If your business model stops making money, change your business model. It is a simple rule of business. We are seeing such changes happen currently in the music industry. For several reasons, artists and record labels are not selling records. According to the International Federation of the Phonographic Industry, total revenue from U.S. music sales and licensing plunged from $14.6 Billion in 1999 to $6.3 Billion in 2009 (ifpi.org). The decline in physical and digital music sales has had several drastic effects on the music industry including layoffs, consolidation, and downsizing amongst major music companies. However, another major effect of the industry decline is a change in the way music is consumed. Recently, we have seen a global rise in cloud-based music subscription services. Soon, these services will become the primary platform for music consumption, surpassing physical and digital retail sale.
Currently, digital sales are the primary way of music consumption. In 2008, Apple announced that its iTunes Store it had surpassed Wal-Mart as the number one music retailer in the U.S. Since 2008, iTunes has continued to dominate as the leading music seller. According to the National Purchase Diary Group’s 2010 press release, Walmart and Amazon tie for second behind iTunes (NPD.com). The business model of these retailers is very simple; they sell music in a basic retail model. With the current poor economic climate and rampant music piracy, these basic retail models are declining.
Cloud-based music services are a new business model that has entered the market. These services have a large collection of music stored online in a “cloud”. Subscribers can pull music out of the cloud and onto their desktops or mobile devices. One of the aspects of the cloud-based services that is different than the traditional retail model is that subscribers would have access to the entire cloud of music, as opposed to a single song or album. Another main difference is the subscription. Shoppers at the iTunes store or Walmart can purchase any quantity of music and pay for that respective amount. Cloud-based services usually charge a monthly subscription fee that gives the user access to the full cloud. Users would have access to their personal library and the entire cloud library from any device that has Internet connection.
Currently, there are a few free cloud-based services that exist in the market in the US. For example, Grooveshark is a site that allows users to stream music from the cloud online. The service is free and makes revenue from advertisements on the side of the streaming interface. Other sites like Rhapsody charge a small monthly fee for PC use and offer a steeper fee for additional mobile access. Spotify is a UK-based service that has yet to hit the US. The site has three versions: free, $6.91 USD PC-only version, and a $13.83 PC and mobile access version. The site has created a massive buzz, including an “A-” review from Billboard Magazine (billboard.com). However, sites like Spotify have been held back from release in the US because of licensing disputes with record labels and publishing companies. Many publishers believe that the services should pay extra licensing fees for music in the cloud.
Subscription cloud services have potential to become the primary platform of music consumption. For a small monthly fee, users have access to an enormous music catalog that can be pulled up instantly from their PC or mobile device. Mobile cloud services could potentially replace mp3 players and iPods because they will give users access to the full cloud from their phone. These services definitely pose a threat to traditional retail markets like iTunes and Amazon. In the near future, we will likely see these services surpassing retail as the primary method of music consumption.
Graham, Lee. “Amazon Ties Walmart as Second-Ranked U.S. Music Retailer, Behind Industry-Leader ITunes.” NPD.com. The NPD Group, 26 May 2010. Web. 09 Feb. 2011. <http://www.npd.com/press/releases/press_100526.html>.
Graham, Lee. “The NPD Group: Amazon Ties Walmart as Second-Ranked U.S. Music Retailer, Behind Industry-Leader ITunes.” NPD.com. The NPD Group, 26 May 2010. Web. 09 Feb. 2011. <http://www.npd.com/press/releases/press_100526.html>.
“IFPI Publishes Recording Industry in Numbers 2010.” IFPI. 28 Apr. 2010. Web. 09 Feb. 2011. <http://www.ifpi.org/content/section_news/20100428.html>.
Neumayr, Tom, and Jason Roth. “ITunes Store Top Music Retailer in the US.” Apple.com. Apple, 3 Apr. 2008. Web. 09 Feb. 2011. <http://www.apple.com/pr/library/2008/04/03itunes.html>.
Peoples, Glenn. “Is Spotify Really All That?” Billboard.com. Billboard, 29 Oct. 2010. Web. 10 Feb. 2011. <http://www.billboard.com/news/is-spotify-really-all-that-1004124889.story#/news/is-spotify-really-all-that-1004124889.story>.