Taste the future of digital music experiences: 5 examples

I’m a strong proponent of radical innovation in the music industry. My impression is that the people with power want to sustain the status quo, while it’s getting harder and harder for the artists, who just want to focus on making great music, to make ends meet. The disruptive emergence of digital means people expect to access all music, anywhere, at anytime, and the artist has been downgraded to supplying a commodity where the relationship between an artist and a fan is almost non-existent.

Digital has led to fierce competition, commoditisation and lowering margins (except for the very, very popular acts). But I’m not sentimental, the answer is not conservatism or fighting for the old ways. The reality is that the music industry is going to shrink quite a significant amount if they do not look more ahead and innovate more radically. If you’d ask them, they’d say they are adapting and innovating, but it’s way too little, too slow. Both the structure of the industry, business models and product strategy need to change, and they should start with fundamentally putting consumers’ needs at the centre of focus, not business’ needs.

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Digital finally overtakes physical in US music market

It’s a moment that many industry observers have predicted for the best part of a decade: the US music market is now more digital than physical, by volume at least. Yet commoditisation increasingly demands entirely new strategies in order to monetise digital music.

According to figures from Nielsen SoundScan and Billboard magazine, digital music unit sales accounted for 50.3% of all music purchases in 2011, the first time that threshold has been crossed in the world’s largest music market.

The US is more advanced in digital than most of Europe. In the UK digital albums still account for less than a quarter of the market, although downloads of individual tracks far outstrip CD singles.

One in three albums is digital in the US, while Americans bought 100m more digital tracks overall in 2011 than the prior year, up over 8%.

But in spite of the digital growth, there are signs that the decline of CDs is slowing. Total album sales were up for the first time since 2004 and physical album sales fell 5% in 2011, significantly less than the 19.5% decline reported in 2010 over the prior year.

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Will Facebook start to close the supply and demand gap in digital music?

Many say they would pay for digital content, but don’t, as services as Spotify aren’t rich and compelling enough. Will Facebook’s coming music service finally start to provide the right musical experience to bridge the gap between supply and demand in the digital music market?

Facebook intends to launch its long-rumored music service in a few days with Spotify, MOG and Rdio as three of the company’s launch partners. The music and media platform will be announced at Facebook’s f8 developer conference on Sept. 22 and will allow users to listen to music from within Facebook.com.

Facebook will probably not directly host or stream any music or media. Instead, it will rely on partners to provide the content. This is in contrast to Apple, Google and Amazon’s strategy of hosting music content on their servers. Facebook’s plan is to become a platform for media content in the same way it is a platform for applications and games.

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Digital music at an impasse

I have earlier written about how the music business now seems more doomed than ever. Stagnating demand for live concerts appears to have stopped offsetting the decline in CD sales. Sale of digital music is far away from being compensation enough, as it’s growth halved last year despite increased action on behalf of governments to tackle digital piracy globally. To look at the future of digital music more in depth, I turn to the wise words of Mark Mulligan, a music analyst at Forrester Research.

Writing on the Midem blog, Mulligan points out that “Digital music is at an impasse” because “it has not achieved any of its three key objectives”, specifically:

1. to offset the impact of declining CD sales
2. to generate a format replacement cycle and
3. to compete effectively with piracy.

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– Apple Just Monetised Pirated Music

According to CEO of Tunecore, a digital music distribution service, Apple’s new free iCloud and $24.99 a year iTunes Match, “marries the two disparate ideas of consumer convenience and the monetization of pirated music, providing what could be the ‘missing links’ between consumers, artists, labels, music publishers and the emerging digital music industry,” CEO Jeff Price said on the Tunecore blog. “With its launch, the odometer on the music industry is about to reset itself (again)…And the results, I believe, will be stunning.”

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Can we see the future of the music industry in China? I hope not.

We could read in the latest Economist edition that the worse-case scenario of the music industry has already come to pass:

Chinese consumers “won’t pay a penny” for recorded music, says Gary Chen. The music promoter turned digital entrepreneur ought to know. In 2006 he launched Top100.cn, a website which offered a choice of à la carte music downloads and monthly subscriptions. Its prices were low—but not low enough. Chinese music fans were raised on knockoff CDs and are now accustomed to getting hold of music for nothing on file-sharing websites. China will soon have the world’s second-biggest economy, but its legitimate music market is tiny (see chart). So Mr Chen changed tack. Last year Top100 began to offer Chinese internet users free MP3 music downloads, supported by advertisements. This year Mr Chen reckons he will sell about 10m yuan ($1.5m) in advertising. That would be a trivial sum in America or Britain. In a country where sales of recorded music amounted to just $75m last year, it is not at all bad.”

In the case of the monetisation of music, looking to China could be a bit like looking into a crystal ball. At least, the development of the Chinese music industry is certainly worth keeping an eye on. Here, because of the rampant piracy, they may be forced to innovate to make money off of their music. This means China might function as a test market, a place where music business models are experimented with, tried and tested, before the music markets of the West are desperate enough to do the same. Hence, perhaps they’ll find a solution that works and that can be replicated in Europe and US?

The British music business, on the other hand,  was recently reported to have finally begun growing again. However, this growth is almost only on the back of spectacular live concerts, merchandise and new, innovative partnerships between brands and artists. This probably points to the future of the music industry. Through marketing agencies (not record companies) or the likes, acting like middlemen, the musicians will create a range of different revenue streams by tapping into their enormous abilities to affect and inspire people. These channels musicians have into people’s hearts and minds are a match made in heaven for branding and advertising purposes. This is well exemplified by the band OK Go and its viral video hits online. They have been sponsored by for example the insurance company State Farm, in a case where the record company EMI were the ones fighting evolution by limiting the possibilities of online sharing. Don’t sell music, use music to sell.