Creating New Business Models for the Music Industry

Creating New Business Models for the Music Industry

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The growing trend for online music downloads is subverting the music industry in more ways than one and unless the music industry gets its act together, they could end up wondering how they lost their business.

Individual Track Singles are Flourishing

For a long time, the business of selling music records was hinged on selling entire CD Albums. Never mind that only one or two songs out of 8 to 10 tacks are the only ones worth listening.  The consumer pays for the entire album.

With digital downloads online, it is clear that singles or individual music tracks are what sells, with iTunes leading the pack with more than 10 billion individual tracks sold ever since it opened its online business in 2004.

The market is now fee to get to the tracks they want without having to suffer paying for an album with other worthless songs.

For seasoned musical celebrities and budding artists, the implication is clear.  There is now greater market pressure for them to sustain the musical creativity that resulted in their hit music tracks with similar high impact tunes while before, then can just create half-thought-out musical compositions to fill in a few more unlistenable tracks just to complete an album set.

Free Music Donation Business Model

The revolutionary business model that both Nine Inch Nails and Radiohead experimented in 2008, if this were copied by all music celebrities, could render the middleman function that music labels do, obsolete. There were two radical changes.

First, both groups had their albums distributed online without the benefit of any of the industry’s major record labels.  It clearly showed that if you know your business, you won’t ever need those record labels, thus, making the middlemen role of these labels redundant and obsolete.

And Second, the two groups distributed their albums as both paid and free music downloads using the donation business model.  Under traditional deals, the record label gets a share of CD album sales whose rack prices range from $9.99 on Amazon online up to a high of $14.99 in brick and mortar record stores.  But without the record labels and record stores cutting into the revenue streams, musicians selling directly online can price their albums a lot cheaper.  But the experiment didn’t stick any price.

Under the donation model, consumers could pay what they believed was the right price for the album they were buying.  In the case of either Radiohead’s “In Rainbows” or Nine Inch Nail’s “Ghosts I-IV” albums, consumers donated an average of $4 per album.  Within a week of its release, “Ghosts I-IV” sold $1.6 million while “In Rainbows sold $6 million.

But the interesting was that nearly a third of the people who bought the albums opted not to donate, which means the albums were downloaded for free.  The advantage to the groups was in amassing a sizable and invaluable mailing list of their fans for their viral marketing campaigns.  This allowed them to sell concert tickets and announced forthcoming albums through direct emails.  As far as they were concerned, it was a win-win situation.

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