#DIGC102 Industry Analysis Report
How are different sized music companies embracing new media technology?
Video: The effect of music industry piracy (Fowlj1812, 2007).
Between 1999 and 2000 the file sharing program Napster shot to prominence, allowing internet users from all over the world to share music and bypass the traditional consumer means of accessing music. This new technology had a profound effect on how record labels operated, but at the same time “the popularity of the MP3 file format also gave rise to a number of websites offering alternative forms of music distribution and consumer services” (Frith et al, 2003, pp.21). At first these two different approaches clashed but as “music stores are losing CD sales, they need to find other sources of income, or they risk going out of business” (Cohn et al, 2004 pp.50). The following report looks at how three different sized music industry businesses are using new media technology to evolve their business models.
Sony Music Entertainment is one of the big four world wide record labels and in 2005 accounted for 27.44% of the overall music market (Cashmere, 2007). Their long term business model focused on mass production and distribution of physical products (Cohn et al, 2004 pp47). The emergence of mp3 technology and file sharing threatened this business model and according to Burnett et all the large record companies made the three following mistakes;
“The first mistake: the music industry seriously underestimated the profound effect of the Internet and the rapid speed at which it would develop.
The second mistake: the music industry chose to see the arrival of the MP3 file format and Napster as a threat instead of an opportunity
The third mistake: the music industry decided to see file sharing music fans as criminals instead of as early adapters and innovators.” (2003 pp193)
The large record companies attacked this new technology head on and Sony Music Entertainment introduced its own Digital Rights Management software. Felton et al notes that under the traditional business model “The record label’s goal must therefore be to retard disc to-disc copying and other local copying and use of the music” (2006 pp78). However, this system proved to be ineffective and was more cumbersome and restrictive to people legally purchasing music and subsequently failed.
Eventually Sony Music Entertainment and the other three major record labels began to embrace these new media technologies. In 2009 Bandit.fm, a subscription service offering legal music downloads was launched through its Australian subsidiary Sony-BMG Australia. According to Sams, people would subscribe to this service in the same way as pay TV and that success would be measured in how many subscribers sign up, not how many songs are streamed (2009). This new services acquiesces with Cohn et al who stated “The traditional music industry is being forced to shift from the paradigm of a physical product manufacturer and distributor of music to a service provider” (2004 pp.49). Whilst the larger record labels are still focusing on selling physical commodities, they are now looking to not only combat music piracy, but embracing new media practices relating to music distribution.
Hobbledehoy Records is an independent music label operating out of Melbourne, Australia. Their position as a small, but agile label has allowed them access to investigate new media practices and business models. Lister et al note that new media forms “bring out new media practices” and accordingly, Hobbledehoy Records have been investigating new means to distribute music online (2009 pp197). Whilst they still focus their business on selling CDs, vinyl records and other merchandise they recently partnered with Gimmesound.com. Through this website music is downloaded legally and artists are paid through advertising revenue. Hobbledehoy owner Tom Majerczak speaks highly of Gimmesound.com’s innovative site and says “illegal file-sharing has been the hot-topic for some time now, forward-thinking individuals have been spending the last few years acknowledging the behaviour and figuring out how to adapt accordingly” (2009). This form of innovation is forming a new middle class in the music industry. Whilst the larger labels are struggling to adapt to new media technologies, smaller labels like Hobbledehoy Records are challenging the status quo, and finding varied success with “their latest efforts are helping to develop a business that will be less dependent on ‘hits’ and ‘stars’“(Morrow, 2009 pp166). Through these new media technologies Hobbledehoy Records have found ways to not only please their audience with free music, but to increase their own business promotions.
In October 2007 the band Radiohead released their album ‘In Rainbows’ via their website as digital download. The band had recently split from their record label, EMI, and instead of seeking a new deal, the band released their album and offered it to fans for whatever price they wanted to pay. Few doubt that this move by Radiohead would have been as successful had they not had a strong following beforehand and Morrow states “Radiohead’s new business model is a viable one for independent artists to follow in the future is problematic because it was to a large extent dependent on EMI’s success marketing the band’s previous six albums” (2009 pp.163).
