Rita McGrath, a professor at Columbia Business School, is an expert on strategy in uncertain and volatile environments. Billboard.biz welcomes responsible comment. Contact firstname.lastname@example.org for information.
Much hand-wringing and lamentation has accompanied the digital revolution in the music business. By 2011, as half the revenue in the industry stems from digital sources, according to the RIAA, the old business model in music has all but evaporated. Despite technological shifts from the old LP format to cassette tapes (remember those) to CDs, the one thing that remained in ironclad certainty was the album-oriented business model and a lock on distribution channels. If you wanted to break through as an artist, you needed the support of a label. If you wanted to buy a song, you had to buy the 12 others it came with on the album. This basically ensured record company margins and their entrenched position within the whole ecosystem of music.
But these days, there is a lot more to the music ecosystem than the fates of a few fairly unresponsive incumbents, whose reactions to change have ranged from the futile to the disastrous. As incumbents in other industries have painfully learned, once a sea change in business model is upon you, trying to throw up the barriers and pretend it’s not happening is only wasting valuable time.
In fact, the music industry is enjoying a period of explosive growth, experimentation and new opportunity that never would have been possible under the old model. It’s a little like the airlines before they were de-regulated, the phone company when it was still Ma Bell or computers when a few big companies were the only game in town. Incumbents don’t like innovations that disturb the status quo. But the status quo is no more, and amazing opportunities are opening up that were never before possible or economical.
According to Nielsen, music listening is at an all-time high, with the company planning to capture more than 30 billion streams annually. The variety of music available for people to consume has expanded, as “long tail” type music that doesn’t appeal to only a popular crowd can find a following. Of the 8 million songs that were downloaded in 2011, 94% were downloaded less than 100 times -- meaning that people could find music that never would have seen the light of day in the old model.
So we have this paradox -- even as the incumbents’ business models have faded, there are an ever-increasing number of ways to make money with models tied in some way to music. Echoing a trend that access to assets -- rather than ownership of assets -- is becoming more and more real, services such as Spotify and Pandora can make money from people who just want to listen, not own a particular piece of recorded media. Application developers can make money from apps related to finding, sharing, highlighting and critiquing music that can go right on smart phones. Individual artists can find smaller-scale fan bases who talk them up to others, creating mini-swells of popularity and followings for their live performances. The market for music-related products such as ringtones is huge and growing. Artists are further increasingly using a "DIY" model for marketing themselves, creating opportunities for people (like programmers and promoters) and creating even more variety for the music consuming public.
Perhaps the most significant uber-trend for music, as well as for many other industries, is that consumers are looking for complete and rewarding experiences, not just to buy a product. That live show that is surrounded by community-creating social media and personal connections afterward; that helps people feel part of a ‘tribe’ and that gives them a lift in everyday life is what will increasingly determine who is going to get those new revenue streams; and who is going to be sitting there mourning the demise of the way it used to be.