Thursday, October 11, 2007

Music Industry Under Pressure: 5 Alternative Business Models

Music industry: five alternative business modelsOur digital lifestyle Network blog last100 has been tracking the upheavals in the music industry over the past couple of weeks. First Radiohead released their new album entirely via their website (I got it and it's awesome!), then Nine Inch Nails (a band which has experimented with the Internet a lot before) announced it has freed itself from recording contracts and become a free agent, and now Madonna is reported to be close to leaving her long-time label Warner Bros. Records for a reported $120 million deal with concert promoter Live Nation, Inc.

last100 has been tracking all of this news and editor Steve O'Hear today offers up an analysis of where the music industry is at. The artists are experimenting and the record labels themselves are under big pressure. Steve wrote:

The record industry is in dire trouble and the major record companies know it. According to the IFPI’s most recent figures, “physical” music sales were down 11% to $17.5bn in 2006, and, blaming piracy — both CD copying and online file-sharing — the IFPI says that overall music sales have fallen for the seventh year running.

However, none of this was unpredicted, and in post-Napster 2003, Steve Jobs appeared to offer the recording industry a way into the future, through the iTunes Music Store. People didn’t want to steal music, argued Jobs, and if paid-for downloads could compete on price and convenience, then many of those illegal file traders would be converted back into paying customers. As a result, Jobs insisted on the unbundling of albums; instead all tracks would be offered for purchase individually, at the same price — 99c — whether they be a new release, top 40 hit, or an older and more obscure song. To which the majors reluctantly complied, and would later learn to regret.

Fast-forward again to 2007, and although paid-for downloads are on the increase, they aren’t rising nearly fast enough to make up for the loss in revenue from falling CD sales. By Jobs’ own admission, on average only three percent of music on an iPod originates from the iTunes Music Store. As if to rub salt in the wound, iPod sales accounted for nearly half of Apple’s total revenue for 2006.

Instead of recognizing that the record industry’s aging business model, even with the intervention of Jobs, is a broken one and in desperate need of a fix, the response has largely been litigation coupled with the introduction of technology, in the form of DRM, designed to enforce copy protection, which, ultimately, just inconveniences paying customers.

If the iTunes model isn’t the answer, and business can’t go on as usual, then what is? Here are five alternative models for selling music, many of which are actually being tested by artists, entrepreneurs, and even the major record labels themselves.

Read full story at last100

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