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BUSINESS OF MUSIC
LECTURE - WEEK 5
Last Week
• We considered the structure of the recorded music business and
consider the key principles or pillars of the industry.
• We looked at how those principles have remained the same since the
start of the industry
• Then we’ll showed how those application of those principles has
evolved.
• That in turn led us to a discussion of the Long Tail.
This Week
• We will continue that discussion – looking at the specific ways that the
digital revolution has impacted on the recorded music industry.
• We’ll consider this from a number of viewpoints – some of which have
been discussed already by implication and some of which are new
concepts for you.
• We will start looking into the future to see how these changes will
continue to impact the evolution of the industry.
Barriers To Entry
• As we have discussed already one of the impacts of the digital
world has been to make the means of creating, reproducing,
marketing and distributing sound recordings more accessible.
• Now many individuals and businesses are able to participate in
one or more of those activities – this is because the barriers to
entry have been reduced.
• This has led to an increase in the amount of recorded music
provided and the number of providers of that music.
• (We now should add – how many providers of music will there be
in the era of AI generated content?)
Barriers To Entry
• It was this reduction of barriers to entry – clearly a direct result of
the advances of the digital world - that led us to the Long Tail
phenomenon that we observed last week.
• It was also the digital revolution that led to a concept called 1000
True Fans and the suggestion that the ability to connect with
those fans globally that made the idea of crowd funded
participation in recorded music a possibility.
1000 True Fans
• Sixteen year ago, Wired editor Kevin Kelly wrote an essay called
“1,000 True Fans,” predicting that the internet would allow large
swaths of people to make a living off their creations, whether an
artist, musician, author, or entrepreneur.
• The idea was adopted by many of commentators in the creative
industries.
1000 True Fans
• The suggestion is that with the reach of the internet and the
availability of cheap, targeted marketing it is possible for artists in
narrow niches or genres to find specific audiences for their music
around the world.
• This would not have been possible in a world of physical distribution.
• The basic concept was that if you could find 1000 True Fans (out of
the whole population of the world!), and monetise those fans you
may well be able to build the financial support for a sustainable
career.
• The challenge was obviously – how do you monetise those 1000 True
fans.
• This was the basis of the idea of crowd-funding
Storage
• So now he have all this music but what are we going to do with it?
• The impact of digital has been significant in this area as well.
• Consider this – when the iTunes store first launched in 2003 it had a
library of 200,000 songs, as a result of deals it had done with the
(then) five major labels.
• iTunes was able to grow that catalogue for the simple reason that
every time it added a title there was no necessity to delete a title
to make room for the new one.
• Compare this to the situation of a physical retailer.
• These days a music service with less than 60 million songs is
considered inadequate.
Storage
• Charles Caldas of Merlin:
• “Now everything is in stock, all the time, everywhere. The dynamic of
that is interesting. In a Spotify environment you can search for what
you know you like and that will bring up a playlist that the music you
like is on and then you will discover other things on that playlist that
you like. From a music fan point of view, you don’t have to walk past
music you are not interested in to get to the music you do like.
Instead you have all this curation and recommendation to help you
find what you like. You combine that with the fact that when
something is recommended to you it is available instantly – you
don’t have to order it in. The discovery process is no longer about
the music that is stocked in your local record store, it’s about all the
music in the world.”
Ownership v Access
• While all this was happening on the supply side of the industry
there were also changes happening on the demand side.
• Consumers began questioning the value of “owning music” –
when it had been a physical product (a CD or vinyl) the value of
ownership was inherent – ownership of a tangible item.
• But after a few years of being encouraged to buy digital files
people began to question what they were receiving for their
purchase price.
• There was value in being able to listen to music – that hadn’t
changed – but what was the value of owning what you listened
to?
Ownership v Access
• Combine this realisation with a realisation that there was more
available music that anyone could ever afford to “own” and the
consumer demand changed.
• Instead of wanting to own some of the music people wanted to
have access to all of the music.
• And they wanted that access on all of their devices, all of the
time, wherever they were.
• To resolve this it became a question of looking backwards to
move forward.
Ownership v Access
• Digital delivery simply means that the music is available on-line
and within that description are two main approaches to delivery –
download and streaming.
• Although streaming appears to be the newer method of digital
delivery is was actually around first – not surprising really when you
consider that it takes less bandwidth to play a file than to actually
download it.
• I don’t think I need to explain how significant streaming has
become to the music industry!
Streaming
• It’s a simple model – music sits on the service providers servers and
a subscriber can access whenever they are on-line a play the
music on their device as often as they want.
• In return the subscriber pays a monthly fee or pays no fee but has
their listening interrupted by advertising every few songs.
• The labels license the tracks to the service providers and the
service providers also pay mechanical royalties to collection
societies.
• Sounds like a solid model, right?
• Let’s look at a couple of smart perspectives….
