EServices Marketing BMG593

1
E-Services Marketing (BMG593)
Andrew Kincaid

• The Music Industry

2
Content

• Overview of Music Industry
• Analogue to CD to MP3
• Internet and Technological Revolution
• Traditional Music Supply Chain
• Future Music Supply Chain
• Piracy and File-Sharing
• Digital Download Models
• New Marketing Developments
• Effect on Industry
• Future direction

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Overview of Music Industry

• Brief History
• Revenue from performances for hundreds of years
• Sale of music started with sheet music
• Demand for recorded music grew
• Current size and composition
• Music Industry worth 35 billion globally in
  2006 (source IFPI)
• 95 of sales come from 30 countries
• Music is heterogeneous
• Highlights cultural diversity greatly eg.
  popular music in India
• Digital download more prevalent in Japan

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Overview of Music Industry

• Made up of many revenue streams
• Focus for presentation will be on Record Industry
• 31.8bn in 2006 with projection of 26.2bn by
  2011 (source IFPI)
• Main recording labels
• Highly polarised market with Big Four labels
  making up gt80
• Main costs production, distribution and
  marketing

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Analogue to CD to MP3

• Need for a physical carrier this was not the
  product
• Vinyl was the choice medium for most of 20th
  Century
• CD created superior quality at lower cost in
  early 80s
• First MP3 encoder released in 1994
• Music was released from the carrier
• Negligible threat of media transfer

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Internet and Technological Revolution

• Internet availability and evolution
• Hard drive and Processor advancements
• Enabling software
• Portable players
• Technological education

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Traditional Music Supply Chain

• Music had to distributed using a physical medium
• Through high street retailer
• Allowed great control of supply chain by each
  link
• Advent of virtual business changed the chain eg.
  Amazon
• Traditional Model (Graham et al., 2004)
• Hence increased cost

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Traditional Music Supply Chain

• A typical CD album example

10
Fred buys a new album
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Traditional Music Supply Chain

• Is an album an efficient way to supply music?
• Do customers want all these tracks?
• Album bundling
• Do labels have too much bargaining power?
• Are all actors adding value or adding cost?
• Communication and feedback problem
• Dilution and filtering of information
• Speed of information transfer
• Bullwhip effect

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Future Music Supply Chain

• Future Model (Graham et al., 2004)
• Linearity and rigidity no longer prevalent

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Future Music Supply Chain

• Intermediaries become less important in supply
  chain
• Barriers are broken down
• More short-term relationships
• Long-term relationships still important
• Communication is freer and more effective
• Ultimately less power for labels
• Greater bargaining power for artists and customers

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Piracy and File-Sharing

• Evolution of the internet on its own was not
  enough
• Peer-to-Peer power of internet allows file
  sharing
• Napster
• Operated from June 1999 to July 2001
• Centralised database of connections and files
• Praised for unbundling albums
• At its peak, 26.4m users
• Metallica and Dr. Dre lead artists revolt
  demanding work be removed
• Law suit brought by RIAA gained much publicity
• Now operating as paid subscription service

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Piracy and File-Sharing

• Drivers of piracy and file-sharing?
• Were consumers exploited?
• Countering piracy tactics
• DRM use on CDs and digital downloads
• Legal sanctions
• This further alienated much of the customer base

(Source Wilde Schwerzmann, n.d.)
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Digital Download Models

• Record industry was slow to respond
• Most recognisable model iTunes
• Essentially a huge unbundled music store
• Full albums, individual tracks, rarities etc.
• Flat-fee Subscription Service
• Example of digital bundling
• Pay What You Like
• Radiohead In Rainbows
• Direct contribution to artists

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Digital Download Models

• Free Model
• As a loss leader with focus on other aspects of
  music industry
• Popularity linked model
• All content starts free with incremental rises
  to max price
• iTunes now recognising some merits of this model
• Music based Social Networking advertising
  revenue
• Artists can get feedback on all aspects of music

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New Marketing Developments

• Music industry finding new markets and ways to
  promote
• Social Networking Sites
• Fan groups
• Viral Marketing
• Made easier using power of internet
• Internet Radio highly focused
• Gaming Industry

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Effect on Industry - Musicians

• Have the buffer of extra revenue streams
• Not as reliant on labels maintains more control
• More routes to market
• Feedback from fans
• Instant global availability
• Internet can be used as a cultural testing ground
• Music will adopt a long-tail model

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Effect on Industry Recording Labels

• Greatly effected due to the reliance on record
  sales
• Reduced control of the supply chain
• Focus on core competencies
• Change ideologies as traditional models are
  eroded
• Diversifying into other areas of music industry
• Creating revenue from licensing, merchandise,
  touring etc.
• Use of new 360 deals for artists
• Tapping into other revenue streams

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Effect on Industry End Users

• Ignited cultural revolution in music consumption
• Listen to music in different ways
• View the industry differently
• More than just increased convenience, value,
  choice
• Can create more direct relationship with artists
• Feedback is more effective, requires management
• Payment can be straight to artist by-passing
  intermediaries
• Discovery aspect
• E-CRM and networking introduce new music
• Can create their own content, manipulate music
• Influx of mixing of tracks

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Future direction

• User Generated Content Independent Artists
• Lower barriers to entry ie. recording cost
• Drive to more efficient production
• Bedroom recording studio
• More dynamic production of music
• Mobile Music
• Streaming music from on demand services

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Future direction

• Greater focus on components which cannot be
  replicated
• Will this unbundling (and re-bundling) kill the
  album?
• Albums are inefficient bundles
• Certain issues still need addressed
• Which other industries will be impacted?

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References

• Glaser, M., (2007). Musicians Should Diversify
  Income in Post CD Era. Mediashift online.
  Available at http//www.pbs.org/mediashift/2007/1
  0/musicians-should-diversify-income-in-post-cd-era
  289.html Accessed 5February 2008.
• Graham, G., Burnes, B., Lewis, G.J., Langer,
  J., (2004). The transformation of the music
  industry supply chain A major label perspective.
  International Journal of Operations Production
  Management. Vol. 24, No. 11/12, pp.1087-1103.
• Wilde, E., Schwerzmann, J., n.d. When Business
  Models Go Bad The Music Industrys Future,
  online. Available at http//dret.net/netdret/do
  cs/wilde-music-icete2004.pdf Accessed 3February
  2008.
• Zhu, K., and MacQuarrie, B., (2003), The
  economics of digital bundling the impact of
  digitization and bundling on the music industry.
  Communications of the ACM , Volume 46 , Issue 9.
• ADDITIONAL READING OF QUALITY PUBLICATIONS