2. Abstract
The digital economy has created a set of challenges that require different skillsets than what was to be
expected pre-information age. Arguably for businesses of fast moving consumer goods in particular, like
the music industry.
This submission seeks to summarize and shed light on the development and events that has effected the
music industry in particular as a consequence of technological change and innovation in the digital
space. Lastly, this submission contains reflections on what the future will arguably look like for the
industry, based on innovative solutions that are receiving a substantial amount of attention at the time
of writing.
3.
4. Technological development - introduction.
Inventions that makes music more accessible by for example improving the format or introducing a cheaper
alternative, will logically result in an increase in consumption. In his article, Dan Albright (2015) seeks to shed light
on the way we’ve consumed music up until present day.
1877 – The phonograph.
Attribute:
First commercial format for
Recording and
Reproducing sound.
1920 – Commercial radio
Attribute:
People no longer needed to buy
a physical product in order to consume
Music in their home. Also served as a
Promotional tool.
1958 – The cassette tape/
1979 – The Walkman
Attributes:
Allowed you to carry your
Music with you, as well as
The opportunity to create
Your own mix tapes
1980 – The CD
Attribute:
More storage space and able
To render high quality audio
2001 – The IPod & ITunes
Attributes:
The IPod introduced a more
Efficient and tidier way to
Categorize your music as well
As more storage space.
ITunes made the act of purchasing
Recorded music an effortless venture
5. But what happens when innovative ways to consume music alight as a result of an
unattended need amongst consumers? In 1967, The Marine broadcasting offences
Act (1967), became law in the United Kingdom. Its purpose was to put an end to
offshore and unlicensed radio stations like radio Caroline that tended to the need
which official radio stations like BBC Radio failed to. (Fleming & Wilby, as cited in
Wikipedia 2016).
The technological advancement in radio instruments made it possible for to
broadcast sound from international waters. This is comparable to how peer-to-
peer technology (P2P) allows anyone with a computer to effortlessly distribute and
obtain recorded music. Thus when Napster emerged in 1999, use of the software
was reffered to as “piracy” as it too infringed upon copyrighted material.
Disruptive innovation in recorded music.
“Systematic file sharing began with Napster. After its introduction in June 1999,
Napster quickly became popular among Internet users.
The number of users grew extraordinarily, and numerous music files were exchanged via Napster”.
(Hong, S. p299. 2013)
6. The economical impact of music oriented P2P
services.
Comparable to The marine broadcasting offences Act, the industry sought out
to stop what Christensen (1997) refers to as a “disruptive innovation” through
legal action, as it interfered with the industry’s current business model.
The exact effect of illegal downloading is a discoursed topic. According To
IFPI (2010), overall music sales dropped by 30 percent between 2004 and
2009 due to illegal file sharing. During that particular time period, the P2P
service “Limewire” was in the spotlight. arguably due to it’s amount of users
and therefore activity, As it claimed to have “50 million unique monthly users”
at the time, according to Kravets (2010).
It can be argued that this led to the case of Arista Records LLC v. Lime Group
LLC, where the RIAA suggested that the Lime group owned them 75 trillion
dollars in statutory damages.(Purewal, 2011). In the same article, Purewal
brings up Judge Wood’s comment that the entire worlds GPD was
somewhere between 59 and 69 trillion dollars.
Source: http://www.ifpi.org/content/library/DMR2010.pdf
7.
8. Increased connectivity.
Even though both Napster and LimeWire's venture ended as a result
of the music industry’s legal actions, they raised an important issue.
Namely that there is a development in digital technology that affects
the entertainment industry in particular and that it needs to be
monetized.
Additionally, as Wikström argues in his book The music Industry
(2009) there has been a shift in power from industry to consumer as a
result of the internet. He introduces the concept of increased
connectivity, which seeks to explain how the consumers now controls
the flow of information, resulting in an information overload.
Thus, offering a service that focuses on personalized curation is more
of a proper value proposition, being reminiscent of the record store
employee who knows your personal taste.
In a world where information is abundant, people may not be
willing to pay a premium for basic access to that information, but
they are most likely willing to pay for services which help them
navigate through the vast amounts of information. (p.7)
9. Streaming.
In 2003, Rhapsody was launched. As opposed to Napster, it sought out
rights holders before it’s launch in order to legitimize their business.
(Evangelista, 2002) Being a streaming service, it offers a flat fee per month
in return for access to its catalogue of music. The daring revenue model is
arguably why rhapsody failed to appeal to anyone outside the niche-
segment, as it currently has a user base of 3.5 million paid subscribers.
Spotify is at the time of writing, the leading music streaming service in the
world, with 30 million paying subscribers. (Richter, 2016), It’s success is
arguably due to it’s strategy, which adheres to the words of Wikström
more so than rhapsody’s. By offering an ad-funded alternative to the flat
fee, acquiring the customers whom have gotten used to not paying for
music is more likely.
