May 27

Sustainability of music streaming

In the past, I have written a couple of articles with relation to music streaming services and their impact on the music industries. Sweden and Norway announced a growth of their recording industry due to streaming services.

However, a few days ago, the established music industry researcher Peter Tschmuck published an analysis about the question whether music streaming services are sustainable business models. The article is in German language, which you can find here: Is streaming the next big thing.

Tschmuck investigates different models of music streaming, as there are types like Spotify as a typical streaming service, YouTube as a video streaming website, Cloud Drive, Google Play or iTunes Match as cloud-based plattforms, personalised webradios like Pandora and Last.FM and classic webradios.

The critical aspect in making streaming services sustainable are the conversion of free / freemium users to paying customers, because the licensing costs of music are too high for ad-financed business models. However, this is not caused by too high licensing rates by the content providern (e.g. record labels) or collecting societies. Tschmuck provides an example of the royalty costs of Pandora to the US collecting society SoundExchange, which reveals that the rates are lower than originally set by the US copyright board.

Tschmuck expects a market consolidation, because the competition is high and the market doesn’t provide high profit margins currently, because of the low percentage of premium/paid users.

A lot of people call music streaming as the next big thing in the music industry. There is no doubt that streaming has a large impact on the current music industries. For consumers, streaming services offer a fantastic opportunity to explore and listen to music. The revenues for artists and labels, however, are quite low, which also questions the sustainability of streaming for artists and labels. It must be noted that streaming requires a long-term analysis regardings its revenues, because the services pay for each stream, even next or in a few years, contrarily to the download purchase. It is one question whether songs are streamed that many times in the consumer lifetime that they make the same revenue as the purchase. SpotiDJ reveals a number of 140 streams as equal number to one download. With the high amount of releases and fast moving music industries, this is a quite high number to reach.

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Jan 16

HMV’s insolvency – bad company strategy or inevitable victim of digitalisation?

In these days, the news are filled with articles about the insolvency of HMV (e.g. here), which is facing British music culture. HMV was the record shop in the high streets. But with the digitalisation of music and new big players such as iTunes or Amazon, the high streets lost their significance for being the place to buy new records. Music fans listen to new music online and can buy music online, saving the effort to go to the city.

However, those who grew up in the 1990s and before might be unhappy about this development. Sure, it is easy to research and buy music on the internet. But the experience in the record shops is a different one. Unfortunately, HMV and other large record shops didn’t work on their strategy how to offer services and building values and emotions, which download shops and online traders cannot provide. Shops like HMV started to offer diverse products like phones, clothes, etc, which are not particularly connected to its core competence: music. I don’t blame offering DVDs or games, because this is entertainment, too. Anyway, these traders should have focused on personal emotional  connections to their customers, collective experiences, media experiences (which are not available in downloadshops). Maybe this can be compared with music events. Purchasing music at high street record shops should have been music events! In the past years, the live music experience on concerts, festivals and in clubs has become a growing instance in the music industries. These events cannot be copied and not consumed via Internet (of course, you can watch event videos, but certainly this is not comparable to being at the event).

Returning back to the news around HMV, fortunately, this doesn’t need to be the end of this legendary music shop. Deloitte is searching for new investors for the HMV. Maybe this insolvency is a wake-up call for high street record shops to improve their strategy, how to address potential customers better than online shops can do.

However, it is questionable if record shops can survive in the long run, when physical records sales are decreasing. I can imagine that physical records still keep some relevance as fan and collector’s item, because music still provides some identity building and representing to music consumers and digital music collections or the access to streaming services may not represent fandom as much as physical records can do.

Nevertheless, the insolvency of HMV is definitely bad news for all British music fans, who love to browse through physical records and buy them in record shops.

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Jan 11

“Spotify-Effect” on Music Records Income: Norway 2012

Last year, the Swedish music market announced a big surprise for the Global music industries: Its revenues noticed a large increase due to streaming services like Spotify, which made more revenue than iTunes in the first half year of 2012. As I mentioned in the article about the Swedish music market, there has been a lot of discussion how the music sales and income evolve with the opportunity to access all music via Streaming services. The Swedish top-line was one of the first large “Hurray”s in terms of this discussion. However, this was in Spotify’s original country.

