I reread an article about digital incursions into the music business in The Economist (30 Oct issue, the one that compared Bush and Kerry as the Incompetent versus the Incoherent...). Then I got thinking about how the music and the drug businesses at their core are quite alike...
Both the popular music recording business and the pharmaceutical industries have optimized their structures around large, highly profitable products and they've ignored other smaller profitable products. The Economist article noted that most of the record companies depend on artists that can generate sufficient profit to justify the existence of the business's distribution mechanism. Smaller artists traditionally haven't been able to bring in enough money to justify the promotion or the time to develop a smaller artist into a bigger one. Major record companies have frequently purchased independent record companies simply to gain access to an independent artist whose popularity is growing. The situation's similar in the pharmaceutical business where companies have optimized their distribution and advertising mechanisms around selling highly profitable drugs. Drug companies have grown through acquiring smaller companies with profitable products. Sometimes these acquisitions don't turn out well: Pfizer bought Pharmacia to gain access to Celebrex, but the Cox2 debacle has made that acquisition awfully costly in retrospect. (I'm a Pfizer shareholder, by the way.) The bigger businesses treat smaller businesses as their innovation centers; they don't do their own innovating internally.
Defending Intellectual property is key for both business. The lifespan of an individual track or album isn't as important as that of the artist's overall popularity. Record companies focus on developing a brand around an artist who is able to deliver consistent sales on new tracks. The drug business moves more defensively, focusing on extending patent protection for their drug properties to avoid needing to develop new products. In both cases, though, the longevity of the artist's brand for a record company or the durability of the drug's patent protection is key.
The Economist article points out that the record company malaise isn't shared by other parts of the music business. Artist tours are more profitable than ever, and big musical artists frequently make substantially more from live appearances than from sales of their recordings. An article in techdirt looks at musicians who are distributing music free from their websites along with information about upcoming tours - and setting up their own travel packages for fans from the sales of which the artist gets a cut. The free music then becomes a come-on for what the musicians really produce: a unique live experience that can't be duplicated or distributed digitally. "The more people are exposed to the music, the better it is for the band." The classical and jazz music business is different still, because these listeners don't view their music as disposable, so the underlying recording has a more durable value. One direct-to-consumer Internet classical company is ArtistLed, a company founded by cellist David Finckel and pianist Wu Han. They produce and market their recordings directly to the public, along with information about their upcoming appearances.
The analogy with the drug companies breaks down when we look at the impact of digital distribution on the music business. We probably need less direct-to-consumer interaction from drug companies, not more. But I'm left wondering if there might not be a possible analogy. There are lots of orphaned drugs, vaccines (remember the flu vaccine debacle...), and drugs for less common diseases that might just produce reliable profits if distributed and promoted in the right way. Might there be a place for a low-cost marketing system for these drugs that could produce profits for the company and benefits for the public? Just like the recording industry needs to rethink their massively expensive distribution and marketing systems, the drug companies might profitably pay some attention there as well.
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