The Largest Audience for Serious Music in the Arts Sector Is for

In 1999 the global recorded music manufacture had experienced a period of growth that had lasted for almost a quarter of a century. Approximately one billion records were sold worldwide in 1974, and by the end of the century, the number of records sold was more than 3 times equally high. At the finish of the nineties, spirits among record label executives were high and few music industry executives at this time expected that a squad of teenage Cyberspace hackers, led by Shawn Fanning (at the time a pupil at Northeastern Academy in Boston) would ignite the turbulent process that eventually would undermine the foundations of the industry.

Shawn Fanning created and launched a file sharing service called Napster that allowed users to download and share music without compensating the recognized rights holders. Napster was adequately speedily sued by the music industry establishment and was eventually forced to shut down the service. Still, a string of other, increasingly sophisticated services immediately followed adapt. Even though the traditional music industry used very aggressive methods, both legal and technical, to end the explosion of online-piracy services such equally Napster, Kazaa, Limewire, Grokster, DC++, and The Pirate Bay, it was to no avail. Every bit soon as one file sharing service was brought to justice and required to cease its operations, new services emerged and took its place. By the end of 2013, the sales of physically distributed recorded music (east.thou., cassettes, CD, vinyl) measured in unit of measurement sales, were back at the aforementioned relatively low levels of the early 1970s.

During the 15 years that has passed since Napster was launched, the music industry has been completely transformed and the model that ruled the industry during nigh of the past century has been largely abased.

This rapid transformation of the music industry is a classic example of how an innovation is able to disrupt an entire industry and make existing industry competencies obsolete. The power and influence of the pre-Internet music manufacture was largely based on the ability to control physical distribution. Internet makes physical music distribution increasingly irrelevant and the incumbent major music companies have been required to redefine themselves in order to survive. This chapter will examine the touch on of the Internet on the music manufacture and present the state of the music industry in an historic period of digital distribution.

Iii Music Industries

In order to understand the dynamics of the music industry, it is first of all necessary to recognize that the music industry is not one, only a number of unlike industries that are all closely related but which at the same time are based on different logics and structures. The overall music industry is based on the creation and exploitation of music-based intellectual properties. Composers and songwriters create songs, lyrics, and arrangements that are performed live on stage; recorded and distributed to consumers; or licensed for another kind of apply, for instance canvas music or as background music for other media (advertising, television, etc.). This basic construction has given ascent to three cadre music industries: the recorded music manufacture—focused on recording and distribution of music to consumers; the music licensing manufacture—primarily licensing compositions and arrangements to businesses; and live music—focused on producing and promoting live entertainment, such as concerts, tours, etc. There are other companies that sometimes are recognized every bit members of the music industrial family unit, such equally makers of music instruments, software, stage equipment, music merchandise, etc. However, while these are important manufacture sectors they are traditionally not considered to be integral parts of the manufacture's core.

In the pre-Net music industry, recorded music was the biggest of the iii and the one that generated the most revenues. Most aspiring artists and bands in the traditional music industry dreamed about being able to sign a contract with a tape label. A contract meant that the record label bankrolled a professional studio recording and allowed the artist entry into the tape labels' international distribution system, something which otherwise was beyond reach of about unsigned bands. The second music industry sector—music licensing—was much smaller and more mundane than the recorded music industry sector. Music publishers, who were operating in this business, were largely a business-to-business manufacture without whatever direct interaction with the audience. Their master responsibleness was to ensure that license fees were collected when a song was used in whatever context and that these fees subsequently were fairly distributed amid the composers and lyricists. The third music industry sector—alive music—generated its revenues from sales of concert tickets. Although alive music has a long and proud history, it came to play 2d fiddle to the recording industry during the twentieth century. Record sales was undoubtedly the most important revenue stream and record labels by and large considered concert tours every bit a way to promote a studio album, and were not actually concerned whether the bout was assisting or non. Sometimes the record characterization even paidtour support, which would enable bands to become on tour and promote the album even though the actual tour was running with a loss.

