Following an assignment for my Master in Digital Marketing, I wrote the following - I feel for the assignment itself it is a little too detailed and... well... angry, but as a blog - it's about spot on :)
The question was:
What have been the major changes in the music industry in the last 10 years? Build a Marketing Mix matrix using the "4P" in order to compare the music industry evolution between now and how it used to be 10 years ago.
The first P
Product:
Physical | Bits | Cloud
High Quality | High Compression | Live
Album | Tracks | Live
Label | Unsigned
In 2000 the CD was still the dominant format for purchased music and had been since the late 80s early 90s. The high quality audio, digital format was such a drastic improvement over cassettes that the uptake was rapid and forced the price of players down quickly enough that the entry level for the format was very low by the mid 90s and ubiquitous by 2000. The music industry was focussing on increasing the quality of formats in the same way as DVD was managing to do with film. This was a huge waste of time however as the new HQ formats failed to take off in any meaningful way - even with backwards compatibility - possibly because of a psuedo format war between SACD and DVD-A but mostly because CD was a high enough quality for most - parallels could be drawn with the slow uptake of Bluray Disk, but that misses the point that HDTVs are already the norm, whereas HD audio equipment was rare in the late 90s early 00s.
At the same time as the labels were hoping for a new HQ format, Creative Technologies were working on the other end of the spectrum. The Creative Nomad was released in 1999 and could play MP3 files at a drastically reduced bit rate, but also, with no moving parts and the future possibility of massive storage capacities. At roughly the same time a host of file sharing sites/networks sprang up around the web, Napster is the most well known, but it was one of a handful of P2P networks that allowed the sharing of these new files - shrunk and freed from their physical constraints between anyone, anywhere in the world.
The industry changed from one based on a physical product, to one based on bits. The music became the product, not the CD - which truth be told was how most people saw it from the start - you buy an album - not a disk. The physical CD obviously had massive advantages over the MP3 in terms of audio quality and design, no liner notes, artwork or physical collection meant that uptake was slow among many groups, but students fed the file sharing networks, in the same way they had previously fed the record stores.
In 2001 along came the iPod (mac only at this stage), well designed and with the user in mind - it took off rapidly and the game changed completely. iTunes started selling music online and not only the method of storing music changed, but so did what was bought. Labels could no longer get away with selling 50-50 killer filler on albums as consumers would only buy the killer half, singles became outdated rapidly as all songs were singles - unleashed from the constrains of an album.
Convenience outweighs quality of recording and free outweighs paid for - why was anyone surprised?
In fact, when looking at EMI's own webpage it is striking that they claim such a technological background, they were the first label to stream an album live, to remove DRM from their downloads, but between 1994 and 2007 nothing changed at EMI but everything changed for the industry. The best hope labels now have for selling a physical product lies in producing "Special Editions" with alternative recordings, DVDs or a shiny new case, all of which have some success, but the kids of today aren't growing up with the collectionist gene and may not take it up. Another technique has been giving the download for free when you purchase Vinyl recordings - but Vinyl buyers are fading out faster than CD shoppers so it doesn't cover the gap.
The final evolution for product involves one part revolution and one part regression. Streaming services now take the physical aspect to its final resting place by removing the need to even store a track, as long as you have the internet you have the biggest library the world has ever seen. Pandora will choose your music for you, Spotify will let your friends know what you like and last.fm keeps track of everything you've listened to all day, on any device - even MP3s feel cumbersome in this new world of streaming. Now for regression, LIVE. If we admit that the product is music, the logical conclusion is that if you like music, you'll love live. More bands are making more money through touring than at any point in history. There is a renewed appetite for live music and merchandise, and now that getting your band known is as simple as opening a myspace page, there is a future for the touring band, even if the studio band has never had it so tough.
The Second P
Price:
Expensive (per album) | Free (per track) | Subscription (per month) | Live
The clearest change that the industry has seen is from price fixed CDs in the 80's/90's to a first price drop in the physical format in 2003. This is despite the fact that cost of production and raw materials continued to drop throughout the same period. As margins grew and sales rocketed (even for re-issues of albums people already had) the industry grew complacent believing that people would pay for CDs because it was a high quality format. Even as the CD reached it's 20th birthday the industry was continuing to look at a repeated future of more expensive plastic disks, failing to realise that the people were moving in the other direction.