Norway, the neighbours of Sweden, brought up a new positive news around music records revenues and Spotify: A plus of 8 % in 2012 due to a growth of subscription services of 116 %. Overall digital revenues reach 61,5 % now and, therefore, have taken over physical revenues. Another benchmark: Streaming in Norway accounts for 45 % of all record sales income. Digital sales are also growing, albeit less than streaming income. Physical sales decline.

How can we evaluate these news? It needs to be mentioned that Norway has the second highest spending-per-person on music (28 US-$ per year; Japan is first with 32,3 US-$, Germany: 20,8 US-$, UK: 22,3 US-$). So, either they have passionate music consumers, or low illegal music consumption, or both.  Techdirt reported that the Scandinavian countries could strongly motivate former illegal downloaders to use legal streaming services, which is one big hope of the Global recording industry to achieve this effect with pushing streaming services forward. So, this might be the largest advantage of streaming services to the industry.

One large “question mark” is still the impact of streaming services on those consumers, who have previously bought downloads and physical records. My personal consumer behaviour has evolved to a streaming and physical records combination. I am using Spotify, Podcasts and (Web)radios, and often buy physical records of my favourite artists and albums.

But, which impact have streaming services on download sales, respectively consumer behaviour who generally buy downloads? There is little difference in the usability between streaming music and playing purchased downloads from the hard drive.

I will keep my eyes open for answers on this question. And certainly on the development of streaming in large music industry countries like Japan, USA, Germany and UK.

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Dec 05

New research study: Piracy effects on media economics

A renowned research company called “House of Research” has recently published a new study regarding the piracy effects on media economics. The study has been supported by the “Medienboard Berlin-Brandenburg”. The full research in German language can be accessed here: http://www.medienboard.de/WebObjects/Medienboard.woa/wa/CMSshow/2841628

 

The part on the music industry analyses the recording industry and its development since digitalisation has affected the revenues (since 1999).

In my article about the music industries’ development after the 1990s, I investigated the reasons for the decreasing music sales. More reasons were mentioned than the online piracy, but not only this research but also other researchers determined online piracy having a large impact on this development.

The research of this article criticises other studies, which pose that heavy users of music filesharing also buy more music, for example due to a “sampling effect” that consumers want to test music before they buy it. Illegal downloading is mainly done by young consumers, who traditionally are also more into purchasing music than older generations. So, this correlation of illegal downloading and music purchases is not solid. The research also compares the spending on music in 1999 and 2008. In the age groups of 20-29 years and 30-39 years, the spending decreased by more than 50 %. This argument also objects the positive correlation between illegal downloads and music purchases.

Another aspect, mentioned in this research, is the alleged reduction of illegal downloads in the last years. This is objected by this research due to increasing illegal album downloads, which results in a higher amount of illegal downloads.

One comparison here is the result of how the music sales revenues would have been developed according the GDP in Germany: According to that, the music sales revenues would account for 3.116 Million €. The reality displays 1.669 Million €, which is approximately half of the GDP-connected amount. A 1-to-1 equation between music sales and the GDP might not be realistic, because in tough economic times, the spending on entertainment and luxurious goods is less important to consumers than in boom times. Even when the GDP in Germany didn’t face a large recession according to the statistic in the study, the dot.com bubble crash and financian crash in the 2000s had its impact on the consumption behaviour.

In my music history article, I also mention the changed format preferences, which are also displayed and discussed in this study, albeit objected as “the” reason for the declining music revenues, because the decline started before the unbundling in the download shops took place.

One more interesting aspect is the statistics about the employees in the recording industry, which diminished by 38 % in 11 years (1999: 13.000; 2010: 8.099). This probably doesn’t include the number of artists who needed to start other “day-time” jobs, because they can’t make a living from music only anymore.

This research study is without any doubt very interesting and evolves interesting facts. However, its focus concentrates on file sharing nearly being the only reason for the music sales crisis. I have investigated a couple of reasons for this crisis, which is backed up by many other researchers. The reality of reasons for the decline of music sales over the last 13 years might be a combination of following reasons:

  1. Music Piracy, illegal downloads
  2. Digitalisation in general
  3. Changed consumer behaviour
  4. Changed format preferences
  5. Ended CD replacement cycle
  6. Additional entertainment consumption options
  7. Changed music retail structure
  8. Changed economic situation

For details on these aspects, I recommend (again) my music history part III article. Here is again the link to the research mentioned above (in German language though): http://www.medienboard.de/WebObjects/Medienboard.woa/wa/CMSshow/2841628 .