In terms economical impact, streaming services like Spotify favours
popular music. A right holder’s pay-out is determined by their “market-
share”(Spotify, [no date]) , as opposed to when music was sold as a
product with a fixed price. Therefore, one could also argue that the more
the service is being used, the less a stream is worth.
https://www.statista.com/chart/3899/paid-subscribers-of-music-streaming-services/
http://www.spotifyartists.com/spotify-explained/
10. The value gap in streaming.
Another complication with the current online economy is value gap tied to the ad-funded model of
streaming. In their latest report, IFPI (2016) points to YouTube as the biggest contributor to this issue
with their estimated 900 million users.
11. Consumer behaviour in the online economy.
With digitally driven revenues topping physical sales in 2015 (IFPI, 2016), the way consumers discover,
consume and share music has also changed. The amount of activity-related playlists within services like
Spotify suggest that consumers regard music as a means to complement an activity rather than a
separate product requiring their full attention.
Consumers now also have access new channels
for discovering music, for instance by using a
streaming service’s own algorithm to filter out
irrelevant genres and styles. The enclosed
picture are findings from Eventbrite’s (2016)
own survey on music discovery.
12. B2B Data companies
With the importance of online consumption and promotion,
came the importance of data. This need has given birth to a
plethora of companies offering data-mining, processing, etc. The
industry has come to realize that with music being more
accessible, the marketplace is also subject to more noise. In a
saturated market, accuracy is key and thus have these companies
become somewhat desirable.
In 2014 Spotify acquired Echo nest, arguably as an effort to
better their understanding behavioural marketing. The same can
be said for Apple, who acquired “Musicmetric” in 2015
There has also been a growth in similar companies offering data
directly to industry people, in return for a subscription fee. For
instance “Big champagne” or “next big sound”.
Streaming has also revolutionised the ability of record labels and platforms to use
data to understand their customers’ needs and inform marketing strategies.
Record labels and services have more touchpoints of data than ever before and
are able to see instantly when and where tracks are played, shared and stored,
and the quality and depth of fan engagement. (IFPI, p.20. 2016.)
https://www.nextbigsound.com/profile/356
13. Alternative income streams
Additionally, The online economy has
given birth to several alternative income
streams that wouldn’t been possible
before the digital age. The following are
some examples:
14. Tone emulation, profiles
and pre-sets
Music production has become more affordable and tone
emulation more popular. Products like Toontrack’s “metal
guitar gods” pre-set offers a means to navigate the vast
amount of information in return for money. Just like a
guitarist would endorse a guitar brand, he or she would
endorse this particular pre-set.
Similarly, “The amp factory” is a company consisting of a
single man who makes money of profiling amplifiers
then selling them online for others to use.
15. Live concert streaming and VR.
With streaming solutions being adopted by commercial music festivals
like Coachella and Tomorrowland, it has arguably already become an
additional source of income. Not to mentioned the success of boiler
room, which has a user base of 1.5 million active subscribers. (Wikipedia,
2016)
With the current development in virtual reality technology and 360-
degree video production, Promoters will arguably be able to offer an
immersive alternative to those who can’t physically attend their events
in the future.
For instance has Youtube at the time of writing recently announced that
they will be streaming a selection of artists’ performances at this years
Coachella in the 360-degree format. (Mohan, 2016)
http://www.forbes.com/sites/ericaswallow/2013/07
/21/livestream-concerts/#6c7994e752d3
16. Teaching
Matt Halpern is the drummer of the band “Periphery”. He is also
the founder of the service “bandhappy” which was shut down at
the end of 2014. The service offered online music lessons and
feedback by Matt himself, along with a selection of other well
known artists. (Neilstein, 2014).
It wasn’t a particularly innovative service in itself, as there’s a
plethora of services offering online education. However, for artists
that depend on touring for income, services like bandhappy can
provide another source of income that can be combined with
touring.
17.
18. The future of streaming
With the amount of paying subscribers increasing
worldwide, It looks like streaming is here to stay.
As mentioned in IFPI’s report for 2016: countries Like
Germany and Japan is having a harder time adopting the
streaming services.
There also lies a considerable challenge with the older
population. In 2014, 80% of the Norwegian population
between the age of 15-29 years were using streaming
services. As opposed to the age group of 45-59 where only
28% were familiar with these services. (Thorsby, p.5. 2014.)
One could argue that this is an issue that will solve itself
with time, as the current youth will grow old at some point. Subscription services have seen dramatic expansion in recent years.
An estimated 68 million people worldwide now pay for a
music subscription service, up from 41 million in 2014 and eight
million when data was first compiled in 2010. (IFPI, p.17, 2016)
19. The growth in live music
In the UK, live music revenues for 2015 increased by 17 percent
compared to the year before. (IFPI, p.34, 2016). It could be
argued that the growth in live music is predominantly due to
piracy and the loss of revenue that followed, forcing artists to
tour for money.
As previously mentioned there is currently a lot of technological
development going on related to live music which might
consequently result in even more revenue.
