Like a Virgin: Secrets They Won't Teach You at Business School

THE DAY THE MUSIC DIDN’T DIE

In business, change sometimes happens more quickly than you want it to – transformative technologies arrive suddenly on the market, tastes adjust, economies shift. Telling your staff to embrace change and get creative is all well and good, but that will not address their (or your) underlying anxieties. The bald fact is that change is usually a threat – one that has the potential to bring your business to a halt.

Let’s face it: no company lasts forever. But the advances that technology has brought to the music business are enough to make anyone’s head spin faster than a 33⅓rpm LP. And if you are asking ‘a what?’ you prove my point!

Given Virgin’s long experience in the music industry, I often receive questions from readers about the industry’s future. What will happen next? How can anyone successfully launch a business in this sector when transformative change is stressing even the nimblest players?

Our experience shows that there is always opportunity in times of change. Those pundits who have spent the past ten years predicting the end of the record industry should remember the last time it was in meltdown: 1982. The economic recession was having a deep impact. Many people were home-taping off the radio or from a friend who had bought the LP – a forerunner to illegal downloading.

At the time, Virgin Retail had over a hundred record stores across the UK. On Saturdays they were jammed, on weekdays they were deserted, on Sundays they were closed. Then along came compact discs.

The new format’s advantages were immediately obvious. It was much smaller than the LP, and there was no wear, distortion or surface noise. My notebooks from that period are full of questions about the potential impact on our business. I wrote: ‘What happens to the record collection around the country – do people replace their vinyl with CDs?’

At first the only way for us to survive the CD menace was to start clearing the decks for the new stocks, so we started discounting our LPs. We succeeded in switching our business over to CDs, which not all our competitors did.

We could also see that another new retailing phenomenon was dawning. Two years after the introduction of the personal computer in 1980, there were already nearly 500,000 videogame machines in use in the UK. Soon, selling games and then DVDs became a worthwhile sideline for our stores.

By 1986, even Virgin Megastores was under threat. Our biggest rival, HMV, was going after us by opening giant stores, some near our flagship locations. Undeterred, we launched our Dublin store, which at the time was the biggest in the world. That store not only stocked hard-to-find specialist classical and jazz, folk and rock music, but also sold music videos, games and computer software. This was where I could see the future of our business.

And we gave the old-fashioned retailers, such as Woolworths, Dixons and Currys a run for their money. Our shop windows and store interiors were dynamic and exciting. We brought in bands to perform and sign autographs. These events attracted more sales and better publicity.

To make a long story very short, both despite and because of the disruptive change that had just taken place, we transformed our business model and did very well in the eighties and nineties. Music produced by Virgin Records enthralled listeners around the world, many of whom went to Virgin Megastores to buy copies.

Did all this work make us future-proof? Of course not. The truth is that, even from the start, our smaller Virgin Records shops made very little money. The stores kept our name in the public eye, and represented our youthful, irreverent brand, but they were unsustainable in the long run. One of my biggest business mistakes – indeed, regrets – was not selling all of our stores sooner. Closing the book on our record label Virgin Records in 1992, with the sale to EMI, was painful, but the best decision.

But is digital downloading killing music? Well, the economics of actually producing the music today are far healthier than they ever were in Virgin’s heyday as a music company. When we built our recording studio, it was a massive, expensive undertaking. Virgin Records’ job was to bankroll recording sessions for musicians – and take the risks. To make money, we had to sell a lot of albums.

Now a top-quality album can be made on a laptop, and then you can send the file over the Internet to anyone, almost anywhere. Promotion is as easy as setting up a page on Facebook or another social networking site. Economies of scale don’t matter any more to young musicians, although they still matter a great deal to the record companies and their shareholders.

If I were a happening band on the cusp of success, I wouldn’t go through a conventional record company today. I’d gather a small team of people and release the tracks or album myself. I would consider getting together with like-minded musicians and sharing distribution, advertising and marketing costs.

Smaller and newer bands earn less, because record companies are only able to promote lesser-known bands by using some of the proceeds from their major artists. With music margins under pressure, there is less money being spent on newer bands and so many will be better off trying it on their own and using the internet to get a following first.

I do think that record companies will survive, but they will have to be much leaner – and, in business, small is beautiful. Those smaller companies will have to discover genuine talent, which is the reason that many people who are passionate about music choose careers in the industry. And with all that energy and zeal to draw on, there’s no telling what some entrepreneurs will achieve next.

By the way, that ‘33⅓rpm LP’ was a ‘long-play’ 12-inch vinyl record that played at thirty-three and a third revolutions per minute on a turntable. Okay, don’t worry about it – the iPod is a lot easier!