What can we learn from the music industry?

I think we have now all heard the story of how Apple (and Napster) transformed the music industry with the iPod/iPhone and iTunes…so I won’t spend much time on that. The music industry, though, is still an excellent example of some of the consequences of digitisation.

After a 40% drop in revenue from 1999 to 2010, and a few years of stabilisation, the last three years have seen a 20% increase in the global music market. Still some distance from the high of 1999, but enough to keep music label CEOs and boards content and focused on opportunities created by the digital disruption.

Despite all the doomsday prophecies, the content owners are still there, as the ones that lost out in the process were the traditional music outlets, and you could argue along with the dominant product of the 70s-00s, the album. With the ability to buy tracks individually consumers no longer want to pay for ‘album fillers’ and it isn’t uncommon to reach #1 in the UK with less than 10.000 sales!

Importantly, people still consume music and the digitisation of the industry has, along with lower production costs, led to other opportunities on the revenue side. All of a sudden there is complete access to the entire back catalogue, where all costs are ‘sunk’, making TV ‘advertising’ through shows such as X Factor extremely efficient. In the old days a record shop had no chance of responding to a sudden demand for an old Journey song if it was played by one of the contestants – or if a song looks like it is going to catch on in a market, you know immediately through the fast feedback, and can accelerate it with more marketing, pushing TV interviews etc.

The other, and far more important, opportunity is created by the emergence and dominance of streaming services such as Spotify, Apple Music and Deezer. From a consumer perspective these are subscription services, but from a label/muscician perspective, this is a whole new way of getting paid, as you get paid based on actual consumption.

In the “old album” days any song from the same album would earn the same amount from an album sale. So when Baha Men released the album “Who Let the Dogs Out?”, “What’s Up, Come On” would earn the same amount of money from the sale of that album as the title track – and I bet you would never be able to identify the latter…and probably wish you weren’t able to identify the title track either 😛

At a macro level this creates a more “top heavy” market. In the past you bought a piece of music, but how much you listened to it afterwards did not directly impact how much the artist or label would make. Today it means everything…and I at least have a few “mistakes” that I will not admit having listened to, but the artist made the same amount of money from me as the artists that were “on repeat”.

It means that the digitalisation of the industry has allowed for a “perfect” distribution based on consumption, and actually allow artists with “global” styles of music to reach a sufficient audience across the globe, but at the same time also hurt the local language artists with small, loyal fan base.

At the same time, other income streams have grown, not least live concerts, as consumers seek live individual experiences. This has also meant that the 12″ LP-niche (vinyl) market has experienced a resurgence, based almost on being “counter-digital” (similar to swiss luxury watches and boutique book stores). Carving out a niche despite obvious technological inferiority, and you are likely to see concepts such as lowfi-concerts win increasing popularity.

Based on this, industry insiders are very optimistic about reaching similar revenue levels as in the past as streaming subscriptions increase, but how revenue is distributed and how you go to market has and will change significantly.

As an example, the biggest event in the UK music market is the race towards the Christmas #1. Everybody follows it, music becomes mainstream media, so everybody releases their big singles towards Christmas, and everything is geared towards that.

However, in a world where nobody buys, but pays when they consume, that event becomes a less meaningful part of your marketing. Consumers may listen to slightly more music during the holidays, but they do not buy 10-12x more compared to normal as they used and the money you make on a stream in January is worth just as in December.

So what can we learn from the music industry? Well maybe you can’t apply the opportunities directly to your industry, but it should pose some questions. What parts of my product/service can and will be digitised and how is that likely to change the behaviour of my customers? Does it open up new revenue possibilities? Can I segment my customers differently and offer different price points? E.g. a law firm with one price for simple “use our AI-based self service”, and another for complex matters.

Many service industries will claim this is already captured in the pricing today, and it is to some extent, but not with the same level of granularity. The second it becomes possible to price more granularly, somebody will, because there is an opportunity to carve out a part of the market for yourself. It may not work, but they will try and that will impact you and force a response.

About the Author

Jesper E. Thomsen

Jesper is the owner of e-thomsen, and you can read more about his activities under "about".

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