Why Google Rocks and Microsoft Stinks

NEW YORK (TheStreet) -- I was looking for a way to best open this article. And, on Tuesday, one of the better music follows you'll find on Twitter (TWTR), Rutgers media professor Aram Sinnreich, provided it.

Apparently Google's (GOOG) the primary backer of a new record label -- 300. 300 says it will be "a music content company devoted to the discovery and development of the artists of the future" with the general idea of "creat(ing) an innovative artist development structure with greater flexibility and lower overheads to challenge the majors."

As I lament the music industrial complex's failure to innovate and the subsequent culture of learned helplessness it has mired itself and many artists in, I've been looking for ways to detail what it should have done.

What it should have done, of course, equates to exactly what everybody other than the major record labels and their toxic music industrial complex partners are doing today. Everybody being the companies who have built and are building dynamic streaming radio platforms to those seizing the live concert streaming opportunity to companies unleashing the full tech- and data-driven, marketing potential of music.

In this article, I use two analogies -- one from sports, the other from tech/the stock market -- to make my points.

The major labels never put together a farm system like the ones long established for Major League Baseball and the National Hockey League. They never did what 300 says it will do.

Instead they sat idle, fat and happy on a turnkey business model, never properly acknowledging the need, let alone executing a strategy to meet the need to prepare for how their industry might change in the future. In that regard, it sounds a bit like the situation at Microsoft (MSFT).

Here's a company late to mobile -- and failing miserably at it -- that seems to think a strong balance sheet and revenue from its legacy businesses will keep it relevant going forward. At Microsoft, we have, by and large, witnessed lame reaction to a new competitive landscape created by others, but no anticipation of this change and a coherent strategy predating it.

A decade ago, was Microsoft preparing for new realities? They sure as heck weren't visioning them and dictating what they would look like the way Apple (AAPL) was. Rather, they were doing the same thing they're doing today -- clinging to a cash cow, holding on to the false hope that the gravy train would continue to chug along. Any innovation at Microsoft, outside of Xbox, continues to hit the cutting room floor of Pacific Northwest laboratories.

It's one thing to manage the day-to-day and nurture a healthy core business, it's entirely another to do very little to remain relevant and dominant over the long haul. But that's the Microsoft way, which sounds a lot like the music industry way over the same time period.

Consider the perfect illustration of dependence on a lucrative model minus any meaningful consideration, accompanied by action, of what you might do to supplement and/or prepare for a day when that prosperous business shifts or begins to show signs of fading or, worse yet, degradation and eventual death.

Sony (SNE) Music in the mid-2000s ...

Dig this excellent piece, one I refer to frequently, from November 2005 at CNNMoney.

It chronicles the story of a former Sony executive, Andy Lack, who signed Bruce Springsteen to a long-term mega deal. Consensus positioned Lack in a no-win situation -- he could be the executive who let Bruce Springsteen go to another label or he could sign Bruce Springsteen to a contract he had no business being offered.

Of course, Lack chose the second option. Shortly thereafter, he was fired. Because, simply put, he didn't do the job he was hired to do -- inject life into Sony Music.

Yada, yada, yada.

Years gone by.

And, like Microsoft, here the music industrial complex sits, hyper-vulnerable, today. Still wholly unprepared for a future dictated by others, but one that has unfolded slowly and obviously enough that they should have been able to do something other than sign a guy who now has trouble filling American arenas to a contract to do records that, relatively speaking, nobody will buy.

Pains me to say that as a diehard Springsteen fan, but it's the truth about Bruce.

Mind you, this went down right around the same time Scott Borchetta was forming Big Machine Records and getting set to go all-in with Taylor Swift.

The music industry, time after time, went with what was comfortable. With what it knew. With what had worked for it. But that type of strategy only keeps working until it doesn't work anymore.

So now, we have Google, investing in an independent label that actually sounds like it will erect the type of structure the majors could have and should have been thinking about obsessively over the last decade. One that passes on a Springsteen, takes the heat, puts it head down and prepares for a future it visioned.

The major record labels are so far gone that it's almost laughable to think they'll be able to recover. The dynamic new platforms for funding, creating, distributing, consumer, organizing and marketing music have won. It's only a matter of time before the music industrial complex, as we know it, actually does die. There's no longer any need whatsoever for what they do.

By the same token, while it's fits with Google's DNA to be the main investor in an independent record label, it would appear misplaced if Microsoft made a similar move. While the death Ballmer inflicted on that company isn't quite as far along, it's following the same path as the music industry. There's no hope for Microsoft, but, for consumers and creators, thankfully, there are plenty of fantastic alternatives.

--Written by Rocco Pendola in Santa Monica, Calif.

Rocco Pendola is a columnist for TheStreet. Pendola makes frequent appearances on national television networks such as CNN and CNBC as well as TheStreet TV. Whenever possible, Pendola uses hockey, Springsteen or Southern California references in his work. He lives in Santa Monica.

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