The music business in the era of internet streaming

 The music business in the era of internet streaming

By 1999, over 25 years had passed since the beginning of the recorded music industry's worldwide expansion. In 1974, recordings were sold for about a billion dollars globally; by the turn of the century, that amount had more than quadrupled. Record label executives were ecstatic in the late 1990s, and some of them had hopes that a group of young hackers on the Internet, lead by Shawn Fanning, who was then a student at Northeastern University in Boston, would spark the scheme. A rough procedure that will eventually damage the industry's basis.

Napster was a file-sharing program that Shawn Fanning founded and introduced, enabling users to download and distribute music without paying the rights holders. The music business establishment sued Napster right away, forcing the company to shut down the service. But soon after, a number of further, more advanced services appeared. To no effect, the conventional music business used highly strong legal and technological tactics to stem the growth of online-piracy services like Grokster, DC++, Napster, LimeWire, and The Pirate Bay. It took place. New services appeared and quickly replaced file-sharing platforms that were prosecuted and forced to shut down. As of the end of 2013, unit sales of physically distributed recorded music (such as CDs, vinyl, and cassettes) have dropped back to levels akin to those of the early 1970s.

This quick change in the music business is a great illustration of how one invention can upend a whole sector and make long-standing skills in that sector obsolete. The capacity of the music business to control physical distribution was a major factor in its power and influence prior to the Internet. Physical music distribution is becoming less significant in the age of the Internet, and large music firms that are already in place must reinvent themselves to stay in business. This chapter will discuss the situation of the music business in the era of digital distribution and look at how the Internet has affected it.

three genres of music

In order to comprehend the workings of the music business, one must first acknowledge that it is really a collection of closely connected but disparate enterprises with distinct logics and structures. The production and exploitation of intellectual assets based on music is the foundation of the whole music business. Composers and lyricists write songs, lyrics, and arrangements that are either licensed for another kind of usage, such as sheet music or background music for other medium (commercial, television, etc.), recorded and released to consumers, or performed live on stage. Three major music industries have emerged from this basic structure: recorded music, which is concentrated on the recording and consumer distribution of music; music licensing, which mainly licenses compositions and arrangements to businesses; and live music, which is concerned with the creation and promotion of live entertainment, such as concerts, tours, etc. The music industry also includes other businesses that are sometimes acknowledged as part of its family, such as producers of software, stage gear, musical instruments, and merchandising. These are significant industrial sectors, but historically, they haven't been seen as essential components of the industry's core.

Recorded music was the most popular and profitable of the three in the pre-Internet music business. In the old music business, signing a record label deal was the aspiration of most aspiring musicians and bands. If an artist had a contract, the record label would oversee a professional studio recording and provide them access to the company's global distribution network, something that most unsigned bands would not be able to do. Compared to the recorded music business sector, the second music industry sector—music licensing—was much smaller and less interesting. The sector in which music publishers worked was essentially one of business-to-business dealings, with little interaction with consumers. His primary duty was to see to it that license money were obtained for every use of a song, regardless of the setting, and then equitably divided amongst the lyricists and composers. The selling of concert tickets is how the live music business, which makes up the third sector of the economy, makes money. Despite having a rich and lengthy history, live music started to lose ground to the recording industry in the 20th century. The most significant source of income was unquestionably record sales, and record companies often used concert tours as a means of promoting studio albums rather than as a means of determining whether or not the tour was lucrative. Record companies sometimes provided tour assistance as well, enabling musicians to perform and promote albums even when the tours themselves were losing money.

The links between the three businesses that make up the music industry's structure were created in the middle of the 20th century, and when the Internet came along to threaten the whole system, it significantly reinforced the structure. The dissemination of recorded music to consumers is the main short-term effect of the Internet on the music industry. This indicates that the other two music business sectors were originally mostly untouched, despite the recorded music industry suffering greatly from the loss of distribution control and widespread internet piracy. The other two businesses have actually become stronger and more well-known over the previous 15 years, whereas the recorded music industry has seen losses. There are several causes for this shift in the equilibrium.

One of the primary reasons is that the music industry must reassess its other income streams when one declines and make up for lost recorded music revenue by growing live music and music licensing revenue. As.

