Internet and Music Industry - Essay Example

Transformation of Media: How the Internet Affects the Music Industry Summary With the rise of the internet, the music industry is very much affected like many other divisions in the business world. It has become more convenient for the consumers to acquire music by their greatest idols. Musicians, both composers and artists alike, have been empowered and are now more involved in the music supply chain, as well as, in interacting with their fans even in the far reaches of the world. Traditional media retailers on the other hand, may not have has as much luck, most suffering great losses and so have shut down. Record companies have become more aware and ever so persevering in trying to find ways to stay afloat. They try anything from a new marketing strategy or engaging artists to participate to unplugging contracts or, worse, suing fans. In the end, they will all have to learn to go with the flow of technology and invent new ways of adapting to it, instead of trying to bring back the old days. Table of Contents Introduction1 The Consumers.3 The Artists..5 Traditional Media..8 The Recording Companies...12 Conclusion...14 Table of Figures Figure 1. Examples of Online Social Networks2 Figure 2. Online Purchasing Website3 Figure 3. Location of the Embedding Code for a YouTube Video...4 Figure 4. Lily Allen's MySpace Page....6 Figure 5. medianet: The Former MusicNet...8 Figure 6. YouTube's Advertisement Upload Page....10 Figure 7. Shutting Down Tower Records..12 Figure 8. Average Worldwide Digital Media Sales...14 Introduction The music industry is not limited to the artists and the record companies. It also includes the composers, the musicians' representatives, television and radio broadcasting companies, advertising agencies and so much more. It has, for the past 50 years, earned most of its revenues through selling its artists' albums in the form of long play (LP) record albums, cassette tapes, compact discs (CDs) and digital versatile discs (DVDs). Aside from these albums sold in record stores, revenue also comes from music videos played on television, music played over the radio, and, of course, concerts and tours. The music industry is considered to be one of the top industries as far as value and income are concerned.1 In the last few years, however, with the rise of the Internet, the music industry has found new ways to earn money. Record companies began to collect orders online and ship their products to any part of the world which has internet access. And even later, they learned to collect money in exchange for downloadable music. This meant that they needed less money to produce and store their products.2 It also meant faster service for the customers and, therefore, faster influx of cash. The internet became a very good source of income as it has a greater consumer reach, faster response time, and it presented a lot of choices for the consumers.3 But, as with many happy stories, there is a down side to this new technology. The internet also gave way to both small and large scale piracy. It allowed its users to violate intellectual property rights in a snap, that they do not even realize it until much later. The instant connection between people that the internet provided allowed its users to share files, especially music and other multimedia content. The rise of multimedia tools and social networks, such as YouTube, Facebook, Bebo, Friendster, and MySpace, made copyright infringement easier, faster and even harder to control. 39% of social network users embed copyrighted materials into their pages and 79% of them say that these embedded media reflect their personality. In the early part, consumers did not realize that this was a form of piracy and just enjoyed acquiring "free" music. Then after some time, when record companies started to feel the pain of illegal downloads, they started informing the world of how their properties are being stolen even if unintended. Still, illegal downloads have gone up from 36% in 2006 to 43% in 2007.4 The record companies cannot control the rate consumers share media. They now need a new marketing and sales approach. Figure 1. Examples of Online Social Networks5 The Consumers Present day consumers have grown accustomed to the benefits that the internet provides. The internet has made research much faster than having to go the library and search for books. In the same way, fans of the music business no longer have to go to record bars to get the latest albums or buy concert tickets for their favorite band's concerts. They can get everything with the click of a button and their purchases are even delivered to their doorsteps. Figure 2. Online Purchasing Website6 The latest available services from the internet allow users to get hold of their purchases in just a few minutes, if not in an instant. Present day consumers actually prefer this more accessible and time saving method of purchasing music.7,8 Music consumers can now buy music by tracks instead of buying the whole album. They can also buy the official music videos of their favorite artists. They may also opt to not pay for anything. This is illegal, of course, but according to MarketingCharts.com9, 22% of consumers who download have not paid for a single item for the past six months and a good 18% of these consumers know of the possible consequences but don't really care. Customers often use web service providers, such as YouTube, and social networks, such as MySpace, Facebook and Bebo, to browse around, see what they like and then later, maybe, decide to download them.10 It is said that 53% of these customers enjoy browsing around and 30% actually end up purchasing song they enjoyed.11 It is somewhat like the modern way of listening to the radio where the customer