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Op-Ed: The Starbucks Effect – By Bob Lefsetz

Howard Schultz got confused. He thought he was in the entertainment


Funny thing about money… It gives you access. To other people with money,

with glamour, with power. There’s not a lot of glamour in coffee. You can

make a lot of money purveying it, but Perez Hilton is not going to gossip

about you, the hoi polloi are not going to know your name. And this is

frustrating to the rich. So they start associating with the famous. The

entertainment people. Who will take every dollar you’ve got.

CEOs tend to be educated, men who devour information more than gossip.

Whereas entertainment honchos tend to be from the street, self-made men

who’ve made it on their cunning, their wiles. These men have a history of

ripping off those in other industries, those with money… How come these

marks can’t see this… It just shows that they’re just not studying history.

If you’re investing in film production, you’re just looking for a very

expensive visit to the set, an invitation to the premiere, because you can’t

make any money.

Howard Schultz has got more in common with Mark Hurd than David Geffen or

Doug Morris. Sure, they’re all imperial, but in straight business the

royalty factor is diminished. Other than in your own industry, people only

respect your money. You don’t have much power. Entertainment figures have

tons of power, where everybody is looking, in popular culture.

Howard Schultz got bit. After a couple of successful recording projects,

those flowering him with praise, telling him he was a genius, set out to

sell him everything he would buy. People just wanted access, to his store.

They didn’t give a shit if the product sold through, until it got burned

again and again, Starbucks bought the product one way! Sure, the company got

a discount, but what difference does that make if you can’t sell the product

at all!

It’s been well-documented how Starbucks’ foray into the music business has

been a debacle. But more interesting is the story of how Starbucks itself

has been collapsing, how its stock has tanked.

Howard Schultz has stopped hanging with the sycophants, the grifters, the

thieves, and has gotten back to his core business, selling coffee. Will he

succeed? I’m not betting on him. Starbucks is no longer new, it’s not the

latest thing, how do you pizzazz up a classic act? But some of the wisdom

he’s imparting, some of his style, illustrates how the entertainment

business should behave, if executives focused on reality instead of trying

to protect their monopolies.

I’m reading this story on Howard’s dilemma on the front page of today’s

"Wall Street Journal"

Schultz’s Second Act Jolts Starbucks

and I come across the following paragraph:

"One of Starbucks’s biggest problems, Mr. Schultz says, is that its long

success streak and huge size have left it cautious. So he is imploring

people to be bolder. When an employee in Long Beach, Calif., complained that

he could create better artwork than what was on the walls, Mr. Schultz told

him to just put his pictures up. ‘Don’t ask for permission,’ he recalls

saying. ‘Ask for forgiveness.’"

I wanted to jump right up and hit the keyboard immediately. Eureka, THIS IS

TODAY’S ENTERTAINMENT BUSINESS! Especially the music business.

For all of Guy Hands’ reorganization, he hasn’t done the one thing

necessary, empower the newbies. Lyor Cohen makes a fortune and the

underlings get fired. Rick Rubin discovers Sonos years after its debut and

sees its marriage with Rhapsody as the future when statistics would tell him

Rhapsody’s growth curve is modest at best. Where do they find these people?

Who know nothing? So much into lifestyle, that they miss the point!

You want your entertainment company to survive in the future? Hire those

under thirty five and let them make decisions. Let no one, including execs,

make in excess of $100,000 or maybe $150,000. Let everybody be in it

together, focused on results, focused on bonuses…THEN we’d see change.

You can’t do anything different at a record label. There’s always someone

who’s saying no. Meanwhile, newbies, independents, are doing different

things every goddamn day. The music business used to be about testing

limits, now it’s more conservative than Fortune 500 firms. How did this

happen? How did the world end up being run by the Mark Zuckerbergs?

Sure, Starbucks employees are looking for acknowledgement from their king,

but said king is trying to fight complacency. YOU said no one was going to

buy a $400 MP3 player and now Apple owns not only the portable music player

market, but music retail too! You’ve got to look into the future!

1. Stop suing customers. All your arguments, that it’s theft/copyright

infringement, that people need to learn the value of music, have not only

not changed the hearts and minds of traders, they haven’t helped your bottom

line. This is a suicide mission. Buy Limewire and enjoy the profits. Or at

least authorize it and its P2P brethren.

2. Forget CDs and the album. CDs are on a road to marginalization and the

public doesn’t want albums. Don’t listen to the vocal minority, listen to

the silent majority. Statistics will tell you the above. Don’t prop up the

CD, profit off it before it goes extinct and then move on.

3. Sign more acts. It’s your only hope not to lose market share. And as

Steve Ballmer said, it’s all about market share.

4. Concert promoters… Establish training programs a la the William Morris

paradigm of yore. Only kids know what the hot new acts are. You don’t, you

don’t have time, you don’t have enough friends of the target concertgoing

age. Admit you’re getting older, PLEASE! You will die sometime. Invigorate

your company. Sure, you can still teach your young charges lessons, you’ve

got so much experience, but you’re not staying up all night smoking dope on

the couch watching zilches anymore, times have changed and the Stones can’t


5. Music publishers… Stop bitching that the record companies want to rip you

off. Be activists. Approve deals. You’re holding up the future too.

6. License everybody with a new idea. Hell, it’s not clear who the winners

are or how long the winners of today will dominate. MySpace is no longer

king. And Universal fought with them for years? A MySpace music company is

akin to an Ipana toothbrush. Or, if you don’t get that ancient reference… A

MySpace music company is akin to an ENRON music company. Look to the future,

not the past! It’s what’s coming DOWN the pike that matters!

7. Decide if you want to own the future or just cash the check today and

retire. You’re saying you want to rule forever, but do you really just want

to get paid for another five years? Fine, but think about the future. Either

get out of the way, or empower people to take your place.

8. Read "The Wall Street Journal" before music blogs, ANY music site. Those

writing on the Web are passengers. If you want to steer, you’ve got to go to

a level above. Don’t pay attention to the screaming meemies, trust your gut.

And know that you don’t know everything. And that it’s about finding the

individuals who inspire you, who are in touch, to help you with your further


Schultz’s Second Act Jolts Starbucks