This music manufacture structure, including the relationships between the iii industries, was developed during the mid-twentieth century and was securely cemented when the Internet emerged to challenge the entire system. The short-term impact of the Internet on the music industries primarily concerned the distribution of recorded music to consumers. This means that while the recorded music industry was severely afflicted by the loss of distribution control and rampant online piracy, the other two music industry sectors were initially left more than or less unaffected. As a matter of fact, while the recorded music industry has suffered during the past xv years, the other two industries have gained in strength and prominence. There are several reasons why this shift in balance has happened.

One of the primarily reasons is simply that as ane revenue stream is diminishing, the music manufacture is required to reevaluate its other businesses and attempt to compensate for the lost revenues from recorded music past increasing revenues from music licensing and alive music.

For instance, revenues from music licensing take more than doubled during the past xv years due to new and more than active licensing practices, simply too due to the fact that the media industries take changed in a similar mode as the music industry. There are now considerably more television channels, radio channels, videogames, Internet websites, and other outlets than but two decades ago, and nigh of these outlets need music as their primary or secondary content. Music publishers take also in full general been more than nimble than the record labels to address the demand from new media outlets. A clear instance of how music publishers inverse their business practices is how they strive to establish themselves as a one-terminate shop for musical intellectual properties, where media outlets can clear all their music licenses with a single contract. That may sound similar an obvious service, but in the traditional music manufacture it was not always the example. Rather, there was i legal entity property the rights to the composition and some other legal entity decision-making the rights of the recording of the musical work (themaster). Music publishers in the age of digital distribution increasingly control both the master and the composition, which makes the licensing process more than efficient. The music licensing industry has during the by fifteen years evolved into the most profitable music industry sector and is often also considered as the most innovative and agile sector of the 3.

While music licensing is the most profitable music industry sector, live music has developed into the largest music sector. In that location is a fairly straightforward caption why live music has experienced a surge during the past 15 years. Live music is simply easier to control than recorded music. A musical band that is in need can grow their revenues from alive music by increasing the number of concerts and raising the ticket prices. Even though the financial crisis of 2007–08 put a dent in the growth of the live music industry, it has nevertheless surpassed the recorded music industry in size. During most of the 2d half of the previous century, the largest music visitor was a record company, merely afterward the Internet transformation of the music industry the world's largest music company is Alive Nation, a U.S.-based live music company spun off from Clear Channel in 2005. This is a further marker of the changing power relationships in the music manufacture. Information technology should exist noted, though, that the boundaries between the three industries are non as clear as they were during the pre-Internet era. Music companies, including Live Nation, serve as a general business partner to artists and composers and support their activities regardless of whether they business organization alive concerts, merchandise, licensing, or distribution and promotion of recorded music to consumers. This means that it is no longer entirely easy to categorize a music company into ane of the 3 industries, but, nevertheless, in the case of Live Nation its revenues are still mainly generated via live concerts, which notwithstanding makes it relevant to refer to them as primarily a live music visitor.

This department has presented how the three master music industry sectors have been afflicted by the introduction of the Net and how the size, strength, routines, and relationships between the industry sectors accept been transformed. The next section will turn its attention specifically to recorded music and examine how new business organization models for music distribution may be able to lead the recorded music manufacture on a path toward recovery.

A Growing Digital Music Market place

The music industry went to nifty lengths at the beginning of the century to put a stop to online piracy; withal, they were not as ambitious and innovative in developing new models for legal online distribution. Certainly, there were a few feeble attempts from the major record labels at the time, merely the about important criterion in the evolution of these services seemed to exist that they should not in whatever way threaten the existing revenue streams simply should only add boosted revenue to the companies. The majors did succeed with one of their goals, which is that the new services should not compete with the existing physical sales. However, unfortunately the services could not compete with anything, especially not with online piracy.