enjoys some new song and then later buys some single or album from a nearby record bar. These websites that offer these kinds of services have actually had more "hits" (up to 45%)12 and members because of their music content.13 Figure 3. Location of the Embedding Code for a YouTube Video14 The members of these social networks and streaming content websites have actually become more involved in dictating what the consumers want out of the music business. Facebook has paved the way for its users to petition for a few concerts or television appearances of their favorite artists.15 Consumers also enjoy being "friends" or "fans" of their favorite artists on these social networks. They are updated by the artist's blog, posts and other things. In this way, they tend to feel closer to their idols without actually meeting them in person. The fans are also updated of the artist's plans, be it with new songs, guest appearances, concert tours or even career path changes. The Artists The performers of the music industry have experienced good and bad things from the popularity of music-related internet services as well. When peer-to-peer sharing began and the whole piracy issues popped up, the artists had less income from album sales. Their fans, as much as they adored their idols, found a free way of listening to their idol's music. This prompted some artists to feel negatively towards file sharing but, of course, they can't exactly shoo their fans away or fight with them for illegally downloading their music. Some artists joined anti-piracy campaigns, appealing to the loving side of their fans to help them get rid of piracy. The record companies helped them too, especially because they lost more money. The record companies tried to take drastic action which some artists frowned upon. U.S. record companies tried to sue fans, and actually won, for downloading 24 songs. They were paid hundreds of thousands of dollars for statutory damages and attorney's fees.16 In Canada, the Canadian Music Creators Coalition17, despite wanting reforms for the copyright laws, pleads with the government to do it the "Canadian" way. They say that they do not agree with how the U.S. companies deal with their customers, suing them, and that whenever the record companies try to sue their customers, it shouldn't be done in the artists' names. They have no intentions of suing their fans and they believe that it isn't the right way to go. These artists know that none of the lawsuits will eradicate piracy and that whatever record companies tried to do, it won't become 1995 again where peer-to-peer sharing did not exist. Figure 4. Lily Allen's MySpace Page18 On the brighter side of the internet's effects on musical performers, artists have learned to enjoy being themselves online and connecting with their fans.19 They have learned to make their own accounts in social networks and have used it to even advance their careers. Lily Allen, for example, used her MySpace account, with the help of the record company, to popularize and sell her album.20 This method also paves a way for new artists to gather fans and even sell their music.21 Some have used the pre-order method wherein the artist asks his fans to pay for the album he will create, in advance, so that he can actually have money to create it.22 Artists are now able to move and progress without signing with record companies. They still do, of course, but not for the same reasons as before. In the past, artists needed the record companies to promote their work, help them set up their work, and reproduce their work. Record companies would set up all the deals, from the voice lessons, technical support for recording, to the editing, burning and distribution of discs to record bars. But now, artists can use their own desktop tools to create their own albums.23 They can actually manage because of the lower production and physical overhead costs, as well as the ease in the distribution process.24,25 For this reason, record companies are forced to change how they deal with their talents. As the artists become more hands on, the record companies are just there to fill in the gaps and provide their marketing and advertising expertise. 26,27 Artists are now considered to be more empowered, as they can, at times, determine their percentage in the revenues from digitally sold media. Some artists ask for as much as 25%.28 Artists from the current generation are considered to be more self sufficient. They are in control of their careers.29 The Record Companies The internet technology seems to have had the greatest effect on record companies. They have had to change so many things to adapt to the modern age, like the medium for distribution, supply chain adjustments, artist management, and so much more.30 They have been the most challenged, mentally, to find strategies that will be able to keep them afloat and perhaps, allow them to earn more. Figure 5. medianet: The Former MusicNet31 Some strategies were not as effective as they would have hoped them to be. Selling CDs online may have worked, but only for a bit, before peer-to-peer sharing became popular. Sites like PressPlay, LiquidAudio and MusicNet were launched as the record companies' own form of sales service websites but they did not succeed.32 These sites were not as popular as the "free" sources. Why would the customers opt to buy CDs online when they can get just the tracks they want for free From there, the record companies took many different steps in trying to survive in the music business. Some have succeeded while some continue to fail. In mid 2008, the Universal Music Group (UMG), in collaboration with TouchTone Corporation, attempted a new strategy in selling the artist Beck's new album, Modern Guilt. They used the social networks, like