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Business Models in the Music Industry Eurosonic Noorderslag January 14th, 2011

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Business models in the music industry?

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Value creation?

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Firms that record, produce, publish, distribute, and market music.

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Fans that listen to (or experience) music.

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How does the musicindustry create,deliver and capturevalue?

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What differentbusiness models doexist in the musicindustry?

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Business Model?

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Business Models?

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Definition_Business Model A business model describes the rationale of how an organization creates, delivers and captures value

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Self Published www.businessmodelgeneration.com 14 translations 70.000 sold copies

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THE BUSINESS MODEL CANVAS

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1. CUSTOMER SEGMENTS

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2. VALUE PROPOSITION

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3. CHANNELS

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4. CUSTOMER RELATIONSHIPS

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5. REVENUE STREAMS

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6. KEY RESOURCES

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7. KEY ACTIVITIES

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8. KEY PARTNERS

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9. COST STRUCTURE

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Key Value Client Activities! Proposition! Relationship! Key ClientPartners! segments! Cost RevenueStructure! Key Streams! Resources! Channels!

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PARTNER KEY OFFER CUSTOMER CUSTOMERNETWORK ACTIVITIES RELATIONSHIPS SEGMENTS KEY DISTRIBUTION RESOURCES CHANNELS COST STRUCTURE REVENUE STREAMS

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The The Music Industry Industry

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A dynamic market a global industry characterized by many players and fierce competition

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A product or service with a mass-­‐market potential

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The role of music in peoples’ lives “Music is something most people love,that no one dislikes and that toucheseveryone throughout their lives” BrandAmp study, Millward Brown, 2007

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A global industry

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Something for everyone

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The creative genius

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Lots of good advisors

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Enough players

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Technology advancements

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Declining sales

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Global music sales Global music sales (physical and digital) excluding VAT 1997: 38 billion USD 2009: 17 billion USD

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Business models in the music industry

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A record company

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The big 4

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Independent labels

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1 main activity

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The business model of a record company

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PARTNER KEY OFFER CUSTOMER CUSTOMER NETWORK ACTIVITIES RELATIONSHIPS SEGMENTS Marke:ng & promo:on Distribu:on channels Detec:ng & Mass market building talent Hits and wannabee hits KEY DISTRIBUTION RESOURCES CHANNELSManufacturers Por@olio of star TV Retailers ar:sts Copyrighted Radio Digital content COST STRUCTURE REVENUE STREAMSMarke:ng & Royalty Tours and Merchandising promo:on Subsidizing payments concerts Huge sales unsuccessful from a few ar:sts ar:sts’ albums

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Piracy

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The dominating phenomenon

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The big discussion

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The business model of piracy

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PARTNER KEY OFFER CUSTOMER CUSTOMERNETWORK ACTIVITIES RELATIONSHIPS SEGMENTS Upload Peer-­‐to-­‐peer Developers of illegal Download All the worlds applica:ons and soGware music Mass market KEY DISTRIBUTION RESOURCES CHANNELSA network of commiLed users User skills, interest and Digital commitment COST STRUCTURE REVENUE STREAMS

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iTunes

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“Rock and Roll will never die. It is, however, being reborn.”

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A new, successful business model

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Very successful

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1 billion songs sold: February 23, 2006 1.5 billion songs sold: September 12, 2006 2 billion songs sold: January 10, 2007 2.5 billion songs sold: April 9, 2007 3 billion songs sold: July 31, 2007

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Steve Jobs announced in his "Its Showtime" keynote that Apple had 88% of the legal U.S. music download market on September 12, 2006

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The business model of iTunes

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PARTNER KEY OFFER CUSTOMER CUSTOMER NETWORK ACTIVITIES RELATIONSHIPS SEGMENTS Hardware/ soGware Lovemark Record labels design Seamless music Marke:ng & Supply chain experience and Mass market Sales management Switching costs great design (music and hardware) KEY DISTRIBUTION OEMs RESOURCES CHANNELS iTunes iPod iTunes Apple soGware hardware store stores Content & agreements Talented Retail stores apple.com Apple brand people (designers) COST STRUCTURE REVENUE STREAMSPeople, design Marke:ng & & development Sales High-­‐volume High-­‐margin content hardware Hardware Music royal:es revenue revenue manufacturing

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Spotify

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“We are going to provide music to everyone (any time, any place) for free in a legal way”

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“Our dream is to collect all the world’s music and make it accessible to everyone.”

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Spotify aggregates content from right holders, distributes it to consumers through the technical platform and monetizes both through a free, ad funded service, and a subscription service.

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The business model of Spotify

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The Business Model of Spotify PARTNER KEY OFFER CUSTOMER CUSTOMERNETWORK ACTIVITIES RELATIONSHIPS SEGMENTS Pla@orm Automated development online and rela:onship Adver:sing Adver:sers maintenance Rightholders 3rd party APIs Communi:es (labels and publishers) KEY Access to DISTRIBUTION RESOURCES music via CHANNELS streaming and Global music Licensing download Internet + fans agreements services PC SoGware and Internet + Pla@orm and network mobile brand engineers COST STRUCTURE REVENUE STREAMS Subscrip:on Royal:es to Bandwith costs Ad fees fees PC + rightholders Subscrip:on mobile Salaries fees PC

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The artist

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“I just want to sing and perform.”

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Crowd-­‐funding paves the way for the independent artist

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€ 40.000 11 days

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€ 24.000 promotion

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The business model of Hind

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PARTNER KEY OFFER CUSTOMER CUSTOMER NETWORK ACTIVITIES RELATIONSHIPS SEGMENTS Musicians & Singing & Songwriters Songwri:ng performing (Social) media Producers Music CD produc:on Promo:on & distribu:on Music fans Videos Artwork & KEY (performance) DISTRIBUTION Studios RESOURCES CHANNELSManagement Concerts Online The Brand Hind Radio/TV pla@orms Tech & tour team Brand Hind.com Music archive Events Band experience COST STRUCTURE REVENUE STREAMS Investment IT, website and concerts, Concerts Merchandising marke:ng transporta:on Salaries Music sales

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Looking back at some major shifts in the music industry

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A fragmented copyright industry made it impossible to set up legal, sustainable business models.

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The gap of legitimate business models for customers paved the way for the rise of piracy.

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The unbundling of the album killed significant revenue streams impacting the whole music industry.

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Looking at some current shifts in the music industry

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Legislation around piracy

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Music distribution

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Shift from ownership to access

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Technology capacity

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Customer in charge

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What do customers want (tomorrow)?

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The Big Challenge in Business Modeling

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Who is my customer?

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What does he or she wants?

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What is he or she willing to pay for?

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Different needs

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Market split-­‐up

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Multi-­‐party scene serving customers needs

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More questions?

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www.businessmodelsinc.com

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www.businessmodelgeneration.com