For instance, throughout the last 15 years, the income from music licensing has more than quadrupled. This may be attributed to both the media industry's transformation and the introduction of new, more active licensing processes. Compared to only twenty years ago, there are a lot more television channels, radio stations, video games, Internet websites, and other media, and the majority of these media must include music as their main or secondary content. In general, music publishers have responded to the needs of new media sources with more nimbleness than record companies. The effort of music publishers to present themselves as a one-stop shop for music intellectual property, where media outlets would sell all of their music with a single contract, is a glaring illustration of how they altered their business strategies. able to get music licensing. While it would seem like a no-brainer of a service, in the old music business, this wasn't always the case. Instead, the rights to the composition were held by one legal body, while the rights to the musical work's recording (the master) were under the jurisdiction of another legal organization. The licensing procedure is more effective in the era of digital distribution as music publishers now have greater control over both the composition and the master. Over the last 15 years, the music licensing sector has emerged as the most lucrative one in the business. It is also often regarded as the most inventive and dynamic of the three.

Live music has become the biggest music sector, even though song licensing is the most lucrative area of the music business. The reason live music has become so popular in the last fifteen years is rather simple. Controlling live music is simpler than with recorded music. An in-demand musical group may boost its live earnings by adding more shows and boosting the cost of tickets. The live music business has grown to a scale greater than the recorded music industry, despite the 2007–2008 financial crisis impeding its expansion. The biggest music business in the world was a record company for the most of the previous century. However, Live Nation, an American live music company that split off from Clear Channel, is now the largest music company in the world. This is due to the Internet's impact on the music industry. in the year 2005. This indicates yet another shift in the balance of power within the music business. It should be acknowledged, nevertheless, that the distinctions between the three businesses are not as sharp as they once were in the days before the Internet. As a broad business partner, music businesses, such as Live Nation, assist artists and musicians in all aspects of their endeavors, whether it live performances, merchandising, licensing, or consumer distribution of recorded music. have anything to do with PR. This implies that it is becoming more difficult to categorize a music organization into one of the three sectors; nonetheless, Live Nation still makes the majority of its money from live performances. , thus it's still appropriate to describe them as a live music enterprise in the main.

This section discusses the effects of the Internet on the three primary music business sectors and how these sectors' sizes, strengths, routines, and interactions have evolved. The next section will concentrate on recorded music in particular and look at how new music distribution business models may be able to help the recorded music industry recover.

An expanding demand for digital music

At the start of the century, the music business put a lot of effort into stopping online piracy; nevertheless, they were not as creative or as ambitious in creating new frameworks for authorized online distribution. While there were undoubtedly some pathetic efforts at the time by large record labels, the most crucial factor in the creation of these services seems to be that they should simply generate more cash rather than pose any kind of danger to already-existing revenue streams. Businesses need to be included. One of the main corporations' objectives—that new services shouldn't compete with already-existing physical sales—was accomplished. Sadly, however, the services were unable to compete with anything, particularly not internet piracy.

Not a single participant in the music business was able to develop an effective online platform for the licit sale and distribution of music before Apple Computer (as it was known at the time). When big labels were provided an incredibly easy service that enabled users to purchase and download music for less than $1 per track, Apple was able to persuade them to buy music lawfully in 2003. The iTunes Music Store was the name of this service. In a way,

However, as the big labels' position and power structures remained mostly intact, iTunes may also be seen as a very cautious and modest innovation. The systems regulating the royalties paid for each music sold were clear and predictable, and rights holders retained control of their assets. Apple correctly predicted the behavior of its customers, and the iTunes Music Store is unquestionably a big success. Since its establishment in 2003, the iTunes Music Store has sold over 25 billion tracks, making it the biggest offline and online music store in the world as of 2013. In its 10 years of operation, the service has seen substantial evolution, and it is now used by several rivals.

 This economic model has essentially taken over the digital download music industry. With a market share of more than 50%, iTunes continues to dominate the worldwide digital music industry despite growing competition. While the digital music industry has been able to somewhat offset the fall in physical sales, the recorded music business as a whole is still losing sales, as shown by Figure 1, which charts the worldwide recorded music market's evolution since 1973. Over 50% of the total has been gone. since 1999, when it peaked.