The starting time company that was able to create a successful online service for legal sales and distribution of music was non a music manufacture player at all—it was Apple Computer (equally information technology was chosen at the time). In 2003, Apple tree was able to convince the major labels that music consumers would buy music legally if they were offered an extremely simple service that allowed them to purchase and download music for less than a dollar per track. The service was called iTunes Music Store. In 1 sense,

iTunes was a radical change for the music manufacture. It was the first online retailer that was able to offer the music catalogs from all the major music companies, it used an entirely novel pricing model, and it allowed consumers to de-bundle the music album and only buy the tracks that they actually liked.

On the other hand, iTunes can also be considered as a very careful and incremental innovation, every bit the major labels' positions and power structures remained largely unscathed. The rights holders however controlled their properties and the structures that guided the royalties paid per every track that was sold was predictable and transparent. Apple were right in their prediction of consumer behavior and the iTunes Music Shop can not be considered equally anything but an enormous success. In 2013, iTunes Music Store is the world'southward largest music retailer (offline and online) and it has sold more than 25 billion songs since its launch in 2003. The service has evolved substantially during its decade-long existence, and a number of competitors using more or less the same business model have entered the digital download music market. Even though the competition has increased, iTunes remains on superlative with a market share of more fifty per centum of the global digital music market place. Figure 1 indicates how the global recorded music market has evolved since 1973, and shows that while the digital music market has been able to partially recoup for the decline of physical sales, the full recorded music market place notwithstanding has lost more than 50 percent of its sales since the peak in 1999.

Fig. 1

Recorded Music Volume, 1973–2012.
Note: Digital includes total-length albums and singles separate by four. Vinyl includes LPs and EPs split up past 4. Music DVDs are not included. Source: IFPI 2013

While digital download services, such as iTunes Music Store, introduce a gradual change to the music business logic, there are other legal music services that are far more than radical and thereby as well far more controversial. These services do non offering private tracks for purchase at a set price—they rather offer the usersaccess to a large music library that they are able to heed to at their leisure. The users ordinarily pay a monthly subscription fee that allows them to heed to equally many songs in the library as they want, how ofttimes as they want.

This may sound like an appealing proposition, only these legalaccess-based music services have struggled both to convince record labels to license their catalogs to the services equally well as to convince users that it is possible to bask music without actually ownership and owning a re-create of the track or album.

There is a considerable entrepreneurial activity in this segment of the music business, and services go live and bust on a weekly basis. Many service providers are still desperately looking for the business organization model that can attract music listeners and satisfy rights holders. The challenges are certainly considerable just the music service that so far has received the virtually attending of the international music industry and the one that could possibly have plant the right path is a service chosen Spotify. Spotify is a useful vehicle for explaining the logic of the music industry in the age of digital distribution, and this section will present how service drives the music industrial transformation forward. Even if it somewhen turns out that Spotify is unable to create a business model that is sustainable in the long term, it has already been able to transform the mindsets of both users and rights holders and will most likely exist a music technological milestone on the magnitude of the Walkman, the Meaty Disc, and Apple iTunes.

The Emergence of Access-Based Music Services

Spotify was founded in 2006 by Daniel Ek and Martin Lorentzon with the ambition to create a legal ad-supported music service that was free for the music listener but that generated licensing revenues to copyright holders.

Spotify was by no means the first attempt to create a legal service that could compete with illegal file sharing. Nearly predecessors had for various reasons failed miserably with their projects, which may be one reasonable explanation why the rights holders that Spotify was negotiating with were not particularly enthusiastic almost engaging in another risky online music project. Despite all their initial skepticism, on October 7, 2008, the company appear that afterwards two years of discussions and negotiations, they had signed agreements with the music industry's leading rights holders to distribute their music to audiences in a handful of European countries. In society to succeed where many others had failed, Spotify had been forced to make a number of concessions. In improver to offering the major rights holders shares in the company, they were also required to implement a central change in their business model. Instead of offer a service that was solely funded past ads, they also developed a more advanced version of the service, which was funded by subscription fees.

