Digital Disruption in the Music Industry


Digital Disruption within the Music Industry: A Case Study of the Importance of Change

By Aaron Wu


Change is something we learn to adapt to whether we like it or not. Yet for businesses, change is not just inevitable, but a test which determines their longevity. The evolution of the music industry in an era of music streaming is a prime example of how established business models and practices will in some shape or form be disrupted by change. Who could have imagined the monumental impact to the way we access, experience and listen to music that the digital era would create? Yet by doing so, what valuable lessons does the evolution of the music industry hold for businesses and students alike?

Redefining everything we knew

Before digitally distributing music was possible, the music industry operated as an oligopoly dominated by BMG, Sony, Warner, EMI and Universal Music Group. Through significant investments and economies of scale within the production, marketing and distribution of music, these so called “big five” labels made it difficult for independent artists to compete. Forcing artists to sign unfavourable contractual agreements if they ever hoped of being successful.

But then came the internet, and with it, a redistribution of power back to the artist. What value would artists see in utilizing the distribution networks that labels spent significant time and money investing in if they could distribute directly to the consumer through the internet? Why would an artist need media placements within radio and TV; a key selling point of joining a label, if social media achieves the same thing to an even wider audience for free?

“We didn’t have a choice we wanted to make music” - In 2007 Radiohead ended their contract with label EMI and self-distributed their album “In Rainbows” digitally to earn more revenue than all their other albums

Yet more importantly, the digitalisation of music paved the way for the Streaming services we know and love today: Spotify, Apple Music, Pandora, and with it, new innovative ways for consumers to interact and experience music:

·       Personalised Service: Spotify helps users find music suited for their specific taste through its Discovery Weekly playlist and its two-hour individually curated playlist of new songs. Spotify achieves this by taking advantage of technological advancements in AI algorithms and machine learning, capable of analysing more than just the genre but even the chords, vocal styles and pitch preferences of a user’s streaming history.

·       Subscription Based pricing: In a digital era where consumers expect music to be free, Spotify offers consumers a freemium tier which gives users free access to over 35 million songs and its many features such as its curated playlists. Yet by promoting features such as offline downloads, higher music fidelity and the removal of ads, Spotify has been able to successfully convert users to its monthly subscription model.

Consequently, labels have learnt to co-exist with streaming services who now hold the key to their primary revenue source. Yet as Spotify begins beta testing a feature that will allow artists to upload songs directly to its platform.  Labels may see their traditional role as an intermediary between artist and distribution platform obsolete and with it, royalties from artists.

The oligopoly position of the major labels, now termed the big “three" is on the decline while independent labels are on the rise.

Those that did persevere did so by readapting their business models to a new digital era. For Sony Music, this meant realigning their strategic positioning to become more service-oriented. Focusing on their core competency of offering mentoring expertise to artists and communicating the soft skills and assets they bring to the equation.

"We’ve had to recognise that to get to continue to have a place in the ecosystem of music…we’ve needed to look and take a good long hard look at ourselves and kind of evolve" - Vice President of Strategy at Sony Music Fred Bolza

An exciting time for Independent Artists:

With access to affordable production software, online music expertise and the ability to distribute and promote music through social media sites, the music industry has become more accessible than ever.

Born in Indonesia, Rich Brian taught himself how to speak English listening to Hip Hop on Youtube. Now, with over 125 mil views on his debut single “Dat Stick” and as the first Indonesian-Chinese rapper to hit #1 on iTunes, Rich Brian demonstrates how in this digital age every consumer is now a potential artist and all that is required is a passion

Yet greater accessibility isn’t all great news. By creating a now heavily saturated market, new artists must now, more than ever, focus on innovating and differentiating themselves if they hope to stand out. Nowadays, this means not only creating music but also marketing your unique image as a product, mainly achieved through social media: answering questions, posting stories, live-streaming their daily lives to finding creative ways to make their songs viral.

Neither has a career in Music exactly become more lucrative. Considering it takes over 380 000 listens on Spotify to make the US monthly minimum wage of $1472. Artists see streaming as a means of exposure and look to other methods for financial stability: touring, merchandising, product sponsorships.

The length of a song has steadily decreased by over 30 seconds over the last decade, a reflection of the streaming era whereby shorter songs incentivises repeat listens and increase the likelihood of listening to more of the album
The next wave

The world is changing at a rapid pace, and while both major labels and upcoming artists have been able to overcome their greatest hurdle yet, they must remain vigilant as to what the future of music holds…

Virtual reality concerts:

With a price of just $10 for a full gig, Startup company MelodyVR is utilizing the 360 motion capabilities of VR technology to offer consumers a more affordable alternative to seeing artists live, yet also cater to a lucrative market of fans who are otherwise restricted by geographical or physical barriers. Other companies such as TheWaveVR are striving to transcend the traditional medium by taking advantage of VR specific capabilities, such as the virtual environment changing procedurally in real-time in response to user behaviour.

Artificial intelligence generated music:

With over 2 million views on YouTube, Sony’s AI system Flow Machines imitated the style of the Beatles to produce the song “Daddy’s Car”, which at times sounds indistinguishable from a human creator. This raises major implications of the possibility of AI taking over an artist’s job similar to how automation has affected other industries.

Why Should I Care?

The evolution of the music industry serves as a cautionary tale to businesses; that adaptability is the greatest skill one can have in a time where disruptive innovations are certain. As for students: learn to embrace change, seek to be proactive and anticipate the future, rather than waiting to merely ride the next wave.

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