As an effect of new technology, the music industry is in a time of change. This page is an investigation into how the music industry deals with the influence of new media by exploring different business models. Current models will be examined, and predictions of future models will be provided.
1.0 The effect of new media in the music industry
As new media is increasingly influencing every aspect of daily life, the method in which business and purchasing is conducted is consequently being altered. Shops are being combined with online shops, where the communication method and relationship between seller and buyer is changing. New media has caused the formation of new needs and the obsolescence of old needs.
At present, the music industry is experiencing this forceful effect. Music transmission began in record form, then went to tapes, then discs, and finally digital as we know it today. The invention of digital music caused the production of music devices, allowing greater accessibility to music. The Internet also gave listeners an easier mode of music transmission as buying and sharing music became much easier. However, with these changes came the alteration of the music industry business models.
People are forming larger networks to sustain this copying and sharing of music. This is beneficial to the consumer, but is at the artist's expense. Below is a brief video on the artist's view of the issue of copyright:
The needs of the artist vs the consumer have always clashed, but the Internet and other new media forms are augmenting this opposition1. As a result, the music industry and its customers both agree that the old model no longer applies, and that a new model needs to be created2,9.
2.0 Current business models
2.1 Free
The “free” model, contrary to its name, does allow the company to make money from music. Instead, the tracks themselves are treated as a loss leader, designed to promote the artist and drive sales of other associated products, such as concert tickets and merchandise3104.
2.2 Freemium
The Freemium model involves a “free” ad-funded offering that is blended with a “premium” ad-free version.
Spotify
Spotify is a Swedish company that runs an application, allowing consumers to listen to music for free, or to subscribe and purchase music:
Spotify has three offers: Open, which is free, and an Unlimited or Premium version, which are available through a monthly subscription5.
Grooveshark
Grooveshark is a similar streaming application, where listeners can stream music for free and opt to upgrade to Grooveshark Plus or Grooveshark Anywhere, so that they don’t have to look at advertising, get more functions, and also receive a mobile application.
2.3 Subscription
In this model you pay a monthly subscription and get free access to music. An example of this is Rdio:
2.4 Pay per play/on demand
This model seems to be the most popular, with Apple in the front with iTunes and Amazon.com following close after. Here songs can be purchases individually or the entire album.
Following the same revenue model, Music in the Cloud is a new concept . This concept allows consumers to listen to their music anytime, anywhere without worrying about synchronising music players so that they have all of the desired songs stored in their music library on their device.
Amazon Cloud Player
Amazon Cloud Player is currently only available in the United States, but this video explains the concept very clearly:
SellaBand is a music website permitting artists to raise the money from their fans and the SellaBand community in order to record a professional album. Here is an example of a Sellaband project:
2.6 Social media
In this model, people are sharing their own music by uploading tracks and videos. It is a way for artist to create attention among themselves and their music, and a way to interact with their fans. YouTube and MySpace are the most commonly used.
2.7 Fan creation
Co-creation with fans is a strategy where the interaction with fans create value and popularity for the artist, which in the end should turn in to a bigger sale margin.
Kaiser Chiefs
The band, Kaiser Chiefs offered a part release of their new album, The Future Is Medievalon June 3. 2011. Fans were able to co-create the album on kaiserchiefs.com and earn money from sales. Once an album is created, the creator is given a unique webpage and tools to promote the album with the opportunity to earn £1 from every album purchased6. This innovative and new initiative put Kaiser Chief in the running for the "Best Fan Page" for the Digital Music Awards, but today it is not possible to view the fan-made albums or make one yourself. Also the category for the "Best Fan Page" has been removed.
3.0 Predictions for the future
Accenture, a consultant firm, has performed a global survey of senior executives in the media and entertainment industry regarding the major opportunities and challenges they expect to face during the coming five years. On the question of what they believe will be the most prevalent business model in their sector in 3 years, their responses are displayed below:
It is demonstrated that the advertising-funded revenue model dominates the picture with 39%. 22% of executive believe that the “pay” business model (pay-per-play or subscription) will be highly implemented in the future. The Hybrid mixture is an newly added model, where it is the idea that the business model will combine multiple revenue streams. Lawrence Lessig explains the concept of Hybrid business here:
The music industry cannot rely on ad-funded revenue anymore and need to be flexible in their way of targeting their customers, as they operate on very different platforms8. It is predicted that customers will still want to buy their music in stores, online, pay a monthly fee, or not pay anything, but will also build value in joining communities and spreading the music. It is evident that there is no clear solution for the music industry, but a business model incorporating all of these methods will need to be generated. The Hybrid model could be the way for the music industry in the future711. Above all however, diversity will be the solution812.
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Table of Contents
As an effect of new technology, the music industry is in a time of change. This page is an investigation into how the music industry deals with the influence of new media by exploring different business models. Current models will be examined, and predictions of future models will be provided.
1.0 The effect of new media in the music industry
As new media is increasingly influencing every aspect of daily life, the method in which business and purchasing is conducted is consequently being altered. Shops are being combined with online shops, where the communication method and relationship between seller and buyer is changing. New media has caused the formation of new needs and the obsolescence of old needs.
At present, the music industry is experiencing this forceful effect. Music transmission began in record form, then went to tapes, then discs, and finally digital as we know it today. The invention of digital music caused the production of music devices, allowing greater accessibility to music. The Internet also gave listeners an easier mode of music transmission as buying and sharing music became much easier. However, with these changes came the alteration of the music industry business models.
People are forming larger networks to sustain this copying and sharing of music. This is beneficial to the consumer, but is at the artist's expense. Below is a brief video on the artist's view of the issue of copyright:
The needs of the artist vs the consumer have always clashed, but the Internet and other new media forms are augmenting this opposition1. As a result, the music industry and its customers both agree that the old model no longer applies, and that a new model needs to be created2,9.
