BUSINESS OF MUSIC

LECTURE - WEEK 4
 Last Week

• We examined the business model of the publishing industry

• We examined the business model of the record industry
• We discovered that the creators of songs and recordings are actually
expenses of the publishing and recording industries respectively – not
their greatest assets!!
 This Week

• We consider the structure of the recorded music business and consider

the key principles or pillars of the industry.
• We will look at how those principles have remained the same since the
start of the industry.
• But then we’ll show how those application of those principles has
evolved.
• It will be an example of the evolution of an industry in the digital age,
but also of the adage “the more things change, the more they stay
the same”
Significance of Recording

• We have looked at live performance – the instant gratification of

playing in front of an audience
• But a musician cannot play in front of every audience all the time
• Fans and the musicians themselves want some kind of record or
copy of the performance of music to satisfy their need for music
when there are no musicians/audiences around.
• The history of recordings goes back to the invention of the
phonograph, and believe it or not some of those rules still apply.
 Changing Nature of Recordings

• The recording industry has always been about hardware and software.
• We have progressed the delivery of music from phonograph records, to vinyl, to 8
tracks, to cassettes and to CDʼs – all formats, really quite different to the previous
one
• These were all formats that were married to a means of playing them.
• Each time a new format was created, new hardware went with it, and the promise of
new and better reproduction and other advantages.
Changing Nature of Recordings

• For the recording industry each new format bought about a boost in sales
because the music buyer felt the need to re-purchase an ever increasing
catalogue of their favorite music.
• Album for home, cassette for the car, then CD for mobility.
Changing Nature of Recording

• The core of this industry is of course “COPYRIGHT” – the

ability to copy and reproduce the sound recordings that
people want to hear – something we have already
discussed
Essence of the Recording and Distribution Business

1. Making a recording.

2. Reproducing that recording.

3. Advertising and marketing that recording.

4. Distributing the reproductions of recordings.

 Recording Then

• Recording was once an expensive

and time consuming process
requiring expensive equipment

• Recording needed specialist

knowledge and skill

• Recording was something that artists

aspired to rather than did as a
matter of course
 Recording Now

• Recording is now an inexpensive

and quick process
• The skills to make a recording are
easily acquired
• Recording is now an early step in the
creative evolution of an artist or
band, rather than a long term
aspiration.
 Reproduction Then

• Capital intensive factories and

facilities were required to
manufacture records, cassettes or
CD’s
• Extensive storage facilities were
required for hard manufactured items
• There was extensive wastage of
imperfect stock.
 Reproduction Now

• Manufacturing processes are no

longer needed
• Digital copies can be made
instantaneously
• Infinite numbers of reproductions
can be made with no marginal
cost per unit
 Advertising/Marketing Then

§ Marketing was largely limited to paid

advertising in magazines/radio/other
media
§ Promotional staff were needed
involving wages and expenses.
§ The reach of such marketing was
limited by territorial limitations and
budgets
§ The cost per impression was very high
and rarely generated return on
investment.
 Advertising/Marketing Now

• There are now multitudes of effective

means of advertising, many of which are
free or low cost.
• These include social media, user-generated
content and other media that has the
capacity to expanding virally.
• These means of marketing can be highly
targeted to receptive audiences
• This results in a low cost per impression if
used effectively
 Distribution Then

§ Physical stock could only be distributed

by slow and expensive means.
§ Unwanted stock needed to be stored in
warehouses and required multi-handling
§ There were many layers of middlemen
involved in distribution, each of whom
required to be paid for their services and
infrastructure.
 Distribution Now

• Now an infinite number of digital

“copies” can be infinitely distributed
instantaneously and efficiently
• There is no wasted stock on shelves
or in warehouses
• There are no layers of middlemen
needing to be paid
 Summary

• Clearly there have been massive changes in recording,

manufacturing, marketing and distribution of sound recordings.
• The complete nature of the recorded music industry has changed
from manufacturing and logistics to digital.
• Marketing remains essential – but the way marketing is done has
changed.
• The essence of connecting creators of music still remains, but the
ways it is done have evolved enormously.
 Impacts of the Evolution

• The changing nature of those four aspects of the recording industry has
lowered the barriers to entry in the recorded music business.
• Now anyone can participate in the business of recorded music by recording,
reproducing, marketing and distributing recordings.
• ”Anyone” could be artists operating completely independently to kitchen-
table labels to multi-national corporations.
• The only difference now is that the cost structures for all these operatives in
significantly lower.
• As we mentioned on Week 3 this has led to a situation where recorded music is
abundant.
 Impacts of the Evolution

• This has led to a number of observable phenomena.

