Disintermediation in music industry
Recently, I read some very interesting articles and researches about the impact of information technology on the business structure of music industries. These readings focused on the impact of new ways to distribute music online on the profitability and business structure of record labels like Warner Brothers and Sony. The amount of options to listen to music online for free (or a low price) have increased substantially over the last years. Both the possibilities to stream music via applications like Spotify and Napster and to download music via piracy have an impact on the traditional business structure. (Clemons et al., 2002)
Large record labels have to deal with a loss in revenues due to these online options. The new opportunities to distribute and promote music, enable artists to record their own music more easily and to share it with the world. The traditional activities and investments of record labels (recording, promoting, etc.) declined in value. This can be seen as a form of disintermediation: the less expensive ways of producing and promoting music make artists and small record labels independent from the large players in the field. (Waldfogel, 2012)
Large record labels responded to the new situation in different ways; some labels sued the online companies, while others tried to cooperate with them. (Clemons et al., 2002)
Figure 1. ‘How it was for a very long time’
Despite the decline of album releases from large record labels, there has been an overall increase in music releases from 2000 onwards. This can be explained by the possibilities of producing and promoting music in a cheap and easy way, creating opportunities for small record labels and artists themselves. Since music reaches the audience more easily, consumers get the chance to explore more types of music. (Waldfogel, 2012)
In his article ‘Strategy and the Internet’, Porter stated that the traditional activities remain highly important and internet could expand the opportunities for them. (Porter, 2002)
What do you think? Will the large record labels find a way to make profit from the new situation? If so, how should they do that? I am very curious to read your ideas on this topic.
Clemons, E.K., Gu, B., Reiner Lang, K. (2003) Newly Vulnerable Markets in an Age of Pure Information Products: An Analysis of Online Music and Online News. Journal of Management Information Systems. 19 (3), 17-41.
Figure 1. Oatmeal [Cartoon] At: http://www.noisemademedoit.com/2012/08/page/11/ (Accessed on 14.09.15)
Porter, M.E. (2001) Strategy and the Internet. Harvard Business Review: 1-20.
Waldfogel, J. (2012) And the Bands Played On: Digital Disintermediation and the Quality of New Recorded Music. University of Minnesota and NBER.