Internet has disrupted the classic model of the recorded music industry whereby an artist would record a CD, which would generate sells by being promoted on the radio and through live tours. Today people can have access for free, legally or not, to music and the sources of revenues are depleting. This challenge needs to be addressed by music producers who tended to either ignore the facts or stick to the status quo.

New behaviour

The younger generation is the one who largely changed behaviour. Their parents still listen to CDs on their stereo.

The first change was the peer-to-peer downloading platforms that were quickly banned. A paying system that proved more efficient and user friendly took over: iTunes. This proves that a better offer will always be preferred even if the user has to pay for it.
Nonetheless users are shifting from owning the songs to having a simple access to music. That is the streaming model. Acknowledging this trend Apple acquired Dr Dre’s Beats Music, rebranded Beats music, to soon compete with existing streaming platforms. Deezer and Spotify use the freemium model in which 3-7% of the users pay to have a better service, no commercials to interrupt the music, which balances out the rest of the free users. Similarly YouTube, Google-owned, announced this month the creation of a monthly paying platform, YouTube Music Key that will leverage the available music videos by offering off-line access and no commercials.
This raises the issue of the artists’ remuneration. Streaming platforms are known for not paying as much money as CDs sales would amount for. Nonetheless a website like Spotify pays royalties to the artists, 6 million dollars for Taylor Swift for instance, when she actually decided to withdraw all her songs from the platform antagonizing her 2 million followers. There is a lot of heated debates and ideology underlying the current transformation of the music industry.
Another current trend is to move away from computers to mobile. Each streaming platform has its app and new apps are developing to make it even easier to listen to music. No need to carefully plan playlists anymore, the app called Songza will do it according to the selected mood of the listener.
Finally mobiles are becoming remote controls to play music as the Apple TV for example allows the user to bring its own music to the screen and project it through its stereo system. In the same trend Sony created Sonos that allows the users to decide which song to play in which room wirelessly with wireless speakers from any device using any platform (streaming or iTunes). These are interesting ways for music appliance providers to compete.

New revenue stream model

Selling CDs cannot generate enough money for the industry to keep on relying on it. For instance the website Bandcamp bypasses the labels by offering a platform for independent artists to sell their albums in exchange for a 15% on sales. This could be an interesting intermediate model that makes the most of the possibilities brought by the Internet.
The current dematerialisation brings music back to the era before the recording technologies.

The main source of revenue now comes from concerts and artists who go on large tours more regularly. The show remains something valuable for the music lovers who are driven by the desire to live an exceptional experience, and attending concerts and festivals falls into that category. Labels are still key in the value chain as they have both an editorial role (bringing unknown artists to the front stage that the general audience might not have selected through social media channels) and a facilitator role (they take care of the logistics of the tours and planned the marketing strategy for their artists).
Another source of revenue comes from licensing as people are still in need of physical objects on which to project their love for any given artist. This trend overlaps with the collector behaviour of fans. It extends to the latest interest for vinyl. Special editions are even being recorded for today’s artists. Vinyl disks are considered to be beautiful objects, as opposed to CDs, and to be work of arts (jacket). The hipster movement embraced these objects and kept vinyl alive through stores raised to landmarks (Amoeba in San Francisco) or through events such as the Record Store Day, a celebration of music through vinyl invented in 2007 by independent stores, which generated 10 million dollars in 2013. Warner Music spotted that trend and launched the website www.becausesoundmatters.com, although they have not yet communicated on the sales generated on the website.

by Eric Fan

Embrace the free model

The solution for labels might be to get in the era of “free”. It will be very hard to get people who got used to having music for free illegally for lack of a structured paying alternative to join the paying model unless they sense a strong value proposition. Giving away things for free should be seen as an advantage for labels. The lost revenues are considered an indirect marketing campaign cost. Moreover the revenues saved for the consumers will be reinvested elsewhere (concerts for instance) and the industry as a whole is not losing money. For instance clips and concert videos posted on YouTube (and social media in general) generate viewership and in some cases a buzz that raises awareness on the artist more effectively than billboards, radio programmes and newspapers inserts. Similarly in the audio-visual industry, the producer of Game of Thrones was thrilled to see that his series had ranked first on the downloading platform, a key indicator of its popularity.
Pushing the model to its limits lead some artists to experiment. Madonna sold MDMA in 2012 has a bundle with her show, which meant that when there were no more tickets available CD sales dropped. Radiohead did a pre-sale of In Rainbows in 2007 on a “pick your own price” model before launching in commercially. They thus benefited from a large media coverage. Giving the choice to the customer increase the engagement and generates revenue.
Nonetheless such strategies can backfire as U2 experienced it when making a deal for the launch of the iPhone 6 to have Songs of innocence downloaded automatically on all 500 million iTunes libraries. This was perceived as intrusive and created a U2-bashing campaign on social media that was detrimental to the band image.
Moreover it fosters even more the tendency towards free of the users who lose perception of the value of an album. This devaluation of the work related to releasing an album means that people will not invest 10 dollars for a newcomer’s album when the hit singers give away their work for free. This could further destabilize the fragile balance between famous artists and newcomers within labels, if complimentary revenue streams were not emerging in parallel thanks to the Internet as mentioned previously.