In the mid to late 90's a CD cost roughly $16/18 when first released, this dropped to around $12 in 2003, but the volume being sold also dropped significantly. The industry hoped that reduced prices would drag consumers back to the format, but with new iPods coming out every year, each time with new advances and bigger capacity, people were no longer buying CDs - and the easiest way to fill these MP3 players, was with music "illegally" downloaded.
Napster provided a network of free music and even though they attempted to make themselves attractive for purchase by the big labels, the preffered route was litigation. This increased Napster's profile, and added to the backlash against the labels, who many felt had been ripping consumers off for decades. This act of rebellion against the price structure, combined with high internet penetration caused the sales of CDs to drop and the spread of MP3s, this can also be added to the number of people who now mostly listen to music via Youtube.com - which no one seems to be able to decide if it is legal or not.
The next wave of price structures came from companies like Napster in their legal form, subscription services allowed people to pay a monthly fee to download music from a site's catalogue - in a similar vane to the format wars of old, various sites had deals with various labels meaning that if you wanted a "complete" selection of music, you'd need more than one subscription - or take the illegal route. iTunes solved this problem by allowing individual downloads of a huge variety of artists (still no Beatles) - but this fundamentally changed the product that was purchased - even when pricing structures were changed to make whole albums more attractive. EMI's move to DRM free tracks was a big step, even if a DRM free track cost more. Other pricing structures of this time were based around bit rate - the higher the bit rate, the more expensive the track. Even though distribution costs were practically the same, the industry felt they still had the right to charge extra. The industry's next big hope is to pass the burden of responsibillity for "illegal" file sharing to the ISPs that "allow" it to happen. I find this particularly arrogant as no one has yet tried to blame Telefonica for the spread of child pornography - but apparently they should keep track of how many MP3s their users download each month - priorities???
The final evolution of price comes in two forms, streaming services and "freemium" models being one and Live being the other. In the streaming services corner we have Spotify which is the biggest such service in Europe, with Pandora in the US (formally worldwide until 2007). These services don't sell you a product at all, they let you listen to music you choose (in the case of Spotify) or music they think you'll like (Pandora). Advertising supports the free versions of the two services, and subscriptions can be purchased to remove this. The various restrictions of location are applied due to fundamental differences in US/EU broadcasting rights. Whereas Labels charge EU radio stations to broadcast music, in the US it is free - this means that the two business models are radically different in each region.
Live, as mentioned before is the other pricing model. Last year in the UK Prince gave his album away for free - on the front of a newspaper. No charge, no catch. The idea was to promote his 2 week "residency" at the O2 arena in London - every show sold out on this tour. Madonna did the same several months later and Michael Jackson was in the process of doing the same before his death. Tickets to these shows were not cheap (even though Jackson died, most people still kept the tickets and didn't ask for refunds - momorobilia), and whereas a tour incurs massive costs, a residency is much more reasonable. Obviously this kind of event is only suitable for the biggest acts, but festivals have never been so healthy and diverse - perfectly suited to bigger acts drawing in the crowds for smaller acts to entertain until their arrival - similar to the structure the labels of old had (large acts support small financially), all of this shows a shift from physical product pricing, back to where all this began - people paying to listen to music.
The Third P
Place:
The High Street | The Internet | P2P | Youtube | The Venue
Throughout the last 10 years the point of sale has shifted from being traditional highstreet shops and specialist stores to websites selling CDs, to the more recent trend of subscription services and iTunes music store. Many other ligitimate websites exist for purchasing music (7Digital, e-music, Rhapsody and Napster to name just a few), but iTunes is the leader. The models used by each company are slightly different, as are their catalogues. E-music for example is known for having smaller less well known labels back catalogues, while 7Digital is tied to Spotify as its sales arm - but for sheer scale iTunes is the most widely used and extensive.
