Business Insight Zone

No, Western Union doesn’t have anything in particular to do with record labels. But I’d like to make an analogy between the two.

Once upon a time, Western Union was your go-to source for the fastest possible communication. Need to let somebody know something now? Run down to Western Union and send a telegram. Problem solved. Boom. Huge market. Iconic company.

Over time, of course, that advantage eroded, thanks to technological advances ranging from the Telex machine to self-dialed long-distance telephone calls to fax machines and on to e-mails and ubiquitous cell phones. By the time all this came into play, your new go-to source for the fastest possible communication was . . . well, take your pick.

Poor Western Union, all forlorn, sitting there without a market because big, bad technology came along and stole all its customers. And what was discovered was this: people never found anything that special about sending or receiving telegrams. Oh, sure, it was a little thrill to see the Western Union boy and hear “Telegram for Mr. Smith!” if you happened to be Mr. Smith. But, hey, big deal. The point was, you wanted to have the message that Western Union had the means to deliver. It wasn’t about Western Union, but about the message. And when you figured out that there were far better (easier, cheaper) ways of sending and receiving messages . . . you figured out you had no more use for Western Union.

Western Union figured that out, too. Which is why they focused on one little slice of their business that kept on humming — grew, even — as the bottom dropped out of the telegram game. You know what that business is: wiring money. Sure, you can use PayPal over the Internet to pay a merchant, but you can’t send cash money anywhere in the world, to anyone, at any time of the day or night. With Western Union, you can. So a piece of the company’s old line of work lives on because it still has utility — differentiated utility — in comparison to any competing mechanism. How much utility? Well, Western Union had revenues near $4.5 billion last year, with a profit margin over 20%. Pretty good work for an erstwhile telegram company making its way in the world of nonstop instant messaging and satellite phones.

Record labels used to have something that no one else had: the ability to make albums (reaching back to the days when they really were albums of small records bound together) and to publicize them. They had the industry connections to distributors and radio stations. They owned the recording equipment. They employed house musicians and engineers, producers and publicists. They manufactured hits.

Now, of course, recording equipment is cheap, and Internet distribution is, functionally speaking, free.

At some point, the record companies will come to grips with the reality that their consumers, over the years, haven’t been in love with their record-company-ness, any more than people who sent telegrams were in love with Western Union. What people wanted was always the music — the message.

I say these companies will come to grips with this reality, but I should say that the smart ones will. The others will wither away, and good riddance.

One of these days, we’ll be talking about how Record Company X pulled off something amazing by focusing on something special it could do that no one else could match — something that didn’t require punitive legal action to function. We’ll congratulate that record company . . . and wonder where all the others went.

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Image by Natalie Maynor, used under a Creative Commons license.

Category: Entertainment, Media