Record Labels Innovation

So the labels were just thinking of ways of capturing some margin from this piracy and the explosion in people listening to music online?

Right; get it out of the way. Even in that time, CDs were what we did. If we can get the piracy to go down, maybe the markets will start to stabilize and we can make money again.

You thought the CDs and the physical distribution may stop declining or even come back?

Yes. What was interesting, at the same time, was that Apple was in their world, which was digital downloads, selling digital downloads, as opposed to a subscription model, they fought absolutely tooth and nail on this model. They were clearly the leader, by far, in the digital download world. They became much more conservative about technology and where to go, because they had a really good thing going. They had a very good deal and Steve wanted to have it where you pay $1 a song, effectively; that was the proposition and Steve keeps $0.50. Actually, more than $0.50, by the way.

How did you feel about that?

If you think about what the economics of a record company is, that doesn’t really work very well. But it works better than not selling anything. The Spotify model started to get a hold and it expanded to other territories. That’s the way the world went. That didn’t really get into the place where we see it today, with a variety of alternative subscription models, subscription services, but I would remind everybody that, today, you still have 40% of the worldwide revenue of the record industry, in hard goods.

How do you think about that? Do you think there is a floor to the physical distribution?

If you look at the world, you’re talking about volume here, not value. It’s about where are each of the territories out there, in this environment? If you’re in India, think about the infrastructure you have to have, to drive a digital answer. That’s what keeping them, but the value in contribution is lower than the actual unit numbers.