Like a virgin
An interview with Richard Branson, founder & chairman of the Virgin & Voyager Groups of Companies.
By Anthony B. Perkins
From December 1995 issue of Red Herring
At 16, Richard Branson formed his first serious enterprise when he launched Student, a U.K.-wide magazine for his peers. A few years later, he parlayed his publishing experience into founding Virgin as a mail-order record retailer, and shortly thereafter, he opened a record shop on Oxford Street in London. By the time he was 22, he had built his own record studio. Over a 20-year period Virgin Records worked with artists such as Peter Gabriel, The Human League, Steve Winwood, Simple Minds, Phil Collins, Janet Jackson, and The Rolling Stones and grew into the sixth-largest record company in the world. Somewhere along this magical mystery tour, Mr. Branson founded Virgin Atlantic Airways, which has since grown to become the second-largest British international airline--and he also found time to sail his boat and fly his hot-air balloon across the Atlantic in record time.
In 1992, Mr. Branson rolled up Virgin Music Group's assets--the record labels, music publishing operations, and recording studios--and sold it all to Thorn EMI for a cool billion dollars. Not quite ready to retire yet, Mr. Branson took his kitty and built the Virgin Group into international "Megastore" retailing, book and software publishing, film and editing facilities, and clubs and hotels; altogether over 100 different companies operating in 15 countries. The combined annual sales of the Virgin Group of Companies now well exceed $1 billion. The Herring caught up with Mr. Branson when he was visiting one of his more recent startups, Virgin Sound & Vision, a Los Angeles-based interactive software publishing company. Our visit with Mr. Branson also happened to coincide with the launch of Virgin Cola, a soft drink that he thinks will give Coca-Cola a run for its money. Listen in and find out why things just might go better with Virgin.
Perkins: The Virgin Group of Companies represents every aspect of the publishing food chain--from artistic talent, to multimedia production, to mega-retail distribution. Is it accurate to assume that this was all part of a well-calculated plan on your part?
Branson: I suppose quite early on, we started by signing artists. And the artists needed a recording studio, so we built a recording studio, and they needed a video studio, so we built one of those, and they needed to export their records, so we started an export company. We also found that it is nice to make films, so you can use your artists' music for the soundtracks. Now none of these were essential, but fairly early on we decided that we might as well be masters of all these areas, so we could make sure the quality standards were high. And, effectively, we were building up businesses that were valuable in their own right. Since then, we have gone into completely different areas, such as the airline business, but we have followed the same philosophy. Now we have our own freight company, our own courier company, and our own holiday company.
Perkins: In the early days, it seems that all your business units grew almost organically. You appear to be pursuing a slightly more aggressive strategy these days.
Branson: Yes, with the entertainment business, one thing led to the other. I think the reason Virgin Records became the strongest independent record company in the world was that instead of licensing our product to other companies overseas, we set up our own companies in each of the key markets around the world to handle our business. So in France, not only did we have our own company distributing our foreign product, but we also had another company signing bands, like Telephone and Renault and all the top French bands, as well. In the end, 50% of our sales in France came from local product. We always like to be in control as much as we can. Just as here at Virgin Sound & Vision we were discussing whether we should license our titles to somebody else. The danger is that your product takes second place--their own product gets preference. So we generally try to control everything as best we can.
Perkins: In 1992, just when the Virgin Music Group appeared to be on top, you sold out. Why?
Branson: I suspect that any successful entrepreneur who didn't go into business to make money--you know, they went into business to find something to do, or for the fun and challenge, or to prove something to themselves, like I did--is going to hit a point where things become incredibly successful, and it almost becomes boring. And in a strange way, when I got to that point in the entertainment business, I tried to create difficulties for myself, like going into the airline business, for instance. Now that the airline business is finally well-established, it's time to take on Coke, or to start moving into the financial services business. I don't like the idea of getting comfortable. The sea life is one long challenge.
Perkins: So there hasn't been a well-plotted financial plan in your activities?
Branson: No, we have never had a game plan, like the idea that the company is worth x million dollars now, and in five years it's going to be worth x million-plus. It's been more opportunistic, I suppose.
Perkins: An innate aggressiveness.
Branson: Well, there are a lot of fat, complacent industries that have ripped off customers for years because of their monopolistic size. We've just tried to take advantage of that. In the airline business, for instance, all the prices were fixed very high. And the fact that Coke has had only one main competitor is almost unheard of in any other business. The same went for the record business. When we first started Virgin Records, the big record companies had been ripping off artists for years. So it's been kind of fun to go into these businesses and try to shake them up by offering better value to the consumer, and to make a profit for oneself at the end of the day.
Perkins: And to do it all with style.
Branson: Exactly.
