Spending time and money

In my last post, I mentioned the stresses that a GC might be under and how that might manifest itself as a shortage of time. Something similar is at play when one considers financial constraints. Often those who have money to spend have very little or no capability to make more. Anyone who makes demands on people’s time or money needs to be aware of the limited nature of those resources, and what else is competing for them.

A number of thoughts flow from this observation, which may be useful for people offering legal and other services as well as those providing internal business support.

What do they get in return?

If you do something in the expectation that someone else will commit time or money to it (or both), they need to feel that they will get something in return. This is most obviously expressed in financial terms as a return on investment, but that is only the most tangible form. At the other extreme, broadcasters and the film and music industries (for example) create products that take time to consume and often have to be paid for. In return for investing their time and money in a film, TV programme, book, or album, the audience need to feel that their lives have been enhanced in some way. They need, in Lord Reith’s words, to be informed, educated or entertained.

Crucially, investing in one thing often excludes the possibility of investing in another. If I choose to watch Mad Men (as I do), I will spend at least 92 hours (and probably more) of my time doing so. Those 92 hours can’t be spent doing something else — I can’t read a book, do some work, or go for a drive at the same time. Likewise, the financial cost of acquiring the right to watch the programme (by DVD or pay-TV subscription) means that I have reduced my capacity to buy other things. The impossibility of spending twice has repercussions on both sides of the equation — for those spending time/money and those demanding it.

Sometimes people know what they get when investing in something. This may not be conscious — slumping in front of a mindless TV show with a glass of wine after a hard day’s work may seem worthless, but it provides a valuable opportunity to relax and unwind. Sometimes it needs to be explained what the return on investment might be. Time spent on marketing may feel like a waste, for example, but not doing it will almost inevitably lead to a drop in income.

By contrast, people seem to be pretty poor at evaluating investment choices. I have referred previously to the work of Dan Ariely and other behavioural economists on choice and different kinds of value. In particular, people overvalue things they already have compared to future goods. That generally makes it hard to persuade people to stop doing something inefficient and start doing something new and better.

Learning (or not) from past spending patterns

One significant consequence of the way we value our expenditure of time and money, and yet fail to understand its cost, is a tendency to misunderstand change. This may have an impact on sellers as well as buyers.

A good example of this can be seen in the music business. For decades, recorded music was a dominant form of entertainment. From the 1950s until well into the 1990s, significant amounts of people’s leisure budget would be committed to vinyl or (later CDs). As a result, some (by no means all) recording artists and others in the music industry became quite wealthy. The possibility of riches attracted some to the business. Now, with the growth of streaming services such as Spotify, people can listen to recorded music without having to own a copy. As a result, it appears that less money accrues to the original creators than they have been used to.

One response to this drop in income is to reject the whole model — to withdraw from streaming services altogether. Another is to claim that such services should recompense artists at a higher level than they do currently. I suspect that neither of those options will work.

The problem is that, in general, people just don’t have as much money to spend on recorded music as they did. It is rare now to see people regularly “buying two CDs, a DVD and maybe a book – fifty quid’s worth.” Instead they have to commit £20-40 per month on a mobile phone contract, £10 to Spotify, even more for cable TV and broadband subscriptions. There just isn’t the money available to go back to the old way of doing things. Artists demanding that the clock should be turned back are wasting their breath. The simple economic fact is that people don’t generally value music as much as they used to.

Something similar happens within organisations. Without improvements in profitability or increases in income, the amount of money available for investment is finite. When external advisers or internal support teams demand more, their demands will only be ignored. That’s why businesses hate it when legal costs overrun. It is difficult to ignore those demands for payment, but the fact that costs have escalated is a clear indication that the lawyers have failed to understand how the client’s business works. Historically, lawyers’ demands for sustained income have been much more difficult to ignore than recording artists. As new ways of providing legal support move to the mainstream, it will become increasingly easy for clients to choose cheaper (and often better) ways of resolving issues than using traditional law firms.

What’s coming next?

Some folk in the music business appear to have been caught unawares by the changes in the way that people consume their product, and the consequent impact on their income. In fact, services like Spotify were a natural result of developments that they tried to fight (such as illicit peer-to-peer services like Napster and Limewire) and changes in other industry sectors (such as the growth of smartphones and broadband internet services).

New ways of finding and consuming music showed customers how much easier it could be to listen to what they wanted — no need to go to a shop to buy a CD  to play in an expensive player of some kind. They also introduced people to the idea that music could be cost-free, albeit illegally. Once those ideas became more mainstream (as ideas tend to), they became hard to rebut. On that analysis, Spotify is actually an improvement. The options were that artists would either not be reimbursed at all for their efforts, or be paid at a much lower rate than they would prefer.

Had musicians analysed the financial impact of novel areas of consumer spending, they might have realised that their command of a large proportion of that budget was threatened. It appears that few did. By contrast, the music labels and distributors did understand. They did deals with Spotify and the like, so that those services could flourish legally. Those deals had to be done against the background of the streaming services’ likely revenues from subscriptions and advertising, and were therefore informed by how much consumers were realistically going to spend on music.

It is fair to say that few people could have predicted precisely what would happen to the music industry. However, understanding what was going on in and around it should have led anyone to the conclusion that there would be less money available than there had been previously. I suspect that people are still spending as much time as before actually listening to music, so I can see how musicians may be aggrieved that listeners are getting more for their money than they did previously. That may just mean that the music industry was particularly lucky in the past and that luck has now run out.

There are lessons for other sectors where the pace of change has been a bit slower. Everything you do that costs someone time or money is contingent on them continuing to agree to that expenditure. Keep an eye on the things that might reduce their interest in the way you do things.

• Don’t dismiss the upstarts competing directly for your work (even if they are doing so illicitly). The likelihood is that if people like what they do, it will form some part of the future.
• Be aware of how your customers/clients are spending their time and money. If more interesting things are happening somewhere else, you need to move to be with them, whatever it costs you. The alternative is the equivalent of the £3 CD or the £5 DVD.
• Consider the possibility that the riches of the past were abnormal, and that the future may be much leaner. Don’t depend on a return to good times.