The change from bricks and mortar stores to websites was relatively quick, aided by the penetration of Amazon and lower prices for CDs - people didn't mind waiting a few days for an album if it cost a bit less. The product remained the same however, the newly packaged CD. As soon as MP3 players took off then so did digital downloads, quicker and easier than going to a store and with infinite choice, not having a physical version of the music became irrelevant as more an more people listened to music directly from iPods, not having to rip the CD was actually easier, and it meant the iDTags were correct.
This change in place also fundamentally altered the product too, as mentioned before, not having to buy a physical format meant not having to buy all of the tracks that used to make up this format - individual tracks are far more likely to be purchased online than entire albums.
Just to reiterate the earlier point, place could now concievably be the front of a newspaper, as part of a campaign for the live show, which, in our opinion remains the only original point of sale, where merchandise and new releases are sold, directly after the live act has finished.
The Final P
Promotion:
Magazines | Websites | Blogs (pitchfork, Gorilla Vs Bear)
TV/Radio | Youtube
Flyposters | Myspace
Last.fm | Spotify | iTunes
Label | Word Of Mouth
One positive in all of this change is that promoting a band has never been easier, cheaper or more targeted. whereas in the past magazines, TV adverts/review shows and radio airlplay were the only ways to get your band "out there" now you have all that and more. Myspace has been responsible for a number of bands getting their breaks without major label help, music blogs promote and upload bands that 10 years ago you could not have hoped to have heard unless you lived in the same city as them, and Spotify lets you see an add, look up the band, listen to the album and buy it - all in less time than it used to take to unwrap a CD. However, with all this promotional opportunity a huge amount of control is lost, and although it is cheaper than ever to promote a band, you are also competing with 1000 times more groups than ever before.
In this world of massive choice, reccomendations are more important than ever. Most labels still hold the view that they are an important filter, releasing what is good and turning down what is bad - but this is no longer the case. I can record a track using Garage band, upload it to myspace and have it critically reviewed on a music blog without the help of a label - this type of reach makes "going it alone" all the more attractive for new bands, and self promotion is a huge tool.
The Arctic Monkeys were the first unsigned UK band to reach the top 10 in the UK, they gave their music away for free, toured heavily and released a track - no labels involved, limited promotion, all word of mouth - and the fear that having given the tracks out for nothing, no one would buy the album where laughable when you look at their sales figures.
In 2000 the CD was still the dominant format for purchased music and had been since the late 80s early 90s. The high quality audio, digital format was such a drastic improvement over cassettes that the uptake was rapid and forced the price of players down quickly enough that the entry level for the format was very low by the mid 90s and ubiquitous by 2000. The music industry was focussing on increasing the quality of formats in the same way as DVD was managing to do with film. This was a huge waste of time however as the new HQ formats failed to take off in any meaningful way - even with backwards compatibility - possibly because of a psuedo format war between SACD and DVD-A but mostly because CD was a high enough quality for most - parallels could be drawn with the slow uptake of Bluray Disk, but that misses the point that HDTVs are already the norm, whereas HD audio equipment was rare in the late 90s early 00s.
At the same time as the labels were hoping for a new HQ format, Creative Technologies were working on the other end of the spectrum. The Creative Nomad was released in 1999 and could play MP3 files at a drastically reduced bit rate, but also, with no moving parts and the future possibility of massive storage capacities. At roughly the same time a host of file sharing sites/networks sprang up around the web, Napster is the most well known, but it was one of a handful of P2P networks that allowed the sharing of these new files - shrunk and freed from their physical constraints between anyone, anywhere in the world.
The industry changed from one based on a physical product, to one based on bits. The music became the product, not the CD - which truth be told was how most people saw it from the start - you buy an album - not a disk. The physical CD obviously had massive advantages over the MP3 in terms of audio quality and design, no liner notes, artwork or physical collection meant that uptake was slow among many groups, but students fed the file sharing networks, in the same way they had previously fed the record stores.
In 2001 along came the iPod (mac only at this stage), well designed and with the user in mind - it took off rapidly and the game changed completely. iTunes started selling music online and not only the method of storing music changed, but so did what was bought. Labels could no longer get away with selling 50-50 killer filler on albums as consumers would only buy the killer half, singles became outdated rapidly as all songs were singles - unleashed from the constrains of an album.
