Rise And Fall Of Traditional Forms Of Music Retail - Essay Example

number 28 December The 21st Century has witnessed a decline in traditional forms of music retail. Why has this happened, and what are the consequences for record companies, artists and customers? Name Instructors name Course number 28 December 2014 The 21st Century has Witnessed a Decline in Traditional Forms of Music Retail. Why has This Happened, and What Are the Consequences for Record Companies, Artists and Customers? Music industry, as we know it, finds itself in deep crisis these days. Traditional forms of music retail show constant dip in sales every year; and this trend has started to unfold quite a long time ago. On the one hand, the noughties have witnessed a dramatic downfall in traditional market sales but, on the other hand, so-called digital music sales have been boosting market share for 15 years in row and there are no signs of any stark slowing down in this business segment. The digitization of music, technological development and booming e-commerce sector have opened a window of opportunities for some music industry players and issued the challenge of unprecedented structural crisis for the others. My goal in this paper is to identify the winners and losers of a drastic decline in traditional forms of music retail, analyze the reasons that stand behind such a decline, as well as its consequences, and find the roots of innovative ideas that have changed the face of music industry in the 21st century. I have organized the paper into three sections, two of which have sub-sections. In the first section I elaborate on the strategic prerequisites for growth and decline in the traditional forms of music retail by making a brief retrospective journey into the history of music industry. In this section I also discuss the scope of economical and structural crisis that the music industry started to suffer with the advent of new technologies and rapid development of the Internet. In the second section I provide an account of the major events and innovative ideas that have launched the digital revolution and landed a punch of a knockdown blow onto the recording industry. I end my paper with a third section that pays particular attention to the consequences of decline in traditional forms and rise of new forms of music retail for recording companies, music artists and customers. RISE AND FALL OF TRADITIONAL FORMS OF MUSIC RETAIL The Golden Age of Record Labels. The 20th century was an era of dynamic growth for music industry. The emergence of brand new and extremely popular music trends, such as blues, jazz and rock n roll, contributed greatly to the development of innovations that facilitated access to music. Back in the old days the music industry evolved by leaps and bounds ranging from the invention of commercial radio broadcasting in the first half of the 20th century to the adoption of further revolutionary innovations, such as recorded music on portable media like vinyl records, cassettes and CDs in the second half of the foregone century.1 The introduction of the recorded music to the market and development of successful system of distribution chains combined with a powerful promotion made recording companies (known as record labels because each vinyl record of a musician or music band used to have a label of a company that recorded and produced a particular album or single) a front-line player of the music industry. Major record labels started to take over the top market share headhunting for the most talented musicians in their prime and placing bands and singers like Charley Patton, Chet Baker, Billie Holiday, Jefferson Airplane, The Beatles, The Doors and many more on a pedestal of world-wide fame. Once a recorded music industry emerged, recording companies have quickly become key intermediaries between musicians and consumers. Over the past years the situation in music industry has changed dramatically. But back in the 20th century record labels signed, developed, recorded, promoted and sold music. Successful records of famous music bands and singers sold millions of copies and earned great deal of money for the record companies.2 The paradigm of success for both record labels and musicians was not too complicated. A record label offered music artists a recording contract that gave the label an exclusive right to market the recorded music with a royalty fee paid to musicians for every sold record under the existent copyright laws. Major labels like well-known pioneers of the recording industry, such as EMI or Decca Records, often created their own value chain. In other words, they developed a system of production, distribution and promotion of music by moving records from plants to their own retail shops.3 Thus, music artists and consumers were curtained off by recording companies, distributors and retail stores. Step by step major record labels turned into huge corporations that contained a variety of recording companies with hundreds of prominent music artists signed to them. There were times when these corporate monsters, such as the EMI Group, Universal, Bertelsmann AG, Time-Warner Major and Sony, controlled up to 80 percent of the world market share of sales in music industry. Record labels have been a mandatory stop for every music artist on the way to world fame and wealth (as well as the shortest way of a musician to mass audience) for decades. Not everybody was satisfied though. Recording companies often tried to do their best to fit a record into the mainstream and restricted creative latitude of