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Disintermediation–an old story playing out now

Disintermediation is one of the oldest stories of the internet. From the 1990s onward people have been making the obvious case that the internet is a revolutionary communications platform that can remove the middleman and his cut from all sorts of transactions leaving the parties on both side of the deal to share the spoils.

It’s an old story but one that hasn’t really played out in many consumer industries. We’ve seen Betfair cut the middleman out of sports bets for a reasonable chunk of the football and horseracing gambling market in the UK but I can’t think of another large business that has disintermediated a consumer market. Many large internet companies have succeeded because they have replaced an incumbent with a more efficient business model – Netflix, Lovefilm, Skype and Amazon spring to mind – but they aren’t true disintermediation plays.

The most obvious candidates for disintermediation are media publishing businesses. Despite all the disruption and heartache in the music, book, and TV/film industries this hasn’t really happened yet. I’m a big fan of Spotify, but they have slotted in alongside the record labels rather than replacing them. Similarly in the book industry Amazon has replaced a lot of physical book stores but they still get most of their books from traditional publishers. In TV and film we still get most of our content from traditional broadcasters, satellite and cable companies.

Traditional publishers in the music, book and TV/film industry have provided three types of service to artists:

  • finance
  • access to distribution (i.e. gatekeeper)
  • logistics and admin (e.g. studio space, editing, physical production of media)

These traditional publishers are pretty much all still in business, but they are all suffering mightily. On the one hand the shift to digital media and distribution has hit their revenues and profits and on the other hand cheap web services offer artists an increasingly viable alternative to the logistics and admin services they provide.

They are left clinging to access to distribution and finance as their raison d’etre, but recent advances in crowdfunding and the rise of global distribution companies like Amazon and Spotify are undermining these last residues of value add and may mean that the timing is finally right for a true disintermediation player to take them out of the market.

  • http://twitter.com/jatharrison James Harrison

    This has been playing out for 10 years. What is interesting is how itunes saved the ‘labels’, as opposed to destroy them. The labels have retained their huge % of each track sold, itunes takes their 15% and the artist is left with their bit at the end. What I have been waiting for is a band to say ‘ok – I am big enough, I don’t need a label – I own my own studio, I print my own CDs (if I can be bothered), I sell music direct on my website/facebook page and sell tickets and merchandise myself……what do these guys need? A Digital Marketing Agency for Artists, not a label. Either the label will become this or someone will come up with this model.

  • jimmacfly

    Some bands actually did it already, even if for most of them it was more a communication “coup” rather than an envy to rip off the system.
    One band did it great : Nine Inch Nails. Trent Reznor has even made a video where he explains how he managed to generate more revenue by offering the album for free, or whatever you want to pay (under common creative licence), and releasing aside of this various premium versions of the album with deluxe boxes, goodies included … (I could not find the video back sorry). On the same subject you can also find various article on why he believes Radiohead, not to name them, on-line away giving of their album was just a communication trick as they afterward removed the album taat is therefore not available anymore for free.

  • http://twitter.com/simonbayly Simon Bayly

    Marketing is the most important service that publishers offer.

  • http://www.theequitykicker.com brisbourne

    I agree. Surely this must happen soon?

  • http://www.theequitykicker.com brisbourne

    One of the difficulties is separating out marketing gimmicks from true market evolution. Ultimately it is only the latter that’s interesting.

  • jimmacfly

    And there is a video of Mike Masnick explaining the Trent Reznor “Business Model”

    http://www.techdirt.com/articles/20090201/1408273588.shtml

  • jimmacfly

    Could not find the video where he explains it himself but I posted a video as a reply to the original reply of Mike Masnick explaining this new music business model.

  • http://www.theequitykicker.com brisbourne

    Thanks Jeremie. Very interesting. Connect with fans + Reason to buy should work outside music as well.