Convenience outweighs quality of recording and free outweighs paid for - why was anyone surprised?
In fact, when looking at EMI's own webpage it is striking that they claim such a technological background, they were the first label to stream an album live, to remove DRM from their downloads, but between 1994 and 2007 nothing changed at EMI but everything changed for the industry. The best hope labels now have for selling a physical product lies in producing "Special Editions" with alternative recordings, DVDs or a shiny new case, all of which have some success, but the kids of today aren't growing up with the collectionist gene and may not take it up. Another technique has been giving the download for free when you purchase Vinyl recordings - but Vinyl buyers are fading out faster than CD shoppers so it doesn't cover the gap.
The final evolution for product involves one part revolution and one part regression. Streaming services now take the physical aspect to its final resting place by removing the need to even store a track, as long as you have the internet you have the biggest library the world has ever seen. Pandora will choose your music for you, Spotify will let your friends know what you like and last.fm keeps track of everything you've listened to all day, on any device - even MP3s feel cumbersome in this new world of streaming. Now for regression, LIVE. If we admit that the product is music, the logical conclusion is that if you like music, you'll love live. More bands are making more money through touring than at any point in history. There is a renewed appetite for live music and merchandise, and now that getting your band known is as simple as opening a myspace page, there is a future for the touring band, even if the studio band has never had it so tough.
The Second P
Price:
Expensive (per album) | Free (per track) | Subscription (per month) | Live
The clearest change that the industry has seen is from price fixed CDs in the 80's/90's to a first price drop in the physical format in 2003. This is despite the fact that cost of production and raw materials continued to drop throughout the same period. As margins grew and sales rocketed (even for re-issues of albums people already had) the industry grew complacent believing that people would pay for CDs because it was a high quality format. Even as the CD reached it's 20th birthday the industry was continuing to look at a repeated future of more expensive plastic disks, failing to realise that the people were moving in the other direction.
In the mid to late 90's a CD cost roughly $16/18 when first released, this dropped to around $12 in 2003, but the volume being sold also dropped significantly. The industry hoped that reduced prices would drag consumers back to the format, but with new iPods coming out every year, each time with new advances and bigger capacity, people were no longer buying CDs - and the easiest way to fill these MP3 players, was with music "illegally" downloaded.
Napster provided a network of free music and even though they attempted to make themselves attractive for purchase by the big labels, the preffered route was litigation. This increased Napster's profile, and added to the backlash against the labels, who many felt had been ripping consumers off for decades. This act of rebellion against the price structure, combined with high internet penetration caused the sales of CDs to drop and the spread of MP3s, this can also be added to the number of people who now mostly listen to music via Youtube.com - which no one seems to be able to decide if it is legal or not.
The next wave of price structures came from companies like Napster in their legal form, subscription services allowed people to pay a monthly fee to download music from a site's catalogue - in a similar vane to the format wars of old, various sites had deals with various labels meaning that if you wanted a "complete" selection of music, you'd need more than one subscription - or take the illegal route. iTunes solved this problem by allowing individual downloads of a huge variety of artists (still no Beatles) - but this fundamentally changed the product that was purchased - even when pricing structures were changed to make whole albums more attractive. EMI's move to DRM free tracks was a big step, even if a DRM free track cost more. Other pricing structures of this time were based around bit rate - the higher the bit rate, the more expensive the track. Even though distribution costs were practically the same, the industry felt they still had the right to charge extra. The industry's next big hope is to pass the burden of responsibillity for "illegal" file sharing to the ISPs that "allow" it to happen. I find this particularly arrogant as no one has yet tried to blame Telefonica for the spread of child pornography - but apparently they should keep track of how many MP3s their users download each month - priorities???