Perkins: : Virgin has also been the master of building brand value.
Branson: To be honest, we only really began to realize, say in the last couple of years, how powerful the Virgin brand name has become. To young people all over the world it seems to mean a sense of youth, quality, innovation, and fun. Having realized this, the idea of putting the Virgin name on a new cola started to make sense. Of course, you must have a product that tastes as good, or better--and we believe we've got that.
Perkins: There probably aren't too many brand names that could take on Coca-Cola.
Branson: In the first six weeks after we launched Virgin Cola in Britain, we sold 60 million cans and captured 10% of the total cola market in Britain. Coke dropped from 56% market share to 43%. And we believe that within 12 months we will overtake Pepsi, and within five years we should overtake Coke. That's the value of a brand name. It's so powerful that we can go into a completely different industry and capture 10% of the market on day one. It's a very exciting position to be in. We now have almost everybody in Britain with any product, from soap-pads to paging phones, coming to us and asking to use the Virgin name.
Perkins: At some point you begin diluting the value of the brand, don't you?
Branson: The key to making sure the Virgin name stays fresh and successful is obviously not to overdo it, and to make sure any product we apply it to is really going to go in there and shake up the industry it's in. So we are really only working with products that we think can grow into global billion dollar businesses within five years, businesses that are also fun to build.
Perkins: This will be sort of a ridiculous question, but if you had to start all over again today, and you could only own either the Virgin brand name or all the intellectual property you currently own, which would you choose?
Branson: Oh dear. I think the Virgin name is the most valuable, as long as we could apply the name to any product or any industry we wanted to. A brand name that has a global reputation for quality is more powerful than almost anything. If you have that to start with, it is relatively easy to build industries.
There are a lot of fat, complacent industries that have ripped off customers for years because of their monopolistic size. It contradicts everything else I have ever believed in, which can be summed up in the phrase "Small is beautiful."
Perkins: In a sense, you have been surrounded by technology your entire career. When did you start appreciating the value of interactive technology?
Branson: It began a few years back, when I realized that my children were spending more time playing interactive games than listening to music. That's when I decided to buy the rights to Sega games for the world outside of Japan. Over the last 8 to 10 years, we've built Sega into quite a powerful force in Europe--it is stronger than Nintendo there. We also saw great possibilities with interactive technology in some of our other businesses. We have a 15-channel video system on all of our planes, for instance. So the idea that passengers can sit down and play one of Virgin's latest CD-ROMs for three or four hours on the plane seems perfect. Explore the world while you are traveling across it, if you will. Of course, we hope they enjoy the titles so much that they go out and purchase them in one of our Megastores, which would then complete the circle.
Perkins: What's the mission of Virgin Sound & Vision?
Branson: What we are doing here is all kinds of children's and family reference CD-ROM products--the ones that are not adrenaline-based. Many believe that this segment of the market could end up being bigger than the entire game business. I can see how this growth may happen, now that my oldest child is 13 and starting to lose interest in games, and moving on to music and educational CD-ROM titles where she can actually get a little bit more out of the experience than a thrill. For us, it is a business that may lose money for two or three years, because it's still in its infancy. But CD-ROM titles are the fastest-growing part of our Megastore business, and if you can be in on the ground floor of a business like this you can become synonymous with that business--people will come to you first, when they want to publish their titles.
Perkins: A lot of your philosophy sounds like that of Peter Gabriel. He has an altruistic side to what he does, as well.
Branson: You're a Peter Gabriel fan, yeah?
Perkins: Well, he's just a great guy. I consider him a friend.
Branson: Yes, he is. I think we both see interactive technology as the future for education, worldwide. Perhaps it won't matter so much if you have a bad teacher in school, because the good teachers will be the programmers here who are spending hundreds of millions of dollars creating great educational material for everyone. This will really change the face of education over the next 10 years.
Perkins: What is the biggest challenge for Virgin Sound & Vision?
Branson: CD-ROM titles are that rare product that can be sold in book shops, record shops, video shops, and generally in a much broader range of outlets than records or books. And that's the challenge, having these outlets give your product the shelf-space.
Perkins: Is the mission of your Megastores then to be the ultimate outlet for entertainment and educational content?
Branson: Yes. We want to be the best record shop and CD shop in town. We don't necessarily want to be the best book shop, because we would have to have a huge shop to do that, but we want to be the best in records and CDs.
Perkins: How do you accomplish that?
Branson: Well, unlike most businesses, to be successful in the retail business you have to offer the customer the widest range of quality product. Then you need to break up the space in your shops into specialty areas and have people running those areas who have developed a specialty in what they are selling. It contradicts everything else I have ever believed in, which can be summed up in the phrase "Small is beautiful."
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