How do they affect traditional companies? Anapest Introduced a revolutionary change to the way music was distributed conventionally. Music companies worked with the artists to produce music. Thereafter they invested heavily into burning the music Cad’s, marketing and advertising of the music and managing the distribution of the music to end customers Vela retailers. Retailers Incurred staffing and real estate and costs.
In contrast to this, Anapest was able to bring together over 60 Million users who would hare their collection of music to the remainder of the user base. In doing so, the reach and range of music distribution was significantly raised. Strong Community Feeling, word of mouth effect and High customer awareness led to low cost of marketing for Anapest. Technological improvements in improved broadband speed, internet penetration, and advent of newer portable devices further Incentives the users to use music sharing In comparison to buying the same music from retail stores.
For the first time, music was practically available on demand to customer: as, when and where squired for free. The online channel also introduced a possibility of attracting advertisement and other complimentary business models that would earn back revenue In comparison to a CD distribution model where there was no scope to make additional revenue by any other means. Having said that, this was a model that was very easy to replicate and numerous new players emerged online providing similar services to customers.
The model also infringed on the licensing agreements of music distribution as recording companies contested that music sharing accounted to music piracy. As customers came to expect music to be available for free, the online sharing portals were increasingly hard pressed to make viable revenue generating model. This had far reaching detrimental impact on the traditional companies engaged in the music production and distribution business. For a start their earning from sale of music dwindled as Increasingly people relied on sharing music rather than buying them from stores.
Stores were also constrained by the available shelf space to hold and display music Cad’s, whereas an online catalogue was practically infinite in size and exhaustive in content. Thus, with the success of Anapest and other similar websites, It was clear that the value of music distribution has significantly moved to pay much for music and were demanding music that could be played back in different mediums as PC’s, CD players, MPH players etc. The music recording ‘OFF not be stopped as users simply move on to the other networks.
Since Anapest pioneered the music sharing phenomenon, the number of major music recording companies has come down from 6 to 3. Major recording companies had to align their music distribution strategies to reflect the new values and expectations of the user base. Few of these strategies are discussed in the subsequent sections. Nat is the future of album companies? Is there a viable business model for them? There is a huge gap between the model offered by the album companies and the customer needs.
Customers want access to the rare music; they want to be able to use it freely, get additional services and not be unreasonably charged for the same. Ere gap is being exploited by the new business models and peer to peer file sharing. Ere two main value propositions of the record companies were – to be able to provide recording infrastructure to artists and to be able to provide access to the music racket. However, both these value propositions were not sustainable and will continue to erode over time because of increased digitization, internet bandwidth and decreasing cost of recording music.
The stand is vindicated by the sales data of the record companies. As we can see the revenues of the music industry has steadily fallen during the 2001-2010 period. The US revenues declined by 50% over the last decade. For the music companies to be more relevant, they will need to address the customer needs for unrestricted access, broad choice and additional services at a competitive price. As such, the album companies will have to move into newer business models to address the prevalent gap or perish.
One viable business model for the album companies could be to look at newer revenue generation models around advertising to reduce pricing pressure on selling music, provide mass customization, partner to increase music availability and incentives buying music by bundling in additional services leveraging. We would propose that the record companies continue to operate in the entire value chain from recording to digital distribution in the new model. However, new skills will be squired for the same which can be obtained through acquisitions or partnerships.
For the production of music we propose a risk based crowd sourcing model in which the album companies partner with the public, to raise funding for riskier songs, thus significantly reducing the revenue risk by the record company. For songs below the risk threshold, the companies can continue to fund the artist by themselves. In a social networked model where the marketer has a huge base of music fans, this will Incentive newer artists to come to the record companies given their huge network f music lovers.
En propose an intermediary, which holds the repository of digital music pooled from such an intermediary ii they can invest in such an intermediary. This intermediary will consolidate the available base of music and sell it. This would help to create a huge repository of music which the music fans can rely on. The consumers will have an option to directly stream the music from the intermediary site or download the music. We think that with the increase in broad band speed, consumers can access streaming music without any buffering.
This is applicable mainly to developed entries now but gradually the broadband speed in developing will also a reach a level at which they can also use direct streaming services. The basic service can be free to the consumers and revenue can be generated from advertising. The intermediary will also have to provide a premium monthly subscription based service in which it provides value added services like social networking platform for music fans. Fans of particular artists should be able to form groups and discuss.
There would be mass customization with customers free to choose different bundles of songs based on their preferences. Additional services like meet the artist when he is on a tour, tickets to concerts, souvenirs & memorabilia related to the artist etc. Would have to be bundled with the songs. Record companies will be able to use their contracts and relationship with the artist for materializing the same and this would give room to each for developing their own competitive advantage. Advertising will have to be used extensively around the digital platform as an alternative revenue model.
Record companies will again be able to differentiate themselves through their abilities to build effective partnerships to get relevant advertising. Such a model would address many of the pitfalls of the current model and be more relevant by fulfilling customer needs of a getting broad choice, unrestrictive usage and value added services when they buy music. However, the record companies will have to take on the digital marketing avatar for the same. Suggest an appropriate pricing strategy for the album companies in the context of recent developments.
We propose a royalty based revenue sharing model between the album companies. The record company will get a share of royalties for the amount they have invested in the production of the song. The dissemination of the royalties would be the accessibility of the distributor. The distribution prices will be decided by the album companies. The price realized per song will be distributed to the intermediary, artist, album companies and public (if crowd funded) based on the royalty share of each. The distribution companies will be able to do a differential pricing for the songs.
A pay per download, pricing model may be used. The users would be free to use and distribute the music in any which way without restriction. In a digital social networking context the fans could be used to promote the songs and earn redeemable points against which they would get price discounts. The advertising acceptable levels for the consumer and put him in control of the price as well. A multi-level marketing concept may also be applied wherein the fan could use to resell the music at a price he deems fit and pay a commission to the distributor for the same.
The additional artist centered services and option to resell would create an added incentive to purchase music as opposed to download it from a peer to peer file sharing network. Geographical price discrimination will be an important factor in ensuring that the price arbitrage can be neutralized thus discouraging piracy. Price n each country has to be customized and made attractive to the target customers. In summary, we can conclude the business of music distribution is constantly evolving and the ease of sharing music has made the old business models obsolete.
Few of the major recording labels have gone out of business and the others had to adapt to the change that the denationalization of music has entailed. With an ever increasingly internet enabled and connected world, music is now pre-packaged and bundled along with other applications for mobile devices. Through some innovative means the recording companies have continued to stay relevant in this challenging segment, albeit with significantly less profits compared to the pre Anapest days.