The FINAL Blog: Future of The Business

The conglomerates that run the music industry have two options; further embrace technology, realizing that tangibles will become obsolete and creating newer innovative business models. Or lose their artists to the creative use of the Internet and mislay the savvy consumers who utilize newfound ways to illegally or legally download music. In the past five months the music industry has changed rapidly, and in the next five years everything will be altered. Every week there is a new announcement from a label, a merging of efforts, “thoughts on music”, or a buy out of some sort. This is due to the fact that the Industry, as we know it, is in big trouble.

Trouble does not mean that there isn’t hope for a brighter future in the music business. Take the 1984 rental acts for example. In 1984 the movie business feared its complete destruction and fall out due to the new technology of ADR and the “Rental Acts” passed, enabling consumers to rent movies and watch them in the convenience of their home. In the midst of the woe and fury, the film community had no idea that the rental acts would save their business; and it did, forging a whole new market within the scope of selling movies.

If the record Labels quickly partner with diversified businesses that engage in more relevant ways of connecting the Internet-user-world to the main stream music world, they can find untouched revenue streams and make up for losses of CD sales. This seems to be the trend with the labels, as they have been considering the inevitable decline of their CD business. They have felt the pressure of removing DRM protection and making their copyrighted material more readily available to the demanding consumer. It all depends on when they will act upon that pressure.

There are many more creative means of production and the record companies have not touch into them yet. They need to change their mind set, focus and means of operation in order to obtain newfound revenue streams and capture larger audiences.

Steve jobs might have created the biggest waves in music history with a little ripple called the iPod. There have been various MP3 players introduced to marketplace, however Steve Jobs and Apple figured out that aesthetics alongside a user friendly design -sell. They have designed their MP3 (iPod) so well it has virtually monopolized the market of digital MP3 devices- forever changing the way people listen to music. The top rated sellers are the Toshiba Gegabeat, Apple Ipod “fifth generation”, Zen Vision, and Microsoft’s Zune. (http://reviews.cnet.com/4323-6532_7-6509081.html?tag=dir), but overall no one can compete with Jobs.

The future marketplace might behold “newer” music-only MP3s, but it seems with the onset of the MP3cell phone, in the next five years that colors and new spoofy devices will not be needed. MP3 music only technology will be outdated and “MP3 player-phones” will rule the market share. Apple is already prepared to launch its iPhone. The iPhone combines three products the cell phone, iPod, and personal Internet device/ desktop. (apple.com) Verizon has its “Chocolate”- and every celluar competitior will have its own version of a phone/MP3. The “Chocolate” and other versions from Samsung have been rated low on the Consumer Report, but bottom line the technology and practicality of listening on demand is here. It is here on the phone – so why would any consumer want two devices? The future is moblie, mobile, moblie.

Once a luxury is introduced and embraced by consumers it is hard to revert back or change the interests of the market. Expectations are created and people want what they like- they will drive the market through demand. It seems as if an all-inclusive MP3- phone is the future of mobile music.

Online Music stores have replaced Tower, Wherehouse and Virgin Megastores. Online music stores will continue to put tangible retailers out of business until they are extinct. If music is digital, consumers need a store wherein they can browse and buy digitally. The Apple iTune Store is steadfast number one retailer with access to 65,000 free podcasts, 20,000 audio books, 200 TV shows, movies and much more. (http://www.apple.com/itunes/store/) Microsoft has its own way of downloads and focuses on a sharing community of music listeners. However its interface isn’t as user friendly, and easy as itunes layout. (http://www.zune.net/en-US/meetzune/) Zune sales display that lack of interest.

Emusic is second largest online retailer in the market and ranks first for independent music material. Emusic downloads are compatible with both the iPod, and any other MP3 player. (Just as itunes, and other sites may be in a few months, with the “off-set" of DRM).
Emusic has over 2 million songs, which sell for 33 cents per song. Their emphasis is catching the independent listener on a subcription-based service that allows consumers to own music at an extremely lower fee. Emusic is unique in the way they help the labels increase a sales of non-mainstream niche music. (www.emusic.com) This model is very successful and could be a way of the next two years.

There are so many more online music stores. Snocap for example allows artist to sell his or her own music via digital social networking sites like Myspace. (www.snocap.com) Burn lounge (http://burnlounge.com/default/index.htm) is another smaller retailer that tries to earn sales for participating artists at a low price. However the problem is iTunes represents a hundred pound gorilla and is extremely hard to beat.