• It has meant that niche products that would otherwise have not been
available on the world market and now easily accessible, as the costs of
creating such products is now much lower relative to the potential
market for those products.
• This has led to the suggestion of the concept called The Long Tail.
The Long Tail (Chris Anderson)

• Chris Anderson, who first identified the idea of the Long Tail,
describes how diminishing storage and distribution costs create
a business environment where it is profitable to sell a very small
number of specialised products to a wide range of people with
diversified taste preferences.
• Anderson wasn’t only referring to the recorded music industry,
but it certainly applies to this industry.
 The Long Tail

The head is what is popular – but long tail theory suggests that this is artificial and
is a product of poor supply offerings caused by high costs of distribution.
 The Long Tail

• This is a new economy – all of these tiny sales in the tail are combining to
create an economy as big as the head. This inverts the 80/20 Rule of “hits”
The Long Tail - Music

• Anderson found that a typical bricks-and-mortar music retailer

(in this case Wal-Mart) carries approximately 39,000 different
titles. In contrast, the online music retailer Rhapsody offers
almost 20 times as many with 735,000 different titles. Study was
conducted in 2004. Current online music services offer up to 50
million titles.
 The Long Tail (Chris Anderson)

• The possibility to digitise information goods like music, movies or books

drastically decreases storage and distribution costs.
• In the previous non-digital economy a music retailer needed to calculate
shelf rents. Therefore, one item needed to be sold a specific number of times
if it was to be worth carrying.
• If a particular CD sells only one copy per year, and the rent for the shelf
space is higher than the revenue earned, it is simply not worth stocking that
CD.
• Now, shelf space is unlimited – and so there is an unlimited amount of stock
available at any given time – and it can keep being added indefinitely
 The Long Tail (Chris Anderson)

• Some believe that the Long Tail is overstated.

• Elberse (2008) found that 10% of all songs available on Rhapsody in
2008 accounted for 78% of total plays. Hence, the shape of the Long
Tail seems to be much thinner and longer than suggested by
Anderson.
• The head of the distribution curve, representing hits and stars, seems
to remain thick and short, indicating that most people still enjoy a
common culture in form of popular music.
• Recently its been noted that an extremely high number of tracks on
streaming platforms actually generate no streams at all – meaning
they are not contributing to the Long Tail at all.
 The Long Tail (Chris Anderson)

• In 2012 Bruce Springsteen gave a keynote at SXSW and he identified some of

the genres represented at that years festival.
• How many of you are consumers of a few of these genres?
 Springsteen at SXSW

• “There are so many sub–genres and fashions, two–tone, acid rock, alternative
dance, alternative metal, alternative rock, art punk, art rock, avant garde
metal, black metal, black and death metal, Christian metal, heavy metal, funk
metal, bland metal, medieval metal, indie metal, melodic death metal,
melodic black metal, metal core, hard core, electronic hard core, folk punk,
folk rock, pop punk, Brit pop, grunge, sad core, surf music, psychedelic rock,
punk rock, hip hop, rap rock, rap metal, Nintendo core, huh?
• I just want to know what a Nintendo core is, myself. But rock noir, shock rock,
skate punk, noise core, noise pop, noise rock, pagan rock, paisley
underground, indy pop, indy rock, heartland rock, roots rock, samba rock,
screamo–emo, shoegazing stoner rock, swamp pop, synth pop, rock against
communism, garage rock, blues rock, death and roll, lo–fi, jangle pop, folk
music. Just add neo– and post– to everything I said, and mention them all
again. Yeah, and rock & roll”.