Friday, May 6, 2011

New Music Business Model

I recently had the chance to revisit a book that I have not picked up in some time called "The Future of Music" by authors David Kusek and Gerd Leonhard. This publication is a must have in any music fan or industry professional's arsenal as the content within it's binding resonates with anyone who has any one or part of the following:
  • Ringtone on their mobile phone or device
  • computer
  • laptop
  • mp3
  • Xbox
  • PS3 
  • iPod, phone,touch, pad, etc.
The concept of unlimited content flowing into your home like a utility is certainly not new but it begs the question as to why the music industry is still so slow to make the necessary changes and advancements in an effort to swing the business into a position where it will continue to survive. Recent events with the possible purchase and consolidation of Warner Music Group by BMG Rights Management and Universal Music Group in an effort to land both Warner and EMI only furtherproves this point.


The industry should be analyzing the business model of mega media power houses such as............................

There's a sharp difference of opinion in the music sector about that right now. Billboard magazine started the debate Tuesday when veteran writer Glenn Peoples suggested that the major record labels might do well to emulate some of Netflix's practices. Ethan Kaplan, a former digital exec at Warner Music Group, later that day wrote on his blog, Black-rim  glasses.com, that he's highly skeptical.

The discussion was sparked by Google and Apple's recent efforts to launch cloud music services. Both would enable users to store their music libraries on the companies' servers and then stream songs to users' Internet-connected devices. Google has talked to the labels about charging a fee for the service, according to previous reports. CNET reported on Monday that Apple has told the labels it too will charge.

These companies and the major labels are betting on subscription. They're doing this though the services that have attempted to prove the model in the past have a spotty record. Rhapsody, Yahoo Music, and the recycled Napster who is owned by Best Nuy Inc, all failed to draw large audiences. Most players in the sector dream of having 1 million paying subscribers. Compare that with Netflix, which saw 3 million movie fans sign up for its service in the year's first three months. The company's U.S. subscribers now number 22.8 million, the same amount as Comcast. Helping to fuel that growth was Netflix's offer of $8 a month for unlimited streaming access to movies and TV shows.

"With Netflix consumers have proven they will rent content--even re-run(s)--and stream it from the cloud," Peoples wrote in Billboard. "They will pay for digital content they could get for free through illegal means. They will pay if the service allows streaming through multiple devices."

Peoples wrote that Netflix's low-cost, easy-to-use Web site, and nearly ubiquitous presence on Internet-enabled devices is a worthy blueprint for the music industry. But Kaplan said that Peoples' premise is flawed at its core.

"People feel comfortable applying strategies applicable to one modality of media to all others," Kaplan wrote. "Because the modes are similar, so must be the means of monetization. Wrong."

"People feel comfortable applying strategies applicable to one modality of media to all others--because the modes are similar so must be the means of monetization. Wrong."

--Ethan Kaplan 
One obvious difference between music and movies is that people don't typically watch a film more than once or twice, but they listen to favorite songs maybe hundreds of times. Kaplan argues that people value the media differently. He wrote there's less value in music because movies require more of the viewer's attention than music does for the listener.

(Music's) ubiquity lessens its value as it does not monopolize the senses," Kaplan wrote, "and thereby requires less investment in order to enjoy it. Requiring less investment demands less return and hence, lower value...chasing business models in one media with business models of fundamentally different media is a recipe for disaster." 






Kaplan is no doubt correct in arguing that thinking one-size-fits-all is unrealistic. But the fact that there's even a debate about subscription services, which I and others once dismissed outright as insignificant, says something.

For the past decade, most of the music-buying public has ignored them. But the landscape for music consumption appears to be changing. CD sales are in a free fall. Download sales have leveled off. And what happens if the big labels succeed in making illegal file sharing less attractive? For the past 11 years we've lived in a world where pirating music was a cinch and in this world paying monthly fees for the opportunity to rent songs seemed silly to some. To others, paying at all was a joke.

So, how would subscription services fare in a world where bandwidth providers block subscribers' access to pirate sites or possibly shut off service to accused illegal file sharers? Or both? Pirating media will always be with us but what happens if downloading unauthorized songs turns into a big hassle? That's what the Recording Industry Association of America is trying to make happen right now.

If the RIAA succeeds, how will these all-you-can-eat services look then?

1 comments:

Matthew Order said...

Yes, record sales are falling. Musicians aren't making exorbitant amounts of money from record deals, concerts, and promotional goods as frequently any more. I would be willing to bet that if you look at sales the market that is still buying cds and physical product is either very young or very old. Older generations are still buying product, because that is what they are used to. Younger individuals, and when I say this I do not mean new generations entirely I mean the youth in any given generation, still buy product because they have their parents do it for them. The current generation, and those newer youths, that are taking hold of technology are now used to the idea of opensource and freeware. Music is certainly headed in this direction which will no doubt destroy the music industry in its current form. However, is this a bad thing? If you look at the entire timeline of music, not just modern music, the periods of time where artists were becoming uber rich off record sales were few, short, and far between. For modern music it arguably wasn't until modern rock and roll came around that profits began to soar. Taking this giant incentive for profit out of music, essentially removing capitalism all together within the music industry, could really do a lot for the music itself. Look at bands that do not rely heavily on record sales, record labels, commercial radio, and standard media outlets in today's music industry a lot of them are doing just fine. The jam band scene seems comes to mind. Bands like The Grateful Dead and Phish have become almost household names, and they certainly did not rely on record sales to gain notoriety. It was the constant touring and promotion of their MUSIC. These bands actually promoted the recording and sharing of their shows for free. Many argue that bands that employed these tactics were instrumental in creating file sharing programs like Napster that devastate today’s commercial music industry. Furthermore, we see bands like Radiohead who have decided to forgo the traditional method of releasing an album with a record label, to just putting up tracks online and asking users to choose their own price. Believe it or not, the average price for the record was not zero. I guess what I am trying to say is that a good artist will not fall behind because the current state of the music industry is falling apart. A good artist will be the one tearing down the old (music industry) and brining in the new.

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