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BUSINESS OF MUSIC
LECTURE - WEEK 4 Last Week • We examined the business model of the publishing industry • We examined the business model of the record industry • We discovered that the creators of songs and recordings are actually expenses of the publishing and recording industries respectively – not their greatest assets!! This Week • We consider the structure of the recorded music business and consider the key principles or pillars of the industry. • We will look at how those principles have remained the same since the start of the industry. • But then we’ll show how those application of those principles has evolved. • It will be an example of the evolution of an industry in the digital age, but also of the adage “the more things change, the more they stay the same” • We have looked at live performance – the instant gratification of playing in front of an audience • But a musician cannot play in front of every audience all the time • Fans and the musicians themselves want some kind of record or copy of the performance of music to satisfy their need for music when there are no musicians/audiences around. • The history of recordings goes back to the invention of the phonograph, and believe it or not some of those rules still apply. Significance of Recording • The recording industry has always been about hardware and software. • We have progressed the delivery of music from phonograph records, to vinyl, to 8 tracks, to cassettes and to CDʼs – all formats, really quite different to the previous one • These were all formats that were married to a means of playing them. • Each time a new format was created, new hardware went with it, and the promise of new and better reproduction and other advantages. Changing Nature of Recordings • For the recording industry each new format bought about a boost in sales because the music buyer felt the need to re-purchase an ever increasing catalogue of their favorite music. • Album for home, cassette for the car, then CD for mobility. Changing Nature of Recordings • The core of this industry is of course “COPYRIGHT” – the ability to copy and reproduce the sound recordings that people want to hear – something we have already discussed Changing Nature of Recording 1. Making a recording. 2. Reproducing that recording. 3. Advertising and marketing that recording. 4. Distributing the reproductions of recordings. Essence of the Recording and Distribution Business • Recording was once an expensive and time consuming process requiring expensive equipment • Recording needed specialist knowledge and skill • Recording was something that artists aspired to rather than did as a matter of course Recording Then • Recording is now an inexpensive and quick process • The skills to make a recording are easily acquired • Recording is now an early step in the creative evolution of an artist or band, rather than a long term aspiration. Recording Now • Capital intensive factories and facilities were required to manufacture records, cassettes or CD’s • Extensive storage facilities were required for hard manufactured items • There was extensive wastage of imperfect stock. Reproduction Then • Manufacturing processes are no longer needed • Digital copies can be made instantaneously • Infinite numbers of reproductions can be made with no marginal cost per unit
Reproduction Now § Marketing was largely limited to paid advertising in magazines/radio/other media § Promotional staff were needed involving wages and expenses. § The reach of such marketing was limited by territorial limitations and budgets § The cost per impression was very high and rarely generated return on investment. Advertising/Marketing Then • There are now multitudes of effective means of advertising, many of which are free or low cost. • These include social media, user-generated content and other media that has the capacity to expanding virally. • These means of marketing can be highly targeted to receptive audiences • This results in a low cost per impression if used effectively Advertising/Marketing Now § Physical stock could only be distributed by slow and expensive means. § Unwanted stock needed to be stored in warehouses and required multi-handling § There were many layers of middlemen involved in distribution, each of whom required to be paid for their services and infrastructure. Distribution Then • Now an infinite number of digital “copies” can be infinitely distributed instantaneously and efficiently • There is no wasted stock on shelves or in warehouses • There are no layers of middlemen needing to be paid Distribution Now • Clearly there have been massive changes in recording, manufacturing, marketing and distribution of sound recordings. • The complete nature of the recorded music industry has changed from manufacturing and logistics to digital. • Marketing remains essential – but the way marketing is done has changed. • The essence of connecting creators of music still remains, but the ways it is done have evolved enormously. Summary • The changing nature of those four aspects of the recording industry has lowered the barriers to entry in the recorded music business. • Now anyone can participate in the business of recorded music by recording, reproducing, marketing and distributing recordings. • ”Anyone” could be artists operating completely independently to kitchen- table labels to multi-national corporations. • The only difference now is that the cost structures for all these operatives in significantly lower. • As we mentioned on Week 3 this has led to a situation where recorded music is abundant. Impacts of the Evolution • This has led to a number of observable phenomena. • It has meant that niche products that would otherwise have not been available on the world market and now easily accessible, as the costs of creating such products is now much lower relative to the potential market for those products. • This has led to the suggestion of the concept called The Long Tail. Impacts of the Evolution The Long Tail (Chris Anderson) • Chris Anderson, who first identified the idea of the Long Tail, describes how diminishing storage and distribution costs create a business environment where it is profitable to sell a very small number of specialised products to a wide range of people with diversified taste preferences. • Anderson wasn’t only referring to the recorded music industry, but it certainly applies to this industry. The Long Tail The head is what is popular – but long tail theory suggests that this is artificial and is a product of poor supply offerings caused by high costs of distribution. The Long Tail • This is a new economy – all of these tiny sales in the tail are combining to create an economy as big as the head. This inverts the 80/20 Rule of “hits” The Long Tail - Music • Anderson found that a typical bricks-and-mortar music retailer (in this case Wal-Mart) carries approximately 39,000 different titles. In contrast, the online music retailer Rhapsody offers almost 20 times as many with 735,000 different titles. Study was conducted in 2004. Current online music services offer up to 50 million titles. The Long Tail (Chris Anderson) • The possibility to digitise information goods like music, movies or books drastically decreases storage and distribution costs. • In the previous non-digital economy a music retailer needed to calculate shelf rents. Therefore, one item needed to be sold a specific number of times if it was to be worth carrying. • If a particular CD sells only one copy per year, and the rent for the shelf space is higher than the revenue earned, it is simply not worth stocking that CD. • Now, shelf space is unlimited – and so there is an unlimited amount of stock available at any given time – and it can keep being added indefinitely The Long Tail (Chris Anderson) • Some believe that the Long Tail is overstated. • Elberse (2008) found that 10% of all songs available on Rhapsody in 2008 accounted for 78% of total plays. Hence, the shape of the Long Tail seems to be much thinner and longer than suggested by Anderson. • The head of the distribution curve, representing hits and stars, seems to remain thick and short, indicating that most people still enjoy a common culture in form of popular music. • Recently its been noted that an extremely high number of tracks on streaming platforms actually generate no streams at all – meaning they are not contributing to the Long Tail at all. The Long Tail (Chris Anderson) • In 2012 Bruce Springsteen gave a keynote at SXSW and he identified some of the genres represented at that years festival. • How many of you are consumers of a few of these genres? Springsteen at SXSW • “There are so many sub–genres and fashions, two–tone, acid rock, alternative dance, alternative metal, alternative rock, art punk, art rock, avant garde metal, black metal, black and death metal, Christian metal, heavy metal, funk metal, bland metal, medieval metal, indie metal, melodic death metal, melodic black metal, metal core, hard core, electronic hard core, folk punk, folk rock, pop punk, Brit pop, grunge, sad core, surf music, psychedelic rock, punk rock, hip hop, rap rock, rap metal, Nintendo core, huh? • I just want to know what a Nintendo core is, myself. But rock noir, shock rock, skate punk, noise core, noise pop, noise rock, pagan rock, paisley underground, indy pop, indy rock, heartland rock, roots rock, samba rock, screamo–emo, shoegazing stoner rock, swamp pop, synth pop, rock against communism, garage rock, blues rock, death and roll, lo–fi, jangle pop, folk music. Just add neo– and post– to everything I said, and mention them all again. Yeah, and rock & roll”.