music artists in order to meet market needs. Sarcastic attitude of music bands towards their record labels found its way in songs. A Pink Floyd song Have a Cigar was a bright illustration of such an irony showing that many musicians did not like it the way it was between them and record labels. The story of Arctic Monkeys, a popular English rock band that rejected every major record label agent approaching to them after yet another successful gig, shows how deep the existential and aesthetic inconsistencies can get between those who create music and those who fund it. The band eventually signed to an independent record label that they believed could give them more space for artistic freedom; their debut album, released by that independent label, became the fastest-selling debut album in the chart history of the UK. Independent recording companies like A&M Records, Sun Records, Rough Trade, DFA Records, Domino or Ninja Tune, often established by musicians or music producers, managed to gain commercial success and play important role in the development of different music genres (along with opening the door to many talents like Elvis Presley, Jerry Lee Lewis, Johnny Cash, The Smiths or The Police). The coinage of such music genre as indie rock, for instance, owes its existence to the phenomena of independent recording companies. Nevertheless, major record labels have always skimmed the cream off by signing the best music artists and earning excess profit. Nevertheless, the times when major labels were sitting on a goldmine in solitude did not mean to last forever and eventually came to an end. The biggest total revenue of the music industry from physical record music sales reached the sum of 28.6 billion of US dollars in 1999.4 But it was the last year of excess profit for major record labels before they entered the deepest structural crisis in the history of music industry. Structural Crisis of Recording Companies and Constant Decline in Music Sales. Since 1999 the domination of major record labels, as well as other apologists of the traditional forms of music retail, started to melt as snow in spring. It was a year of unexpected drop in the demand for music recorded on CDs. Consumers stopped buying CDs the same way they had once given up on cassettes. The slump in demand for CDs translated into huge economic loss for recording companies all over the world. The steady dip in sales caused a landslide of prices and dramatic decline in production of CDs, as well as a tumble in stock market prices of shares of all major record labels. Total revenue from music sales in the USA, for instance, glided to 6.3 billion dollars in 2009.5 In other words, during ten years the sales cut in more than a half. The same situation was in the UK and the rest of Europe. And it was not the global economic recession, which started in 2008, that triggered earnings hiccup in the world-wide music industry. The reasons for the downfall were the same as the reasons that once stood behind the dynamic development of recording companies and rise of their profits. It was revolutionary innovations and advent of new technologies that once again turned everything upside down in the music industry. In 2010 a vice president of research at RIAA (Recording Industry Association of America), Joshua Friedlander, took stock of the economical and structural crisis that recording companies plunged into and said: There have been a lot of changes over the past 10 years, which nobody expected. The industry is adapting to consumers demands of how they listen to music, when and where, and weve had some growing pains in terms of monetizing those changes. The industry is actively doing a lot of things that are putting us back on the right path. Were switching to an access model from a purchase model.6 David Goldberg, the former head of Yahoo Music, is less optimistic as to the prospects of recording companies and music industry at large in the age of glitz and gloss of the Internet: The digital music business has been a war of attrition that nobody seems to be winning. The CD is still disappearing, and nothing is replacing it in entirety as a revenue generator.7 Although digital music sales have been growing over the past years and recording companies seem to have got out of groggy trying to embrace new technologies and monetize digital commodities, this growth can hardly compensate the losses that major record labels have gone through due to a CD market meltdown. In 2008 iTunes, Apples digital music store, gained the lead in digital music sales and earned more than anybody in the music industry. But it only happened because other key players of the music industry continued fighting a steady decline in traditional forms of music retail. It took iTunes Store three years to sell the first billion of digital songs, ten months to sell the second billion of digital tracks, seven months to sell the third billion and only four months to sell the fourth billion of tracks. But it took iTunes half a year to sell the sixth billion of digital songs in the second half of 2008, when the digital sales at iTunes witnessed a considerable slowing down for the first time since the opening of iTunes Store for digital music sales in the World Wide Web. Apple Inc., which is the biggest seller of digital music in the world at this point, experiences a considerable decline in sales via iTunes Store nowadays. In the first half of 2014 the decline in digital music sales at iTunes Store reached 14 percent. These figures are much lower than the Apples budgeted indicators of