2.0 Current business models
2.1 Free
The “free” model, contrary to its name, does allow the company to make money from music. Instead, the tracks themselves are treated as a loss leader, designed to promote the artist and drive sales of other associated products, such as concert tickets and merchandise3 10 4.2.2 Freemium
The Freemium model involves a “free” ad-funded offering that is blended with a “premium” ad-free version.Spotify
Spotify is a Swedish company that runs an application, allowing consumers to listen to music for free, or to subscribe and purchase music:Spotify has three offers: Open, which is free, and an Unlimited or Premium version, which are available through a monthly subscription5.
Grooveshark
Grooveshark is a similar streaming application, where listeners can stream music for free and opt to upgrade to Grooveshark Plus or Grooveshark Anywhere, so that they don’t have to look at advertising, get more functions, and also receive a mobile application.2.3 Subscription
In this model you pay a monthly subscription and get free access to music. An example of this is Rdio:2.4 Pay per play/on demand
This model seems to be the most popular, with Apple in the front with iTunes and Amazon.com following close after. Here songs can be purchases individually or the entire album.Following the same revenue model, Music in the Cloud is a new concept . This concept allows consumers to listen to their music anytime, anywhere without worrying about synchronising music players so that they have all of the desired songs stored in their music library on their device.
Amazon Cloud Player
Amazon Cloud Player is currently only available in the United States, but this video explains the concept very clearly:
Google Music
Google has followed this idea and has launched a beta version of their Google Music:
2.5 Community
SellaBand is a music website permitting artists to raise the money from their fans and the SellaBand community in order to record a professional album. Here is an example of a Sellaband project:2.6 Social media
In this model, people are sharing their own music by uploading tracks and videos. It is a way for artist to create attention among themselves and their music, and a way to interact with their fans. YouTube and MySpace are the most commonly used.2.7 Fan creation
Co-creation with fans is a strategy where the interaction with fans create value and popularity for the artist, which in the end should turn in to a bigger sale margin.Kaiser Chiefs
The band, Kaiser Chiefs offered a part release of their new album, The Future Is Medievalon June 3. 2011. Fans were able to co-create the album on kaiserchiefs.com and earn money from sales. Once an album is created, the creator is given a unique webpage and tools to promote the album with the opportunity to earn £1 from every album purchased6. This innovative and new initiative put Kaiser Chief in the running for the "Best Fan Page" for the Digital Music Awards, but today it is not possible to view the fan-made albums or make one yourself. Also the category for the "Best Fan Page" has been removed.3.0 Predictions for the future
Accenture, a consultant firm, has performed a global survey of senior executives in the media and entertainment industry regarding the major opportunities and challenges they expect to face during the coming five years. On the question of what they believe will be the most prevalent business model in their sector in 3 years, their responses are displayed below:It is demonstrated that the advertising-funded revenue model dominates the picture with 39%. 22% of executive believe that the “pay” business model (pay-per-play or subscription) will be highly implemented in the future. The Hybrid mixture is an newly added model, where it is the idea that the business model will combine multiple revenue streams. Lawrence Lessig explains the concept of Hybrid business here:
The music industry cannot rely on ad-funded revenue anymore and need to be flexible in their way of targeting their customers, as they operate on very different platforms8. It is predicted that customers will still want to buy their music in stores, online, pay a monthly fee, or not pay anything, but will also build value in joining communities and spreading the music. It is evident that there is no clear solution for the music industry, but a business model incorporating all of these methods will need to be generated. The Hybrid model could be the way for the music industry in the future7 11. Above all however, diversity will be the solution8 12.
4.0 References
**1** Music Licensing – Arista Records v. Limewire and RIAA Litigation Efforts in the Era of Peer-2-Peer Music Distribution, Robert P. Gessinger, The Licensing Journal, March 2011.
**2** This time, it’s personal – Engaging and interacting with consumers is the content industry’s new battleground, The Accenture Global Content Study 2009, p. 9
**3** Blog: Music Industry: five alternative business models, Steve O’Hear, October 11th 2007
**4** Why give music away for free, New Music Stråtegies, http://newmusicstrategies.com/2008/12/31/why-give-music-away-for-free/, seen on September 12th 2011
**5** Spotify offers: http://www.spotify.com/int/get-spotify/overview/
**6** Blog: Innovation Excellence | Kaiser Chiefs and New Music Business Models, Tim Kastelle, July 3rd 2011, http://www.innovationexcellence.com/blog/2011/07/03/kaiser-chiefs-and-new-music-business-models/
**7** Remix, talk at NYU by Lawrence Lessig, November 10th 2008, 1hr 5 mins 16 secs, http://www.youtube.com/watch?v=_yC81QhR_xk
**8** Podcast: The future of the Music Business, Episode 13, Ted Cohen, Myrealpodcast, 46 min 49 sec, August 28th 2001
**9** Blog: Thinking of Business Models for artists: is music a 'utility' or a 'property?, http://www.michielgaasterland.com/music/, Michiel Gaasterland, January 12th 2011
**10**Video: The Godfather Method - A New Music Industry Business Model, http://www.youtube.com/watch?v=R_hfbo5gwgM, March 9th 2011
**11** Video: The Future of the Music Business: video update by Futurist and Speaker Gerd Leonhard,
http://www.youtube.com/watch?v=Tzt-bkPDfdc, August 10th 2011
**12** Music industry banks on free in effort to get paid, Yinka Adegoke, Reuters: http://in.reuters.com/, New York, September 17th 2011vestigate the economy around new media and how business models with New Media could look like in the future