The whole industry relies on a few hits
By betting on a huge portfolio of potential stars, a few “home-runs” have to subsidize the large portion of failed stars.
It can take years until the stars turn out
First a lot of money needs to be invested to create the first album, promote the star and create a brand etc. before the sales figures and the popularity turn out. Virality can be very important for growth.
References are important
One of the core competencies of music labels is “scouting”. To find the latest young potentials, most scouts have a large network of contacts which they use to become aware of new artists, as well as background-checking applicants, e.g. by calling clubs they played at.
Success highly depends on the team/band.
Music labels select the leading musician, sometimes even turning down good music because of the lead singers appearance and many VCs use the team as main selection criterion, more important than the product. But at least in the business world, the company is not always closely tied to the CEO’s face, so when teams fail or want to go into different directions, the CEO of a company can be replaced while a singer cannot.
Added Values: Development at scale and guidance
Musicians are enouraged focus on what they’re good at – making music – while the labels leverage their experience, their network of contacts, distribution channels etc. to get the maximum out of the product. Sometimes they also lead musicians into a direction that is commercially more promising, away from the intial idea. This approach of the mass market, away from a very original and unique proposition, may lead to the higher returns but disappoint the original fans.
Unlike venture capital, the music industry is still having a hard time adapting their business models to the changed market circumstances. Looking at all the similarities, the idea to transfer the VC model into the music industry, seems almost like a no-brainer.
What do you think, which further analogies exist between the two industries?