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ACDC's music business model

What is it about ACDC that explains their popularity and sales in the music business thirty seven years after their debut? This hard rock band has sold more than 200 million albums. The US is a key market, representing about one third of the albums sold. Back in Black is the second highest selling album in history, behind Michael Jackson's Thriller album.

Neil Shoebridge had some answers in his article in the The Australian Financial Review on 1 March 2010. A key informant for the piece is Steve Barnett, co-chairman of the Sony-owned Columbia Records USA, ACDC's record company.

Here's three points I draw from his article on what he referred to as the ACDC "business model".

  1. ACDC provides no music for online distribution. ACDC is in the same camp as The Beatles and others who have no or minimal presence in iTunes and other online distribution channels. ACDC stands in contrast to some bands and recording artists who live on online sales. Shoebridge notes: "Last year [2009] CD sales in teh US dropped 18.2%, while sales of digital tracks were up 8.4%."
  2. negotiation_calculationACDC controls its contracts. Columbia Records gave US retailer Walmart exclusivity to sell Black Ice, the lastest album for the first 12 months of the CD's release. This is intriguing. This Walmart deal reverses the ascendency retailers have enjoyed in recent decades across a range of offerings to consumers. In that time there's been a reduction in the market power of the supply side parties, eg product inventors or creators (eg ACDC), product manufacturers (eg record labels) and wholesalers (eg record distributors). Retail outlet ownership has become more concentrated in Australia and comparable economies. Barnett says Walmart attracts 123 million people on average per week. This trend has escalated as retailers have maximised their use of IT, checkout data collection and data mining as well as innovations in scale, logistics and real property leasing deals. Presumably through the exclusivity deal ACDC expect more or better market presence and support.
  3. ACDC has a growing market for music performances and recordings. Its fan base ranges greatly in age from Baby Boomers to Generation X. This is basic business logic, look after your customers and they'll look after you.

The term "business model" is useful. It's rarely used with any intelligence.

Chesbrough definition of business model

george_michael_concert_sydney_2010The ACDC story provides a useful test case to test the Professor Henry Chesbrough methodology and definition for a business model. He wrote on it in “Open Innovation: Researching a New Paradigm” (Oxford, 2006).

The first column of the table below reproduces Chesborough's six recommended business model elements. It both defines the concept and provides a methodology for it.

The second column, together with much of this article, reflects my dialogue with Beatrice Zhang and William Lin, two 15 year old work experience students in our office this week from James Ruse Agricultural High School.

Market Segment

Identify a market segment, that is, the users to whom the technology (i.e. offering) is useful and the purpose for which it will be used.

 

ACDC's concert and recorded music fans range from Baby Boomers to Generation X.

Value Proposition

Articulate the value proposition, that is, the value created for users by the offering based on the technology.

 

If easy to follow, loud and brash rock or heavy metal is your thing, then ACDC is worth listing to on CD and live. Love the music, live the rock culture and lifestyle.

Value Chain

Define the structure of the firm’s value chain, which is required to create and distribute the offering, and to determine the complementary with the assets needed to support the firm’s position in this chain.

 

Popular music has a complex value chain which includes:

  • music writing
  • studio recording
  • design of albums, posters and merchandise
  • live performance and other form so of marketing and direct sales
  • optical disc (CD, DVD etc) production and distribution
  • deals with retailers, online and offline
  • music catalogue licensing

Costs and Margins

Specify the revenue generation mechanism(s) for the firm, and estimate the cost structure and the target margins of producing the offering, given the value, proposition and value chain structure chosen.

 

Higher profit margins maintained by selling only physical CD’s. It seems ACDC's management believes that if the same tracks were sold in digital media (say at 99c each) there would be tends of millions of dollars in revenue shortfall versus what is now earned from CDs..

Value network

Describe the position of the firm within the value network linking suppliers and customers, including identification of potential complementary firms and competitors.

 

Refer to the notes above regarding the value chain.

Competitive Strategy

Formulate the competitive strategy by which the innovating firm will gain and hold advantage over rivals.

 

ACDC controls its assets and exploitation of them. It maintains frequent touring by which it maintains and grows its customer base.

 


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