Challenges in The Music Industry - Essay Example

Running head: Challenges in The Music Industry of Abstract This paper examines the challenges experienced in the music industry. It investigates how music companies and musicians survive in the modern age of widely available free digital downloads and falling sales of CDs. It compares the traditional music industry environment with the new environment. It examines the challenges that have come with the new environment. It then proposes the possible solution to enable the music industry players make money amid worldwide falling CD sales. It also suggests a number of innovative strategies that would work in the current environment, proposing the kind of business models that can work in this environment. Introduction The music industry is going through a hard time due to a decline in CD sales over the years. This is mainly due to the free digital downloads from file sharing sites. The artists are no longer earning much from royalties since the record companies are not selling as much as they once did. This has created the need for the artists and the record companies to seek other alternatives. The music industry The music industry is a massive one and consists of producers, artists, retailers, songwriters, marketing agencies, publishers, record studios, record labels engineers, manufacturers and distributors. Essentially, artists, who could also be songwriters, are signed under contracts by record companies to produce a given number of albums or singles. More often than not, record companies pay for the production, manufacture and marketing of albums worldwide. Any revenue generated from album sale goes towards covering the cost of its production. A number of record companies also have ownership rights to the back catalogue of artists. This in essence means that they can decide how this catalogue will be used. For instance, another artist may wish to re-record the song, or an advertising agency may want to use it in its campaign. The record company has the discretion of deciding whether or not to reissue the material. This could probably be in a reformatted version consisting of bonus tracks or could be completely re-mastered. In numerous cases, certain types of music do not have sufficient demand to warrant spending of a lot of money on them. As a result, the record company may make big losses on that artist. The record companies usually regard the artists they work with as among their product portfolio. This leads to very successful artists effectively subsidizing lesser known ones. Record companies therefore base their business on the ability to provide music capable of satisfying the consumers' wide range of tastes. They therefore have to manage their product portfolio carefully to make sure that the cash that flows into the business is adequate in maintaining all its liabilities. Many record companies are usually owners of other companies that they may either have set up or bought. For instance, Universal Music Group also owns other companies such as Deutsche Grammophon and Verve. The company also owns a number of labels distributing both rock and mainstream pop material. It is therefore common for the industry to be dominated by five or so major companies accounting for about 75 per cent of all recorded music sales worldwide. However, within these five companies may be many other companies and labels, which may be well- known in their field of operation. These smaller companies may actually have been set up or acquired by their parent companies. The challenges A number of record labels have seen their sales fall tremendously over the years. This fall has been attributed to increased piracy that has greatly affected the music industry. Artists get their royalties from their music's sales by the record companies. Piracy means that any sales made are not official, and therefore no payment for the artists. The advancement of technology has not made the situation any better. It has led to an increase in the number of fake CDs in the market. Certain artists have resorted to the use of internet to get their music to a larger audience. These are mainly artists not signed to big music labels as a result of their music not being perceived as mainstream. Many retailers, both big and small, have also felt the impact of the fall in CD sales. Small retailers have further complained that the setbacks they encounter in competing with larger retailers have been worsened by the readily available downloaded music. Some people have disputed the impact of music piracy, claiming that it boosts sales. They are of the view that the record companies are only opposed to downloading of music with the aim of protecting their monopoly powers and maintaining their artificially high prices, and thereby exploiting the customers. A number of the critics are of the view that the falling CD sales are due to actions taken by these record companies. They do not believe that piracy has played any role in causing these problems in the music industry. Another problem for the music industry is the ever-changing market for music, which has greatly influenced other aspects of the industry. The way of purchasing music has undergone rapid changes, especially with the emergence and advancement of other media entertainment forms like DVDs and video. Businesses involved in music selling have had to accommodate the changes in the music industry. For instance, major retailers in the music industry such as Tower Records, Virgin Records and HMV have been forced to face great competition especially from online retailers like Amazon. Amazon has had a big impact on the music industry mainly due to its wide range of stock, speedy delivery times and its global access. The music industry players have blamed music piracy for the declining CD sales. The piracy is mainly carried out though illegally downloading music, particularly via peer to peer networks. The P2P networks make it possible for anyone with music files to exchange with other people through computer networks. Some of the P2P sites include Gnutella, Grokster and Kazaa. Solutions A number of measures are needed to tackle the problem of declining CD sales in the music industry. These measures are mainly targeted towards solving the problem of piracy and illegal downloading. A change of the market mix The music industry needs a change or a complete overhaul of its marketing mix. The price of CDs must come down tremendously to encourage