Spotify'southward model with two or more different service versions where the nigh bones version is free and the more advanced versions are offered on a subscription basis is normally calledfreemium—a play on the wordscomplimentary andpremium. Often, the profit margin for the complimentary version is very low, or fifty-fifty negative, and it is expected that it is the subscription fees that will generate plenty revenues to make the service assisting. The logic behind a freemium service model is that users shall be willing to employ the service for gratuitous and that they while using the service gradually will make behavioral and emotional investments in the service that will increase the costs and efforts to switch to another service. The goal is to make as many of the users of the free version to convert to the subscription version. In order to achieve that goal, the free version has to have a number of increasingly annoying features (such as advertizing) or lack a few central features (such every bit the ability to use the service on certain devices) that are removed/available on the premium versions of the service. The claiming for Spotify and other freemium services is to rest the different versions in a way that stimulates theright client behavior and entices users to become paying subscribers. To date, few music services manage this feat. Either the gratuitous version has been besides good to motivate customers to upgrade their service or it has been too deprived of features to attract customers at all. In Spotify's case they have achieved aconversion rate of approximately twenty percent, which means that 20 per centum of the full user base is using the premium version and pay a monthly subscription fee.

Spotify has received a considerable amount of attention from the music industry across the world, but some of this attention has been largely based on suspicion and criticism toward their business model and methods. The criticism has to some extent focused on whether the freemium model presented to a higher place is long-term sustainable or non, just even stronger criticism has been focused on how the revenues have been shared with rights holders on different levels in the value concatenation. There are at least 2 reasons why this criticism has emerged. First of all, music companies take since decades back been used to a royalty model where a licensee pays a stock-still amount per vocal sold, played, or used in whatever way. That model is very difficult to apply to an access-based service since the revenues that are generated by the service is not based on songs sold, played, or used, but based on the number of users of the service. Providers of access-based music services—regardless if the services are funded past subscriptions or advertising—have argued that rather than paying a fixed amount per rail that is listened to, they should simply share whatever revenues are generated with the rights holders. Without getting too deep into the accounting detail, such a scheme is very beneficial to the service provider but transfer a considerable function of the business organization risk to rights holders.

Rights holders fence that their revenues should non depend on the skills of the service's advertising sales team, but they should simply get paid for the music distributed to customers. In the past, a number of access-based service providers have been required to sign contracts that take generated stock-still royalties per track to rights holders. All the same, such agreements make it very difficult to get an admission-based music service off the ground, and several pioneers in the access-based music service market take not been able to survive for very long. One of the reasons why Spotify is considered as a milestone in the shaping of the new music economy is that the company seems to have successfully convinced the major music companies in certain markets that they should indeed share Spotify's business risk and instead of taking a stock-still license fee per runway, they should accept a share of Spotify's revenue, regardless of how loftier or depression it is. Spotify succeeded past making a number of concessions in their negotiations, for example by offering the major music companies the opportunity to buy a minority share of Spotify'due south shares.

Spotify has reported that seventy percent of their revenues from ads and subscriptions has been paid in royalties to rights holders. At the end of 2013, the company has generated more than a billion dollars for rights holders effectually the world, which according to Spotify is proof that their model does work.

Nevertheless, fifty-fifty though it seems possible to generate revenues from access-based music services, the new contract structure is a radical change in the music concern attitude toward distributors, and information technology is past no means uncontroversial. Some of the criticisms expressed by artists and composers are caused by the fact that the royalties are primarily paid by the service providers to music companies and not directly to the composers, musicians, or artists. The creatives contend that they are not given a fair share of the revenues and some of them even actively cull not to license their music to the services such as Spotify because the revenues that finish up in their pockets is nigh ridiculously low and that they do not want to support a corrupt and unsustainable arrangement.

One reason why this problem has occurred is a debate well-nigh the classification of the royalties generated by admission-based music services. Music companies (i.e., in this example the old record companies) merits that the royalties shall be considered as unit-based music sales, which in that case would hateful that the musicians receive between 10 and twenty percent of the royalties paid past Spotify to the music companies. The musicians claim on the other manus that Spotify cannot exist compared to traditional record sales at all but should rather be categorized as a performance, which in that case would mean that the musicians are entitled to 50 percentage of the revenues rather than twenty. The conflict concerns to a smashing extent the estimation of agreements between record companies and artists that were established earlier Spotify and even the Net existed. The debate about what blazon of royalty a particular Internet-based music service should generate may seem like a legal effect with minor existent-earth implication, but information technology is an admittedly crucial question that will determine the construction of the future of the music industry. Much is at stake and it is unlikely that the music industry players will hands concord on a model that is perceived as fair to all parties.

