Recently I completed a marketing plan for the independent music production label High Voltage Entertainment, headed up by popular Cape Town hip hop/reggae/soul artist EJ Von Lyrik and music producer/bassist Grenville Williams. I figured the insights I gathered while doing research for this project should be shared; especially since I found this information to be highly useful. In spite of all I found, there appears to be a large movement toward the free distribution of music on the internet. But, Is giving music away for free enough though? The following section presents the most happening trends in the music industry at present.
The advent of digital technology has brought about a great deal of change in the music industry, a change that cannot be overlooked should further inroads be endeavoured. In an interview with the New York Times, David Bowie (2002) stated the following:
“The absolute transformation of everything that we ever thought about music will take place within ten years and nothing is going to be able to stop it. I see absolutely no point in pretending that it’s not going to happen. I’m fully confident that copyright, for instance, will no longer exist in ten years, and authorship and intellectual property is in for a bashing. Music itself is going to become like running water or electricity. So it’s like, just take advantage of these last few years because none of this is ever going to happen again. You’d better be prepared for doing a lot of touring because that’s really the only unique situation that’s going to be left. It’s terribly exciting. But, on the other hand, it doesn’t matter if you think it’s exciting or not. It’s what’s going to happen.” Almost ten years after the aforementioned interview was conducted, the world is seeing the tell-tale signs of the accuracy in Bowie’s prediction coming to the fore.
The following section provides a thorough analysis of the most current trends affecting the music industry on a global scale as a result of digital technologies.
– Digital Music Downloading
Digital storage technology emerged in the late 1980s and for the first time allowed music consumers the ability to copy music and store it on compact discs (CDs), personal computers, and portable devices (Sangani, 2010). At the turn of the millennium; the internet, online peer to peer (P2P) file sharing technology, and the advent of MP3 players signaled a remarkable shift in the way in which music was consumed. P2P networks allowed consumers the ability to download and sample any music item on the internet and as such, recorded music having once been a physical product, had turned into a digital commodity. Online services like Apple’s iTunes, Yahoo, and eMusic quickly emerged to take advantage of the digital revolution. Due to declining CD sales, the major record companies entered into licensing arrangements with these online services as a means of generating revenue from downloaded songs on a pro rata basis (Bhattacharjee et al., 2009).
– Declining CD Sales
Today, downloads of digital music exceeds CD sales. According to the Forrester Research report, the last eight years has seen a steady increase in digital music sales; which will lead to an expected $4.8 billion globally by 2012. In contrast, CD sales are expected to drop from 80% of total global music sales in 2006 to $3.8 billion globally in 2012, a full $1 billion below that of digital sales (Major to minor, 2008). The Recording Industry Association of America (RIAA) suggests that the decline in CD sales of 21% between 2008 and 2009 is as a result of a general decline in CD shipments and an increase in digital music sales by 20.2% for albums and 9.2% for singles. Furthermore, Australia has indicated a notable 78% decline in CD sales in the period 2003 to 2008 (The Biz, 2011). As such, digital music is seen as the logistical mass market for the music industry. The ease of access that digital media has provided to consumers is subsequently eliminating CD sales as what once was the pre-eminent revenue vehicle of the music industry (Medford, 2008). For example, in 2006 EMI (the world’s fourth-biggest recorded-music company) offered a few teenagers a pile of free CDs at a closed focus group session; only to learn that the teenagers had no interest in CDs anymore. As a result, the declining rate of CD sales has prompted retailers like Walmart to begin cutting the amount of physical shelf space allocated to music. In 2008 alone, 30% of shelf space dedicated to music in the USA was cut (Major to minor, 2008). In South Africa the decline has been slowed by expensive internet service requirement and legislative factors (Shaw, 2010).
– Illegal Music Downloading
As such, the wide availability of current copy technology for different audio formats and the illegal free trade of music on the internet; is resulting in a decrease in the perceived worth of recorded music. This process in turn results in low demand for said product and forces price reductions on music to keep consumers interested. Although online piracy does not generally result in exchange of wealth for the pirate as seen in the duplication, manufacture, and selling of pirated goods, it does allow consumers the option of spending their money on other forms of entertainment. Illegal downloading therefore reduces the overall revenue of the recorded music industry (Shaw, 2010).
