Posts Tagged ‘alliances’

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

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Teamwork works for Netflix Prize competitors

Monday, June 29th, 2009

Netflix has undoubtedly gotten much more than $1MM in publicity for its contest awarding a cool million to anyone able to improve its recommendation engine by more than 10%. But the contest appears to be winding down. According to the New York Times, a group has surpassed the 10% barrier, starting a 30-day countdown for any competitor to beat their performance and claim the prize instead.

It’s not likely to happen. That’s because the leading group is an alliance of several of the top performers in the competition, who abandoned their individual projects for a joint effort to push the needle past the magical 10% threshold. The Times wrote:

BellKor’s Pragmatic Chaos [the alliance's name] is a pretty elite crowd. The group is a collection of the 2007 and 2008 winners of the Netflix Progress Prizes — $50,000 a year for the teams that made the most progress toward the 10 percent improvement — and a pair of engineers from Montreal who have long been near the top of the contest’s leaderboard.

One of the tenets of alliances is that it’s better to get 25% of $1MM than 100% of nothing. For longtime competitors to band together shows how difficult the 10% barrier was, and the significant incremental value of combining different ideas.

In these times, it may be prudent to throw out the old rules of going it alone, and restricting alliances to those you don’t compete with. It worked for BellKor’s Pragmatic Chaos.

(Disclosure: I am a Netflix subscriber.)

Related posts:
Netflix demolishes own business model
Follow-ups: Netflix and “Harry Potter Marketing”

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“Need Cash?” teaches you how to improve working capital use, but be careful

Tuesday, April 28th, 2009

I have mixed reactions to the article “Need Cash? Look Inside Your Company” by Kevin Kaiser and S. David Young in the May Harvard Business Review. There’s no doubt that better working capital management can help lots of companies get through this difficult environment. At the same time, offloading your problems to your suppliers is a recipe for long-term difficulties.

I’m speaking of the practices around accounts payable management. The authors identify a mistake companies frequently make: assuming that receivables timelines and payables timelines are symmetrical. If I get paid net 30, I should pay net 30. Instead, they assert, each company should assess its environment, power over suppliers (or vice versa), and from there determine how it should pay/be paid. It may be possible to get paid by customers net 15, and pay suppliers net 60. This has a huge beneficial impact on a company’s working capital.

However, paying suppliers terribly late has nonfinancial costs. While a supplier may accept lengthy payment terms, there may be resentment, that can cause difficulties when contracts are renewed or new business contemplated. Suppliers may prioritize the needs of other customers who pay more timely. Other terms, such as delivery, might be tightened, which has impacts.

Worse than all this, though, is trying to changing payment terms unilaterally, or even invisibly. This is the old “hiding the invoice in the desk” trick, the “I didn’t get your invoice, please resend” trick, or the “phantom dispute” trick. In this case, the supplier negotiates net 30 terms but ends up getting paid at the whim of the customer. These kinds of techniques might be needed when you are truly distressed, but be prepared to be treated like a distressed company if you use them.

My experience, in account management, sales and executive leadership, has been overwhelmingly as a collector. Knowing that my company treated invoices from its suppliers as serious commitments helped me hold customers accountable to pay timely.

The authors are correct that companies should negotiate payment terms based on their strength in the situation and try to create an environment where they pay late and collect early. However, companies must live up to those negotiations. Don’t ignore payment terms or mess vendors around when their invoices come in.

Your collectors will thank you for it.

Related post:
If your key suppliers are in trouble, so are you

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IT is a key weakness of joint ventures… and any collaboration

Tuesday, March 31st, 2009

Strategy + Business, the Booz & Company journal, just published an article discussing the results of a survey on information technology in automobile joint ventures. Booz’ conclusion: JVs systematically underinvest in IT because of cost pressures, difficulties in standardization and security.

Please read the article and come to your own conclusions. For me, it brought up an issue I’ve faced a lot recently–the IT disconnect between a company’s direct employees and the consultants it uses. When I’ve been in collaborative projects with companies, the lack of easy access to scheduling programs, file stores, and document management systems has been ubiquitous. The IT groups don’t want some temp to take up a lot of their time with nonstandard hardware, unknown applications, and other difficulties. So, they leave it up to the outsider to get along without the proper tools. Ironically, free or cheap off-the-shelf tools like Ning, Google Docs, Basecamp, etc., are far superior collaboration tools to those provided by the corporate IT shops I’ve worked with.

Companies’ value chains are becoming more and more unbundled. There’ll be a great deal more difficulty collaborating with partners as that happens. Corporate IT groups will have to radically change their approach to remain relevant.

Related:
Corporate IT Maximum Security is Damaging Innovation

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Posted in information technology | Comments

If your key suppliers are in trouble, so are you

Monday, March 23rd, 2009

When times get tough for businesses, they use the tools at their disposal to manage through till things get better. The tools that can make a difference quickly are blunt instruments that often have detrimental side effects. There has been a lot of creative thinking this time around about the wisdom of one of those tools, layoffs, and possible alternatives.

There is another set of tools that is easily used but which has not received as much scrutiny–shifting some of your issues to your suppliers. The favorite of these is s-t-r-e-t-c-h-i-n-g out payments. Perhaps, rather than paying your raw-materials vendor, or outsourcing provider, in 30 days, you let that stretch to 45, or 60, or more. Perhaps you wait till suppliers lose patience and escalate before you pay, and then, pay only the oldest invoice. You can also dispute invoice items and hope the supplier eventually credits that amount to you. Voila! Better cash flow.

In the current issue of the Wall Street Journal Business Insight supplement, Robert Handfield of North Carolina State University makes a well-reasoned case as to why companies should think twice about trying to solve their problems on the backs of their suppliers (”United They’ll Stand“). In particular, the costs of a significant disruption in the supply chain can overwhelm any savings in working capital due to slow-paying.

Handfield recommends an open dialogue between vendor and customer to ensure that risks to the supply chain (like the vendor’s ability to survive) are identified. He also urges customers to engage more closely with its best suppliers to ensure they have a relationship that will last beyond the current crisis. (In other words, if you want to take out your suffering on your suppliers, you may pay later by losing them.) Finally, he makes the point that times like these are ripe for innovation, including improving how companies and their suppliers work together.

Handfield writes, “The decisions of supply-chain managers in the current crisis may be among the most important they’ll ever make.” Rather than distance yourself from your suppliers, this is the time to bring them close. And that may mean, God forbid, staying current with your payments to them.

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