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Steve Knopper, Author, Appetitte for Self-Destruction

If you would like to know how the Internet transformed the record label business, this interview is for you.

Our guest today is Steve Knopper who is the author of Appetite for Self-Destruction. Steve’s book is a chronicle and analysis of the spectacular crash of the record industry in the Digital Age. He is a Rolling Stone contributing editor who has covered the business since 2002. Among our conclusions are the following:

First, record label industry leaders during the past 30 years are “larger than life” characters whose stories may be colorful enough to merit retelling as a made-for-TV movie. Technological innovation was far down the list of the skills that made them successful.

Second, the industry has almost always fought against technological change. For example, they resisted the adoption of CDs during the 1980s even though the format provided two great benefits from a financial viewpoint. First, the labels were able to sell CDs at a price premium relative to the LP and also simultaneously charge artists an associated technology adoption fee as an offset to royalty payments. Second, widespread acceptance of the CD led consumers to not only purchase new releases in the format but to often also replace their existing LP library selections with CDs as well.

Third, the Internet has forever changed the record labels. It simply may not be possible for the industry to adapt in a way that enables it to retain its historical prominence. Its situation may be similar to the encyclopedia or newspapers businesses.

For example, no matter what changes Encyclopedia Britannica made, the company simply could not retain its leadership after the advent of the Wikipedia. Similarly, it appears that newspapers could not have avoided losing prominence in classified advertising once Craig’s List gained traction.

Fourth, record labels could be the “canaries in the coal mine” for the video entertainment business. Both industries are characterized by high profile leaders who are unaccustomed to adapting to changes driven by external forces. The labels were impacted first because of the lower bandwidth requirements of audio. But it has been ten years since Shawn Fanning launched Napster and the day of reckoning for entertainment video is fast approaching.

As noted in our Third Generation Television research report released in February we believe that video will inexorably migrate to the Internet. Furthermore, consumers will exhibit a decided preference for free viewing from ad-supported websites and podcasts. As a result, it is crucial that Internet Video ads generate enough revenue to adequately compensate the program producers.

To learn more about the Third Generation Television report click here where you can purchase a copy or download a free Prospectus.