Leadership Spotlight

Wharton's Pete Fader takes on the music industry.

Pete Fader felt his senses overload as he walked through the Manhattan offices of recording giant Bertelsmann Music Group. The spacious, bright space was hung with framed, poster-size blow-ups of album covers by an eclectic mix of artists, from Elvis to the Backstreet Boys. Tables were buried under stacks of billboard, Rolling Stone and Variety Magazines, multiple televisions pounded out the latest hits on VH1 and MTV, and unidentifiable Rock music streamed from almost every employee's desk. "What an unusual place for a business school professor to be," Fader recalls thinking.

It was 1998, and Fader had come with high hopes. He'd built some diagnostic forecasting models the likes of which the music industry had never seen, and was excited to share "the answer" to understanding years of languishing sales and profits with one of BMG's senior vice presidents.

The VP, an older man dressed in the trendy garb of his youth-driven industry, led Fader into his office, a smaller version of the pulsating world he'd just walked through. The men sat down and the VP asked Fader a seemingly innocent question: "What kind of music do you listen to?"

"I thought he was making small talk, but the conversation kept going in that same direction," Fader says. "I had no idea I was being judged by my tastes in music. I expected to be asked about my experience and credentials - the kinds of things consultants are typically asked during a first meeting. But this BMG guy really didn't want to talk about anything that resembled formal business analysis." As Fader would learn after many such meetings with industry executives, the music industry marches to the beat of its own drummer.

Music is a creative industry, Fader would be told by the BMG executive, that can't be marketed like laundry detergent. Each and every album is one of a kind, its own brand, and can't be fit into a larger pattern. It was a refrain that Fader would hear again and again as he made his rounds through the industry.

"I would go to a meeting and tell them, 'Just give me some of your data and let me show you,'" says Fader. "And they would sit me down and say, 'Well, you're a smart guy, but you don't understand this industry—it's not like selling grocery products. It's a people business. It's about forming a unique relationship between an artist and a music lover.' But in my mind I knew this was crazy, because I had looked at the data for dozens of albums across several genres and some very consistent sales patterns kept emerging over and over again."

"They have basically built a moat around themselves to avoid dealing with genuine business issues. They say, 'This is how we've done things for all of these years, and this is what has made this industry great.' So part of it is just inertia. But part of it is fear, because they don't know how to perform the kinds of analyses that I am suggesting, and they don't want to lose control. They don't want MBA types coming in and treating music like a regular business. This is all understandable, but is also contrary to what the shareholders of these companies are demanding," Fader says.