Sanctuary is flourishing where other music labels are not. The secret: they buy up artists like Morrissey and Iron Maiden in late career. Bundle enough of these bands together and, hey presto, you’ve got a profit.

Profit is a somewhat novel idea for the rest of the music biz. EMI and Warner Music prefer the blockbuster model. They sign lots of acts and hope that a handful will do well enough to recover costs and make some money. The trouble is that musical tastes have fragmented terribly, so they have to place many more bets than before. Second, music tastes change more quickly, so it’s harder and harder to pick the winners. As labels are finding it out, the hits no longer always pay for the misses.

Could Sanctuary be on to something? They have found a way to get someone else to make the upfront investment and to identify the stars. And they have found a way to extract these modest earners from their labels. Happily, the industry is so hit crazy, it doesn’t work very hard to keep them.

It’s as if Sanctuary has borrowed a page from the beer industry. The legendary Paul Kalmanovitz made a fortune buying up ailing brands, slashing costs, and letting the property “decline profitably.” As long as there is enough altitude left in a brand or band, it isn’t very difficult to get in cheap and ride the thing out.

But Sanctuary has an advantage that the beer biz doesn’t have. Consumers so embrace their favorite bands that they stick tight to them forever. Only death will separate them…and even then they want Morrissey played at the funeral.

Some people in the music biz think this is the new business model. Merck Mercuriadis, the CEO of Sanctuary’s US operations, believes that “most labels will develop around the Sanctuary business model.” Really? If everyone embraced the Sanctuary model, who would fund the search for hits in a fragmented, changeable market? More probably, someone at EMI is going to take a look at Sanctuary and imitate it. EMI will then be in a position to capture the value they have created, and they will have new revenues with which to fund their search for blockbusters.

Plainly, the music biz is reinventing itself, if only in bits and pieces. Eventually it will piece these together to give itself better coverage across the adoption curve. At the front end, they need a better “farm team” system, to pick up and nurture the startups with smaller, more finally placed, investments. (And there must be a little label out there that has solved this problem.) At the back end, they will tack on a Sanctuary system to capture all the value that comes from their early h”bets.”

You’d think they would have figured this out by now. On the other hand, as Steve Jobs points out, they still call themselves record executives.

References

Thompson, Robert. 2004. Sanctuary Plays Its Own Tune. The Financial Post. November 23, 2004, p. FP3.

Walker, Rob. 2003. The marketing of no marketing. New York Times. June 22, 2003.