Internet disruptive to Music Sales, and what they could do about it

Categories: Web Industry, Web MarketingPosted on April 6th, 2007

I haven’t bought a CD in over a year, and I use internet radio (Pandora) or download mixed MP3s from DJs at no cost. To me, music media is free and will continue to be.

The WSJ reports that Sales of music, long in decline, plunge sharply as the sales of CDs continue to diminish:

“compact-disc sales for the first three months of this year plunged 20 percent from a year earlier,”

which sadly is the cash cow:

“(cds) account for more than 85 percent of music sold”

It doesn’t end with CDs, but also resulted in the closure of brick and mortar companies that failed to shift to a Web Strategy:

“including the demise of specialty music retailers like longtime music mecca Tower Records. About 800 music stores, including Tower’s 89 locations, closed in 2006 alone.”

Where are the ears getting their music fix? From P2P networks, (both illegal and legal) as well as traditional computer companies that have figured out how to tap into that market (Apple’s iTunes).

Web and Media Strategies for the Music Industry
Music is free, trying to control it will always be a challenge going forward, the internet has dropped many of the barriers, and any speedbump is just a slowdown for the savvy consumer. I would suggest for artists and labels to figure out to embed monetization and market value into the song, some ideas:

1) Product Placement within the song: this has been done by many rap artists since the 1990s. The most popular drink, clothing, and car is mentioned in these songs, spurring a culture shift in consumerism. This is a sponsorship model which could lead towards monetization.

2) Many music artists know that the money is not made from CD sales, but from the tour, merchandise, and other auxiliaries and accessories. Bear with me, here comes the Web Marketing angle:

3) Viral Web Marketing play: Artists could deploy a viral widget that web users can place on their social network or blog sites. For every play, artists could give money to the site owner or blogger, in return for advertising sales of the two points mentioned above.

4) Is DRM a completely viable solution? One bootlegged copy on a college campus, and it’s completely gone.

I’ve some other ideas, but I’m not quite willing to publish them here in public yet. If you’ve some ways to help salvage this industry, so they can harness the web, leave a comment.

Update: Dan Blank has some really great observations and analysis on this changing industry, this quote sums it up “Music Hasn’t Changed, But Everything Around it Has”

As Goes the Music Industry, So Goes the World

Quality vs. Convenience of Experience

Share This Post:

This entry was posted on Friday, April 6th, 2007 at 8:44 am and is filed under Web Industry, Web Marketing. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.

Comments

jeremiah_owyang

Another related article here

http://online.wsj.com/public/article/SB11757946...

Apparently, Digital music is a small amount of total music sales.

jeremiah_owyang

Interesting article on why DRM is not effective

http://www.markshuttleworth.com/archives/96

Karen O'Brien

I've done extensive work in the online music area in the past year and I agree with your observations.

The news isn't all bad - In a recent report from the by the Digital Media Association http://www.digmedia.org/docs/DiMA%20Online%20Mu... - about half of online consumers now spend over $200 per year on music, while nearly 30% spend over $300--significantly more than the average $100 yearly spend before the broad adoption of digital services. So much for the argument that no one is spending on digital music!!! In the CD market a consumer who purchases 6 CD's a year (valued at approx $100) is considered a significant music consumer.

Some ideas for the music industry I have include:

1. Accept that digital downloads are here to stay. Accept that CDs may dissapear and other models may emerge EG: MOD (manufacturing on demand) where you order a custom mixed CD through the web and have it delivered by digital download or a physical CD to your hom or local store. Amazingly - when I have attended music industry events - they are still in the "People are rippping us off" mindset.

2. Make digital downloads and burning to CD no-brainer easy to do - iTunes has this down and is reaping the rewards.

3. Get rid of DRM - in the old Napster days CD sales actually thrived. Pandora and other predictive listening tools actually expose consumers to music they don't normally hear and are proven to generate new sales.

4. Consider and experiment with alternative models - one example is www.spiralfrog.com where they are offering free downloads on a catalog of approx 1 million songs

Rick Garcia

The Music Industry as a whole is evolving. You and I now have the ability to put our own creativity into music without having to spend an arm and a leg as Zac pointed out. More and more independent artists have the means to reach a global audience, without having to rely on the labels.

As far as strategy for the big labels - Perhaps ending partnerships with the major Internet Distributors (i-tunes, musicmatch, Microsoft, Napster) might be in order. This way, the Label is able to set the pricing according to the laws of supply and demand and NOT the law of apple "the 99 cent law", and distribute through their own sites (talking online distribution only, not CDs etc.)

Artists that get the most attention in web communities will get the endorsements in form of advertising space on their individual pages.

jeremiah_owyang

Zac, excellent points, have you seen this videos?

http://www.web-strategist.com/blog/2007/01/19/s...

Zac Echola

This is all well and good for the artists (merchandising, touring, etc.), but solves nothing for the decline in revenue for the labels.

Granted, maybe it's overdue time for labels to go away.

Barrier to entry for artists to create, promote and distribute their music (which was once strictly the domain of labels) is extremely low as prices drop for studio equipment (i.e. Pro Tools) and promotional/distribution outlets approach zero in cost and management.

Movies, TV and advertising still relies heavily on licensing music, though, so I don't think the labels are ever going to completely go away.

Hershel Reese

Imagine what this is doing the the jewel case industry.

Product placement will become central to many more industries in the future than simply the music industry.

It will be interesting to see how the music industry is forced to innovate here.

jeremiah_owyang

Mark

It depends on the user Mark, as there are still people that purchase vinyl. I still have CDs in my car, only because the iPod integration sounds horrible. The big answer to the future is watching where the money goes, and it's not so much in physical audio media, as it will be in accessing online and other 'streams'

Thanks for sharing!

Mark

I still buy CDs and I don't drink the Pepsis. I bought three CDs at Streetlight Records last week. Two were new and one was used. I guess I just like having the physical CD, booklet, and case. Oh, and I like to own my music too.