Thursday, January 15, 2004

Geez, wasn't it just yesterday that I was saying the existing industry structure would collapse? I didn't know my blog could be so powerful after just one post ;)

Warner Music Warns of 'Significant Restructuring'

This isn't the first time a music company has signaled the hatchet man, but usually he comes around after a merger or after a bad quarter, as happened at Warner less than a year ago. This time the company is just changing hands. Bronfman is no idiot, nor is he flippant about cutting more jobs from a company that already went through the wringer to make it attractive to buyers. He clearly bought the company with the intention of gutting it. Why? Because it was the only way to make it viable.

Many analysts suggest that the survival of record labels this year will depend on more mergers, acquisitions, and restructurings. That's a good strategy for increasing margins in the short term, but not a good way to grow a business. What's missing from this analysis is how to increase the productivity of the remaining people. Otherwise, the company is just prolonging the agony of dissolution.

There is one line of argument that says "if you can fire these people now, what were they doing there before?" That's a fair question. It suggests that either the company was fat before or the company is too thin now (neither is a good thing). I think the more important question is "what are the people you keep going to do now?"

If they keep on with the same way of working, Warner will just be a smaller company (even of the remaining people are on average more talented than the laid-off people). They will only have the hands to properly release half the records they released last year. In a hits business, this seriously spoils your chances at success.

Maybe Bronfman has some special sauce up his sleeve and I wish him the best of luck - if only because I have friends who work at Warner. My advice would be to find a way to release double the records next year even with fewer people. In fact, I've got a few ideas on how he can do it, but I'll save those for later.

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