The future for live music is promising regardless. The enclosed
chart from PWC shows their prediction of the live market in the
future.
http://www.pwc.com/gx/en/global-entertainment-media-
outlook/assets/2015/music-key-insights-1-growth-rates-of-recorded-and-
live-music.pdf
20. New innovation and alternative income streams
Considering the alternative income streams mentioned earlier, The growth in live music makes live
concert streaming look the most promising, as the other two are arguably unsustainable markets in
terms of size. However, streaming concerts has it’s challenges too, according to Knopper (2014).
There is however little to stop the world from coming up with new solutions to further growth in all
areas of the industry. One such industry cluster which has been important in regards to
entrepreneurship and innovation thus far, is the “Midemlab” start-up competition. Industry events like
“Midem” or “SXSW” are important for the industry’s growth in general, but with all start-up hubs
surfacing regardless of industry, one could argue that clusters like Midmlabs have been a long time
coming.
21. Reference list
Albright, Dann. (2015). The Evolution of Music Consumption: How We Got Here. Available at: http://www.makeuseof.com/tag/the-evolution-of-music-
consumption-how-we-got-here/ (accessed the 10/04/2016)
‘Boiler Room (music project)’ (2016) Wikipedia. Available at: https://en.wikipedia.org/wiki/Boiler_Room_(music_project) (accessed the 22/04/2016)
CHRISTENSEN, Clayton, M. (1997) The innovator’s dilemma : when new technologies cause great firms to fail. The management of innovation and
change series. Harvard Business School Press. ISBN 0-87584-585-1
Evangelista, Benny. (2002). “Industry starting to endorse Net music / Listen.com to offer songs from all five major labels” sfgate. Available at:
http://www.sfgate.com/business/article/Industry-starting-to-endorse-Net-music-2801248.php (accessed the 10/04/2016)
Eventbrite, (no date) From Stream to Ticket: Mapping the Value of Music Discover. Available at: https://www.eventbrite.co.uk/l/value-of-music-
discovery/ (accessed the 22/04/2016)
Fleming, Carole. Wilby, Peter. (2002) Wikipedia. Available at: https://en.wikipedia.org/wiki/Pirate_radio_in_the_United_Kingdom#cite_note-
Fleming_2002_32-5 (accessed the 10/04/2016)
Hong, S. (2013). MEASURING THE EFFECT OF NAPSTER ON RECORDED MUSIC SALES: DIFFERENCE-IN-DIFFERENCES ESTIMATES UNDER
COMPOSITIONAL CHANGES. Journal Of Applied Econometrics, 28(2), 297-324. doi:10.1002/jae.1269
IFPI, (2010) Digital music report 2010 Aviliable at: http://www.ifpi.org/content/library/DMR2010.pdf (accessed the 22/04/2016)
IFPI, (2016) Digital music report 2016 Available at: http://www.ifpi.org/downloads/GMR2016.pdf (accessed the 22/04/2016)
22. Reference list
Knopper, Steve (2014). ‘Why Live Concert Streaming Has Yet To Take Off.’ Billboard. Available at: http://www.billboard.com/biz/articles/news/digital-
and-mobile/5915586/why-live-concert-streaming-has-yet-to-take-off (accessed the 22/04/2016)
Kravets, David. (2010) «LimeWire Crushed in RIAA Infringement Lawsuit». Wired. Available at: http://www.wired.com/2010/05/limewire-crushed/
(Accesed the 10/04/2016)
Marine, &c., Broadcasting (Offences) Act 1967, c.41 Available at: http://www.legislation.gov.uk/ukpga/1967/41 (accessed 10/04/2016)
Mohan, Neal. (2016) ‘One step closer to reality: introducing 360-degree live streaming and spatial audio on YouTube’ Youtube official blog. April 18.
Available at: https://youtube.googleblog.com/2016/04/one-step-closer-to-reality-introducing.html (accessed the 22/04/2016)
Neilstein, Vince. (2014). ‘Matt Halpern is Shutting Down BandHappy.com’ Metalsucks.net. Available at: http://www.metalsucks.net/2014/11/19/matt-
halpern-shutting-bandhappy-com/ (accessed the 22/04/2016)
Purewal, Sarah Jacobsson. (2011) “RIAA Thinks LimeWire Owes $75 Trillion in Damages” PCworld. Available
at:http://www.pcworld.com/article/223431/riaa_thinks_limewire_owes_75_trillion_in_damages.html?_r=1&hp (Accessed the 10/04/2016)
Richter, Felix. (2016) “Where Tidal Stands 12 Months After Its Relaunch” Statista. Available at: https://www.statista.com/chart/3899/paid-subscribers-
of-music-streaming-services/ (accessed the 11/04/2016)
Spotify, (no date). Spotify explained. Available at: http://www.spotifyartists.com/spotify-explained/ (accessed the 10/04/2016)
Thorsby, Marte. (2015). ‘Musikkåret 2014’. Available at: https://dl.dropboxusercontent.com/u/26234926/%C3%85rsrapport_Ifpi_2014_low.pdf
(accessed the 22/04/2016)
Wikstrom, patrik. P.5-7 (2009) The music industry. Polity press.
