WHERE IS THE MUSIC INDUSTRY HEADED?

I generally will not post blog entries that are editorials, but since this is the beginning of the New Year, I thought I would share some observations about the music business.

1. Is the long tail theory dead? Chris Anderson's much touted long tail theory has come under much scrutiny lately as marketing experts decry that there is no evidence that the Internet is causing a surge in sales from unknown, unsigned artists. MY theory is more about the belly bulge—the fact that it seems there is a middle class of musicians developing. Whereas there used to be signed artists (who were stars and rode in limos) and local musicians (who played in bars and drove broken down vans), and nothing in between, we now have a developing middle class of musicians who make a decent living. It remains to be seen whether this is in fact what is occurring, but the Internet does level the playing field and gives local musicians the opportunities to advance on their own. My book Web Marketing for the Music Business can help musicians move up to the next level in their careers.

2. Is there any life left in the CD format? My opinion—yes and no. Its days as the dominant format are numbered. Last year, CD sales dropped nearly 20% while digital sales were up 27%. One of the main advantages CDs have had over digital downloads is the absence of copy-protection, so consumers are free to transfer the music to any device they want. This advantage is ending very soon, as most download services, including iTunes, are moving to DRM-free tracks (that's digital rights management, or copy protection). Jupiter Research predicts that offline physical formats will only have 40% of the music market share by 2013, with digital formats making up 41%. So, if you are a musician, should you quit making CDs to sell? No, they are still important to sell at live performances. But you might want to consider going to a different medium for your physical product. Look at thumb drives or memory cards. The price has gone down, you can duplicate your music on them at home, if you don't sell them, you can use them again, and there is less waste and pollution than with optical discs. If you do this, and sell them at gigs, get some lanyards so purchasers can wear them around their neck. That might interest others into buying also—it's a viral effect.

3. Are music subscription services dead? No, just struggling. These services have not taken off as expected because consumers are used to owning, not renting music. There is concern that these files, which are taking up space on users' hard drives, will become useless when the subscription expires. The salvation will come with subscription, streaming-based services to mobile devices—Where the TIVO and the iPod merge. Consumers may be more likely to engage in a monthly subscription package if it is bundled with their cell phone service. Did you know that there are over 3.3 billion cell phones in service globally? Many more phones than computers! If the phone companies were to charge a universal service fee for subscription music service, the recorded music industry could expect income of 30 billion US$ annually (about the same as in 2007) by charging every cell customer a fee of…ten dollars a year! At $1 per month, the industry could see an increase in income to $36 billion annually just from subscription fees. WHAT ARE WE WAITING FOR?

4. 2009 could be the "year of cloud computing." If 2007 was the year of the widget and 2008 was the year of the mobile 3G handset, then this year could belong to cloud computing—that means storing your files "up in the cloud" on a server rather than on your desktop computer. More people are moving their photo collections online, along with their other assets such as email and videos. Music is perhaps the last holdout, mainly because of complex licensing restrictions. MP3 tried to do this after they were sued for file sharing. Their idea was to allow consumers to store their personal music collections on the MP3 site so they could access them from anywhere. Good idea, but the timing was not right. As consumers start to depend more on mobile handsets for information, cloud computing becomes more important. Check out what Amazon is doing with its new S3 (simple storage service) site. http://aws.amazon.com/s3/. This sticky wicket is all the legal posturing over who gets what share of the financial pie. That bickering will probably delay the onset of a music business renaissance.

5. So how sick or healthy is the recorded music industry? It is in a painful transitional state right now. The structure of the industry is geared around physical product delivered to retail stores. Much of the promotion around "records" deals with retail and motivating consumers to "purchase" their music. The future belongs to a model that is more likely to resemble the business model that television shows have always depended on: consumers may or may not purchase copies of television shows, but revenue is generated from other sources such as advertising or subscription fees…much like CBS and Showtime. Under this new model, payment is made based upon popularity of the show, or in our case, the song. So that the more people there are listening/watching, the more advertising revenue is generated or more royalty payments from subscription fees. Under this model, marketing is all about consumption, not purchase...in other words, the ads will ask consumers to "listen" to their product rather than "buy" it.So that's my story and I'm sticking to it. At least until some unforeseen force throws yet another monkey wrench into the gears.

Check out Web Marketing for the Music Business