The proliferation of the portable entertainment devices in 2005 opens a new door in personal entertainment. Quite possibly, this could become the rival to the introduction of the radio in the 1920s, the television set in the 1950s or the personal computer in the 1980s to the mainstream and change in the way the mass populous entertains itself. The current catalyst of this mobile revolution is the introduction of portable rich media audio-video devices.
As consumers become more mobile with every aspect of their lives, those who seek to provide entertainment content need to address consumer-centric needs as opposed to focusing on old-model delivery. This is especially true of the music industry, which has struggled for close to a decade with slumping sales and dwindling profit margins for its product according to yearly Recording Industry of America Association sales numbers as reported by Billboard and other industry sources. Embracing technology is a slow endeavor for the music industry, which fought format changes throughout its short history to begin with.
Adoption and competition
The music industry’s historical relationship with its entertainment counterparts remains tentative at best. Even though music represents the soundtrack for television, feature films and video games, those formats also represent the strongest sales competition. Recorded music gained popularity in popular culture with the advent of the 45 RPM vinyl single in the 1950s and continued to enjoy relatively little competition through the cassette era of the 1980s. However, as the proliferation of other home entertainment, notably the success of Atari’s gaming systems and the video cassette recorder, sales began to level off in that decade. The introduction of the compact disc provided a respite for the music industry as consumers converted their catalogues to the upgraded format, however, increased competition from gaming consoles and the introduction of the digital video disc once again pressured the entertainment industry.
By the time the mid-1990’s settled in, competition from other entertainment resources was accentuated by a new music format platform, the digital music computer file. A slow economy in the late 1990’s helped to stunt music’s growth, but the slow adoption of the consumer’s interest in digital music set the stage for a revolution in the music industry. Copyright and piracy issues helped accentuate the downturn in music sales as the industry struggled to adapt to the changing environment. Much like the slow adoption of compact discs before it, the industry fought a platform change. It was not until non-music companies began offering digital music offerings that the music industry was ready to embrace its destiny in format conversion.
In the short term, the initial conversion to a digital distribution platform for the music industry has proven somewhat successful, and much like the initial impact of compact discs provided a reason for consumers to purchase pre-recorded music in order to convert their catalogues to the new platform. However, much like the equilibrium point existed for compact disc sales between original conversion and continued purchasing habits, the same should exist for digital music. Once catalogues are converted, the boom of usage will plateau. Furthermore, just like with compact discs, as other entertainment options also make similar technological strides their proliferation will eventually deteriorate music’s share of the entertainment market.
Currently, according to numerous industry sources including Neilson media, music represents the dominate share of the online rich media experience and digital download e-commerce. Pure music files, predominately mp3s and compatible formats, enjoy several years of consumer proliferation despite attempts to limit usage due to copyright control concerns. However, with the advent of the video iPod and similar multimedia portable digital devises and the increased interest in portable rich media audio-visual experiences, it is inevitable there will be a balancing of usage and a quicker adoption of new platforms by competing entertainment content providers.
The music industry must acknowledge the potential increased competition and begin a proactive response to it before television, film and gaming companies are able to gain traction in the market place. If it does not embrace the changing entertainment environment, the music industry will most likely again see a decline in sales and subsequently, profits.
Changing Technology and the Music Industry
The industry’s current partner in its current sales turn-around is Apple’s iPod. Apple’s iPod is not the only portable digital music player, but it is the industry benchmark in consumer usage. The iPod is branded and distributed extraordinarily well, and over the last half a decade helped to drive digital audio to a new level with consumers according to RIAA coverage of sales. The iPod’s companion content provider, iTunes, is quickly becoming a savior for the music industry, allowing legal, profitable downloads to consumers and assisting the music industry in creating a digital distribution platform for its product. The latest numbers in 2005 according to the Associated Press, as well as Google’s 2005 Zietgeist, rank iTunes as the number one paid digital download site and among the top three for digital music downloads (which includes peer-to-peer trading). According to the Hollywood Reporter, Apple Computer boasted the biggest gains among the large-brand Web sites, garnering 31 million unique users (ranking it in the top ten), 57% more than the same month a year ago (ranking the increase in the top three), as consumers accessed the site for iTunes downloads and updated iPod information and purchasing options.
