The Music Industry Is Dying, But That’s OK.
In 1999 Napster almost killed the music industry. Apple’s iTunes appeared and finally got people to start paying for digital music downloads, but it wasn’t unveiled until four years after Napster.
“That four-year lag is where the music industry lost the battle,” says Sonal Gandhi, music analyst with Forrester Research. “They lost an opportunity to take consumers’ new behavior and really monetize it in a way that nipped the free music expectation in the bud.”
Now, eleven years since Napster, the music industry is worth half of what it was in 1999. According to Forrester Research, the total revenue from U.S. music sales and licensing plummeted to $6.3 billion in 2009, that is a $8.3 billion drop in revenue since 1999. On the converse, Forrester is also saying that CD sales will be declining at about the same rate that digital downloads are growing.
Many industry insiders argue that the primary reason that the industry has see such a devastating decline is the growing popularity in digital music, which over the next couple of years will be over taking CD sales. David Goldberg, the former head of Yahoo Music, told CNN “The digital music business has been a war of attrition that nobody seems to be winning, the CD is still disappearing, and nothing is replacing it in entirety as a revenue generator.” Essentially, digital sales are replacing the declining CD sales, but they aren’t making up for the decline fast enough and there is still the $8.3 billion sales change to account for.
Now What?
What everyone is seeing as the downfall of the music industry may actually be its greatest rebirth. In the face of declining sales, the infinite accessibility of the internet has exposed a massive audience to more music then ever. The industry is beginning to adapt to these new, content carnivorous consumers – how, where and when they listen to music has caused massive growing pains over the last year – they are just recently starting to touch the surface on how to monetize these changes.
According to Forrester, currently only 44% of U.S. Internet users and 64% of Americans who buy digital music think it is actually worth paying for. So how do we create more worth for the consumer?
The industry tried to keep up through multiple licensing opportunities – ring-tones, web-radio station like Pandora and music videos on YouTube. Digital licensing reached $84 million in 09′ and will continue to grow, but this is just putting a price on new media outlets, making it very analogous to the old industry model.
A few artists and their record labels have begun to do things properly, focusing on a holistic approach. Lyor Cohen over at Warner Music Group has created his own approach to the changing market called a “360 deal,” which is a full-service contract with artists that includes everything from touring and merchandise to digital services and marketing. According to Fastcompany, WMG’s digital sales were up 11% last quarter, with digital music making up 30% of its revenues worldwide and 47% in the United States.
It’s product innovation, combined with a flexible program catered to each artist and their fans, that will get sales out this rut. The music industry should bend its focus towards baked in solutions that allow each band the ability to reach its listeners through a multitude of formats. These new formats and platforms are where new revenues will be found.
Here is the tough part for everyone involved, including the band – these new formats and their platforms require much more content to be produced. Any consumer with a broadband connection and a search bar can find almost any music for free, what they will be missing out on – if this new model is embraced – is the complete experience. A complete experience that their friends will be talking about and they will want to be involved with. A complete experience that can only be found through purchasing access to all the formats, platforms and streams.
A great example of someone who is on the right track is the band Gorillaz. Over the past couple years, they have released a complete playground for their listeners that takes them completely into the third chapter of their album - “Plastic Beach” – with an iPhone game, multiple exclusive fully interactive iTunes LPs, an interactive environment, and multiple media outlets for their fans online – all of which they push digital album, app, LP and ticket sales through.
Efforts like these are the next step towards a reborn music industry. Fully interactive experiences where consumers are paying to access each additional stream of content, in my opinion, is the key. I could see a lot of truly interactive efforts launching over the next few years that help to improve sales for the artists and labels as well as enhancing the relationship between the consumers and the artists.
What if the your favorite band launched an app that included an audio stream of what the band themselves actually listen to, where you could rate and suggest tracks to the artist? An app that you brought with you to concerts that streamed the live concert you are at to your phone, so that those at the concert who are out in the nose bleeds could get the live, close up experience as well – call it Concert Binoculars. Would you pay $1.99 for it?
It’s going to be a game of innovation and the label that can offer the best ways to access their bands will pull the best sales.
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In my opinion, subscription services will never work. First of all, it costs nothing to reproduce a digital song for retail. There's no printing, no packaging, no shipping. Second of all it's naive to think that if a song is popular, people won't be able to get it for free. Why even support an option where you leave yourself open to piracy, especially when there is an alternative. Remember, people online DO have a choice now..free or paid…same content, personally I choose free, but I don't download my music, I stream it, leaving opportunities for ad revenue to be generated.