more people to buy original CDs. The product must also be made in such a way that piracy becomes very difficult to be carried out. The record companies also need to carry out promotional campaigns aimed at enlightening people on the need to avoid pirated products. Record companies need to consider making their authentic music readily available. Currently, only selected stores monopolize the selling of CDs. This has as a result made the price of these CDs very high. This leaves the small players with no choice but to seek cheaper sources of this music, which is piracy. The packaging of music should be in such a way that pirated music can easily be distinguished from original music. Moreover, the whole process of producing music should be streamlined to make it cheaper. This ranges from CD manufacturing to recording to marketing and finally distribution. Cutting costs Record companies need to consider cutting down their cost of operations and pass this down to the customer. They should reduce the number of artists they deal with and only sign a few profitable ones. This will reduce the risk of making losses and therefore still survive with reduced CD prices. The companies should also reduce the number of commissioned disks since they are quite expensive. Moreover, the record companies should consider increasing their productivity in order to derive full benefit from the economies of scale. These measures will go a long way in making the overall cost of the CDs per unit lower and therefore more affordable to the customers. Regulation The various regulatory state agencies in the music industry must tighten their regulation role. They need to put in place mechanisms to enforce copyright laws. They also need to ensure that Intellectual property rights are strictly respected by the various stakeholders. Consolidation and mergers There is need for consolidation and mergers among record companies, particularly the small ones. This will go along way in increasing the market reach of these companies. The new consolidated or merged companies will be in a better position to reach a wider range of the music market. New technology There is need to embrace new technology in the music industry. For instance, the ant-copying technology will go a long way in reducing illegal duplication of music, if not completely eliminate it. The new technology can also be used as diversionary tactics against piracy. There should also be official and legal music downloads to discourage illegal downloading of music. Legislation In order to curb the rising cases of piracy, governments all over the world need to come up with proper legislation. These legislations should impose more stringent measures to curb the vice. They should spell longer prison terms and fines for the culprits of the vice. Generally, there needs to be a severe court action to discourage all those intending to engage in music piracy. New product development The music industry should take advantage of the rapid technological advancements to develop new products to curb piracy. For instance, they could partner with entertainment electronics manufacturers to come up with gadgets that detect pirated music. Business models The music industry needs to adopt a unique hybrid of business models to survive. It can no longer rely on one particular model since the world has changed tremendously. Artists should now focus on having fans as opposed to CD sales. They should consider giving their potential fans free music in order to boost attendance at their shows. As a matter of fact, music is already free on the Internet anyway. This has already placed these artists in between business models. It is a well-known fact that record labels are rapidly dying if not dead already although the artists as well as the record companies were not prepared for it. The new model should therefore put more power in the artists' hands rather than the CD sales (Reed, 2009). Artists should embrace more the fan-financing model rather than CD sales to remain afloat in these hard times. This is the approach that was used in the last few decades and can work in the current environment (Hamel, 2000). Fan-financing can be a good way to raise money in support of artists, especially with the declining label support. Artists should reach out to their fans and offer incentives as well as other forms of access for them so that they donate money to support the work of their artist (Reichheld, 1996). This model has worked before and can also work now. In the 1970s Cris Williamson used this model in raising money to assist in her album projects. This greatly helped her in stating women's music movement, and later in starting Olivia Records, the first ever women's music label. The fan-financing model is particularly recommended for small artists (Linder and Cantrell, 2000). For instance, an artist who only sells 20,000 or even 30,000 records does not really need a record label. He or she can ask for support from fans in the form of donations or shows. In future, the fans will play a major role in augmenting or completely replacing the role traditionally played by the label. Labels will not be in a position to finance, promote and distribute music albums in the future. This cannot be regarded as giving free money to the artists. It is more of buying of the artists' services. Conclusion The music industry has in experienced a decline in CD sales over the years. This has been attributed to the free digital downloads from file sharing sites. This has left the record companies and the artists in a very difficult situation. The artists are no longer earning much from royalties since the record companies are not selling as much as they once did. This has created the need for the artists and the record companies to seek other alternatives. They both have seen the need to adopt a new business model, different from the traditional one. The artists must now invest in their fans and not their record labels. They must stop over-relying on CD sales and instead build loyalty with their fans. Fan financing is the way forward for the music industry. References Hamel, G (2000) Leading the revolution, Harvard Business School Press, Boston Linder, J and Cantrell, S (2000) Changing Business Models, Accenture Institute for Strategic Change Reed, J (2009) Lighters down, Checkbooks Up, retrieved from www.berkeymusic.com, on April 12, 2009 Reichheld, F (1996) The Loyalty Effect, Harvard Business School Press, Boston Read More