete in the music business, you went into the rap business, after all, that's what radio wanted. And if you listen to anybody established in the business, you don't pour money into something radio doesn't want.
And U.S. radio didn't want the Backstreet Boys. What traction they got was overseas, singing the songs of foreign producers and writers. It was costing Lou Pearlman money.
Then suddenly, boy bands blew up. And Lou Pearlman made a fortune.
This was before Internet downloading. CDs were expensive. But the company kept the lion's share of the money, and you could sign wannabes for next to nothing. Good-looking boys with good voices were a dime a dozen.
In other words, how risky was Lou Pearlman's venture?
If you listen to anybody in the business today, they still say the same thing. That everything starts with radio. Sure, it costs you money, but radio reaches many people quickly. And it requires beats, that's the Top Forty radio sound, so you should make dance-oriented, bottom-heavy music.
But few of these beat-oriented acts do good road business. And the savviest know that most of today's revenue comes from the road. So, you should focus on what puts people in seats.
Jam band aficionados will tell you it's all about the players. Get some long-haired twentysomethings who can noodle and the college audience will find them, it's a sure thing. But there are two problems... One, the field is already populated with a throng of acts. Two, despite being established for forty years, most people aren't interested in jam band music. This doesn't mean that you can't make good dough improvising to a rock beat, it's just that it's not easy to break through the clutter, and it's almost impossible to become ubiquitous.
But there is a hole in the business today. Interestingly, it's analogous to the one Lou Pearlman saw a decade and a half ago. People want melodies, songs they can sing along with.
That's what separated the Backstreet Boys from New Kids On The Block. The material was good.
But as soon as Justin Timberlake grew up and went solo, he started making beat-driven music. Britney too. Why? Because the acts wanted to shed their adolescence, because they wanted to be hip, they wanted to be where everybody else was.
But if you make that music, you're dependent on hits. As big a star as Justin Timberlake is, he won't do much road business if he doesn't continue to release hits. Just talk to Mariah Carey. With hits, people want to see her, without them, not so much.
So what if we get together a group of good-looking people (that always helps.) And we have them sing melodic tunes. Even better, what if they write this material themselves, giving the act substance, allowing adulation to be more than skin deep?
Then we've got the Beatles. Yup, that was the formula.
And the Beatles sounded like nothing on the radio. But soon, the sound that dominated the radio before them disappeared.
Please read Malcolm Gladwell's article "The Sure Thing" in this week's "New Yorker" (January 18, 2010). In it, he debunks the myth of entrepreneurship. Entrepreneurs are not big risk-takers, they're very conservative, but they exploit the structural holes to achieve success.
Gladwell references a book by two French authors, "From Predators To Icons: Exposing the Myth of the Business Hero".
I first encountered this book in a "BusinessWeek" review (http://www.businessweek.com/magazine/content/09_52/b4161107212914.htm)
This is the key element:
"Captains of industry get ahead not by means of productive risk-taking and innovation, Villette and Vuillermot argue, but by 'predation': ruthless exploitation of market imperfections and rivals. The distinction between 'good bosses' and 'crooked bosses' is a fiction perpetrated by corporate propagandists. 'The businessman spends his time getting around the laws and ordinary conceptions of morality.'"
I know a lot of rich people. They didn't accumulate their wealth by being nice.
Oh, there are exceptions, artists in particular. But show me a man with a hundred million bucks, and I'll show you a scumbag. At least someone who bends the rules, someone whose actions would horrify the hoi polloi.
You don't get rich by accident. But we don't want to scratch the surface too deeply, because we can't handle the truth. Those we revere...if you knew the details, you'd love them no more.
So, having a eureka moment, thinking I'd finally found a book that stated what I believed, I continued reading the review. Which trashed the book. Because, after all, aren't CEOs heroes? Aren't they entitled to that incredible compensation?
Yes, according to "BusinessWeek". The opposite would be too much to swallow. Like finding out Milli Vanilli didn't play on their records. Or Jimmy Page played lead guitar on many British Invasion hits.
But Gladwell is on the same team as the French. He thinks they've got it right. That American CEOs are overpaid to take risks which rarely pan out. You'd be better off investing with the well-financed entrepreneur, who is much more conservative.
Explain Warner Music's investments in Bulldog and LaLa to me. Both disasters. The first predicated on an unproven theory, that the wealthy will overpay to be one of a thousand up close and personal...hell, isn't a thousand too many to be up close and personal? The latter on the fact that people not in the music business can figure out an online distribution platform, even though they've got no experience. Both were losing propositions.
Contrast that with Spotify.
Spotify sees a looming disaster. The day that CD sales fall through the floor and the labels are looking for alternative revenue. By raising a boatload of cash, and furthermore signing the labels on as partners, Spotify can hold on, until its time comes.
That's what John Paulson did. The hedge-fund manager who made four billion dollars in 2007, betting against mortgages. He made more billions in 2008. Everybody said houses only increase in value. But Paulson's research said otherwise.
Every day I get e-mail from people saying they've solved the music industry's online distribution problem. I laugh. They've got no money and no rights, and without both, you've got nothing.
Look at it this way. Rykodisc was successful because it had CD manufacturing capabilities when almost no one did. They released atmospheric CDs, almost anything with sound sold in the CD boom of the mid-eighties.
Razor & Tie. Kidz Bop was and still is a license to print money. Get regular kids, not pros, to sing the hits of the day... Production costs, almost zilch. Market via TV and you've got a juggernaut.
Isn't it interesting that both of these companies were independents (and in the case of Razor & Tie, still is).
If you talk to the owners of Razor & Tie, you'll see that they're risk-averse. They won't pay more, they'll pay less. They realize they're giving you an opportunity. But they specialize in creating their own opportunities.
Everybody is watching the major labels. Why? Their success was built on controlling the distribution pipeline, but that monopoly's been broken. As for banking on radio, "bank" is the appropriate word. They spend a fortune for very little in return.
As for competing with Front Line?
Irving doesn't want to pay for developing acts, he wants established acts. Meaning the new music field is almost completely open to entrepreneurs. Irving will claim otherwise, but find anybody over thirty in this business and first they look at the purse, they want to see how much money they can make quickly. Hell, this is how the major labels got into trouble, by focusing on today, not tomorrow.
AEG competes with Live Nation by paying a fortune for guaranteed sellers. Phil Anschutz has got a deep pocket and he doesn't have the struggling real estate and clubs of Live Nation. AEG found a hole and is riding to success right through it.
There are a lot of holes in the music business. A hole is something you see that the mainstream does not. If you want respect, if you want instant accolades, entrepreneurship is not the right road. You're betting against the mainstream. But the mainstream is so calcified in the music world that the landscape is ripe for innovation.
Michael Rapino says his club business stinks. But maybe you can figure out a way to grow the club business, and leverage that.
But your best avenue is to come up with hit music. It's the cheapest way. And hooky, melodic songs sung by people with good voices never go out of style. That's the huge hole in the music business today. Exploit it.
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