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Making a Case for Digital Transformation - Media & Entertainment

If you love music and you used to buy vinyl or CDs in bricks-and-mortar music stores, chances are you’ll enjoy the film “All Things Must Pass,” which documents the rise and fall of Tower Records. It’s a great, albeit sad, story with fantastic music. But it’s also a fact-based nostalgic look at how a growing business can be disrupted by digital. Russ Solomon, the founder, simply didn’t see the disruption coming. The result? Tower Records, a $100+ million business, declined and eventually filed for bankruptcy and liquidation in 2006.

Whilst entertaining, this film is also educational. What can we learn from this recent history? My key takeaway is that - not every business is a digital business, but every business must become digital in some form. Let me explain...


I’ve just spent two days at a Forrester event in London, learning all about how to “grow revenue and re-invigorate your business” through digital transformation. The three key takeaways from the event are:

1. Create customer-obsessed experiences through insight-driven customer journeys. 2. Increase efficiency and agility with operational excellence. 3. Do it with speed (speed now trumps cost takeout for most CIOs).

This isn’t new. There’s a crowded gaggle of analysts, strategy consultants, system integrators, digital agencies etc. who all preach on becoming digital. I’m starting to see some consolidation around the three themes. New data points appear almost weekly, which correlate customer experience with business performance;

- invest in optimizing customer journeys,

- personalization is table stakes,

- obsess over the customer ...and so on.

Back to Tower Records. During the rise of this business, Solomon has an almost tribal (non-digital, of course) following, with customer obsession core to the in-store experience. Elton John boasted of being the biggest-spending customer, proud to part with thousands of dollars a month in stores.

However, the customer landscape was changing. People were interested in MP3s, streaming, even illegal downloading and piracy of music. I wonder, if Solomon had been closer to the changing customer, would he have acted earlier? Lesson number one in Digital; Create customer-obsessed experiences through insight-driven customer journeys - might have saved Solomons business. He did spin off in 1995 - an example of one of the first retailers to move online - but the focus was too little, too late.

So, are there lessons from the Tower Records story that other industries later in the disruption cycle can learn?

A Harvard Business Review article shows Media and the music industry was disrupted well ahead of most other industries. But it’s interesting that data also suggests that the actual penetration of digital is still relatively low across most industries. According to McKinsey latest research, the forces of digital have yet to become fully mainstream. On average, industries are less than 40 percent digitized, despite the relatively deep penetration of digital technologies.

So, what can the Tower Records story teach us? In my other blogs I touch on the increased efficiency, agility and operational excellence benefits of being digital. But the key lesson for me here is, know your customer.

As a footnote:

This McKinsey graphic shows the music industry disruption. Revenues plummeted fro 2002 onwards, as distribution shifted to downloads and streaming. McKinsey note that it took about five years from the time Napster was launched until industry revenues were cut in half, which gave some incumbent record label executives a false sense of security.

Interesting twist though... we are now seeing the Digital trend swing again. In Dec 2016 more money was spent on vinyl than downloaded albums in the UK for first time. But 48% of those surveyed said they did not play the vinyl they bought - while 7% did not even own a turntable. Many bought the vinyl as presents and never actually listened to the records. In this BBC article Mark Savage notes, "Few would have predicted that an album format, first invented in 1948 would be outselling a digital technology". Will we see this trend for nostalgic formats hit other industries too? I can see in the age of robots and AI, a swing back to human interaction.

2nd footnote: I would highly recommend the film "All Things Must Pass" partly named after George Harrison's greatest double-album. It also features one of the 60's best songs: Marlena Shaw's 'California Soul'.

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