A New Era of Digital Music

It is no surprise that the music industry has been in a state of severe tumult the past couple of decades, mostly attributable to digital technology. From 2007 to 2008 alone, the number of CD buyers decreased by 17 million, and while digital download purchases are on the rise, they do not come near to making up for the loss of CD revenue. With today’s media-saturated society, the general public appears to be more interested in popular culture than actual music itself, thus fueling the trend of file sharing and single downloads as apposed to purchasing an artist’s complete album. This spike in technology and need for instant gratification has taken its toll on the major record labels; however, the long-term effects may prove to be positive for the music industry. Although sales are down, the amount of people listening to recorded music has never been higher. The future of the music industry comes down to the need for restructure of business models in order to exploit the new avenues of commerce that technology has created.
Recently, to compensate for the diminishing album sales that have resulted from song-by-song downloads, iTunes has implemented a three-tiered pricing system ranging from 69 cents to $1.29 for “hits” or new releases. However, many music industry veterans are opposed to Apple and the major record label’s decision to introduce variable pricing. According to Ted Cohen, former EMI executive, “This will be a PR nightmare. It is for the music industry what the AIG bonuses are for the insurance industry.” The manager of Nine Inch Nails suggests that it would make more sense to, “Try to price [music] cheaper instead of squeezing the handful of people who are still willing to pay for music.” Ultimately, the fear is that increasing the price of many popular tracks will irritate the consumer and consequently harm sales. In the first week of the implemented price changes, iTunes reported that their revenue went up although sales of songs in their Top 100 chart decreased by a margin of 0.5%. Despite a short-term increase in revenue, it is difficult to say whether or not iTunes will benefit from their new pricing system.
While digital music retailers continue to adapt to the new market, NPD’s music tracking surveys have indicated a spike in teenager’s (ages 13 to 17) use of online listening sources such as Pandora and MySpace Music. In 2008, 52% of teens listened to online radio, an 18% increase from the previous year. Due to the fact that most teens (around 70%) already own a portable music player and have built a music library, they are less likely to purchase new music. In fact, NPD’s MusicLab survey revealed that most teens that listen to a song they like on MySpace Music are more likely to return to the site to listen to the song again, while only 1% claimed they would purchase the song. The trends consumers are demonstrating indicate that business models need to evolve, adapting new revenue streams such as “brand- and ad-supported music.”
Some music services, such as Lala, have taken a different approach by combining the concepts of iTunes music store and MySpace’s ad-supported model, offering people the purchase of streaming music for ten cents. Taking this a step further is Swedish music service, Spotify. Now only available in Sweden, Norway, Finland, France, Spain, and the UK, Spotify offers free music streaming service. Revenue is generated through “radio-style” advertisements alongside digital display ads, though the company also offers a subscription service premium account that is free of advertising. With major licensing deals from Universal Music Group, Sony BMG, EMI Music Group, and more, Spotify has a promising future in the music market.
Though Lala and Spotify are both experiencing rapid expansion, the cite-based services are eagerly awaiting various options for mobilization. Lala co-founder Bill Nguyen mentions that, “Web services don’t make sense unless they’re eventually mobile,” and tags, “It helps that the iPhone is out there leading the way.” While it is obvious why both companies would like an iPhone presence, there is much debate over whether or not Apple would allow such apps to exist due to their service competition with the iTunes store.
With companies like Spotify, the “future” of the music industry does not seem so distant. Though not available in the U.S. at this time, Spotify’s model caters to the consumers while maintaining steady revenue –something record companies have been unable to achieve. We are not there quite yet, but the cloud-based, on-demand streaming service theory, in which videos and music will be readily available anywhere, is likely to be the new format in which media is consumed. It is Lala, Spotify, and similar companies that will be at the forefront of this movement, initiating a new era of digital music.
http://www.pollstar.com/blogs/news/archive/2009/03/18/655077.aspx
http://www.techdirt.com/articles/20090326/1127144263.shtml
http://www.billboard.biz/bbbiz/content_display/industry/e3i415aa88a9b325…
http://www.allbusiness.com/entertainment-arts/broadcasting-industry-sate…
http://www.spotify.com/blog/archives/2008/10/07/weve-only-just-begun/
http://blog.wired.com/business/2009/04/interview-lala.html

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