Published on May 1st, 2014 | by WMG Editor

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What Digital Has Done For Music

In developing cutting-edge research and thinking, the Business Innovation Group works with like-minded individuals and organisations in academia, industry as well as the public sector. The BIG Blog invites some of them to share their work and thoughts with us.

This month’s guest blogger is University of the West of England Associate Professor in Strategy and Operations Management Glenn Parry, who looks at the servitization of the music industry.

Everyone enjoys music, but what is it? Is it a product, a service, an experience? How do we sell it and what is its value? What has digital done for music?

Recorded music sold in physical format, either on vinyl or CD has historically generated significant financial returns. Global recorded music sales in 1997 were USD 27.6 billion. However, once music entered the digital domain those revenues radically reduced, totalling USD 16.5 billion in 2012.

Do people in the digital age not like music so much?

Music is now available as product and service. You can buy a physical CD, a vinyl record, a digital download, access streaming services, or listen via internet radio which can be personalised to your tastes. There are a growing number of sales channels through which music firms reach out to their audiences, but revenues have not significantly increased in over a decade.

With so many new ways to access music, why haven’t sales revenues gone up?

Let’s look at what has changed with regards to the sales experience. The move by traditional manufacturing firms to generate revenue through the provision of service associated with their product has been described as servitization. Firms in this sector are moving from a focus on selling music as a physical product towards creating value from selling music in digital formats which gives rise to different business models. In developing a broad portfolio of ways to access music, the servitization of the music industry has been progressing for a decade.

As we move from the physical to the digital sales channel, a physical tangible object is no longer present at the point of sale, even though a physical object may arrive in the post later. Exchange value underpins the traditional view of the customer–producer relationship with each party exchanging one value unit for another, e.g. a vinyl album for money. With the servitization of the music industry, a physical product is now no longer present at all when someone buys a digital track online or pays for streaming service. There is some degree of theatre with the physical – when you buy and listen to a vinyl album or CD. You have to find the item you want and buy it and get it home. Then there is the disc, the player, the cover art and the sleeve notes to read. If it’s a vinyl record you have to stay nearby to turn it over half way through. It’s very engaging of the listener’s time.

The focus of value for online digital music services is very different. Access to almost any desired music is possible within a very short time of asking for it. The devices have changed and music is perhaps background, listened to through earbuds off a phone whilst we do something else. And payment – payment may happen for a digital download, or a streaming service. It may not happen if we access music through a streaming service which makes its money from advertisements and where the artist may get a small revenue per play. Or it may not happen if we illegally download or stream the music from a pirate website.

Is music piracy destroying the value of music?

Music piracy significantly decreases sales revenues and is a common problem around the world. Based upon our own conservative analysis we have estimated that 28% of people participate in illegal file sharing. That’s almost a third of the potential market and clearly represents a major problem for the music industry and the artists who don’t get paid for their creative efforts.

So what is to be done? What is the future business model for music?

Well, I think there is a need to legislate to limit piracy. We need to think of ways of explaining that taking music without paying isn’t right and collectively consider how we support artists. I can also see that the music market presents an opportunity for those who are innovative, with many new business model possibilities still to be explored.

To end, I will finish with two extreme examples of how artists are trying to re-establish the value of music in the digital age.

Wu-Tang Clan will be pressing only one copy of their album The Wu – Once Upon A Time In Shaolin. Various media sources are already suggesting that an offer of USD 5million has been made for this album, and we can imagine it will sell for much more. Wu-Tang Clan states that this release “launches the private music branch as a new luxury business model”. They are creating a market around the scarcity of their music, driving up the worth of the album.

Amanda Palmer was the lead singer of The Dresden Dolls and subsequently The Grand Theft Orchestra. Having fallen out with and left her record company, Amanda turned to the internet and successfully raised nearly USD 1.2 million on Kickstarter to fund the recording of her album. She uses the full range of social media to crowd source places to stay, food, musicians to play with her, gives away much of her music and encourages sharing online. Amanda’s message is that artists need to connect with their fans and ask them for their support, creating value and capturing worth through large numbers of small contributions.

These are two models, but I am not sure that either is scalable for the majority of artists. I can’t see a digital or physical business model that really appeals to me, a music consumer. This is the opportunity space – how would you like to be engaged with music? Go build that!

 

Dr Glenn Parry is Associate Professor of Strategy and Operations Management at the University of the West of England. He has an international reputation for his work in the music industry as well as automotive and aerospace supply chain. Glenn is also one of the speakers at the Competitive Advantage in the Digital Economy (CADE) Vacation School sponsored by the University of Warwick’s Institute of Advanced Study, Centre for Competitive Advantage in the Global Economy (CAGE) and WMG. Follow Glenn on Twitter @drgeep and read about Glenn’s and his team’s work with the creative industries at http://www.qvadis.net/

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