In the last decades, music industry and digital technologies have worked together in order to enhance the production and the consumption of music products. This joint effort, for instance, has improved the quality of the audio, led to the dematerialization of music (into non-physical MP3) and facilitated its fruition through new cross-media platforms. The latter of these processes is undoubtedly due to the coming of Internet and its recent applications. Since its birth, in fact, Internet has been revolutionizing all traditional media in terms of quantity (audiences), quality of services and degree of interactivity.
At the same time though, all the changes that I described have affected also the music business broadly intended or better the business models run by record labels and online distributors of music.
However, the digital revolution (Kusek and Leonhard, 2005) has also shown its drawbacks, the most relevant of which is the illegal downloading of contents protected by Intellectual Property Rights, or rather what we use to call “piracy”.
This essay aims to explore the recent possibilities to access music through streaming services and the shift from a model of business based almost exclusively on sales to a more articulated one.
First of all, it will be needed a description of the technology that inspired this research. Subsequently, it will be useful to analyse how it affects the distribution and the consumption of music. Finally, I will look at the redefinition of the concept of music stemming from these trends, which fosters new revenue models. In other words, I will try to understand whether the free (or flat-rate-based) access to music via the so-called “Cloud” (Youngs, 2010), a new term used for Internet, might be an opportunity for the record industry.
CHAPTER 1: TECHNOLOGY IN THE SERVICE OF MUSIC
Music and technology have always gone hand in hand. Since the coming of gramophone, the mankind has constantly developed tools to make the music consumption more simple and accessible or, in other words, better. It is though from the early 1980’s that those developments have become more significant. The invention of the CD in fact represented the beginning of the transformation of the music from analog to digital. (Kusek and Leonhard, 2005)
This process of digitalisation went then further and produced a new non-material format of music: the MP3. The MP3 technology, together with the proliferation of Internet, marked the start of a steady loss of control by the music industry over its products and led to the birth of several peer-to-peer networks that enabled the illegal sharing of music. (Kusek and Leonhard, 2005)
Nowadays, other digital systems have taken the scene of the content delivery. Among them, one of the most important is streaming.
A very simple definition of what streaming is might be the following: the technique which provides a constant and instantaneous transmission of data over the Internet from one computer to another. More technically, what happens is a process of data encoding and distribution through a server to a large number of clients. Apparently, streaming may sound similar to downloading while in fact, the former differs from the latter because of the possibility to (dis)play the transferred file without waiting until it is completely downloaded. (Follansbee, 2006)
In the next chapter, I will focus on the reasons why streaming has become so popular starting from an analysis of the changes occurred in the consumption of media contents.
CHAPTER 2: THE TRENDS IN THE CONSUMPTION OF MEDIA CONTENTS
It is undoubted that in the everyday life, people's need or desire to control and manage personally their free time and use of media is steadily increasing. This trend is well demonstrated by some recent reports based on researches conducted by the market research firm Mintel.
The first of them concerns with the media consumption habits of people who are between 16 and 24 years old. This age range is significant because usually young people are more up to date about new technologies and keen on modifying their habits than adults.
Well, while the access to broadband has increased in UK by almost 50% from 2004 to 2009,
“16-24s are less likely than older consumers to watch as much television in any given day and less likely to listen to radio. […] traditional media is finding the competition from the Internet toughest among this age group.” (Youth Media Consumption Habits Report - Mintel Oxygen, 2010)
Thus, traditional TV and Radio are becoming “events media” which means that they are mostly used for live events. On the contrary streaming, podcasting and so on are about to assume a central role in the current media landscape as “On Demand Services”.
Furthermore, the possibilities enabled by these new online-based platforms are spreading the consumption of media contents through more and more distribution channels. (Youth Technology Report - Mintel Oxygen, 2010)
So, we can note that the practice to consume audio or video contents via streaming online is becoming frequent, while the buying of products via physical stores is declining. We may then deduce that 16-24s prefer internet-based fruition and purchasing to traditional media and stores. In confirmation of this assumption we find another Mintel report (Music and Video UK, 2009) which tells us that from 2003 to 2008 the incidence of physical purchasing in the music market has decreased by almost 50% while that of downloading has almost trebled.
Moreover, as I mentioned before, today media users want to feel free to decide what to watch or listen to, when and how many times.
So, what I am describing is an overturning of the media habits which involves an ever growing degree of interactivity. Nevertheless, among consumers, the willingness to pay to get music is always decreasing due to the impact of recession and free downloading. More precisely, unlike in the past, they are less willing to spend money for any musical product, be it a single track or an entire album, than for music as service. In other words, in the everyday consumption of music what matters most is no more ownership but the possibility to dispose of contents in a (inter)active manner.