In a recent study on the ethical implication of illegal music downloading, it was found that although respondents view the act of illegally downloading music as immoral, they still engage in said activities. Respondents would morally disengage themselves from the unethical nature of the activity in an attempt to feel less guilty and to avoid being blamed. Some of the respondents did not view illegal downloading of music as being illegal at all, in fact they viewed it as being justified and part of today’s reality. Furthermore, it was found that hedonistic individuals who listen to music for longer than three or four hours a day; and who have a strong need to re-experience music are more likely to download illegally. Those individuals who experience emotional attachments to music allow it to out-shadow the ethical issue of piracy. As such, the aforementioned consumer behaviour is jeopardising sales of recorded music. The researchers continue by suggesting that recorded music sales may become a novelty in future, and garner little to no cash revenues for artists in due time (Bonner & O’Higgins, 2010). In addition, music consumers feel validated in paying as little as a fifth of the selling price for recordings now; in light of the prices they paid for recordings before the internet revolution began (Rondán-Cataluña & Martín-Ruiz, 2010). The Biz (2011) suggests that Bowie’s prediction (2002) is being fulfilled in light of these current trends; and that music is becoming cheaper than water.
The Recording Industry Association of America (RIAA) has instigated legal action against a number of individuals for the illegal online sharing of excessive amounts of copyrighted music. In addition, Napster – arguably one of the most infamous file sharing sites was sued and forced to shut down. More recently AllofMP3, a Russian file sharing site claiming to be operating legally by paying royalties to ROMS (the Russian music royalty collection society) was sued in federal court for $1.63 trillion. AllofMP3 was mentioned by name at the USA-Russia World Trade Organisation trade negotiations as a threat to music sales. At the time legal measures were taken, AllofMP3 had a $0.15 selling price per song and a $2.47 per album in comparison with iTunes’ selling price of $0.99 per song and $9.99 per album (Bhattacharjee et al., 2009). However, legal measures taken against copyright violators appears to be a futile exercise, considering that at one moment in time there may be up to 8 million people simultaneously downloading music illegally. The sheer amount of copyright violators inhibits the effectiveness of legal processes. This means that the music industry may never earn as much revenue as it did at its peak in the mid 1990s (Todd, 2005). According to the late Apple CEO Steve Jobs, iTunes users on average download only 20-23 songs per iPod – a device that has the capacity for thousands of songs. This is indicative of consumer attitudes toward Digital Rights Management (DRM) restrictions, which were implemented by the major record labels as a means to curb consumers copying, downloading, and streaming of audio files and the subsequent transport of music across digital devices. Download sites like Emusic, Ammie Street, and Audio Lunch-box offer DRM free downloads with no copy restrictions, and few restrictions on per-track purchases. As a result, Apple Inc. has been sued by consumers for the unfair use of monopoly power available to them via DRM restrictions (Bhattacharjee et al., 2009). In respect to this, the major record companies have committed to removing DRM usage restrictions from downloaded tracks, so as to free up music marketing on social media sites like Facebook and MySpace, P2P file sharing devices, and MP3 players (Medford, 2008).