digital music sales for 2014. It is much worse as compared to the previous year. At this moment the digital music sales have split into two categories, namely, downloads and a paid streaming of digital tracks online. The former shows slow, but persistent, decline: the revenue from downloads dropped by more than two percent in 2013.8 At the same time, the paid-for streaming of digital tracks online is becoming more popular among consumers day by day, although the pace of its growth is not faster than the decline in download sales. One of the reasons why many people gave up on shopping digital downloads at iTunes Store might be the incompatibility of the iTunes platform with FLAC, a high-definition audio format that can compress audio files with no loss in quality. The thing is a consumer has to install a special FLAC application to be able to listen to music in FLAC format via Apple gadgets, which is quite inconvenient. It seems like everything changes so fast that music industry just fails to keep up with the challenges of time legging behind the development of technologies in the 21st century. DIGITAL REVOLUTION AND A NEW FACE OF MUSIC INDUSTRY Innovative Ideas that Turned Everything Upside Down. The face of music industry has been changed almost beyond recognition over the past 15 years. The advent of revolutionary technologies, such as the Internet, MP3 audio format, Napster file sharing service, iTunes Music Store and Cloud data, has fostered a brand new generation of consumers. These consumers have adopted new shopping habits and built up new relationships with music that are hardly compatible with the outdated forms of music retail, which used to work just fine some 15 or 20 years ago. Consumers tend to perceive music as a digital commodity and rarely listen to music on CDs these days. The relentless logic of gradual shifting from CDs to digital music changes the way music is being sold and consumed. The decline in traditional forms of music retail has been steady since 1999, which is the same year when Napster was created. The invention of the Internet and introduction of MP3 (an audio format, which compresses digital files to the size that is easy to transfer via the Internet and convenient to store in a computer or other similar gadgets) were the first steadfast steps towards ruining of traditional business models in music industry. The emergence of Napster has made this process irreversible by reaching the point of no return. In just a few months Napsters website, which offered a free file sharing service available online, got more than 65 million of users, thus having introduced a revolutionary change of the way people got access to music.9 Napster confronted the intellectual property concept itself and made music industry enter a brand new era with extraordinary challenges. Major record labels immediately realized how big the scale of menace was for the traditional business models in the music industry and consolidated their efforts to fight it. By the end of 1999 the biggest recording companies like Universal, Warner, Sony and EMI launched lawsuits against Napster for digital piracy and copyright infringement. Clay Shirky, an American writer and consultant on the social and economic effects of Internet technologies, noted: The economics of the Internet are pressing with irresistible force not just against business models that treat music as intellectual property but against the legal structure of intellectual property itself. The big question is not whether Napster will win or lose on appeal. It is whether the current legal structure regarding copyright will hold.10 In 2003 Napster lost the aforementioned lawsuits and was shut down. But it was impossible to shut down the digital revolution and turn back time. The first powerful corporation to have accepted this simple fact was Apple Inc. It became a pioneer in music industry having embraced a new business model and trying to monetize the circulation of digital commodities, which music has turned into. Apple created a digital music shop called iTunes Store, where everybody could buy licensed songs of favorite bands, one by one, for just 99 cents. Recently Apple has started offering its customers another way of paid access to digital music based on the technology of Cloud data. On purchasing a ten-dollars worth subscription for streaming of music and video, a consumer gets unlimited access to enormous storage of licensed digital music, which he/she can listen to online (with no opportunity to download). Today streaming brings Apple more money than download sales. Copyright Issues that New Technologies Bring. Despite Apples offer of cheap licensed music, the black market of free illegal digital music is thriving nowadays and has already occupied a huge market share in music industry. Although Napster has been long shut down, the problem of free file sharing that infringes copyright law is not solved to date. Digital piracy and uncontrollable online access to music based on peer-to-peer (P2P) file sharing technology has become the biggest challenge for music industry today. P2P is a software program that gives users an opportunity to download digital files absolutely free of charge from computer to computer being connected to each other via the Internet. Thus, digital distributors of music suffer huge economical losses, but there is almost nothing they can do about this situation. Currently France is the only country in Europe where P2P file sharing technology is prohibited by law. According to the alarming findings of Entertainment