Some legal music services are significantly more radical and hence far more contentious than digital download businesses like the iTunes Music Store, which gradually alter the logic of the music industry. These services do not provide individual songs for purchase at a defined fee - rather they give consumers with access to a big music collection that they are able to listen to at their leisure. In order to listen to as many songs from the collection as they want, as frequently as they want, users usually pay a monthly membership fee.

While this may seem like a good idea, legal access-based music services have had trouble persuading consumers that they can still enjoy music without buying and owning a copy and convincing record companies to license their libraries to the services. either an album or a track.

In this segment of the music industry, there is a lot of entrepreneurship and weekly on/off ramps for services. Numerous service providers are still searching for a business plan that would both satisfy music rights holders and draw in listeners. Although there are undoubtedly many obstacles to overcome, Spotify is the music service that has garnered the greatest interest from the global music business so far and that has the best chance of succeeding. This section will discuss how Spotify is driving change in the music business and how it is a great tool for explaining the logic of the music industry in the era of digital distribution. Even in the event that Spotify is eventually unsuccessful in developing a long-term viable business plan, it has already succeeded in altering the perceptions of both users and copyright holders, and it is expected to represent a significant technical advance in the music industry. Apple iTunes, Walkman, and compact disk.

The advent of music services based on access

In 2006, Daniel Ek and Martin Lorentzon launched Spotify with the goal of establishing a lawful music streaming service funded by advertisements that offered free streaming for music enthusiasts while generating income for copyright holders via licensing.

By no means was Spotify the first effort to develop a lawful business that could rival unlawful file sharing. The fact that the majority of the forerunners' ventures failed horribly for a variety of reasons may be a plausible explanation for the rights holders Spotify was negotiating with being especially eager to be involved in yet another high-risk online music endeavor. were not. In October 2008, the business claimed that, despite their early doubts, they had obtained deals with key music industry rights holders to distribute their music to listeners in a few European nations, after two years of discussions and negotiations. 

I've put in my signature. Spotify had to give up a lot to thrive where many others had failed. They had to alter their business strategy fundamentally in addition to providing important rights holders with shares in the firm. They created a more sophisticated version of the service that was paid for by membership fees, as opposed to providing a service that was only supported by adverts.

The term "freemium," which plays on the terms "free" and "premium," refers to Spotify's business strategy, which offers two or more distinct service versions, the most basic of which is available for free and the most sophisticated of which requires a membership. The free version's profit margin is often very low, if not negative, and it is anticipated that the subscription cost will be the main source of income necessary to turn a profit for the business. The freemium service model is based on the idea that consumers would be ready to use the product for free and will progressively engage behaviorally and emotionally in the product while using it, increasing the difficulty and expense of switching to a different product. Converting as many users of the free version to the subscription version is the aim. In order to do that, the free version has to be devoid of certain essential functionality (like the ability to access the service on specific devices) or have a lot of more bothersome features (like advertising). accessible or accessible. The service's premium edition.

 The difficulty facing Spotify and other freemium services is striking a balance between the various editions in a manner that encourages appropriate consumer behavior and pushes consumers toward becoming paying subscribers. Few music providers do this as of yet. Either the free edition contains too many features to entice users to upgrade, or it is too wonderful to let them stay on the free version. Regarding Spotify, they have reached a conversion rate of around 20 percent, meaning that 20 percent of all users are paying a monthly membership price to utilize the premium version of the service.

The global music industry has given Spotify a lot of attention, but a lot of that attention is based on criticism and distrust of its business strategy and practices. Much more criticism has been directed against the way in which rights holders at various stages of the value chain have been shared with income, rather than at the question of whether the above-mentioned freemium model is long-term viable. The origin of this critique may be attributed to two main factors. First, for many years, music corporations have operated under the royalty model, in which a licensee pays a set fee for each song that is sold, played, or otherwise utilized. Applying that approach to an access-based service is highly challenging since the business's income is determined by the number of users rather than by the number of songs that are purchased, listened to, or consumed. 

Regardless of whether the services are supported by subscription fees or advertising, providers of access-based music services have maintained that they should be entitled to all earnings rather than receiving a set payment for each track that is listened. Shared among holders must be. Such a technique, to put too fine print on the accounting, is very advantageous to the service provider but shifts a significant portion of the business risk to the rights holders.