– New Business Models
Piracy has forced the major record companies to begin cutting middle management and subsequent marketing and promotional costs; an activity that has left some artists with no other choice but to seek marketing alternatives (Major to minor, 2008). In response to this; and a result of the online leaking of their 2003 album Hail to the Thief, popular alternative rock band Radiohead ended their major record label contract and released their much anticipated 2007 album In Rainbows independently on the internet for whatever price consumers wanted to pay. This incident subsequently revolutionised the business model of the recorded music industry and identified Radiohead according to Time magazine, as among the top 100 most influential people in the world (Bellini, 2008). With reference to the Radiohead online strategy, Bronfman (2008) notes that, “The traditional record-label business model-the one based on controlling access and distribution-is dead.” Although only two out of every five downloaders actually paid for the album, the strategy resulted in much commercial success for Radiohead after the offer had ended. In this regard; music piracy does not have an entirely negative effect on total music revenues in as much as it creates a vehicle for artist awareness, whereby consumers are incentivised to attend the artist’s live show, generate positive word of mouth, and purchase CDs and related merchandise. This type of perspective has prompted the major record companies to spend funds that were previously intended for artist marketing into 360 deals. 360 deals aim to exploit every aspect of the artist’s career, including brand image, new albums, touring, merchandising, fan clubs/websites, DVDs, sponsorships, and television/film appearances. Madonna has subsequently entered into a 360 deal that allows her record company to handle all of her music related ventures under one umbrella for the first time in her career (The Biz, 2011). Assuming the artist’s songs are popular enough and consumers are willing to attain the product by any means necessary, the internet can be used as a cost free marketing tool. Juggy D, a Brit-Asian hip hop artist from the independent record label Jayded Records; benefited largely from extensive illegal downloading of his hit single Soyniye in 2004. Piracy of the song subsequently led to a string of touring dates and appearances in countries around the world and enhanced CD sales, all of which seemed invalidated at the time, given that Juggy D had at that point not released a full length album. In the first week of the album’s subsequent release, it secured a place as one of the 20 top selling albums at the British retailer HMV. The trend further propelled the careers of Jayded Records’ other artists, of whom popular R&B/Soul crossover artist Jay Sean is the most internationally successful (Grant, 2008).
– Revival of the live music experience
The reason for the success of these online strategies is because piracy has inadvertently offset the revival of the live concert experience and has created a renewed interest in live music festivals. Australia is currently experiencing an oversupply of music festivals with almost every local council investing in blues, jazz, and country music festivals (The Biz, 2011). Considering the fact that a concert ticket costs about the same amount as a CD or DVD and is coupled with additional transport costs, possible venue related problems like poor sound quality; trouble seeing the artist, and expensive food and drinks, consumers are still willing to pay more to see a live show in comparison to buying music for the personal listening experience. In fact; consumers are willing to pay only 5.28% more for a new CD in comparison to their last CD purchase; while concert attendees are willing to pay up to 54% more in comparison to the last concert they attended. This indicates that consumers perceive the price of CDs as being unfair. Regarding live concerts and its hedonic nature, the price paid for a show is perceived as being a less important factor for consumers in comparison to their level of satisfaction, the value they perceive, and the level of service quality they experience. From a psychological perspective, there is an intrinsic social need that is met in the form of positive memories and a pleasant recollection of the live experience that binds the aforementioned factors together, resulting in a willingness to pay more for a similar live music experience in future. In this way the live concert experience is valued over and above the personal listening experience and related price factors; because of the spontaneous manner in which it is presented, the social experience it creates between friends who are attending a show together, and the immediacy it makes possible between artist and consumer (Rondán-Cataluña & Martín-Ruiz, 2010). In spite of this, the major record companies are experiencing little financial support from corporate investors and private equity firms in regard to the funds required to move into the thriving concert and merchandise market. Tim Renner, former CEO of Universal Germany suggests that the major record companies should have pre-empted the digital revolution before it occurred and invested into the purchase of concert agencies and merchandise companies when they still had the available money (Major to minor, 2008).
– Cloud Services
A trend affecting the personal listening experience is currently presented in the form of cloud services, which allow consumers the ability to upload digital content to remote storage servers on the internet, which can then be streamed from any portable digital device. From an ethical perspective, many of the cloud service providers are justified within legal grounds by allocating royalties to rights holders on a pro rata basis. Mobile phone retailer Carphone Warehouse’s digital locker service Music Anywhere; requires consumers to pay a flat fee of £29.99 to use the service. Catch Media, the platform provider of the Music Anywhere service has secured licensing rights from all four major record companies and a string of independent labels in order to achieve legal business resonance. The cloud service scans the user’s hard drive so as to match the user’s hard drive songs with the six million song catalogue of licensed music in the service’s database. If a song is not matched, it is immediately uploaded to the user’s digital locker. Catch Media is also mindful of unlicensed music and the frequency in which consumers listen to said songs. In the event of an unlicensed label securing a deal with Catch Media, rights holders of the unlicensed material will then receive their royalties. As such Music Anywhere aims to legitimise cloud services in the music industry. However, many in the business are of the opinion that cloud services condone the act of piracy. Michael Robertson, MP3 music service pioneer and owner of the cloud service MP3tunes.com has personally been sued by EMI Records as a result (Sangani, 2010).
