Strategy

Q&A: Nettwerk Group's Terry McBride

The Nettwerk record label veteran on the millennial generation and a way out of the industry morass.

With illegal downloading on the rise and CD sales plummeting, record labels are in trouble. And according to many, it’s all the fault of the “millennial” generation — under-27-year-olds who have been filling iPods with illegally downloaded tracks and don’t intend to stop. But Terry McBride, founder and CEO of Canadian label and artist management firm Nettwerk Group, and author of the report Meet the Millennials, thinks there’s hope, if labels embrace millennials and look at new ways of generating revenue. McBride talked to Andrea Jezovit about how he’s been doing this at Nettwerk, and about where the industry is headed.

What’s the best way the music industry can learn to co-exist with millennials?

Learn to monetize the behaviour versus trying to control it. People going to a website is behaviour, so if you create a compelling website that they want to visit, and you wrap it in advertising, you’ve begun to monetize behaviour. That’s just a very simple way to do it. Crowd-sourcing is another way. Having people do your work for you for nothing.

What are some ways artists can take advantage of crowd-sourcing?

Within our roster, almost every single artist is. Sarah McLachlan, for her Christmas record, the label wanted us to do dance remixes. We said no. We took the vocal stem and the drum track and released them on Facebook so the professional DJs and the fans could make their own mixes. We saved $30,000 to $40,000 in remix costs, and had thousands of different mixes that got the shit played out of them for four weeks.

You’ve talked about the importance of treating artists as brands to help generate higher sales. Can artists do this without alienating their fans?

As long as it’s authentic. A lot of these kids have social causes they really believe in. If you attach your own brand to those social causes, then you get far more awareness toward what your artist is. You’ve got [Coldplay’s] Chris Martin and fair trade, that’s a very strong brand association. And that can lead to greater sales. How many causes and cause alignments does Bono have? Probably more than you could put on80 pages. Has that created negativity? No, it’s created a immense amount of respect and love for that band [U2].

What’s the best model for driving digital music sales in the face of illegal downloading?

Any of them and all of them. There’s no one person that consumes the same way as the next. Amazon is like a digital version of Wal-Mart — the minute they opened up a music store they became 10% of the marketplace because there’s a consumer who only shops at Amazon. He doesn’t hop over to iTunes. He doesn’t hop over to Rhapsody or eMusic. The minute Amazon added music, the music business grew. It’s just a matter of putting it where people spend time and allowing them choice versus trying to restrict them.

EMusic charges as low as 32¢ per song. In April, Apple’s iTunes will offer songs at three price points, from 69¢ to $1.29. How important is it for digital music stores to consider lowering their prices?

EMusic’s music sales represent 12% to 14% of the digital download market, but they only handle independent music. But what would happen if it carried all music? I think for the first time Apple would have a serious competitor. There’s someone proving that price point actually does have something to do with it. Rhapsody did an experiment two or three years ago where for one month they dropped the price in half for their subscription. Their volume went up 300%. The problem is none of the copyright holders gave them a break. So they were only willing to lose money for one month. But they proved that it was price sensitive.

What will the music industry look like in 10 years?

Radically different. Music will be ubiquitous. You’ll have brands as record labels. You’ll have major brands creating intellectual property to put in their advertising.

So a company like Coca-Cola could become a record label?

Absolutely. But what is a record label? That whole definition goes out the door.

Will the traditional record label die out?

I don’t know. That’s kind of their choice. For them not to die out, they have to invest in new intellectual property that is relevant.

Some industry watchers say that all music could be stored on servers one day, allowing music fans to access whatever songs they want, whenever, through streaming. Could we reach that point in 10 years?

Yes. That is very generational. If I were an investor with a long-term portfolio, I would find out who’s making these buildings these servers are going into, and I’d want to put my money in.