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Record Executives Should Invest in Business School

Bloomberg is reporting that Warner Music Group CEO Edgar Bronfman told a federal jury that Limewire’s effect on their business was “devastating.”

While it’s true that file sharing sites such as Limewire and its predecessors have obliterated record sales, entertainment executives refuse to acknowledge the fact that the economy has changed. In traditional economic models, there are a few inputs into production: labor, capital, and technology. The output of these processes comes in the form of products and profits. The record industry traditionally controlled the only technology available to distribute music: records, tapes and CDs.

But when that all changed, it flipped the model on its head.  Now, everyone has the ability to transfer music that has been simplified into a series of compressed bytes. With the democratization of this process not only should more music be released, but we should be seeing a true renaissance in music with incredible artists being heard that might not have otherwise made it to the forefront.

Record companies should have pulled back from distribution and invested their money into artist development. They should have stopped trying to sell albums and instead given them away. They could have focused on making money through licensing music to films, television, jukeboxes, and cabs. People will still pay for the convenience of music, but not for music itself.

But that’s not what they did. Instead we’ve watched a decade of federal lawsuits. We’ve seen grandmothers brought before judges because their grandchildren downloaded a few songs off Grokster. The music industry has successfully taken one of the greatest technological opportunities for their business and turned it into an insurmountable challenge.

The only way to compete with free is to make it more convenient to pay for it. Until record executives realize this, they will continue to lose money, jobs and quality of product.

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