Music industry requires perfect pitch if it is to survive these key changes

My Week

Whenever Lucian Grainge comes to town, he has a straight choice between attending a music industry event and heading to the Emirates stadium to catch up with his beloved Arsenal.

The Los Angeles-based chairman of Universal Music Group chose the former on Wednesday night when I bumped into him at the Brit awards, supporting his artists, including Sam Smith. It’s just as well he did. The Gunners were going down to Monaco in the Champions League at about the same time as Madonna took a tumble on stage.

The music industry Grainge bestrides has some similarly tough choices ahead. The UMG chief has been talking about a return to growth and health for all after the huge decline wrought by a slow response to file sharing. Certainly the Brits’ talent acted as reminder of why Britain remains one of a handful of net exporters of music.

Yet while the live scene globally is hot – with music promoters such as Live Nation keen on more event space in the biggest cities – record labels need more consumers to cough up for subscription music services from Spotify and others instead of settling for free, advertiser-funded models.

The industry’s aim used to be for rising digital sales to offset the fall in CD sales. But in the first nine months of last year, UMG reported flat digital sales as rising subscription and streaming services cancelled out the decline in iTunes downloads and “physical” music sales continued to drop.

Digitisation has further to go. The second and third largest music markets, Japan and Germany, are still dominated by CD sales. That suggests that either the CD has a longer lifespan than anyone imagined, or more decline is on the way. Apple’s new music streaming service could be unveiled with its smartwatch on 9 March. Like Madonna, the music industry cannot  afford anymore mis-steps.

Bank of England Bitcoin?

The rows of tightly-packed banknotes I saw stored deep below the Bank of England this week were a sight to behold. Wrapped in plastic and stacked in metal cages worth £10m a time, none of this fortune is meant to be spent unless Britain suffers a “demand shock”, such as a run on a lender or another of the Bank’s two cash centres in Leeds and Essex go up in flames. The high-security vault belies the myth that we are heading toward a cashless society any time soon.

The Bank’s chief cashier, Victoria Cleland, whose signature will appear on banknotes for the first time next week, was interesting on virtual currencies after the tour of the old-world folding stuff concluded. She doesn’t believe that Bitcoin, the leader of the pack, is going to take off or replace normal payment methods in its current guise.

But the Bank is going to explore what could happen in the future. Rather than the monetary value of Bitcoin, it is interested in its “distributed ledger” model, which means the payment system operates peer-to-peer, without remitting between banks or requiring a central bank guarantee. The Bank might even create its own digital currency, which, if facing disintermediation, might be a good idea.

The ideas are there – but not the money

Vince Cable survived his own Madonna-style trip on to the stage on Thursday, stepping up to address a supportive crowd at the EEF manufacturers’ trade body annual black-tie dinner.

One of the by-products of the rigid  carve-up of ministerial seats along party lines when the coalition was created is that Cable has held his business brief for five years, making him the longest server in the role since Churchill. It has been well-received by the manufacturers, who love to plan into the middle distance.

With this in mind, Cable’s Catapult centres, where business is encouraged to work with scientists to take ideas into commercial use in areas such as energy systems and offshore renewable energy, get a resounding thumbs-up. What needs to follow this focus on innovation is investment, with spending on factory equipment still no better than pre-recession levels. One boss at the Grosvenor House Hotel event pointed out that Germany has invested in 10 times the number of industrial robots as Britain, a clue to where improved productivity might come from.

Another idea of why businesses aren’t spending more came in a conversation I had with the head of a small factory owner. He related how his bank sent him a letter with the offer of an unwanted £3m loan one week, only to change the terms of his credit insurance, a financial product he actually wanted to protect him from customer non-payments, soon after.

Cutting Whitehall down to size

The government of the day is forever promising back-office efficiencies that rarely wash with Whitehall departmental fiefdoms. Margaret Thatcher’s privatisation guru Sir Gerry Grimstone once had the notion of rolling together swathes of administrators to create a new Capita or Serco that could be spun off into the private sector.

By contrast, the EEF’s chairman, Martin Temple, raised the idea in his speech of consolidation at the front end, with “smarter, possibly fewer, government departments pooling budgets, thinking  and operating strategically and ensuring there is a common and aligned agenda”. It makes sense for a forward-looking government to have fewer mouths to feed with declining funds. But can the principles of lean manufacturing, excluding waste while delivering high-quality goods on time, find a home in Westminster? I think you know the answer.

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