 

 

 

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Nov 29

Blog reactivated

For the last couple of weeks, the blog has been neglected due to duties of finalising the PhD degree. I apologise for this. But this now comes to an end and can announce that I’ll reactivate my blog.

Soon, I will share my thoughts and latest news around artist development, music industries, Dance music culture, etc. It is an interesting time that the music industries are facing currently. So, I will discuss some issues here soon, whenever appropriate.

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Nov 29

Music Industries History Part III: After the 1990s

The music industries, as they are known nowadays, derive from technologies to record music and play back recorded music. The figure below shows a summarising timeline with milestones of the music industries since the beginning of the 20th century.

Finally, here comes the third part of the music industries history triology. It is a quite long article, but I hope it is worth reading!

If you missed the first two parts, here are the links:

http://www.johannesripken.com/2012/07/music-industries-history-part-ii-1950-1990

http://www.johannesripken.com/2012/06/music-industries-history-part-i-before-the-1950s/

Read More »

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Jul 15

Sweden’s unique Music Market – 30,1 % growth in the first half of 2012

Originally, I wanted to provide the third part of my triology of the music history (see part 1 and part 2). But the latest news about Sweden’s music market made me write this article.

According to The LocalBillboard, Musikmarkt and Techdirt, the Swedish music market experienced a big up in the first half of 2012, due to Streaming Services like Spotify. Sweden’s music market made an incredible plus of 30,1 % in the first half of the year, with streaming being the most important income stream for the recording market. With this plus, the Swedish market is back on the income level of 2004 and if the development remains, Sweden will be back on the level of the “Golden 90s” in a few years. Great news for the Swedish music industry colleagues! Despite these positive news from Sweden, it must be questioned if this development can be adopted to other countries like USA, Germany or UK.

There has been a lot of discussion whether streaming is good for the music industry or bad. Advantages are that those who illegally downloaded music now have an easy and cheap consumption opportunity, which at least bring in some money to the industry and the artists. The latter is also a disadvantage that streaming licenses are not comparable to download payments. I had a lot of discussions about this topic over the last weeks and months with colleagues and friends.

Some welcome the new development and see big potential in streaming. Accounting that the small amount of licenses are paid each time when a song is played and estimating that songs are played many times in a consumer’s lifetime or by consumer’s who wouldn’t buy the song, streaming services can result in a large income stream. Especially those who previously didn’t buy music are a large group of potential customers to streaming services. Additionally, consumers may get to know more music with streaming services due to playlists, recommendations and social sharing of listener behaviour.

Some doubt that streaming will pay out as much as downloads do. Often, the problem of streaming cannibalising the download or CD market is mentioned (why buying a download, when you can stream it). The payments by streaming services are very little, so consumers need to listen to a song very often in order to be a substitute to a download in value. It might be questioned, if a consumer will ever listen to a song that many times to recoup the amount of a paid download or even CD. Additionally, how does streaming influence the perception of value of music? Any music becomes a good which is available everywhere at any time without particular payment.

It is difficult to evaluate how the market and the perception of music will evolve having these different opportunities to consume music. And in the context of this article topic, how other music market will evolve with the growing streaming market.

 

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Jul 05

Music Industries History Part II: 1950 – 1990

The music industries, as they are known nowadays, derive from technologies to record music and play back recorded music. The figure below shows a summarising timeline with milestones of the music industries since the beginning of the 20th century.

Here is part II of the music industries history triology. This part provides information about the era 1950 – 1990. Click read more!

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Jun 19

Music Industries History Part I: Before the 1950s

The music industries, as they are known nowadays, derive from technologies to record music and play back recorded music. The figure below shows a summarising timeline with milestones of the music industries since the beginning of the 20th century.

I will explore the history of the music industries in three parts, starting with the era before the 1950s in the first place.

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May 10

Dance Music History – First electronic sounds, via Disco, House, Dance to current developments

For my PhD thesis, I have analysed Dance music history briefly, from the beginning of electronically produced sounds, via the early genres of Dance music (Disco, House, Techno, EBM), the boom in the 1990 and current developments. This article gives an overview of this genre history. Feel free to have a read!

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