The final evolution of price comes in two forms, streaming services and "freemium" models being one and Live being the other. In the streaming services corner we have Spotify which is the biggest such service in Europe, with Pandora in the US (formally worldwide until 2007). These services don't sell you a product at all, they let you listen to music you choose (in the case of Spotify) or music they think you'll like (Pandora). Advertising supports the free versions of the two services, and subscriptions can be purchased to remove this. The various restrictions of location are applied due to fundamental differences in US/EU broadcasting rights. Whereas Labels charge EU radio stations to broadcast music, in the US it is free - this means that the two business models are radically different in each region.
Live, as mentioned before is the other pricing model. Last year in the UK Prince gave his album away for free - on the front of a newspaper. No charge, no catch. The idea was to promote his 2 week "residency" at the O2 arena in London - every show sold out on this tour. Madonna did the same several months later and Michael Jackson was in the process of doing the same before his death. Tickets to these shows were not cheap (even though Jackson died, most people still kept the tickets and didn't ask for refunds - momorobilia), and whereas a tour incurs massive costs, a residency is much more reasonable. Obviously this kind of event is only suitable for the biggest acts, but festivals have never been so healthy and diverse - perfectly suited to bigger acts drawing in the crowds for smaller acts to entertain until their arrival - similar to the structure the labels of old had (large acts support small financially), all of this shows a shift from physical product pricing, back to where all this began - people paying to listen to music.
The Third P
Place:
The High Street | The Internet | P2P | Youtube | The Venue
Throughout the last 10 years the point of sale has shifted from being traditional highstreet shops and specialist stores to websites selling CDs, to the more recent trend of subscription services and iTunes music store. Many other ligitimate websites exist for purchasing music (7Digital, e-music, Rhapsody and Napster to name just a few), but iTunes is the leader. The models used by each company are slightly different, as are their catalogues. E-music for example is known for having smaller less well known labels back catalogues, while 7Digital is tied to Spotify as its sales arm - but for sheer scale iTunes is the most widely used and extensive.
The change from bricks and mortar stores to websites was relatively quick, aided by the penetration of Amazon and lower prices for CDs - people didn't mind waiting a few days for an album if it cost a bit less. The product remained the same however, the newly packaged CD. As soon as MP3 players took off then so did digital downloads, quicker and easier than going to a store and with infinite choice, not having a physical version of the music became irrelevant as more an more people listened to music directly from iPods, not having to rip the CD was actually easier, and it meant the iDTags were correct.
This change in place also fundamentally altered the product too, as mentioned before, not having to buy a physical format meant not having to buy all of the tracks that used to make up this format - individual tracks are far more likely to be purchased online than entire albums.
Just to reiterate the earlier point, place could now concievably be the front of a newspaper, as part of a campaign for the live show, which, in our opinion remains the only original point of sale, where merchandise and new releases are sold, directly after the live act has finished.
The Final P
Promotion:
Magazines | Websites | Blogs (pitchfork, Gorilla Vs Bear)
TV/Radio | Youtube
Flyposters | Myspace
Last.fm | Spotify | iTunes
Label | Word Of Mouth
One positive in all of this change is that promoting a band has never been easier, cheaper or more targeted. whereas in the past magazines, TV adverts/review shows and radio airlplay were the only ways to get your band "out there" now you have all that and more. Myspace has been responsible for a number of bands getting their breaks without major label help, music blogs promote and upload bands that 10 years ago you could not have hoped to have heard unless you lived in the same city as them, and Spotify lets you see an add, look up the band, listen to the album and buy it - all in less time than it used to take to unwrap a CD. However, with all this promotional opportunity a huge amount of control is lost, and although it is cheaper than ever to promote a band, you are also competing with 1000 times more groups than ever before.
In this world of massive choice, reccomendations are more important than ever. Most labels still hold the view that they are an important filter, releasing what is good and turning down what is bad - but this is no longer the case. I can record a track using Garage band, upload it to myspace and have it critically reviewed on a music blog without the help of a label - this type of reach makes "going it alone" all the more attractive for new bands, and self promotion is a huge tool.
The Arctic Monkeys were the first unsigned UK band to reach the top 10 in the UK, they gave their music away for free, toured heavily and released a track - no labels involved, limited promotion, all word of mouth - and the fear that having given the tracks out for nothing, no one would buy the album where laughable when you look at their sales figures.
