The Value of Nothing and the Price of Everything

In the frenzy of the last few weeks of the economic crisis, there has been much that is familiar to the recorded music industry in the performance of the global economy.  The markets of the world are in crisis over value. Albeit for very different reasons, the recorded music industry has been on a quest to arrest evaporating value for the last ten years.

The recorded music industry has long attempted to blind both paying fans and creative artists with complex explanations of the enormous risks and costs in the industry. The regular practice has been to create contracts in which the true mechanics became opaque and to offer perverse pricing structures which seemed to ignore intrinsic value. The sophisticated segmentation of intellectual property rights in music where no physical good ever existed, and a questionable belief system of trading those rights looks a lot like the house of cards complexities of the broader capital markets. What’s happened in music is comparable to the very sophisticated financial instruments which have sought to conjure profits from counter-intuitive commercial outcomes (hedging that you will ship silver and return sub-prime platinum) and from the parcelling out of debt so that risk averse investors could no longer see what it was that they were putting money into (invest in my label, I’ll do the A&R).

Ironic, given that the one investment mantra that financial wizards repeat with consistent banality is “know your market”, understand what you’re investing in. Yet, what we have witnessed is the detachment of value from substance. It used to be that we thought it was only in creative industries that this kind of crisis could occur, where technology (recording and distribution) has enabled us to invest in and ascribe value to a cultural good. Technology has also undermined that ability and insists that we create a new means of adding value. The value of the music has long been separated from the cost of plastic in the CD but consumer journalists still even occasionally today want to ask how could labels charge £15 for a piece of plastic that only cost 50p?  Today though, consumers have already moved on. The majority of music consumers now happily pays for music as a service while the recorded music industry still tries to sell it as a product. In the volatility of the world’s stock markets over the last few weeks, what we have seen is this same critical separation of value from price.  It would seem that once the cultural, pyschological and technological underpinnings of value are rendered opaque or anachronistic, then any price is as meaningful as any other and none is low enough – until it looks like a bargain and then you can buy like crazy!

But there is a very broad spectrum that goes from Damien Hirst’s £10.3m Golden Calf to the Volkswagen share price spike which confounded the hedge-funds.  Hirst’s prices seem as if were achieved by manipulation and propping up of value, Volkswagen’s price spike appeared to derive from an unexpected  realisation of and faith in the management team behind the business. And it is the Porsche team that brought back the confidence with a reputation for design, innovation – and making very fast cars!

Blinded by bling or putting faith in management and the quality of innovation?

As we look towards 2009, the characteristics that we will see coming to the fore are going to be all about transparency, quality, and experience in innovation. We will see a move away from the most technically dazzling and a preference for good execution on more tried-and-tested ways to innovate. But there can be no deviation from innovation – that is still be a requirement to grow markets by responding to technological change and by racing to take advantage of what it has to offer. And in the current climate the best way to do that is to temper the risks by a greater depth of experience in innovation itself.

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