Media Research, more than 43 percent of respondents in Great Britain use P2P file sharing networks to download and listen to music for free instead of buying it. The data of NPD Group shows that more than 19 percent of population in the USA also downloads music for free via P2P file sharing networks. And the share of those who prefer to use free P2P networks to get access to music is constantly growing all over the world. According to NPD data as of 2006, the share of those who pay for music in the USA became less than the share of those who get it for free: in 2006 more than 5 billion of songs were downloaded for free via P2P networks in the USA alone.11 While it took iTunes Store more than 5 years to sell 5 billion of licensed songs. According to the findings of British Music Rights as of 2007, more than a half of musical content downloaded into Walkmans by British youths (from 14 to 24 years old) was not bought. Obviously, musical piracy is not taken seriously by youths in the UK. Nowadays young people do not perceive digital piracy as something immoral. WINNERS AND LOSERS OF DIGITAL REVOLUTION IN MUSIC INDUSTRY A decline in traditional forms of music retail launched by the advent of new technologies more than 15 years ago took all participants of the world-wide music industry by surprise. The same happened when the technologies, which gave an opportunity to record music, first came on stage. Back in the 20th century recording companies were quick on the uptake and managed to monetize the invention. In the 21st century the revolutionary ideas, such as the Internet, MP3 audio format and P2P file sharing networks, made recording companies go out of depth. By the beginning of the so-called digital revolution major record labels gained almost total control over the music industry and became reluctant to introduce any positive changes in the industry having failed to be up to the challenge of time. Instead of keeping up with new progressive trends, major record labels launched lawsuits against those who dared to pick up the innovations and started to use them. The majority of powerful recording companies have chosen to do their best to prevent new technologies, which are ruining traditional business models, from infiltrating in the modern life. Instead of accepting the challenge, many recording companies tried hard to turn back the course of history. This strategy came at a price. To the contrary, customers all over the world did not resist innovations and quickly learned how to benefit from them. This evident clash of interests between those who used to sell music and those who used to buy music led to amusing consequences. Customers got things for free they once used to pay for, just because recording companies had proved to be unable to monetize the use of innovations in the music industry. Music artists got more room for experimentation and creative latitude, as well as considerably shorter way to the public. With the development of high-definition compressed audio formats and flourishing of P2P networks music artists can sell their songs omitting major record labels, but not everybody has learned how to make money out of it. Some musicians and music acts still prefer to rely on major record labels to produce and distribute their music, while others are trying to find the ways to use new opportunities and monetize the biggest source of digital piracy today (P2P networks). Although many music artists worldwide strongly discourage their fans from using P2P file sharing, some universally acknowledged music acts, such as Radiohead and Arcade Fire, publicly support this trend and try to build up their commercial strategy having taken P2P file sharing technology into account as it is extremely convenient in use. In September 2014 Thom Yorke, a front man of Radiohead, released his solo studio album, titled as Tomorrows Modern Boxes, via BitTorrent, which is a paid P2P file sharing service. The album got more than a million of paid-for downloads in six days since its release. Later on this year, in December, Thom Yorke placed this very album on Bandcamp, which is the online music shop, where users can get free streaming of licensed digital music but have to pay for downloads. This album release is an epitome of how to capture the market share, where digital piracy seems to have not rivals. CONCLUSION The development of the Internet, adoption of compressed audio formats like MP3 and introduction of file sharing technologies sent the music industry into deep crisis and gave a strong impulse to digital piracy. The digital revolution has launched the shifting from physical music sales to unlimited circulation of digital music commodities, which is hard to monetize. At the same time the aforementioned innovations gave musicians more artistic freedom and a shortcut to the audience. Works Cited Goldman, David. Musics Lost Decade: Sales Cut in Half. CNN Money, 3 Feb. 2010. Web. 28 Dec. 2014. Karp, Hannah. "Apple iTunes Sees Big Drop in Music Sales." Wall Street Journal. WSJ Technology, 24 Oct. 2014. Web. 28 Dec. 2014. Klein, Allison. "How Record Labels Work." HowStuffWorks. InfoSpace LLC, 25 May 2003. Web. 28 Dec. 2014. Passman, Donald. All You Need to Know About the Music Business. New York: Free Press, 2009. Print. Shirky, Clay. "Where Napster Is Taking the Publishing World." Harvard Business Review 79. 2 (2001): 143-148. Print. Tschmuck, Peter. "How Creative Are the Creative Industries? A Case of the Music Industry." The Journal of Arts Management, Law, and Society 2003: 33 (2), 127–141. Print. Read More