Archive for December, 2009

Another glimpse into the sausage factory that is music industry accounting

Thursday, December 3rd, 2009

I am fascinated by the music business and how it totes up dollars and cents owed to various parties that contribute to making music I listen to every day.

Of course, it’s easy for me to be fascinated, as I don’t have to buy dinner or pay the mortgage with royalty checks from music I’ve made.

Recently, Tim Quirk from the band Too Much Joy posted a recent royalty statement that he received from TMJ’s former label, Warner Brothers. Even funnier (and more depressing) than the invoice itself is Tim’s essay describing how “unrecouped” bands (those that haven’t paid back their advances to the label) are treated and how cavalier (or malignant) the accounting is for those bands.

Tim now works at Rhapsody, so he knows how digital distributors account for the music they stream or download. As a result, he is able to poke holes in the corporate lackeys’ lame stories about why, for example, there are 12 outlets reporting sales for two of their albums but zero digital sales for a third album.

He is pretty humble, though, when he talks about bands like his who haven’t recouped their advances. Too humble, in my view. He takes at face value the label’s contention that they need to pay “money-making artists” like REM before they worry about giving minor bands an accurate accounting of their indebtedness. And, when you look at owing a label over $350,000 for albums you made more than a decade ago, it seems as if worrying about potential inaccuracy of a few tens of thousand dollars is pointless.

On the other hand, if the studios’ approach to measuring bands’ revenues is so cavalier and self-interested, I would have no confidence in the $350,000 number either. Who’s to say that’s accurate? Who’s to say, perhaps, that Too Much Joy shouldn’t be getting checks from Warners instead of hassles?

Here’s my favorite song from the band:

Too Much Joy |MTV Music

Another great reference on the artist’s perspective of the music business is Jacob Slichter of Semisonic’s memoir “So You Wanna Be a Rock & Roll Star.”

UPDATE 12/3: This essay by producer Steve Albini crisply lays out the situation bands face. In the hypothetical example he devises, a new band sells 250K albums and, somehow, still owes the label money!

(Hat tip Felix Salmon)

Related post:
Podcast: Fran Ten of West Indian Girl on the modern music business

The tyranny of the dashboard

Wednesday, December 2nd, 2009

722346_speedingI frankly am beginning to feel that I’m shouting into a void here. Companies are spending more time and money equipping the CEO and team with information, while starving the thousands of ground-level employees who, frankly, can have more impact on the company’s success simply through their day-to-day actions.

One ray of hope: an article in the December Harvard Business Review (co-authored by Fred Reichheld, the creator of the Net Promoter Score – a simple metric that somehow captures the complexity of customer perception) entitled, “Closing The Customer Feedback Loop.”

As opposed to the conventional wisdom of gathering masses of data and trying to detect high-level patterns in them, Reichheld and his coauthors talk about getting more granular – gathering information at the customer transaction level, creating small rollups of the data, and sharing them where they can do the most good – with the front-line employees and first-level management who directly impact the customer experience.

I agree with their prescriptions, but it still leaves the problem of what to tell upper management. Is there anything wrong with high-level management dashboards? Well, yes. Something of the danger in this is described in today’s WSJ article on Simpson’s Paradox (”When Combined Data Reveal the Flaw of Averages“). The first example cited: while today’s overall unemployment rate is lower than the 1982 level, unemployment at each educational level is higher. (The overall rate is lower because there are more people at higher educational levels, which have lower unemployment, than there were in 1982.) The article states: “Compared with a similarly educated worker in 1983, ‘the worker today has higher unemployment at every educational level.’”

There’s always something lost in summarization. In the case of Simpson’s Paradox, the result of the loss is a flawed conclusion, or at minimum missing a greater point of the story. Overall unemployment today is lower than 1982, but people today have been hit harder than their 1982 counterparts.

Dashboards distort reality as well. Executives rely on machines crunching millions or billions of numbers to present them an easily readable story of what is happening in their businesses. Yet the farther the statistics are distanced from the on-the-ground reality, the more likely they are to lie.

What can be done? Let’s get back to “Closing the Customer Feedback Loop.” On-the-ground data gathering and interpretation by those close to it makes all the sense in the world. But in communicating with upper management, there needs to be less sharing of numbers, and more sharing of individual stories. You can’t get any more granular than that. You can read a vibrant story in a minute or two. And stories fall into patterns–something more subtle and nuanced than statistics–that help senior management understand what’s going on. And human experiences are more understandable than the simplest dashboard.

There are tools to do help you gather and use stories. Rakontu, an open-source story-sharing platform, is one. Enterprise 2.0 tools such as blogs would also work for this purpose. So what’s stopping us? Or am I still shouting into the void?

(Photo by awegedebe via stock.xchng)

Related posts:
GE uses “net promoter score” – one of my earliest posts!
On Rakontu
Time to listen to front-line employees
How B2B customers talk
“Enterprise 2.0″ review
Technology is great, and so is avoiding the acorns

Customers who return products – not as bad as we thought?

Tuesday, December 1st, 2009

There’s been lots written about customers who deserve to be fired. “Bad” customers call customer service constantly, return products willy-nilly, and otherwise misuse the gifts that corporations bestow on them with their products and services.

But there’s another side to the story. By clamping down on returns (or even selectively penalizing “serial returners”), companies can depress their overall sales, write Andrew Petersen of the University of North Carolina and V. Kumar of Georgia State University in the most recent WSJ Business Insight section (”Get Smart About Product Returns“):

For every retailer, there is an optimal rate of returns. Higher returns, up to a point, have been shown to result in higher future sales. So if the rate of returns is too low, the retailer is missing out on potential sales. But if the rate of returns is too high, the costs to the company outweigh the benefit of the increase in sales.

Petersen’s and Kumar’s insights are based on their study of a large catalog retailer. They compared sales during a period with a liberal return policy with another period with a more restrictive return policy. In this brief podcast, Petersen further illuminates their findings. Lenient return policies caused purchasers to buy more, and also encouraged referrals, which were found to be extremely valuable. In the end, the amount returned by frequent returners (and the study found them – 5% of shoppers made 75% of all returns) was outweighed by the increased purchases from all other shoppers.

Retailers dwelling on getting ripped off by “serial returners” would do well to think about what their policies do to all the other customers out there, who end up buying somewhere else.

[Here's a little taste of the moral quandary posed by returning a product that you shouldn't.]

Related post:
Using customer returns information to improve products