– DIY Artists & the Rise of Independent Record Labels
“The formal industry, (major record companies, distribution & logistics networks, publishers, collection societies, and the relevant governing bodies) are no longer the gate-keepers to success within the music industry.” (Matchboxology, 2009)
DIY (Do it yourself) Culture is characterised by self-reliance and the ability to exceed expectations with the available tools. In the music industry, the DIY artist performs multiple simultaneous roles that include being a musician, manager, producer, distributer, and promoter. These roles have most recently been empowered by cheaper digital technology that allow DIY artists to produce, communicate, network, promote, and distribute their work without the aid of commercial intermediaries. As such, they are able to sell their products directly to consumers. As a result of the kind of music (including subject matter, content, and sound) generally made by DIY artists, they are less than likely to fit into the structural norms set by the major record companies. Therefore DIY artists are known as independent artists and are likely to sign recording deals with independent record labels (McLean, Oliver & Wainwright). Independent record labels exist outside the mainstream music industry. The mainstream is generally comprised of a process that is largely governed by the activities of the four major record companies. As such, traditional avenues for promotion are unavailable to independents; lest they have access to substantial financial support. Without ample airplay on commercial radio stations and the revenue generated from live shows, the process of physical distribution for commercial retail is tedious at best. Traditionally, the independent record labels need to be proactive regarding promotional activities; and generally seek out avenues like non-commercial magazines, fanzines (magazines managed and created by fans), independent retailers, word-of-mouth avenues, and small concert venues (Gaffney & Rafferty, 2009).
– Social Media
Since the onset of the digital online revolution, digital distribution has become the most efficient means for independents to get their music heard. The internet has allowed for the global reach of independent music via online fanzines, independent retailers, social networking sites, and non-commercial radio stations. Music consumers can now stream or sample the songs of independent artists with the option of purchasing physical CDs or digital downloads via online fanzines and blogs, or alternatively at the artist/label’s own website. Social networking sites like Facebook, MySpace, Twitter, Youtube and Last FM allow users to create descriptive profiles that outline their personalities and interests; allowing them to connect with similar individuals in the digital realm. The connecting nature of these sites then facilitates the exchange of information regarding new independent forms of music, which is to the advantage of independent artists. Social networking sites further facilitate the direct interaction between artists and their listeners (Gaffney & Rafferty, 2009). Some independent artists who have been discovered by major record companies via the social media site YouTube include bubble-gum pop sensation Justin Bieber, alternative singer Sandi Thom, over night celebrity Rebecca Black, and more recently South Africa’s biggest musical export, Die Antwoord. Die Antwoord’s video for their single Enter the Ninja was released on YouTube in January 2010 to notable obscurity. It was only until nine months later that the video was uploaded to the popular blog BoingBoing and from there spread virally on the internet to millions of viewers in a matter of hours. While celebrities like Katy Perry and Fred Durst tweeted about Die Antwoord on Twitter, Die Antwoord’s website crashed as a result of excess online traffic. Soon after, they were signed to Universal Music’s Interscope Records alongside international music icons like Lady Gaga and Eminem, becoming the first South Africans to do so (Morphet, 2011). Independent record labels generally agree that digital distribution cuts out the cost of its physical counterpart, but the oversaturation of this new medium results in difficulty being seen amongst the so called ‘clutter’ of the digital space. Even without physical distribution as an overhead, independent labels are still largely invisible online, and are generally out played by the major record companies who spend excessive amounts on online promotions (Gaffney & Rafferty, 2009). McGaw (2011) suggests that independent record labels need to be innovative and collaborative in order to survive, seeing their business not as a label but rather as a media company. In light of this, music recordings alone can no longer be the selling point of independent artists. As a result of cloud services and massive illegal file sharing; the only option that earns lucrative amounts of money with regard to recordings, are licenses of recorded music for advertisements and placements in television shows and films. McGaw proposes a multi-dimensional action plan that consists of direct interaction with consumers via online avenues, behind-the-scenes videos, and the development of applications for mobile phones. By networking with live venues, artists, studios, and sponsors, the media company sets itself up for becoming a taste maker in its particular field of expertise. This type of perspective is important because as The Biz (2011) suggests, the process of entertainment consumption is becoming more and more fragmented. Consumers have very little time to invest in one particular consumption activity; and are thus divided between music, movies, networking sites, blogs, and online newspapers.