This section has discussed the emergence of access-based music services and the challenges they have encountered as they attempt to enter the digital music economy. The next section takes this discussion one stride forward by reflecting on how these services alter the audiences' relationships with music. The department argues that access-based music is but a transitional phase in the evolution of a new music economy and points at indications of how the industry increases its reliance on so-called context-based features and services.

The Real-Time Listening Experience

While revenues from recorded music accept fallen dramatically during the past 15 years, people beyond the globe practice not listen less to music—rather they listen to more recorded music than always earlier.

Recorded music permeates every aspect of our daily lives and legal access-based music services combined with illegal online file sharing services means that more or less every vocal is available everywhere, all the time. Thisadmission explosion transforms the way people use and relate to recorded music.

For instance, in the pre-Internet days recorded music was expensive and deficient. Music listeners chose what record to purchase with care and the growing record collection in their living room cabinets served every bit a diary of their lives told via a number of record purchases. Music listenersowned their concrete records in the same way as they had a strong sense of ownership about other physical objects, such every bit books, souvenirs, or furniture, and these objects served every bit tools for both identity formation and communication.

Institutions, such asdrove andownership, become increasingly irrelevant in the age of digital distribution and ubiquitous access to music. In the light of this observation, a relevant question is what the new role of recorded music every bit an identity marker in the historic period of digital distribution may be. The retrospective record collection served every bit such an identity marker in the pre-Internet age, but as music listeners carelessness their concrete collections they are required to search for new ways to use recorded music equally a tool for advice of their identities to their friends and the world. The scenes that are increasingly used for that purpose are online-based social networks such equally Facebook, Twitter, etc. Admission-based music services are commonly interconnected with such social network services, and thereby let music listeners to constantly denote to the world what runway they are currently listening to. This stream of information is primarily of interest to advertizement platforms and their clients since it allows them to contour the audition based on their listening habits and send them advertizement messages that are adjusted to their demographics and interests.

The shift from theretrospective collection to thereal-time listening experience is a radical shift in music listeners' relationship to music. It diminishes the significance of the retentiveness of past music experiences and moves the focus to the hither and the now. It is interesting to note the kind of structures and behaviors that emerge as music consumption shifts frombuying toadmission and fromthe collection to thenow playing. Amaral et al. (2009) have, for instance, shown that music listeners actively curate their music-listening feed in society to make sure that it does not reveal a track that does not fit with the prototype they want to exhibit. Some access-based music services take even created a "private-listening characteristic" in order to enable users to listen to music without sharing the experience with the globe.

The access-based services are still in their early days and they still actively search for the optimal service and pricing structure that will let them to compete and survive. Currently, the contest between the services is largely based on the size of their music catalogs, availability in different territories and different mobile platforms, etc. However, it is reasonable to assume that somewhen all these services will asymptotically converge toward a similar music offering and will be bachelor on all platforms and include more or less every song that has e'er been recorded. Co-ordinate to basic economic theory, the competition between similar services or products will be based on cost, profit margins volition eventually compress, and a few big players will eventually survive and compete in an oligopolistic market. Access-based music services volition in other words go a commodity market and behave in a similar manner as the markets for sugar or oil.

When the market has reached this gloomy state and the room for innovation and differentiation based on the pure access model is more than or less wearied, online music service providers will virtually probable await for other ways to differentiate their services and to continue up their profitability. 1 fashion of doing this is to become across the pure access model and to create services and features that provide acontext to the songs in their catalog. The context may for instance enable music listeners a way to search and easily find the song they are looking for at a particular moment, it may allow users to share their music experiences with their friends, to organize their favorite music experiences in user-friendly ways, etc. Such context-based services provide a less deterministic and far more expansive space for innovation than those services that are based on a pure admission model. While innovation within the access-model framework leads toward the same ultimate goal (universal access to all songs always recorded), innovation within the context-model framework lacks such a knowable result. A provider of a context-based music service has a greater possibility to create a competitive advantage based on unique, innovative features than what is possible within the access-model framework.

