In the opening keynote Q&A at the NARM "Music Biz 2012" convention, being held in Los Angeles this week, Robb McDaniels, founder and CEO of Isolation Network, reminded the music industry that every sustainable industry has its ups and downs, but most eventually come back.
With the industry now down 50% from its peak, that might have people running for the exits, but, he said, "I am running in the front door... I am still bullish."
While he predicted that the industry will continue to see consolidation, he pointed out that Isolation Network, the parent of INgrooves, which recently acquired and merged with Fontana, has "realized significant growth and profitability in an era when the industry sales are declining. So when the industry finally picks itself back up," he predicted that Ingrooves would be a beneficiary.
INgrooves now manages 1.2 million songs from 2,000 labels, including serving as the digital pipeline for the Universal Music Group, which is a minority stake holder in the company. Also, one of the Shamrock Holdings funds also has acquired a stake in Ingrooves.
He noted that INgrooves grew by 90% in 2011 and it thought it needed help in providing services to its labels and artist. Since the company had a relationship with UMG and had worked with Fontana, which had a fantastic team, it made a lot of sense for Ingrooves to acquire Fontana, which it did earlier this year. He noted that Fontana also had a fantastic client base so the deal made strategic sense.
Moving back to the music industry in general, McDaniels said that after years of shunning technology advances, the industry has gotten better at embracing it, but still needs to go further. He pointed out that when an industry shuns technology, it leaves opportunities for new companies like INgrooves to rise up.
With the acquisition of Fontana, INgrooves Fontana now has a stake in the physical world. While the CD is in decline, that "doesn't mean that physical retail should be in a state of decline," he said. "They just need to figure out ways to bring the consumer into the store."
He said that even the internet has gone back to local with apps and services like Yelp and Foursquare. What's a better representation of local for the music industry than its indie stores, he asked. Now, the industry needs to figure out how to grab kids from hanging out at the mall staring at the mobile phones and bring them back into the store.
Turning to the digital marketplace, he noted that while iTunes has been the primary digital channel, streaming music is growing. So far streaming revenue in aggregate still represents less than 10% of INgrooves' business, but it is going up. He added that "streaming appears to be a format change... it is definitely here to stay and represents an amazing platform to engage with consumers." McDaniels said that the industry should create new products to sell streaming consumers.
Moreover, there is room to create premium products that would up the revenue intake, he said, because consumers are still willing to pay a premium for great musical experiences, which is what the Coachella festival has achieved. The industry has to get better at creating premium experiences and products, he said.
Topspin Media CEO Ian Rogers, who conducted the Q&A with McDaniels as part of his "This Week In Music" series, noted that his company regularly finds opportunites to sell product to consumers who are willing to pay $100 and up.
McDaniels also said that lockers in the cloud seem to make a lot of sense because the industry should offer consumers a variety of ways to engage with music and their favorite artist. He added that the access model, i.e. streaming, and the cloud both present interesting opportunities for the music industry.