The argument put forward by rights holders is that they ought to be compensated for the music that users hear, not based on how well the service's advertising sales staff performs. Many access-based service providers used to demand that rights holders sign contracts that paid them set royalties per track. But these kinds of deals make it very hard to launch an access-based music service, and most of the industry leaders haven't been able to stay in business for very long. The fact that Spotify has been successful in persuading major music labels in some areas to share Spotify's economic risk rather than obtaining final rights is one of the reasons the firm is seen as a turning point in the development of the new music economy.

 Regardless of the track price, they should get a portion of Spotify's earnings. In order to prevail in the discussions, Spotify made a number of concessions, such as providing big music labels with the option to buy a minority stake in the company.

According to Spotify, royalties to rights holders account about 70% of their earnings from advertising and subscriptions. Spotify claims that the fact that the firm has raised more than $1 billion for rights holders worldwide by the end of 2013 is evidence that their business strategy is effective.

Though it is viable to make money from access-based music services, the new contract structure represents a significant shift in the music industry's perspective of distributors and is by no means contentious. A portion of the complaints made by musicians and artists stem from the reality that royalties are mostly given to music businesses via service providers rather than to musicians, composers, or performers directly. Because the money that gets into their wallets is almost absurdly little, creatives contend that they do not receive a fair portion of the income, and some of them have deliberately decided not to license their music to services like Spotify. Less is not done by them. want to support an unreliable and corrupt system.

The controversy around the categorization of royalties produced by access-based music services is one factor contributing to the problem's emergence. Music companies—that is, the record labels of the past—claim that royalties would be handled like unit sales of music, meaning that artists will get between 10 and 20 percent of Spotify's royalties. is going to be. record labels. However, artists argue that Spotify should not be compared to conventional record sales at all, but rather be considered a performance. If this is the case, then musicians should get 50% of the money rather than 20%. Are.

 This mostly has to do with how record labels and artists interpret contracts that were made before Spotify and even the Internet existed. The argument about the kind of royalties that a certain Internet-based music service ought to provide may seem to be purely legal and have few practical ramifications, but it is a crucial one that will influence how the music business is organized going forward. Will decide. Players in the music business are unlikely to readily agree on a model that is seen to be equitable to all stakeholders since there are too many stakes involved.

The advent of access-based music services and the obstacles they encounter in their attempts to break into the digital music market are covered in this section. The next section expands on this topic by demonstrating how various services alter how listeners interact with music. The argument made in this section is that access-based music is only a phase of transition in the creation of a new music economy, and it shows how the music business is becoming more dependent on features and services that are referred to be context-based.

Experience listening in real time

People listen to more recorded music than ever before, despite the fact that recorded music sales have dropped significantly over the previous 15 years.

For instance, recorded music was costly and uncommon in the days before the Internet. Music lovers picked their albums carefully, and their burgeoning record collections on the mantlepieces in their living rooms functioned as a chronicle of their lives as they bought record after record. Similar to how people felt strongly about other material possessions like books, souvenirs, or furniture, music listeners also had a strong feeling of ownership over their physical recordings, which they used as instruments for communication and identity creation. once worked.

Institutions like collections and ownership are losing significance in the era of digital distribution and easy access to music. Given this insight, it is important to consider what the future potential function of recorded music as an identity identifier in the era of digital dissemination may be. In the pre-Internet age, retroactive record collections functioned as a kind of identification identifier. However, when music fans gave up on their physical collections, they started using recorded music to share their identities with their acquaintances. It is necessary to find new applications for them as instruments. globe. Scenes from online social networks like Facebook, Twitter, and others are being exploited more and more for this purpose. Because access-based music services are often connected to these kinds of social network services, users may always share with the world the song they're listening to. Advertising platforms and their customers are the main users of this information stream as it enables them to create audience profiles based on listening preferences and target audiences with ads that are relevant to their interests and demographics.

There has been a paradigm change in the way that listeners interact to music with the move from retrospective archives to real-time listening experiences. It focuses attention on the present moment and lessens the significance of recalling previous musical experiences. Observing the structures and behaviors that arise as music consumption moves from ownership to access and collecting is fascinating. Amaral & Co. (2009), for instance, have shown how music enthusiasts deliberately manage their feeds to make sure they don't come across any songs that don't align with their perceptions. They want to exhibit. Additionally, several access-based music services have developed a "private-listening feature" that allows customers to enjoy music privately.