Streaming
• Former head of global association of independent record labels
Charles Caldas was one of the major voices on behalf of
independent labels:
• “As the value of the streaming market grows, people are
starting to realise that consumption is the new sales. Anywhere
that people are listening to music is actually the end-game
now,”
Ownership v Access
• Bertis Downes is a lawyer and was manager of famed band
R.E.M.
“We've got to the point where music is like water. Music
is everywhere. Paying for music is voluntary, so you've got to
figure out a way to deal with the new math. The new math is
very different to the old math. The old math was based on a
premise that if somebody liked your music they would go out
and buy your music. Now…more likely they are going to get
it for free, or something that is very close to free, like Spotify. It’s
not so much your song that people are paying for, it is
every song. If they happen to consume your song you are
going to get a slither of some pennies that might eventually
add up to a dollar, which might eventually add up to
something more. It’s still early days to see how it’s going to
play out.”
Streaming
• But the reality is that the idea of streaming music is far broader
than what we like to see as “streaming businesses”
• Charles Caldas again….:
“This notion that everything is promotional: that way that
people used to talk about YouTube as a ‘promotional
channel’. When that becomes the destination for music
fans, it needs to compete in the marketplace with all the
platforms that are monetised.
“So part of this is looking at where all this goes longer-term,
and seeing that the challenge is to take all of these
destinations where music is consumed – particularly in the
volumes it’s starting to be consumed on something like
SoundCloud – and finding out how to build value around
that.”
Streaming
• Allen Bergfrede is a leading music industry academic and is
behind the Rethink Music project. He commented in 2016:
“Streaming is growing exponentially and the up-take has been
really, really fast over the past few years. I think we are still five
years off from a critical mass in streaming and who knows what
comes after that. Is streaming the end business model? I don’t
know. Everyone thought that iTunes and digital downloads was
the way it was going to be but when you look at it that was
dominant for maybe five or six years. Digital is a continuously
evolving landscape.”
§ It is now 2024 – do we still think that streaming, as we now know
it, is the end-game?
The new dilemma
• So for a number of years the pursuit of streams was the pre-
occupation of the music industry.
• Record companies and artists went aggressively after playlists, in the
expectation of streams and the expectation that eventually enough
streams would result in a viable financial outcome.
• But slowly the realisation dawned that maybe a million streams
wasn’t actually that big a deal.
• So what is the new thinking now?
Super Fans
• Here’s a few paragraphs from a business site called Financial Times (author Anna
Nicolaou):
• “Increasingly, the chatter among music executives is about “monetising
superfans” to open up new revenue opportunities. On the face of it, the
concept — trying to get more money from people who really love their
favourite artist — is not particularly groundbreaking. But it’s been talked up
enough that Goldman Sachs recently projected that these “superfans” could
contribute $4.2bn in extra income to music companies.
• Passionate fandoms are not a new concept, of course. Swift’s staggering
popularity is being compared with the “Beatlemania” seen six decades ago.
But the subscription streaming model has stripped away the ability for fans to
directly buy music from their favourite artist. We pay a monthly fee to stream
tens of millions of songs. When our favourite musician releases a new album, it’s
automatically uploaded to our phones at no extra cost.
• Fans have responded by buying physical music — such as CDs, vinyl and even
cassettes — as a show of support. It is emotional purchasing”.
Super Fans
• “That purchasing has spurred an uptick in US album sales in the first half of
the year: US vinyl sales were up 22 per cent through June 30, while CD sales
rose 4 per cent, according to data group Luminate, formerly Nielsen Music.
Luminate estimates that some 15 per cent of the US population is made up
of “superfans”, and they spend 80 per cent more money on music than the
average listener.
• It is logical, then, that the major music companies, which have seen their
share prices stall in the past year alongside a wider media rout, would sniff
around at how to make money from these “superfans”.
• Universal Music Group, the industry leader, has set out to overhaul the
entire model of music streaming. The “superfan” concept is a crucial part
of this, alongside efforts to crack down on fraud and weed out “lower-
quality” content, such as 30-second rain soundtracks”.
Copyright
• Earlier in this unit we talked about copyright as the heart of the
recorded music business.
• The digital revolution has created a number of challenges for the
law of copyright.
• Obviously the whole dispute around Napster was a copyright
dispute – where people where able to make “reproductions” of
sound recordings without the permission of copyright owners.
• But there have been numerous debates about the ability of
copyright law to keep pace with technological advancement.
• We will come back to some of these issues later but for now lets
here from a professor specialising in the digital music business.
Copyright
• Allen Bergfrede:
• “I don’t think that copyright is catching up at all. I think the EU
is about ten years ahead of the US – the US is so hamstrung by
lobbying interests that the ability to make any updates to
copyright is almost impossible. The US Register of Copyrights is
really pushing the need to make copyright reform now but the
EU – because they are trying to coalesce 27 countries into a
single digital market is ahead of the US. There’s a lot of
different interests to look at – it’s not just the content
producers, it’s the content distributors. It’s a complicated world
and every time you try to change something it’s probably
going to have a negative impact on someone and they are
going to fight against it.”