This model worked for Radiohead due to their prior success, however Tyrangiel notes that “There’s no label or distribution partner to cut into the band’s profits — but then there may not be any profits” (2007). Smyth agrees; “Many artists believe a flaw in the digital distribution system is that, unlike “signed” artists, they are not actively promoted. In other words, while it’s great to get your material out there, there’s still the problem of letting people know it’s there” (2009). Whilst this model did bypass the major labels, not every artist can afford the promotion. According to Tyrangiel record labels can still be influential and profitable if they focus on getting young bands air play and promotion (2007). Radiohead have proved that independent artists can be financially successful online, however this business model is not applicable everywhere. The band continues to embrace new media technology, but their success still relied heavily on the traditional music industry model.
Image: Radiohead’s web popularity peaked with the release of ‘In Rainbows’. (Google Trends, 2009)
Previously record labels were in a unique position of power due to their exclusive access to distribution and “were not only the singular gatekeepers to a career for an artist by signing them to an exclusive contract but they were also the subjective deciders as to what music was promoted” (Smyth, 2009). New media technologies have clearly changed the way that music is now distributed, and according to Sterne “The portability of recordings is as important a feature of their history as the nature of their reproduction”(2006 pp837). The larger record companies are now beginning to embrace new media technology and are accommodating it into their business models, but it still remains that the smaller independent businesses are the ones at the forefront of development.
Video: The struggle of the music industry. (Waftv, 2009)
References:
Burnett, R, Marshall, D, ‘Web theory: an introduction’, London, Routledge, 2003. pp 174-197
Cashmere, P, 2007, ‘Universal The Biggest Label of 2006’, Undercover News, January 5, accessed 23/09/2009,http://www.undercover.com.au/News-Story.aspx?id=1215
Cohn, D, Vaccaro, , 2004, ‘The Evolution of Business Models and Marketing Strategies in the Music Industry’, International Journal on Media Management, vol 6 pp.46- 58
Felten, E, Halderman, J 2006, ‘Lessons from the Sony CD DRM episode’, Proceedings of the 15th USENIX Security Symposium, pp.77 –92
Fowlj1812, 2007, ‘Pirates Of The Music Industry’, accessed 24/09/2009, http://www.youtube.com/watch?v=RWmaWiFp8wc
Frith, S, Straw, W, Street, J, 2001, ‘The Cambridge companion to pop and rock’, Cambridge Press, accessed 22/09/2009, http://books.google.com.au/books?id=px_P4P_Aun4C&printsec=frontcover&dq=will+straw+mp3&source=gbs_similarbooks_r&cad=2#v=onepage&q=&f=false
Google Trends, 2009, accessed 24/09/2009, http://www.google.com/trends?q=radiohead
Lister et al, 2009, ‘Music as New Media’, New Media, A critical Introduction, London, Routledge, pp. 191 - 197
Majerczak, T, 2009, ‘Download almost every Hobbledehoy release for free’, July 30, Hobbledehoy Records, accessed 24/09/2009, http://hobbledehoyrecords.com/2009/07/download-almost-every-hobbledehoy-release-for-free/
Morrow G, 2009, ‘Radiohead’s Managerial Creativity’, Convergence, May 2009; vol. 1, pp. 161 - 176
Sams, C, 2009, ‘Full stream ahead for music at $10 a month’, Sydney Morning Herald, August 17, accessed 19/09/2009, http://www.smh.com.au/digital-life/digital-life-news/full-stream-ahead-for-music-at-10-a-month-20090817-emrb.html
Smyth, T, 2009, ‘A sound visionary’, Sydney Morning Herald, August 17, accessed 19/09/2009, http://www.smh.com.au/technology/technology-news/a-sound-visionary-20090817-emrl.html?page=-1
Sterne, J, 2003, “The mp3 as cultural artefact”, New Media & Society, Vol 8, pp. 825 – 842
Tyrangiel, J, 2007, ‘Radiohead Says: Pay What You Want’, Time, October 1, accessed 17/09/2009, http://mistergui.com/downloads/Pay%20what%20you%20want.doc
Waftv, 2009, ‘Why Radio & Music Industry Sucks Nowadays’, accessed 24/09/2009, http://www.youtube.com/watch?v=Vzm50HEmNeM