Today the number of context-based services grows aslope access-based music services and most often a music service offers both access to music as well as a range of features that allow users todo things with music. The customer trouble that needs to be solved is not that the client needs access to music simply rather how to navigate anddo things with that music. In other words, customer value is increasingly created by providing the audience with tools that let them todo things with music rather than past providing the audience with basic access to music. This shift from providing access to music to providing services and features that are based on the assumption that access to music is already provided is part of a similar full general transformation of the music industry. The give-and-take has up until now been focused on the distribution of music, but the shiftfrom content to context can be also observed in other segments of the music industry value chain.

A number of artists and composers have during contempo years implemented the context-focused model in the creative production of their musical works. Rather than only making polished recordings for the audience to experience and enjoy, they accept created services and practices that involve the audience in the creative process and allow the fans todo things with music. The British vocalizer-songwriter Imogen Heap is 1 example of this trend. Heap actively encouraged her fans to upload sounds, images, and videos during the production of her latest album. She used this material in her work both every bit inspiration and as bodily edifice blocks to her songs. As a consequence, Heap's fans felt they were collaborating with their idol and were office of a communal, creative feel. Baton Bragg is also a vocalizer-songwriter from Britain, but from a unlike generation and in a unlike genre than Heap. Bragg has also established a context-oriented experience for his fans, albeit perhaps primarily driven by his fans than past Bragg himself. Bragg reflects on his human relationship with his fans and explains that he provides a "social framework" for his fans and that some of his fans don't fifty-fifty like his music but they enjoy being part of a social community (Baym 2012).

Other musical artists and producers get way across the traditional format of the song and create mobile applications that allow the users to play with music in different ways. London-based RjDj and San Francisco-based Smule are two examples of organizations that have adult such applications that challenge the boundaries between music and interactive videogames. These tendencies enhance primal questions about the definitions of the music industry and music organizations. Volition tools and software for playing with music go recognized as a vital function of the music industry and a quaternary core sector of the manufacture, adjacent to alive music, music licensing. and recorded music? If so, what will this mean for established music companies, artists, and composers? When alive music and music publishing became increasingly of import industry sectors in the beginning years of this millennium, traditional tape labels reinvented themselves, built new capabilities that immune them to serve as tape labels, music publishers, management companies, live music companies, etc. They turned into360-degree music companies, which placed equal accent on all 3 music industry segments. If context-based services and software will continue to grow in importance, music companies will need to add yet another new competency and perhaps new business areas to their organizations that volition enable them to capture the increasing value created by context-based music services.

The Music Industrial Transformation Continues

The recorded music industry has been radically transformed during the past 15 years, simply much remains before the manufacture takes the definitive step and leaves the concrete world behind. This chapter has discussed some aspects of how this transformation continues, and how access-based music services play a substantial role in this process. The chapter has too touched upon how the recorded music becomes increasingly marginalized as a revenue source and how other industry segments such equally alive music and music licensing become increasingly significant. Finally, it has also presented how the audiences' relationships with music change as a part of this transformation and how services and features that allow users to playwith music rather than merely to play music movement into center phase of the music industry in the digital age.

References

Amaral, Adriana, Simone Pereira de Sá, and Marjorie Kibby.
"Friendship, Recommendation and Consumption on a Music-Based Social Network Site." Presented at the AOIR Conference, Milwaukee, Wisconsin, 2009.

Baym, Nancy K.
"Friends or Fans?: Seeing Social Media Audiences as Musicians Do."Participations 9, no. 2 (2012): 286–316.

Wikström, Patrik.
The Music Industry: Music in the Cloud. second ed. Cambridge, UK: Polity Printing, 2013.

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Source: https://www.bbvaopenmind.com/en/articles/the-music-industry-in-an-age-of-digital-distribution/

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