– Independent Record Labels in South Africa
In South Africa, approximately 25% of the music industry’s market share belongs to independent record labels (Shaw, 2010). In light of the 2007 South African Music Awards (SAMAS) ceremony, where 50% of the nominated artists had conceived, produced, packaged, promoted, and released their albums without the assistance of traditional record companies, this notion becomes further apparent. Some notable artists who are found to manage themselves independently include popular afro-pop band Freshly Ground, Lark, Harris Tweed (now Dear Reader), Josie Field, Paul Hanmer, and The Narrow (Matchboxology, 2009). As such, The market share of the independent record labels has been growing gradually since the mid-1990s, with the onset of formidable labels like Sovereign Entertainment (currently host to the popular rock band The Parlotones) and Ghetto Ruff Records (host to popular hip hop and kwaito artists like Zola, Brickz, DJ Cleo, Ishmael, Jozi, and Brasse Vannie Kaap). As a result of the proliferation of these independent record labels, the Association of Independent Record Companies of South Africa (AIRCO) was established to address the needs of independent record labels by lobbying government, liaising with the Recording Industry Association of South Africa (RISA), and providing information to independents where necessary. From an international perspective, certain artists have found success while remaining with a local independent record label. Having been produced and released by the independent record label Muskateer Records, rock band Seether is arguably one of the most successful South African crossover groups. However, although independent artists in South Africa have a growing market share, 95% of upstarts are proven to fail. This paints a bleak picture for aspirant independent artists (Shaw, 2010). In order to earn an average monthly minimum wage of R9152 and considering the expense of production, Chislett (2011) states that an independent artist needs to: – sell 143 direct sale CDs – sell 3 871 commercial retail CDs – have 1 129 digital album downloads
These figures may vary depending on cost of production and number of intermediaries involved in manufacture, distribution, and promotion processes.
– Commercial Radio and Independent Artists
In spite of the aforementioned trend, current radio programming norms make it incredibly difficult for independent labels to break their artists on radio (which is arguably one of the most useful tools for generating awareness and revenue, but also is largely dominated by the major record labels). As a result of the standard top 40 chart format acting as a benchmark for what is popular, many independent artists remain obscure despite having a huge sub-cultural following both at concerts and in online networks. To make matters worse, radio programmers generally follow the trend of the market leader, which in most cases leads to the play-listing of pop stars from the major record companies. As such, the playlists are compressed to accommodate the excessive replay value of the latest major record company hits (Harding, 2010). In South Africa, this trend is already at work. One of the only options available to independents at the offshoot is campus radio at universities and colleges. At the radio station MFM 92.6 Move to the Music in Stellenbosch, play-lists are constructed based on the play-listing trends of international radio stations and what is currently popular on national radio station 5FM’s top 40 chart (which in turn is largely copied from the programming of commercial stations in America and the UK). This activity leaves little scope for independent artists whose music appeals less to 5FM’s general target market. Furthermore, MFM places greater emphasis on maintaining positive relationships with the major record labels than with the independents. However, this trend may be to the advantage of independent artists should they have a large following that can no longer be ignored, as seen in the case of popular international independent bands like Vampire Weekend, Arcade Fire, and Mumford & Sons. When the major record labels began downsizing their middle management in favour of cutting costs, newly let off employees from major record labels who retained relationships with radio programmers; joined forces with independent record labels, allowing the success of the aforementioned bands and similar independent artists. In addition, there is a trend that sees many bands cutting ties with their major recording contracts and joining independent labels as a result of downsizing. As a result, music consumers are now spoilt for choice with regard to the amount of non-top 40 format artists who are making headway online (Harding, 2010).