All these trends thus underlie the growing popularity of streaming and consequently explain the proliferation of softwares and websites which provide music through this technology. I think it is useful at this point to briefly introduce some of them because they are involved in the changeover of the whole music industry.
CHAPTER 3: THE CURRENT MUSIC-STREAMING SERVICES MARKET
At this moment in time, there are several music-streaming services which provide their users with access to millions of songs. However, although they all look alike, they are not identical. Among them, the most popular in UK are likely to be Spotify, Last.fm, MySpaceMusic and We7. According to rumors spread in the last months furthermore, it is probable that in the next future, iTunes will offer its own service. (Trenholm, 2010)
Last.fm is one of the oldest websites of this kind, since it has been founded in 2002. Basically, it allows the streaming of a random playlist of songs created around the user’s searches. Spotify (2006), We7 (2008) and MySpaceMusic (2009) are instead more recent and permit more freedom of choice among their huge music catalogues.
Thus, their users have an instantaneous access to an extended range of songs of excellent audio quality. Therefore, it is absolutely clear that this opportunity has changed the musical habits of innumerable people which can now easily search for their favourite songs through a simple search engine and listen to them as many times as they want without having to purchase them.
Taking Spotify as example, we can say that it offers three different services and, consequently, exploit different ways to get revenues. The first service is represented by the music itself and refers to the fact that one can build his own playlist according to his musical tastes or listen to pre-built ones based on genres or time periods (70’s, 80’s and so on). This service is akin to radio but at the same time it’s different because of the interactivity and the pull-out of the time-slot schedule system. (Youngs, 2010) Internet in fact, as Neumark pointed out (2006), transforms the time of the radio in a “time of repetition”, a time which is playable by consumers. Spotify gets revenues for this service through two ways: firstly, like radio, it transmits audio ads between songs with a variable frequency, which means that it sells advertising spaces (or better audiences) to interested advertisers. Besides, Spotify allows users to subscribe to an ad-free version of the service that includes additional features on payment of a monthly fee.
The second service is represented by the possibility to share contents with other people and stems from a general trend in the media landscape toward “social-networking”. Spotify does not get revenue from this service but makes its platform more attractive for customers and promote discovering of new music. The third and last service finally, is related to the e-commerce and is that which enables users to purchase single tracks or entire albums via downloading in the guise of MP3s. So, Spotify gets revenues from this service simply by selling music products.
However, according to Mintel’s statistics (Paid vs. Free UK, 2010), from 2004 to 2009 the sale of music albums in the UK has decreased by more than 20% despite a growth in legal downloading due to more affordable prices.
What is very interesting is that this fall of sales does not mean that people are less interested in music but rather that they are likely to find alternatives to purchasing in order to save money or, spending a given amount, get several services instead than a single product.
The fact that the interest for music has not decreased, if anything, it is increasing, is confirmed by the data related to concerts. The economies of record contents and live performances are quite different but both rely on the willingness to pay for music. And despite the loss of economic value suffered by music products, live music profits have noticeably grown, becoming a driving force in selling albums, instead than the opposite. (Holt, 2010)
That survey finally reports that, although music listeners are always less willing to pay for downloading, 33% of them would be willing to pay a monthly fee for an unlimited streaming and/or downloading service.
At this point, we have a clear picture of the current situation of the music market and we can go further trying to describe how this lay of the land affects the record industry.
CHAPTER 4: IS STREAMING THE KILLER OR THE SAVIOUR OF THE MUSIC INDUSTRY?
In the light of what said so far, it is unavoidable to wonder whether the streaming services have a positive or a negative impact on the music industry.
This industry in fact, as previously mentioned, is suffering a severe drop in incomes and is still struggling to set up advantageous business models for the digital market. (Papies, Eggers and Wlomert, 2010)
A useful contribution to this debate is given by an empirical research recently published on the Journal of the Academy of Marketing Science. (2010)
Such research intended to analyse how the supply of different ways to consume music online affects users’ choices. More precisely, it tried to figure out whether free, ad-based services are cannibalizing the pre-existing business models. (Papies, Eggers and Wlomert, 2010)
The research has been conducted in Germany and made use of a questionnaire through which the researchers planned to obtain significant data on music consumption preferences taking into account factors like price, advertising intensity, restrictions through Digital Right Management and catalogue size. All this factors though, are perceived differently from person to person depending on, for example, different degrees of willingness to pay or dislike of advertising. So, the users’ behaviours create a “net effect” that can be a “lift” or a “shift”, where the former is an increase of total users while the latter is a mere shift of existing users toward the free, ad-based model.
The outcomes of this empirical study have shown that the advertising-based model drives a “lift” rather than a “shift” effect, which means that such possibility is positive for the industry in so far as it draws into the market people who have never used any online music services enlarging the market size and allowing producers and distributors to segment the market itself. (Papies, Eggers and Wlomert, 2010)
So, the record companies can take advantage of the proliferation of these services because they allow them to reach more potential customers.
