Terry McBride is the CEO and Founder of the Canadian music label and band management firm Nettwerk Music Group. Founded in his apartment in 1984, Nettwerk currently has offices in Vancouver, New York, Los Angeles, Boston, Nashville, Hamburg and London. The growth and success of the company is attributed to McBride, one of the brightest visionaries in the music business today.
In 2002, McBride saw the rapid changes taking place in the industry and decided to get out of the physical delivery side of the music business. At that time, he said, “The future of music isn’t selling records. It’s selling music in every form imaginable.” As a result, he shifted the company’s focus to the Internet and digital distribution in order to market his clients’ music. Those changes have paid off. While other labels are now struggling to move into the digital space, Nettwerk is steadily growing its revenues, with digital comprising 80% of the company’s income.
R&G: What made you decide to focus your business on digital products versus physical ones in 2002?
Terry: It was an intuitive thing for me. Obviously, digital had been seeping into our world for about three years and the Napster effect was apparent. Being a small company and working directly with artists, we could really hear and see what was starting to happen. It was a realization that fighting it wouldn’t work; understanding it and being able to grow it was what was going to work. It was a psychological shift for us. It took a few years to get the rest of the company and analysts focused towards that, but that was the psychological shift for me, which means that the company shifts.
R&G: About 80% of your business is from digital sales now, right?
Terry: Yes, that’s correct.
R&G: Why did you drop DRM in 2003?
Terry: I didn’t see any purpose in locking down files; it made no sense to me. People have always been sharing music. Why would I want to stop them? Why would I want to tell them what to do? The way to win was to get them to support my artists, not to force them to do it a certain way. I know I wouldn’t like anyone telling me that.
R&G: You recently spoke about cloud-based servers, mobile applications and smartphones being the future of the music business.
Terry: What’s happened in the last ten years is kind of moot. The next 18 months will determine the future of the music business. It’s a situation where the turnover on phones by the average consumer – now I’m being generous here – is every two years. It’s probably shorter. The smartphones that are starting to dominate the marketplace are specific platforms now open to applications that are being developed outside of the R&D departments of all of the various carriers. Apple, when they opened up their App Store, I think they sold, what, 150 million apps in maybe 9 months. It stunned the world, and Apple is a small player. They might be a noisy player, but they’re a small player within the mobile space. Research In Motion launches their store this month, Nokia is launching Ovi in April and Google has already launched their Android site. You’re going to see millions of applications come onto the marketplace. You’re going to see social filtering of the really good ones, and what’s going to be in there are applications that change the behavioral habits of how you consume music. The need to download music will no longer exist. If anything, it will be a hassle. You’ll have smartphones that can probably handle two to three hundred songs. That’s a gradual download; you’re actually not streaming it. It’s actually on your phone but it’s pulled from some sort of server, whether it’s your own server or a cloud server. To make all of these applications work, you have to have really good metadata, which means that business has to focus its efforts on really good metadata. Rich metadata is going to work with all of these applications. You’re going to see digital maids, digital valets. You’re going to see applications for maybe five bucks a month where you can access all the music that you want, how you want it, when you want it, imported to any device. So why would you want to download? Why would you want to go online to try to find it for free? Besides, something you find free might not work with these smartphone apps. Five bucks is no big deal to have unlimited access. That’s where everything’s going. All of the current arguments and debates are moot. I would even say that the ticker has now started on when the iPod goes away. I think Apple saw that.
R&G: So their primary focus will be to promote the iPhone?
Terry: They’ve been pushing the iPhone more than anything, and when they opened up their App Store, their intuitions were proven right. It is the App Store that has driven iPhone sales.
