Business

Models in the Music Industry

Eurosonic Noorderslag
January 14th, 2011

Business models in the

music industry?

Value creation?

Firms that record,

produce, publish,
distribute, and market
music.

Fans that listen to (or

experience) music.

How does the music

industry create,
deliver and capture
value?

What different
business models do
exist in the music
industry?

Business
Model?

Business
Models?

Denition_Business Model

A business model describes

the rationale of how an
organization creates, delivers
and captures value

Self Published

www.businessmodelgeneration.com

14 translations
70.000 sold copies

THE
BUSINESS MODEL

CANVAS

1. CUSTOMER SEGMENTS

2. VALUE PROPOSITION

3. CHANNELS

4. CUSTOMER RELATIONSHIPS

5. REVENUE STREAMS

6. KEY RESOURCES

7. KEY ACTIVITIES

8. KEY PARTNERS

9. COST STRUCTURE

Key
Activities!

Value
Proposition!

Client
Relationship!

Key
Partners!

Cost
Structure!

Client
segments!

Key
Resources!

Channels!

Revenue
Streams!

PARTNER
NETWORK

KEY
ACTIVITIES

KEY
RESOURCES

COST STRUCTURE

OFFER

CUSTOMER
RELATIONSHIPS

DISTRIBUTION
CHANNELS

REVENUE STREAMS

CUSTOMER
SEGMENTS

The
The
Music
Industry
Industry

A dynamic market
a global industry
characterized by
many players and
erce competition

A product or service
with a mass-market
potential

The role of music in peoples lives

Music is something most people love,

that no one dislikes and that touches
everyone throughout their lives

BrandAmp study, Millward Brown, 2007

A global industry

Something for
everyone

The creative genius

Lots of good advisors

Enough players

Technology
advancements

Declining sales

Global music sales

Global music sales
(physical and digital)
excluding VAT
1997: 38 billion USD
2009: 17 billion USD

Business models in the

music industry

A record company

The big 4

Independent labels

1 main activity

The business model of

a record company

PARTNER
NETWORK

KEY
ACTIVITIES

OFFER

CUSTOMER
RELATIONSHIPS

CUSTOMER
SEGMENTS

Marke:ng &
promo:on
Distribu:on
channels

Detec:ng &
building talent

Manufacturers

Mass market

Hits and
wannabee hits

KEY
RESOURCES

DISTRIBUTION
CHANNELS

Por@olio of star
ar:sts

TV

Retailers

Copyrighted
content

Radio

Digital

COST STRUCTURE
Marke:ng &
promo:on

Subsidizing
unsuccessful
ar:sts

REVENUE STREAMS
Royalty
payments

Tours and
concerts

Huge sales
from a few
ar:sts albums

Merchandising

Piracy

The dominating
phenomenon

The big discussion

The business model of

piracy

PARTNER
NETWORK

KEY
ACTIVITIES

OFFER

CUSTOMER
RELATIONSHIPS

CUSTOMER
SEGMENTS

Upload
Developers of
illegal
applica:ons
and soGware

A network of
commiLed
users

Peer-to-peer
Download

All the worlds

music

KEY
RESOURCES

DISTRIBUTION
CHANNELS

User skills,
interest and
commitment

Digital

COST STRUCTURE

REVENUE STREAMS

Mass market

iTunes

Rock and Roll will

never die. It is,
however, being
reborn.

A new, successful
business model

Very successful

1 billion songs sold: February 23, 2006

1.5 billion songs sold: September 12, 2006
2 billion songs sold: January 10, 2007
2.5 billion songs sold: April 9, 2007
3 billion songs sold: July 31, 2007

Steve Jobs announced in his

"It's Showtime" keynote
that Apple had
88% of the legal
U.S. music download market
on September 12, 2006

The business model of

iTunes

PARTNER
NETWORK

KEY
ACTIVITIES

Record labels

Hardware/
soGware
design
Marke:ng &
Sales

OFFER

iTunes
soGware

Supply chain
management

Seamless music
experience and
great design
(music and
hardware)

Mass market

Switching costs
DISTRIBUTION
CHANNELS

iPod
hardware

iTunes
store

Content &
agreements
Talented
Apple brand
people
(designers)
COST STRUCTURE

Apple
stores

Retail
stores

apple.com

People, design
& development
Music royal:es

CUSTOMER
SEGMENTS

Lovemark

KEY
RESOURCES

OEMs

CUSTOMER
RELATIONSHIPS

Marke:ng &
Sales
Hardware
manufacturing

REVENUE STREAMS
High-volume
content
revenue

High-margin
hardware
revenue

Spotify

We are going to
provide music to everyone
(any time, any place)
for free
in a legal way

Our dream is to collect all the

worlds music and make it
accessible to everyone.

Spotify aggregates content

from right holders, distributes it
to consumers through the
technical platform and
monetizes both through a free,
ad funded service, and a
subscription service.

The business model of

Spotify

The Business Model of Spotify

PARTNER
NETWORK

KEY
ACTIVITIES

OFFER

Pla@orm
development
and
maintenance

CUSTOMER
RELATIONSHIPS
Automated
online
rela:onship

Adver:sing

Rightholders
(labels and
publishers)

3rd party APIs

KEY
RESOURCES
Licensing
agreements
Pla@orm and
brand

Access to
music via
streaming and
download
services

SoGware and
network
engineers

Communi:es

DISTRIBUTION
CHANNELS
Internet +
PC

Global music
fans

REVENUE STREAMS
Bandwith costs

Salaries

Adver:sers

Internet +
mobile

COST STRUCTURE
Royal:es to
rightholders

CUSTOMER
SEGMENTS

Ad fees
Subscrip:on
fees PC

Subscrip:on
fees PC +
mobile

The artist

I just want to sing and

perform.

Crowd-funding paves
the way for the
independent artist

 40.000
11 days

 24.000

promotion

The business model of

Hind

PARTNER
NETWORK
Musicians &
Songwriters

KEY
ACTIVITIES
Songwri:ng

OFFER

Singing &
performing

Producers
Promo:on

Artwork &
Studios

KEY
RESOURCES
The Brand Hind

Tech & tour

team
Band

Music archive

Music fans

Videos
(performance)

Concerts

Brand
experience

DISTRIBUTION
CHANNELS
Radio/TV

Online
pla@orms

Hind.com

Events

COST STRUCTURE
Investment
concerts,
transporta:on

REVENUE STREAMS
IT, website and
marke:ng

Salaries

CUSTOMER
SEGMENTS

(Social) media

Music

CD produc:on
& distribu:on

Management

CUSTOMER
RELATIONSHIPS

Concerts

Merchandising
Music sales

Looking back at some

major shifts in the
music industry

A fragmented
copyright industry
made it impossible to
set up legal,
sustainable business
models.

The gap of legitimate

business models for
customers paved the
way for the rise of
piracy.

The unbundling of the

album killed signicant
revenue streams
impacting the whole
music industry.

Looking at some
current shifts in the
music industry

Legislation around
piracy

Music distribution

Shift from ownership

to access

Technology capacity

Customer in charge

What do customers
want (tomorrow)?

The Big Challenge in

Business Modeling

Who is my customer?

What does he or she wants?

What is he or she willing to pay for?

Dierent needs

Market split-up

Multi-party scene
serving customers
needs

More questions?

www.businessmodelsinc.com

www.businessmodelgeneration.com