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Craig Anderton’s Open Channel: Hitting the Ceiling

The past few years have seen multiple MI company acquisitions, but can the industry maintain the kind of growth that private equity often demands?

Craig Anderton.
Craig Anderton.

Let’s talk about the Instant Pot. No, not something you get at a dispensary and dissolve in your vitamin-enhanced water—but the wildly popular kitchen accessory. Modernizing the pressure cooker made the Instant Pot a huge success. It lived up to the hype of creating tasty dishes almost automatically by pressing a few buttons. During the pandemic, it flew off the shelves.

But the good times didn’t last forever. Its parent company, Instant Brands, recently filed for Chapter 11 bankruptcy.

Why? Among many reasons, several financial analysts cite market saturation and the perils of leveraged buyouts by private equity firms. Are there lessons for the music industry?

The Instant Pot was affordable. It didn’t wear out. If you bought an Instant Pot, you’re probably still using it. However, the current corporate model demands constant growth. With the Instant Pot’s rapid success and long product life, it eventually hit a ceiling. Most people who wanted an Instant Pot had one—and didn’t need another.

Craig Anderton’s Open Channel: Music Technology? Or, the Technology of Music?

In the music industry, today’s DAWs can do much of what a quarter-million-dollar studio used to do. Virtual instruments provide classic and modern sounds at a fraction of hardware’s cost. Ever-lower microphone prices make personal mic lockers affordable. But perhaps most alarmingly for MI companies, some musicians feel they now have all the gear they need.

The past few years have seen multiple MI company acquisitions. In many cases, these acquisitions weren’t because companies were in trouble. Instead, they were doing well and seemed like a promising investment. Like the Instant Pot.

Problem #1: The timing for buying music companies may not have been ideal. The pandemic gave a distorted view of music sales. People stuck at home thought it would be fun to make music, and the industry assumed they’d buy more products in the future—but it doesn’t work that way. Music is a discipline. Budget musical instruments often end up in the closet once people realize it takes effort to make satisfying music (despite the hype from the companies who want you to buy their “dope hit MIDI loops with dope pro chords, so you can go platinum in just hours by making dope beats on your laptop!”).

Problem #2: When post-pandemic life returned to semi-normal, disposable income—now diminished through inflation and an unpredictable job market—went to vacations, concerts, eating out, and other activities people hadn’t been able to do. It didn’t necessarily go to buying more recording gear or guitars.

Problem #3: Private equity companies prefer investments in “safe” growth areas, like medical electronics, cloud platforms, proxy caching appliances, and so on, but the music industry is a fashion industry. Trends turn on a dime. No one predicted Taylor Swift would inspire a new demographic to buy acoustic guitars. Or GarageBand would be included free with every Apple computer. Or a pandemic would decimate live mixing. Or ukuleles would sell in the millions. Replacing the people who made a company great with people who understand finances, but not the music industry’s gestalt or the company’s soul, usually spells trouble.

Companies try different tactics to maintain growth. One is dumbing down a product line to attract beginners, like creating a lite version of a complex DAW, but then you have a DAW that’s still too complicated for beginners, and not interesting for veterans. It would be better to design a new, beginner-friendly product from the ground up that uses a different paradigm, but that costs money and takes time. Quarterly profits—coupled with the goal of flipping a company in a few years—are the usual Holy Grail for private equity firms. Slow, profitable, consistent building of a brand, like family and privately owned businesses used to do, is becoming a lost art.

Subscriptions are another tactic to provide steady income while trying to grow a company. Some musicians like them. If not, they hold on to what they have or gravitate to companies that sell perpetual licenses. For subscriptions to work, companies have to be smart, read the room, and disrupt—sometimes drastically—the model that made them successful.

Craig Anderton’s Open Channel: Living With Uncertainty

Consider privately held Universal Audio. Its business model had been to tie software to the hardware needed to run the company’s DSP-hungry plug-ins, but exponentially more-powerful computers moved the goalposts. Now you can run much of UA’s software without needing to buy hardware (although you can, if you want higher performance than native operation provides). The company also offers perpetual licenses or subscriptions, and as a result, has pivoted successfully to a new business model. Survival in this industry demands agility—which bureaucracy-oriented management often lacks.

Maybe some MI companies are hitting an Instant Pot-like ceiling. The innovative ones will balance keeping their user base while investing in the future, but no company can afford to forget that this is a fashion industry. The smart companies are sniffing around for what people will want next, rather than trying to force something on them like multichannel surround speakers for a tiny living room in an apartment they rent for an exorbitant price.

Yes, we may have hit a ceiling—but that simply means it’s time to find a sledgehammer, and bust through the ceiling to a higher floor.