Dear Lucian Grainge…

Dear Lucian Grainge and co,

Congratulations on your successful bid for EMI.  You are about to find yourself in charge of an unprecedentedly large share of the world’s music market.  Not so long ago, to have even imagined that regulators would countenance such a situation would have been fantasy.  But the world has changed, and I’m sure you’ll be glad that Prime Minister Monti will be too preoccupied with cleaning up Silvio Berlusconi’s mess to block another EMI acquisition (though time will soon tell whether Joaquín Almunia will be any more understanding, or indeed if he intends to carry on Neellie Kroes’s crusading).

For argument’s sake, let’s assume that the acquisition clears all regulatory hurdles and challenges.  You now control more than a third of the recorded music market.  And although some suggest that market share doesn’t matter anymore, I just don’t buy it.  In fact I think market share matters more than ever and I think you do to.  Of course, in pure business terms market share on its own means nothing.  Revenue pays the bills, not market share.  And yet, in the digital arena, market share takes on a whole new meaning. Because you and your label peers still exercise an effective monopoly of supply of content to digital services, whoever holds the largest market share holds the greatest degree of market control and can thus shape the market.

But you already know this because Universal was already the world’s largest label before the EMI acquisition and Universal exercised that dominant position to full effect.  I have to say, I think Universal has done so in a way which, on balance, has encouraged marketplace innovation.  Being the first to license to edgy services such as Spiral Frog, Comes With Music and – in principle at least – the stillborn Virgin Media unlimited MP3 service, saw Universal shoulder the risk of disruptive models.  You may have charged a premium in these situations for being the first major willing to take that risk, but you knew that your unique position as the world’s largest record label would – in most cases – led to the other majors coming on board.  (A fact that your licensee partners were banking on and were willing to pay that premium for.)

Now, as head of an even bigger ‘world’s biggest record label’ I’d love to watch you oversee a stepping-up of this approach.  And I’m not even too bothered about you charging a premium for being the first to license.  (Between you and I, that’s because I’m waiting for market dynamics to balance things out, for your bold licensing strategy to pull the rest of the marketplace with you, and to such an extent that all of the majors will be fighting to be the first to license to the next disruptive service.  So that nobody will be able to charge a premium for being first anymore.   I guess when it comes down to it, I’m hoping your exercising of seller-control will paradoxically create a buyers’ market.  But I can keep a secret if you can).

And while we’re talking, what I’d like to see less of, is using the justification of ‘risk mitigation’ as a means of stifling the market.  Yes, all majors demand big fat advances from digital services, and yes, it does a great job of separating the wheat from the chaff, of ensuring the market is driven by serious companies with serious scale.  But, as much as the prospect of the digital market evenly split between the Triple A of Apple, Amazon and Android may be more palatable to you than one in which Apple controls 75%+, you don’t really want that any more than I do. As pesky and unpredictable as those small disruptive start-ups can be, they are the ones which ultimately drive the quantum leaps in digital music progression.  If young start-ups have to commit the majority of their investment to label advances, that means that they will have so much less to spend on technology development and marketing.  Which of course means that you end up with safely secured digital income but no great new services driving the market forward.   Have you stopped to wonder why there has been a slowdown in licensed digital music services?  VCs are getting tired of financing non-starters.

Why am I firing this broadside at you when all of your major label peers are just as guilty?  Because now as head of the world’s biggest ever ‘world’s biggest record label’ I think it is only right that you start using your power to drive change across the entire market.  Your company has done so well in the digital arena by being bold, ambitious and, most importantly of all, by being innovative.  I’ve long held Universal up as the innovation standard for traditional media companies of all shapes and kinds.  But there comes a point at which that innovation must focus on providing the necessary conditions for driving innovation in the marketplace.

In short, I am asking you to continue to be a catalyst for innovation across the digital music marketplace, but also to resist succumbing to the conservatism and caution that your unprecedented market share will undoubtedly tempt you with.

Be bold, be brave, take risks (big risks) and most importantly of all, use your new power responsibly, don’t give the sceptics ammunition.  The digital music market needs Universal Music to continue to drive innovation not stagnation.

Good luck!

Kind regards

Mark Mulligan

3 thoughts on “Dear Lucian Grainge…

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