What Happened When Linkin Park Asked Harvard for Help with Its Business Model

How do musicians make money today? Album sales are down 14%, single downloads are down 11%, and only the streaming services are up, 28%. Technology has forced music artists to completely rethink the way they approach their businesses. We’ve all had to adapt.

The most successful artists in this new landscape have begun to look at new business models and new industries to strengthen their existing brands. They’re extending their brand into areas like technology, gaming, fashion, and lifestyle content — essentially becoming entertainment platforms.

Here at Machine Shop, the wholly owned innovation company of the alternative rock band Linkin Park, we identified the need to think differently years ago. Machine Shop was born in drummer Rob Bourdon’s living room in 1999 when the band was packing CDs and stickers into boxes to send to their very first fans, long before any of their music had hit the radio waves. The band was distributing its self-produced first album, having created buzz for it in online forums and chat rooms and building a community there (this was several years before Facebook and Twitter transformed social media). Jessica Sklar, then the band’s intern and now Machine Shop’s Chief Strategy Officer, evolved the online discussions into in-person meet-ups and events at concerts, developing what came to be known as the “Linkin Park Underground.” This fan club gave the band a deep understanding of the importance of direct relationships. Today, Linkin Park is one of the biggest bands on Facebook, with over 63 million fans across the globe, and is particularly popular in Japan, India, Brazil, China, and Germany (and the U.S., of course).

For more than a decade, Linkin Park and Machine Shop enjoyed success and continued to innovate. The band put out new albums regularly and experimented in video games, art, and video content, among other things. Machine Shop began to offer its grassroots marketing services to other bands, film studios, TV networks, and brands. But by 2013, Linkin Park and Machine Shop had to address the fact that digital music (first downloads and then streaming) had changed the business dramatically. So they began to prepare for their next decade.

A New Model

I met the band at this inflection point. Rather than incremental change, they wanted a true paradigm shift, so the group tapped me as Machine Shop’s Executive Vice President. I had experience in marketing, business, and finance — all of it outside the traditional music business. When I looked at the global reach of Linkin Park, and the potential business opportunities outside the narrow category of music, I could see plenty of “blue ocean.”

We restructured Machine Shop to focus on innovation through non-traditional business partnerships and creative design thinking. Over the course of a year, we built strong case studies in fashion, design, and technology. Once this groundwork was laid, we realized that the traditional music management model would have to evolve to support these innovation activities. Most management companies consist of music industry professionals and digital departments that support music marketing activities — but what we were trying to do just didn’t exist within that framework.

So we parted ways with our outside management agency in late 2014 and we brought all core business operations in-house. As co-lead vocalist and founder Mike Shinoda puts it, “Our goal was to build an internal team of diverse talent to support the non-traditional endeavors the band plans to pursue in the coming years.” The move allowed us to venture freely into diversified revenue models to complement our music sales. Our business now operates like a tech startup, with less hierarchy and far more agility.

Enter Harvard Business School

To help think through this critical strategic restructuring, we turned to a leading expert on marketing strategy for media and entertainment firms, Harvard Business School Professor Anita Elberse. In collaboration with Elberse and her students Blaire Lomasky, Neil Wusu, and Jingping Zhang, we conducted a semester-long independent study on the business of Linkin Park.

During Phase I of the study, we did extensive research into the businesses of music industry innovators: the merchandise strategies of Tyler, The Creator, the joint ventures of Jay Z, and the tech incubation and investing of actor Jared Leto. We unpacked the strength of Trent Reznor’s creative partnership with Beats Music, the diversification of Pharrell’s content platform i am Other, and the positioning of Beyonce’s management company, Parkwood Entertainent.

In this phase we learned that we need to:

• Build a differentiated brand ecosystem that partners want to buy into
• Use creative content to communicate our brand’s point-of-view
• Ensure that our brand ethos is clear and that it’s reflected in every brand touchpoint
• Diversify revenue streams across multiple business verticals to mitigate financial risk and extend our brand message
• Partner with a broader community or network of global influencers to remain tapped into bleeding-edge cultural trends

In Phase II, we dissected the Linkin Park ecosystem and architected a framework to execute our new long-term vision. We restructured Machine Shop, moving it from a brand agency model to a multi-pronged innovation model based on four verticals: video content, global brand partnerships, merchandise, and venture capital.

Beyond Music

Having completed the study in early May of this year, we’ve already started to implement key HBS strategies. In mid-May, we launched Machine Shop Ventures, our venture capital firm, which will focus on investing in early-to-growth-stage consumer-focused companies that align with the band’s ethos of connecting people and innovation through tech and design. We want to share with our portfolio companies what we know about maintaining a brand in the cultural zeitgeist; we look forward to learning from them about internal company culture, vision, and creating new business. So far we’ve invested in Lyft, Shyp, Robinhood, and Blue Bottle Coffee to name a few.

We’ve also ramped up our brand expansion and merchandise business with the recent hire of Lisa Kidd, who was a driving force in the business development of Gwen Stefani’s fashion lines L.A.M.B. and Harajuku Lovers. To help with strategic thinking, we hired Michael Seversky, who was responsible for strategy, corporate development, and market insights at Beats by Dre.

To be clear, we are still in the music business, but creating and selling music now plays more of a supporting role in our overall business mix. As we get ready to headline a five-city stadium tour of China this summer, we are also planning to meet with technology companies, consumer brands, and venture capital firms to discuss opportunities for partnership. Of course we’ll play the shows and meet with fans, as we’ve always done. But along with continuing to make great music, today’s Linkin Park is now better positioned to operate in the ever-evolving cultural and business landscape.

This blog first appeared on Harvard Business Review on 06/23/2015.

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