The alternative to pay is free, direct to consumer. Think about it, people WILL get it for free if it's popular. Why not give it our directly if you're the artist, then you can finally track ALL of your fans for the first time, and then you can use those increased numbers to get you ad revenue.
Don't mean to plug but this model is in beta now, I am currently developing it. We will help artists negotiate with the advertisers for just prices for their ad space. Artists will use their popularity as leverage and set their own prices, giving them full control over their career. We also offer some pretty innovative methods of music discovery that will increase the level of efficiency artists get out of promotion online, by using recommendations from friends and people you trust.
Effective promotion & distribution coupled with a system for negotiating with advertisers for ad space, could spell a very independent and healthy music industry ahead online. Like you said, it's about innovation, but it's also about facing facts, realizing trends, and capitalizing on them to swing the momentum back in your favor.
Thanks for the comment!
I guess I may not of been clear, I wrote that the music itself can’t be controlled. It is free, everyone has access to it now. I was trying to point out that the best way for labels, bands and their advertisers to leverage the opportunity that the web brings – is to innovate and create new streams of content.
Like I said:
I really like the idea you have set in motion, its very creative way to re-monetize an existing access stream to bands and their music. What I was emphasizing was the need for new streams and/or access points to the bands and their media, rather then the re-monetization of current models.
What do you think?
[...] 3, 2010 · Leave a Comment Pretty sweet article by MDavid [...]
I think that if we could create a system where we can properly monetize the existing content, then we wouldn't need to find new ways, however I do think this shift will mean adopting new technologies and new user interfaces with more refined user connection and recommendation than what is currently in place, in order to finally be in a position to prosper strictly off of mp3's or, even better in my opinion, high quality streams.
The internet is really not set up to handle music right now. That is why we're in the predicament we're in right now. The web is a fundamentally visual medium. It's easy to post a picture of your new painting as your facebook icon for everyone to see, but if you tried just playing your music everywhere you go without asking, you would get blocked pretty fast. Most sites don't even give you the choice to do this because it's considered audio spam.
So there actually needs to be a shift in online technologies before a solution for music can be reached. All other music websites up until now have accepted the standard web layout and have just used what was there, but this doesn't really leave enough slack for music to succeed properly. There needs to be innovation tailored to music. It all comes down to the end user in the music world – the fans. That's ultimately who you want to reach so you need to solve their problems in order to solve yours. If you can innovate how fans are able to discover music (that they will like!) you will have solved a large chunk of the problem.
That is what my company is working on. We approach it by using people you trust, your friends and your favorite artists, to recommend songs to you. You "follow" these people, and anything they like enough to save into their own playlists(essentially vouching for it) automatically gets sent to your radio. It's actually very similar to your band app example. Then if you like a song enough to save, it automatically gets sent to anyone following you. It's essentially a viral, automated word of mouth, the best kind of discovery for fans, and also happens to be a source of free promotion and distribution for artists (as long as their music is good) It levels out the playing field and gives talented artists a better chance to succeed in the ocean of artists regardless of their connections or budgets. Link this together with the advertising revenue for the artists and the free music for the fans, and you've built a system to actually use file sharing as a driving force for direct artist revenue instead of a limiting one, eventually making piracy irrelevant.
When you talk about access, from the consumer standpoint again, it's all about ease, and ease means 1 one place for all things music, (think iphone as the ultimate multi tool) including new kinds of access such as live streaming concerts, 3D virtual meet n greets, live fan-artist "press conferences" and whatever else the 3rd party developers want to come up with. It means a new kind of social network. I think that a solution can be reached for music without resorting to profoundly creative new kinds of access, but interestingly enough, once you have solved that fundamental problem, you've then actually positioned yourself perfectly for encouraging and implementing new kinds of innovations, just by the nature of the shifts that needed to be made to get there in the first place, and everything else then is just icing on the cake. It's not yet time to give up on a sustainable model for music, it just means, like everyone has been predicting, a shift away from the labels, to a more independent, practical and self-sustaining online approach.
Wonderful response, thank you!
– This is the exact shift I'm talking about. The shift in online technologies will inherently be a mix of the re-monetization of older models, as well as the creation of completely new access models to bands and their media (both music and things like what the Gorillaz are doing)
Very interested in what you guys are working on, how can you get me on a beta test team for it?
[...] Following is my response to a very interesting article I actually posted on this blog yesterday: The Music Industry is Dying, But That’s Okay. I commented on the article and received a response from the author that sparked some interesting [...]