Since access-based businesses are still in their infancy, they are always looking for the best offering and most advantageous deal to help them thrive and compete. At the moment, factors like the quantity of music catalogs, accessibility across various countries and mobile platforms, etc., are major factors driving rivalry amongst services. But it seems sense to believe that ultimately all of these services will come together to create a single, consistent music library that is accessible across all devices and includes almost every song ever recorded. Basic economic theory states that in an oligopolistic market, a few major firms will eventually survive and compete on the basis of price, whereas competition between identical services or goods will ultimately be driven by profit margins. Put another way, access-based music services will act like markets for sugar or oil and become into commodities.

Online music service providers will search for other strategies to set themselves apart from the competition and continue to be profitable after the industry has reached this dismal stage and the opportunity for innovation and differentiation based on the pure access model has all but disappeared. Going beyond the basic access approach and developing features and services that give the songs in their catalog context is one way to do this. Context, for instance, might help music lovers search for and quickly locate the tune they're seeking for at any given time. It can also let users share their musical experiences with others and relive their most memorable musical moments. may provide convenient methods of organizing, etc. When compared to services that are built on pure access models, these context-based services provide a significantly more broad and less predictable area for innovation. Innovation within the context-model framework lacks a known conclusion, but innovation within the access-model framework leads to the same end objective (universal access to all songs ever recorded). More than in an access-model framework, a supplier of a context-based music service may use novel, cutting-edge features to establish a competitive advantage.

These days, access-based and context-based music services are becoming more and more common. A music service typically offers customers access to music along with a range of features that let them interact with it. Offers. It's not a question of whether or whether the client needs access to music; rather, the issue is how to use and navigate that music. Put another way, rather than just giving listeners basic access to the music, audiences are creating value by giving them tools that let them interact with it. Part of a similar broad restructuring of the music business is this move from giving access to music to delivering services and features predicated on the idea that access to music is already supplied. Although the distribution of music has been the main topic of study so far, other aspects of the music business value chain also exhibit the move from content to context.

Context-centered models have been used by several artists and composers in the creative development of their musical compositions in recent years. Instead of only making fantastic records that listeners can experience and appreciate, they have developed services and methods that let fans interact with the music and participate in the creative process. Imogen Heap, a British singer-songwriter, is one representative of this movement. Heap enthusiastically invited his followers to submit music, photos, and videos while his most recent album was being produced. Both the real building blocks of his songs and the source of inspiration for his work came from this material. Heap's admirers thus got the impression that they were working with their hero and taking part in a group creative endeavor. Though he comes from a different age and has a distinct sound like Heap, Billy Bragg is also a singer-songwriter from the UK. For his followers, Bragg has also created a context-focused experience, but it's possible that this is more a result of their demands than of Bragg's own. Thinking back on his connection with his followers, Bragg says that he offers them a "social framework" and that even if some of them don't like his music, they still value being a part of a community. (Bem, 2012).

Some musicians and producers make mobile apps that let users interact with music in different ways, going much beyond the conventional song format. Two companies that have created apps that blur the lines between interactive video games and music are San Francisco-based Smule and London-based RjDj. The definitions of the music business and music organizations are fundamentally called into question by these movements. Will music-playing hardware and software be acknowledged as a significant component of the music business, ranking fourth in importance only after live performances and music licensing? And music that has been recorded? If true, how would this affect well-known record labels, musicians, and artists? 

Traditional record labels reinvented themselves in the early years of this millennium as live music and music publishing grew in importance as industry sectors. They developed new skills that enabled them to gain more clout with record labels, live music companies, music publishers, and management firms. obtained authorization to function as 360-degree music firms, emphasizing all three facets of the music industry equally. Music corporations will need to develop new competencies and maybe even new business sectors in order to capitalize on the increasing value generated by context-based music services, as the significance of these services and software grows.

The industrial revolution of music continues

Over the last 15 years, the recorded music business has undergone significant transformation, but more work has to be done before the sector fully abandons the physical world. This chapter explores some of the ways in which this transition is still occurring and the significant role that access-based music services are playing in it. The chapter also covers the growing marginalization of recorded music as a source of income and the growing significance of other economic areas including live music and music licensing. Last but not least, it illustrates how this transition is affecting audiences' relationships with music and how services and features that let users interact with music—rather than just listen to it—are becoming more and more important in the digital age.