Facebook and MySpace, to announce communal listening parties. These are gatherings wherein the listeners get to sample the new album while meeting other people who idolized their idol as well. The users would find the announcement in the website, text their local information, and receive a message which contains the schedule and location of the listening party in their area. This new campaign strategy was effective not only in preventing the piracy for the short term, but also in gathering more fans for the artist. It also made TouchTone Corporation 45% more popular while the press complemented them on their good strategy.33 The proper use of social networks on the part of record companies could be highly beneficial for them. Rather than opposing the spread of these networks, some companies have learned to capitalize on them.34 Social networks are considered to be a huge business opportunity considering that their growth would mean more members who find more friends online, which would mean that they stay online longer.35 With this idea in tow, it is a good move for record companies to engage themselves with these social networks. In the past few years, YouTube has signed contracts with record companies like Universal Music Group (UMG), Sony BMG Music Entertainment, Warner Music Group and EMI Group, wherein YouTube is given the license to play copyrighted materials from the said companies. In exchange, the companies are paid a portion of what the website earns from paid advertisements.36 This arrangement worked for both YouTube, which didn't have to take down some of its videos that attract a lot of people, and the recording companies, which are compensated for their efforts. Figure 6. YouTube's Advertisement Upload Page37 Soon after, the social networks, such as MySpace, Facebook, and imeem, began to follow suit. The recording companies followed the concept of "monetizing attention" instead of "monetizing wallets". The new concept works on the premise that consumers' wallets have a limit as to how much they are willing to spend for music while brand advertisers will always spend money to advertise their products. They now try to earn from the users' "attention," meaning their visits to the different sites, especially because musical content attracts more users. When more users visit, more advertisers want to post their ads in those websites.38 More recently, however, the Performing Rights Society (PRS for Music) in the U.K. has not reached a new agreement with YouTube. PRS for Music wants a payment increase in exchange for the licenses. YouTube does not agree, saying that they cannot afford the new amount PRS for Music is asking for but PRS for Music insists that their price is fair due to the increase in visitors of YouTube. They believe that more advertisers will approach YouTube and that it would be able to regain its losses in no time.39 Both parties cannot agree on a certain arrangement. Cases like this often result in the disappearance of the videos in question from the website. The same negotiations have failed between YouTube and UMG. UMG has decided to pull its music out and create its own version of YouTube.40 On the other hand, YouTube has granted more benefits to the Warner Music Group. Warner now has a YouTube removal primer, a content ID software that detects and automatically takes down copyright infringing works uploaded by any user. The downside to this new arrangement is that the software is all automated, which means that none of the videos that are taken down are reviewed by humans to check if they are really in violation. Of course, no one would dare counter the Warner Music Group for fear of having to pay for statutory damages and Warner's attorneys' fees.41 Again, more companies willing to sue their customers just to be able to earn more. Traditional Media Figure 7. Shutting Down Tower Records42 Although the recording companies are the most affected with the services provided by the internet, the traditional media retailers, more commonly known as record bars and stores, have suffered the most. Record stores operate like other buy and sell businesses. They buy albums in forms of cassettes, CDs and even DVDs from record companies and sell them at predetermined prices for a few months or years. When the albums don't sell as much anymore, they have to mark down the prices to get people to buy them. Although the predetermined prices may have been computed to compensate for such circumstances, the decline in the world market plus the rapid growth of illegal peer-to-peer sharing took a toll on record store earnings after some time. So much so that in August 2006, Tower Records, one of the largest retail record stores, declared bankruptcy with a loss of more than $210,000,000. A lot of other stores closed down since physical album sales have greatly declined.43 Customers preferred the online method where they could buy albums at a click of a button. Also, it is easier to open and manage an online store as it costs less, especially in terms of manpower and rent. The adherence of people to free yet illegal downloads furthered the retail record companies' situation. This was not always the internet's fault. Back in 2003, there were less than 50 online services available to the whole world with less than a million digital tracks to be sold in less than 10 possible formats. Shipping was not as inexpensive or as quick and online stores earned an estimate of "only" $20M in total.44 As of 2007, these figures have gone up and it has been incredibly impossible for the traditional retail record stored to keep up. After all, who would rather go through store to store looking for a particular artist when you can order from your home, pre-order, even, and also pay with ease Nowadays, there is an estimated