In late 2005 Apple introduced the first generation of portable A/V players in the video iPod and although the format is still in its early adoption phase, it is beginning to gain traction. Speculation of the early release of the video iPod is to combat potentially leveling of iPod sales, a slower response of consumers to the iPod Nano unit and projected lower than expected earning for the company in the third quarter of 2005 according to several New York Times articles. However, according to Apple, the video iPod unit is its fastest growing devise in sales and iTunes as a content delivery platform has already sold more than 3 million videos in the second half of 2005 since the A/V format introduction. Consumers currently have access to primarily “rebroadcast” popular television programming, however, as the format continues to gain traction a greater content range will be available. The next generation portable entertainment will likely insight yet another wake-up call for the primarily audio-only music industry.
Pricing Digital Music
The audio-video boom in mobile content will pressure the currently audio-only dominated sales of the music industry. There is potentially a two-fold response to this increased usage of A/V rich media by the music industry to help it remain successful. First, is the adoption of a demand-side pricing scheme for its audio-only content coupled with continued increases in the available content for consumers to compete with pricing and content offerings from alternative entertainment content providers.
Currently, the manufacturer’s suggested retail price for pre-recorded digitally downloaded music is 99cents per individual song download. With little questionable competition and an eager to embrace the digital platform consumer base this proved to be an adequate initial pricing scheme. However, as with most new innovations, the original price of the product rarely remains the end-term price after widespread consumer acceptance and increased competition occur during the product life cycle.
The “big four” record distribution companies (Universal, Sony-Bertlesmann, Warner Music and EMI Group) managed to set the 99cent price as the industry standard with little deviation by retailers. Occasionally, discount non-music retail chains, such as Walmart, offer online downloads for less and the record labels will release songs to retailers at promotional prices to pass along to consumers. This practice of “price fixing” digital music content is under fire by consumer groups and is now the focus of an investigation by the New York Attorney General’s office for collusion and consumer price gouging.
The single price scheme of the record companies actually amounts to a supply-side price control. In a consumer-centric society as what the new media revolution is facilitating demand-side pricing represents a more acceptable standard. Not all music is created equally (artistic valuation and personal opinions aside) and not all demand for music should is represented in the consumers demand for it with a single fixed price. A scalable pricing scheme such as discounted pricing by labels for titles in less demand or certain new releases and greater flexibility on the part of consumer retailers to set individual pricing would allow for a more market driven economy for digital music. This would be more in line with what consumers and retailers are accustomed to both on and offline.
Labels already offer specially priced versions of traditional CD versions of music and brick-and-mortar retailers set their own pricing grids, however a similar system has yet to take root online despite the growth and acceptance of the digital distribution chain.
According to Neilson Media’s Soundscan digital downloads of music have reached an average of over one million a month in usage and $300 million through the first eleven months of 2005, up from $129 million the previous year. Typically, record labels earn up to 70cents on each consumer dollar spent, which covers the costs of creating the copyrighted media, marketing it, facilitating the distribution and oversight of the copyright control as well as providing a profit margin for the label explained a New York Times probe. The RIAA estimates digital downloads make up more than 10% of the music sold in North America and the percentage is project to continue increasing in the coming years.
The pricing of music as a digital download stood the early test of consumer acceptance, due in part to a lack of digital media competition. With the advent of television programming increased competition should also affect the current pricing scheme. Currently, television programming is available for a fee of between $1.99 and $2.99 per title and the popularity of shows such a Desperate Housewives is allowing the networks to market the new format en-masse. Although portable digital video is still in its infancy with early adopters leading the primary usage, the proliferation will continue. If history stands to repeat itself as DVDs impacted CD sales, digital video should also impact the digital audio base.
Suppose a consumer only has $10 to purchase digital media with. Under the current pricing they can afford 10 audio-only digital downloads. If each song is about three and a half minutes long (the average pop song’s length), that works out to about 35 minutes of music. Whereas, the same $10 will purchase between three and five episodes of the consumer’s favorite television show. Even if its only buys three episodes at 22 minutes a piece (a half hour program, minus the commercial content), that still works out to 66 minutes of visual media. Although most consumers will not be prone to doing the math, simple economics shows the value a multi-media experience in relative pricing. Why spend $10 and get only a few songs when you can spend the same $10 to get something more stimulating.
Couple this with film industry’s interest in digital distribution as a potential platform and the potential $3.99 to $5.99 suggested pricing for full-length feature film downloads and the 99cent per song pricing looks even less inviting to the average consumer. It is only a matter of time before technology allows for the portability and download-ability of film to be functional as a digital media distribution competitor.
