The VW Trap – Size matters, in a bad way

On 18th September, the US Environmental Protection Agency outed Volkswagen as using special software in its cars to cheat emissions tests in the US so that their diesel engines were able to meet stringent NOx (various oxides of nitrogen) limits required by the EPA. Once out on the road, the cars containing those engines were pumping out up to 40 times the legal limit.

While diesel engines are more fuel efficient than petrol alternatives and thus emitting less carbon dioxide, the trade-off is the higher output of NOx. While on balance, this is better for the global climate. However, NOx have seriously detrimental local impact, including smog and respiratory effects for people in concentrated traffic areas such as cities.

This excellent Economist article sets out the background and details of the deception, including the laxity of the European testing regime which arguably laid the conditions for such disregard for the requirements of regulators. It also discusses the motivations for VW, concentrating on their desire for size above all else.

The idea of mission is something I have been thinking about and working on recently, and this drive for size is indicative of something fundamental which we should consider in the music industry too.

During an interview with Mary Anne Hobbs on BBC 6music, Kelis talked about how she was treated in her major label days:

“My label completely disintegrated into nothing and they took all of these artists and they moved them to different labels without any… we had no control. I was literally traded. Athletes get traded all the time but I was not a fan of being traded. It was too personal. And I’m someone who doesn’t take things personally, but that was personal for me because I got put on a label that would have never signed me and I would have never signed there. And so I knew it was going to be trouble. I knew this was never going to work. I can’t even fit in that position. It felt so foreign to me. And so I had been fighting for so long to get off of that label — it took about three years I think. The album was out already and I had to put another album out in this bad relationship.”

For those outside the music industry reading this, I should just explain that the so-called ‘major labels’ are effectively conglomerates with multiple sub-labels, arranged as a pyramid — much like VW with its ownership of Bentley, Audi and Skoda. So Universal Music, for example, owns label groups (like Island or Capitol) which then own labels beneath them. This is how Kelis can end up being shunted between labels as she describes.

Many labels have their own speciality in terms of the artists they work with and the music they release. Kelis ended up with Jive Records, famously home to N-Sync, Britney Spears and The Backstreet Boys, instead of Virgin Records, the much more eclectic label to which she originally signed.

Thus, as a result of corporate restructuring, Kelis was working with people she knew were not in her corner, either artistically or commercially. This is a very possible outcome for any artist working with a major.

The obsession with market share for the majors, which is why they suck up independent content via their distribution arms, why they buy successful independent labels and distributors whenever they can, and why they release music that is the auditory equivalent of empty calories in order to gain radio play and singles chart placings, seems to be a result of this strange phenomenon of a desire for size.

In music, chart placings were always an unsatisfactory proxy for real success, which is artistic worth and audience connection. This is too subtle to be expressed in a single metric, such as chart placing, just as business success is too subtle to be judged by a single metric, such as revenue. Even market capitalisation or return on equity are blunt tools that do not get to the heart of whether the business is, on balance, adding to the good of the world.

It seems that at a certain point, some companies become so big that the only thing they can think of to do next is to get bigger. Perhaps there is a threshold beyond which substantive missions and reasons-for-being become stretched beyond breaking point. Public markets seem to encourage this with their explicit signals (via stock price moves), that bigger is better and that mergers should be pursued even though mergers are known to destroy value (along with distinctiveness and purpose) the vast majority of the time.

A mission statement of, “We must be the biggest ___________” seems generally to be a combination of too much ego and too little imagination.

A simple question to ask is: Why?

Only if there is a real reason to be the biggest— perhaps to do with network effects, or real economies of scale in production of goods or provision of a service — should such an ambition not be laughed out of the room. Otherwise, it is vapid; a waste of the efforts of all those involved in the business day-to-day, making the world slightly less interesting and gaming whatever metrics need to be gamed in order to win.

Neither VW nor the major record labels have compelling reasons why being bigger is better. For VW, becoming biggest was achieved through selling more and more very low margin cars (with profit margins of 2%) rather than Bentleys. And for what purpose? For the major labels, it is about units shifted or streams gained, rather than the art of music.

Haven’t we learnt that there are different, and better, ways to win than being biggest? Why not be best instead?

Written while listening to ‘White Math’ by Blanck Mass (Kemado Records) and ‘Jaws Of Life’ by Wintersleep (One Four Seven Records)

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