Memo to Lack: five ways to rescue the recording industry

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To: Andrew Lack,Chairman-CEO

Sony Music Entertainment

Dear Andy:

Congratulations on taking the top spot at Sony Music. Ignore the pundits, who say an outsider will never succeed in a business filled with "hit men." Given the music establishment's recent performance, a foreigner (especially one trained, like you, in the "planfully" bold culture of General Electric Co.) may be able to put exactly the right spin in the game.

To that end, before cramming on Nelly you might consider these R&D recommendations. One just might provide the kind of CNBC-level innovation the tune-trade needs.

Experiment with pricing. The CD is headed the way of vinyl and VHS. It may not disappear, but with burners, P2P software, iPods and online services becoming ubiquitous, the industry clearly won't be able to sustain the CD as the sole distribution form. All is not lost. When the film studios came to a similar point in the 1980s with the rise of pay cable and VCRs, they moved to a strategy of "windowing"-releasing product through distinct channels in a set sequence. It not only prepared Hollywood to adapt to such new vehicles as DVDs, it provided a financial windfall: U.S. film revenues grew from $2 billion in 1974 (the year before HBO popularized pay TV) to $33 billion in 1999.

Make KaZaa your friend-for research. Andy, if you haven't tried KaZaa, Limewire, or another peer-to-peer program, do it now. You'll notice something interesting: They not only allow you to illegally download music from peers; they also allow you to legally peer directly into their music collections. On a mass scale, that means it's possible to do consumer research that was unimaginable in the era of surveys and focus groups. With a bit of rocket science and a few clever algorithms, you can cross-reference peoples' music preferences in a way that will revolutionize target marketing, and dramatically improve the recording industry's marketing ROI.

Play with Playstation. Broadband media centers that combine video, audio, gaming, mass storage and broadband connectivity are the next big consumer device. In the battle shaping up among cable TV operators, set-top box producers, consumer-electronics companies and Microsoft Corp., Sony-the avatar of the "digital lifestyle"-has a slight lead. Develop an online music service for the next-generation Playstation. Hell, develop several! Then place a bet on the model that looks best.

Listen to your people. The business and entertainment press believes those who succeed in infotainment are divinely inspired moguls. Maybe that was true once, but in a networked economy, success derives from building and listening to a team, whose members become your eyes and ears to a larger world. The music business is still stuck in the mogul model. Coming from the more collaborative TV news business, you may find a more harmonious path. One recent guidebook I've enjoyed is "The Cycle of Leadership: How Great Leaders Teach Their Companies to Win," by Noel Tichy. A former guru at your old company, GE, Tichy has practical ideas about how to build "interactive teaching" into corporate processes in ways that can yield sustained benefits.

One last idea: More jazz. Yes, I know it might not be the next big thing. But it will make this old man very happy.

Regards, r2

Randall Rothenberg, an author and longtime journalist, is director of intellectual capital at consultancy Booz Allen Hamilton.

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