The gaming industry already has the technology for its products to be mobile in handheld gaming devises. Add in the ability for players to interact online, ever increasing connection speeds and the computer industry’s ability to web-host programming and that could again spell trouble for music company’s seeking to retain their current pricing model. If gamers could suddenly take the magic of xBox or Playstation with them using internet technology through either digitally downloaded versions of their games or opt-in remote gaming (similar to what Microsoft is attempting to do with its web-interfaced versions of MS Office products) and music could suffer an even greater competitive disadvantage with its current pricing model and audio only experience.
New Technology’s promise
There is one opportunity the music industry can potentially embrace to compete on the multimedia level and brand its artists as aural-visual rather than strictly musicians. After all art and music have been on a quintessential convergence for quite some time, this could be a catalyst for the consumer experience. The music video offers both the audio consumers are accustomed to as the music industry’s primary product and the visual medium that would allow music to compete more broadly with other entertainment options.
In its first incarnation, the music video was a promotional tool to help drive sales for the audio only versions of music, primarily CDs. The video represents a large investment for artists and the music business model to help drive sales. Successful videos can drive substantial sales for an artist and are therefore considered to be an integral part of the process for marketing an artist to the masses. The videos themselves are not profit generators because they are not products, however their production costs can be very expensive in trying to drive sales. Furthermore, the budgets for videos not only include the production end, they also involve promotion and marketing costs for placement in the appropriate channels. Finally, because of the promotional nature of the video, it has a relatively short shelf life on music video television or via online distribution and other usage channels.
Previous attempts at marketing the video as a product have failed in the music industry in part because of a lack of consumer demand and in part because of improper execution by the industry to cultivate the potential of the sales base. The digital distribution platform represents a fertile ground for experimentation and possible success with the video’s acceptance as a product.
Presently, the online distribution of videos is free on either an artist or record labels website or via a third party distributor such as an entertainment news site or online networking community like launch.com, aol.com or purevolume.com. Many videos however are not available for download to the consumer in acceptable media forms for home storage or portable use.
By making videos downloadable to consumers portable devises early in this new medium they would help establish a customer base for future consumption and build a new income stream. This works multifold for the labels and the artists. First, it makes them competitive in a multimedia format rather than competing solely as an audio medium with other entertainment providers. Second, it takes what was a solely promotional medium with no income stream and turns it into a potential income stream and recoupable profit maker rather than a loss-mechanism on the balance sheet under marketing. Finally it allows the industry to broaden its own scope and re-offer previously unavailable videos as consumer products for a first time profit, both in the vein of live-output and studio-conceived footage as well as providing a platform for all future A/V footage to become profitable.
For the consumer, this new conception of music would begin to take hold at currently conceived audio price-offerings as an add-in bonus for audio consumption of mp3 thus driving mp3 sales initially and helping establish an appreciation for music video on portable devises. This applies not only to recently released videos but also helps drive more mature users back to music as older, more nostalgic videos, are made available for consumption. Furthermore, the access to live footage (even if it isn’t always live audio) of both current and classic artists would help consumers embrace artists further as audio-visual experiences, thus potentially driving ticket sales to live performances and furthering hard copy music DVD sales.
Videos would not supplant the mp3 as the primary music experience for the consumer nor as the primary vehicle for the record label for profits but would augment both in a very modern thinking way. For the consumer, it would initially mean they would have a visual representation to carry with them, thus equating music to all other entertainment mediums in versatility. For record company’s it represents the first time videos are immediately profitable and allows for deeper, more striking representations of their product, the artists.
The advent of music as a premier digital media right now lies in the hands of ingenious industry named “pirates” who forced the entertainment industry into the digital age. The music industry is at the forefront of a cataclysmic junction, it can either seek to not only embrace the digital world but forge fully into a multimedia digital existence or possible find itself struggling for more than just profit margins in the integrated multimedia society ahead, it could be struggling for its own existence alongside multimedia providers smarter than to license music for film, television, games and commercials but rather commission the works and then remarket them along the newly created channels as it stands necessary for their consumer base.
Videos, in conjunction with a new pricing scheme for the ever changing digital media platform could represent a resonance for the struggling music industry and help take record companies from the dinosaur age past their entertainment cohorts into the leading edge of the new millennium’s entertainment platform. That is, if the executives who have sought to stifle change can now embrace it.