Wednesday, March 28, 2007 6:29 AM
Over the last couple of months, I have run across numerous articles describing the woes facing the music industry. One of the most recent was a piece in the Wall Street Journal last week entitled Sales of Music, Long in Decline, Plunge Sharply (sub req'd):
In a dramatic acceleration of the seven-year sales decline that has battered the music industry, compact-disc sales for the first three months of this year plunged 20% from a year earlier, the latest sign of the seismic shift in the way consumers acquire music.
The sharp slide in sales of CDs, which still account for more than 85% of music sold, has far eclipsed the growth in sales of digital downloads, which were supposed to have been the industry's salvation.
The slide stems from the confluence of long-simmering factors that are now feeding off each other, including the demise of specialty music retailers like longtime music mecca Tower Records. About 800 music stores, including Tower's 89 locations, closed in 2006 alone.
Apple Inc.'s sale of around 100 million iPods shows that music remains a powerful force in the lives of consumers. But because of the Internet, those consumers have more ways to obtain music now than they did a decade ago, when walking into a store and buying it was the only option.
As I read this, I was struck by a couple of items. One, how quickly this downward, negative (for music companies) transformation occurred. Two, the lack of vision and innovative thinking by the established music industry companies in proactively adjusting their business model to meet changing consumer expectations.
Here's the thing. The music industry has been finding that digital music downloads are not increasing at a fast enough pace to replace declining CD sales. Beyond the growing reality that Apple, not a old line music company, is becoming the dominant force in dictating what is and is not popular via its iTunes portal, consumers (especially younger consumers) are not married to the idea of buying full CD's anymore, getting singles from a host of sources, including mp3 blogs, iTunes and file-share networks. Meanwhile, according to the WSJ article, even the remaining big sales volume producers are adjusting their models: with music sales sliding for the first time even at some big-box chains, Best Buy has been quietly reducing the floor space it dedicates to music, according to music-distribution executives.
The trendline appears to heading towards shrinking music sales, no matter the distribution model. Here is one conclusion from a music industry veteran as to CDs place in the future business models:
Jeff Rabhan, who manages artists and music producers including Jermaine Dupri, Kelis and Elliott Yamin, says CDs have become little more than advertisements for more-lucrative goods like concert tickets and T-shirts. "Sales are so down and so off that, as a manager, I look at a CD as part of the marketing of an artist, more than as an income stream," says Mr. Rabhan. "It's the vehicle that drives the tour, the merchandise, building the brand, and that's it. There's no money."
So, back closer to home, are there any parallels to what might happen in the legal vertical? I think the short answer is yes, with the lowest-hanging fruit being legal information. If you think about the heart of legal information, much of it is public in nature. Companies add value to this public information by repackaging it into easily discernible pieces and by cross-referencing and adding context and historical perspective. In the past, the barriers to entry have been fairly large as the public information was often buried or not easily accessible (which is still too often the case unfortunately). And, the cost of hiring professionals to repackage and otherwise add value to the information eliminated many would-be competitors before they even started. Finally, the consumers of the legal information had spent their formative years in libraries, doing research via physical books and without access to the web, framing their expectations for how legal information should be delivered.
Looking forward, I don't see any of these past realities staying the course. First, slowly, but surely, public information (from the government agency to the courthouse) is being made available electronically.
Second, the model of who adds value to that information is changing in a couple of ways. Initially, as Wolters Kluwer Chief Executive Officer Nancy McKinstry hinted in the company's most recent earnings call, big information providers are going to increasingly leverage global platforms, which may include having the 'add value' piece of information delivery performed offshore in lower cost locations. It is not unrealistic to expect that ultimately tasks like writing brief case summaries and similar 'add value' work being performed by legal professionals for legal information providers in the United States will be shifted to offshore lawyers in less expensive locales. Moreover, back here in the United States, the cost of entry is lower than ever for individuals and small information providers to take root. As we are seeing in these early days of the blawgosphere and focused microsites, subject matter experts are reviewing legal news, cases and information every day, filtering and otherwise adding value to it, and then giving it away for free. It may be the future competition for old line information providers won't be other large entities, but instead many thousands of small, focused informations providers nibbling away.
Finally, do any of us really thing the lawyers of tomorrow will have the same frame of reference for how legal information should be delivered and consumed? I have watched elementary school kids interacting in virtual worlds and seen six year olds boot up computers and bounce around the web without a second thought. A few minutes in any mall across America will open your eyes as to how younger generations are interacting and consuming information; times have changed, to say the least.
As the music industry has discovered, in the face of changing technologies and consumer expectations, old line business models become vulnerable. The old business models for the legal information industry may be transformed--for better or worse--sooner than we think.