In reality, what is happening is a redefinition of the relationships between content owners (record labels), distributors and consumers deriving from the shift in the conception of music from product to service.
This shift of course has not been immediate and is actually still ongoing. But its signs were detectable since the early years of this century. Back in 2002 in fact, David Bowie granted The New York Times an interview during which he said that the distribution system controlled by record labels was about to come to an end and that music would have become soon like running water or electricity. (Pareles, 2002)
These assumptions have proved absolutely true and inspired a series of studies pertaining to the current situation of the music and its developments.
One of the most significant of these is likely to be that conducted by the German media futurist Gerd Leonhard. Throughout the last five years Leonhard has written many essays on this topic and attended several events all around the world in order to explain what really rules the music business at this time and what the music industry should accept and exploit instead of trying to contrast.
All Leonhard’s thought has been gathered in the book “Music 2.0” (2008) that well describes the challenges that the industry has to face and all the issues that are at stake. Leonhard starts just from the recognition of the transition to music as a service to define a system that allows record companies to benefit from a distribution of contents based on the concept of “music like water”. (Leonhard and Kusek, 2005)
Very few principles represent the basics of this model. In the first place, as consumption trends are confirming, the ownership has been replaced by access because music consumers are now more attracted by the latter rather than the former. This facet obviously involves an ever-growing loss of distribution control by the industry and leads to a widespread use of licensing agreements between copyrights holders and digital intermediaries. Licensing in fact is nowadays a good opportunity for the record companies to generate revenues and keep the consumers’ attention. Attention, according to Leonhard, is today one of the most important aspects in the music business because it’s what retains audiences and fosters music discovering in cooperation with concerts that are definitely useful in promoting new artists and that can be used as marketing events. (Holt, 2010)
Finally, Leonhard points out that this system has the advantage to create the feeling that music is free while in fact it can generate pay-offs through flat-rate-based unrestricted access and usage models that are very common in many other media like TV, mobile phones or Internet. The best strategy therefore is to engage as many people as possible setting up flat low prices for basic services and then offering extra features for who is willing to pay more. (Leonhard, 2008)
We can thus say that most probably, this might be the best way for the music industry to thrive on the uncontrolled circulation of contents and, at the same time, constitutes a good attempt to fight back piracy.
So far in fact, the music industry has used only three methods to try to migrate consumers from illegal services to legal ones: file pollution, value differentiation and behaviour correction. File pollution is basically the intake of damaged or bad quality files into sharing networks and it turned out not to be very effective. Behaviour correction instead has involved legal prosecution (that accentuated though the aversion to the industry) and educational efforts. Finally, value differentiation is the one that underlies the development of streaming platforms and online stores trying to offer a better experience in terms of quality and quantity and a series of side tools and features. This method is proving to be the most effective and that’s why it is currently being exploited very much. (Sandulli and Martin-Barbero, 2007)
CONCLUSION
My essay has tried to describe the framework of the current market of music, focusing particularly on streaming networks and how they affect producers and consumer choices. First, I have shown that the streaming technology, based on a continuous and instantaneous transmission of data, has become one of the most exploited systems to distribute music and then, how it well meets the needs of a new generation of consumers whose media habits change very quickly.
Making use of reports edited by the market research firm Mintel Oxigen in fact, I have demonstrated that today’s music users prefer new media rather than traditional ones for listening or purchasing music and that their willingness to pay for a single product, be it a track or an album, is constantly decreasing so that access has replaced ownership. It is inevitable then, a rethink of the business aimed at reaching “passive” consumers that incumbent models couldn’t engage. (Young, 2010)
Furthermore, the possibility to get music for free offered by the practice of illegal sharing has led to the proliferation of free, ad-based or subscription based streaming services which are attempting to provide a valid and legal alternative to piracy. More precisely, record companies and music distributors are to fight piracy imitating its practices and capitalizing on its most important feature: the ability to enable a broad access to music at a low cost. (Curien and Moreau, 2009; Pfanner, 2009)
I have finally explained how the industry can survive and make money abandoning its rigid control and fostering a new model based on flat-rates and licensing agreements. This model of course involves a redefinition of the relationship between producers and consumer but will also probably involve a renegotiation of the contracts between record labels and artists that may guarantee a share of concerts incomes to the formers. (Curien and Moreau, 2009)
So, it is possible now to say that streaming technology and streaming networks are not to be considered a threat for the music business neither for the music industry. On the contrary, they are turning out to be an opportunity to enhance the whole distribution system of music contents as well as a new way to generate incomes and “drag” customers into the market, thank to their power to promote discovering and keep users’ attention.
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