song count of over 6 million songs readily available for legal download over more than 500 online services. The online stores now support more than 100 digital formats45 and earn around $2.9B in 2007 and $3.7B in 200846. The U.K. has had a significant increase of digital media traffic and currently has 90% of its music sales in digital form. Other parts of the world are starting to catch up as well with Korea at more than 60%, and Australia at 8%. These figures are bound to go up even higher over time, considering that in 2003, these figures were at almost 0%.47 In 2008, the average traffic worldwide was at 20% and increasing.48 It is truly very hard to ignore the convenience of ease, speed, less storage space and the almost infinite shelf life of a digital product. In a few years time, very few record stores will be operating or they may end up merging with bookstores, coffee shops and other businesses. Figure 8. Average Worldwide Digital Media Sales49 Conclusion The music industry has been greatly affected by the internet and all the services it offers. As some sectors of this industry try to go through violent and counter productive measures to either increase of maintain their revenue, some others have realized the proper approach to such changes: ADAPT. The music industry will not be able to solve its problems against piracy by simply suing fans or revising copyright laws so that they can actually sue fans. Neither will muting videos with copyrighted music or pulling them out of streaming content provider websites. Instead, they should learn to maximize all the tools available to the rest of the world. Ridding the internet of peer-to-peer services would be similar to making air exist in only one continent, it can't be done. The internet brought about a lot of things aside from piracy, good things that may be of great help to any industry if used properly. Connectivity and convenience usually have great costs but the internet made it available to almost anyone at a smaller cost. What more can it provide if it were fully utilized by large scale organizations The steps some companies have taken to let their consumers sample free music are small yet very effective steps. They just have to remember not to be too greedy. There are a lot more innovations out there that have yet to be discovered and fully utilized to help keep the balance between legal and illegal. Piracy will always exist just as evil never really dies. The industry just has to learn to keep ahead of it, not by forcefully trying to eliminate it, but by focusing efforts to minimize it. The music industry is a big business, filled with very intelligent, as well as very creative people. They can definitely find ways to overcome this hurdle and succeed, probably through the use of the internet too. Bibliography Allen, L. 2009, Lily Allen on MySpace Music, MySpace.com, viewed 20 March 2009, http://www.myspace.com/lilymusic. Caldorward4 2007, File: TowerRecords3.jpg, 4 January, Wikipedia.org, viewed 20 March 2009, http://en.wikipedia.org/wiki/File:Tower_Records_3.JPG eiNET 2009, Mymusic - your online music store - great prices & service, eiNET.net, viewed 20 March 2009, http://www.einet.net/review/37207-100149/Mymusic_your_ online_music_store_great_prices_service.htm. Fulgoni, G. 2007, Consumer Trends in Social Networking, 26 October, viewed 20 March 2009, from comScore: http://www.comscore.com/blog/2007/10/consumer_trends_in_ social_netw.html Goad, R., & Moony, T. 2007, Impact of Social Networking in the UK, Hitwise and Experian ClarityBlue, United Kingdom. Graham, G. 2006, The Transformation of the Music Industry Supply Chain: A Major Label Perspective, Manchester, United Kingdom. Hau, L. 2008, Online Music: Free Music, Big Money, March 7, Forbes.com. IFPI 2009, Digital Music Report 2009, The International Federation of the Phonographic Industry, London, United Kingdom. Knowles, J. 2008, Australian Musical Furtures: The New Music Industry, August, Institute for Creative Industries and Innovation, Australia. Krueger, C., Swatman, P. M., & van der Beek, K. 2004, E-Business Models in the Online Music Sector - A Survey of 10 European Countries, Faculty of Informatics, University of Koblenz, Landau, Germany. Leong B. 2007, The Year of the Online Social Networks, 28 June, sgEntrepreneurs, viewed 20 March 2009, http://sgentrepreneurs.com/networks-networking/2007/06/28/ the-year-of-online-social-networks/. Loca Moda Inc. n.d., Universal Music - Mobile Marketing Case Study, Loca Moda Inc., Cambridge, MA McCarthy, C. 2009, YouTube Unplugs Music Videos in the U.K., 9 March, cnet News, CBS Interactive Inc., viewed 20 March 2009, http://news.cnet.com/8301-1023_3-10191783-93.html McSherry, C. 2009, Hey, Warner, Leave Those Kids Alone!, 26 February, Electronic Frontier Foundation, viewed 20 March 2009, http://www.eff.org/deeplinks/2009/02/hey-warner-leave-those-kids-alone. MediaNet Digital 2009, MediaNet Digital - Home, MediaNet Digital, viewed 20 March 2009, http://www.mndigital.com/index.html. Page, S. 2007, Musicians to Industry Groups: "Not in Our Names". 22 October, CMCC Communications, Canadian Music Creators Coalition, viewed 20 March 2009, http://www.musiccreators.ca/wp/p=231. Watershed Publishing 2007, Social Networks Impact Music Downloads; Piracy Growing. August, MC Marketing Charts, viewed 20 March 2009, http://www.marketingcharts.com/ radio/social-networks-impact-music-downloads-piracy-growing-1170/. WebTracker 2006, How to Embed YouTube Video in you MySpace Profile PT1. 17 August, WebTracker: A Glitter Free Blog about MySpace, viewed 20 March 2009, http://web-tracker.blogspot.com/2006/08/how-to-embed-youtube-video-in-your.html YouTube 2009, YouTube - Advertise's Channel, YouTube, viewed 20 March 2009, http://www.youtube.com/advertise. Read More