Disruptive technology amplified

I’ve posted on here before about the changing dynamics of the music industry. This interview with marketing guru and bigtime blogger Seth Godin highlights a raft of substantial and probably irreversible shifts that continue to bewilder the big record labels (See also his rearticulation of these ideas on his blog).

Godin has a neat take on the changes too:

This is the greatest moment in the history of music if your dream is to distribute as much music as possible to as many people as possible, or if your goal is to make it as easy as possible to become heard as a musician. There’s never been a time like this before. So if your focus is on music, it’s great. If your focus is on the industry part and the limos, the advances, the lawyers, polycarbonate and vinyl, it’s horrible.

Music disruptive technology iPod beats CDLet’s put this into the language of strategic management ..

Disruptive technologies (internet, low-cost recording and dissemination of audio and increasingly video, filesharing) have diminished considerably (if not almost absolutely) the power of previously dominant players in the field. This includes not only the record labels but also radio, MTV and their cohort channels, bricks and mortar retailers, and producers of CD players and CDs.

Massive shifts in distribution channels away from many of the aforementioned mechanisms. Indeed we have seen almost a polarisation whereby there a few huge-scale outlets for buying digital recordings (i.e. iTunes, Amazon) and small ranges available in large scale retailers (WalMart, Target etc), and then an enormously lengthy tail for buying digital, CD or even vinyl, often directly from the artists, from indie labels or well-conceived aggregators (like CD Baby). And, of course, a huge proportion of the product is exchanged for free through filesharing.

These two phenomena have indeed changed the world of music as we know it. This is a fascinating case of disruptive technology, as it remains very unclear which businesses have gained from this huge shift in the nature of the value chain. You could argue that Apple has through its i-empire, but I’d hazard a guess that their revenue gain does not outweigh the losses of income to the record labels etc. Similarly, it does not look like the innovators (i.e. those responsible for MP3s, file-sharing protocols etc) have reaped much in return.

moroccan-musos-djamaa-el-fnaAs Godin indicates, it would seem it is the musicians who hold much of the power now. The major barrier to entry of olden days – a major label recording deal – has fallen.

The marketing requirements have shifted considerably, with much less uniformity in the approach taken. Mainstream music has faded from our culture as smaller and smaller niches open up as viable and vibrant communities of interest.

It is unclear that major record labels have any competitive advantage at all in such domains. Indeed their credibility is highly questionable, and, with integrity and uniqueness so highly valued, their patronage may well be a burden for new acts. Indeed it appears possible to build a substantial following without a label or indeed much pay-to-listen product (as exemplified by the case of Aussie outfit Short Stack or US singer Corey Smith).

Musicians face considerable diversity of possible revenue streams, many of which are not subject to extreme bargaining power (merchandise, live performances, personal CD sales (i.e. at performances/appearances)), or offer considerable returns for limited effort (licensing of songs to video games, movies, advertisements). Increasingly there is little need to utilise the record label to tap these streams. I’ll finish with another quote from Godin which should remind artists where the gold may lie:

The idea that you could have a micro-market of 250, 500, 1,000 copies of a CD every night is a totally different way of thinking about what you do for a living, rather than making one album a year marketed with payola and promotion that reaches a certain group of people and ignores everybody else.


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4 Responses to “Disruptive technology amplified”

  1. 50 done… « One Album a Day Says:

    [...] a much better music blog idea. And it triggered me to think about the music biz more generally (and blog about it on my other [...]

  2. Unrelenting Tedium Says:

    There is a lot of talk of how musicians are able to market more directly and in a more viral fashion but a few aspects I think are overlooked. This new model works fabulously if you had a reputation from the pre-revolution, and particularly a slightly alterna one. Radiohead, Wilco and Nine Inch Nails are the big examples where they were able to excite an existing large fan base by giving away theor music for free, or for whatever you want to pay, or in its component parts so you could remix it yourself.
    If anything the free publicity expanded their fan base and the loyal fans, out to prove what big fans they were, often bought the hard copy anyway.

    So to my next point. It is more the breaking down of a controlled market. Diamonds are a good example where they would be worthless if their was not a controlled release of them on to the market. So too music used to be controlled by the record companies but now has been rendered nigh on free by your disruptive technology.

    The upshot of this is indeed much more widespread production of music and much more direct channels for artists to reach their audience…the bit that people don’t mention is that there is a great deal less money going around and it is much much harder to make a career as a musician. Now I am not talking about the big name acts who make money no matter what or the modern exceptions like the Arctic Monkeys who have used viral methods to great effect, but your standard australian festival staples. Bands who formerly really only sold records in australia in modest numbers could have made a modest living from their music. This is no longer the case.

    So you have hugely expanded the number of hobby musicians and greatly reduced the number of people who could earn a living from music.

    I am not saying this is wrong or bad but I am tired of every music industry analyst banging on about how great it is for artists that they can no go direct to their market…what about artists who formerly didn’t tour and relied on record sales for income? Record companies have rightly tanked because they were too dumb to adapt and musicians are not necesarily any better off. There is now less cash to go around because someone flooded the market with diamonds.

  3. Andre Sammartino Says:

    I agree that the revenue streams do seem to have dried up considerably as a result of this shift.

    Put simply, recorded music is now basically a free good… and might be conceived as only a tool for promoting other physical goods or experience goods.

    Musicians must seek to control these revenue streams (whether it be t-shirts, live shows, ringtones or whatever). I would be intrigued to know whether it is the “middle tier” of musos who have suffered more here…

  4. Unrelenting Tedium Says:

    Further to this there is still the need for a record company function, or more specfically an A&R man function. I remember in the late 90s Clive James saying that their was way too much on the web and a new role for a trusted advisor would appear. A person who would filter and recommend high quality, or at least in tune with your taste, stuff. I thought he was right at the time but we were both wrong and google filled the vacuum. It searches everything (or claims to) and therefore takes you to what you want…however there is no such effective mechanism for the new explosion of music.

    The Artist and Repertoire man was vital for finding new acts and promoting good ones above the others via record contracts. To an extent the likes of pitchfork.com does this but reviewers are terribly untrustworthy because there is no consistency. When reviewing the latest Bob Dylan record should a reviewer have an ecyclopedic knowledge of Dylan or should this be the first album they have ever heard? etc etc

    Anyway…it is off topic…but this glut of music is almost impossible to sift through…it was always there but now there is less of a mechanism sorting the wheat from the chaff…and the A&R man used to do that.

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