The future might mean free music and never having to pay for music. Thus the online retailers will disseminate or have to morph into free web sources--once again have to find newer revenue streams. If there is a savvy Internet user who can crack a code to make music free, then online protection will never work. When there is a will there is a way. Singles will drive sells, unless labels and retailers can decrease the pricing on albums and a trend is started in buying albums rather than singles. This would be better for the artist in return too.

Starbucks is a peculiar retailer potentially a big player in the future. Starbucks is launching their own label and “Starbucks shoppers were responsible for one-third of the CD sales -- more than any other retailer.” (http://www.businessweek.com/magazine/content/04_47/b3909094_mz017.htm) If Starbucks uploads a web page and provides the ability to download in store, they are golden. The store on 3rd St. in Santa Monica is very successful in satisfying customers with a coffee/tea and a unique musical experience.

This online and in store experience hilights the attention to video demand. “Video on Demand (VoD) is an interactive multimedia system that works like cable Television, the difference being that the customer can select a movie from a large video database. Individual customers in an area are able to watch different programmers when they wish to, making the system a realization of the video rental shop brought into the home”. (http://www.doc.ic.ac.uk/~nd/surprise_95/journal/vol4/shr/report.html)

One can already watch videos on their iPod, phones, aiplanes, cars, etc. In five years people will be able to watch video and movies anywhere and everywhere they choose. The record labels might want to take note that streaming music videos could bring “My MTV” generation back to market. Everybody likes good videos- look at the recent success of YouTube and viral video websites. People want and love to make and watch videos, even more so than TV. Isn’t there money and opportunity to be made there? Videos will be a hobby for everybody in the future.

The band Ozomatli was progressively innovative in allowing their fans to participate and create their professional video. They awarded a fan the opportunity to become a director- Brilliant! This is the future, bringing artist and fans together via video. Look at the success of American Idol, consumers like to establish relationships with stars and watch them perform. If consumers can watch videos: music, news, and movies in their cars, airplanes, train, and automobiles- they will- so Labels and film companies should make them readily available.

A good reference is the gas stations; notice how we already watching the news at the gas station to divert our attention from the guzzling penny eating machines. The question is how much money will the labels or the artist make money form videos? It all depends on content. “Content is king”. (Jerry Colliano) If the industry can provide a demand for unique and previously unavailable content – then they can spur a demand and a cash flow.

Where does that content and demand come from? Guaranteed the next five years will be solely based on live performance, and the ability to stream everything to the consumer on their phones; the future of live content and interaction via social networks is key for musicians, labels and consumers. If labels can tap into the social networks, provide ways for musicians to tour and connect with their audience they will make money. Either from selling merchandise, taking a cut from booking fees or ticket sales dividing the revenue with the service providers.

Labels will act like managers and take a percentage cut of an artist’s total net gross income. We already see a trend of this happening. Warner just last week aligned itself and acquired Frontline Management. (coolofer.com) There are many more speculations of who will merge next. Warner was smart because they will now be able to keep capitol within their company and receive a percentage cut from musicians’ total inclusive revenue.

In the next five years live performance will be so important. Content will be created to transfer, artist-fans relationships will be created, and the world will seek live entertainment. People are bound to spend their money somewhere- they always have. People want to be entertained- once again they always have.

If television is becomes obsolete and music singles are free – audiences will need to receive content that will give them an inspirational and unique experience. Technology is numbing us- people are human and need to connect outside of the Internet walls. The Internet is not real life; and the "need" to reach outside “the box” will eventually arise. Humans are not computers, we are moved by emotions, and do not operate in numbers. Live music will allow us to feel alive and remain filled with emotions. The music industry needs to relax about money and revert to their attention to “meaningful content” and a “baby boomer generation” mentality. Music is the number one global connector. It reveals a generations mindset, depicts the time and much more- music is important. Make good, meaningful content and consumers will want it.

Video games also are a growing market, capturing a young and aging generation. Games do not spurn our emotions they way music does, but can allow an unique interaction. Consumers can be thrown into a virtual world, movie-like realm and experience sensations thought patterns, and develop skills through video games. Music labels should continue to make and create more deals with game makers. Emi is in the forefront making their catalogue available to Electronic Arts (for the game: Rock Band) and furthering a musical generation on video games.

There are so many changes that in five months the business will not be the same. There will probably be two majors left in the end of three years, solely because they own catalogues and publishing. Wal- Mart says that it will remove its CD section and replace it with iPod accessories. DRM free music is “suppose” to triple online sales, but who knows? Most likely music will be free and money will be made in other untouched areas.

The industry is “at risk of collapsing under its own weight." The industry must “reinvent the discovery process and take advantage of the smaller networks that already exist around the country. Online and wireless is changing how labels find and promote artists”, and the world of music will never be the same. (coolfer.com)