It should have come as no great surprise that the weakest of the three leading U.S. digital jukebox companies has folded. Not that rumors had been circulating about Ecast's imminent demise; but the company had been requiring large cash infusions for its entire history and had not demonstrated strong growth in recent years. For companies like this, the venture capital eventually runs out.
Despite this, Ecast's abrupt departure created something of a shock for many industry members. Why? Exploring the reasons behind the industry's surprised reaction to the "not-so-surprising" Ecast news may reveal some interesting things.
One reason why some were surprised by Ecast's closure: it mistook the health of the sector for the health of an individual company within that sector. For nearly a decade, digital jukeboxes have been the industry's biggest success story.
Accordingly, some observers assumed the three highest-profile jukebox companies were rock-solid. Not the case for Ecast.
What other factors caused industry members to be surprised by Ecast's collapse? Consciously or unconsciously, many trade pros look for stability within the manufacturing tier as a sign of stability and economic strength for the industry as a whole. For some industry members, counting on famous-name manufacturers to "be there" is a source of emotional reassurance.
One thoughtful member of the industry recently said that Ecast's demise could be viewed as a warning to operators. True, but there are several good reasons why operators can feel reasonably confident about the two leading U.S. digital jukebox firms and about the stability of the digital music market.
1) As observed in the classic book "The 22 Immutable Laws of Marketing," most viable markets have room for two stable, leading competitors. Think Herz and Avis, Coke and Pepsi, Apple and Microsoft. Viewed in this light, the disappearance of Ecast from the scene may simply reflect the inevitable maturing of a sector that is coming into conformance with the norm.
2) TouchTunes is the sector's pioneer; today it runs the industry's largest digital network. AMI Entertainment is an incarnation of the industry's longest-lived jukebox manufacturer, with a proud history stretching all the way back to 1909.
3) Both TouchTunes and AMI have broadly experienced leadership. TouchTunes chief executive Charles Goldstuck formerly led Bertelsmann Music Group. AMI chief executive Mike Maas previously held top posts at Microsoft and IBM.
4) Both companies are diverse. TouchTunes is active in retail chains that operators don't serve. AMI has a strong amusement videogame division.
5) Both companies are innovative. AMOA president Andy Shaffer said the myTouchTunes mobile app generated "the biggest buzz in 20 years" on his Midwestern route. The AMI Bar Link is poised to follow suit.
So if Ecast's demise is a warning -- and we think it is -- then it's a warning that applies industrywide, not especially to the music sector. The warning is to remember that in a vigorous free market, the weak are constantly weeded out to make room for the strong; and the old must evolve or make way for the new. After Ecast, this process of "creative destruction" will continue to ripple through the music and amusement industry.
Does this mean that large sections of the industry are equally vulnerable to an equally "sudden" collapse from within? Not necessarily. Before and after Ecast's demise, the industry was stabilizing on some important fronts.
For example, it's encouraging that America's leading operators seem increasingly confident they will prevail despite one of the toughest markets in history. These operators are focused on diversification, strengthening their location bases (whether by pruning or expansion) and modernizing equipment and business methods.
Additional encouraging factors include stability in the number of participants and exhibitors at the new Amusement Expo, and the recent rebound in membership for the Amusement and Music Operators Association.
Yet if the industry as a whole is looking stronger, Ecast's demise reminds us that individual companies remain vulnerable. For the past 15 years, we have seen steady shrinkage in the numbers of locations, operators, distributors, manufacturers, trade shows and even trade associations ... and it's not over yet.
And so the immediate question is: "After Ecast, what?" It would be a mistake to assume the next giant to topple will be a jukebox company. But it would be an even bigger mistake to over-interpret the moral of the Ecast story. "Creative destruction" means some companies go down ... but it also means that others rise to new heights.
After Ecast, it's time to salute the fallen and continue the battle.